MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Annual Report
December 31, 1998
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
For the quarter ended December 31, 1998, Merrill Lynch Pacific Fund,
Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +19.99%, +19.62%, +19.57% and +19.86%, respectively,
underperforming the +27.31% total return for the unmanaged Benchmark
Index of Pacific Basin stock markets. This underperformance largely
reflects the Fund's underweighting in the smaller Asian stock
markets, which rallied appreciably during the period. Our Japanese
investments also hindered the Fund's performance during the December
quarter, since they underperformed the Japanese stock market as a
whole. In addition, the Fund's yen-denominated investments were
largely hedged back into US dollars, so the Fund did not benefit
from the yen's appreciation relative to the dollar. We discuss the
impact of Japanese currency movements on the Fund in the section
"Japanese Currency Outlook" in this letter to shareholders.
Although the Fund underperformed relative to the Benchmark Index
during the December quarter, it outperformed the Index for the
fiscal year ended December 31, 1998. For the fiscal year ended
December 31, 1998, the Fund's Class A, Class B, Class C and Class D
Shares had total returns of +8.46%, +7.29%, +7.26% and +8.14%,
respectively, compared to a +4.05% return for the Benchmark Index.
The Fund's outperformance relative to the Index is primarily
attributable to stock selection, with our investments outperforming
their respective stock markets for the fiscal year as a whole. In
addition, our strategy of hedging the Fund's investments back to the
US dollar benefited performance during the first part of the fiscal
year. (Fund results shown 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--6 of this report to shareholders.)
Japanese Currency Outlook
Most of the Fund's Japanese holdings are in export-oriented stocks--
such as Murata Manufacturing Co., Ltd., Rohm Company, Ltd., Canon,
Inc. and Bridgestone Corporation--which are sensitive to currency
movements. With their focus on exports, these companies have
significant yen-denominated costs and US dollar-denominated
revenues. As a result, when the yen is strong relative to other
currencies (as during the December quarter), their earnings growth
prospects are diminished and their share prices do not perform well
compared to Japanese stocks in general. Conversely, when the yen is
weak relative to other currencies, the prospects for earnings growth
improve for these companies, and they generally tend to outperform
other Japanese stocks.
Given our significant investments in export-oriented stocks in
Japan, the Fund is likely to provide better relative performance
when the yen is weak compared to other currencies. Furthermore, we
have also chosen to hedge the Fund's yen exposure to some extent. As
a result, when the yen appreciates relative to the US dollar, the
Fund does not appreciate as much as it would if the Fund were
unhedged.
Despite the yen's recent appreciation and the negative effect that
it has had on the Fund's relative performance, we continue to
believe that the health of the global economy will be jeopardized if
the yen strengthens much more relative to the US dollar. The
Japanese economy continues to weaken. Gross domestic product (GDP)
is contracting, unemployment is high and rising, corporate
profitability is weak, and Japanese banks continue to struggle with
an increasing number of non-performing loans. Within this negative
environment, Japanese corporations generally appear to lack
strategies on how to address their lack of profitability, poor
growth prospects and poor competitive positions. Unfortunately,
Japan's economic health (or lack of it) also largely determines
economic growth in the rest of Asia.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
The only companies in Japan that we believe can significantly grow
their businesses are the exporters. There are strong export
companies in Japan whose shares we do not own; however, there are
probably not more than 20 exporters that we consider superior
businesses. Although there are a few superior non-export companies
in Japan--Fund holding Ito-Yokado Co., Ltd. is one example--we
believe that these 20 companies constitute almost all of the
superior Japanese companies.
If the yen continues to strengthen, these exporters will be so
negatively impacted that even they could not be regarded as world-
class companies. It seems unlikely to us that a major country like
Japan--which still has the world's second-largest GDP after the
United States--would prolong a situation (that is, allow the yen to
continue to strengthen) that would create an extremely difficult
environment for its blue-chip companies.
Of course, there are some macroeconomic reasons for the yen to
strengthen relative to the US dollar. For example, Japan still has a
trade surplus with the United States. However, we believe that this
is a structural factor that results from Japan's trade restrictions
and the openness of the United States to Japanese imports, rather
than actual demand in each country for the other country's goods and
services. (The way that trade balances are measured may also
exaggerate Japan's trade surplus to some extent.)
Another reason for the yen to strengthen is that it might reflect
repatriation of money back into the Japanese bond market. Interest
rates on Japanese government bonds rose from less than 1% to over 2%
as of December month-end. For Japanese investors in an environment
where inflation is non-existent, a 2% interest rate on an investment
regarded as without credit risk may be attractive. Japanese
government bonds could become even more attractive if interest rates
tick up further and there is still no inflation. If these higher
interest rates were accompanied by yen strength relative to the US
dollar, Japanese investors would likely favor the Japanese
government bond market over the US Treasury bond market.
Nevertheless, we believe that it is more important to Japan's
economy to maintain its vibrant export businesses. As a result, we
believe that the yen is more likely to resume its weakening trend
relative to the US dollar rather than continue to strengthen.
Accordingly, we continue to hedge a significant portion of our yen-
denominated investments back into US dollars.
Adjustments in Benchmark Index
The most noteworthy change for the Merrill Lynch Pacific Fund, Inc.
does not relate to any changes in our investment strategy, but to
the passive index that we measure our performance against. In the
"Recent Performance Results" table (found on page 6 of this report
to shareholders), we provide the Fund's performance compared to that
of the unmanaged Benchmark Index. This table also shows the
capitalization of each component market in this Index, and so
represents our assessment of the Fund's investable universe. We
provide this information so shareholders can see at a glance what
the Fund's geographic allocation would be if we had a neutral
opinion on the relative attractiveness of each market, and how the
Fund's actual geographic weightings compare to the Benchmark Index
weightings. In addition, the table shows how the Fund has performed
relative to each market and the Benchmark Index as a whole.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
Since capitalizations of many of our markets declined substantially
in 1998 while others increased, we changed the composition of the
Benchmark Index. Shareholders will first see this change in the
March 31, 1999 report to shareholders. We believe that the revised
Benchmark Index will provide a more representative view of the
Pacific Basin stock markets. Japan will remain the predominant
market in the revised Benchmark Index, and other markets will be
increased or decreased based upon December 31, 1998 market
capitalizations and their openness to investment. For example,
Taiwan is a market that is more open now, with fewer controls for
foreign investors. As a result, in 1999 we may seek out attractive
investments in countries such as Taiwan, as well as India and South
Korea.
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 16, 1999
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/98 +8.46% +2.77%
Five Years Ended 12/31/98 +3.71 +2.60
Ten Years Ended 12/31/98 +6.09 +5.52
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/98 +7.29% +3.29%
Five Years Ended 12/31/98 +2.64 +2.64
Ten Years Ended 12/31/98 +5.01 +5.01
[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 12/31/98 +7.26% +6.26%
Inception (10/21/94)
through 12/31/98 +1.69 +1.69
[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 12/31/98 +8.14% +2.47%
Inception (10/21/94)
through 12/31/98 +2.50 +1.20
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Morgan Stanley Capital International Pacific
Region Index. Beginning and ending values are:
12/88 12/98
ML Pacific Fund, Inc.++--
Class A Shares* $ 9,475 $17,115
ML Pacific Fund, Inc.++--
Class B Shares* $10,000 $16,309
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $ 6,706
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** 12/98
ML Pacific Fund, Inc.++--
Class C Shares* $10,000 $10,729
ML Pacific Fund, Inc.++--
Class D Shares* $ 9,475 $10,510
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $ 6,818
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Pacific Fund, Inc. invests primarily in equities of
corporations domiciled in Far Eastern or Western Pacific countries,
including Japan, Australia, Hong Kong and Singapore.
++++This unmanaged market capitalization-weighted Index is comprised
of a representative sampling of stocks of large-, medium-, and small-
capitalization companies in Australia, Hong Kong, Japan, Malaysia,
New Zealand and Singapore. The starting date for the Index in the
Class C & Class D Shares line graph is from 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
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 $18,730.09 on
December 31, 1998.
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance Market Capitalization
In Local Currency/In US Dollars (as of 9/30/98)
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* +19.99%(1) +8.46%(1)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* +19.62(2) +7.29(2)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* +19.57(3) +7.26(3)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* +19.86(4) +8.14(4)
Market-Weighted Index** +25.51 +4.28
Benchmark Index*** +27.31 +4.05
Japan + 4.16/+25.74 -7.49/+6.87 $1,842 72.6%
Australia + 8.75/+12.70 +7.53/+1.30 276 10.9
Hong Kong +27.46/+27.48 -6.29/-6.28 293 11.5
Malaysia +56.92/+43.58 -1.40/-7.77 41 1.6
Singapore +42.88/+45.87 -0.70/+1.32 78 3.1
Thailand +40.18/+52.67 -4.53/+25.23 7 0.3
<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 Market-Weighted Index represents the market-
weighted, US dollar-denominated percentage change in each of the
individual country indexes as shown in the table (which exclude
dividends), using Morgan Stanley Capital International data.
September 30, 1998 market weights are used for the 3-month results,
and December 31, 1997 market weights are used for the 12-month
results.
***Unmanaged. The Benchmark Index is a customized index used to
measure the Fund's relative performance, comprised as follows: 68%
Tokyo Stock Exchange Index, 7% Australia All Ordinaries Index, 14%
Hang Seng Index (Hong Kong), 5% Kuala Lumpur Stock Exchange
Composite Index (Malaysia), 4% DBS 50 Index (Singapore), and 2% SET
(Thailand). The Benchmark Index represents the percentage change in
each of these indexes in US dollar terms (excluding dividends),
multiplied by the market weights shown.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
Japan
<S> <C> <S> <C> <C> <C>
Automobile 2,951,000 Suzuki Motor Corp. $ 33,878,854 $ 35,071,752 3.2%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 3,292,772 0.3
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 4,004,967 0.4
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,272,195 0.5
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 10,195,477 0.9
517,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 6,190,244 0.6
-------------- -------------- ------
34,766,182 28,955,655 2.7
Chemicals 1,314,000 Shin-Etsu Chemical Co., Ltd. 25,333,563 31,699,157 2.9
Consumer Electronics 529,500 Sony Corporation 49,089,664 38,649,978 3.5
Containers 1,766,000 Toyo Seikan Kaisha, Ltd. 49,371,128 30,041,579 2.8
Electric Construction 1,887,000 Chudenko Corp. 55,433,121 40,334,102 3.7
2,862,000 Kinden Corporation 46,023,681 43,609,011 4.0
1,232,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 4,206,829 0.4
-------------- -------------- ------
126,246,277 88,149,942 8.1
Electric Equipment 1,602,000 Murata Manufacturing Co., Ltd. 57,859,465 66,637,517 6.1
385,000 Rohm Company, Ltd. 22,154,489 35,136,585 3.2
-------------- -------------- ------
80,013,954 101,774,102 9.3
Office Equipment 2,898,000 Canon, Inc. 52,457,929 62,072,461 5.7
Pharmaceuticals 1,927,000 Yamanouchi Pharmaceutical Co., Ltd. 51,438,763 62,210,909 5.7
Property & Casualty 9,351,000 Dai-Tokyo Fire & Marine Insurance Co., Ltd. 55,540,249 33,174,279 3.0
Insurance 4,492,000 Fuji Fire & Marine Insurance Co., Ltd. 16,261,457 8,764,878 0.8
7,539,000 Koa Fire & Marine Insurance Co., Ltd. 45,292,612 23,469,525 2.2
8,191,000 Nichido Fire & Marine Insurance Co., Ltd. 46,307,188 40,319,335 3.7
6,908,000 Sumitomo Marine & Fire Insurance Co., Ltd. 56,930,529 43,868,098 4.0
3,563,000 Tokio Marine & Fire Insurance Co., Ltd. 37,506,726 42,661,197 3.9
-------------- -------------- ------
257,838,761 192,257,312 17.6
Retailing 792,000 Ito-Yokado Co., Ltd. 42,846,103 55,492,683 5.1
364,000 Sangetsu Co., Ltd. 8,382,717 5,455,964 0.5
-------------- -------------- ------
51,228,820 60,948,647 5.6
Telecommunications 552 NTT Mobile Communication Network, Inc. (b) 18,214,739 22,765,410 2.1
Tires & Rubber 1,460,000 Bridgestone Corporation 24,961,990 33,214,191 3.1
Total Investments in Japan 854,840,624 787,811,095 72.3
Australia
Leisure 14,055,889 Village Roadshow Ltd. 'A' (Preferred) 31,688,289 17,585,773 1.6
Property 5,856,000 Lend Lease Corp. 40,436,248 79,012,666 7.3
Total Investments in Australia 72,124,537 96,598,439 8.9
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
Hong Kong
<S> <C> <S> <C> <C> <C>
Banking 1,315,228 HSBC Holdings plc $ 31,159,579 $ 32,766,526 3.0%
Conglomerates 9,929,035 Hutchison Whampoa Limited 75,105,658 70,171,897 6.5
Total Investments in Hong Kong 106,265,237 102,938,423 9.5
India
Banking 3,257,000 Industrial Development Bank of India 11,173,586 2,798,624 0.2
Broadcast/Media 620,000 ++BITV 3,557,823 0 0.0
Diversified Mutual 2,300 ++UTI Master Plus 91-B 771 922 0.0
Funds
Financial Services 77,300 Housing Development Finance Corporation
Limited 6,255,618 3,969,780 0.4
Total Investments in India 20,987,798 6,769,326 0.6
New Zealand
Diversified 31,103,606 Guinness Peat Group plc 20,761,901 27,087,197 2.5
Total Investments in New Zealand 20,761,901 27,087,197 2.5
Singapore
Airlines 1,308,000 Singapore Airlines Ltd. 'Foreign' 6,097,449 9,600,728 0.9
Banking 5,820,000 Oversea-Chinese Banking Corporation Ltd.
'Foreign' 27,495,186 39,541,401 3.6
Total Investments in Singapore 33,592,635 49,142,129 4.5
South Korea
Banking 462,360 Hana Bank (GDR)(a) 7,001,895 5,837,295 0.5
Total Investments in South Korea 7,001,895 5,837,295 0.5
Thailand
Broadcast/Media 2,192,000 BEC World Public Company Limited `Foreign' 17,579,558 12,093,793 1.1
Total Investments in Thailand 17,579,558 12,093,793 1.1
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Short-Term Securities
Commercial US$ 15,075,000 General Motors Acceptance Corp., 5.13% due
Paper* 1/04/1999 $ 15,068,555 $ 15,068,555 1.4%
Total Investments in Short-Term Securities 15,068,555 15,068,555 1.4
Currency Put Options Purchased
Nominal Value Premiums
Covered by Options Issue Paid
US$ 224,625,000 Japanese Yen, expiring February 1999
at YEN 130.5 6,705,056 179,700 0.0
Total Currency Put Options Purchased 6,705,056 179,700 0.0
Total Investments $1,154,927,796 1,103,525,952 101.3
==============
Liabilities In Excess of Other Assets (2,656,080) (0.3)
Unrealized Depreciation on Forward Foreign Exchange Contracts** (11,098,590) (1.0)
-------------- ------
Net Assets $1,089,771,282 100.0%
============== ======
<FN>
(a)Global Depositary Receipts (GDR).
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
*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 December 31, 1998 were as
follows:
Unrealized
Appreciation
Foreign Expiration (Depreciation)
Currency Purchased Date (Note 1b)
YEN 774,092,319 October 1999 $ 198,180
(US$ Commitment--$6,936,311) 198,180
------------
Foreign Currency Sold
YEN 33,233,199,600 October 1999 (11,296,770)
(US$ Commitment--$295,000,000) (11,296,770)
------------
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts--Net $(11,098,590)
============
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of December 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,148,222,740) (Note 1a) $1,103,346,252
Options purchased, at value (premiums paid--$6,705,056)
(Notes 1a & 1b) 179,700
Foreign cash (Note 1c) 2,260,480
Receivables:
Securities sold $ 1,483,064
Capital shares sold 992,330
Dividends 406,379 2,881,773
--------------
Prepaid registration fees and other assets (Note 1f) 40,312
--------------
Total assets 1,108,708,517
--------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts
(Note 1b) 11,098,590
Payables:
Capital shares redeemed 5,912,655
Investment adviser (Note 2) 568,123
Distributor (Note 2) 488,959 6,969,737
--------------
Accrued expenses and other liabilities 868,908
--------------
Total liabilities 18,937,235
--------------
Net Assets: Net assets $1,089,771,282
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,550,177
Class B Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 2,921,297
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 323,387
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 554,594
Paid-in capital in excess of par 1,250,139,205
Accumulated realized capital losses on investments and foreign
currency transactions--net (104,294,105)
Unrealized depreciation on investments and foreign currency
transactions--net (62,423,273)
--------------
Net assets $1,089,771,282
==============
Net Asset Value: Class A--Based on net assets of $449,725,105 and 25,501,766 shares
outstanding $ 17.64
==============
Class B--Based on net assets of $489,047,081 and 29,212,972 shares
outstanding $ 16.74
==============
Class C--Based on net assets of $53,115,863 and 3,233,868 shares
outstanding $ 16.42
==============
Class D--Based on net assets of $97,883,233 and 5,545,940 shares
outstanding $ 17.65
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended December 31, 1998
<S> <S> <C> <C>
Investment Dividends (net of $1,311,072 foreign withholding tax) $ 17,218,690
Income Interest and discount earned (net of $7,655 foreign
(Notes 1d & 1e): withholding tax) 2,016,547
--------------
Total income 19,235,237
--------------
Expenses: Investment advisory fees (Note 2) $ 8,081,341
Account maintenance and distribution fees--Class B (Note 2) 6,160,775
Transfer agent fees--Class B (Note 2) 1,337,517
Transfer agent fees--Class A (Note 2) 1,002,596
Custodian fees 734,460
Account maintenance and distribution fees--Class C (Note 2) 633,154
Account maintenance fees--Class D (Note 2) 281,408
Transfer agent fees--Class D (Note 2) 201,700
Printing and shareholder reports 165,187
Transfer agent fees--Class C (Note 2) 140,968
Registration fees (Note 1f) 129,804
Accounting services (Note 2) 112,325
Professional fees 93,210
Directors' fees and expenses 38,029
Pricing fees 4,026
Other 39,535
--------------
Total expenses 19,156,035
--------------
Investment income--net 79,202
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net (72,597,133)
(Loss) on Foreign currency transactions--net 47,622,266 (24,974,867)
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 163,241,357
(Notes 1b, 1c, Foreign currency transactions--net (59,055,593) 104,185,764
1d & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 79,210,897
--------------
Net Increase in Net Assets Resulting from Operations $ 79,290,099
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 79,202 $ (5,278,859)
Realized gain (loss) on investments and foreign currency
transactions--net (24,974,867) 212,231,176
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 104,185,764 (339,605,598)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 79,290,099 (132,653,281)
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (37,819) --
Shareholders Class B (30,572) --
(Note 1g): Class C (3,473) --
Class D (7,338) --
In excess of investment income--net:
Class A (19,464,054) (27,000,302)
Class B (15,734,354) (31,032,915)
Class C (1,787,636) (3,030,621)
Class D (3,776,752) (5,689,871)
Realized gain on investments--net:
Class A -- (60,379,477)
Class B -- (94,138,978)
Class C -- (8,987,943)
Class D -- (13,553,109)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (40,841,998) (243,813,216)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (454,290,751) (213,542,368)
(Note 4): -------------- --------------
Net Assets: Total decrease in net assets (415,842,650) (590,008,865)
Beginning of year 1,505,613,932 2,095,622,797
-------------- --------------
End of year $1,089,771,282 $1,505,613,932
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A++
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.97 $ 21.58 $ 22.16 $ 21.12 $ 21.21
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .10 .08 .11 .11 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.33 (1.48) 1.21 1.61 .50
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.43 (1.40) 1.32 1.72 .60
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net --++++ -- -- -- --
In excess of investment income--net (.76) (.99) (1.22) -- (.22)
Realized gain on investments--net -- (2.22) (.68) (.55) (.33)
In excess of realized gain on
investments--net -- -- -- (.13) (.14)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.76) (3.21) (1.90) (.68) (.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 17.64 $ 16.97 $ 21.58 $ 22.16 $ 21.12
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 8.46% (6.35%) 6.09% 8.20% 2.90%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses .88% .87% .87% .93% .91%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .57% .37% .47% .53% .47%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $ 449,725 $ 537,671 $ 642,523 $ 607,598 $ 587,107
========== ========== ========== ========== ==========
Portfolio turnover 12.26% 19.69% 10.65% 26.73% 23.84%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B++
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.11 $ 20.59 $ 21.22 $ 20.27 $ 20.41
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net (.08) (.14) (.13) (.10) (.12)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.25 (1.39) 1.17 1.53 .49
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.17 (1.53) 1.04 1.43 .37
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net --++++ -- -- -- --
In excess of investment income--net (.54) (.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 (.54) (2.95) (1.67) (.48) (.51)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 16.74 $ 16.11 $ 20.59 $ 21.22 $ 20.27
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 7.29% (7.31%) 5.00% 7.10% 1.87%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.92% 1.90% 1.90% 1.96% 1.94%
Net Assets: ========== ========== ========== ========== ==========
Investment loss--net (.50%) (.66%) (.56%) (.50%) (.56%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $ 489,047 $ 775,068 $1,217,549 $1,041,763 $ 915,351
========== ========== ========== ========== ==========
Portfolio turnover 12.26% 19.69% 10.65% 26.73% 23.84%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
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: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.83 $ 20.30 $ 20.97 $ 20.12 $ 21.67
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net (.08) (.14) (.13) (.12) (.03)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net 1.23 (1.36) 1.16 1.53 (.86)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.15 (1.50) 1.03 1.41 (.89)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net --++++ -- -- -- --
In excess of investment income--net (.56) (.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 (.56) (2.97) (1.70) (.56) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.42 $ 15.83 $ 20.30 $ 20.97 $ 20.12
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 7.26% (7.28%) 5.00% 7.07% (4.04%)+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.92% 1.90% 1.91% 1.97% 2.17%*
Net Assets: ========== ========== ========== ========== ==========
Investment loss--net (.50%) (.67%) (.58%) (.59%) (.79%)*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in
Data: thousands) $ 53,116 $ 73,656 $ 98,925 $ 46,092 $ 7,841
========== ========== ========== ========== ==========
Portfolio turnover 12.26% 19.69% 10.65% 26.73% 23.84%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Amount is less than $.01 per share.
++++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
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: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.98 $ 21.57 $ 22.14 $ 21.11 $ 22.70
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .05 .03 .04 .07 --
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.33 (1.47) 1.23 1.60 (.91)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.38 (1.44) 1.27 1.67 (.91)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net --++++ -- -- -- --
In excess of investment income--net (.71) (.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 (.71) (3.15) (1.84) (.64) (.68)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.65 $ 16.98 $ 21.57 $ 22.14 $ 21.11
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 8.14% (6.55%) 5.84% 7.95% (3.93%)+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.13% 1.12% 1.12% 1.18% 1.42%*
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .29% .11% .16% .31% .12%*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in
Data: thousands) $ 97,883 $ 119,219 $ 136,626 $ 97,946 $ 22,012
========== ========== ========== ========== ==========
Portfolio turnover 12.26% 19.69% 10.65% 26.73% 23.84%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Amount is less than $.01 per share.
++++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
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's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates. 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 or purchased are
valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the
last bid price (options purchased). 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.
* 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.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on dividends, interest and capital
gains at various rates.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates. Distributions in excess of net investment income are due
primarily to differing tax treatments for foreign currency
transactions.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$40,762,796 have been reclassified between accumulated net realized
capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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% --
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1998, 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 $ 3,973 $ 35,403
Class D $30,138 $244,072
For the year ended December 31, 1998, MLPF&S received contingent
deferred sales charges of $2,127,335 and $46,954 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$105,255 and $50,000 relating to transactions subject to front-end
sales charge waivers in Class A and Class D Shares, respectively.
In addition, MLPF&S received $124,872 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended December 31, 1998.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1998 were $156,519,265 and
$589,637,385, respectively.
Net realized gains (losses) for the year ended December 31, 1998 and
net unrealized gains (losses) as of December 31, 1998 were as
follows:
Realized Gains Unrealized
(Losses) Gains (Losses)
Investments:
Long-term $ (73,511,301) $ (44,876,488)
Options written 914,168 --
------------- -------------
Total investments (72,597,133) (44,876,488)
------------- -------------
Currency transactions:
Options purchased (2,249,815) (6,525,356)
Foreign currency
transactions 49,872,081 77,161
Forward foreign exchange
contracts -- (11,098,590)
------------- -------------
Total currency transactions 47,622,266 (17,546,785)
------------- -------------
Total $ (24,974,867) $ (62,423,273)
============= =============
As of December 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $46,657,210, of which $142,294,872
related to appreciated securities and $188,952,082 related to
depreciated securities. At December 31, 1998, the aggregate cost of
investments for Federal income tax purposes was $1,150,003,462.
Transactions in options written for the year ended December 31, 1998
were as follows:
Nominal Value
Covered by Premiums
Call Options Written Options Received
Outstanding call options
written, beginning of year -- --
Options written 5,294,441 $ 914,168
Options expired (5,294,441) (914,168)
------------ ------------
Outstanding call options
written, end of year -- $ --
============ ============
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $454,290,751 and $213,542,368 for the years ended December 31,
1998 and December 31, 1997, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 21,360,897 $ 371,499,972
Shares issued to shareholders
in reinvestment of dividends 1,007,319 17,708,664
------------- -------------
Total issued 22,368,216 389,208,636
Shares redeemed (28,551,582) (487,957,041)
------------- -------------
Net decrease (6,183,366) $ (98,748,405)
============= =============
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the Year Dollar
Ended 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
============= =============
Class B Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 6,513,095 $ 108,012,258
Shares issued to shareholders
in reinvestment of dividends 798,549 13,327,783
------------- -------------
Total issued 7,311,644 121,340,041
Automatic conversion of
shares (988,935) (15,920,268)
Shares redeemed (25,228,647) (412,142,288)
------------- -------------
Net decrease (18,905,938) $(306,722,515)
============= =============
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 C Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 2,901,093 $ 47,238,874
Shares issued to shareholders
in reinvestment of dividends 94,275 1,544,218
------------- -------------
Total issued 2,995,368 48,783,092
Shares redeemed (4,415,157) (71,183,999)
------------- -------------
Net decrease (1,419,789) $ (22,400,907)
============= =============
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 D Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 7,661,092 $ 132,326,874
Shares issued to shareholders
in reinvestment of dividends 186,188 3,275,058
Automatic conversion of
shares 935,297 15,920,268
------------- -------------
Total issued 8,782,577 151,522,200
Shares redeemed (10,259,671) (177,941,124)
------------- -------------
Net decrease (1,477,094) $ (26,418,924)
============= =============
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
============= =============
5. Capital Loss Carryforward:
At December 31, 1998, the Fund had a net capital loss carryforward
of approximately $100,857,000, all of which expires in 2006. This
amount will be available to offset like amounts of any future
taxable gains.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
<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, 1998, 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, 1998 by correspondence with the custodian and broker. 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, 1998, 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 18, 1999
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Pacific Fund, Inc. during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Non-Qualifying Foreign Taxes
Record Payable Domestic Foreign Total Paid or
Date Date Ordinary Income Source Income Ordinary Income Withheld
<S> <C> <C> <C> <C> <C>
Class A Shares
12/17/98 12/28/98 $0.547830 $0.215309 $0.763139 $0.020858
Class B Shares
12/17/98 12/28/98 $0.390067 $0.153304 $0.543371 $0.020858
Class C Shares
12/17/98 12/28/98 $0.400474 $0.157394 $0.557868 $0.020858
Class D Shares
12/17/98 12/28/98 $0.509938 $0.200415 $0.710353 $0.020858
</TABLE>
The foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends received by the Fund from foreign sources. Foreign
taxes paid or withheld should be included in taxable income with an
offsetting deduction from gross income or as a credit for taxes paid
to foreign governments. You should consult your tax adviser
regarding the appropriate treatment of foreign taxes paid.
Please retain this information for your records.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
PORTFOLIO INFORMATION (unaudited)
As of December 31, 1998
Percent of
Ten Largest Equity Holdings Net Assets
Lend Lease Corp. 7.3 %
Hutchison Whampoa Limited 6.5
Murata Manufacturing Co., Ltd. 6.1
Yamanouchi Pharmaceutical Co., Ltd. 5.7
Canon, Inc. 5.7
Ito-Yokado Co., Ltd. 5.1
Sumitomo Marine & Fire Insurance Co., Ltd. 4.0
Kinden Corporation 4.0
Tokio Marine & Fire Insurance Co., Ltd. 3.9
Chudenko Corp. 3.7
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 17.6 %
Electric Equipment 9.3
Electric Construction 8.1
Banking 7.3
Property 7.3
Conglomerates 6.5
Pharmaceuticals 5.7
Office Equipment 5.7
Retailing 5.6
Consumer Electronics 3.5
Equity Portfolio Changes
For the Quarter Ended December 31, 1998
Addition
NTT Mobile Communication Network, Inc.
Deletions
NEC Corporation
Sankyo Co., Ltd.
Merrill Lynch Pacific Fund, Inc.
December 31, 1998
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
Roland M. Machold, 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, Treasurer
Robert Harris, 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
