MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Annual Report
November 30, 1995
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Grace Pineda, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issuers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
Middle East/Africa
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
November 30, 1995
A map Illustrating the following percentages:
Ghana 1.6%
Morocco 3.4%
South Africa 38.3%
Botswana 1.4%
Turkey 13.5%
Israel 17.0%
Zimbabwe 4.4%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
<PAGE>
Fiscal Year in Review
We are pleased to provide you with this annual report for Merrill
Lynch Middle East/Africa Fund, Inc. Since inception (December 30,
1994) through November 30, 1995, total returns for Merrill Lynch
Middle East/Africa Fund, Inc.'s Class A, Class B, Class C and Class
D Shares were +6.60%, +5.60%, +5.60% and +6.30%, respectively. The
unmanaged Morgan Stanley Capital International Indexes for the
largest equity markets in the region--Israel, South Africa and
Turkey--registered returns of +18.21%, +14.48% and +0.67%,
respectively. The Fund's performance benefited from its exposure to
Israeli and South African securities, but was negatively impacted by
its investments in Turkish equities and its large cash position
since inception. (Investment results shown do not reflect sales
charges, and would be lower if sales charges were included. Complete
performance information, including aggregate total returns, can be
found on pages 3--5 of this report to shareholders.)
Investment Activities
We have taken a gradual approach to investing the Fund's assets
since its inception. Our strategy during the period ended November
30, 1995 has been to build positions in a broad range of countries,
concentrate assets in relatively few stocks, and use fixed-income
securities to supplement equity returns. As a result, at the end of
November, the Fund had investments in seven countries and 34% of net
assets was concentrated in the ten largest holdings. The three
markets that dominate the Fund's investments are Israel, South
Africa and Turkey. (For a list of the Fund's top ten holdings, see
page 6 of this report to shareholders.)
Near the end of September, the Turkish government collapsed, and
early elections were called in order to form a new coalition. The
heightened political uncertainty in Turkey impacted the stock market
negatively. In addition, although the economy continued to show
signs of recovery, this has been accompanied by higher inflation. As
a result of these developments, the Turkish Lira depreciated at a
faster pace.
During this period of stock market and currency weakness, we
accumulated Turkish stocks at what we believe to be very attractive
levels. One of our most recent stock purchases was Kerevitas Gida
Sanayii Ve Ticaret A.S., the market leader in the Turkish frozen
food industry. Kerevitas will benefit from the country's continued
urbanization and the increase in demand for frozen foods. The
company accounts for over 70% of the frozen food market in Turkey
and owns the most sophisticated cold-chain distri-bution network in
the country. The size of this network affords the company
substantial economies of scale, reinforcing its competitive position
in the domestic and international markets. Exports account for 70%--
80% of sales, most of which go to industrialized countries such as
Japan and those in Western Europe. We believe that Kerevitas'
exports would be enhanced if Turkey were to be accepted into the
European customs union.
<PAGE>
In Israel, the assassination of Prime Minister Yitzhak Rabin
highlighted the disparity of views in Israel concerning the
country's peace talks with its neighbors, Palestine and Syria. Under
the leadership of former Foreign Minister Shimon Peres, we believe
these talks will continue and may even accelerate. We note also that
the Tel Aviv stock exchange was resilient in the days following the
assassination, likely indicating that, in the opinion of investors,
Middle East peace is not dependent on Mr. Rabin's efforts alone.
We anticipate that the potential "peace dividend" has yet to be
reflected in stock prices.
One of our major holdings in Israel is Bank Hapoalim Ltd., Israel's
largest bank. The bank has a large portfolio of non-banking assets,
part of which it is being required to divest. There is uncertainty
over the company's earnings prospects as a result of the divestiture
because these non-banking assets generate 20% of corporate earnings.
We believe this partial divestiture will benefit stock performance
as it will reveal the value of the remaining assets and will
generate cash. Bank Hapoalim, 77% of which is owned by the
government, is expected to be privatized in the near term, which
should further increase investor interest.
Now that wage negotiations are concluded in South Africa, we expect
the gold mines to post higher production levels. We believe the
current environment will be more conducive to changes that should
benefit the gold mines and their labor force. In fact, after a
recent visit to some of the South African mines, we sensed a better
mood between labor and management. Both parties appear to agree that
better cooperation and communication, and improved education and
training, will lead to better productivity and higher gold
production. We expect the valuation gap between South African mines
(with gold reserves valued at $35 per ounce) and many Australian
mines (valued at $85 per ounce) to narrow, potentially resulting in
an upward re-evaluation of South African gold mining stocks. One of
our holdings, Randfontein Estates Gold Mining Co. Witwatersrand
Limited, is the sixth-largest gold producer in South Africa.
Randfontein had been suffering from the labor unrest, which
significantly reduced the company's productivity. We expect
Randfontein and other gold mining shares to benefit from any
upward re-evaluation as discussed earlier as well as weakness
in the South African currency.
<PAGE>
In Conclusion
We thank you for your investment in Merrill Lynch Middle East/Africa
Fund, Inc., and we look forward to reviewing our outlook and
strategy with you in our upcoming annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
January 10, 1996
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricings 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.
<PAGE>
* 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).
Performance data for all of the Fund's shares are presented in the
"Total Return Based on a $10,000 Investment" graph and the
"Aggregate Total Return" and "Recent Performance Results" tables on
pages 4 and 5.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for all of the Fund's
shares for the since inception (December 30, 1994) and 3-month
periods ended November 30, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class A, Class B, Class C, and Class D Shares compared to the growth
of investments in the Morgan Stanley Capital International Index--
South Africa, the Morgan Stanley Capital International Index--Israel,
and the Morgan Stanley Capital International Index--Turkey. Beginning and
ending values are:
<PAGE>
12/30/94** 11/95
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class A Shares* $ 9,600 $10,100
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class B Shares* $10,000 $10,160
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class C Shares* $10,000 $10,460
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class D Shares* $ 9,600 $10,072
Morgan Stanley Capital International Index
- --South Africa++++ $10,000 $11,448
Morgan Stanley Capital International Index
- --Israel++++ $10,000 $11,821
Morgan Stanley Capital International Index
- --Turkey++++ $10,000 $10,067
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++Merrill Lynch Middle East/Africa Fund, Inc. principally invests
in equity and debt securities of issuers in countries located in
the Middle East and Africa.
++++This unmanaged Index measures the total returns of countries
within the Middle East/Africa region.
Past performance is not predictive of future performance.
Aggregate Total
Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (12/30/94)
through 9/30/95 +12.80% +4.74%
<PAGE>
[FN]
*Maximum sales charge is 5.25%. Maximum redemption fee is 2% and is
reduced to 0% after 1 year.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (12/30/94)
through 9/30/95 +11.90% +5.66%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years. Maximum redemption fee is 2% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (12/30/94)
through 9/30/95 +11.90% +8.66%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year. Maximum redemption fee is 2% 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*
Inception (12/30/94)
through 9/30/95 +12.60% +4.55%
[FN]
*Maximum sales charge is 5.25%. Maximum redemption fee is 2% and is
reduced to 0% after 1 year.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
Since Inception+++ 3 Month
11/30/95 8/31/95 12/30/94++ % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.66 $11.14 $10.00 +6.60% -4.31%
Class B Shares 10.56 11.07 10.00 +5.60 -4.61
Class C Shares 10.56 11.07 10.00 +5.60 -4.61
Class D Shares 10.63 11.12 10.00 +6.30 -4.41
Class A Shares-Total Return +6.60 -4.31
Class B Shares-Total Return +5.60 -4.61
Class C Shares-Total Return +5.60 -4.61
Class D Shares-Total Return +6.30 -4.41
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Commencement of Operations.
+++The Fund commenced operations on 12/30/94.
</TABLE>
PORTFOLIO INFORMATION
As of November 30, 1995
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
South African Breweries Limited 4.5%
Driefontein Consolidated Ltd. (ADR) 3.7
Delta Corporation 3.2
Kinross Mines Ltd. 3.1
Malbak Ltd. (GDR) 3.1
Beatrix Mines Ltd. 3.0
Koor Industries Ltd. 3.0
Bank Leumi Israel 2.9
Bank Hapoalim Ltd. 2.9
South Africa Iron & Steel Industrial Corp., Ltd. 2.7
<PAGE>
Percent of
Ten Largest Industries Net Assets
Mining 16.0%
Banking 10.6
Multi-Industry 7.2
Merchandising 4.8
Beverages 4.5
Brewery 3.2
Beverage & Tobacco 3.2
Engineering & Construction 3.0
Steel 2.7
Health & Personal Care 2.6
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 232,000 Sechaba Investment Trust $ 190,492 $ 155,602 1.4%
Total Investments in Botswana 190,492 155,602 1.4
Ghana Health & Personal 85,000 ++Unilever Ghana 62,559 52,447 0.5
Care
Multi-Industry 723,795 Guiness Ghana Ltd. 132,915 114,472 1.0
Tobacco 70,000 ++Pioneer Tobacco Co. Ltd. 5,081 6,305 0.1
Total Investments in Ghana 200,555 173,224 1.6
Morocco Banking 5,000 Banque Marocaine du Commerce
Exterieure 221,372 220,591 2.0
Building & 2,000 Groupe Omnium Nord Africain 89,279 76,471 0.7
Construction
Building Materials 2,000 ++Les Ciments de l'Oriental 87,576 74,354 0.7
Total Investments in Morocco 398,227 371,416 3.4
<PAGE>
South Beverages 14,700 South African Breweries Limited 394,547 497,218 4.6
Africa
Foreign ZAL 4,700,000 South African Bond, 12% due 2/28/2005 997,096 1,126,603 10.3
Government
Obligations
Mining 37,000 Beatrix Mines Ltd. 298,396 328,014 3.0
38,800 ++Driefontein Consolidated
Ltd. (ADR)(a) 570,167 407,400 3.7
38,600 ++Kinross Mines Ltd. 412,446 339,566 3.1
34,700 ++Randfontein Estates Gold Mining Co.
Witwatersrand Ltd. 250,019 217,703 2.0
11,500 Western Areas Gold Mining Company
Ltd. (ADR)(a) 164,189 183,425 1.7
17,126 Western Areas Gold Mining Company
Ltd. (Ordinary) 228,544 276,791 2.5
------------ ------------ ------
1,923,761 1,752,899 16.0
Multi-Industry 52,852 Malbak Ltd. (GDR)(b) 304,425 338,253 3.1
Retail 110,000 ++Teljoy Holdings Ltd. 192,631 174,032 1.6
Steel 330,752 ++South Africa Iron & Steel
Industrial Corp., Ltd. 381,184 296,829 2.7
Total Investments in South Africa 4,193,644 4,185,834 38.3
Zimbabwe Beverage & Tobacco 217,000 Delta Corporation 290,655 351,702 3.2
Real Estate 215,000 Hippo Valley Estates 76,846 130,092 1.2
Total Investments in Zimbabwe 367,501 481,794 4.4
Total Investments in Africa 5,350,419 5,367,870 49.1
MIDDLE
EAST
Israel Banking 194,852 ++Bank Hapoalim Ltd. 309,137 319,866 2.9
245,000 ++Bank Leumi Israel 303,793 321,750 2.9
------------ ------------ ------
612,930 641,616 5.8
Engineering & 3,603 Koor Industries Ltd. 301,578 325,222 3.0
Construction
Health & Personal 5,600 Teva Pharmaceutical Industries
Care Ltd. (ADR)(a) 199,850 232,400 2.1
<PAGE>
Merchandising 37,100 ++Blue Square Stores 201,555 255,430 2.3
Multi-Industry 32,300 ++Ampal-American Israel Corp. (ADR)(a) 196,639 181,687 1.7
Paper & Forest 1,845 American Israeli Paper Mills Ltd. 98,685 86,807 0.8
Products 1,800 American Israeli Paper Mills
Ltd. (ADR)(a) 97,251 83,700 0.8
------------ ------------ ------
195,936 170,507 1.6
Real Estate 41 ++Africa-Israel Investments Ltd. 49,411 50,200 0.5
Total Investments in Israel 1,757,899 1,857,062 17.0
Turkey Automobiles 560,000 Tofas Turk Otomobil Fabrikasi A.S. 126,768 63,231 0.6
Banking 1,724,000 Turkiye Garanti Bankasi A.S. 272,906 125,587 1.1
24,800 Turkiye Garanti Bankasi A.S.
(ADR)(a)++++ 249,925 182,900 1.7
------------ ------------ ------
522,831 308,487 2.8
Brewery 22,300 ++Erciyas Biracilik Ve Malt
Sanayii A.S. (ADR)(a) 299,935 211,850 1.9
14,800 ++Erciyas Biracilik Ve Malt
Sanayii A.S. (ADR)(a)++++ 199,800 140,600 1.3
------------ ------------ ------
499,735 352,450 3.2
Foods 3,100,000 ++Kerevitas Gida Sanayii Ve Ticaret
A.S. 368,113 254,052 2.3
Industrial 1,093,334 ++Turk Siemens Kablo Ve Elektrik
Components Sanayii A.S. 206,649 228,981 2.1
Merchandising 267,000 Migros Turk A.S. 197,259 272,300 2.5
Total Investments in Turkey 1,921,355 1,479,501 13.5
Total Investments in the
Middle East 3,679,254 3,336,563 30.5
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Commercial US$ 359,000 General Electric Capital Corp.,
Paper* 5.90% due 12/01/1995 $ 359,000 $ 359,000 3.3%
US Government & 500,000 Federal Farm Credit Bank,
Agency 5.67% due 12/01/1995 500,000 500,000 4.6
Obligations* 600,000 Federal Home Loan Mortgage Corp.,
5.59% due 12/05/1995 599,627 599,627 5.5
400,000 Federal National Mortgage
Association, 5.67% due 12/05/1995 399,748 399,748 3.6
------------ ------------ ------
1,499,375 1,499,375 13.7
Total Investments in
Short-Term Securities 1,858,375 1,858,375 17.0
Total Investments $ 10,888,048 10,562,808 96.6
============
Other Assets Less Liabilities 367,564 3.4
------------ ------
Net Assets $ 10,930,372 100.0%
============ ======
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Fund.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
++Non-income producing security.
++++Restricted securities as to resale. The value of the Fund's
investment was approximately $324,000, representing 3.0% of net
assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Erciyas Biracilik Ve 10/05/1995--
Malt Sanayii A.S. (ADR) 10/30/1995 $199,800 $140,600
Turkiye Garanti Bankasi 3/24/1995--
A.S.(ADR) 6/07/1995 249,925 182,900
-------- --------
Total $449,725 $323,500
======== ========
<PAGE>
See Notes to Financial Statements.
</TABLE>
EQUITY PORTFOLIO CHANGES
For the Quarter Ended November 30, 1995
Additions Erciyas Biracilik Ve Malt Sanayii A.S. (ADR)
Kerevitas Gida Sanayii Ve Ticaret A.S.
Turkiye Garanti Bankasi A.S. (ADR)
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of November 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$10,888,048) (Note 1a) $ 10,562,808
Cash 30,068
Receivables:
Interest $ 38,778
Dividends 18,980
Capital shares sold 10,438
Investment adviser (Note 2) 7,803 75,999
-------------
Deferred organization expenses (Note 1f) 244,557
Prepaid registration fees and other assets (Note 1f) 85,544
-------------
Total assets 10,998,976
-------------
Liabilities: Payables:
Capital shares redeemed 9,242
Distributor (Note 2) 7,654 16,896
-------------
Accrued expenses and other liabilities 51,708
-------------
Total liabilities 68,604
-------------
Net Assets: Net assets $ 10,930,372
=============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 6,086
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 72,941
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 9,582
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 14,754
Paid-in capital in excess of par 10,373,961
Undistributed investment income--net 752,093
Undistributed realized capital gains on investments and
foreign currency transactions--net 26,364
Unrealized depreciation on investments and foreign currency
transactions--net (325,409)
-------------
Net assets $ 10,930,372
=============
Net Asset Class A--Based on net assets of $648,590 and 60,855 shares
Value: outstanding $ 10.66
=============
Class B--Based on net assets of $7,701,149 and 729,414 shares
outstanding $ 10.56
=============
Class C--Based on net assets of $1,011,730 and 95,822 shares
outstanding $ 10.56
=============
Class D--Based on net assets of $1,568,903 and 147,544 shares
outstanding $ 10.63
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period December 30, 1994++ to November 30, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 803,193
Income Dividends (net of $8,237 foreign withholding tax) 86,660
(Notes 1d & 1e): -------------
Total income 889,853
-------------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 95,530
Printing and shareholder reports 95,500
Account maintenance and distribution fees--Class B (Note 2) 69,416
Amortization of organization expenses (Note 1f) 54,901
Professional fees 43,730
Accounting services (Note 2) 42,157
Directors' fees and expenses 38,234
Registration fees (Note 1f) 32,576
Custodian fees 20,776
Transfer agent fees--Class B (Note 2) 13,302
Account maintenance and distribution fees--Class C (Note 2) 9,459
Account maintenance fees--Class D (Note 2) 3,137
Transfer agent fees--Class D (Note 2) 1,969
Transfer agent fees--Class C (Note 2) 1,751
Transfer agent fees--Class A (Note 2) 644
Pricing fees 589
Other 4,514
-------------
Total expenses before reimbursement 528,185
Reimbursement of expenses (Note 2) (445,268)
-------------
Total expenses after reimbursement 82,917
-------------
Investment income--net 806,936
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 26,364
(Loss) on Foreign currency transactions--net (54,881) (28,517)
Investments & -------------
Foreign Currency Unrealized depreciation on:
Transactions--Net Investments--net (325,240)
(Notes 1b, 1c, Foreign currency transactions--net (169) (325,409)
1e & 3): ------------- -------------
Net realized and unrealized loss on investments and
foreign currency transactions (353,926)
-------------
Net Increase in Net Assets Resulting from Operations $ 453,010
=============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
December 30, 1994++
Increase (Decrease) in Net Assets: to November 30, 1995
<S> <S> <C>
Operations: Investment income--net $ 806,936
Realized loss on investments and foreign currency
transactions--net (28,517)
Unrealized depreciation on investments and foreign
currency transactions--net (325,409)
-------------
Net increase in net assets resulting from operations 453,010
-------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 10,377,362
(Note 4): -------------
Net Assets: Total increase in net assets 10,830,372
Beginning of period 100,000
-------------
End of period* $ 10,930,372
=============
<FN>
*Undistributed investment income--net (Note 1h) $ 752,093
=============
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Period December 30, 1994++
from information provided in the financial statements. to November 30, 1995
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .57 .79 .83 .77
Realized and unrealized gain (loss) on
investments--net .09 (.23) (.27) (.14)
------- ------- ------- -------
Total from investment operations .66 .56 .56 .63
------- ------- ------- -------
Net asset value, end of period $ 10.66 $ 10.56 $ 10.56 $ 10.63
======= ======= ======= =======
Total Investment Based on net asset value per share 6.60%+++ 5.60%+++ 5.60%+++ 6.30%+++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees and net of reimbursement .00%* .01%* .01%* .00%*
======= ======= ======= =======
Expenses, net of reimbursement .00%* 1.01%* 1.01%* .25%*
======= ======= ======= =======
Expenses 4.63%* 5.68%* 5.67%* 4.89%*
======= ======= ======= =======
Investment income--net 8.43%* 8.33%* 8.45%* 9.07%*
======= ======= ======= =======
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 648 $ 7,701 $ 1,012 $ 1,569
Data: ======= ======= ======= =======
Portfolio turnover 40.97% 40.97% 40.97% 40.97%
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Middle East/Africa Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. Prior to
commencement of operations on December 30, 1994, the Fund had no
operations other than those relating to organizational matters and
the issuance of 10,000 shares of capital stock of the Fund to
Merrill Lynch Asset Management, L.P. ("MLAM") for $100,000. The Fund
offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
<PAGE>
(a) Valuation of securities--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. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. 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 which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not 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) 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.
(c) 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 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.
* 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 market 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).
<PAGE>
Written and purchased options are non-income producing investments.
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters into such contracts. Premium
or discount is amortized over the life of the contracts.
* Foreign currency options and futures--The Fund may also purchase or
sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Financial futures contracts--The Fund may purchase or sell stock
index futures contracts and options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(d) 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 interest, dividends, and capital
gains at various rates.
(e) 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 date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of 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.
<PAGE>
(f) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period beginning with the commencement
of operations. Prepaid registration fees are charged to expense as
the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $54,881 has been reclassified from undistributed net investment
income to undistributed net realized capital gains and $38 has been
reclassified from paid-in capital in excess of par to 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
MLAM. The general partner of MLAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. The Fund has also
entered into a Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. As
compensation for its services to the Fund, MLAM receives monthly
compensation at the annual rate of 1.00% of the average daily net
assets of the Fund.
Certain states in which shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The most restrictive
annual expense limitation requires that MLAM reimburse the Fund to
the extent that expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of
the investment advisory fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation at the time of such payment. For
the period December 30, 1994 to November 30, 1995, MLAM earned fees
of $95,530, all of which was voluntarily waived. MLAM also
reimbursed the Fund $349,738 in additional expenses.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the period December 30, 1994 to November 30, 1995, MLFD earned
underwriting discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $1,003 $12,810
For the period ended November 30, 1995, MLPF&S received contingent
deferred sales charges of $20,279 and $800 relating to transactions
in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
<PAGE>
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLPF&S, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended November 30, 1995 were $10,943,368 and
$2,070,144.
Net realized and unrealized gains (losses) as of November 30, 1995
were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ 173,143 $ (325,240)
Short-term investments (146,779) --
Foreign currency transactions (54,881) (169)
----------- -----------
Total $ (28,517) $ (325,409)
=========== ===========
As of November 30, 1995, net unrealized depreciation for Federal
income tax purposes aggregated $325,757, of which $715,539 related
to appreciated securities and $1,041,296 related to depreciated
securities. The aggregate cost of investments at November 30, 1995
for Federal income tax purposes was $10,888,565.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $10,377,362 for the period ended November 30, 1995.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
Dec. 30, 1994++ to Nov. 30, 1995 Shares Amount
Shares sold 68,348 $ 729,728
Shares redeemed (9,993) (106,209)
----------- -----------
Net increase 58,355 $ 623,519
=========== ===========
[FN]
++Prior to December 30, 1994 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
<PAGE>
Class B Shares for the Period Dollar
Dec. 30, 1994++ to Nov. 30, 1995 Shares Amount
Shares sold 832,728 $ 8,419,730
Shares redeemed (105,813) (1,085,440)
----------- -----------
Net increase 726,915 $ 7,334,290
=========== ===========
[FN]
++Prior to December 30, 1994 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class C Shares for the Period Dollar
Dec. 30, 1994++ to Nov. 30, 1995 Shares Amount
Shares sold 101,871 $ 1,027,680
Shares redeemed (8,549) (91,175)
----------- -----------
Net increase 93,322 $ 936,505
=========== ===========
[FN]
++Prior to December 30, 1994 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class D Shares for the Period Dollar
Dec. 30, 1994++ to Nov. 30, 1995 Shares Amount
Shares sold 153,535 $ 1,573,684
Shares redeemed (8,491) (90,636)
----------- -----------
Net increase 145,044 $ 1,483,048
=========== ===========
[FN]
++Prior to December 30, 1994 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
5. Subsequent Event:
On December 15, 1995, the Board of Directors of the Fund declared an
ordinary income dividend in the amount of $0.873127 per Class A Share,
$0.765492 per Class B Share, $0.763079 per Class C Share, and
$0.849586 per Class D Share, payable on December 22, 1995 to
shareholders of record as of December 14, 1995.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Middle East/Africa Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Middle East/Africa Fund, Inc. as of November 30, 1995, the related
statement of operations, changes in net assets and the financial
highlights for the period December 30, 1994 (commencement of
operations) to November 30, 1995. 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 financial highlights based on our audit.
We conducted our audit 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 November
30, 1995, by correspondence with the custodian. 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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Middle East/Africa Fund, Inc. as
of November 30, 1995, the results of its operations, the changes in
its net assets, and the financial highlights for the period December
30, 1994 to November 30, 1995 in conformity with generally accepted
accounting principles.
Deloitte & Touche, LLP
Princeton, New Jersey
January 10, 1996
</AUDIT-REPORT>
