MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Quarterly Report
February 29, 1996
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
James W. Harshaw, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
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.
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
February 29, 1996
<PAGE>
A map illustrating the following percentages:
Ghana 1.4%
Morocco 3.5%
South Africa 49.0%
Botswana 1.5%
Turkey 14.1%
Zimbabwe 5.8%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the three-month period ended February 29, 1996, total returns
for Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +8.57%, +8.21%, +8.29% and +8.54%,
respectively. Performance of the unmanaged Morgan Stanley Capital
International Indexes for the largest equity markets in the regions-
- -Israel, South Africa and Turkey--also rose. The South Africa Equity
Index increased 5.1%, the Israel Equity Index climbed 7.6% and the
Turkey Equity Index appreciated 27.0%. In addition, the unmanaged
J.P. Morgan South African Bond Index declined 3.9%, and the
unmanaged Johannesburg Stock Exchange South African Gold Shares
Index was up 30.4%. The Fund's performance during the February
quarter benefited from its exposure in Turkey and to South African
gold shares, but was hurt by its exposure to South African bonds.
(Investment 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 3--5 of this report to shareholders.)
Investment Activities
Since November 30, 1995, the Fund's cash level declined from 17.0%
of net assets to 4.3% at February 29, 1996 as we increased
investments in South Africa. We purchased stocks selectively during
periods of market weakness, focusing our attention on companies
whose earnings would benefit from the depreciation of the currency,
the South African rand. By mid-February, the rand was devalued.
During the month of February, the rand's value depreciated by 5.7%
in US dollar terms, resulting in declines in the equity index of
8.0% and in the bond index of 9.15%.
<PAGE>
The rand's weakness was precipitated by rumors pertaining to 77-year-
old President Nelson Mandela's health and to the premature
relaxation of exchange controls. However, we believe the currency
weakness stems largely from South Africa's growing trade deficit
coupled with its low foreign exchange reserves. Given South Africa's
need for foreign capital and the likely easing of foreign exchange
controls in upcoming months, we believe the volatility of the rand
will continue. To offset this volatility, we expect the South
African government to announce new taxes to help reduce the budget
deficit, which is currently 6% of gross domestic product.
One of our recent stock purchases which should benefit from a weaker
rand is Sun International (Bophuthatswana), Ltd., a hotel and
gambling concern. A weak currency will boost the tourism industry,
which already has experienced dramatic growth since the end of
apartheid in 1994. Sun International owns the Sun City complex, a
popular resort that generates 80% of its revenues from gambling. The
South African government plans to increase the number of gambling
licenses, which will further develop the industry and create more
opportunities for Sun City. We find the stock attractive because its
price/earnings ratio is substantially lower than the average of the
South African stock market.
We also believe the Turkish stock market is inexpensive. Political
uncertainty lessened recently after an agreement to form a coalition
government was reached. A formal government has not existed since
the collapse of the former Turkish government in September 1995. In
addition, investors were concerned that the Refah Party, which is
less supportive of business, would gain government control. However,
the newly formed coalition excluded Refah and the stock market has
rallied. The declines in Turkey's inflation and interest rates also
helped support the rally.
Over the past year, we accumulated the stock of Erciyas Biracilik Ve
Malt Sanayii A.S., a major Turkish beer brewer. We believe this
company will receive greater investor interest for its steady
earnings growth and its strong balance sheet. In addition, the large
export component to its earnings is attractive since we expect
further depreciation in the Turkish lira. Erciyas has high operating
margins because it is a low-cost producer operating in a relatively
benign competitive environment, where marketing expenditures are
relatively nominal. Finally, with beer consumption per capita in
Turkey remaining substantially lower than its European neighbors,
there is potential for demand growth in Erciyas' product.
<PAGE>
In Israel, recent terrorist bombings by the extremist group Hamas
hampered peace negotiations with Palestine and Syria. However, the
impact on the Israeli stock market was muted, which we believe is a
reflection of investors' modest expectations of the Middle East
peace process. We believe a stronger determinant of near-term
performance is the uncertain direction of interest rates.
Ministerial elections are scheduled at the end of May, after which
we believe Israel's leadership will gain a stronger mandate to
administer economic policies and to pursue diplomatic objectives in
the region. We are monitoring developments in Israel very closely.
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 semi-annual report to
shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
April 3, 1996
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:
<PAGE>
* 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.
* 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. 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 12/31/95 +10.08% +2.38%
Inception (12/30/94) through 12/31/95 +10.08 +2.38
[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>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +9.00% +3.00%
Inception (12/30/94) through 12/31/95 +9.00 +3.99
[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*
Year Ended 12/31/95 +8.98% +5.96%
Inception (12/30/94) through 12/31/95 +8.98 +6.95
[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*
Year Ended 12/31/95 +9.85% +2.16%
Inception (12/30/94) through 12/31/95 +9.85 +2.16
[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>
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
2/29/96 11/30/95 2/28/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.65 $10.66 $10.17 + 4.72% -0.09%
Class B Shares 10.62 10.56 10.16 + 4.53 +0.57
Class C Shares 10.63 10.56 10.16 + 4.63 +0.66
Class D Shares 10.64 10.63 10.17 + 4.62 +0.09
Class A Shares-Total Return +13.80(1) +8.57(1)
Class B Shares-Total Return +12.47(2) +8.21(2)
Class C Shares-Total Return +12.55(3) +8.29(3)
Class D Shares-Total Return +13.45(4) +8.54(4)
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.873 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.765 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.763 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.850 per share ordinary
income dividends.
</TABLE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/30/94--12/31/94 $10.00 $10.00 -- -- 0.00%
1995 10.00 10.13 -- $0.873 +10.08
1/1/96--2/29/96 10.13 10.65 -- -- + 5.13
------
Total $0.873
Cumulative total return as of 2/29/96: +15.73%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/30/94--12/31/94 $10.00 $10.00 -- -- 0.00%
1995 10.00 10.13 -- $0.765 +9.00
1/1/96--2/29/96 10.13 10.62 -- -- +4.84
------
Total $0.765
Cumulative total return as of 2/29/96: +14.27%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/30/94--12/31/94 $10.00 $10.00 -- -- 0.00%
1995 10.00 10.13 -- $0.763 +8.98
1/1/96--2/29/96 10.13 10.63 -- -- +4.94
------
Total $0.763
Cumulative total return as of 2/29/96: +14.36%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect the deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/30/94--12/31/94 $10.00 $10.00 -- -- 0.00%
1995 10.00 10.13 -- $0.850 +9.85
1/1/96--2/29/96 10.13 10.64 -- -- +5.03
------
Total $0.850
Cumulative total return as of 2/29/96: +15.38%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
PORTFOLIO INFORMATION
As of February 29, 1996
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Driefontein Consolidated Ltd. (ADR) 5.3%
South African Breweries Limited 4.6
Delta Corporation 4.3
Kinross Mines Ltd. 4.1
South Africa Iron & Steel Industrial Corp., Ltd. 3.3
Koor Industries Ltd. 3.2
Migros Turk A.S. 3.2
Sun International (Bophuthatswana)Ltd. 3.2
Beatrix Mines Ltd. 3.1
Bank Leumi Israel 2.9
<PAGE>
Percent of
Ten Largest Industries Net Assets
Mining 19.4%
Banking 11.1
Multi-Industry 6.9
Merchandising 5.7
Beverages 4.6
Beverage & Tobacco 4.3
Brewery 4.3
Steel 3.3
Engineering & Construction 3.2
Entertainment 3.2
Additions
Amalgamated Bank of South Africa
Barlow Rand Ltd.
First National Bank Holdings Limited
Sun International (Bophuthatswana), Ltd.
Deletion
Turk Siemens Kablo Ve Elektrik Sanayii A.S.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 232,000 Sechaba Investment Trust $ 190,492 $ 171,750 1.5%
Total Investments in Botswana 190,492 171,750 1.5
<PAGE>
Ghana Health & Personal 85,000 Unilever Ghana Ltd. 62,559 44,830 0.4
Care
Multi-Industry 723,795 Guiness Ghana Ltd. 132,915 103,467 0.9
Tobacco 70,000 Pioneer Tobacco Co. Ltd. 5,081 5,848 0.1
Total Investments in Ghana 200,555 154,145 1.4
Morocco Banking 5,000 Banque Marocaine du Commerce Exterieure 221,372 237,108 2.1
Building & 2,000 Groupe Omnium Nord Africain 89,279 80,395 0.7
Construction
Building Materials 2,000 Les Ciments de l'Oriental 87,576 78,298 0.7
Total Investments in Morocco 398,227 395,801 3.5
South Beverages 14,700 South African Breweries Limited 395,332 512,791 4.6
Africa
Diversified 21,500 Barlow Rand Ltd. 300,190 286,111 2.6
Entertainment 266,500 Sun International (Bophuthatswana), Ltd. 407,632 358,088 3.2
Financial 26,600 Amalgamated Bank of South Africa 148,430 149,496 1.3
Services 15,000 First National Bank Holdings Limited 150,017 127,907 1.2
------------ ------------ ------
298,447 277,403 2.5
Foreign ZAL 4,700,000 South African Bond, 12% due 2/28/2005 997,096 1,062,054 9.4
Government
Obligations
Mining 37,000 Beatrix Mines Ltd. 298,396 344,186 3.1
38,800 Driefontein Consolidated Ltd. (ADR)(a) 570,167 591,700 5.3
38,600 Kinross Mines Ltd. 412,447 463,798 4.1
34,700 Randfontein Estates Gold Mining Co.
Witwatersrand Ltd. 250,019 300,375 2.6
11,576 Western Areas Gold Mining Company
Ltd. (ADR)(a) 164,189 192,451 1.7
17,126 Western Areas Gold Mining Company Ltd.
(Ordinary) 228,544 289,859 2.6
------------ ------------ ------
1,923,762 2,182,369 19.4
Multi-Industry 52,852 Malbak Ltd. (GDR)(b) 304,425 290,686 2.6
Retail 110,000 Teljoy Holdings Ltd. 192,631 156,331 1.4
Steel 445,252 South Africa Iron & Steel Industrial
Corp. Ltd. 481,270 377,371 3.3
Total Investments in South Africa 5,300,785 5,503,204 49.0
<PAGE>
Zimbabwe Beverage & Tobacco 217,000 Delta Corporation 290,655 481,840 4.3
Real Estate 215,000 Hippo Valley Estates 76,846 168,226 1.5
Total Investments in Zimbabwe 367,501 650,066 5.8
Total Investments in Africa 6,457,560 6,874,966 61.2
MIDDLE
EAST
Israel Banking 194,852 Bank Hapoalim Ltd. 309,137 307,502 2.8
245,000 Bank Leumi Israel 303,793 328,132 2.9
------------ ------------ ------
612,930 635,634 5.7
Engineering & 3,603 Koor Industries Ltd. 301,578 364,265 3.2
Construction
Health & 5,600 Teva Pharmaceutical Industries Ltd.
Personal Care (ADR)(a) 199,850 240,800 2.1
Merchandising 37,100 Blue Square Stores 201,555 274,544 2.5
Multi-Industry 32,300 Ampal-American Israel Corp. (ADR)(a) 196,639 213,987 1.9
Paper & Forest 1,845 American Israeli Paper Mills Ltd. 98,685 73,964 0.7
Products 1,800 American Israeli Paper Mills Ltd.
(ADR)(a) 97,251 72,000 0.6
------------ ------------ ------
195,936 145,964 1.3
Real Estate 41 Africa-Israel Investments Ltd. 49,411 47,726 0.4
Total Investments in Israel 1,757,899 1,922,920 17.1
Turkey Automobiles 560,000 Tofas Turk Otomobil Fabrikasi A.S. 126,768 62,412 0.6
Banking 1,724,000 Turkiye Garanti Bankasi A.S. 272,906 155,292 1.4
24,800 Turkiye Garanti Bankasi A.S. (ADR)(a) 249,925 218,612 1.9
------------ ------------ ------
522,831 373,904 3.3
<PAGE>
Brewery 22,300 Erciyas Biracilik Ve Malt Sanayii
A.S. (ADR)(a) 299,935 287,224 2.6
14,800 Erciyas Biracilik Ve Malt Sanayii
A.S. (ADR)(a) 199,800 190,624 1.7
------------ ------------ ------
499,735 477,848 4.3
Foods 3,100,000 Kerevitas Gida Sanayii Ve Ticaret A.S. 368,113 302,901 2.7
Merchandising 320,400 Migros Turk A.S. 197,259 361,979 3.2
Total Investments in Turkey 1,714,706 1,579,044 14.1
Total Investments in the Middle East 3,472,605 3,501,964 31.2
SHORT-TERM Commercial US$ 481,000 General Electric Capital Corp., 5.42%
SECURITIES Paper* due 3/01/1996 481,000 481,000 4.3
Total Investments in
Short-Term Securities 481,000 481,000 4.3
Total Investments $ 10,411,165 10,857,930 96.7
============
Other Assets Less Liabilities 370,826 3.3
------------ ------
Net Assets $ 11,228,756 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $632,679 and
59,427 shares outstanding $ 10.65
============
Class B--Based on net assets of $8,152,526 and
767,434 shares outstanding $ 10.62
============
Class C--Based on net assets of $942,738 and
88,718 shares outstanding $ 10.63
============
Class D--Based on net assets of $1,500,813 and
141,093 shares outstanding $ 10.64
============
<FN>
*Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
</TABLE>
<PAGE>
