MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Semi-Annual Report
May 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, 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, Senior Vice President
Donald C. Burke, Vice President
Grace Pineda, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
James W. Harshaw, 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.
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
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
May 31, 1996
A map illustrating the following percentages:
GHANA 1.6%
MOROCCO 4.6%
SOUTH AFRICA 46.0%
BOTSWANA 1.7%
TURKEY 17.3%
ISRAEL 12.0%
EGYPT 0.6%
ZIMBABWE 7.3%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the quarter ended May 31, 1996, total returns for Merrill
Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were -6.57%, -6.69%, -6.77% and -6.58%, respectively.
Performance of the unmanaged Morgan Stanley Capital International
Indexes for the largest equity markets in the regions varied. The
South Africa Equity Index fell 3.55%; the Israel Equity Index rose
0.17%; and the Turkey Equity Index rose 17.80%. In addition, the
unmanaged J.P. Morgan Securities' South African Bond Index fell
17.34%, and the Johannesburg Stock Exchange South African Gold
Shares Index rose 30.4%. The Fund's performance during the quarter
ended May 31, 1996 benefited from its exposure to South African gold
shares and Turkish equities, 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 4 and 5 of this report to shareholders.)
<PAGE>
Investment Activities
During the May quarter, we modestly increased our cash position from
4.3% of net assets to 5.2%. Our holdings were invested in eight
countries, with the bulk of investments at May 31, 1996 in South
African companies which comprised 46.0% of net assets; Turkish
holdings, 17.3%; and Israeli companies, 12.0%. We reduced our
exposure to Israel and South Africa but increased our holdings
in Turkey.
South Africa's financial markets were negatively impacted by the
decline of its currency, the South African rand. During the quarter
ended May 31, 1996, the rand fell by 15.8%, forcing higher interest
rates to deter capital outflows in light of low foreign reserves.
The rand began to show some stability, falling by less than 1% in
May. Supporting the stability of the rand and the South African
stock market was investors' expectation of a comprehensive economic
package which would address the country's long-term problems of high
unemployment and governmental budget deficits.
One of our larger Fund holdings is South African Breweries Limited
(SAB), the world's fifth-largest brewer. SAB has a dominant position
in the South African beer market. SAB's flagship beer, Castle, is
the most popular beer in South Africa. Being a low-cost producer
allows the company to sell its beer well below the competitions'
prices. Castle draft sells for four rands, approximately $0.89 in US
dollars, compared to beer imports selling for nine rands or US$2.00.
Management successfully kept beer price increases below the general
inflation rate in order to increase sales volume. In addition, SAB's
international growth prospects remain very good. The company
recently acquired a major stake in a large brewer in Poland.
In Turkey, political events dominated the performance of the equity
market. Earlier in the year, news of the formation of a coalition
government caused the equity market to rally. However, with the
coalition's recent dissipation, uncertainty over Turkish economic
policies is expected to continue in the foreseeable future. With the
recent declines in the equity market, we selectively increased our
exposure to Turkish equities, while at the same time selling some
holdings in order to better focus on core positions.
<PAGE>
In Israel, after the elections for prime minister on May 29, 1996,
the equity market declined by 5% because of initial concern over the
progress of the Middle East peace process under newly elected Prime
Minister Benjamin Netanyahu's leadership. During the May quarter, we
selectively sold some of the Fund's smaller holdings in Israel.
We recently started investing in the Egyptian equity market. The
government is showing a greater commitment to economic reform and is
encouraging foreign investment. The economy should experience
healthy growth in 1996 with moderate inflation. We find the market
relatively inexpensive on a price/earnings basis and with a very
high dividend yield. One of our recent purchases was Commercial
International Bank. The bank is well-capitalized, allowing it to
support a very high dividend payout policy.
In Conclusion
Our outlook for investments in the Middle East/Africa region is
positive. However, new challenges arose in the three major markets
we invest in, South Africa, Turkey and Israel. While we will pay
close attention to developments in these areas, we caution investors
that the region is subject to high volatility and low liquidity
constraints for trading in equities.
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 next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
<PAGE>
June 28, 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:
* 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.
PERFORMANCE DATA (concluded)
Average Annual
Total Return
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 + 4.45% -2.86%
Inception (12/30/94)
through 3/31/96 +10.18 +5.54
[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*
Year Ended 3/31/96 +3.41% -2.29%
Inception (12/30/94)
through 3/31/96 +9.06 +6.71
[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 3/31/96 +3.39% +0.52%
Inception (12/30/94)
through 3/31/96 +9.04 +9.04
[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**
<PAGE>
Class D Shares*
Year Ended 3/31/96 +4.22% -3.08%
Inception (12/30/94)
through 3/31/96 +9.91 +5.28
[FN]
*Maximum sales charge is 5.25%. Maximum redemption fee is 2% and is
reduced to 0% after 1 year.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
5/31/96 2/29/95 5/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.95 $10.65 $10.72 -7.18% -6.57%
Class B Shares 9.91 10.62 10.68 -7.21 -6.69
Class C Shares 9.91 10.63 10.68 -7.21 -6.77
Class D Shares 9.94 10.64 10.71 -7.19 -6.58
Class A Shares-Total Return +0.86(1) -6.57
Class B Shares-Total Return -0.16(2) -6.69
Class C Shares-Total Return -0.18(3) -6.77
Class D Shares-Total Return +0.64(4) -6.58
<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**
<S> <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--5/31/96 10.13 9.95 -- -- - 1.78
------
Total $0.873
<PAGE>
Cumulative total return as of 5/31/96: + 8.13%**
<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>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <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--5/31/96 10.13 9.91 -- -- -2.17
------
Total $0.765
Cumulative total return as of 5/31/96: +6.63%**
<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**
<S> <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--5/31/96 10.13 9.91 -- -- -2.17
------
Total $0.763
<PAGE>
Cumulative total return as of 5/31/96: +6.61%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <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--5/31/96 10.13 9.94 -- -- -1.88
------
Total $0.850
Cumulative total return as of 5/31/96: +7.79%**
<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>
<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 $ 170,926 1.7%
Total Investments in Botswana 190,492 170,926 1.7
<PAGE>
Ghana Health & Personal 85,000 ++Unilever Ghana Ltd. 62,559 43,549 0.4
Care
Multi-Industry 723,795 Guiness Ghana Ltd. 132,915 109,463 1.1
Tobacco 70,000 ++Pioneer Tobacco Co. Ltd. 5,081 5,488 0.1
Total Investments in Ghana 200,555 158,500 1.6
Morocco Banking 5,000 ++Banque Marocaine du
Commerce Exterieure 175,544 220,050 2.2
1,428 ++Banque Marocaine du
Commerce Exterieure (New
Shares) 45,827 61,214 0.6
---------- ---------- ------
221,371 281,264 2.8
Building & 2,000 Groupe Omnium Nord Africain 89,279 93,736 1.0
Construction
Building Materials 2,000 ++Les Ciments de l'Oriental 87,576 75,446 0.8
Total Investments in Morocco 398,226 450,446 4.6
South Africa Beverages 14,700 South African Breweries Limited 395,332 448,088 4.5
Diversified 21,500 Barlow Rand Ltd. 300,190 227,095 2.3
Entertainment 420,614 Sun International
(Bophuthatswana), Ltd. 601,304 492,568 5.0
Financial Services 26,600 Amalgamated Bank of South
Africa 148,430 135,291 1.4
15,000 First National Bank Holdings
Limited 150,017 99,885 1.0
---------- ---------- ------
298,447 235,176 2.4
Foreign ZAL 4,700,000 South African Bond, 12% due
Government 2/28/2005 997,096 877,405 8.9
Obligations
Mining 37,000 Beatrix Mines Ltd. 298,396 348,335 3.5
38,800 Driefontein Consolidated Ltd.
(ADR)(a) 570,167 567,450 5.8
38,600 Kinross Mines Ltd. 412,447 425,442 4.3
34,700 Randfontein Estates Gold
Mining Co. Witwatersrand Ltd. 250,019 254,971 2.6
11,577 Western Areas Gold Mining
Company Ltd. (ADR)(a) 164,189 180,891 1.8
17,126 Western Areas Gold Mining
Company Ltd. (Ordinary) 228,544 271,342 2.8
---------- ---------- ------
1,923,762 2,048,431 20.8
<PAGE>
Retail 110,000 ++Teljoy Holdings Ltd. 192,631 77,038 0.8
Steel 166,403 ++South Africa Iron & Steel
Industrial Corp., Ltd. 159,931 128,002 1.3
Total Investments in South
Africa 4,868,693 4,533,803 46.0
Zimbabwe Beverage & Tobacco 217,000 Delta Corporation 290,655 569,017 5.8
Real Estate 215,000 Hippo Valley Estates 76,846 151,069 1.5
Total Investments in Zimbabwe 367,501 720,086 7.3
Total Investments in Africa 6,025,467 6,033,761 61.2
MIDDLE
EAST
Egypt Banking 460 ++Commercial International
Bank (Egypt) S.A.E. 60,437 59,644 0.6
Total Investments in Egypt 60,437 59,644 0.6
Israel Banking 194,852 Bank Hapoalim Ltd. 309,137 288,565 2.9
Engineering & 3,603 Koor Industries Ltd. 301,578 311,643 3.2
Construction 5,000 Koor Industries Ltd.
(Sponsored) (ADR)(a) 89,050 90,000 0.9
---------- ---------- ------
390,628 401,643 4.1
Health & Personal 5,600 Teva Pharmaceutical
Care Industries Ltd. (ADR)(a) 199,850 250,600 2.6
Merchandising 37,100 ++Blue Square Stores 201,555 240,375 2.4
Total Investments in Israel 1,101,170 1,181,183 12.0
<PAGE>
Turkey Banking 1,724,000 Turkiye Garanti Bankasi A.S. 272,906 88,877 0.9
2,155,000 Turkiye Garanti Bankasi A.S. 17,391 111,097 1.1
55,800 Turkiye Garanti Bankasi A.S.
(ADR)(a)++++ 275,292 279,000 2.8
---------- ---------- ------
565,589 478,974 4.8
Brewery 22,300 Erciyas Biracilik Ve Malt
Sanayii A.S. (ADR)(a) 299,935 239,725 2.4
14,800 Erciyas Biracilik Ve Malt
Sanayii A.S. (ADR)(a)++++ 199,800 159,100 1.6
---------- ---------- ------
499,735 398,825 4.0
Merchandising 480,600 Migros Turk A.S. 197,259 360,939 3.7
Steel 4,366,000 Eregli Demir Ve Celik
Fabrikalari T.A.S. (Erdemir) 509,142 472,391 4.8
Total Investments in Turkey 1,771,725 1,711,129 17.3
Total Investments in the
Middle East 2,933,332 2,951,956 29.9
SHORT-TERM
SECURITIES
Commercial* US$ 511,000 General Electric Capital
Paper Corp., 5.40% due 6/03/1996 510,847 510,847 5.2
Total Investments in
Short-Term Securities 510,847 510,847 5.2
Total Investments $9,469,646 9,496,564 96.3
==========
Other Assets Less Liabilities 369,922 3.7
---------- ------
Net Assets $9,866,486 100.0%
========== ======
<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).
++Non-income producing security.
++++Restricted securities as to resale. The value of the Fund's investment
was approximately $438,000, representing 4.4% of net assets.
<PAGE>
Acquisition Value
Issue Date(s) Cost (Note 1a)
Erciyas Biracilik Ve 10/05/1995--
Malt Sanayii A.S. (ADR) 10/30/1995 $199,800 $159,100
Turkiye Garanti Bankasi 3/24/1995--
A.S. (ADR) 4/26/1996 275,292 279,000
Total $475,092 $438,100
======== ========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$9,469,646) (Note 1a) $ 9,496,564
Cash 2,039
Receivables:
Investment adviser (Note 2) $ 72,601
Securities sold 52,061
Interest 32,728
Dividends 25,838 183,228
-----------
Deferred organization expenses (Note 1f) 244,557
Prepaid registration fees and other assets (Note 1f) 55,719
-----------
Total assets 9,982,107
-----------
Liabilities: Payables:
Securities purchased 56,698
Capital shares redeemed 13,502
Distributor (Note 2) 7,209 77,409
-----------
Accrued expenses and other liabilities 38,212
-----------
Total liabilities 115,621
-----------
Net Assets: Net assets $ 9,866,486
===========
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 5,856
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 71,256
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 8,511
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 13,896
Paid-in capital in excess of par 10,019,761
Undistributed investment income--net 119,801
Accumulated realized capital losses on investments and foreign
currency transactions--net (396,378)
Unrealized appreciation on investments and foreign currency
transactions--net 23,783
-----------
Net assets $ 9,866,486
===========
Net Asset Class A--Based on net assets of $582,918 and 58,560 shares
Value: outstanding $ 9.95
===========
Class B--Based on net assets of $7,058,994 and 712,555 shares
outstanding $ 9.91
===========
Class C--Based on net assets of $843,394 and 85,110 shares
outstanding $ 9.91
===========
Class D--Based on net assets of $1,381,180 and 138,962 shares
outstanding $ 9.94
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
For the Six Months Ended May 31, 1996
<S> <S> <C> <C>
Investment Dividends (net of $6,132 foreign withholding tax) $ 133,445
Income Interest and discount earned 92,357
(Notes 1d & 1e): -----------
Total income 225,802
-----------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 54,163
Account maintenance and distribution fees--Class B (Note 2) 39,045
Amortization of organization expenses (Note 1f) 30,357
Professional fees 29,817
Printing and shareholder reports 25,667
Accounting services (Note 2) 22,793
Directors' fees and expenses 19,768
Registration fees (Note 1f) 17,246
Custodian fees 13,834
Transfer agent fees--Class B (Note 2) 8,540
Account maintenance and distribution fees--Class C (Note 2) 4,609
Account maintenance fees--Class D (Note 2) 1,850
Transfer agent fees--Class D (Note 2) 1,358
Pricing fees 1,060
Transfer agent fees--Class C (Note 2) 1,005
Transfer agent fees--Class A (Note 2) 570
Other 3,960
-----------
Total expenses before reimbursement 275,642
Reimbursement of expenses (Note 2) (203,056)
-----------
Total expenses after reimbursement 72,586
-----------
Investment income--net 153,216
-----------
Realized & Realized loss from:
Unrealized Gain Investments--net (379,095)
(Loss) on Foreign currency transactions--net (16,766) (395,861)
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 352,158
(Notes 1b, 1c, Foreign currency transactions--net (2,966) 349,192
1e & 3): ----------- -----------
Net realized and unrealized loss on investments and foreign
currency transactions (46,669)
-----------
Net Increase in Net Assets Resulting from Operations $ 106,547
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the
For the Period
Six Months Dec. 30,
Ended 1994++ to
May 31, Nov. 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 153,216 $ 806,936
Realized loss on investments and foreign currency transactions--net (395,861) (28,517)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 349,192 (325,409)
----------- -----------
Net increase in net assets resulting from operations 106,547 453,010
----------- -----------
Dividends and Investment income--net:
Distributions to Class A (51,662) --
Shareholders Class B (541,025) --
(Note 1g): Class C (71,137) --
Class D (121,684) --
Realized gain on investments--net:
Class A (1,581) --
Class B (18,967) --
Class C (2,502) --
Class D (3,831) --
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (812,389) --
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (358,044) 10,377,362
(Note 4): ----------- -----------
Net Assets: Total increase (decrease)in net assets (1,063,886) 10,830,372
Beginning of period 10,930,372 100,000
----------- -----------
End of period* $ 9,866,486 $10,930,372
=========== ===========
<FN>
*Undistributed investment income--net $ 119,801 $ 752,093
=========== ===========
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data Class A Class B Class C Class D
and ratios have been derived For the For the For the For the For the For the For the For the
from information provided Six Period Six Period Six Period Six Period
in the financial statements. Months Dec. 30, Months Dec. 30, Months Dec. 30, Months Dec. 30,
Ended 1994++ to Ended 1994++ to Ended 1994++ to Ended 1994++ to
Increase (Decrease) in May 31, Nov. 30, May 31, Nov. 30, May 31, Nov. 30, May 31, Nov. 30,
Net Asset Value: 1996++++ 1995 1996++++ 1995 1996++++ 1995 1996++++ 1995
<PAGE>
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 10.66 $ 10.00 $ 10.56 $ 10.00 $ 10.56 $ 10.00 $ 10.63 $ 10.00
Performance: ------- ------- ------- ------- ------- ------- ------- -------
Investment income--net .19 .57 .14 .79 .14 .83 .18 .77
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net (.02) .09 (.02) (.23) (.02) (.27) (.02) (.14)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations .17 .66 .12 .56 .12 .56 .16 .63
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Investment income--net (.85) -- (.74) -- (.74) -- (.82) --
Realized gain on
investments--net (.03) -- (.03) -- (.03) -- (.03) --
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions (.88) -- (.77) -- (.77) -- (.85) --
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end
of period $ 9.95 $ 10.66 $ 9.91 $ 10.56 $ 9.91 $ 10.56 $ 9.94 $ 10.63
======= ======= ======= ======= ======= ======= ======= =======
Total Investment Based on net asset
Return:** value per share 1.43%+++ 6.60%+++ .98%+++ 5.60%+++ .96%+++ 5.60%+++ 1.40%+++ 6.30%+++
======= ======= ======= ======= ======= ======= ======= =======
Ratios to Average Expenses, net of
Net Assets: reimbursement .47%* .00%* 1.50%* 1.01%* 1.50%* 1.01%* .72%* .25%*
======= ======= ======= ======= ======= ======= ======= =======
Expenses 4.22%* 4.63%* 5.24%* 5.68%* 5.25%* 5.67%* 4.47%* 4.89%*
======= ======= ======= ======= ======= ======= ======= =======
Investment income--net 3.69%* 8.43%* 2.65%* 8.33%* 2.68%* 8.45%* 3.45%* 9.07%*
======= ======= ======= ======= ======= ======= ======= =======
Supplemental Net assets, end of
Data: period (in thousands) $ 583 $ 648 $ 7,059 $ 7,701 $ 843 $ 1,012 $ 1,381 $ 1,569
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover 18.15% 40.97% 18.15% 40.97% 18.15% 40.97% 18.15% 40.97%
======= ======= ======= ======= ======= ======= ======= =======
Average commission
rate paid+++++ $ .0017 -- $ .0017 -- $ .0017 -- $ .0017 --
======= ======= ======= ======= ======= ======= ======= =======
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average outstanding shares during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a
normal recurring nature. 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).
Written and purchased options are non-income producing investments.
<PAGE>
* 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.
(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. Prepaid registration fees are
charged to expense as the related shares are issued.
<PAGE>
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
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, 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 six months ended May 31, 1996, MLAM earned fees of $54,163, all
of which was voluntarily waived. MLAM also reimbursed the Fund
$148,893 in additional expenses.
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
<PAGE>
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.
For the six months ended May 31, 1996, 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 $96 $1,260
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended May 31, 1996, MLPF&S received contingent
deferred sales charges of $21,098 and $1,354 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $205 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended May 31, 1996.
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.
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 six months ended May 31, 1996 were $2,054,872 and $1,746,642.
Net realized and unrealized gains (losses) as of May 31, 1996 were
as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $(379,104) $ 26,918
Short-term investments 9 --
Foreign currency transactions (16,766) (3,135)
--------- ---------
Total $(395,861) $ 23,783
========= =========
As of May 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $26,918, of which $959,164 related to
appreciated securities and $932,246 related to depreciated
securities. The aggregate cost of investments at May 31, 1996 for
Federal income tax purposes was $9,469,646.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(358,044) and $10,377,362 for the six months ended
May 31, 1996 and for the period ended November 30, 1995,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended May 31, 1996 Shares Amount
Shares sold 13,210 $ 140,558
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,358 26,067
---------- ----------
Total issued 15,568 166,625
Shares redeemed (17,864) (189,903)
---------- ----------
Net decrease (2,296) $ (23,278)
========== ==========
Class A Shares for the Period Dollar
December 30, 1994++ to November 30, 1995 Shares Amount
Shares sold 68,348 $ 729,728
Shares redeemed (9,993) (106,209)
---------- ----------
Net increase 58,355 $ 623,519
========== ==========
<PAGE>
[FN]
++Prior to December 30, 1994 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class B Shares for the Six Months Dollar
Ended May 31, 1996 Shares Amount
Shares sold 58,866 $ 632,157
Shares issued to shareholders in
reinvest-ment of dividends and
distributions 6,020 63,140
---------- ----------
Total issued 64,886 695,297
Shares redeemed (81,745) (832,469)
---------- ----------
Net decrease (16,859) $ (137,172)
========== ==========
Class B Shares for the Period Dollar
December 30, 1994++ to November 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 Six Months Dollar
Ended May 31, 1996 Shares Amount
Shares sold 11,046 $ 119,453
Shares issued to shareholders in
reinvestment of dividends and
distributions 704 7,729
---------- ----------
Total issued 11,750 127,182
Shares redeemed (22,462) (231,564)
---------- ----------
Net decrease (10,712) $ (104,382)
========== ==========
<PAGE>
Class C Shares for the Period Dollar
December 30, 1994++ to November 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 Six Months Dollar
Ended May 31, 1996 Shares Amount
Shares sold 8,278 $ 88,115
Shares issued to shareholders in
reinvestment of 2,310 23,924
---------- ----------
Total issued 10,588 112,039
Shares redeemed (19,169) (205,251)
---------- ----------
Net decrease (8,581) $ (93,212)
========== ==========
Class D Shares for the Period Dollar
December 30, 1994++ to November 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. Commitments:
At May 31, 1996, the Fund had entered into foreign exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with approximate values of $9,000 and $95,000,
respectively.
<PAGE>
PORTFOLIO INFORMATION
For the Quarter Ended May 31, 1996
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Driefontein Consolidated Ltd. (ADR) 5.8%
Delta Corporation 5.8
Sun International (Bophuthatswana), Ltd. 5.0
Turkiye Garanti Bankasi A.S.* 4.8
Eregli Demir Ve Celik Fabrikalari T.A.S. (Erdemir) 4.8
Western Areas Gold Mining Company Ltd.* 4.6
South African Breweries, Limited 4.5
Kinross Mines Ltd. 4.3
Koor Industries Ltd.* 4.1
Erciyas Biracilik Ve Malt Sanayii A.S. (ADR)* 4.0
[FN]
*Includes combined holdings.
Percent of
Ten Largest Industries Net Assets
Mining 20.8%
Banking 11.1
Merchandising 6.1
Steel 6.1
Beverage and Tobacco 5.8
Entertainment 5.0
Beverages 4.5
Engineering & Construction 4.1
Brewery 4.0
Health & Personal Care 3.0
Additions
Banque Marocaine du Commerce Exterieure (New Shares)
Commercial International Bank (Egypt) S.A.E.
Eregli Demir Ve Celik Fabrikalari T.A.S. (Erdemir)
Koor Industries Ltd. (Sponsored)(ADR)
Turkiye Garanti Bankasi A.S.
<PAGE>
Deletions
Africa-Israel Investments Ltd.
American Israeli Paper Mills Ltd.
American Israeli Paper Mills Ltd. (ADR)
Ampal-American Israel Corp. (ADR)
Bank Leumi Israel
Kerevitas Gida Sanayii Ve Ticaret A.S.
Malbak Ltd. (GDR)
Tofas Turk Otomobil Fabrikasi A.S.
