MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Quarterly Report
August 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
Printed on post-consumer recycled paper
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
August 31, 1996
A map illustrating the following percentages:
Ghana 2.0%
Morocco 5.4%
South Africa 47.0%
Botswana 2.0%
Turkey 8.0%
Israel 13.2%
Egypt 1.8%
Zimbabwe 4.8%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the quarter ended August 31, 1996, total returns for Merrill
Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were -6.23%, -6.56%, -6.56% and -6.34%, respectively.
(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.) The unmanaged Morgan Stanley Capital
International Indexes for the largest equity markets in the region--Israel,
South Africa and Turkey--registered returns of -7.73%, -6.30% and -6.17%,
respectively. In addition, the unmanaged J.P. Morgan Securities South
African Bond Index was up 3.46% (in US dollars terms), and the
unmanaged Johannesburg Stock Exchange South African Gold Shares
Index increased by 13.9%. The Fund's performance benefited from its
underweighting in South Africa, but was negatively impacted by its
overweight position in Turkey.
Investment Overview
Speculation on global interest rates continued to negatively impact
the stock markets in the Middle East/Africa region, as did the
correction in the US stock market, especially during the month of
July. On a regional basis, the three major markets of Israel, South
Africa and Turkey continued to experience sharp declines over the
three months ended August 31, 1996.
<PAGE>
In Israel, higher interest rates led to steep declines in the equity
market. However, decreased inflation and impending reductions in
budget spending led to a drop in interest rates and a stock market
rally. Since Benjamin Netanyahu's election as prime minister, the
market's performance has been constrained by lingering questions
regarding his commitment to regional peace.
In South Africa, the stock market declined because of concerns
pertaining to the vulnerability of its currency, the rand, the
worsening economic outlook, the deteriorating law and order
situation, and investors' perception that the government is unable
to address these problems. However, there was a recovery in the
stock market as the government gave assurances that short-term
interest rates would not be increased, and investors began to look
for value in the market. Gold shares performed independently
throughout the August quarter, declining significantly because of
the spillover from turmoil in the commodities markets, but
stabilizing when the rest of the stock market suffered steep
declines.
The Turkish stock market was characterized by low trading volume.
Upon the formation of a new government coalition, the market rallied
briefly. Concerns remain that the government's economic policies
would be inflationary and also that the upcoming schedule of debt
maturities would put upward pressure on interest rates.
Investment Activities
We increased the Fund's effective cash reserves level to 15.8% of
net assets by reducing current holdings and/or taking profits in
Turkey and Zimbabwe. Proceeds from these sales will be reinvested in
more attractively valued stocks throughout the region.
Our largest Fund holding is Driefontein Consolidated Ltd., a South
African gold mining company. So far this year, underground fires,
labor disputes and flooding have negatively impacted Driefontein's
gold production. While the company's costs rose in 1996, Driefontein
remained a low-cost producer relative to other South African gold
mining companies. With the fires under control, the company should
begin to post better production results. We remain positive on
Driefontein because of its long reserve life and inexpensive
valuation on a market capitalization to gold reserves ratio. Another
South African gold mining holding that we consider inexpensive is
Western Areas Gold Mining Company Ltd. This mine's gold production
was also negatively impacted by fires and floods. Western Areas is
currently developing one of the largest ore reserves bodies in the
world. Earlier in 1996, the company hedged a good portion of its
future gold production. Thus, Western Areas' stock price
underperformed other South African gold shares. At current prices,
the company's stock remains attractive relative to our expectations
of better production results in the longer term.
<PAGE>
One of our holdings in Israel is Blue Square Chain Stores Properties
and Investments Ltd., one of the country's largest retailers. Blue
Square's primary business is supermarkets, but the company also
expanded into department and specialty stores. The company's
supermarkets posted good same-store sales growth in real terms.
Israel's food and beverage retail sector grew faster than the
country's gross domestic product (GDP). Given Israel's population
growth, including immigrants and its high GDP per capita, we expect
the retail sector to remain a growth industry. With the supermarket
concept just becoming popular in Israel, Blue Square should be able
to grow faster than the industry through market share gains mainly
from its small shops.
Despite the weak performance of the major equity markets in this
region for the quarter ended August 31, 1996, our outlook for the
region remains positive. We caution our shareholders that these
markets are highly volatile, and many of the stocks which we invest
in are less liquid than those in mature markets.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
September 27, 1996
PERFORMANCE DATA
<PAGE>
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. 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 6/30/96 -1.19% -8.10%
Inception (12/30/94) through 6/30/96 +5.84 +2.10
[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 6/30/96 -2.22% -7.59%
Inception (12/30/94) through 6/30/96 +4.72 +2.77
[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 6/30/96 -2.24% -4.94%
Inception (12/30/94) through 6/30/96 +4.71 +4.71
[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 6/30/96 -1.42% -8.32%
Inception (12/30/94) through 6/30/96 +5.54 +1.82
[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
8/31/96 5/31/96 8/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.33 $9.95 $11.14 -16.25% -6.23%
Class B Shares 9.26 9.91 11.07 -16.35 -6.56
Class C Shares 9.26 9.91 11.07 -16.35 -6.56
Class D Shares 9.31 9.94 11.12 -16.28 -6.34
Class A Shares-Total Return - 8.99(1) -6.23
Class B Shares-Total Return - 9.99(2) -6.56
Class C Shares-Total Return -10.01(3) -6.56
Class D Shares-Total Return - 9.21(4) -6.34
<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--8/31/96 10.13 9.33 -- -- - 7.90
------
Total $0.873
Cumulative total return as of 8/31/96: +1.39%**
<PAGE>
<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--8/31/96 10.13 9.26 -- -- -8.59
------
Total $0.765
Cumulative total return as of 8/31/96: -0.36%**
<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 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--8/31/96 10.13 9.26 -- -- -8.59
------
Total $0.763
Cumulative total return as of 8/31/96: -0.38%**
<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
reflect 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**
<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--8/31/96 10.13 9.31 -- -- -8.09
------
Total $0.850
Cumulative total return as of 8/31/96: +0.95%**
<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
For the Quarter Ended August 31, 1996
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Driefontein Consolidated Ltd. (ADR) 5.8%
Sun International (Bophuthatswana) Ltd 4.7
South African Breweries Ltd. 4.6
Kinross Mines Ltd. 4.5
Erciyas Biracilik Ve Malt Sanayii A.S. (GDR)* 4.5
Koor Industries Ltd. 3.6
Banque Marocaine du Commerce Exterieure (GDR) 3.4
Bank Hapoalim Ltd. 3.3
Beatrix Mines Ltd. 3.3
Delta Corporation 3.1
Percent of
Ten Largest Industries Net Assets
<PAGE>
Mining 23.2%
Banking 8.5
Entertainment 4.7
Engineering & Construction 4.6
Beverages 4.6
Brewery 4.5
Merchandising 4.4
Multi-Industry 3.5
Beverage & Tobacco 3.1
Health & Personal Care 2.9
Additions
Commercial International Bank (Egypt) S.A.E. (GDR)
Guiness Ghana Ltd. (New Shares)
Vaal Reefs Exploration & Mining Co., Ltd.
Deletions
Amalgamated Bank of South Africa
Banque Marocaine du Commerce Exterieure (New Shares)
Turkiye Garanti Bankasi A.S.
Turkiye Garanti Bankasi A.S. (ADR)
[FN]
*Includes combined holdings.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <C> <C> <C> <C>
Botswana Multi-Industry 232,000 Sechaba Investment Trust $ 190,492 $ 169,198 2.0%
Total Investments in Botswana 190,492 169,198 2.0
Ghana Health & 85,000 Unilever Ghana Ltd. 62,559 40,608 0.5
Personal Care
Multi-Industry 723,795 Guiness Ghana Ltd. 132,915 104,381 1.2
180,948 Guiness Ghana Ltd. (New Shares) 23,529 26,095 0.3
----------- ----------- ------
156,444 130,476 1.5
Tobacco 70,000 Pioneer Tobacco Co. Ltd. 5,081 5,151 0.0
Total Investments in Ghana 224,084 176,235 2.0
<PAGE>
Morocco Banking 6,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 221,372 290,961 3.4
Building & Construction 2,000 Groupe Omnium Nord Africain 89,279 95,172 1.1
Building Materials 2,000 Les Ciments de l'Oriental 87,576 77,762 0.9
Total Investments in Morocco 398,227 463,895 5.4
South Beverages 14,936 South African Breweries Ltd. 402,471 396,295 4.6
Africa
Diversified 21,500 Barlow Rand Ltd. 300,190 197,982 2.3
Entertainment 420,614 Sun International (Bophuthatswana)
Ltd. 601,304 403,264 4.7
Financial Services 15,000 First National Bank Holdings Ltd. 150,017 88,629 1.0
Foreign ZAL 4,700,000 South African Bond, 12% due 2/28/2005 997,096 888,293 10.4
Government
Obligations
Mining 37,000 Beatrix Mines Ltd. 298,396 278,428 3.3
38,800 Driefontein Consolidated Ltd. (ADR)(a) 570,167 494,700 5.8
38,600 Kinross Mines Ltd. 412,446 387,291 4.5
34,700 Randfontein Estates Gold Mining Co.
Witwatersrand Ltd. 250,019 223,596 2.6
2,500 Vaal Reefs Exploration & Mining Co.,
Ltd. 240,240 209,588 2.5
11,681 Western Areas Gold Mining Company Ltd.
(ADR)(a) 164,189 156,233 1.8
17,296 Western Areas Gold Mining Company Ltd.
(Ordinary) 231,249 231,385 2.7
----------- ----------- ------
2,166,706 1,981,221 23.2
Retail 110,000 Teljoy Holdings Ltd. 192,631 61,806 0.7
Steel 6,911 South Africa Iron & Steel Industrial
Corp., Ltd. 6,205 4,145 0.1
Total Investments in South Africa 4,816,620 4,021,635 47.0
Zimbabwe Beverage & Tobacco 99,220 Delta Corporation 149,892 261,615 3.1
Real Estate 215,000 Hippo Valley Estates 76,846 146,973 1.7
Total Investments in Zimbabwe 226,738 408,588 4.8
Total Investments in Africa 5,856,161 5,239,551 61.2
<PAGE>
MIDDLE EAST
Egypt Banking 511 Commercial International Bank
(Egypt) S.A.E. 60,437 71,548 0.8
5,600 Commercial International Bank
(Egypt) S.A.E. (GDR) (b) 83,300 86,240 1.0
Total Investments in Egypt 143,737 157,788 1.8
Israel Banking 194,852 Bank Hapoalim Ltd. 309,137 278,919 3.3
Engineering & 3,603 Koor Industries Ltd. 301,578 312,734 3.6
Construction 5,000 Koor Industries Ltd. (Sponsored)
(ADR)(a) 89,050 86,250 1.0
----------- ----------- ------
390,628 398,984 4.6
Health & Personal 5,600 Teva Pharmaceutical Industries Ltd.
Care (ADR)(a) 199,850 203,700 2.4
Merchandising 37,100 Blue Square Chain Stores Properties
and Investments Ltd. 201,555 250,511 2.9
Total Investments in Israel 1,101,170 1,132,114 13.2
Turkey Brewery 14,800 Erciyas Biracilik Ve Malt Sanayii
A.S. (GDR)(b) 199,800 152,440 1.8
22,300 Erciyas Biracilik Ve Malt Sanayii A.S.
(GDR)(b) 299,935 229,690 2.7
----------- ----------- ------
499,735 382,130 4.5
Merchandising 162,978 Migros Turk A.S. 3,746 129,616 1.5
Steel 1,902,733 Eregli Demir Ve Celik Fabrikalari
T.A.S. (Erdemir) 214,678 168,869 2.0
Total Investments in Turkey 718,159 680,615 8.0
Total Investments in the Middle East 1,963,066 1,970,517 23.0
SHORT-TERM
SECURITIES
<PAGE>
US Government US$ 610,000 Federal Home Loan Mortgage Corp.,
& Agency 5.16% due 9/03/1996 609,738 609,738 7.2
Obligations*
Total Investments in Short-Term
Securities 609,738 609,738 7.2
Total Investments $ 8,428,965 7,819,806 91.4
===========
Other Assets Less Liabilities 738,481 8.6
----------- ------
Net Assets $ 8,558,287 100.0%
=========== ======
Net Asset Value: Class A--Based on net assets of $523,809 and 56,155
shares outstanding $ 9.33
===========
Class B--Based on net assets of $6,299,960 and 680,401
shares outstanding $ 9.26
===========
Class C--Based on net assets of $680,135 and 73,438
shares outstanding $ 9.26
===========
Class D--Based on net assets of $1,054,383 and 113,277
shares outstanding $ 9.31
===========
<FN>
*Certain US Government & Agency Obligations are 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>
