MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Annual Report
November 30, 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
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
Printed on post-consumer recycled paper
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
November 30, 1996
A map illustrating the following percentages:
Ghana 2.2%
Morocco 3.1%
South Africa 39.4%
Botswana 2.0%
Turkey 9.3%
Israel 12.6%
Egypt 7.9%
Zimbabwe 4.5%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the three-month period ended November 30, 1996, total returns
for Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +0.75%, +0.54%, +0.54% and +0.75%,
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 +5.11%, -2.60% and +20.89%, respectively, for the same
three-month period. In addition, the unmanaged J.P. Morgan
Securities South African Bond Index was down 2.13% (in US dollars
terms) also during the November quarter. The Fund's performance
benefited from its investments in both Egypt and Zimbabwe, but was
negatively impacted by investments in South Africa.
<PAGE>
Investment Overview and Activities
Although the South African market declined (in US dollar terms), it
rose 0.02% in South African rand terms during the quarter ended
November 30, 1996. The ongoing weakness of the rand is caused by
investors' loss of confidence in the government's policy of
restricting capital outflow, while foreign exchange reserves have
dropped, and the merchandise trade balance shows little improvement.
However, we believe that much of the negative prospects for the
currency, company earnings, the economy, and politics have already
been discounted in the stock market. Many domestic and international
strategists are cautious on South Africa and its currency, but, with
a long-term outlook, we believe stock valuations of well-managed
companies are reasonable. For example, South African Breweries Ltd.,
one of the largest beer producers in the world, is sourcing its
growth increasingly outside of South Africa through its operations
in Zimbabwe, Botswana, Poland and Hungary.
Egyptian capital market developments are encouraging. Among these
are the government's renewed commitment to deregulation and
privatization; the recent international depository receipt offerings
of Egyptian stocks; the potential inclusion of Egypt in emerging
market indexes; and Moody's Investors Service Inc.'s issuance of a
sovereign rating. During the quarter ended November 30, 1996, we
increased our investments in Egypt through purchases of Nasr City
Company for Housing & Reconstruction, a residential property
developer, and Torah Portland Cement Company, Egypt, a cement
company which is modernizing its production facilities by switching
to the more cost-efficient dry process kilns.
We are concerned about the political environment in Zimbabwe and
about its economy's dependence on rainfall for growth. Therefore, we
took profits in the more expensive shares, and reallocated the
proceeds to companies with lower valuations and prospects for
improved earnings next year.
Fiscal Year in Review
During the fiscal year ended November 30, 1996, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class C
and Class D Shares were -4.17%, -5.14%, -5.16% and -4.31%, respectively.
The unmanaged Morgan Stanley Capital International Indexes for the largest
equity markets in the region--Israel, South Africa and Turkey--registered
returns of -2.85%, -11.97% and +33.61%, respectively, for the same period.
In addition, the unmanaged J.P. Morgan Securities South African Bond Index was
down 14.46% (in US dollars terms) also for the year ended November 30, 1996.
The Fund's performance benefited from its overweighted positions in
the less-developed markets of Egypt, Morocco and Zimbabwe. The
Egyptian market rose 35.2% during the 12-month period ended November
30, 1996 because of the developments cited earlier. In addition,
Morocco and Zimbabwe both rallied strongly, rising 25.2% and 78.0%,
respectively, on investor expectations of improved earnings and
economic growth resulting from the end of the drought. The Fund's
underweighted position in South Africa was beneficial because that
market declined. However, this was offset by the Fund's specific
stock investments, particularly in gold-mining companies which were
large portfolio holdings during the year ended November 30, 1996.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
December 27, 1996
IMPORTANT TAX INFORMATION
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Middle East/Africa Fund, Inc. during its
fiscal year ended November 30, 1996.
<CAPTION>
Federal Non-Qualifying Foreign Total Foreign Taxes
Record Payable Obligation Domestic Source Ordinary Paid or
Date Date Interest Ordinary Income Income Income Withheld
<S> <S> <S> <C> <C> <C> <C> <C>
Class A Shares 12/14/95 12/22/95 $.183160 $.001367 $.688600 $.873127 $.008924
Class B Shares 12/14/95 12/22/95 $.160581 $.001199 $.603712 $.765492 $.008924
Class C Shares 12/14/95 12/22/95 $.160074 $.001196 $.601809 $.763079 $.008924
Class D Shares 12/14/95 12/22/95 $.178221 $.001331 $.670034 $.849586 $.008924
All of the foreign taxes paid or withheld represent taxes incurred
by the Fund on dividends received by the Fund from foreign sources.
Foreign taxes paid or withheld should be included in taxable income
with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
<PAGE>
Please retain this information for your records.
</TABLE>
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. 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
<PAGE>
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--
Israel, the Morgan Stanley Capital International Index--Turkey, and
the Morgan Stanley Capital International Index--South Africa.
Beginning and ending values are:
12/30/94** 11/96
Merrill Lynch Middle East/Africa Fund, Inc.++ $ 9,475 $ 9,679
- --Class A Shares*
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class B Shares* $10,000 $ 9,740
Morgan Stanley Capital International Index
- --Israel++ $10,000 $12,158
Morgan Stanley Capital International Index
- --Turkey++ $10,000 $13,451
Morgan Stanley Capital International Index
- --South Africa++ $10,000 $10,078
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class C Shares* $10,000 $10,015
Merrill Lynch Middle East/Africa Fund, Inc.++
- --Class D Shares $ 9,475 $ 9,638
Morgan Stanley Capital International Index
- --Israel++ $10,000 $12,158
Morgan Stanley Capital International Index
- --Turkey++ $10,000 $13,451
Morgan Stanley Capital International Index
- --South Africa++ $10,000 $10,078
[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 corporate and governmental 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.
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 -9.06% -15.41%
Inception (12/30/94) through 9/30/96 +1.47 - 1.61
[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 9/30/96 -10.00% -14.92%
Inception (12/30/94) through 9/30/96 + 0.41 - 1.19
[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 9/30/96 -9.92% -12.40%
Inception (12/30/94) through 9/30/96 +0.46 + 0.46
[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 9/30/96 -9.28% -15.62%
Inception (12/30/94) through 9/30/96 +1.22 - 1.85
[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
11/30/96 8/31/96 11/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.40 $9.33 $10.66 -11.82% +0.75%
Class B Shares 9.31 9.26 10.56 -11.84 +0.54
Class C Shares 9.31 9.26 10.56 -11.84 +0.54
Class D Shares 9.38 9.31 10.63 -11.76 +0.75
Class A Shares-Total Return - 4.17(1) +0.75
Class B Shares-Total Return - 5.14(2) +0.54
Class C Shares-Total Return - 5.16(3) +0.54
Class D Shares-Total Return - 4.31(4) +0.75
<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>
Portfolio
Information as of
November 30, 1996
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
<PAGE>
Eregli Demir Ve Celik Fabrikalari T.A.S. (Erdemir) 5.5%
Koor Industries Ltd.* 5.1
Torah Portland Cement Company, Egypt 4.6
Blue Square Chain Stores Properties and
Investments Ltd.* 3.8
Bank Hapoalim Ltd. 3.7
South African Breweries Ltd.* 3.4
Sun International (Bophuthatswana)Ltd. 2.6
Barlow Rand Ltd. 2.5
Erciyas Biracilik Ve Malt Sanayii A.S. (GDR) 2.4
Vaal Reefs Exploration &Mining Co., Ltd. 2.2
[FN]
*Includes combined holdings.
Percent of
Ten Largest Industries Net Assets
Mining 11.8%
Engineering & Construction 9.7
Banking 7.9
Steel 5.5
Merchandising 3.8
Multi-Industry 3.6
Beverages 3.4
Entertainment 2.6
Diversified 2.5
Brewery 2.4
<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 $ 157,447 2.0%
Total Investments in Botswana 190,492 157,447 2.0
Ghana Health & Personal 85,000 Unilever Ghana Ltd. 62,559 39,041 0.5
Care
Multi-Industry 904,743 Guiness Ghana Ltd. 156,444 127,295 1.6
Tobacco 70,000 Pioneer Tobacco Co. Ltd. 5,081 5,291 0.1
Total Investments in Ghana 224,084 171,627 2.2
<PAGE>
Morocco Banking 3,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 116,045 155,319 2.0
Building Materials 2,000 ++Les Ciments de l'Oriental 87,576 85,812 1.1
Total Investments in Morocco 203,621 241,131 3.1
South Beverages 6,336 South African Breweries Ltd. 179,899 159,913 2.1
Africa 3,850 South African Breweries Ltd. (ADR)(a) 97,906 96,731 1.3
---------- ---------- ------
277,805 256,644 3.4
Diversified 21,500 Barlow Rand Ltd. 300,190 197,449 2.5
Entertainment 236,170 Sun International (Bophuthatswana) Ltd. 320,021 205,098 2.6
Financial Services 15,000 First National Bank Holdings Ltd. 150,017 71,157 0.9
Foreign ZAL 6,950,000 South African Bond, 12% due 2/28/2005 1,416,938 1,252,345 16.1
Government
Obligations
Mining 2,300 Anglo American Corp. of South Africa,
Ltd. (ADR)(a) 144,912 129,950 1.7
26,200 Beatrix Mines Ltd. 212,044 167,803 2.2
1,300 De Beers Centenary AG 40,511 39,725 0.5
12,426 Driefontein Consolidated Ltd. (ADR)(a) 186,511 141,346 1.8
12,300 Ingwe Coal Corp., Ltd. 97,800 99,874 1.3
2,500 Vaal Reefs Exploration & Mining Co.,
Ltd. 240,240 174,229 2.2
6,363 Western Areas Gold Mining Company
Ltd. (ADR)(a) 93,645 98,627 1.3
4,297 Western Areas Gold Mining Company Ltd.
(Ordinary) 59,817 60,173 0.8
---------- ---------- ------
1,075,480 911,727 11.8
Retail 113,500 ++Meikles Africa Ltd. 150,047 164,575 2.1
Total Investments in South Africa 3,690,498 3,058,995 39.4
Zimbabwe Beverage & Tobacco 55,423 Delta Corporation 93,034 172,673 2.2
Entertainment & 75,000 ++Zimbabwe Sun International 28,305 27,900 0.4
Leisure
Real Estate 164,081 Hippo Valley Estates 60,325 144,968 1.9
Total Investments in Zimbabwe 181,664 345,541 4.5
<PAGE>
Total Investments in Africa 4,490,359 3,974,741 51.2
MIDDLE
EAST
Egypt Banking 511 Commercial International Bank (Egypt)
S.A.E. 60,437 72,279 0.9
6,500 ++Commercial International Bank (Egypt)
S.A.E. (GDR)(b) 97,250 97,500 1.3
---------- ---------- ------
157,687 169,779 2.2
Engineering & 16,810 ++Torah Portland Cement Company, Egypt 304,842 356,658 4.6
Construction
Housing 1,250 ++Nasr City Company for Housing &
Reconstruction 53,454 86,563 1.1
Total Investments in Egypt 515,983 613,000 7.9
Israel Banking 194,852 Bank Hapoalim Ltd. 309,137 286,970 3.7
Engineering & 3,603 Koor Industries Ltd. 301,578 311,978 4.0
Construction 5,000 Koor Industries Ltd. (ADR)(a) 89,050 86,875 1.1
---------- ---------- ------
390,628 398,853 5.1
Merchandising 37,100 ++Blue Square Chain Stores Properties
and Investments Ltd. 201,555 285,516 3.7
600 ++Blue Square Chain Stores Properties
and Investments Ltd. (ADR)(a) 9,067 8,400 0.1
---------- ---------- ------
210,622 293,916 3.8
Total Investments in Israel 910,387 979,739 12.6
Turkey Brewery 83,200 Erciyas Biracilik Ve Malt Sanayii
A.S. (GDR)(b) 279,760 189,280 2.4
Building & 1,999,000 Adana Cimento Sanayii (Class A) 111,099 109,374 1.4
Construction
Steel 2,993,733 Eregli Demir Ve Celik Fabrikalari
T.A.S. (Erdemir) 337,641 424,124 5.5
Total Investments in Turkey 728,500 722,778 9.3
Total Investments in the Middle East 2,154,870 2,315,517 29.8
<PAGE>
SHORT-TERM
SECURITIES
US Government & 696,000 Federal Home Loan Mortgage Corp.,
Agency Obligations* 5.70% due 12/02/1996 695,780 695,780 9.0
Total Investments in Short-Term
Securities 695,780 695,780 9.0
Total Investments $7,341,009 6,986,038 90.0
==========
Other Assets Less Liabilities 773,168 10.0
---------- ------
Net Assets $7,759,206 100.0%
========== ======
<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).
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of November 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$7,341,009) (Note 1a) $ 6,986,038
Cash 262
Foreign cash 8,224
Receivables:
Securities sold $ 530,957
Investment adviser (Note 2) 107,471
Interest 45,517
Dividends 6,184 690,129
------------
Deferred organization expenses (Note 1f) 184,665
Prepaid registration fees and other assets (Note 1f) 18,580
------------
Total assets 7,887,898
------------
<PAGE>
Liabilities: Payables:
Securities purchased 58,214
Capital shares redeemed 9,883
Distributor (Note 2) 5,246 73,343
------------
Accrued expenses and other liabilities 55,349
------------
Total liabilities 128,692
------------
Net Assets: Net assets $ 7,759,206
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 4,242
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 61,210
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 7,425
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 10,335
Paid-in capital in excess of par 8,468,372
Undistributed investment income--net 247,109
Accumulated realized capital losses on investments and foreign
currency transactions--net (680,061)
Unrealized depreciation on investments and foreign currency
transactions--net (359,426)
------------
Net assets $ 7,759,206
============
Net Asset Class A--Based on net assets of $398,917 and 42,416
Value: shares outstanding $ 9.40
============
Class B--Based on net assets of $5,699,475 and 612,105
shares outstanding $ 9.31
============
Class C--Based on net assets of $691,514 and 74,247
shares outstanding $ 9.31
============
Class D--Based on net assets of $969,300 and 103,349 shares
outstanding $ 9.38
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended November 30, 1996
<S> <S> <C> <C>
Investment Dividends (net of $13,089 foreign withholding tax) $ 281,771
Income Interest and discount earned 173,886
(Notes 1d & 1e): ------------
Total income 455,657
------------
Expenses: Investment advisory fees (Note 2) $ 97,346
Account maintenance and distribution fees--Class B (Note 2) 70,613
Professional fees 62,453
Accounting services (Note 2) 60,432
Amortization of organization expenses (Note 1f) 59,891
Registration fees (Note 1f) 52,040
Printing and shareholders reports 49,447
Directors' fees and expenses 37,811
Custodian fees 28,051
Transfer agent fees--Class B (Note 2) 16,635
Account maintenance and distribution fees--Class C (Note 2) 8,155
Account maintenance fees--Class D (Note 2) 3,247
Transfer agent fees--Class D (Note 2) 2,544
Pricing fees 2,480
Transfer agent fees--Class C (Note 2) 1,921
Transfer agent fees--Class A (Note 2) 1,096
Other 5,437
------------
Total expenses before reimbursement 559,599
Reimbursement of expenses (Note 2) (428,911)
------------
Total expenses after reimbursement 130,688
------------
Investment income--net 324,969
------------
Realized & Realized loss from:
Unrealized Loss Investments--net (679,544)
On Investments & Foreign currency transactions--net (44,445) (723,989)
Foreign Currency ------------
Transactions--Net Change in unrealized depreciation on:
(Notes 1b, 1c, Investments--net (29,731)
1e & 3): Foreign currency transactions--net (4,286) (34,017)
------------ ------------
Net realized and unrealized loss on investments and foreign
currency transactions (758,006)
------------
Net Decrease in Net Assets Resulting from Operations $ (433,037)
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
For the December 30,
Year Ended 1994++ to
November 30, November 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 324,969 $ 806,936
Realized loss on investments and foreign currency transactions
--net (723,989) (28,517)
Change in unrealized depreciation on investments and foreign
currency transactions--net (34,017) (325,409)
------------ ------------
Net increase (decrease) in net assets resulting from operations (433,037) 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 (18,968) --
Class C (2,502) --
Class D (3,830) --
------------ ------------
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 (1,925,740) 10,377,362
(Note 4): ------------ ------------
Net Assets: Total increase (decrease)in net assets (3,171,166) 10,830,372
Beginning of period 10,930,372 100,000
------------ ------------
End of period* $ 7,759,206 $ 10,930,372
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 247,109 $ 752,093
============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B Class C Class D
The following per share data
and ratios have been derived For the For the For the For the
from information provided For the Period For the Period For the Period For the Period
in the financial statements. Year Dec. 30, Year Dec. 30, Year Dec. 30, Year Dec. 30,
Ended 1994++ to Ended 1994++ to Ended 1994++ to Ended 1994++ to
Increase (Decrease) in Net Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
Asset Value: 1996++++ 1995 1996++++ 1995 1996++++ 1995 1996++++ 1995
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Net asset value, beginning
Performance: of period $10.66 $10.00 $10.56 $10.00 $10.56 $10.00 10.63 10.00
------ ------ ------ ------ ------ ------ ------ ------
Investment income--net .42 .57 .32 .79 .31 .83 .40 .77
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net (.80) .09 (.80) (.23) (.79) (.27) (.80) (.14)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations (.38) .66 (.48) .56 (.48) .56 (.40) .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 $ 9.40 $10.66 $ 9.31 $10.56 $ 9.31 $10.56 $ 9.38 $10.63
====== ====== ====== ====== ====== ====== ====== ======
<PAGE>
Total Investment Based on net asset value
Return:** per share (4.17%) 6.60%+++ (5.14%) 5.60%+++ (5.16%) 5.60%+++(4.31%) 6.30%+++
====== ====== ====== ====== ====== ====== ====== ======
Ratios to Average Expenses, net of
Net Assets: reimbursement .47% .00%* 1.50% 1.01%* 1.50% 1.01%* .72% .25%*
====== ====== ====== ====== ====== ====== ====== ======
Expenses 4.84% 4.63%* 5.90% 5.68%* 5.91% 5.67%* 5.08% 4.89%*
====== ====== ====== ====== ====== ====== ====== ======
Investment income--net 4.24% 8.43%* 3.15% 8.33%* 3.14% 8.45%* 4.01% 9.07%*
====== ====== ====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period
Data: (in thousands) $ 399 $ 648 $5,699 $7,701 $ 692 $1,012 $ 969 $1,569
====== ====== ====== ====== ====== ====== ====== ======
Portfolio turnover 46.36% 40.97% 46.36% 40.97% 46.36% 40.97% 46.36% 40.97%
====== ====== ====== ====== ====== ====== ====== ======
Average commission rate
paid+++++ $.0022 -- $.0022 -- $.0022 -- $.0022 --
====== ====== ====== ====== ====== ====== ====== ======
<FN>
*Annualized.
**Total investment returns exclude the effects 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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
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. 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.
NOTES TO FINANCIAL STATEMENTS (continued)
(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.
<PAGE>
* 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.
* 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.
<PAGE>
(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.
(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 and tax reporting.
Accordingly, current year's permanent book/tax differences of
$44,445 have been reclassified between accumulated net realized
capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, 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. For the year ended November 30, 1996, MLAM
earned fees of $97,346, all of which was voluntarily waived. MLAM
also reimbursed the Fund $331,565 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.
For the year ended November 30, 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 $157 $2,261
For the year ended November 30, 1996, MLPF&S received contingent
deferred sales charges of $54,951 and $1,532 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 year ended
November 30, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
<PAGE>
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 the year ended November 30, 1996 were $4,018,846 and $5,677,910,
respectively.
Net realized and unrealized gains (losses) as of November 30, 1996
were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ (679,553) $ (354,971)
Short-term investments 9 --
Foreign currency transactions (20,820) (4,455)
Foreign foreign exchange contracts (23,625) --
---------- -----------
Total $ (723,989) $ (359,426)
========== ===========
As of November 30, 1996, net unrealized depreciation for Federal
income tax purposes aggregated $354,971, of which $503,565 related
to appreciated securities and $858,536 related to depreciated
securities. The aggregate cost of investments at November 30, 1996
for Federal income tax purposes was $7,341,009.
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(1,925,740) and $10,377,362 for the years ended
November 30, 1996 and November 30, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
<PAGE>
Shares sold 15,446 $ 161,605
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,358 26,229
---------- -----------
Total issued 17,804 187,834
Shares redeemed (36,243) (366,373)
---------- -----------
Net decrease (18,439) $ (178,539)
========== ===========
Class A Shares for the Period
December 30, 1994++ to November Dollar
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.
Class B Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 82,351 $ 854,084
Shares issued to shareholders in
reinvestment of dividends and
distributions 6,020 63,443
---------- -----------
Total issued 88,371 917,527
Shares redeemed (205,679) (2,013,667)
---------- -----------
Net decrease (117,308) $(1,096,140)
========== ===========
Class B Shares for the Period
December 30, 1994++ to November Dollar
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
========== ===========
<PAGE>
[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 Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 20,835 $ 211,576
Shares issued to shareholders in
reinvestment of dividends and
distributions 704 8,084
---------- ----------
Total issued 21,539 219,660
Shares redeemed (43,114) (431,908)
---------- ----------
Net decrease (21,575) $ (212,248)
========== ==========
Class C Shares for the Period
December 30, 1994++ to Dollar
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
Year Ended Dollar
November 30, 1996 Shares Amount
Shares sold 10,891 $ 112,953
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,310 25,977
---------- ----------
Total issued 13,201 138,930
Shares redeemed (57,396) (577,743)
---------- ----------
Net decrease (44,195) $ (438,813)
========== ==========
<PAGE>
Class D Shares for the Period
December 30, 1994++ to Dollar
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 November 30, 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 $23,000 and $401,000,
respectively.
6. Capital Loss Carryforward:
At November 30, 1996, the Fund had a net capital loss carryforward
of approximately $680,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
7. Subsequent Event:
On December 1, 1996, the Board of Directors declared an ordinary
income dividend in the amount of $0.436055 per Class A Share,
$0.319034 per Class B Share, $0.331592 per Class C Share and
$0.405895 per Class D Share, payable on December 23, 1996 to
shareholders of record as of December 13, 1996.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Middle East/Africa Fund, Inc.
<PAGE>
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, 1996, the related
statements of operations for the year then ended and changes in net
assets for the year then ended and the period December 30, 1994
(commencement of operations) to November 30, 1995, and the financial
highlights for the year then ended and 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
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at November
30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Middle East/Africa Fund, Inc. as of November 30, 1996,
the results of its operations, the changes in its net assets, and
the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte &Touche, LLP
Princeton, New Jersey
January 6, 1997
</AUDIT-REPORT>
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended November 30, 1996
Additions
Adana Cimento Sanayii (Class A)
Anglo American Corp. of South Africa,
Ltd. (ADR)
Blue Square Chain Stores Properties &
Investments Ltd. (ADR)
De Beers Centenary AG
Ingwe Coal Corp., Ltd.
Meikles Africa Ltd.
Nasr City Company for Housing &
Reconstruction
South African Breweries Ltd. (ADR)
Torah Portland Cement Company, Egypt
Zimbabwe Sun International
<PAGE>
Deletions
Erciyas Biracilik Ve Malt Sanayii A.S. (GDR)
Groupe Omnium Nord Africain
Guiness Ghana Ltd. (New Shares)
Kinross Mines Ltd.
Migros Turk A.S.
Randfontein Estates Gold Mining
Co. Witwatersrand Ltd.
South Africa Iron & Steel Industrial Corp., Ltd.
Teljoy Holdings Ltd.
Teva Pharmaceutical Industries Ltd. (ADR)
