Merrill Lynch
Middle East/
Africa Fund, Inc.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
May 31, 1997
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 #18413 -- 5/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
May 31, 1997
[GRAPHIC OMITTED: A MAP ILLUSTRATING THE FOLLOWING PERCENTAGES]
GHANA 1.8%
MOROCCO 4.0%
SOUTH AFRICA 49.4%
BOTSWANA 1.4%
TURKEY 5.5%
ISRAEL 7.0%
LEBANON 2.6%
JORDAN 0.7%
EGYPT 10.7%
ZIMBABWE 4.7%
* Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1997
DEAR SHAREHOLDER
During the three-month period ended May 31, 1997, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class C
and Class D Shares were +1.01%, +0.74%, +1.11% and +1.01%, respectively.
The unmanaged Morgan Stanley Capital International Indexes for the
largest equity markets in the region -- Israel, South Africa and Turkey
- -- registered returns of +5.44%, -0.94% and -9.33%, respectively, for
the same period. In addition, the unmanaged J.P. Morgan Securities South
African Bond Index rose 4.23% (in US dollar terms) for the quarter ended
May 31, 1997. The Fund's performance benefited from its investments in
Morocco, Turkey and Zimbabwe. (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 -- 6 of this report to shareholders.)
Investment Overview and Activities
The performance of the Middle Eastern/African markets was mixed during
the May quarter, with Egypt and Morocco reporting the best performances
(+7.93% and +10.53%, respectively) and Turkey experiencing the worst
(-9.33%). The South African market was relatively flat for the period
(-0.94%), while the Israeli market was strong (+5.44%).
One of the best-performing markets in the region was the Egyptian market
(+7.93%). Egypt has continued in its reform program, making substantial
progress in reducing inflation, stabilizing the currency, and
substantially reducing the fiscal deficit from 17.7% of gross domestic
product (GDP) to estimates of roughly 1.0% for 1996 -- 1997. On the
political front, while uncertainties with regard to the Middle East
peace process still loom, militant violence has ebbed in Egypt as the
result of strong government security measures. After receiving an
investment-grade rating from Standard & Poor's Corp. earlier this year,
Egypt has begun drawing greater attention from emerging markets
investors. Our largest holding in Egypt is Al-Ahram (Pyramids)
Beverages, a company which owns and operates three brewing and bottling
facilities, with a major distribution network for beverages throughout
Egypt. In addition to beer products, Pyramids is also a nonexclusive
bottler for PepsiCo. The company enjoys market shares of approximately
90% for alcoholic beer and 95% for non-alcoholic beer.
The Moroccan market performed well during the May quarter. However, with
uncertainties about the agricultural harvest looming heavily over the
country, we remain cautious in our outlook for the near term. A poor
agricultural season would significantly impair Morocco's growth, given
that this sector accounts for about 20% of GDP and employs more than
half of the labor force. The near-term outlook for inflation is also
uncertain, since a declining trend in inflation may be reversed as food
prices begin to reflect the poor harvest. We kept our holdings in
Morocco stable during the May quarter.
The Israeli market got off to a slow start during the May quarter with
investor concern about the scandals surrounding Prime Minister Netanyahu
and the violent outbreaks at the beginning of April resulting in low
trading volumes. However, as local investors began to focus on favorable
economic news (including signs of reduction of the budget deficit and
strong performance in the industrial sector) and the ongoing
privatizations in the financial sector, trading volumes picked up as did
share prices. In May, the Israeli market experienced a rally, with share
prices appreciating 8.72%.
The South African market's performance was relatively neutral,
showing a slight decline of 0.94% in US dollar terms for the May
quarter. There has been considerable variation in performance of South
African companies, with some sectors (mining companies and consumer
products companies, for example) reporting significantly weaker
earnings, and other sectors (some banks, for example) showing good
earnings. The interest rate outlook in South Africa remains uncertain.
Some argue that an interest rate cut is needed to stimulate the economy,
while others maintain that the country's central bank, the South African
Reserve Bank, is more concerned with the growth in money supply in
recent years and thus will not cut interest rates. Our holdings in South
Africa remain about the same as at the end of the February quarter.
In our view, Turkey remains enigmatic. On the one hand, the country has
experienced strong GDP growth (close to 7% for 1996), a downward trend
in inflation since 1994, and low asset valuations. On the other hand,
the country continues to be plagued by political uncertainty. As a
result, the Turkish market was the worst-performing market during the
quarter (despite a significant rally in May), registering a decline of
9.33%. During the May quarter, the political conflicts between the army
and the civilian government, and the possible collapse of the ruling
coalition, grabbed the headlines. More fundamentally, however,
successive governments have experienced an inability to bring the
economy under control for any length of time. Over the past three
months, we saw a worsening of inflation and privatizations proceeding at
a disappointingly slow pace. For the most part, corporate earnings were
poor, with the exception of certain Turkish banks.
Of the smaller markets (other than Egypt and Morocco), we have
significant holdings in Zimbabwe. The market in Zimbabwe rose 1.7%
during the quarter ended May 31, 1997. However, Zimbabwe recently has
run into a period of profit-taking on higher money market rates caused
by poor inflation data.
In Conclusion
We are optimistic on the long-term prospects for stocks in the emerging
markets. However, we remind our shareholders that emerging markets,
especially those in the Middle East/Africa region, are volatile. As
such, we encourage our investors to have a long-term investment horizon.
We thank you for your continued 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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/GRACE PINEDA
Grace Pineda
Vice President and Portfolio Manager
July 1, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select Pricingsm System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
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.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1996 10.13 8.95 -- 0.436 - 7.23
1/1/97 -- 5/31/97 8.95 10.97 -- -- +22.57
Total $1.309
Cumulative total return as of 5/31/97: +25.17%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
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
1996 10.13 8.97 -- 0.319 - 8.22
1/1/97 -- 5/31/97 8.97 10.94 -- -- +21.96
Total $1.084
Cumulative total return as of 5/31/97: +22.02%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was
deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
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
1996 10.13 8.95 -- 0.332 - 8.29
1/1/97 -- 5/31/97 8.95 10.96 -- -- +22.46
Total $1.095
Cumulative total return as of 5/31/97: +22.39%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was
deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
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
1996 10.13 8.95 -- 0.406 - 7.54
1/1/97 -- 5/31/97 8.95 10.96 -- -- +22.46
Total $1.256
Cumulative total return as of 5/31/97: +24.38%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/97 +11.37% +3.49%
Inception (12/30/94)
through 3/31/97 +10.71 +8.09
* 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 3/31/97 +10.16% +4.02%
Inception (12/30/94)
through 3/31/97 + 9.55 +8.75
* 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 3/31/97 +10.11% +6.98%
Inception (12/30/94)
through 3/31/97 + 9.52 +9.52
* 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 3/31/97 +11.11% +3.24%
Inception (12/30/94)
through 3/31/97 +10.44 +7.83
* Maximum sales charge is 5.25%. Maximum redemption fee is 2% and is
reduced to 0% after 1 year.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Recent
Performance
Results*
12 Month 3 Month
5/31/97 2/28/97 5/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.97 $10.86 $9.95 +10.25% +1.01%
Class B Shares 10.94 10.86 9.91 +10.39 +0.74
Class C Shares 10.96 10.84 9.91 +10.60 +1.11
Class D Shares 10.96 10.85 9.94 +10.26 +1.01
Class A Shares - Total Return +15.76(1) +1.01
Class B Shares - Total Return +14.43(2) +0.74
Class C Shares - Total Return +14.80(3) +1.11
Class D Shares - Total Return +15.39(4) +1.01
* 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 $0.436 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.319 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.332 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.406 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Botswana Multi-Industry 106,802 Sechaba Investment Trust $85,845 $118,123 1.4%
---------- ---------- ----------
Total Investments in Botswana 85,845 118,123 1.4
========== ========== ==========
Ghana Beverages & Tobacco 904,743 Guiness Ghana Ltd. 156,444 160,744 1.8
---------- ---------- ----------
Total Investments in Ghana 156,444 160,744 1.8
========== ========== ==========
Morocco Banking 3,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 116,045 204,673 2.4
Building Materials 2,000 +Les Ciments de l'Oriental 87,576 139,847 1.6
---------- ---------- ----------
Total Investments in Morocco 203,621 344,520 4.0
========== ========== ==========
South Africa Banking 11,000 Nedcor Ltd. (c) 209,000 211,750 2.4
Beverages 10,060 South African Breweries Ltd. 293,287 282,635 3.3
Beverages & Tobacco 20,200 Rembrandt Group Ltd. 212,748 203,492 2.4
Broadcasting &
Publishing 11,600 Nasionale Pers Beperk 100,436 116,597 1.3
Diversified 10,634 Barlow Rand Ltd. 148,475 112,482 1.3
19,330 Johnnies Industrial Corp., Ltd. 235,066 236,919 2.7
10,350 Rembrandt Controlling Investments Ltd. 71,363 67,193 0.8
---------- ---------- ----------
454,904 416,594 4.8
Entertainment 435 Sun International (Bophuthatswana) Ltd. 552 253 0.0
Financial Services 26,400 First National Bank Holdings Ltd. 214,240 205,964 2.4
Foreign
Government ZAL 2,050,000 Republic of South Africa Bond, 13% due
Obligations 8/31/2010 401,491 406,847 4.7
ZAL 6,950,000 South African Bond, 12% due 2/28/2005 1,416,938 1,353,355 15.7
---------- ---------- ----------
1,818,429 1,760,202 20.4
Merchandising 35,200 Pick'n Pay Stores Ltd. 40,117 48,856 0.6
Metals -
Non-Ferrous 46,800 Gencor Limited 197,811 205,346 2.4
16,000 Gencor Limited (ADR)(a) 70,400 68,000 0.8
---------- ---------- ----------
268,211 273,346 3.2
Mining 2,660 Anglo American Corp. of South Africa,
Ltd. (ADR)(a) 167,592 155,610 1.8
2,400 De Beers Centenary AG 77,488 84,083 1.0
1,370 Gold Fields of South Africa Ltd. 35,013 35,116 0.4
9,400 Ingwe Coal Corp., Ltd. 75,091 63,656 0.7
24,053 JCI Company Limited 261,567 199,230 2.3
---------- ---------- ----------
616,751 537,695 6.2
Retail 112,500 Metro Cash and Carry Ltd. 98,921 96,961 1.1
21,000 Pepkor Ltd. (Ordinary) 99,154 115,178 1.3
---------- ---------- ----------
198,075 212,139 2.4
---------- ---------- ----------
Total Investments in South Africa 4,426,750 4,269,523 49.4
========== ========== ==========
Zimbabwe Beverages &
Tobacco 79,526 Delta Corporation 47,568 119,853 1.4
Entertainment &
Leisure 179,000 Zimbabwe Sun International 70,750 60,301 0.7
Real Estate 164,081 Hippo Valley Estates 60,326 229,103 2.6
---------- ---------- ----------
Total Investments in Zimbabwe 178,644 409,257 4.7
========== ========== ==========
Total Investments in Africa 5,051,304 5,302,167 61.3
========== ========== ==========
MIDDLE
EAST
Egypt Banking 5,110 Commercial International Bank
(Egypt) S.A.E. 60,437 100,980 1.2
Beverages 14,550 +Al-Ahram (Pyramids) Beverages
(GDR)(b)(c) 225,525 249,896 2.9
Engineering &
Construction 15,810 Torah Portland Cement Company, Egypt 287,018 401,145 4.6
Housing 1,250 Nasr City Company For Housing &
Reconstruction 53,454 172,414 2.0
---------- ---------- ----------
Total Investments in Egypt 626,434 924,435 10.7
========== ========== ==========
Israel Banking 86,852 +Bank Hapoalim Ltd. 139,943 196,559 2.3
102,072 Bank Leumi Le-Israel 143,402 158,214 1.8
---------- ---------- ----------
283,345 354,773 4.1
Food Chain 20,607 Supersol Ltd. 55,496 69,591 0.8
Merchandising 17,458 +Blue Square Chain Stores Properties
and Investments Ltd. 95,151 178,824 2.1
---------- ---------- ----------
Total Investments in Israel 433,992 603,188 7.0
========== ========== ==========
Jordan Transportation
Services 6,406 +Aramex International Limited (ADR)(a) 48,286 57,654 0.7
---------- ---------- ----------
Total Investments in Jordan 48,286 57,654 0.7
========== ========== ==========
Lebanon Banking 12,000 Banque Libanaise (GDR)(b)(c) 145,500 228,000 2.6
---------- ---------- ----------
Total Investments in Lebanon 145,500 228,000 2.6
========== ========== ==========
Turkey Banking 2,284,900 Akbank T.A.S. (Ordinary) 166,038 206,452 2.4
Building &
Construction 1,229,317 Adana Cimento Sanayii (Class A) 67,654 81,019 0.9
Building Products 1,376,108 Akcansa Cimento A.S. 202,684 187,727 2.2
---------- ---------- ----------
Total Investments in Turkey 436,376 475,198 5.5
========== ========== ==========
Total Investments in the Middle East 1,690,588 2,288,475 26.5
========== ========== ==========
SHORT-TERM Face
SECURITIES Amount
US Government
& Agency US$ 680,000 Federal Home Loan Mortgage Corp.,
Obligations* 5.55% due 6/02/1997 679,790 679,790 7.9
Total Investments in Short-Term ---------- ---------- ----------
Securities 679,790 679,790 7.9
========== ========== ==========
Total Investments $7,421,682 8,270,432 95.7
==========
Other Assets Less Liabilities 373,573 4.3
---------- ----------
Net Assets $8,644,005 100.0%
========== ==========
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the
Securities Act of 1933.
* 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.
+ Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
As of May 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $7,421,682) (Note 1a) $8,270,432
Foreign cash (Note 1b) 101,075
Receivables:
Interest $61,713
Capital shares sold 61,559
Dividends 48,170
Securities sold 27,482 198,924
------------
Deferred organization expenses (Note 1f) 184,665
Prepaid registration fees and other assets (Note 1f) 112,378
------------
Total assets 8,867,474
------------
Liabilities: Payables:
Securities purchased 119,974
Distributor (Note 2) 5,733
Capital shares redeemed 2,178 127,885
------------
Accrued expenses and other liabilities 95,584
------------
Total liabilities 223,469
------------
Net Assets: Net assets $8,644,005
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $8,546
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 55,765
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 5,608
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 9,034
Paid-in capital in excess of par 8,171,601
Undistributed investment income -- net 117,315
Accumulated realized capital losses on investments and foreign
currency transactions -- net (572,621)
Unrealized appreciation on investments and foreign currency
transactions -- net 848,757
------------
Net assets $8,644,005
============
Net Asset Class A -- Based on net assets of $937,601 and 85,457 shares
Value: outstanding $10.97
============
Class B -- Based on net assets of $6,101,396 and 557,648 shares
outstanding $10.94
============
Class C -- Based on net assets of $614,831 and 56,081 shares outstanding $10.96
============
Class D -- Based on net assets of $990,177 and 90,343 shares outstanding $10.96
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 1997
<S> <C> <C> <C>
Investment Income Interest and discount earned $111,793
(Notes 1d & 1e): Dividends (net of $5,123 foreign withholding tax) 92,857
------------
Total Income 204,650
------------
Expenses: Registration fees (Note 1f) $55,262
Investment advisory fees (Note 2) 39,914
Professional fees 34,089
Accounting services (Note 2) 29,908
Amortization of organization expenses (Note 1f) 28,920
Account maintenance and distribution fees -- Class B (Note 2) 28,803
Printing and shareholder reports 21,849
Custodian fees 19,606
Directors' fees and expenses 18,343
Transfer agent fees -- Class B (Note 2) 7,128
Account maintenance and distribution fees -- Class C (Note 2) 3,045
Pricing fees 1,826
Account maintenance fees -- Class D (Note 2) 1,201
Transfer agent fees -- Class D (Note 2) 1,002
Transfer agent fees -- Class C (Note 2) 782
Transfer agent fees -- Class A (Note 2) 667
Other 3,150
------------
Total expenses before reimbursement 295,495
Reimbursement of expenses (Note 2) (242,446)
------------
Total expenses after reimbursement 53,049
------------
Investment income -- net 151,601
------------
Realized & Unrealized Realized gain (loss) from:
Gain (Loss) on Investments -- net 131,049
Investments & Foreign currency transactions -- net (23,608) 107,441
Foreign Currency ------------
Transactions -- Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments -- net 1,203,721
1e & 3): Foreign currency transactions -- net 4,462 1,208,183
------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 1,315,624
------------
Net Increase in Net Assets Resulting from Operations $1,467,225
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $151,601 $324,969
Realized gain (loss) on investments and foreign currency
transactions -- net 107,441 (723,989)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions -- net 1,208,183 (34,017)
------------ ------------
Net increase in net assets resulting from operations 1,467,225 (433,037)
------------ ------------
Dividends and Investment income -- net:
Distributions to Class A (18,402) (51,662)
Shareholders Class B (194,967) (541,025)
(Note 1g): Class C (26,077) (71,137)
Class D (41,949) (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 (281,395) (812,389)
------------ ------------
Capital Share Net decrease in net assets derived from capital share
Transactions (Note 4): transactions (301,031) (1,925,740)
------------ ------------
Net Assets: Total increase (decrease) in net assets 884,799 (3,171,166)
Beginning of period 7,759,206 10,930,372
------------ ------------
End of period* $8,644,005 $7,759,206
============ ============
* Undistributed investment income -- net $117,315 $247,109
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Class A Class B
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been Months Year Dec. 30, Months Year Dec.30,
derived from information provided in the financial Ended Ended 1994+ to Ended Ended 1994+ to
statements. May 31, Nov. 30, Nov. 30, May 31, Nov. 30, Nov.30,
1997++ 1996++ 1995 1997++ 1996++ 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Net asset value, beginning of
Performance: period $9.40 $10.66 $10.00 $9.31 $10.56 $10.00
-------- -------- -------- -------- -------- --------
Investment income -- net .24 .42 .57 .19 .32 .79
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
-- net 1.77 (.80) .09 1.76 (.80) (.23)
-------- -------- -------- -------- -------- --------
Total from investment operations 2.01 (.38) .66 1.95 (.48) .56
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.44) (.85) -- (.32) (.74) --
Realized gain on investments --
net -- (.03) -- -- (.03) --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.44) (.88) -- (.32) (.77) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.97 $9.40 $10.66 $10.94 $9.31 $10.56
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share 22.54%++++ (4.17%) 6.60%++++ 21.80%++++ (5.14%) 5.60%++++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .47%* .47% .00%* 1.51%* 1.50% 1.01%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 6.45%* 4.84% 4.63%* 7.59%* 5.90% 5.68%*
======== ======== ======== ======== ======== ========
Investment income -- net 4.54%* 4.24% 8.43%* 3.63%* 3.15% 8.33%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $938 $399 $648 $6,101 $5,699 $7,701
======== ======== ======== ======== ======== ========
Portfolio turnover 57.21% 46.36% 40.97% 57.21% 46.36% 40.97%
======== ======== ======== ======== ======== ========
Average commission rate paid+++ $.0012 $.0022 -- $.0012 $.0022 --
======== ======== ======== ======== ======== ========
<CAPTION>
Class C Class D
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been Months Year Dec. 30, Months Year Dec.30,
derived from information provided in the financial Ended Ended 1994+ to Ended Ended 1994+ to
statements. May 31, Nov. 30, Nov. 30, May 31, Nov. 30, Nov.30,
1997++ 1996++ 1995 1997++ 1996++ 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance:
Net asset value, beginning of
period $9.31 $10.56 $10.00 $9.38 $10.63 $10.00
-------- -------- -------- -------- -------- --------
Investment income -- net .18 .31 .83 .23 .40 .77
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
-- net 1.80 (.79) (.27) 1.76 (.80) (.14)
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.98 (.48) .56 1.99 (.40) .63
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income -- net (.33) (.74) -- (.41) (.82) --
Realized gain on investments
-- net -- (.03) -- -- (.03) --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (.33) (.77) -- (.41) (.85) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.96 $9.31 $10.56 $10.96 $9.38 $10.63
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share 22.20%++++ (5.16%) 5.60%++++ 22.28%++++ (4.31%) 6.30%++++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.52%* 1.50% 1.01%* .72%* .72% .25%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 7.62%* 5.91% 5.67%* 6.80%* 5.08% 4.89%*
======== ======== ======== ======== ======== ========
Investment income -- net 3.56%* 3.14% 8.45%* 4.44%* 4.01% 9.07%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $615 $692 $1,012 $990 $969 $1,569
======== ======== ======== ======== ======== ========
Portfolio turnover 57.21% 46.36% 40.97% 57.21% 46.36% 40.97%
======== ======== ======== ======== ======== ========
Average commission rate paid+++ $.0012 $.0022 -- $.0012 $.0022 --
======== ======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average outstanding shares during the period.
+++ 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1997
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
PricingSM 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.
(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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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 dates. Dividends
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with MLAM.
The general partner of MLAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch and 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 six months ended May 31, 1997, MLAM earned fees of $39,914, all of
which was voluntarily waived. MLAM also reimbursed the Fund $202,532 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
Maintenance Distribution
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 six months ended May 31, 1997, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer concessions on
sales of the Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $429 $3,200
For the six months ended May 31, 1997, MLPF&S received contingent
deferred sales charges of $27,714 and $949 relating to transactions in
Class B and Class C Shares, respectively.
In addition, MLPF&S received $1,650 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended
May 31, 1997.
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, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended May 31, 1997, were $4,090,017 and $4,124,402,
respectively.
Net realized and unrealized gains (losses) as of May 31, 1997 were as
follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $131,049 $848,750
Foreign currency transactions (23,608) 7
-------- --------
Total $107,441 $848,757
======== ========
As of May 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $848,750, of which $1,096,499 related to appreciated
securities and $247,749 related to depreciated securities. The
aggregate cost of investments at May 31, 1997 for Federal income tax
purposes was $7,421,682.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$301,031 for the six months ended May 31, 1997 and $1,925,740 for the
year ended November 30, 1996.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended May 31, 1997 Shares Amount
Shares sold 47,616 $506,362
Shares issued to shareholders in
reinvestment of dividends 770 6,712
----------- -----------
Total issued 48,386 513,074
Shares redeemed (5,345) (50,098)
----------- -----------
Net increase 43,041 $462,976
=========== ===========
Class A Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
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 B Shares for the Six Months Dollar
Ended May 31, 1997 Shares Amount
Shares sold 76,793 $816,905
Shares issued to shareholders in
reinvestment of dividends 5,639 49,231
----------- -----------
Total issued 82,432 866,136
Shares redeemed (136,889) (1,346,159)
----------- -----------
Net decrease (54,457) $(480,023)
=========== ===========
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 C Shares for the Six Months Dollar
Ended May 31, 1997 Shares Amount
Shares sold 20,758 $218,287
Shares issued to shareholders in
reinvestment of dividends 1,130 9,847
----------- -----------
Total issued 21,888 228,134
Shares redeemed (40,054) (390,628)
----------- -----------
Net decrease (18,166) $(162,494)
=========== ===========
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 D Shares for the Six Months Dollar
Ended May 31, 1997 Shares Amount
Shares sold 9,295 $94,799
Shares issued to shareholders in
reinvestment of dividends 1,282 11,183
----------- -----------
Total issued 10,577 105,982
Shares redeemed (23,583) (227,472)
----------- -----------
Net decrease (13,006) $(121,490)
=========== ===========
Class D Shares for the Year Dollar
Ended 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)
=========== ===========
5. Commitments:
At May 31, 1997, the Fund had entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign
currencies with approximate values of $21,000 and $5,000, respectively.
PORTFOLIO INFORMATION
As of May 31, 1997
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Torah Portland Cement Company, Egypt 4.6%
South African Breweries Ltd. 3.3
Gencor Limited* 3.2
Al-Ahram (Pyramids) Beverages (GDR) 2.9
Johnnies Industrial Corp., Ltd. 2.7
Hippo Valley Estates. 2.6
Banque Libanaise (GDR) 2.6
Nedcor Ltd. 2.4
Akbank T.A.S. (Ordinary) 2.4
First National Bank Holdings Ltd. 2.4
Percent of
Ten Largest Industries Net Assets
Banking 15.1%
Mining 6.2
Beverages 6.2
Beverages & Tobacco 5.6
Diversified 4.8
Engineering & Construction 4.6
Metals -- Non-Ferrous 3.2
Merchandising 2.7
Real Estate 2.6
Financial Services 2.4
* Includes American Depositary Receipts (ADR).
EQUITY PORTFOLIO CHANGES
For the Quarter Ended May 31, 1997
Additions Akbank T.A.S. (Ordinary)
Akcansa Cimento A.S.
Gold Fields of South Africa Ltd.
Metro Cash and Carry Ltd.
Nedcor Ltd.
Pepkor Ltd. (Ordinary)
Rembrandt Controlling Investments Ltd.
Deletions Beatrix Mines Ltd.
Erciyas Biracilik Ve Malt Sanayii A.S. (GDR)
Eregli Demir Ve Celik Fabrikalari T.A.S. (Erdemir)
Koor Industries Ltd.
Koor Industries Ltd. (ADR)
Western Areas Gold Mining Company Ltd. (ADR)
Western Areas Gold Mining Company Ltd. (Ordinary)
Yapi Ve Kredi Bankasi A.S.
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
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
