MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Semi-Annual Report
May 31, 1999
Officers and Directors
Terry K. Glenn, President and Director
Donald Cecil, Director
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Grace Pineda, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip Gillespie, Secretary
Custodian
Brown Brothers Harriman &Co.
40 Water Street
Boston, MA 02109
Transfer Agent
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
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation
As a Percentage* of
Net Assets as of
May 31, 1999
A map illustrating the following percentages:
GHANA 4.7%
MOROCCO 9.5%
SOUTH AFRICA 41.0%
BOTSWANA 3.4%
TURKEY 10.0%
ISRAEL 11.7%
LEBANON 3.6%
EGYPT 9.9%
ZIMBABWE 1.4%
[FN]
*Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
DEAR SHAREHOLDER
During the three-month period ended May 31, 1999, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were -1.68%, -1.92%, -1.92% and -1.57%,
respectively. The unmanaged Morgan Stanley Capital International
(MSCI) Indexes for the largest equity markets in the region--Israel,
South Africa and Turkey--registered returns of +15.17%, +7.58% and
+16.27%, respectively, for the same three months. (References to
securities markets of all countries in this letter to shareholders
correspond to those countries' market weightings in the MSCI
Emerging Markets Free Index, unless otherwise noted. Fund
performance does not reflect sales charges, and would be lower if
sales charges were included. Complete performance information can be
found on pages 4 and 5 of this report to shareholders.) In addition,
the unmanaged J.P. Morgan Securities South African Bond Index
declined 0.76% in US dollar terms for the quarter ended May 31,
1999. Detrimental to performance were the Fund's investments in
Egypt, Ghana and Morocco, whose markets all declined during the
quarter.
Investment Overview
The recovery in Middle East and African markets continued during the
quarter ended May 31, 1999. Emerging markets generally enjoyed a
broad-based rally during this period, driven primarily by the
perception that these economies had seen their worst and were on the
road to recovery. This perception, which we partly share, was
supported by evidence such as rising industrial production in South
Korea, a pickup in consumer spending in Thailand and the recovery in
the price of some commodities such as pulp and oil.
Bolstering the case for the emerging markets' recovery were
reflationary efforts in the major economies of the United States,
Japan and the European Union. This was indicated by the neutral
monetary stance of the US Federal Reserve Board through most of the
quarter, the fiscal stimulus and the possibility of monetization in
Japan and the decline in interest rates in the European Union.
To add balance to this positive assessment of the developing
markets, we note that the evidence of recovery has so far been
limited to a few countries. In our view, the necessary structural
reforms for those countries in real economic crisis are still works
in progress, such as is the case with Indonesia and Brazil.
Developing economies and their emerging markets are recovering, but
progress can easily be slowed by external events. These events could
include a curtailment of capital flows to the region if there is a
sharp rising trend in US interest rates or a prolonged decline in
the US stock market. South Africa would be particularly vulnerable
to a collapse in commodity prices if the European and Japanese
economies fail to reflate. Some Israeli technology shares would be
hurt by a decline in prices of US technology stocks. Nonetheless,
the important works in progress continue, and we believe that the
case for investing in these countries with a long-term view is very
much intact.
Growth prospects for the South African economy are improving. The
beginning of a commodity cycle upturn is extremely positive for
exports since commodities such as platinum, diamonds and coal
comprise one-third of South Africa's exports. In addition, interest
rates have been declining and have scope to drop further,
particularly as the currency has been relatively stable. Our equity
investments in this market comprised 41% of net assets.
Corporate earnings in South Africa have surprised positively. For
example, Impala Platinum Holdings Limited reported first half fiscal
year earnings per share up 127%. This was a strong result, despite
the flat prices for the company's metals. The substantial rise in
earnings was driven by the company's cost-containment program, which
limited the rise in cash costs to 2.5% for the period, and by fees
from refining other producers' concentrate. To take advantage of
excess capacity in its world-class refining operations and thereby
maximize the value of its asset base, Impala is actively developing
its third-party refining operations. The results of these efforts
were visible over the last three months. In addition to this, the
depreciation of the South African currency also benefited the
company since its costs are primarily rand-based while its revenues
are the dollar-based prices for platinum, palladium and rhodium.
The two most prominent companies engaged in these restructuring
activities are Anglo American PLC and South African Breweries PLC.
Both companies recently moved their domiciles to London in an effort
to facilitate raising capital and potentially lower its cost by
diversifying their asset base. In anticipation of the change in
domicile, both companies streamlined their operations, sold off non-
core assets and are developing strategies that are likely to drive
their future growth prospects, both within and outside of South
Africa.
Restructuring is also an ongoing theme in other countries. In
Israel, Koor Industries continues to enhance its shareholder value
through the disposition of non-core assets in the food and
ammunition industries and consolidation of its positions in the
telecommunications industry through increased holdings in ECI
Telecom Limited and in the agrochemical industry through increased
ownership of MA Industries.
In Conclusion
There has been value in Middle East and African investments for some
time. Nevertheless, the markets in the region declined in 1998. In
addition to compelling valuations, there are several key factors
that we believe will improve the performance of these stock markets.
These include the improving outlook for corporate earnings and
economic growth, the scope for interest rate declines as perceived
risk subsides and the bottoming out of the global economic cycle and
commodity prices.
We thank you for your ongoing interest in Merrill Lynch Middle
East/Africa Fund, Inc., and we look forward to reviewing our
strategy with you in our upcoming quarterly report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
July 9, 1999
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
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).
Any class of shares redeemed during the first 12 months after
purchase will be charged a redemption fee of 2.0%.
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/99 -21.32% -26.94%
Inception (12/30/94)
through 3/31/99 + 1.31 + 0.03
[FN]
*Maximum sales charge is 5.25%. Maximum redemption fee is 2% and is
reduced to 0% after 1 year.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/99 -22.15% -26.76%
Inception (12/30/94)
through 3/31/99 + 0.23 + 0.23
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years. Maximum redemption fee is 2% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/99 -22.20% -24.52%
Inception (12/30/94)
through 3/31/99 + 0.31 + 0.31
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year. Maximum redemption fee is 2% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/99 -21.60% -27.21%
Inception (12/30/94)
through 3/31/99 + 1.02 - 0.25
[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 Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Middle East/Africa Fund, Inc. Class A Shares -20.45% -1.68% +4.03%
ML Middle East/Africa Fund, Inc. Class B Shares -21.32 -1.92 -0.72
ML Middle East/Africa Fund, Inc. Class C Shares -21.31 -1.92 -0.40
ML Middle East/Africa Fund, Inc. Class D Shares -20.65 -1.57 +2.88
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund commenced operations on 12/30/94.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
AFRICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 106,802 Sechaba Breweries Limited $ 85,845 $ 116,056 3.4%
Total Investments in Botswana 85,845 116,056 3.4
Ghana Beverages & 432,827 Guinness Ghana Limited 70,100 161,658 4.7
Tobacco
Total Investments in Ghana 70,100 161,658 4.7
Morocco Banking 2,642 Banque Marocaine du Commerce Exterieur 88,450 172,803 5.0
Building Materials 1,624 Cimenterie de l'Oriental (CIOR) 71,111 156,302 4.5
Total Investments in Morocco 159,561 329,105 9.5
South Africa Banking 10,610 Nedcor Limited 218,646 212,797 6.2
248 ++Nedcor Limited (c) 5,314 4,962 0.1
1,318 Standard Bank Investment
Corporation Limited 3,650 4,056 0.1
---------- ---------- ------
227,610 221,815 6.4
Beverages 713 ++South African Breweries PLC 5,735 5,741 0.2
2,067 ++South African Breweries PLC (GBP) 14,227 16,581 0.5
---------- ---------- ------
19,962 22,322 0.7
Computers 8,882 ++Dimension Data Holdings Limited 39,070 35,685 1.0
Forest Products 105,399 Nampak Limited 158,247 211,730 6.2
Gold Mines 5,199 AngloGold Limited (ADR) (a) 113,184 104,630 3.0
Holding Company 7,402 Impala Platinum Holdings Limited 175,791 177,719 5.2
Insurance 105,000 FirstRand Limited 115,068 98,883 2.9
2,138 Liberty Life Association of
Africa Limited 29,336 28,862 0.8
7,620 ++Sanlam Limited 8,034 7,347 0.2
---------- ---------- ------
152,438 135,092 3.9
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
AFRICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Africa Merchandising 34,620 Pick'n Pay Stores Limited $ 39,457 $ 43,397 1.3%
(concluded) 1,543 Pick'n Pay Stores Limited (N Shares) 2,474 1,860 0.0
---------- ---------- ------
41,931 45,257 1.3
Metals-- 21,896 Gencor Limited 54,273 55,950 1.6
Non-Ferrous 22,571 Gencor Limited (ADR) (a) 55,535 57,897 1.7
---------- ---------- ------
109,808 113,847 3.3
Mining 2,416 ++Anglo American PLC 115,603 109,725 3.2
3,296 Gold Fields Ltd. 15,756 10,329 0.3
1,370 Gold Fields of South Africa Limited 16,536 2,400 0.1
---------- ---------- ------
147,895 122,454 3.6
Retail 820 Edgars Stores Limited 2,611 6,194 0.2
143,144 Metro Cash and Carry Limited 117,026 112,721 3.3
27,798 Pepkor Limited 98,997 99,845 2.9
---------- ---------- ------
218,634 218,760 6.4
Total Investments in South Africa 1,404,570 1,409,311 41.0
Zimbabwe Beverages & 65,844 Delta Corporation Limited 42,000 17,368 0.5
Tobacco
Entertainment & 190,974 Zimbabwe Sun Limited 73,405 19,047 0.6
Leisure
Real Estate 55,667 Hippo Valley Estates Ltd. 21,630 11,104 0.3
Total Investments in Zimbabwe 137,035 47,519 1.4
Total Investments in Africa 1,857,111 2,063,649 60.0
MIDDLE
EAST
Egypt Banking 6,643 Commercial International Bank 60,437 61,916 1.8
9,100 Commercial International Bank
(GDR) (b) 185,500 81,900 2.4
---------- ---------- ------
245,937 143,816 4.2
Beverages 2,894 ++Al-Ahram Beverages Company
S.A.E. (GDR) (b)(c) 44,857 85,662 2.5
Finance 6,510 ++EFG-Hermes Holding,
S.A.E. (GDR) (b)(c) 76,493 75,841 2.2
Housing 2,540 Madinet Nasr for Housing &
Development Company 27,807 33,554 1.0
Total Investments in Egypt 395,094 338,873 9.9
Israel Banking 22,282 Bank Hapoalim 43,443 56,619 1.6
29,239 Bank Leumi Le-Israel 44,110 55,153 1.6
---------- ---------- ------
87,553 111,772 3.2
Food Chain 31,654 Supersol Ltd. 79,703 84,748 2.5
Merchandising 6,041 ++Blue Square Chain Investments
and Properties Ltd. 32,850 96,748 2.8
Telecommunications 3,226 ECI Telecom Limited 125,459 111,095 3.2
Total Investments in Israel 325,565 404,363 11.7
Lebanon Banking 2,918 Banque Audi (GDR) (b) 81,609 62,737 1.8
4,597 ++Banque Libanaise (c) 54,934 60,680 1.8
Total Investments in Lebanon 136,543 123,417 3.6
Turkey Banking 2,504,440 Turkiye Garanti Bankasi AS 107,002 103,207 3.0
6,172,916 Yapi ve Kredi Bankasi AS 82,425 78,972 2.3
4,938,332 Yapikredi Bankasi (Receipts) 40,740 63,178 1.8
---------- ---------- ------
230,167 245,357 7.1
Retail 77,528 Migros Turk T.A.S. 96,130 99,185 2.9
Total Investments in Turkey 326,297 344,542 10.0
Total Investments in the Middle East 1,183,499 1,211,195 35.2
SHORT-TERM Face
SECURITIES Amount
US Government US$ 32,000 Federal Home Loan Mortgage
Agency Corporation, 4.73% due 6/01/1999 31,987 31,987 1.0
Obligations*
Total Investments in
Short-Term Securities 31,987 31,987 1.0
Total Investments $3,072,597 3,306,831 96.2
==========
Other Assets Less Liabilities 131,865 3.8
---------- ------
Net Assets $3,438,696 100.0%
========== ======
<FN>
*Certain US Government Agency Obligations are traded on a discount
basis; the interest rate shown reflects the discount rate paid at
the time of purchase by the Fund.
++Non-income producing security.
(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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$3,072,597) (Note 1a) $ 3,306,831
Cash 264
Receivables:
Securities sold $ 40,519
Dividends 15,767 56,286
------------
Deferred organization expenses (Note 1f) 64,882
Prepaid registration fees and other assets (Note 1f) 107,097
------------
Total assets 3,535,360
------------
Liabilities: Payables:
Capital shares redeemed 8,814
Distributor (Note 2) 2,160 10,974
------------
Accrued expenses and other liabilities 85,690
------------
Total liabilities 96,664
------------
Net Assets: Net assets $ 3,438,696
============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 5,693
Class B Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 26,950
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 2,736
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 4,155
Paid-in capital in excess of par 4,643,171
Undistributed investment income--net 58,612
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 5) (1,536,754)
Unrealized appreciation on investments and foreign
currency transactions--net 234,133
------------
Net assets $ 3,438,696
============
Net Asset Class A--Based on net assets of $500,660 and 56,933
Value: shares outstanding $ 8.79
============
Class B--Based on net assets of $2,336,780 and 269,503
shares outstanding $ 8.67
============
Class C--Based on net assets of $237,520 and 27,364
shares outstanding $ 8.68
============
Class D--Based on net assets of $363,736 and 41,546
shares outstanding $ 8.76
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended May 31, 1999
<S> <S> <C> <C>
Investment Dividends (net of $1,161 foreign withholding tax) $ 73,945
Income Interest and discount earned 9,741
(Notes 1d & 1e): ------------
Total income 83,686
------------
Expenses: Accounting services (Note 2) $ 35,676
Professional fees 33,570
Amortization of organization expenses (Note 1f) 28,637
Registration fees (Note 1f) 25,990
Directors' fees and expenses 21,997
Printing and shareholder reports 20,359
Investment advisory fees (Note 2) 19,423
Custodian fees 18,513
Account maintenance and distribution fees--Class B (Note 2) 13,488
Transfer agent fees--Class B (Note 2) 4,107
Account maintenance and distribution fees--Class C (Note 2) 1,366
Pricing fees 1,112
Transfer agent fees--Class A (Note 2) 640
Transfer agent fees--Class D (Note 2) 512
Account maintenance fees--Class D (Note 2) 509
Transfer agent fees--Class C (Note 2) 463
Other 2,099
------------
Total expenses before reimbursement 228,461
Reimbursement of expenses (Note 2) (203,387)
------------
Total expenses after reimbursement 25,074
------------
Investment income--net 58,612
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net 32,596
Gain (Loss) on Foreign currency transactions--net (16,302) 16,294
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 222,966
(Notes 1b, 1c, Foreign currency transactions--net (290) 222,676
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 238,970
------------
Net Increase in Net Assets Resulting from Operations $ 297,582
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 58,612 $ 221,252
Realized gain (loss) on investments and foreign
currency transactions--net 16,294 (1,233,675)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 222,676 (621,631)
------------ ------------
Net increase (decrease) in net assets resulting from operations 297,582 (1,634,054)
------------ ------------
Dividends to Investment income--net:
Shareholders Class A -- (34,496)
(Note 1g): Class B -- (147,378)
Class C -- (18,526)
Class D -- (35,943)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders -- (236,343)
------------ ------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (1,384,764) (2,371,225)
(Note 4): ------------ ------------
Net Assets: Total decreasein net assets (1,087,182) (4,241,622)
Beginning of period 4,525,878 8,767,500
------------ ------------
End of period* $ 3,438,696 $ 4,525,878
------------ ------------
<FN>
*Undistributed investment income--net $ 58,612 $ --
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
Six Period
The following per share data and ratios have been derived Months For the Dec. 30,
from information provided in the financial statements. Ended Year Ended 1994++++ to
May 31, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.18 $ 10.96 $ 9.40 $ 10.66 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .17 .40 .48 .42 .57
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .44 (2.80) 1.52 (.80) .09
------- ------- ------- ------- -------
Total from investment operations .61 (2.40) 2.00 (.38) .66
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- (.38) (.44) (.85) --
Realized gain on investments--net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions -- (.38) (.44) (.88) --
------- ------- ------- ------- -------
Net asset value, end of period $ 8.79 $ 8.18 $ 10.96 $ 9.40 $ 10.66
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 7.46%+++ (22.59%) 22.43% (4.17%) 6.60%+++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .46%* .47% .47% .47% .00%*
Net Assets: ======= ======= ======= ======= =======
Expenses 10.98%* 6.51% 6.36% 4.84% 4.63%*
======= ======= ======= ======= =======
Investment income--net 3.97%* 3.93% 4.35% 4.24% 8.43%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 501 $ 563 $ 989 $ 399 $ 648
Data: ======= ======= ======= ======= =======
Portfolio turnover 68.91% 17.03% 78.12% 46.36% 40.97%
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads;
results would be lower if sales charges were included.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B
For the For the
Six Period
The following per share data and ratios have been derived Months For the Dec. 30,
from information provided in the financial statements. Ended Year Ended 1994++++ to
May 31, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.11 $ 10.87 $ 9.31 $ 10.56 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .12 .29 .37 .32 .79
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .44 (2.78) 1.51 (.80) (.23)
------- ------- ------- ------- -------
Total from investment operations .56 (2.49) 1.88 (.48) .56
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- (.27) (.32) (.74) --
Realized gain on investments--net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions -- (.27) (.32) (.77) --
------- ------- ------- ------- -------
Net asset value, end of period $ 8.67 $ 8.11 $ 10.87 $ 9.31 $ 10.56
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 6.91%+++ (23.40%) 21.02% (5.14%) 5.60%+++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.51%* 1.51% 1.51% 1.50% 1.01%*
Net Assets: ======= ======= ======= ======= =======
Expenses 11.97%* 7.51% 7.46% 5.90% 5.68%*
======= ======= ======= ======= =======
Investment income--net 2.78%* 2.91% 3.40% 3.15% 8.33%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 2,337 $ 3,096 $ 5,947 $ 5,699 $ 7,701
Data: ======= ======= ======= ======= =======
Portfolio turnover 68.91% 17.03% 78.12% 46.36% 40.97%
======= ======= ======= ======= =======
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months For the Dec. 30,
from information provided in the financial statements. Ended Year Ended 1994++++ to
May 31, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.12 $ 10.89 $ 9.31 $ 10.56 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .12 .30 .36 .31 .83
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .44 (2.79) 1.55 (.79) (.27)
------- ------- ------- ------- -------
Total from investment operations .56 (2.49) 1.91 (.48) .56
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- (.28) (.33) (.74) --
Realized gain on investments--net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions -- (.28) (.33) (.77) --
------- ------- ------- ------- -------
Net asset value, end of period $ 8.68 $ 8.12 $ 10.89 $ 9.31 $ 10.56
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 6.90%+++ (23.38%) 21.42% (5.16%) 5.60%+++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.55%* 1.53% 1.52% 1.50% 1.01%*
Net Assets: ======= ======= ======= ======= =======
Expenses 12.03%* 7.45% 7.47% 5.91% 5.67%*
======= ======= ======= ======= =======
Investment income--net 2.82%* 2.90% 3.33% 3.14% 8.45%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 237 $ 317 $ 723 $ 692 $ 1,012
Data: ======= ======= ======= ======= =======
Portfolio turnover 68.91% 17.03% 78.12% 46.36% 40.97%
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads;
results would be lower if sales charges were included.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months For the Dec. 30,
from information provided in the financial statements. Ended Year Ended 1994++++ to
May 31, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.15 $ 10.93 $ 9.38 $ 10.63 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .15 .37 .46 .40 .77
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .46 (2.79) 1.50 (.80) (.14)
------- ------- ------- ------- -------
Total from investment operations .61 (2.42) 1.96 (.40) .63
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- (.36) (.41) (.82) --
Realized gain on investments--net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions -- (.36) (.41) (.85) --
------- ------- ------- ------- -------
Net asset value, end of period $ 8.76 $ 8.15 $ 10.93 $ 9.38 $ 10.63
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 7.48%+++ (22.84%) 21.95% (4.31%) 6.30%+++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .71%* .72% .72% .72% .25%*
Net Assets: ======= ======= ======= ======= =======
Expenses 11.16%* 6.70% 6.67% 5.08% 4.89%*
======= ======= ======= ======= =======
Investment income--net 3.52%* 3.69% 4.18% 4.01% 9.07%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 364 $ 550 $ 1,109 $ 969 $ 1,569
Data: ======= ======= ======= ======= =======
Portfolio turnover 68.91% 17.03% 78.12% 46.36% 40.97%
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads;
results would be lower if sales charges were included.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
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's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Fund's
Board of Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* 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.
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
* 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
financial 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 period not exceeding five years. 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
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 the "Distributor"), a division of
Princeton Funds Distributor, Inc. ("PFD"), which is 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, 1999, MLAM
earned fees of $19,423, all of which was voluntarily waived. MLAM
also reimbursed the Fund for additional expenses of $183,964.
Pursuant to 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 Incorporated ("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, 1999, MLPF&S received contingent
deferred sales charges of $8,518 and $12 relating to transactions in
Class B and Class C Shares, respectively. Furthermore, MLPF&S
received contingent deferred sales charges of $5,663 and $749
relating to transactions subject to front-end sales charges waivers
in Class A and Class D Shares, respectively.
In addition, MLPF&S received $1,814 in commissions on the execution
of portfolio security transactions for the six months ended May 31,
1999.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended May 31, 1999, were $2,407,073 and
$2,301,802, respectively.
Net realized gains (losses) for the six months ended May 31,
1999 and net unrealized gains (losses) as of May 31, 1999 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 32,587 $234,234
Short-term investments 9 --
Foreign currency transactions (16,302) (101)
----------- --------
Total $ 16,294 $234,133
=========== ========
As of May 31, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $234,234, of which $534,331 related to
appreciated securities and $300,097 related to depreciated
securities. The aggregate cost of investments at May 31, 1999 for
Federal income tax purposes was $3,072,597.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $1,384,764 and $2,371,225 for the six months ended May 31, 1999
and the year ended November 30, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended May 31, 1999 Shares Amount
Shares sold 1,929 $ 15,712
Shares redeemed (13,843) (114,551)
-------- -----------
Net decrease (11,914) $ (98,839)
======== ===========
Class A Shares for the Year Dollar
Ended November 30, 1998 Shares Amount
Shares sold 20,494 $ 232,983
Shares issued to shareholders in
reinvestment of dividends 1,545 15,853
-------- -----------
Total issued 22,039 248,836
Shares redeemed (43,454) (442,125)
-------- -----------
Net decrease (21,415) $ (193,289)
-------- -----------
Class B Shares for the Six Months Dollar
Ended May 31, 1999 Shares Amount
Shares sold 20,424 $ 166,753
Shares redeemed (132,797) (1,140,965)
-------- -----------
Net decrease (112,373) $ (974,212)
======== ===========
Class B Shares for the Year Dollar
Ended November 30, 1998 Shares Amount
Shares sold 39,585 $ 433,589
Shares issued to shareholders in
reinvestment of dividends 5,885 60,441
-------- -----------
Total issued 45,470 494,030
Shares redeemed (210,753) (2,095,553)
-------- -----------
Net decrease (165,283) $(1,601,523)
======== ===========
Class C Shares for the Six Months Dollar
Ended May 31, 1999 Shares Amount
Shares sold 655 $ 5,494
Shares redeemed (12,341) (104,372)
-------- -----------
Net decrease (11,686) $ (98,878)
======== ===========
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended November 30, 1998 Shares Amount
Shares sold 4,777 $ 50,253
Shares issued to shareholders in
reinvestment of dividends 1,244 12,801
-------- -----------
Total issued 6,021 63,054
Shares redeemed (33,289) (325,267)
-------- -----------
Net decrease (27,268) $ (262,213)
======== ===========
Class D Shares for the Six Months Dollar
Ended May 31, 1999 Shares Amount
Shares redeemed (25,892) $ (212,835)
-------- -----------
Net decrease (25,892) $ (212,835)
-------- -----------
Class D Shares for the Year Dollar
Ended November 30, 1998 Shares Amount
Shares sold 4,163 $ 47,771
Shares issued to shareholders in
reinvestment of dividends 1,638 16,807
-------- -----------
Total issued 5,801 64,578
Shares redeemed (39,831) (378,778)
-------- -----------
Net decrease (34,030) $ (314,200)
======== ===========
The total redemption fees for Merrill Lynch Middle East/Africa Fund,
Inc. amounted to $319 for the six months ended May 31, 1999.
5. Capital Loss Carryforward:
At November 30, 1998, the Fund had a net capital loss carryforward
of approximately $1,233,000, of which $541,000 expires in 2004 and
$692,000 expires in 2006. This amount will be available to offset
like amounts of any future taxable gains.
6. Commitments:
At May 31, 1999, the Fund had entered into foreign exchange
contracts under which it had agreed to sell foreign currency with an
approximate value of $17,000.
PORTFOLIO INFORMATION
As of May 31, 1999
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Nedcor Limited* 6.3%
Nampak Limited 6.2
Impala Platinum Holdings Limited 5.2
Banque Marocaine du Commerce
Exterieur 5.0
Guinness Ghana Limited 4.7
Cimenterie de l'Oriental (CIOR) 4.5
Sechaba Breweries Limited 3.4
Metro Cash and Carry Limited 3.3
ECI Telecom Limited 3.2
Anglo American PLC 3.2
[FN]
*Includes combined holdings.
Percent of
Ten Largest Industries Net Assets
Banking 29.5%
Retail 9.3
Forest Products 6.2
Beverages & Tobacco 5.2
Holding Company 5.2
Building Materials 4.5
Merchandising 4.1
Insurance 3.9
Mining 3.6
Multi-Industry 3.4
EQUITY PORTFOLIO CHANGES
For the Quarter Ended May 31, 1999
Additions
*Anglo American Corporation of
South Africa Limited
Anglo American PLC
Impala Platinum Holdings Limited
*Minorco SA (Minerals & Resources
Corporation Limited)
*South African Breweries Limited
South African Breweries PLC
Turkiye Garanti Bankasi AS
Deletions
*Anglo American Corporation of
South Africa Limited
*Minorco SA (Minerals & Resources
Corporation Limited)
*South African Breweries Limited
Teva Pharmaceutical Industries Ltd. (ADR)
[FN]
*Added and deleted in the same quarter.
