MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Quarterly Report
August 31, 1999
Officers and Directors
Terry K. Glenn, President and Director
Donald Cecil, 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
Susan B. Baker, 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
August 31, 1999
A map illustrating the following percentages:
GHANA 5.0%
MOROCCO 11.2%
SOUTH AFRICA 44.1%
BOTSWANA 3.7%
TURKEY 9.7%
ISRAEL 10.6%
EGYPT 9.3%
ZIMBABWE 1.5%
[FN]
*Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., August 31, 1999
DEAR SHAREHOLDER
During the three-month period ended August 31, 1999, total returns
for Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +6.03%, +5.77%, +5.76% and +5.82%,
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 -8.44%, +10.07% and
- -12.44%, respectively, for the same three-month period. (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 and are denominated in US dollars.)
In addition, the unmanaged J.P. Morgan Securities South African Bond
Index rose 5.87%. The Fund's performance benefited from stock
selection in South Africa. The Fund also benefited from its exposure
to Morocco, whose market rose 12.61% during the quarter. Detrimental
to the Fund's performance was its exposure to Egypt and its
overweighted position in Israel. (Complete performance information
can be found on page 4 of this report to shareholders.)
Investment Overview
During the three months ended August 31, 1999, the performance of
emerging markets was tame compared to the exuberant rallies in
previous quarters, with the MSCI rising only 10.19%. This result
suggests a healthy skepticism and greater selectivity among
investors as liquidity became less emerging market friendly and the
varying progress of recovery among countries became more distinct.
As the end of the year gets closer, it appears that investors'
avoidance of exposure to developing countries before Year 2000 has
been detrimental to the flow of liquidity to emerging markets. We
believe the best preparation for possible Year 2000 problems is to
remain invested in only the best-managed companies that have the
most tradable stocks. We adhere to these selection criteria
regardless of any Year 2000 issues.
The dominant event during the August quarter was the earthquake that
hit a sizable section of Turkey's industrial region on August 17,
1999. The disaster was widespread with casualties exceeding early
estimates of 10,000. Thousands more were displaced, and there are
still unknown health-related effects. The earthquake's effect on the
economy and the investment environment remains difficult to assess.
Turkish central bank authorities estimate damage costs at US$5
billion--US$7 billion, citing the World Bank, the European Bank for
Reconstruction and Development, and the government's own resources
for funding. It is also likely that additional credits will be
secured through the International Monetary Fund. To ensure this, the
government redoubled its efforts to pass structural reforms,
successfully passing the social security reform bill and reaffirming
its inflation-fighting stance. Turkey's government also announced
plans to raise various taxes to contain the fiscal shortfall.
Turkey's gross domestic product growth rate is estimated to decline
because of stalled industrial production, which was weak even before
the earthquake, as well as the bottlenecks and supply shortages.
However, optimistic analysts conclude that reconstruction spending
will stimulate economic growth and the sales of cement and other
building materials. We believe either result will be detrimental to
Turkey's inflation, trade balance and budget deficit. Consequently,
we did not regard this disaster as a buying opportunity.
Our holdings in Turkey comprised 9.7% of net assets at August 31,
1999 through holdings in three companies: a supermarket retailer,
Migros Turk T.A.S., and two banks, Turkiye Garanti Bankasi AS and
Yapi ve Kredi Bankasi AS. None of these companies have reported
consequential earthquake damage to their facilities. Migros, for
example, has four stores in the region, which combined accounted for
not more than 2% of the company's sales. However, interest rates
rose dramatically after the earthquake and, if sustained, will hurt
the two banks' profit margins.
The South African market was unique within the Middle East and
African regions in continuing its strength during the August
quarter. Driving factors included: the commodity cycle upturn,
growth in South Africa's European and Asian export markets,
increasing foreign reserves, a stable currency, declining interest
rates, and positive growth surprises in corporate earnings. The
start of a commodity cycle recovery is extremely positive for the
country's exports, one third of which is comprised of platinum,
diamonds and coal. Real interest rates continued to decline during
the August quarter, suggesting a greater tolerance for currency
volatility in the interest of growth. One of the Fund's largest
holdings, Nedcor Limited, a leading financial services group,
delivered strong earnings results, and its continued success in
containing costs is impressive.
In Conclusion
During the last five years emerging markets have performed poorly
(declining 30%), while the US market has surged almost 200%. This
comparison may lead investors to question the premise that
developing country investments would result in returns above those
that are available in mature markets.
We believe that the premise still holds, and for several reasons is
even more compelling at this time. First, expectations are lower.
This is reflected in valuations (the relationship of security prices
to earnings or assets) which are more attractive. Second, investors
are presently extremely skeptical, and for a good contrarian, this
presents an opportunity to take the opposite view. Third, the
countries we invest in have used crises to bolster reform support.
An example is the reform impetus now evident in Turkey. Finally, as
crises have occurred, company leaders restructured their operations
and finances to improve efficiency and reduce costs. We believe
these companies may emerge from the crises even stronger than
before.
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 next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
September 29, 1999
Merrill Lynch Middle East/Africa Fund, Inc., August 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 6/30/99 -5.95% -12.67%
Inception (12/30/94) through 6/30/99 +2.23 + 1.01
[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 6/30/99 -6.89% -12.40%
Inception (12/30/94) through 6/30/99 +1.14 + 1.14
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years. Maximum redemption fee is 2% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/99 -6.89% -9.75%
Inception (12/30/94) through 6/30/99 +1.21 +1.21
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year. Maximum redemption fee is 2% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/99 -6.16% -12.87%
Inception (12/30/94) through 6/30/99 +1.95 + 0.74
[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
As of August 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Middle East/Africa Fund, Inc. Class A Shares +13.94% +6.03% +10.30%
ML Middle East/Africa Fund, Inc. Class B Shares +12.79 +5.77 + 5.01
ML Middle East/Africa Fund, Inc. Class C Shares +12.78 +5.76 + 5.33
ML Middle East/Africa Fund, Inc. Class D Shares +13.60 +5.82 + 8.87
<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's inception date is 12/30/94.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
AFRICA Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 106,802 Sechaba Breweries Limited $ 85,845 $ 122,550 3.7%
Total Investments in Botswana 85,845 122,550 3.7
Ghana Beverages & 432,827 Guinness Ghana Limited 70,100 168,969 5.0
Tobacco
Total Investments in Ghana 70,100 168,969 5.0
Morocco Banking 2,642 Banque Marocaine du Commerce Exterieur 88,450 183,712 5.5
Building Materials 1,624 Cimenterie de l'Oriental (CIOR) 71,111 190,416 5.7
Total Investments in Morocco 159,561 374,128 11.2
South Africa Banking 10,610 Nedcor Limited 218,646 211,170 6.3
248 Nedcor Limited (GDR) (b) 5,314 4,934 0.2
1,318 Standard Bank Investment Corporation
Limited 3,650 4,119 0.1
---------- ---------- ------
227,610 220,223 6.6
Beverages 713 South African Breweries PLC 5,735 5,864 0.2
1,465 South African Breweries PLC (GBP) 10,083 12,099 0.3
---------- ---------- ------
15,818 17,963 0.5
Computers 8,882 Dimension Data Holdings Limited 39,070 36,890 1.1
Forest Products 105,399 Nampak Limited 158,247 253,117 7.6
Gold Mines 5,199 AngloGold Limited (ADR) (a) 113,184 134,524 4.0
Holding Company 7,402 Impala Platinum Holdings Limited 175,791 237,419 7.1
Insurance 60,668 FirstRand Limited 66,485 61,571 1.8
2,138 Liberty Life Association of
Africa Limited 29,336 25,074 0.8
7,620 Sanlam Limited 8,034 9,087 0.3
---------- ---------- ------
103,855 95,732 2.9
Merchandising 37,256 Pick'n Pay Stores Limited 43,471 46,880 1.4
Metals--Non-Ferrous 21,896 Gencor Limited 54,273 70,952 2.1
22,571 Gencor Limited (ADR) (a) 55,535 73,112 2.2
---------- ---------- ------
109,808 144,064 4.3
Mining 2,416 Anglo American PLC 115,603 133,050 4.0
3,296 Gold Fields Ltd. 15,756 11,385 0.3
1,370 Gold Fields of South Africa Limited 16,536 2,637 0.1
---------- ---------- ------
147,895 147,072 4.4
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
AFRICA Shares Percent of
(concluded) Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Retail 820 Edgars Consolidated Stores Limited $ 2,611 $ 6,852 0.2%
Africa 144,947 Metro Cash and Carry Limited 118,514 121,832 3.7
(concluded) 3,291 Pepkor Limited 10,312 10,908 0.3
---------- ---------- ------
131,437 139,592 4.2
Total Investments in South Africa 1,266,186 1,473,476 44.1
Zimbabwe Beverages 65,844 Delta Corporation Limited 42,000 19,407 0.6
& Tobacco
Entertainment 190,974 Zimbabwe Sun Limited 73,405 17,590 0.5
& Leisure
Real Estate 55,667 Hippo Valley Estates Ltd. 21,630 14,649 0.4
Total Investments in Zimbabwe 137,035 51,646 1.5
Total Investments in Africa 1,718,727 2,190,769 65.5
MIDDLE
EAST
Egypt Banking 6,643 Commercial International Bank 60,437 57,371 1.7
9,100 Commercial International Bank (GDR) (b) 185,500 75,075 2.2
---------- ---------- ------
245,937 132,446 3.9
Beverages 2,894 Al-Ahram Beverages Company S.A.E.
(GDR) (b) 44,857 85,373 2.6
Finance 6,510 EFG-Hermes Holding, S.A.E. (GDR) (b) 76,493 65,426 2.0
Housing 2,540 Madinet Nasr for Housing &
Development Company 27,807 26,406 0.8
Total Investments in Egypt 395,094 309,651 9.3
Israel Banking 22,282 Bank Hapoalim 43,443 51,413 1.5
29,239 Bank Leumi Le-Israel 44,110 50,081 1.5
---------- ---------- ------
87,553 101,494 3.0
Food Chain 31,654 Supersol Ltd. 79,703 83,119 2.5
Merchandising 6,041 Blue Square Chain Investments and
Properties Ltd. 32,850 76,963 2.3
Telecommunications 3,226 ECI Telecom Limited 125,459 91,538 2.8
Total Investments in Israel 325,565 353,114 10.6
Turkey Banking 13,023,088 Turkiye Garanti Bankasi AS 107,002 87,705 2.6
6,172,916 Yapi ve Kredi Bankasi AS 82,425 80,373 2.4
4,938,332 Yapi ve Kredi Bankasi AS (Receipts) 40,740 64,298 1.9
---------- ---------- ------
230,167 232,376 6.9
Retail 232,584 Migros Turk T.A.S. 96,130 92,676 2.8
Total Investments in Turkey 326,297 325,052 9.7
Total Investments in the Middle East 1,046,956 987,817 29.6
SHORT-TERM Face
SECURITIES Amount
Commercial US$ 138,000 General Motors Acceptance Corp., 5.56%
Paper* due 9/01/1999 138,000 138,000 4.1
Total Investments in Short-Term
Securities 138,000 138,000 4.1
Total Investments $2,903,683 3,316,586 99.2
==========
Other Assets Less Liabilities 28,250 0.8
---------- ------
Net Assets $3,344,836 100.0%
========== ======
Net Asset Value: Class A--Based on net assets of $521,971 and 55,991
shares outstanding $ 9.32
==========
Class B--Based on net assets of $2,252,629 and 245,742
shares outstanding $ 9.17
==========
Class C--Based on net assets of $216,309 and 23,575
shares outstanding $ 9.18
==========
Class D--Based on net assets of $353,927 and 38,160
shares outstanding $ 9.27
==========
<FN>
*Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
</TABLE>
PORTFOLIO INFORMATION
As of August 31, 1999
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Nampak Limited 7.6%
Impala Platinum Holdings Limited 7.1
Nedcor Limited* 6.5
Cimenterie de l'Oriental (CIOR) 5.7
Banque Marocaine du Commerce Exterieur 5.5
Guinness Ghana Limited 5.0
AngloGold Limited (ADR) 4.0
Yapi ve Kredi Bankasi AS* 4.3
Gencor Limited* 4.3
Commercial International Bank* 3.9
Percent of
Ten Largest Industries Net Assets
Banking 25.9%
Forest Products 7.6
Holding Company 7.1
Retail 7.0
Building Materials 5.7
Beverages & Tobacco 5.6
Mining 4.4
Metals-Non-Ferrous 4.3
Gold Mines 4.0
Merchandising 3.7
[FN]
*Includes combined holdings.
EQUITY PORTFOLIO CHANGES
For the Quarter Ended August 31, 1999
Deletions
Banque Audi (GDR)
Banque Libanaise
Pick'n Pay Stores Limited (N Shares)
