MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
August 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 -- 8/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
[GRAPHIC MAP CHART OMITTED: ASSET ALLOCATION]
Asset Allocation as
A Percentage* of
Net Assets as of
August 31, 1997
Asset Allocation As a Percentage* of Net Assets as of August 31, 1997
A map illustrating the following percentages:
GHANA 1.7%
MOROCCO 3.9%
SOUTH AFRICA 51.0%
BOTSWANA 1.4%
TURKEY 5.6%
ISRAEL 6.2%
LEBANON 3.1%
JORDAN 1.0%
EGYPT 13.7%
ZIMBABWE 4.5%
* Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., August 31, 1997
DEAR SHAREHOLDER
During the three-month period ended August 31, 1997, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class C
and Class D Shares were +4.10%, +3.84%, +3.83% and +4.01%, respectively.
(Investment results shown do not reflect sales charges and would be
lower if sales charges were included. Complete performance information,
including average annual total returns, can be found on pages 3 -- 5 of
this report to shareholders.) The unmanaged Morgan Stanley Capital
International Indexes for the largest equity markets in the region
- -- Israel, South Africa and Turkey -- registered returns of +3.60%,
+0.74% and +2.74%, respectively. In addition, the unmanaged J.P. Morgan
Securities South African Bond Index (in US dollars terms) rose 1.71%.
Investment Review and Activities
The Israeli market showed strong performance initially, only to decline
sharply once political concerns moved to the forefront. The driving
forces behind investor interest were strong second-quarter earnings for
a number of high-profile companies and the restructuring of holdings at
major conglomerates. On the political front, the peace process suffered
a severe blow when Islamic suicide bombers targeted Jerusalem. Israeli
investors also became increasingly concerned about stock market
volatility in the United States and awaited new economic indicators
affecting interest rates. Among our prime holdings in Israel is Blue
Square Chain Stores Properties and Investments Ltd., the largest
retailer in Israel. Blue Square embarked on an aggressive expansion
program in order to diversify its presence in the retail market. The
company now operates 136 supermarkets and 37 specialty and department
stores.
Although the Turkish market appreciated by 2.74% over the August
quarter, political and economic uncertainty prevailed as the government
lost credibility with respect to its inflation targets. Expectations are
that interest rates will still rise, and this will constrain the
performance of the Turkish stock market.
In South Africa, speculation over gold once again became a decisive
factor in the market's performance. The positive investor outlook for
South Africa, based on an improved international reserve position, an
upgrade of the sovereign debt rating by Duff & Phelps, and strong
corporate earnings for several companies, was dampened when gold prices
started to decline.
A new holding for the Fund in South Africa was Sasol Ltd., a worldwide
leader in the conversion of coal to oil and gas. Sasol employs a unique
technology, the Fischer-Troposch synthesis- synthol process, to produce
vast quantities of chemicals and chemical feedstock streams.
The Egyptian market experienced an 8% rally during late August. At the
end of the quarter, it was one of the best-performing markets, up 5.06%.
Among the top performers was Commercial International Bank (Egypt)
S.A.E. (CIB), the largest market cap on the exchange. CIB reported
strong earnings through June 1997. This commercial bank represents one
of the Fund's core holdings in Egypt.
In Conclusion
Our long-term outlook for the Middle East/Africa region remains
positive. However, we continue to caution our shareholders that these
markets are highly volatile, and in some instances, illiquid.
We thank you for your investment in the Merrill Lynch 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
September 30, 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 -- 8/31/97 8.95 11.42 -- -- +27.60
Total $1.309
Cumulative total return as of 8/31/97: +30.31%**
* 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 -- 8/31/97 8.97 11.36 -- -- +26.64
Total $1.084
Cumulative total return as of 8/31/97: +26.70%**
* 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 -- 8/31/97 8.95 11.38 -- -- +27.15
Total $1.095
Cumulative total return as of 8/31/97: +27.08%**
* 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 -- 8/31/97 8.95 11.40 -- -- +27.37
Total $1.256
Cumulative total return as of 8/31/97: +29.37%**
* 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 6/30/97 +19.04% +10.62%
Inception (12/30/94)
through 6/30/97 +10.93 + 8.56
* 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 6/30/97 +17.81% +11.52%
Inception (12/30/94)
through 6/30/97 + 9.77 + 9.07
* 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 6/30/97 +18.18% +14.89%
Inception (12/30/94)
through 6/30/97 + 9.90 + 9.90
* 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 6/30/97 +18.68% +10.28%
Inception (12/30/94)
through 6/30/97 +10.61 + 8.25
* 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
8/31/97 5/31/97 8/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Middle East/Africa Fund, Inc. Class A Shares $11.42 $10.97 $9.33 +22.40% +4.10%
ML Middle East/Africa Fund, Inc. Class B Shares 11.36 10.94 9.26 +22.68 +3.84
ML Middle East/Africa Fund, Inc. Class C Shares 11.38 10.96 9.26 +22.89 +3.83
ML Middle East/Africa Fund, Inc. Class D Shares 11.40 10.96 9.31 +22.45 +4.01
ML Middle East/Africa Fund, Inc. Class A Shares -- Total Return +28.52(1) +4.10
ML Middle East/Africa Fund, Inc. Class B Shares -- Total Return +27.16(2) +3.84
ML Middle East/Africa Fund, Inc. Class C Shares -- Total Return +27.57(3) +3.83
ML Middle East/Africa Fund, Inc. Class D Shares -- Total Return +28.15(4) +4.01
* 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., August 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <C> <C> <C> <C> <C> <C>
Botswana Multi-Industry 106,802 Sechaba Investment Trust $85,845 $130,437 1.4%
---------- ---------- -----
Total Investments in Botswana 85,845 130,437 1.4
========== ========== =====
Ghana Beverages &
Tobacco 917,998 Guiness Ghana Ltd. 158,792 160,755 1.7
---------- ---------- -----
Total Investments in Ghana 158,792 160,755 1.7
========== ========== =====
Morocco Banking 3,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 116,045 209,196 2.3
Building
Materials 2,000 Les Ciments de l'Oriental 87,576 152,821 1.6
---------- ---------- -----
Total Investments in Morocco 203,621 362,017 3.9
========== ========== =====
South Africa Banking 11,064 Nedcor Ltd. 210,232 216,963 2.4
Beverages 10,231 South African Breweries Ltd. 298,069 307,039 3.3
Beverages &
Tobacco 20,200 Rembrandt Group Ltd. 212,748 195,539 2.1
Broadcasting &
Publishing 14,600 Nasionale Pers Beperk 133,662 161,876 1.8
Diversified 10,715 Barlow Rand Ltd. 149,332 126,227 1.4
19,725 Billiton PLC (c) 72,057 76,785 0.8
19,330 Johnnies Industrial Corp., Ltd. 235,066 253,474 2.8
10,350 Rembrandt Controlling Investments
Ltd. 71,363 63,446 0.7
23,100 Sasol Ltd. 297,437 307,836 3.3
---------- ---------- -----
825,255 827,768 9.0
Entertainment 435 Sun International
(Bophuthatswana) Ltd. 552 278 0.0
Financial
Services 26,400 First National Bank Holdings Ltd. 214,240 208,273 2.3
Foreign
Government ZAL 2,050,000 Republic of South Africa Bond,
13% due 8/31/2010 401,491 402,634 4.4
Obligations ZAL 6,950,000 South African Bond, 12% due
2/28/2005 1,416,938 1,331,780 14.4
---------- ---------- -----
1,818,429 1,734,414 18.8
Merchandising 35,200 Pick'n Pay Stores Ltd. 40,118 53,288 0.6
1,223 Pick'n Pay Stores Ltd. (N Shares) 1,702 1,669 0.0
---------- ---------- -----
41,820 54,957 0.6
Metals --
Non-Ferrous 44,060 Gencor Limited 110,467 112,264 1.2
16,000 Gencor Limited (ADR)(a) 70,400 69,664 0.8
19,371 Gencor Limited (Unsponsored)
(ADR)(a) 43,585 47,459 0.5
6,575 GenCorp, Inc. (Letter of
Entitlement) 23,012 25,235 0.3
---------- ---------- -----
247,464 254,622 2.8
Mining 2,660 Anglo American Corp. of
South Africa, Ltd. (ADR)(a) 167,591 136,325 1.5
2,400 De Beers Centenary AG 77,488 76,503 0.8
1,370 Gold Fields of South Africa Ltd. 35,013 28,043 0.3
45,518 Ingwe Coal Corp., Ltd. 259,335 230,987 2.5
38 JCI Company Limited 367 239 0.0
---------- ---------- -----
539,794 472,097 5.1
Retail 113,690 Metro Cash and Carry Ltd. 99,977 113,932 1.2
21,000 Pepkor Ltd. (Ordinary) 99,154 143,284 1.6
---------- ---------- -----
199,131 257,216 2.8
---------- ---------- -----
Total Investments in South
Africa 4,741,396 4,691,042 51.0
========== ========== =====
Zimbabwe Beverages &
Tobacco 80,655 Delta Corporation 49,265 123,746 1.3
Entertainment & 183,781 Zimbabwe Sun International 72,360 78,582 0.9
Leisure
Real Estate 164,081 Hippo Valley Estates 60,325 210,475 2.3
---------- ---------- -----
Total Investments in Zimbabwe 181,950 412,803 4.5
========== ========== =====
Total Investments in Africa 5,371,604 5,757,054 62.5
========== ========== =====
MIDDLE
EAST
Egypt Banking 5,110 Commercial International Bank
(Egypt) S.A.E. (CIB) 60,437 122,107 1.3
7,000 Commercial International Bank
(Egypt) S.A.E. (CIB)
(GDR)(b) 185,500 175,350 1.9
---------- ---------- -----
245,937 297,457 3.2
Beverages 14,550 Al-Ahram (Pyramids) Beverages
(GDR)(b) 225,525 371,025 4.0
Engineering & 15,810 Torah Portland Cement Company,
Construction Egypt 287,018 418,993 4.6
Housing 2,500 Nasr City Company For Housing
& Reconstruction 53,454 175,206 1.9
---------- ---------- -----
Total Investments in Egypt 811,934 1,262,681 13.7
========== ========== =====
Israel Banking 86,852 Bank Hapoalim Ltd. 139,943 188,304 2.0
102,072 Bank Leumi Le-Israel 143,402 161,185 1.8
---------- ---------- -----
283,345 349,489 3.8
Food Chain 20,607 Supersol Ltd. 55,496 63,206 0.7
Merchandising 17,458 Blue Square Chain Stores
Properties and Investments Ltd. 95,151 154,979 1.7
---------- ---------- -----
Total Investments in Israel 433,992 567,674 6.2
========== ========== =====
Jordan Transportation
Services 6,406 Aramex International Limited
(ADR)(a) 48,286 88,082 1.0
---------- ---------- -----
Total Investments in Jordan 48,286 88,082 1.0
========== ========== =====
Lebanon Banking 12,000 Banque Libanaise (GDR)(b) 145,500 283,200 3.1
---------- ---------- -----
Total Investments in Lebanon 145,500 283,200 3.1
========== ========== =====
Turkey Banking 2,959,000 Akbank T.A.S. (Ordinary) 188,496 189,895 2.1
Building &
Construction 2,335,702 Adana Cimento Sanayii (Class A) 109,914 124,099 1.3
Building
Products 1,376,108 Akcansa Cimento A.S. 202,683 205,377 2.2
---------- ---------- -----
Total Investments in Turkey 501,093 519,371 5.6
========== ========== =====
Total Investments in the
Middle East 1,940,805 2,721,008 29.6
========== ========== =====
<CAPTION>
SHORT-TERM Face Percent of
SECURITIES Amount Investments Cost Value Net Assets
<S> <C> <C> <C> <C> <C>
US Government US$688,000 Federal Home Loan Mortgage
Agency Corp., 5.50%
Obligations* due 9/02/1997 $687,685 $687,685 7.5%
---------- ---------- -----
Total Investments in
Short-Term Securities 687,685 687,685 7.5
========== ========== =====
Total Investments $8,000,094 9,165,747 99.6
==========
Other Assets
Less Liabilities 38,586 0.4
---------- -----
Net Assets $9,204,333 100.0%
========== =====
Net Asset Value: Class A -- Based on net assets of $988,348 and
86,539 shares outstanding $11.42
==========
Class B -- Based on net assets of $6,305,965 and
555,123 shares outstanding $11.36
==========
Class C -- Based on net assets of $760,226 and
66,790 shares outstanding $11.38
==========
Class D -- Based on net assets of $1,149,794 and
100,846 shares outstanding $11.40
==========
* Certain US Government Agency Obligations are traded on a discount basis; the interest rate shown is the
discount rate paid at the time of purchase by the Fund.
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) Consistent with the general policy of the Securities and Exchange Commission, the nationality or domicile
of an issuer for determination of foreign issuer status may be (i) the country under whose laws the issue
is organized, (ii) the country in which the issuer's securities are principally traded, or (iii) the
country in which the issuer derives a significant proportion (at least 50%) of its revenue or profits from
goods produced or sold, investments made, or services performed in the country, or in which at least 50%
of the assets of the issuer are situated.
</TABLE>
EQUITY PORTFOLIO CHANGES
For the Quarter Ended August 31, 1997
Additions
Billiton PLC
Commercial International Bank
(Egypt) S.A.E. (CIB) (GDR)
Gencor Limited (Unsponsored) (ADR)
GenCorp, Inc. (Letter of Entitlement)
Pick'n Pay Stores Ltd. (N Shares)
Sasol Ltd.
PORTFOLIO INFORMATION
As of August 31, 1997
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Torah Portland Cement Company, Egypt 4.6%
Al-Ahram (Pyramids) Beverages (GDR) 4.0
Sasol Ltd. 3.3
South Africian Breweries Ltd. 3.3
Commercial International Bank (Egypt)
S.A.E. (CIB)* 3.2
Banque Libanaise (GDR) 3.1
Johnnies Industrial Corp., Ltd. 2.8
Ingwe Coal Corp., Ltd. 2.5
Nedcor Ltd. 2.4
Hippo Valley Estates 2.3
* Includes Global Depositary Receipts.
Percent of
Ten Largest Industries Net Assets
Banking 16.9%
Diversified 9.0
Beverages 7.3
Beverages & Tobacco 5.1
Mining 5.1
Engineering & Construction 4.6
Retail 2.8
Metals -- Non-Ferrous 2.8
Real Estate 2.3
Merchandising 2.3
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
