MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
February 28, 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 -- 2/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
Merrill Lynch Middle East/Africa Fund, Inc., February 28, 1997
DEAR SHAREHOLDER
During the three-month period ended February 28, 1997, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B, Class
C and Class D Shares were +21.31%, +20.91%, +20.86% and +21.06%,
respectively. The unmanaged Morgan Stanley Capital International Indexes
for the largest equity markets in the region -- Israel, South Africa and
Turkey -- registered returns of +23.26%, +10.10% and +51.25%,
respectively, for the same period. In addition, the unmanaged J.P.
Morgan Securities South African Bond Index rose 11.04% (in US dollars)
for the quarter ended February 28, 1997. The Fund's performance
benefited from its investments in Egypt, 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 3 - 6 of
this report to shareholders.)
Investment Overview and Activities
Middle Eastern markets performed well during the three months ended
February 28, 1997. Turkey (+51.25%) rallied largely on the expectation
that interest rates will decline because of a less onerous refinancing
schedule and a lighter debt service burden. However, we were concerned
about the foreign currency exposure of this debt given our expectations
of weakness in the Turkish currency, the lire. We were also concerned
about the highly speculative nature of this rally. Therefore, we
reduced the Fund's investments in Turkey from 9.32% of net assets to
7.24% during the February quarter.
The Egyptian market continued its rally (+58.92%), largely driven by
foreign investors who decided to enter this market. The Fund maintained
a large exposure to the Egyptian market and holdings rose from 7.90% of
net assets to 8.66% during the February quarter.
In Israel (+23.26%), the stock market rose as the approval of the 1997
budget was deemed sufficient to reduce the deficit and, with inflation
trending down, interest rates were expected to decline. Also supporting
the market's performance were stock valuations that compared favorably
with those in developed European markets, and positive liquidity flows
from domestic provident (savings) and mutual funds. During the three
months ended February 28, 1997, we increased the Fund's investments in
Israel from 12.63% of net assets to 15.47%. One of our main holdings in
the Fund is Israel's Bank Leumi Le-Israel, one of the two leaders in a
highly concentrated banking industry.
In South Africa (+10.10%), the overwhelmingly negative investor
sentiment, that existed before the start of the year, reversed in
January. Renewed investor optimism triggered portfolio investment
inflows which supported the South African rand. At the same time, good
inflation, money supply and private sector credit results led to
forecasts of interest rate declines. At the end of January, the
performance of South Africa's stock market and its currency benefited
from good trade balance numbers. Going forward, although the economy
is slowing, developments in the upcoming months should favor equity
investments. These developments include large privatizations and
the easing of foreign exchange controls. As such, we added to our
investments in South Africa by purchasing domestic government
bonds and well-managed companies such as Nasionale Pers Beperk,
a publisher of magazines, newspapers and textbooks which also
has investments in the electronic media.
In Conclusion
We are optimistic about the long-term prospects for stocks in the
emerging markets. However, we remind our shareholders that emerging
markets are volatile, and as such an investor should have a long-term
investment outlook.
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
March 26, 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. 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 -- 2/28/97 8.95 10.86 -- -- +21.34
Total $1.309
Cumulative total return as of 2/28/97: +23.92%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and 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 -- 2/28/97 8.97 10.86 -- -- +21.07
Total $1.084
Cumulative total return as of 2/28/97: +21.13%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and 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 -- 2/28/97 8.95 10.84 -- -- +21.12
Total $1.095
Cumulative total return as of 2/28/97: +21.05%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and 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 -- 2/28/97 8.95 10.85 -- -- +21.23
Total $1.256
Cumulative total return as of 2/28/97: +23.13%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and 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 12/31/96 -7.23% -13.78%
Inception (12/30/94)
through 12/31/96 +1.06 -1.63
* Maximum sales charge is 5.25%. Maximum redemption fee is
2% and is reduced to 0% after 1 year.
** Assuming maximum sales charge.
% Return Without % Return With
CDSC CDSC
Class B Shares*
Year Ended 12/31/96 -8.22% -13.46%
Inception (12/30/94)
through 12/31/96 +0.02 -0.87
* 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 Without % Return With
CDSC CDSC
Class C Shares*
Year Ended 12/31/96 -8.29% -10.92%
Inception (12/30/94)
through 12/31/96 -0.03 -0.03
* 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 12/31/96 -7.54% -14.07%
Inception (12/30/94)
through 12/31/96 +0.78 -1.90
* 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
2/28/97 11/30/96 2/29/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.86 $9.40 $10.65 +1.97% +15.53%
Class B Shares 10.86 9.31 10.62 +2.26 +16.65
Class C Shares 10.84 9.31 10.63 +1.98 +16.43
Class D Shares 10.85 9.38 10.64 +1.97 +15.67
Class A Shares -- Total Return +7.07(1) +21.31(1)
Class B Shares -- Total Return +6.00(2) +20.91(2)
Class C Shares -- Total Return +5.85(3) +20.86(3)
Class D Shares -- Total Return +6.72(4) +21.06(4)
* 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>
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> <C>
Botswana Multi-Industry 106,802 Sechaba Investment Trust $85,845 $74,628 0.9%
Total Investments in Botswana 85,845 74,628 0.9
Ghana Beverages & Tobacco 904,743 Guiness Ghana Ltd. 156,444 173,989 2.1
Total Investments in Ghana 156,444 173,989 2.1
Morocco Banking 3,428 Banque Marocaine du Commerce Exterieure (GDR)(b) 116,045 179,703 2.2
Building Materials 2,000 Les Ciments de l'Oriental 87,576 100,360 1.2
Total Investments in Morocco 203,621 280,063 3.4
South Africa Beverages 6,336 South African Breweries Ltd. 179,899 189,514 2.3
Beverages & Tobacco 10,500 Rembrandt Group Ltd. 113,820 107,813 1.3
Broadcasting & Publishing 11,600 Nasionale Pers Beperk 100,436 108,750 1.3
Diversified 10,634 Barlow Rand Ltd. 148,475 112,155 1.4
12,600 Johnnies Industrial Corp., Ltd. 148,495 162,422 2.0
---------- ---------- ------
296,970 274,577 3.4
Entertainment 21,570 Sun International (Bophuthatswana) Ltd. 26,671 14,444 0.2
Financial Services 26,400 First National Bank Holdings Ltd. 214,240 162,054 2.0
Foreign Government ZAL 500,000 Republic of South Africa Bond, 13% due 8/31/2011 97,194 99,824 1.2
Obligations ZAL 6,950,000 South African Bond, 12% due 2/28/2005 1,416,938 1,344,594 16.4
---------- ---------- ------
1,514,132 1,444,418 17.6
Merchandising 35,200 Pick'n Pay Stores Ltd. 40,118 43,371 0.5
Metals -- Non-Ferrous 17,500 Gencor Limited 65,576 75,781 1.0
16,000 Gencor Limited (ADR)(a) 70,400 67,000 0.8
---------- ---------- ------
135,976 142,781 1.8
Mining 2,300 Anglo American Corp. of South Africa, Ltd.
(ADR)(a) 144,912 144,612 1.8
16,400 Beatrix Mines Ltd. 133,687 110,004 1.4
2,400 De Beers Centenary AG 77,488 83,304 1.0
9,400 Ingwe Coal Corp., Ltd. 75,091 58,750 0.7
18,000 JCI Company Limited 198,806 195,871 2.4
48 Western Areas Gold Mining Company Ltd. (ADR)(a) 704 656 0.0
32 Western Areas Gold Mining Company Ltd. (Ordinary) 438 443 0.0
---------- ---------- ------
631,126 593,640 7.3
Total Investments in South Africa 3,253,388 3,081,362 37.7
Zimbabwe Beverages & Tobacco 167,292 Delta Corporation 94,097 262,096 3.2
Entertainment & Leisure 179,000 Zimbabwe Sun International 70,750 61,697 0.8
Real Estate 164,081 Hippo Valley Estates 60,325 210,059 2.6
Total Investments in Zimbabwe 225,172 533,852 6.6
Total Investments in Africa 3,924,470 4,143,894 50.7
MIDDLE
EAST
Egypt Banking 511 Commercial International Bank (Egypt) S.A.E. 60,437 132,155 1.6
Engineering & Construction 16,810 Torah Portland Cement Company, Egypt 304,842 415,905 5.1
Housing 1,250 Nasr City Company For Housing & Reconstruction 53,454 160,266 2.0
Total Investments in Egypt 418,733 708,326 8.7
Israel Banking 86,852 Bank Hapoalim Ltd. 139,943 166,798 2.0
220,800 Bank Leumi Le-Israel 306,252 364,598 4.5
---------- ---------- ------
446,195 531,396 6.5
Engineering & Construction 2,178 Koor Industries Ltd. 181,857 209,799 2.6
5,000 Koor Industries Ltd. (ADR)(a) 89,050 95,000 1.1
---------- ---------- ------
270,907 304,799 3.7
Food Chain 27,419 Supersol Ltd. 73,956 85,795 1.1
Merchandising 37,100 Blue Square Chain Stores Properties and
Investments Ltd. 201,555 342,489 4.2
Total Investments in Israel 992,613 1,264,479 15.5
Jordan Beverages 14,550 Al-Ahram Beverages (GDR)(b) 225,525 253,897 0.0
Transportation Services 6,406 Aramex International Limited (ADR)(a) 48,286 56,853 0.7
Total Investments in Jordan 273,811 310,750 3.8
Lebanon Banking 12,000 Banque Libanaise (GDR)(b) 145,500 185,400 2.3
Total Investments in Lebanon 145,500 185,400 2.3
Turkey Banking 4,900,000 Yapi Ve Kredi Bankasi A.S. 150,008 231,301 2.8
Brewery 20,800 Erciyas Biracilik Ve Malt Sanayii A.S. (GDR)(b) 69,940 41,600 0.5
Building & Construction 1,417,000 Adana Cimento Sanayii (Class A) 77,764 152,806 1.9
Steel 959,938 Eregli Demir Ve Celik Fabrikalari T.A.S. (Erdemir) 108,192 166,018 2.0
Total Investments in Turkey 405,904 591,725 7.2
Total Investments in the Middle East 2,236,561 3,060,680 37.5
Short-Term US Government & US$ 85,000 Federal Home Loan Mortgage Corp., 5.30% due
Securities Agency Obligations* 3/03/1997 84,975 84,975 1.0
Total Investments in Short-Term Securities 84,975 84,975 1.0
Total Investments $6,246,006 7,289,549 89.2
==========
Other Assets Less Liabilities 886,840 10.8
---------- -------
Net Assets $8,176,389 100.00%
========== ======
Net Asset Value: Class A -- Based on net assets of $751,719 and 69,232 shares
outstanding $10.86
==========
Class B -- Based on net assets of $5,824,527 and 536,517 shares
outstanding $10.86
==========
Class C -- Based on net assets of $618,097 and 57,029 shares
outstanding $10.84
==========
Class D -- Based on net assets of $982,046 and 90,480 shares
outstanding $10.85
==========
* 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).
</TABLE>
<TABLE>
<CAPTION.
EQUITY PORTFOLIO CHANGES
For the Quarter Ended February 28, 1997
<S> <C> <C> <C>
Additions Al-Ahram Beverages (GDR) Gencor Limited (ADR) Rembrandt Group Ltd.
Aramex International Limited (ADR) JCI Company Limited Supersol Ltd.
Bank Leumi Le-Israel Johnnies Industrial Corp., Ltd. Yapi Ve Kredi Bankasi A.S.
Banque Libanaise (GDR) Nasionale Pers Beperk
Gencor Limited Pick'n Pay Stores
Deletions Blue Square Chain Stores Properties Driefontein Consolidated Ltd. (ADR) Unilever Ghana Ltd.
and Investments Ltd. (ADR) Meikles Africa Ltd. Vaal Reefs Exploration
Commercial International Bank (Egypt) Pioneer Tobacco Co. Ltd. & Mining Co., Ltd.
S.A.E. (GDR) South African Breweries Ltd. (ADR)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
As of February 28, 1997
Percent of Percent of
Ten Largest Holdings (Equity Investments) Net Assets Ten Largest Industries Net Assets
<S> <C> <C> <C>
Torah Portland Cement Company, Egypt 5.1% Banking 15.4%
Bank Leumi Le-Israel 4.5 Engineering & Construction 8.8
Blue Square Chain Stores Properties and Mining 7.3
Investments Ltd. 4.2 Beverages & Tobacco 6.6
Koor Industries Ltd.* 3.7 Beverages 5.4
Delta Corporation 3.2 Merchandising 4.2
Al-Ahram Beverages 3.1 Diversified 3.4
Yapi Ve Kredi Bankasi A.S. 2.8 Real Estate 2.6
Hippo Valley Estates 2.6 Investment Management 2.0
JCI Company Limited 2.4 Holding Company 2.0
South African Breweries Ltd. 2.3
*Includes combined holdings.
</TABLE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Grace Pineda, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
James W. Harshaw, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
4 MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800)637-3863
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net assets as of
February 28, 1997
A map illustrating the following percentages:
Ghana 2.1%
Morocco 3.4%
South Africa 37.7%
Botswana 0.9%
Turkey 7.2%
Lebanon 2.3%
Israel 15.5%
Jordan 3.8%
Egypt 8.7%
Zimbabwe 6.6%
* Total may not equal 100%
