MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
February 28, 1998
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
Grace Pineda, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President
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
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 -- 2/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
[GRAPHIC OMITTED: A MAP OF ASSET ALLOCATION AS A PERCENTAGE* OF NET
ASSETS AS OF FEBRUARY 28, 1998]
Asset Allocation
As a Percentage* of
Net Assets as of
February 28, 1998
A map illustrating the following percentages:
GHANA 4.0%
MOROCCO 4.9%
SOUTH AFRICA 42.5%
BOTSWANA 1.4%
TURKEY 14.7%
ISRAEL 7.4%
LEBANON 4.9%
JORDAN 1.0%
EGYPT 12.9%
ZIMBABWE 1.7%
* Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., February 28, 1998
DEAR SHAREHOLDER
During the three-month period ended February 28, 1998, total returns
for Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +2.20%, +2.01%, +2.00% and +2.25%,
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 -- 4 of this report to shareholders.) The
unmanaged Morgan Stanley Capital International Indexes (MSCI) for
the largest equity markets in the region -- Israel, South Africa and
Turkey -- registered returns of - 4.38%, +6.88% and +2.94%,
respectively, for the three months ended February 28, 1998. In
addition, the unmanaged J.P. Morgan Securities South African Bond
Index rose 6.59% (in US dollars) for the same three-month period.
Beneficial to performance was the Fund's underweighted position in
Israel and its overweighted position in Turkey. Detrimental to
performance was the Fund's underweighted position in South Africa.
Investment Review and Activities
The Fund's largest weighting remained South Africa, whose market was
up 6.88% as measured by the MSCI -- South Africa for the three-month
period ended February 28, 1998. In South Africa, the outlook is for
somewhat improved, though still modest, economic growth, with the
consensus for 1998 targeting growth at 2.00% -- 2.25%. Inflation is
projected to stabilize in the 6% -- 7% range, and a further decline
in interest rates is expected. Also, it was anticipated that El Nino
would cause a severe drought. This drought never materialized;
therefore, no severe pressure was put on food prices, as investors
had originally feared. There may also be scope for further
liberalization of exchange rate policy, since initial liberalization
of the rand in July 1997 did not lead to any massive capital
outflow. We would include among the remaining risks a further slide
in the prices of gold and other mining commodities, and speculation
against the rand. This speculation could occur because, while
international reserve levels are healthier than they have been
traditionally, they are still relatively low by international
standards.
In South Africa, positive trends in terms of falling inflation and
declining interest rates buoyed such sectors as banks and insurance
companies. For example, First National Bank Holdings, Ltd., a Fund
holding, is the third largest bank in South Africa in terms of total
assets, and is a leader in both installment credit and the leasing
market. Over the past few years, the bank reduced its cost
structure, selling off weak subsidiaries and streamlining its
operations.
According to the MSCI, the Turkish market posted a relatively small
gain (+2.94%) over the last three months because the underlying
fundamentals there remain troublesome. Momentum behind economic
reform continues to be slow. Furthermore, uncertainty over the
durability of the minority Yilmaz government, which took over after
the Islamist Refah Party was banned in January, is high. The
government targets a decline in wholesale price inflation from 91%
in December 1997 to 50% by December 1998, but worse-than-expected
inflationary figures were reported for January. Also, hopes of a
successful conclusion to International Monetary Fund talks waned
during the February quarter, while the threat of renewed conflict in
Iraq also hung heavily over the market.
The Iraqi situation also had a negative impact on the Egyptian and
Israeli markets, which declined during the February quarter by 6.4%
and 4.4%, respectively, according to the MSCI. With few new
developments in Egypt and the religious holiday of Ramadan in late
January resulting in lower trading volume, the Egyptian market
drifted downward for much of the three-month period. Also affecting
the market was speculation on a possible devaluation of the Egyptian
pound. Bank stocks were especially hard hit as investors became
concerned that recent regulations would do away with the tax-exempt
status for much of the banks' securities portfolios, as well as curb
loan growth. In Israel, the shekel was tested during the February
quarter with the resignation of finance minister David Levy, as well
as the failure of the original 1998 budget. However, the Bank of
Israel's dollar purchases helped to stabilize the currency until the
budget was passed. On a positive note, foreign inflows into the
market came as the Israeli government continued with privatizations,
notably Bank Hapoalim, Ltd. Bank Hapoalim and Bank Leumi Le-Israel
represent significant holdings for the Fund in Israel.
In Conclusion
The volatility experienced by emerging markets in general continued
throughout the February quarter, but to a much lesser extent. We saw
an overall nervousness among investors, which kept stock trading
volume low and sentiment uneasy. While for the most part markets in
the Middle East/Africa regions have weathered the most recent storm
well, all of the emerging markets continue to be characterized by a
heightened fragility. For this reason we would remind our
shareholders that investing in these markets requires a long-term
view and a tolerance for volatility. With this in mind, we thank you
for your 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
Senior Vice President and
Portfolio Manager
March 26, 1998
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:
[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).
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 "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 12/31/97 +21.33% +12.74%
Inception (12/30/94)
through 12/31/97 + 7.41 + 5.49
* 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 12/31/97 +19.95% +13.62%
Inception (12/30/94)
through 12/31/97 + 6.27 + 5.97
* 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 12/31/97 +20.43% +17.09%
Inception (12/30/94)
through 12/31/97 + 6.37 + 6.37
* 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 12/31/97 +20.94% +12.38%
Inception (12/30/94)
through 12/31/97 + 7.10 + 5.19
* 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 Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Middle East/Africa Fund, Inc. Class A Shares +3.14% +2.20% +27.81%
ML Middle East/Africa Fund, Inc. Class B Shares +2.10 +2.01 +23.67
ML Middle East/Africa Fund, Inc. Class C Shares +2.47 +2.00 +24.04
ML Middle East/Africa Fund, Inc. Class D Shares +3.01 +2.25 +26.83
* 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>
<CAPTION>
Merrill Lynch Middle East/Africa Fund, Inc., February 28, 1998
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 Breweries Ltd. $85,845 $113,632 1.4%
---------- ---------- -----
Total Investments in Botswana 85,845 113,632 1.4
========== ========== =====
Ghana Beverages & Tobacco 802,074 Guiness Ghana Ltd. 137,789 333,466 4.0
---------- ---------- -----
Total Investments in Ghana 137,789 333,466 4.0
========== ========== =====
Morocco Banking 3,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 116,045 221,893 2.7
Building Materials 2,000 Les Ciments de l'Oriental 87,576 181,529 2.2
---------- ---------- -----
Total Investments in Morocco 203,621 403,422 4.9
========== ========== =====
South Africa Banking 4,323 Nedcor Ltd. (GDR)(b) 82,321 125,976 1.5
Beverages 10,231 South African Breweries Ltd. 298,069 287,048 3.5
Beverages & Tobacco 20,200 Rembrandt Group Ltd. 212,748 138,211 1.7
Broadcasting &
Publishing 14,600 Nasionale Pers Beperk 133,662 97,530 1.2
Diversified 26,300 Billiton PLC (c) 95,069 64,470 0.8
16,000 Billiton PLC (ADR)(a)(c) 58,450 38,500 0.5
19,596 Johnnies Industrial Corp.,
Ltd. 238,518 230,074 2.8
10,350 Rembrandt Controlling
Investments Ltd. 71,363 46,093 0.5
23,100 Sasol Ltd. 297,437 197,332 2.4
---------- ---------- -----
760,837 576,469 7.0
Financial Services 13,050 First National Bank Holdings,
Ltd. 80,725 147,935 1.8
Foreign Government ZAL 6,950,000 South African Bond, 12% due
Obligations 2/28/2005 1,416,938 1,330,650 16.1
Insurance 7,000 Liberty Life Association of
Africa Ltd. 179,424 212,551 2.5
Merchandising 34,620 Pick'n Pay Stores Ltd. 39,456 56,625 0.7
705 Pick'n Pay Stores Ltd.
(N Shares) 1,017 1,085 0.0
---------- ---------- -----
40,473 57,710 0.7
Metals -- Non-Ferrous 63,075 Gencor Limited 158,278 109,807 1.3
22,571 Gencor Limited (ADR)(a) 55,535 39,280 0.5
---------- ---------- -----
213,813 149,087 1.8
Mining 2,660 Anglo American Corp. of South
Africa, Ltd. (ADR)(a) 167,592 112,385 1.3
2,400 De Beers Centenary AG 77,488 47,611 0.6
1,370 Gold Fields of South Africa
Ltd. 35,013 17,888 0.2
36 JCI Company Limited 367 195 0.0
---------- ---------- -----
280,460 178,079 2.1
Retail 114,688 Metro Cash & Carry Ltd. 100,854 123,046 1.5
13,494 Pepkor Ltd. (Ordinary) 63,714 92,601 1.1
---------- ---------- -----
164,568 215,647 2.6
---------- ---------- -----
Total Investments in South
Africa 3,864,038 3,516,893 42.5
========== ========== =====
Zimbabwe Beverages & Tobacco 81,232 Delta Corporation 49,857 56,586 0.7
Entertainment & Leisure 183,782 Zimbabwe Sun International 72,119 42,105 0.5
Real Estate 55,667 Hippo Valley Estates 21,630 43,948 0.5
---------- ---------- -----
Total Investments in Zimbabwe 143,606 142,639 1.7
========== ========== =====
Total Investments in Africa 4,434,899 4,510,052 54.5
========== ========== =====
MIDDLE
EAST
Egypt Banking 5,110 Commercial International Bank
(Egypt) S.A.E. (CIB) 60,437 85,716 1.0
7,000 Commercial International Bank
(Egypt) S.A.E. (CIB)(GDR)(b) 185,500 115,850 1.4
---------- ---------- -----
245,937 201,566 2.4
Beverages 8,989 Al-Ahram (Pyramids) Beverages
(GDR)(b) 139,329 290,794 3.5
Engineering &
Construction 11,810 Torah Portland Cement Company,
Egypt 215,720 229,389 2.8
Housing 1,270 Nasr City Company For Housing
& Reconstruction 27,807 74,761 0.9
Industrial -- Other 24,300 Paints & Chemicals Industries
(PACHIN)(GDR)(b) 285,525 273,375 3.3
---------- ---------- -----
Total Investments in Egypt 914,318 1,069,885 12.9
========== ========== =====
Israel Banking 86,852 Bank Hapoalim, Ltd. 139,943 203,527 2.5
102,072 Bank Leumi Le-Israel 143,402 173,337 2.1
---------- ---------- -----
283,345 376,864 4.6
Food Chain 20,607 Supersol Ltd. 55,496 66,535 0.8
Merchandising 17,458 Blue Square Chain Stores
Properties and Investments Ltd. 95,151 166,276 2.0
---------- ---------- -----
Total Investments in Israel 433,992 609,675 7.4
========== ========== =====
Jordan Transportation Services 6,406 Aramex International Limited
(ADR)(a) 48,286 77,673 1.0
---------- ---------- -----
Total Investments in Jordan 48,286 77,673 1.0
========== ========== =====
Lebanon Banking 6,300 Banque Audi (GDR)(b) 179,550 182,700 2.2
12,000 Banque Libanaise (GDR)(b) 145,500 223,800 2.7
---------- ---------- -----
Total Investments in Lebanon 325,050 406,500 4.9
========== ========== =====
Turkey Banking 2,959,000 Akbank T.A.S. (Ordinary) 188,496 234,037 2.8
4,290,000 Yapi ve Kredi Bankasi A.S. 103,740 141,302 1.7
---------- ---------- -----
292,236 375,339 4.5
Building &
Construction 2,335,701 Adana Cimento Sanayii
(Class A) 71,880 161,962 2.0
Building Products 1,823,053 Akcansa Cimento A.S. 274,573 244,928 3.0
Telecommunications 1,133,695 Northern Electric
Telekomunikasyon A.S. (NETAS) 427,433 432,370 5.2
Equipment ---------- ---------- -----
Total Investments in Turkey 1,066,122 1,214,599 14.7
========== ========== =====
Total Investments in the
Middle East 2,787,768 3,378,332 40.9
========== ========== =====
Short-Term Face
Securities Amount
Commercial Paper* US$ 101,000 General Motors Acceptance
Corp., 5.69% due 3/02/1998 100,968 100,968 1.2
---------- ---------- -----
Total Investments in
Short-Term Securities 100,968 100,968 1.2
========== ========== =====
Total Investments $7,323,635 7,989,352 96.6
==========
Other Assets Less Liabilities 279,836 3.4
---------- -----
Net Assets $8,269,188 100.0%
========== =====
Net Asset Value: Class A -- Based on net assets of $931,330 and
86,206 shares outstanding $10.80
==========
Class B -- Based on net assets of $5,567,720
and 515,583 shares outstanding $10.80
==========
Class C -- Based on net assets of $694,619 and
64,237 shares outstanding $10.81
==========
Class D -- Based on net assets of $1,075,519
and 99,617 shares outstanding $10.80
==========
* Commercial Paper is 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>
PORTFOLIO INFORMATION
As of February 28, 1998
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Northern Electric Telekomunikasyon A.S. (NETAS) 5.2%
Guiness Ghana Ltd. 4.0
Al-Ahram (Pyramids) Beverages (GDR) 3.5
South African Breweries Ltd. 3.5
Paints & Chemicals Industries (PACHIN) (GDR) 3.3
Akcansa Cimento A.S. 3.0
Akbank T.A.S. (Ordinary) 2.8
Johnnies Industrial Corp., Ltd. 2.8
Torah Portland Cement Company, Egypt 2.8
Banque Libanaise (GDR) 2.7
Percent of
Ten Largest Industries Net Assets
Banking 20.6%
Beverages 7.0
Diversified 7.0
Beverages & Tobacco 6.4
Telecommunications Equipment 5.2
Industrial - Other 3.3
Building Products 3.0
Engineering & Construction 2.8
Merchandising 2.7
Retail 2.6
EQUITY PORTFOLIO CHANGES
For the Quarter Ended February 28, 1998
Addition Liberty Life Association of Africa Ltd.
Deletion Sun International (Bophuthatswana) Ltd.
