MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Semi-Annual Report
May 31, 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
Printed on post-consumer recycled paper
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Map Depicting the Fund's Asset Allocation As a Percentage* of Net
Assets as of May 31, 1998
GHANA 2.2%
MOROCCO 6.3%
SOUTH AFRICA 45.1%
BOTSWANA 2.2%
TURKEY 14.9%
ISRAEL 9.8%
LEBANON 4.7%
EGYPT 11.3%
ZIMBABWE 1.5%
[FN]
*Total may not equal 100%.
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
DEAR SHAREHOLDER
During the three-month period ended May 31, 1998, total returns for
Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +2.31%, +2.04%, +2.04% and +2.22%,
respectively. (Investment results shown do 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.) The unmanaged Morgan Stanley Capital International
Indexes (MSCI) for the largest equity markets in the region--Israel,
South Africa and Turkey--registered returns of +14.69%, +2.28% and
- -4.77%, respectively, for the three months ended May 31, 1998. In
addition, the unmanaged J.P. Morgan Securities South African Bond
Index declined 3.70% (in US dollars) 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, unless otherwise
noted.) Detrimental to performance was the Fund's overweighted
position in Turkey and its underweighted position in Israel relative
to the MSCI. Beneficial to performance were the Fund's investments
in Ghana and Morocco, whose markets were up 27.67% and 20.78%,
respectively.
Investment Review and Activities
The Fund's largest weightings remained in South Africa, Turkey,
Egypt and Israel. The South African market was up 2.28% as measured
by the MSCI--South Africa Index for the three-month period ended May
31, 1998. For several months, the South African stock market was
able to avoid the negative trend of other emerging markets that
began with the Asian financial crisis at the end of 1997. The South
African market's performance, which increased by 9.33% over the last
six months, was primarily the result of steady progress in the South
African economy, a reduction in inflation and household credit
creation, and a consolidation process among many South African
companies, especially those in the financial services sector. More
recently, the South African market has pulled back somewhat amid
speculation about the currency and renewed concerns about the Asian
crisis. The financial services sector has been one of the best-
performing sectors in South Africa year-to-date, in part because of
positive macroeconomic trends, coupled with a wave of consolidations
between financial institutions. Among our holdings in South Africa,
First National Bank Holdings, Ltd., one of the largest banks in
South Africa, merged with Rand Merchant Bank to form FirstRand
Limited. Through major life insurance companies and investment
management companies, FirstRand Limited also provides life
insurance, pension and asset management services. Recent earnings
releases of the banking sector show that earnings at major
institutions are robust.
During the quarter ended May 31, 1998, the market in Turkey declined
4.77%. On the political front, it appears as if the Turkish
government coalition will remain, and a general election will not be
called before the nationwide municipal elections which are due in
March 1999. Thus, the outlook for greater political stability has
boosted equity prices. Throughout the quarter, there has also been
cause for relative optimism on the economic front in Turkey, as
strong gross domestic product growth for 1997 was reported (+7.2%)
and the outlook for growth during 1998 is also acceptable (+5%). At
the same time, inflation is falling and lower inflationary
expectations have helped to cut interest rates. There is even
optimism about the country's fiscal policy, as the government's
budget deficit for January 1998 to March 1998 was within its target
level. Signs of improved tax collection, as well as new tax
declaration regulations within the region, have been encouraging,
suggesting that another strong revenue performance is likely. During
the three-month period, the treasury sold its 12.3% stake in Turkiye
Is Bankasi, the largest private bank, adding to the success of
Turkey's privatization process already under way.
The Israeli market, which appreciated by 14.69% during the period,
was one of the strongest markets not only in the Middle East/Africa
region, but also among the emerging markets. The Israeli economy has
undergone intense structural changes, leaving the economy more open
to international trade and improvments in competition in the
domestic economy. New export-oriented capital-intensive industries
have developed in the scientific equipment, electronics, chemicals
and electrical motors sectors. Also, trade, current account and
fiscal deficits are all pointing in a positive direction. Progress
on these fronts has led to a modest reduction in interest rates,
which has been one of the main drivers of the Israeli equity market.
Unlike its neighbor, Israel, the Egyptian market saw a decline of
9.24% for the three-month period ended May 31, 1998. This market is
still recovering from the combination of uncertainty caused by
attacks on tourists last year, the Asian financial crisis and a drop
in oil prices. The market has been characterized by low trading
volume, since many foreign investors preferred to sit on the
sidelines. Egyptian bank shares were especially hard-hit during the
quarter from new tax legislationthat has diminishedtax exemption on
government securities.
Among the smaller markets, the Moroccan market performed well for
the quarter ended May 31, 1998, rising 20.78%. Rapid growth in
Morocco's domestic mutual fund industry has been a key structural
development in recent years. The market's strong performance year-to-
date has been supported by improved underlying economic performance,
including a trend toward lower interest rates, steady growth in
corporate earnings, the potential for corporate restructurings of
major conglomerates, and continued domestic mutual fund growth. One
of the Fund's key holdings is Les Ciments de L'Oriental (Cior), the
second-largest cement company in Morocco. This company, in which the
Swiss cement company Holderbank has a 51% stake, derives the major
part of its sales from the domestic cement market.
In Conclusion
All of the emerging markets continue to experience extreme
volatility and a new phase of negative sentiment. Some of the
markets in the Middle East/Africa regions have managed to stay clear
of the negative trends thus far. However, these markets are not
totally immune to the general nervousness characterizing global
equity markets. For this reason, we would remind our shareholders
that investing in these markets requires a long-term view. 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,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
July 6, 1998
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 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:
* 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 "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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/98 +6.82% -0.74%
Inception (12/30/94)
through 3/31/98 +9.50 +7.70
[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 3/31/98 +5.65% -0.41%
Inception (12/30/94)
through 3/31/98 +8.34 +8.08
[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 3/31/98 +6.12% +3.05%
Inception (12/30/94)
through 3/31/98 +8.46 +8.46
[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 3/31/98 +6.49% -1.06%
Inception (12/30/94)
through 3/31/98 +9.21 +7.41
[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 +4.47% +2.31% +30.77%
ML Middle East/Africa Fund, Inc. Class B Shares +3.42 +2.04 +26.19
ML Middle East/Africa Fund, Inc. Class C Shares +3.41 +2.04 +26.56
ML Middle East/Africa Fund, Inc. Class D Shares +4.24 +2.22 +29.65
<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 Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 106,802 Sechaba Breweries Ltd. $ 85,845 $ 170,226 2.2%
Total Investments in Botswana 85,845 170,226 2.2
Ghana Beverages & Tobacco 432,827 Guiness Ghana Ltd. 70,100 170,139 2.2
Total Investments in Ghana 70,100 170,139 2.2
Morocco Banking 3,428 Banque Marocaine du Commerce
Exterieure (GDR)(b) 116,045 252,728 3.2
Building Materials 2,000 Les Ciments de L'Oriental (Cior) 87,576 237,488 3.1
Total Investments in Morocco 203,621 490,216 6.3
South Banking 4,323 ++Nedcor Ltd. (GDR)(b)(d) 82,321 115,705 1.5
Africa
Beverages 10,230 South African Breweries Ltd. 298,069 288,571 3.7
Beverages & Tobacco 20,200 Rembrandt Group Ltd. 212,748 166,358 2.1
Broadcasting 14,600 Nasionale Pers Beperk 133,662 138,508 1.8
& Publishing
Diversified 26,300 Billiton PLC (c) 95,069 66,079 0.9
16,000 Billiton PLC (ADR) (a)(c) 58,450 38,400 0.5
19,596 Johnnies Industrial Corp., Ltd. 238,518 228,104 2.9
10,350 Rembrandt Controlling Investments Ltd. 71,363 54,717 0.7
23,100 Sasol Ltd. 297,437 183,742 2.4
---------- ---------- ------
760,837 571,042 7.4
Foreign ZAL 6,950,000 South African Bond, 12% due 2/28/2005 1,416,938 1,246,555 16.0
Government
Obligations
Insurance 88,088 FirstRand Limited 80,725 171,749 2.2
7,100 Liberty Life Association of Africa Ltd. 182,951 195,872 2.5
---------- ---------- ------
263,676 367,621 4.7
Merchandising 34,620 Pick'n Pay Stores Ltd. 39,456 53,262 0.7
705 Pick'n Pay Stores Ltd. (N Shares) 1,017 992 0.0
---------- ---------- ------
40,473 54,254 0.7
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (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 Metals--Non-Ferrous 63,075 Gencor Limited $ 158,278 $ 123,592 1.6%
Africa 22,571 Gencor Limited (ADR)(a) 55,535 44,212 0.6
(concluded) ---------- ---------- ------
213,813 167,804 2.2
Mining 2,660 Anglo American Corp. of South Africa,
Ltd. (ADR)(a) 167,592 126,682 1.6
2,400 De Beers Centenary AG 77,488 50,007 0.6
1,370 Gold Fields of South Africa Ltd. 35,013 20,466 0.3
---------- ---------- ------
280,093 197,155 2.5
Retail 114,688 Metro Cash & Carry Ltd. 100,854 120,150 1.5
13,494 Pepkor Ltd. (Ordinary) 63,714 74,610 1.0
---------- ---------- ------
164,568 194,760 2.5
Total Investments in South Africa 3,867,198 3,508,333 45.1
Zimbabwe Beverages & Tobacco 81,232 ++Delta Corporation 49,857 54,610 0.7
Entertainment & 183,782 ++Zimbabwe Sun International 72,119 33,976 0.4
Leisure
Real Estate 55,667 Hippo Valley Estates 21,630 28,067 0.4
Total Investments in Zimbabwe 143,606 116,653 1.5
Total Investments in Africa 4,370,370 4,455,567 57.3
MIDDLE
EAST
Egypt Banking 5,110 Commercial International Bank
(Egypt) S.A.E. (CIB) 60,437 76,594 1.0
7,000 Commercial International Bank (Egypt)
S.A.E. (CIB)(GDR)(b) 185,500 99,050 1.3
---------- ---------- ------
245,937 175,644 2.3
Beverages 5,618 Al-Ahram (Pyramids) Beverages (GDR)(b)(d) 87,079 177,529 2.3
Engineering & 11,810 Torah Portland Cement Company, Egypt 215,720 229,258 2.9
Construction
Housing 1,270 Nasr City Company For Housing &
Reconstruction 27,807 71,198 0.9
Industrial--Other 24,300 ++Paints & Chemicals Industries
(PACHIN) (GDR)(b)(d) 285,525 224,775 2.9
Total Investments in Egypt 862,068 878,404 11.3
Israel Banking 86,852 Bank Hapoalim, Ltd. 139,943 267,145 3.4
102,072 Bank Leumi Le-Israel 143,402 206,325 2.7
---------- ---------- ------
283,345 473,470 6.1
Food Chain 20,607 Supersol Ltd. 55,496 72,359 0.9
Merchandising 17,458 ++Blue Square Chain Stores Properties
and Investments Ltd. 95,151 216,133 2.8
Total Investments in Israel 433,992 761,962 9.8
Lebanon Banking 6,300 Banque Audi (GDR)(b) 182,700 167,580 2.1
12,000 ++Banque Libanaise (GDR)(b)(d) 145,500 202,200 2.6
Total Investments in Lebanon 328,200 369,780 4.7
Turkey Banking 7,397,500 Akbank T.A.S. (Ordinary) 199,072 217,827 2.8
7,679,100 Yapi ve Kredi Bankasi A.S. 110,466 148,762 1.9
---------- ---------- ------
309,538 366,589 4.7
Building & 2,335,701 Adana Cimento Sanayii (Class A) 71,880 176,965 2.3
Construction
Building Products 9,115,265 Akcansa Cimento A.S. 274,573 282,534 3.6
Telecommunications 1,133,695 ++Northern Electric Telekomunikasyon
Equipment A.S. (NETAS) 427,433 333,827 4.3
Total Investments in Turkey 1,083,424 1,159,915 14.9
Total Investments in the Middle East 2,707,684 3,170,061 40.7
Total Investments $7,078,054 7,625,628 98.0
==========
Other Assets Less Liabilities 152,211 2.0
---------- ------
Net Assets $7,777,839 100.0%
========== ======
<FN>
(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.
(d)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$7,078,054) (Note 1a) $ 7,625,628
Receivables:
Investment adviser (Note 2) $ 85,053
Interest 40,010
Dividends 39,661 164,724
------------
Deferred organization expenses (Note 1f) 124,774
Prepaid registration fees and other assets (Note 1f) 10,746
------------
Total assets 7,925,872
------------
Liabilities: Payables:
Distributor (Note 2) 5,178
Capital shares redeemed 3,340 8,518
------------
Accrued expenses and other liabilities 139,515
------------
Total liabilities 148,033
------------
Net Assets: Net assets $ 7,777,839
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 8,444
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 47,395
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 5,637
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 9,060
Paid-in capital in excess of par 7,278,823
Undistributed investment income--net 158,149
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 6) (275,732)
Unrealized appreciation on investments and foreign currency
transactions--net 546,063
------------
Net assets $ 7,777,839
============
Net Asset Class A--Based on net assets of $933,322 and 84,442 shares
Value: outstanding $ 11.05
============
Class B--Based on net assets of $5,222,515 and 473,953 shares
outstanding $ 11.02
============
Class C--Based on net assets of $621,945 and 56,369 shares
outstanding $ 11.03
============
Class D--Based on net assets of $1,000,057 and 90,598 shares
outstanding $ 11.04
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended May 31, 1998
<S> <S> <C> <C>
Investment Income Dividends (net of $772 foreign withholding tax) $ 121,255
(Notes 1d & 1e): Interest and discount earned 90,717
------------
Total income 211,972
------------
Expenses: Investment advisory fees (Note 2) $ 41,597
Accounting services (Note 2) 35,373
Amortization of organization expenses (Note 1f) 30,639
Registration fees (Note 1f) 30,624
Account maintenance and distribution fees--Class B (Note 2) 28,060
Professional fees 26,945
Custodian fees 24,567
Directors' fees and expenses 18,963
Printing and shareholder reports 17,113
Transfer agent fees--Class B (Note 2) 6,972
Account maintenance and distribution fees--Class C (Note 2) 3,424
Pricing fees 2,771
Account maintenance fees--Class D (Note 2) 1,333
Transfer agent fees--Class D (Note 2) 1,117
Transfer agent fees--Class A (Note 2) 1,001
Transfer agent fees--Class C (Note 2) 904
Other 2,494
------------
Total expenses before reimbursement 273,897
Reimbursement of expenses (Note 2) (220,281)
------------
Total expenses after reimbursement 53,616
------------
Investment income--net 158,356
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net 276,174
Gain (Loss) on Foreign currency transactions--net (11,488) 264,686
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (87,875)
(Notes 1b, 1c, Foreign currency transactions--net 850 (87,025)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 177,661
------------
Net Increase in Net Assets Resulting from Operations $ 336,017
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
<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: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 158,356 $ 307,359
Realized gain on investments and foreign currency
transactions--net 264,686 102,705
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (87,025) 992,514
------------ ------------
Net increase in net assets resulting from operations 336,017 1,402,578
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (34,496) (18,402)
(Note 1g): Class B (147,378) (194,967)
Class C (18,526) (26,076)
Class D (35,943) (41,949)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (236,343) (281,394)
------------ ------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (1,089,335) (112,890)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease)in net assets (989,661) 1,008,294
Beginning of period 8,767,500 7,759,206
------------ ------------
End of period* $ 7,777,839 $ 8,767,500
============ ============
<FN>
*Undistributed investment income--net $ 158,149 $ 236,136
============ ============
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: 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.96 $ 9.40 $ 10.66 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .25 .48 .42 .57
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .22 1.52 (.80) .09
------- ------- ------- -------
Total from investment operations .47 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 $ 11.05 $ 10.96 $ 9.40 $ 10.66
======= ======= ======= =======
Total Investment Based on net asset value per share 4.57%+++++ 22.43% (4.17%) 6.60%+++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .47%* .47% .47% .00%*
Net Assets: ======= ======= ======= =======
Expenses 5.76%* 6.36% 4.84% 4.63%*
======= ======= ======= =======
Investment income--net 4.65%* 4.35% 4.24% 8.43%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 933 $ 989 $ 399 $ 648
Data: ======= ======= ======= =======
Portfolio turnover 4.81% 78.12% 46.36% 40.97%
======= ======= ======= =======
Average commission rate paid++++ $ .0050 $ .0012 $ .0022 --
======= ======= ======= =======
<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.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++Commencement of operations.
+++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
<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: 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.87 $ 9.31 $ 10.56 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .20 .37 .32 .79
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .22 1.51 (.80) (.23)
------- ------- ------- -------
Total from investment operations .42 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 $ 11.02 $ 10.87 $ 9.31 $ 10.56
======= ======= ======= =======
Total Investment Based on net asset value per share 4.09%+++++ 21.02% (5.14%) 5.60%+++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.51%* 1.51% 1.50% 1.01%*
Net Assets: ======= ======= ======= =======
Expenses 6.80%* 7.46% 5.90% 5.68%*
======= ======= ======= =======
Investment income--net 3.59%* 3.40% 3.15% 8.33%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 5,223 $ 5,947 $ 5,699 $ 7,701
Data: ======= ======= ======= =======
Portfolio turnover 4.81% 78.12% 46.36% 40.97%
======= ======= ======= =======
Average commission rate paid++++ $ .0050 $ .0012 $ .0022 --
======= ======= ======= =======
<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: 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.89 $ 9.31 $ 10.56 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .19 .36 .31 .83
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .23 1.55 (.79) (.27)
------- ------- ------- -------
Total from investment operations .42 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 $ 11.03 $ 10.89 $ 9.31 $ 10.56
======= ======= ======= =======
Total Investment Based on net asset value per share 4.07%+++++ 21.42% (5.16%) 5.60%+++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.52%* 1.52% 1.50% 1.01%*
Net Assets: ======= ======= ======= =======
Expenses 6.82%* 7.47% 5.91% 5.67%*
======= ======= ======= =======
Investment income--net 3.54%* 3.33% 3.14% 8.45%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 622 $ 723 $ 692 $ 1,012
Data: ======= ======= ======= =======
Portfolio turnover 4.81% 78.12% 46.36% 40.97%
======= ======= ======= =======
Average commission rate paid++++ $ .0050 $ .0012 $ .0022 --
======= ======= ======= =======
<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.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++Commencement of operations.
+++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
<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: 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.93 $ 9.38 $ 10.63 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .24 .46 .40 .77
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .23 1.50 (.80) (.14)
------- ------- ------- -------
Total from investment operations .47 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 $ 11.04 $ 10.93 $ 9.38 $ 10.63
======= ======= ======= =======
Total Investment Based on net asset value per share 4.53%+++++ 21.95% (4.31%) 6.30%+++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .72%* .72% .72% .25%*
Net Assets: ======= ======= ======= =======
Expenses 6.01%* 6.67% 5.08% 4.89%*
======= ======= ======= =======
Investment income--net 4.37%* 4.18% 4.01% 9.07%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 1,000 $ 1,109 $ 969 $ 1,569
Data: ======= ======= ======= =======
Portfolio turnover 4.81% 78.12% 46.36% 40.97%
======= ======= ======= =======
Average commission rate paid++++ $ .0050 $ .0012 $ .0022 --
======= ======= ======= =======
<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.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++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. 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 are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. 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. Premium or discount is amortized over the life of the
contracts.
* 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.
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
* 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 five-year period. 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 and 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 "Distributor"), 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, 1998, MLAM
earned fees of $41,597, all of which was voluntarily waived. MLAM
also reimbursed the Fund for additional expenses of $178,684.
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 Inc. ("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, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $126 $1,310
For the six months ended May 31, 1998, MLPF&S received contingent
deferred sales charges of $24,181 and $484 relating to transactions
in Class B and Class C Shares, respectively. Furthermore, MLPF&S
received contingent deferred sales charges of $4,763 and $560
relating to transactions subject to front-end sales charges waivers
in Class A and Class D Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended May 31, 1998 were $379,426 and $677,899,
respectively.
Net realized gains (losses) for the six months ended May 31, 1998
and net unrealized gains (losses) as of May 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $276,174 $547,574
Foreign currency transactions (11,488) (1,511)
-------- --------
Total $264,686 $546,063
======== ========
As of May 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $547,574, of which $1,508,677 related to
appreciated securities and $961,103 related to depreciated
securities. The aggregate cost of investments at May 31, 1998 for
Federal income tax purposes was $7,078,054.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $1,089,335 and $112,890 for the six months ended May 31, 1998
and for the year ended November 30, 1997, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended May 31, 1998 Shares Amount
Shares sold 20,190 $ 229,603
Shares issued to shareholders in
reinvestment of dividends 1,545 15,853
---------- -----------
Total issued 21,735 245,456
Shares redeemed (27,555) (306,362)
---------- -----------
Net decrease (5,820) $ (60,906)
========== ===========
Class A Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 70,183 $ 762,817
Shares issued to shareholders in
reinvestment of dividends 770 6,712
---------- -----------
Total issued 70,953 769,529
Shares redeemed (23,107) (254,547)
---------- -----------
Net increase 47,846 $ 514,982
========== ===========
Class B Shares for the Six Months Dollar
Ended May 31, 1998 Shares Amount
Shares sold 35,169 $ 394,699
Shares issued to shareholders in
reinvestment of dividends 5,885 60,441
---------- -----------
Total issued 41,054 455,140
Shares redeemed (114,260) (1,250,900)
---------- -----------
Net decrease (73,206) $ (795,760)
========== ===========
Class B Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 139,528 $ 1,537,142
Shares issued to shareholders in
reinvestment of dividends 5,639 49,231
---------- -----------
Total issued 145,167 1,586,373
Shares redeemed (210,113) (2,174,324)
---------- -----------
Net decrease (64,946) $ (587,951)
========== ===========
Class C Shares for the Six Months Dollar
Ended May 31, 1998 Shares Amount
Shares sold 3,858 $ 42,437
Shares issued to shareholders in
reinvestment of dividends 1,244 12,801
---------- -----------
Total issued 5,102 55,238
Shares redeemed (15,051) (165,856)
---------- -----------
Net decrease (9,949) $ (110,618)
========== ===========
Merrill Lynch Middle East/Africa Fund, Inc., May 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 40,916 $ 447,258
Shares issued to shareholders in
reinvestment of dividends 1,129 9,847
---------- -----------
Total issued 42,045 457,105
Shares redeemed (49,974) (503,688)
---------- -----------
Net decrease (7,929) $ (46,583)
========== ===========
Class D Shares for the Six Months Dollar
Ended May 31, 1998 Shares Amount
Shares sold 4,065 $ 46,816
Shares issued to shareholders in
reinvestment of dividends 1,638 16,807
---------- -----------
Total issued 5,703 63,623
Shares redeemed (16,573) (185,674)
---------- -----------
Net decrease (10,870) $ (122,051)
========== ===========
Class D Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 30,184 $ 334,924
Shares issued to shareholders in
reinvestment of dividends 1,282 11,183
---------- -----------
Total issued 31,466 346,107
Shares redeemed (33,347) (339,445)
---------- -----------
Net increase (decrease) (1,881) $ 6,662
========== ===========
The total redemption fees for Merrill Lynch Middle East/Africa Fund,
Inc. amounted to $11,533 for the six months ended May 31, 1998.
5. Capital Loss Carryforward:
At November 30, 1997, the Fund had a capital loss carryforward of
approximately $540,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
PORTFOLIO INFORMATION
As of May 31, 1998
Percent of
Ten Largest Holdings (Equity Investments) Net Assets
Northern Electric Telekomunikasyon A.S. (NETAS) 4.3%
South African Breweries Ltd. 3.7
Akcansa Cimento A.S. 3.6
Bank Hapoalim, Ltd. 3.4
Banque Marocaine du Commerce Exterieure (GDR) 3.2
Les Ciments de L'Oriental (Cior) 3.1
Torah Portland Cement Company, Egypt 2.9
Johnnies Industrial Corp., Ltd. 2.9
Paints & Chemicals Industries (PACHIN) (GDR) 2.9
Blue Square Chain Stores Properties and
Investments Ltd. 2.8
Percent of
Ten Largest Industries Net Assets
Banking 22.5%
Diversified 7.4
Beverages 6.0
Beverages & Tobacco 5.0
Insurance 4.7
Telecommunications Equipment 4.3
Building Products 3.6
Merchandising 3.5
Building Materials 3.1
Engineering & Construction 2.9
EQUITY PORTFOLIO CHANGES
For the Quarter Ended May 31, 1998
Deletions
Aramex International Limited (ADR)
JCI Company Limited
