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[GRAPHIC]
THE FOREIGN & COLONIAL
EMERGING MIDDLE EAST FUND, INC.
ANNUAL REPORT
OCTOBER 31, 1999
[LOGO]
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GENERAL INFORMATION
THE FUND
The Foreign & Colonial Emerging Middle East Fund, Inc. (the "Fund") is a
non-diversified, closed-end management investment company whose shares trade on
the New York Stock Exchange ("NYSE"). Its investment objective is long-term
capital appreciation through investments primarily in equity securities of
Middle East issuers. Under normal market conditions, the Fund invests at least
65% of its total assets in equity securities of emerging Middle East issuers.
The balance of the Fund's assets are invested in equity and corporate debt
securities of other Middle East issuers and sovereign debt obligations of Middle
East countries.
THE INVESTMENT ADVISER
Foreign & Colonial Emerging Markets Limited ("FCEM" or the "Investment
Adviser"), an indirect wholly-owned subsidiary of Foreign & Colonial Management
Ltd., is the Fund's investment adviser.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the NYSE Composite
Transactions section of major newspapers under the designation "ForClE" or
"ForegnColon". The Fund's NYSE trading symbol is "EME".
Net asset value and market price information regarding the Fund's shares is
published each Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW YORK
TIMES and each Saturday in BARRON'S, as well as in other newspapers. All
inquiries regarding registered shareholder accounts may be directed to the
Fund's transfer agent, dividend paying agent and registrar, State Street Bank
and Trust Company, at 800-426-5523.
DISCOUNT TO NET ASSET VALUE
The Board of Directors regularly monitors the Fund's discount to net asset value
and in that connection, has considered various options to address the discount,
including share repurchase programs, tender offers and open-ending the Fund. The
Board believes, however, that these options would not be in the best interests
of all stockholders.
Therefore, at a meeting held on December 10, 1998, the Fund's Board of Directors
resolved that if the average weekly discount of the Fund's shares for the fiscal
year ending October 31, 2000 is equal to or greater than 15%, it is the Board's
current expectation that it would submit to stockholders a proposal to liquidate
the Fund at the following annual meeting of stockholders, absent unusual market
or other conditions that exist at that time.
The Board continues to be strongly of the view that a closed-end format rather
than an open-end format is the most suitable vehicle for investment in the
relatively illiquid markets of the Middle East. The Fund was established only
five years ago and was designed as a long-term investment vehicle. The Fund has
experienced positive performance and in that regard, the Fund's cumulative net
asset value total return from the period since inception through October 31,
1999 was approximately 38%. In addition, FCEM actively promotes analyst coverage
of and investor interest in the Fund, with the expectation that increased demand
for Fund shares will help narrow the discount. FCEM also continues to believe
that investing in Middle East issuers will provide attractive long-term growth
opportunities.
The Board, however, recognizes that while a substantial discount exists,
stockholders cannot realize the full value of their Fund shares through the sale
of the shares on the open market. For this Fund, liquidation is the most certain
and practical way to ensure the realization of close to full value. Liquidation,
however, terminates the opportunity that the Fund represents for its
stockholders, which is to have a diverse investment in a region of otherwise
relatively illiquid markets. Balancing the interests of stockholders in
realizing closer to full value at some point against the long-term nature of an
investment in the Fund, the Board currently expects to conclude that, if a
discount persists as described, the end of 2000 is an appropriate time to
propose liquidation to the stockholders. This is, in the Board's view, the most
practical alternative available to the Fund.
YEAR 2000 PROCESSING ISSUE
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on
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January 1, 2000, and may not be able to perform necessary functions. The Year
2000 issue affects virtually all companies and organizations.
The Investment Adviser has advised the Fund that it is implementing steps
intended to ensure that its computer systems are capable of Year 2000
processing. In addition, the Fund is inquiring with third parties to assess the
adequacy of their Year 2000 compliance efforts. The Fund has developed
contingency plans intended to assure that third-party noncompliance will not
materially affect the Fund's operations. Based upon reports provided by its
service providers, the Fund does not currently anticipate that the Year 2000
issue will have an adverse effect on its ability to continue its operations.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
TAX INFORMATION
The Fund is required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(October 31, 1999) as to the U.S. federal tax status of long-term capital gain
distributions received by the Fund's shareholders in respect of such fiscal
year. Accordingly, during the fiscal year ended October 31, 1999, the Fund paid
to shareholders $0.5480 per share from net long-term capital gains. There were
no dividends which would qualify for the dividend received deduction available
to corporate shareholders.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1999. The second notification, which
will reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 2000. Shareholders are advised to consult their tax advisers
with respect to the tax consequences of their investment in the Fund.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividends.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be
reported as taxable income for U.S. federal income tax purposes. However, some
retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this
information for their annual information reporting.
OTHER INFORMATION
Since October 31,1998, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter; (iii)
material changes in the principal risk factors associated with investment in the
Fund; or (iv) change in the person primarily responsible for the day-to-day
management of the Fund's portfolio.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Dividend Reinvestment Plan (the "Plan"), shareholders whose
shares are registered in their own names are deemed to have elected to have all
distributions (net of any applicable U.S. withholding tax) reinvested
automatically in additional shares of the Fund by State Street Bank and Trust
Company (the "Plan Agent") as agent under the Plan, unless such shareholders
elect to receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by State Street Bank and Trust Company, as dividend
paying agent. In the case of shareholders, such as banks, brokers or nominees,
which hold shares for others who are beneficial owners, the Plan Agent
administers the Plan on the basis of the number of shares certified from time to
time by the record shareholders as representing the total amount registered in
the record shareholder's name and held for the account of beneficial owners that
have not elected to receive distributions in cash. Investors that own shares
registered in the name of a bank, broker or other nominee should consult with
such nominee as to participation in the Plan through such nominee, and may be
required to have their shares registered in their own names in order to
participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares a dividend or capital gain
distribution payable either in the Fund's shares or in cash, as shareholders may
have elected, participants in the Plan will receive shares of the Fund, as
outlined below. Whenever the market price per share is equal to or exceeds the
net asset value per share as of the valuation date, participants will be issued
new shares at a price per share equal to the greater of (a) the net asset value
per share on that date or (b) 95% of the market price per share on that date.
The valuation date will be the dividend or distribution payment date or if that
date is not a trading day on the NYSE, the immediately preceding trading day.
The Fund will not issue
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shares under the Plan at a price below net asset value. If net asset value
exceeds the market price of the Fund's shares on the valuation date, or if the
Fund should declare a dividend or capital gain distribution payable only in
cash, the Plan Agent will, as agent for the participants, purchase shares in the
open market, on the NYSE or elsewhere, for the participants' accounts on or
shortly after the payment date. If, prior to the Plan Agent completing its
purchases, the market price per share exceeds net asset value per share, the
average per share purchase price paid by the Plan Agent may exceed the net asset
value per share of the Fund, resulting in the acquisition of fewer shares than
if the dividend or capital gain distribution had been paid in shares issued by
the Fund. Because of the foregoing difficulty with respect to open-market
purchases, the Plan provides that if the Plan Agent is unable to invest the
entire dividend amount in open-market purchases during the purchase period or if
the market discount shifts to a market premium during the purchase period, the
Plan Agent will cease making open-market purchases and will receive the
uninvested portion of the dividend amount in newly issued shares at the close of
business on the last purchase date.
A shareholder may elect to withdraw from the Plan at any time upon written
notice to the Plan Agent. When a participant withdraws from the Plan, or upon
termination of the Plan as provided below, certificates for whole shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fractional shares credited to such account. An election to
withdraw from the plan will, until such election is changed, be deemed to be an
election by a shareholder to take all subsequent dividends and distributions in
cash. Elections will be effective immediately if notice is received by the Plan
Agent not less than ten days prior to any dividend or distribution record date;
otherwise such termination will be effective after the investment of the then
current dividend or distribution. If a withdrawing shareholder requests that the
Plan Agent sell the shareholder's shares upon withdrawal from participation in
the Plan, the withdrawing shareholder will be required to pay a $2.50 fee plus
brokerage commission.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
required by shareholders for personal and tax records. Shares in the account of
each Plan participant are held by the Plan Agent in noncertificated form in the
name of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gain
distributions. The Plan Agent's fee for the handling of reinvestment of
dividends and distributions is borne by the Fund. There will be no brokerage
charges with respect to shares issued directly by the Fund as a result of
dividends or capital gain distributions payable either in shares or in cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gain distributions.
The automatic reinvestment of dividends and capital gain distributions will not
relieve participants of any U.S. federal income tax that may be payable on such
dividends or distributions. To the extent dividends and distributions are
reinvested in additional shares issued by the Fund, participants should be
treated for U.S. federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the valuation date, of
the shares received (regardless of the net asset value of the shares on the
valuation date), and should have a cost basis in such shares equal to such fair
market value. Shareholders receiving a distribution in the form of shares
purchased by the Plan Agent in the open market will be treated for U.S. federal
income tax purposes as receiving a cash distribution that such shareholder would
have received had it not elected to have such distribution reinvested.
Experience under the Plan may indicate that changes thereto may be desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid (i) subsequent to notice of the
change sent to all shareholders of the Fund at least 90 days prior to the record
date for such dividend or distribution or (ii) otherwise in accordance with the
terms of the Plan. The Plan also may be amended or terminated by the Plan Agent
by at least 90 days' prior written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at
P.O. Box 8209, Boston, Massachusetts 02266-8209.
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REPORT OF THE INVESTMENT ADVISER
Dear Shareholder:
We are pleased to present the annual report of The Foreign & Colonial Emerging
Middle East Fund Inc. (the "Fund") for the fiscal year ended October 31, 1999
(the "Fiscal Year"). During the Fiscal Year, the Fund's net asset value total
return was 7.1% in US$ terms.
EGYPT
The re-election of President Mubarak in October's election was expected, as he
was the sole candidate, but the scale of his victory (94% of the electorate)
provides a degree of comfort for the long-term political stability of the
country. Mubarak's post election cabinet reshuffle provided even more
encouragement, particularly the increase in the responsibilities of the Minister
of Economy Youssef Boutros-Ghali, who is well-respected by the international
community.
The general macroeconomic environment remains healthy with robust growth, a
solid fiscal situation and a benign inflation environment. One area of minor
concern is the external sector, where the Egyptian pound has come under pressure
due to a shortage of foreign currency in the economy. This problem has eased
somewhat due to an increase in export revenue as both tourism receipts and oil
exports have increased substantially over the past year.
The Egyptian stock market has had a reasonable twelve months, increasing by
13.8% in US$ terms. The main catalyst for the market advance was provided by the
post election cabinet reshuffle and the renewed commitment to the government's
privatization program, as evidenced by the strategic sales in the cement sector.
Attention however remains largely confined to a small number of the leading
stocks particularly in the telecommunications and bank sectors.
TURKEY
The past twelve months have been turbulent even by Turkish standards. The April
elections resulted in the Democratic Left Party (DSP), led by former Prime
Minister Bulent Ecevit, gaining the largest number of seats. After a period of
lengthy negotiation the DSP formed a three party coalition government with
former Prime Minister Mesut Yilmaz's Motherland Party (ANAP) and the nationalist
MHP party headed by Devlet Bahceli, who became the second largest party after a
surprising surge in popularity.
Despite initial skepticism, the government embarked on an ambitious economic
reform program aimed at tackling Turkey's perennially high inflation rate and
massive budget deficit. Impressively, even August's tragic earthquake, which
struck the Marmara region near Istanbul killing thousands, was unable to de-rail
the government's reforms, and the credibility of the Ecevit administration has
continued to increase. The two key reforms have been social security and
international arbitration and these, together with the new tax proposals in the
2000 budget, appear to be sufficient to secure a stand-by arrangement from the
IMF.
The Turkish stock market has reacted enthusiastically to the government's
economic reforms and the increasingly likely prospect of an International
Monetary Fund stand-by arrangement, surging by 78.8% in US$ terms over the past
twelve months. Banking stocks in particular have been one of the main
beneficiaries of the decrease in interest rates, due to the substantial increase
in the value of their large T-Bill holdings.
ISRAEL
The main political development over the last twelve months was Ehud Barak's
resounding victory in the national elections held earlier this year. The victory
was seen as a mandate to advance the peace process after limited progress under
Netanyahu. However, Barak's victory was not reflected in a strong parliamentary
majority, forcing him to form a multi-party coalition. Thus far this has not
proved problematic. The commitment of this government to the peace process has
led to a U.S. brokered peace accord. As part of this process, the two parties
will work toward the formation of a framework for the resolution of the most
difficult issues by February 2000. A final agreement on all these issues is to
be signed by October 2000.
On the economic front, there is strong evidence of recovery after more than six
quarters of slowdown. 2000 GDP growth is likely to exceed 4%, with indications
of heating up in the last two quarters of this year. Barak has committed to
follow policies that will foster, rather than constrain, this trend.
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Inflationary expectations have been lowered, as Y2K inspired currency weakness
has not taken place. 1999 Inflation is expected to finish at about 2.5%. With
the Bank of Israel interest rate at 11.2%, real rates are now more than 8%.
Although the new Central Bank governor, following Frankel's resignation, has not
yet been appointed, the market expectation is for a series of gradual rate cuts,
in the range of 150-200 basis points, over the course of 2000.
In the twelve months ended October 1999, the stock market has risen by 47.2% in
US$ terms. Performance was particularly strong in the run up to Barak's summer
victory. Since then, the better outlook for corporate earnings as well as the
strength of technology stocks have been the main contributory factors.
MOROCCO
The main political event of the past year has been the death of King Hassan II,
the region's longest serving monarch. Following a smooth transition of power,
his son Mohammed IV is now the new ruler. Although the monarchy enjoys wide
popular support, a number of social problems need to be addressed, not least an
urban unemployment rate of around 22%. As far as regional affairs are concerned,
expectations for improvement in the relations with Algeria have been raised but
no concrete steps forward have been made.
Poor weather conditions have depressed GDP, which is expected to stay flat in
1999. Consensus forecasts for the next year are for growth in the range of 3-4%
but the actual outcome will, as always, depend on the amount of rainfall. In
line with the 1999 growth profile, the inflation environment has remained benign
with a slight acceleration expected in 2000. Reserves currently stand at around
$5.9 billion, seven months import cover. The privatization program is likely to
accelerate, with the national telecoms and airline operators as key items on the
agenda.
The stock market fell by 13.1% in US$ terms over the past twelve months. It has
therefore exhibited a marked negative correlation with other global emerging
markets. Although the local mutual fund industry has continued to thrive, the
focus is now on bond rather than equity funds. At present, valuations stand at
around 19 times 1999 earnings, still considered expensive by most foreign
investors.
BAHRAIN
The death of Sheikh Isa in March 1999 and the emergence of his son, Sheikh
Hamid, as the new Emir has raised expectations for political reform. The new
ruler has in the past been an advocate of dialogue and reconciliation between
the two Muslim communities, the Sunnis and the Shias. The majority Shia
population has traditionally been excluded from all important government
positions, in favor of the Sunni minority to which the ruling family belongs. In
a move forward, the government recently announced plans to set up a six-member
panel to advise on human rights issues. This is in line with the pledge of the
new monarch to eliminate discrimination.
Although much more diversified than its neighbors, Bahrain is still a
beneficiary of the higher oil prices. The half year numbers on the fiscal and
trade position were better than expected. Balance of trade figures for the first
half of 1999 show a surplus of $218 million, compared to a deficit of $33
million for the same period of last year.
The index fell by 6.3% in US$ terms in the twelve months to the end of
October in a generally featureless market. In November 1999 Bahrain became a
constituent of the IFC Global composite index.
TUNISIA
As expected, the president, Zine al-Abedine Ben Ali and his party, the
Rassemblement Constitutionnel Democratique (RCD) swept to victory in the October
elections securing a further five year term with a 99.4% majority. In one of the
first acts of his new term, Ben Ali appointed economist Mohamed Ghannouchi as
Prime Minister raising optimism that the economy remains set for steady growth.
The macroeconomic outlook continues to be fairly healthy. GDP growth should
exceed 6% in 1999 with a similar level targeted for 2000. On the external side,
the current account deficit is expected to narrow towards 1% of GDP by the end
of next year due to a forecast increase in tourism revenues and foreign
remittances.
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The Tunisian stock market has had an impressive twelve months, increasing by
57.0% in US$ terms over the past year. The performance of the index has been
assisted by a number of successful stock market floatations as well as
government measures to stimulate trading.
OMAN
Sultan Qaboos Bin Said remains firmly in control and in good health. Given that
he is not married, the issue of succession is a topic of concern locally,
however, according to officials, there is a well-defined transition process in
place and the Sultan has already nominated his successor.
With oil representing approximately 35% of GDP and 76% of exports, the dramatic
rise in the oil price has provided a welcome boost. Despite this, government
revenues for the first eight months of 1999 stood at 979 million Omani Riyals,
compared to 1.2 billion Omani Riyals in 1998. Oil revenue, in particular, was
down to 602 million Omani Riyals, compared to 842 million Omani Riyals in 1998.
These numbers confirm that the impact of the oil price collapse of last year is
not yet over and the government is continuing in its efforts to diversify the
economy. In addition to the utilization of the natural gas reserves, plans have
recently been announced to develop the entire Sohar area into a major industrial
complex. In parallel, privatization efforts have accelerated with plans to sell
a 15% stake in the Oman Telecommunications Company in early 2000.
The market lost 5.4% in US$ terms in the twelve months ended October 1999. A
partial recovery has parallelled the strength in the oil prices, mostly in the
second quarter of 1999. Recently, the upward trend has been broken on concerns
over the impact on the banking sector of new lending regulations. In
November 1999, Oman became a constituent of the IFC Global composite index.
JORDAN
The emergence of King Abdullah as the new ruler, following the death of King
Hussein, caught many by surprise. Although the new King enjoys public support,
he is politically inexperienced and his authority may be open to challenge. King
Abdullah supports attempts for reconciliation with Israel and following the
election of Ehud Barak as Israeli Prime Minister, the outlook for bilateral
relations has improved. Relations with Iran are also improving and a three-year
agreement for export of potash and fertilizer has been signed.
Jordan is an indirect beneficiary of the higher oil price through its reliance
on financial aid from the Gulf. The latest GDP growth estimates for the current
year stand at 2%, with 3-4% growth budgeted for the next year. The budget
deficit is projected to fall modestly to 7% of GDP in 2000, from an expected
7.8% in 1999. There has been some progress on privatization, with a 33% stake of
Jordan Cement Factories sold to Lafarge earlier in the year, at a substantial
premium to the market price. Furthermore, the Deputy Prime Minister recently
stated that the government has started talks with France Telecom for the sale of
40% of Jordan Telecom. S&P have upgraded the outlook for Jordanian debt from
negative to stable.
The market lost 2.6% in US$ terms in the course of the twelve months ended
October 1999. Following a good start to the year, the index has been in
continuous decline since mid March due to the lack of foreign participation. The
privatization of the national telecoms operator is frequently put forward as a
potential trigger for the market.
LEBANON
The political scene in Lebanon has been characterized by an on-going war of
words between President Lahoud's new administration and former Prime Minister
Rafiq Hariri, who is concerned by what he perceives as a witch-hunt against both
himself and his supporters. The conflict between these two powerful figures is
continuing to undermine attempts to forge a consensus on economic policy in the
country.
On the fiscal side the government appears to be on track to meet its budget
deficit target of 40% of expenditure (the preferred measure). However this
figure should be treated with caution, as off-budget expenditure can be
substantial and is not normally disclosed until after the final budget figures
for the year are revealed.
On the stock market, the appointment of a new supervisory board has not led to
an increase in market activity with turnover a fraction of the levels of 1998.
The performance of the local index has been equally unimpressive falling by
31.6% in US$ terms over the past year amid a climate of investor apathy.
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OUTLOOK
The outlook for the region remains encouraging due to a return to favor for the
emerging market asset class in general and increasing participation in the EMEA
region by foreign investors. Our two favored markets are Egypt, which in our
view continues to be attractive on both a top-down and bottom-up basis and
Turkey, which in our view is potentially on the threshold of transforming its
economy. We remain cautious on Lebanon due to the poor macroeconomic outlook and
lack of political direction. Elsewhere in the region, the recovery in oil prices
is feeding through to benefit the fiscal position of the Gulf countries.
We are pleased to announce that on April 21, 1999 David McIlroy was appointed to
the position of Co-Portfolio Manager for the Fund. Since 1994, Mr. McIlroy has
been a Senior Fund Manager with Foreign & Colonial Emerging Markets Limited.
We continue to believe that investing in the Middle-Eastern equity markets,
including markets of smaller countries, will provide attractive long-term
growth. We appreciate your interest in the Fund and would be pleased to respond
to your questions or comments.
Respectfully,
Jeff Chowdhry/David McIlroy
Co-Portfolio Managers
THE FOREIGN & COLONIAL
EMERGING MIDDLE EAST FUND INC.
DECEMBER 5, 1999
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PORTFOLIO OF INVESTMENTS
October 31, 1999
- --------------------------------------------------------------------------------
EQUITIES--96.67%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
BAHRAIN--8.81%
FINANCIAL SERVICES--5.48%
1,475,500 Bahrain International Bank (a).............................. $ 536,197
766,800 Bahrain Middle East Bank (a)................................ 335,607
500,600 Investcorp Bank (a)......................................... 1,762,112
-----------
2,633,916
-----------
TELECOMMUNICATIONS--3.33%
988,200 Bahrain Telecommunications (a).............................. 1,598,965
-----------
4,232,881
-----------
EGYPT--34.47%
APPAREL & TEXTILES--0.69%
18,950 Oriental Weavers............................................ 331,487
-----------
BANKING--2.09%
84,066 Commercial International Bank (CIB)......................... 1,007,322
-----------
CONSTRUCTION--6.09%
85,100 Orascom Construction (a).................................... 1,190,904
90,711 Suez Cement................................................. 1,481,260
15,000 Suez Cement--GDR (b)........................................ 251,250
-----------
2,923,414
-----------
FINANCIAL SERVICES--1.42%
55,100 EFG Hermes Holdings S.A.E--GDR (b).......................... 680,485
-----------
FOOD & BEVERAGE--3.24%
17,000 Al Ahram Beverage--GDR (a).................................. 501,500
35,710 Al Ahram Beverage--GDR (a) (b).............................. 1,053,445
25 North Cairo Flour Mills..................................... 328
-----------
1,555,273
-----------
OIL & GAS--0.04%
500 Egypt Gas................................................... 17,504
-----------
PHARMACEUTICALS--1.36%
14,000 Egyptian International Pharmaceuticals (EIPICO)............. 653,061
-----------
PROPERTY--1.86%
9,000 Alexandria Real Estate Investment (c)....................... 292,907
56,000 Madinet Nasr City........................................... 601,306
20 Misr for Hotels (Hilton).................................... 631
-----------
894,844
-----------
TELECOMMUNICATIONS--12.67%
236,000 Egyptian Mobile Phone Network (a)........................... 6,087,837
-----------
TOBACCO--5.01%
101,895 Eastern Tobacco............................................. 2,408,643
-----------
16,559,870
-----------
ISRAEL--11.89%
BANKING--2.51%
505,817 Bank Hapoalim Ltd. (a)...................................... 1,202,908
-----------
CONGLOMERATES--1.68%
46,959 CLAL Industries and Investment (a).......................... 318,441
12,785 Discount Investment Corporation............................. 487,377
-----------
805,818
-----------
ELECTRONICS--1.35%
19,380 Elbit Systems............................................... 276,075
15,710 Elron Electronic Industries................................. 370,658
-----------
646,733
-----------
FINANCIAL SERVICES--0.52%
8,992 IDB Holding Corporation..................................... 251,107
-----------
GENERAL MANUFACTURING--0.97%
5,133 Property and Building Corporation Ltd. (a).................. 467,735
-----------
PHARMACEUTICALS--4.15%
41,204 Teva Pharmaceuticals--ADR................................... 1,993,244
-----------
</TABLE>
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<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
ISRAEL (CONCLUDED)
TELECOMMUNICATIONS--0.71%
84,168 Bezeq Israeli Telecom Corporation (a)....................... $ 343,054
-----------
5,710,599
-----------
JORDAN--5.26%
BANKING--2.22%
4,000 Arab Bank................................................... 1,066,254
-----------
CHEMICALS--2.24%
210,000 Arab Potash................................................. 1,078,211
-----------
PROPERTY--0.80%
241,600 Zara Investments (a)........................................ 384,031
-----------
2,528,496
-----------
LEBANON--2.37%
BANKING--0.49%
20,000 Banque Libanaise Pour le Commerce--GDR (a).................. 235,000
-----------
CONGLOMERATES--0.49%
40,000 Lebanon Holdings (a)........................................ 235,000
-----------
CONSTRUCTION--0.31%
267,793 Societe Des Ciments Libanais (a)............................ 150,634
-----------
PROPERTY--1.08%
76,728 Solidiere A................................................. 517,914
-----------
1,138,548
-----------
MOROCCO--7.64%
BANKING--2.07%
9,000 Wafabank.................................................... 997,970
-----------
CONGLOMERATES--2.11%
8,400 Omnium Nord Africain........................................ 1,015,183
-----------
CONSTRUCTION--1.17%
5,000 Cimenterie de l'Oriental (CIOR)............................. 560,023
-----------
FOOD & BEVERAGE--1.96%
5,400 Branoma..................................................... 604,276
1,500 Brasseries du Maroc (BDM)................................... 335,709
-----------
939,985
-----------
PROPERTY--0.33%
9,875 Credit Immobilier et Hotelier (CIH) (a)..................... 158,724
-----------
3,671,885
-----------
OMAN--4.70%
BANKING--3.22%
107,600 Commercial Bank of Oman (a)................................. 519,840
63,000 National Bank of Oman (a)................................... 646,372
57,400 Oman International Bank (a)................................. 378,696
-----------
1,544,908
-----------
INVESTMENT COMPANIES--1.48%
59,270 Oryx Fund (a)............................................... 711,240
-----------
2,256,148
-----------
TUNISIA--5.00%
BANKING--3.51%
10,000 Banque Internationale De Tunisie--GDR....................... 88,750
180,000 Banque Internationale De Tunisie--GDR (b)................... 1,597,500
-----------
1,686,250
-----------
FINANCIAL SERVICES--1.49%
10,000 Societe de Placement et de Developement (a)................. 234,919
12,000 Tunisie Leasing............................................. 483,262
-----------
718,181
-----------
2,404,431
-----------
TURKEY--16.53%
BANKING--4.63%
44,740,560 Turkiye Is Bankasi (C Shares)............................... 884,072
92,058,720 Yapi Kredi Bankasi.......................................... 1,340,373
-----------
2,224,445
-----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
TURKEY (CONCLUDED)
CONGLOMERATES--4.59%
44,000,000 Haci Omer Sabanci Holdings SAE.............................. $ 1,304,158
125,000 Haci Omer Sabanci Holdings SAE--GDR (b)..................... 903,125
-----------
2,207,283
-----------
CONSUMER DURABLES--1.30%
16,900,000 Arcelik (a)................................................. 623,947
-----------
ELECTRONICS--1.02%
4,000,000 Vestel Electronic (a)....................................... 490,879
-----------
FOOD & BEVERAGE--2.63%
2,924,100 Migros...................................................... 1,262,039
-----------
GENERAL MANUFACTURING--1.26%
6,000,000 Koc Holdings (a)............................................ 605,279
-----------
OIL & GAS--1.10%
7,917,000 Tupras Turkiye Petrol Rafinerileri.......................... 526,955
-----------
7,940,827
-----------
TOTAL EQUITIES (cost $39,315,970)--96.67%................................ 46,443,685
-----------
</TABLE>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--4.65%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- ----------
<C> <S> <C>
US$2,232 Agreement with State Street Bank and Trust Co., 3.50% dated
10/29/99 to be repurchased 11/01/99 in the amount of
$2,232,651 collateralized by $2,275,000 Federal National
Mortgage Association, 6.00% due 9/24/01 (cost $2,232,000)... 2,232,000
-----------
TOTAL INVESTMENTS (cost $41,547,970)--101.32%............................ 48,675,685
Liabilities in excess of other assets -- (1.32)%......................... (632,783)
-----------
NET ASSETS (applicable to 2,807,169 shares; equivalent to $17.11 per
share) -- 100.00%........................................................ $48,042,902
===========
</TABLE>
- -------------
(a) Non-income producing security.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, typically to qualified institutional buyers. These
securities total $4,485,805 or 9.34% of net assets.
(c) Fair valued security totalling $292,907 or 0.61% of net assets.
ADR - American Depositary Receipt.
GDR - Global Depositary Receipt.
See accompanying notes to financial statements
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31, 1999
-----------------
<S> <C>
ASSETS
Investments in securities, at value (cost $41,547,970)...... $48,675,685
Cash (including foreign currency of $75,130 with a cost of
$71,903).................................................. 75,873
Receivable for investments sold............................. 1,742,519
Dividends and interest receivable........................... 302,909
Deferred organizational expenses............................ 1,621
Prepaid expenses............................................ 33,164
-----------
Total assets............................................ 50,831,771
-----------
LIABILITIES
Payable for investments purchased........................... 2,466,610
Investment advisory fee payable............................. 50,234
Administration fee payable.................................. 10,616
Accrued expenses and other liabilities...................... 261,409
-----------
Total liabilities....................................... 2,788,869
-----------
NET ASSETS
Common stock, $0.001 par value; 2,807,169 shares issued and
outstanding (100,000,000 shares authorized)............... 2,807
Additional paid-in capital.................................. 37,080,728
Accumulated net investment loss............................. (583,210)
Accumulated net realized gain............................... 4,411,786
Net unrealized appreciation of investments and other assets
and liabilities denominated in foreign currency........... 7,130,791
-----------
Net assets applicable to shares outstanding............. $48,042,902
===========
NET ASSET VALUE PER SHARE................................... $17.11
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
OCTOBER 31, 1999
-----------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $58,064)..... $ 1,779,337
Interest.................................................... 37,826
------------
1,817,163
------------
EXPENSES
Investment advisory fees.................................... 590,346
Legal and audit fees........................................ 315,518
Custody and accounting fees................................. 250,311
Directors' fees and expenses................................ 146,262
Administration fees......................................... 125,000
Amortization of organizational expenses..................... 73,757
Shareholder reports expense................................. 56,371
Insurance expense........................................... 37,734
New York Stock Exchange listing fee......................... 18,987
Transfer agent fees and expenses............................ 14,344
Other expenses.............................................. 26,012
------------
Total expenses.............................................. 1,654,642
------------
Net investment income....................................... 162,521
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments............................................... 4,987,546
Foreign currency transactions............................. (334,241)
Net change in unrealized appreciation/depreciation of:
Investments............................................... (1,586,413)
Other assets and liabilities denominated in foreign
currency................................................ 13,911
------------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 3,080,803
------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS....... $ 3,243,324
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
----------------- -----------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income....................................... $ 162,521 $ 161,037
Net realized gain on investments and foreign currency
transactions.............................................. 4,653,305 1,178,932
Net change in unrealized appreciation/depreciation of
investments and other assets and liabilities denominated
in foreign currency....................................... (1,572,502) (11,802,490)
------------ -----------
Total from investment operations............................ 3,243,324 (10,462,521)
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
In excess of net investment income.......................... -- (635,842)
From net realized gain on investments....................... (1,538,329) (2,930,105)
------------ -----------
Total dividends and distributions........................... (1,538,329) (3,565,947)
------------ -----------
Net increase (decrease) in net assets....................... 1,704,995 (14,028,468)
NET ASSETS
Beginning of year........................................... 46,337,907 60,366,375
------------ -----------
End of year................................................. $ 48,042,902 $46,337,907
============ ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Foreign & Colonial Emerging Middle East Fund, Inc. (the "Fund") was
incorporated in the State of Maryland on July 29, 1994, as a non-diversified,
closed-end management investment company. Prior to commencing operations on
November 4, 1994, the Fund had no operations other than the sale to Foreign &
Colonial Emerging Markets Limited (the "Investment Adviser") of 7,169 shares of
common stock for $100,008 on October 25, 1994. Organizational costs of $370,000
have been deferred and are being amortized on a straight-line basis over a
60-month period from the date the Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
VALUATION OF INVESTMENTS--Portfolio securities for which market quotations are
readily available are valued at the last sale price prior to the time of
determination if there was a sale on the date of determination or if there was
no sale on such day, at the mean between the last current bid and asked prices,
or if there was no asked price, the bid price. Securities for which reliable
market quotations or pricing services are not readily available are valued at
fair value using methods determined in good faith by, or under procedures
established by the Fund's Board of Directors. Investments in short-term debt
securities having a maturity of 60 days or less are valued at amortized cost,
which approximates market value, or by amortizing their value on the 61st day
prior to maturity if their term to maturity from the date of purchase is greater
than 60 days.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from investments and foreign currency
transactions are determined on the identified cost basis. Interest income is
recorded on an accrual basis. Dividend income and other distributions are
recorded on the ex-dividend date, except for certain dividends which are
recorded as soon after the ex-dividend date as the Fund, using reasonable
diligence, becomes aware of such dividends.
FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are maintained
in U.S. dollars as follows: (1) the foreign currency market value of investments
and other assets and liabilities denominated in foreign currency are translated
at the prevailing rates of exchange on the valuation date; (2) purchases and
sales of investments, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting net
foreign currency gain or loss is included in the Statement of Operations.
The Fund does not generally isolate that portion of the results of operations
arising as a result of changes in the foreign currency exchange rates from
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, the Fund does isolate the effect
of fluctuations in foreign currency exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations; such amount is categorized as
foreign currency gain or loss for both financial reporting and income tax
reporting purposes.
Net foreign currency gain (loss) from valuing foreign currency denominated
assets and liabilities at period end exchange rates is reflected as a component
of net unrealized appreciation of investments and other assets and liabilities
denominated in foreign currency. Net realized foreign currency gain (loss) is
treated as ordinary income (loss) for income tax reporting purposes.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from
13
<PAGE>
generally accepted accounting principles. These "book/tax" differences are
considered either temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income or net realized capital gain for financial
reporting purposes, but not for tax purposes, are reported as dividends in
excess of net investment income or distributions in excess of net realized gain
on investments. To the extent they exceed net investment income or net realized
capital gain for tax purposes, they are reported as distributions of additional
paid-in capital.
At October 31, 1999, the Fund reclassified $77,231, attributable primarily to
realized foreign currency losses during the year ended October 31, 1999, from
accumulated net realized gain to accumulated net investment loss. Net assests
and net investment income of the Fund were not affected by such
reclassification.
U.S. FEDERAL INCOME TAXES--The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies. Accordingly, no
provision for U.S. federal income taxes is required. In addition, by
distributing substantially all of its net investment income, capital gains and
certain other amounts, if any, during each calendar year, the Fund intends not
to be subject to U.S. federal excise tax.
FOREIGN TAXES--The Fund may be subject to certain taxes on dividends, capital
gains and other income imposed by the foreign countries in which it invests.
Withholding taxes on foreign dividends and interest have been provided for in
accordance with the applicable tax requirements.
NOTE 2 INVESTMENT ADVISER AND ADMINISTRATOR
The Investment Adviser provides investment advisory services to the Fund under
the terms of an Investment Advisory Agreement. As compensation for its services,
the Investment Adviser is paid a monthly fee at the annual rate of 1.25% of the
value of the Fund's average weekly net assets.
Mitchell Hutchins Asset Management Inc. (the "Administrator"), a wholly-owned
subsidiary of PaineWebber, Inc., provides administrative services to the Fund
under an Administration Agreement. As compensation for its services, the
Administrator is paid a monthly fee at the annual rate of 0.15% of the value of
the Fund's average weekly net assets, subject to a minimum annual fee of
$125,000.
NOTE 3 INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at October
31, 1999 was $42,186,040. Accordingly, net unrealized appreciation of
investments of $6,489,645 was comprised of gross appreciation of $8,702,608 for
those investments having an excess of value over cost and gross depreciation of
$2,212,963 for those investments having an excess of cost over value.
For the year ended October 31, 1999, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $41,944,589 and $42,344,631,
respectively.
NOTE 4 CONCENTRATION OF RISK
Investment in Middle East issuers involves certain risks and special
considerations which are not typically associated with investing in securities
issued by U.S. or Western European companies or governments, as a result of,
among other things, future political and economic developments and the level of
governmental supervision and regulation of the securities markets. In
particular, securities markets and currencies of many Middle East countries,
similar to those of other emerging market countries, have been subject to
substantial price volatility and sudden market declines. The ability of the
issuers of the debt securities held by the Fund to meet their obligations may be
affected by economic and political developments in a specific industry or
region.
NOTE 5 CAPITAL STOCK
There were no transactions in common stock for the years ended October 31, 1998
and October 31, 1999.
At October 31, 1999, The Foreign & Colonial Emerging Markets Investment Trust,
The Global Emerging Markets Ex-Pacific Asia Fund and The Global Emerging Markets
Investment Co., each of whom are deemed to be affiliates of the Investment
Adviser under U.S. securities laws, owned 84,215, 9,197 and 2,886 shares,
respectively, of the Fund.
14
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period is
presented below.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 4, 1994*
-------------------------------------------------- THROUGH
1999 1998 1997 1996 OCTOBER 31, 1995
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................... $ 16.51 $ 21.50 $ 15.37 $ 13.45 $ 14.04**
------- ------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS
Net investment income (loss).......... 0.06 0.06 0.01 (0.03) 0.02
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions................ 1.09 (3.78) 6.33 1.95 (0.06)
------- ------- ------- ------- -------
Total from investment operations.... 1.15 (3.72) 6.34 1.92 (0.04)
------- ------- ------- ------- -------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
In excess of net investment income.... -- (0.23) -- -- --
From net realized gain on
investments.......................... (0.55) (1.04) (0.21) -- --
------- ------- ------- ------- -------
Total dividends and distributions... (0.55) (1.27) (0.21) -- --
------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS
Offering costs charged to additional
paid-in capital...................... -- -- -- -- (0.55)
------- ------- ------- ------- -------
Net asset value, end of period........ $ 17.11 $ 16.51 $ 21.50 $ 15.37 $ 13.45
======= ======= ======= ======= =======
Market value, end of period........... $ 13.25 $13.375 $ 17.75 $12.375 $ 11.00
======= ======= ======= ======= =======
Total investment return (a)........... 3.23% (19.01)% 45.46% 12.50% (21.65)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................... $48,043 $46,338 $60,366 $43,157 $37,756
Ratio of expenses to average net
assets............................... 3.50% 2.91% 2.89%(b) 3.16%(b) 2.99%(c)(d)
Ratio of net investment income (loss)
to average net assets................ 0.34% 0.29% 0.06%(b) (0.23)%(b) 0.13%(c)(d)
Portfolio turnover.................... 94% 45% 57% 30% 19%
</TABLE>
- -------------
NOTES:
* Commencement of operations.
** Initial public offering price of $15.00 per share less an average
underwriting discount of $0.96 per share.
(a) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day, and a sale at the current market
price on the last day of each period reported. Dividends and distributions,
if any, are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan. Total
investment return does not reflect sales charges or brokerage commissions.
Total investment return for a period of less than one year is not
annualized.
(b) The Administrator waived a portion of its fees during the years ended
October 31, 1997 and 1996. If such waivers had not been made, the ratio of
expenses to average net assets would have been 2.92% and 3.25%,
respectively, and the ratio of net investment income (loss) to average net
assets would have been 0.03% and (0.32)%, respectively.
(c) Annualized.
(d) The Investment Adviser and Administrator waived a portion of their fees
during the period. If such waivers had not been made, the ratio of expenses
to average net assets would have been 3.11% and the ratio of net investment
income to average net assets would have been 0.01%.
See accompanying notes to financial statements
15
<PAGE>
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Foreign & Colonial Emerging Middle East Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Foreign & Colonial Emerging
Middle East Fund, Inc. (the "Fund") at October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended and for the period November 4, 1994
(commencement of operations) through October 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
December 13, 1999
16
<PAGE>
CORPORATE INFORMATION
DIRECTORS
Fred Arthur Rank Packard, Chairman
Bassam Aburdene
Abdulwahab Al-Mulla
Karen J. Clarke
Albert Francke
Walter M. Noel, Jr.
David C. Patterson
OFFICERS
<TABLE>
<S> <C>
Karen J. Clarke President, Treasurer & Secretary
Arnab Banerji Executive Vice President
Jeffrey Chowdhry Executive Vice President
James Graham-Maw Vice President
David McIlroy Vice President
</TABLE>
INVESTMENT ADVISER
Foreign & Colonial Emerging Markets Limited
Exchange House, 8th Floor
Primrose Street
London, England EC2A 2NY
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, NY 10019
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR
SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT FROM TIME TO TIME THE FUND MAY PURCHASE
SHARES OF ITS COMMON STOCK IN THE OPEN MARKET.
FC99A
[LOGO]
<PAGE>
The Foreign & Colonial Emerging Middle East Fund, Inc.
51 West 52nd Street
New York, NY 10019
Telephone: 212-713-2848
Fax: 212-713-4058
Foreign & Colonial Emerging Markets Limited
Exchange House, 8th Floor
Primrose Street
London, England EC2A 2NY
Telephone: 44-171-628-1234
Fax: 44-171-628-2281
[LOGO]
