<PAGE>
[LOGO]
THE FOREIGN & COLONIAL
EMERGING MIDDLE EAST FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2000
[LOGO]
FOREIGN & COLONIAL EMERGING MARKETS LIMITED
<PAGE>
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,
with an investment of at least 25% but not more than 40% of its total assets in
securities of issuers in the banking industry. 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.
STOCKHOLDER 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.
LIQUIDATION AND DISSOLUTION OF THE FUND
The Fund's Board of Directors, on March 27, 2000, approved a plan of liquidation
and dissolution for the Fund. At a special meeting of stockholders held on June
12, 2000, stockholders approved the Plan. Accordingly, the Fund's investment
adviser has begun to liquidate the Fund's portfolio. After liquidation, the
Fund's affairs will be wound up, and the liquidation proceeds will be
distributed pro rata to the Fund's
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stockholders. Due to the inherent relative illiquidity of the securities in the
Fund's portfolio and the markets in which the Fund invests, the distributions to
stockholders of their liquidation proceeds will occur in at least two or more
stages. It is anticipated that the first distribution will occur approximately
during mid-September, 2000, and that the second distribution will occur
approximately during mid-March, 2001. However, there may be more than two
distributions, and the distributions may occur before or after the approximate
dates in the preceding sentence.
The Fund set June 26, 2000 as the Record Date for determining which stockholders
will receive liquidation distributions. After the close of the trading day on
June 26, 2000, the Fund's shares were delisted from the NYSE and ceased trading.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's 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 distributions in cash. Shareholders who elect to receive
distributions in cash will 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, on or about the date declared by the Board of
Directors as the payment date for each such distribution. Shareholders, who do
not wish to have distributions automatically reinvested should notify the Fund
c/o State Street Bank and Trust Company at P.O. Box 8200, Boston, MA 02266-8200.
2
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ANNUAL MEETING OF STOCKHOLDERS
The Fund's annual meeting of stockholders was held on March 6, 2000.
Shareholders voted to: (1) re-elect Albert Francke and Walter M. Noel, Jr. as
Class III Directors; (2) ratify the appointment of PricewaterhouseCoopers LLP as
the Fund's independent accountant for the fiscal year ending October 31, 2000;
(3) amend the Fund's industry concentration policy to permit the Fund to
concentrate in banking stocks; and (4) to adopt a resolution to allow
stockholders to realize net asset value for their shares as soon as practicable.
The resulting vote count for each proposal is indicated below:
<TABLE>
<S> <C> <C> <C>
1. Election of Directors:
CLASS III TO SERVE UNTIL YEAR 2003 ANNUAL MEETING
Albert Francke For: 1,865,752
Withheld Authority: 684,907
Walter M. Noel, Jr. For: 1,867,266
Withheld Authority: 683,393
2. Ratification of the selection of PricewaterhouseCoopers
LLP as the independent accountants for the Fund for the
year ending October 31, 2000:
For: 2,254,808
Against: 148,081
Abstain: 147,770
3. Proposal to amend the Fund's industry concentration
policy to permit the Fund to concentrate in banking
stocks:
For: 1,963,281
Against: 202,364
Abstain: 109,201
4. Stockholder proposal to adopt a resolution to allow
stockholders to realize net asset value for their shares
as soon as practicable:
For: 2,088,851
Against: 178,609
Abstain: 7,386
</TABLE>
3
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REPORT OF THE INVESTMENT ADVISER
Dear Shareholder:
We are pleased to present the semi-annual report of The Foreign & Colonial
Emerging Middle East Fund Inc. (the "Fund") for the six months ended April 30,
2000. During the six month period, the Fund's net asset value total return was
24.9% in US $ terms.
EGYPT
An expanded cabinet meeting, attended by President Mubarak, took place at the
end of April to discuss economic developments. The primary conclusions were that
privatization would be expedited and that the government would repay the arrears
it owes to the private sector. This amounts to approximately $7 billion, which
the government has begun to repay this at a rate of $730 million per month.
The macro outlook has improved, and the liquidity problems in both the FOREX and
local currency market have eased recently. This has resulted in local interest
rates declining substantially from a peak of 17%, back in February, to their
current level of 11%.
The Egyptian stock market has had a reasonable six months, increasing 7.0% in
US$ terms. The main catalyst for the market advance was provided by the post
election cabinet reshuffle. Attention, however, remains largely confined to a
small number of leading stocks particularly in the telecommunications and bank
sectors.
TURKEY
The main threat to the government's survival during the past year occurred
recently and arose as a result of the end of President Demirel's term of office.
The uncertainty arose from Demirel's desire to continue in office, which
required a constitutional change. Demirel's bid was initially supported by Prime
Minister Ecevit but not by a sufficient number of Turkish MPs to change the
constitution. The confusion was finally cleared when three party coalitions
agreed to a compromise candidate, and Turkey's new President, Ahmet Needet
Sezer, the Chief Justice of the Constitutional Court, was finally elected
earlier in May this year.
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Turkey's early progress in economic reform has been impressive and since the
start of the year the monthly inflation figure has declined from 5.8% in January
to 2.3% in April. The annual rate of Wholesale Price Index started the year at
63%. The government has an ambitious year-end target of 20%, but even a slight
reduction would be impressive.
The Turkish stock market has reacted enthusiastically to the government's
economic reforms as well as the signing of an IMF stand-by arrangement, causing
a 121.7% surge in US$ terms during the past six months. The surge in value was,
however, concentrated in the latter part of 1999 with the year-to-date
performance of the market generally flat as investors wait for further concrete
evidence of reforms.
ISRAEL
General elections in mid-1999 resulted in victory for the Labor party. Ehud
Barak, the new Prime Minister, formed a coalition government with a relatively
secure parliamentary majority. The key promises of Barak have been on the peace
front, in particular with relations to Lebanon, Syria and the Palestinians.
Although an agreement has not yet been reached with Syria over the Golan
Heights, the much-awaited withdrawal from Lebanon has just been completed.
Bank of Israel Governor, Jacob Frankel, stepped down after eight years in
office. Barak appointed David Klein, formerly a director of the central bank, as
the new Governor. Following gradual cuts of 190 basis points so far this year,
the benchmark interest rate now stands at 9.3%. A strong shekel and benign
inflation outlook have encouraged these declines. During the past six months,
the economy moved from a state of recession to one of growth, with GDP
increasing 4.5% in the first quarter of 2000.
The TA 100 rose 26.7% in US$ terms over the past six months to the end of April
2000. NASDAQ strength, recovering domestic economy and progress on the peace
front have been the key drivers.
MOROCCO
In July 1999 King Hassan II died after ruling the country for 38 years. His
36-year-old son, Mohammed VI, succeeded him to the throne. Some signs of
progress have since been seen in Moroccan politics, among them the release
5
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of the Islamic opposition leader A. Yassine, who was subject to a 10-year
detention for his opposition to King Hassan.
Severe drought in recent months has forced a downward revision of 2000 GDP
forecasts from 6% to 3%. On the privatization front, a consortium led by J.P.
Morgan has been appointed to advise on the sale of Maroc Telecom. Valued at
around $5 billion, 30% is expected to be sold to a strategic investor and 20% is
to be floated to the public later this year.
On the stock exchange, the Upline index fell 21.5% in US$ terms over the past
six months, with the decline driven by drought, delays in the privatization of
Maroc Telecom and expensive valuations at the start of the period.
BAHRAIN
The new Amir has initiated efforts for reconciliation, a number of Bahrainis
living in exile have been pardoned, and practical measures have been taken to
address the issue of unemployment among the majority Shia community.
The strong oil price has been translated to a 1999 budget deficit of just
$200 million (3.4% of GDP), compared to $400 million in 1998. The Bahrain
Monetary Authority announced plans to issue Islamic government bonds. These will
not pay interest but will be asset-backed against either oil or aluminium,
producing returns in line with those commodities.
The BSE lost 7.4% in US$ terms over the past six months with lack of interest
and low liquidity being the key characteristics. The formation of an IFC Global
index failed to attract additional foreign interest.
TUNISIA
The new president Zine al-Abedine Ben Ali and his party, the Rassemblement
Constitutionnel Democratique ("RCD") came to power last October promising an
acceleration in the privatization process. A recent government report indicated
that foreign investors bought 67% of the assets of Tunisia's privatization
program raising a total of $916 million from the sale of 138 firms.
6
<PAGE>
The macroeconomic outlook remains fairly healthy. GDP growth should exceed 6% in
1999 with a similar level targeted for 2000. The budget deficit is expected to
reduce slightly from 3.7% in 1999 to 2.8% in 2000.
The Tunisian stock market has had a relatively quiet six months, declining 4.7%
in US$. Like several other countries in the region, Tunisia suffered from the
lack of foreign involvement in the market.
OMAN
Sultan Qaboos continues his benign monarchy, maintaining popularity with his
people. A highlight for the year was the brief visit by U.S. President Bill
Clinton, to discuss bilateral relations and political developments in the
region.
The 2000 budget is built around the conservative assumption of an average oil
price of $14.5 per barrel. Government revenues are projected to rise 37% but
spending by just 13%. Thus, the budget deficit will be sharply reduced from the
current level of 7% of GDP.
The Muscat General index lost 9.4% in US$ terms over the past six months, on low
volumes, uninspired by the strong oil price. Concerns over the impact of recent
legislation on the profitability of the banking sector have damaged sentiment in
this important sector. As with Bahrain, the formation of an IFC Global index
failed to attract the attention of international investors.
JORDAN
The transition of power to King Abdullah following the death of King Hussein has
progressed smoothly. The new King has been successful in raising the
international profile of Jordan but has been less successful at attracting new
capital into the country.
Jordan remains an indirect beneficiary of the higher oil price through its
reliance on financial aid from the Gulf. The latest GDP growth estimate for the
current year stands at 1.8%. The budget deficit is projected to fall modestly to
7.1% of GDP in 2000, from 7.6% in 1999. There has also been further progress on
privatization, with a 40% stake in Jordan Telecom sold to France Telecom for a
total of $500 million.
7
<PAGE>
The market lost 7.0% in US$ terms over the past six months through the end of
April. Interest in the market remains restricted to regional investors with no
catalyst on the horizon to encourage global investors to participate.
LEBANON
The peace process continues to dominate the political scene in Lebanon. Joy at
the withdrawal of Israel from southern Lebanon is mitigated by the absence of
any signed agreement with Israel. In addition, questions are now being raised
about the justification for Syria's presence now that Israel has left the
country.
The government has ratified a privatization law. The telecom sector is expected
to be the first to be sold, and a total of $5 billion is expected to be raised
in privatization revenue over the next five years. Any boost to government
income would be welcome, as the country's fiscal position has continued to
worsen. The government's year-end target for the budget deficit is 36% of
expenditures (the preferred measure) but the most recent numbers for the first
quarter show the deficit is running at 52% of expenditures and showing no signs
of decline.
On the stock market, there is a lack of interest from both foreign and domestic
investors. The performance of the local index has been equally unimpressive
falling 5.4% in US$ terms over the past six months amid a continuing climate of
investor apathy.
CONCLUSION
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.
May 26, 2000
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------
EQUITIES--98.12%
-------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------------- -----------
<C> <S> <C>
BAHRAIN--7.09%
FINANCIAL SERVICES--4.32%
1,475,500 Bahrain International Bank (a).................... $ 512,721
766,800 Bahrain Middle East Bank (a)...................... 301,033
500,600 Investcorp Bank (a)............................... 1,581,896
-----------
2,395,650
-----------
TELECOMMUNICATIONS--2.77%
988,200 Bahrain Telecommunications........................ 1,533,454
-----------
3,929,104
-----------
EGYPT--33.97%
APPAREL & TEXTILES--0.59%
18,950 Oriental Weavers.................................. 325,204
-----------
BANKING--3.48%
179,066 Commercial International Bank (CIB)............... 1,928,102
-----------
CONSTRUCTION--6.48%
134,375 Orascom Construction (a).......................... 1,845,371
118,636 Suez Cement (a)................................... 1,553,618
15,000 Suez Cement - GDR (a) (b)......................... 191,250
-----------
3,590,239
-----------
FINANCIAL SERVICES--1.41%
197,288 EFG Hermes Holdings S.A.E - GDR (b)............... 784,220
-----------
FOOD & BEVERAGE--3.33%
34,000 Al Ahram Beverage Co. - GDR (a)................... 595,000
71,420 Al Ahram Beverage Co. - GDR (a) (b)............... 1,249,850
25 North Cairo Flour Mills........................... 240
-----------
1,845,090
-----------
PHARMACEUTICALS--1.26%
14,000 Egyptian International Pharmaceuticals (EIPICO)
(a)............................................. 696,690
-----------
PROPERTY--0.00%
20 Misr for Hotels (Hilton) (a)...................... 652
-----------
TELECOMMUNICATIONS--16.18%
235,000 Egyptian Mobile Phone Network (a)................. 8,958,894
-----------
TOBACCO--1.24%
28,400 Eastern Tobacco Co................................ 685,154
-----------
18,814,245
-----------
ISRAEL--12.64%
BANKING--4.47%
505,817 Bank Hapoalim Ltd................................. 1,553,625
</TABLE>
9
<PAGE>
<TABLE>
ISRAEL--(concluded)
<CAPTION>
SHARES VALUE
--------------------- -----------
<C> <S> <C>
BANKING--(concluded)
425,000 Bank Leumi Le Israel (a).......................... $ 923,559
-----------
2,477,184
-----------
CONGLOMERATES--1.66%
46,959 CLAL Industries and Investment Ltd. (a)........... 519,294
7,928 Discount Investment Corporation (a)............... 399,701
-----------
918,995
-----------
GENERAL MANUFACTURING--0.94%
5,133 Property and Building Corporation Ltd. (a)........ 523,546
-----------
PHARMACEUTICALS--3.85%
48,408 Teva Pharmaceuticals - ADR........................ 2,129,952
-----------
TELECOMMUNICATIONS--1.72%
84,168 Bezeq Israeli Telecom Corporation................. 446,635
7,700 Nice Systems Ltd. - ADR (a)....................... 503,869
-----------
950,504
-----------
7,000,181
-----------
JORDAN--5.99%
BANKING--3.42%
8,000 Arab Bank......................................... 1,892,958
-----------
CHEMICALS--1.83%
210,000 Arab Potash (a)................................... 1,017,465
-----------
PROPERTY--0.74%
241,600 Zara Investments (a).............................. 408,338
-----------
3,318,761
-----------
LEBANON--2.37%
BANKING--1.77%
50,000 Banque Audi SAL - GDR............................. 980,000
-----------
CONGLOMERATES--0.40%
40,000 Lebanon Holdings (a) (c).......................... 220,000
-----------
CONSTRUCTION--0.20%
267,793 Societe Des Ciments Libanais (a).................. 109,795
-----------
1,309,795
-----------
MOROCCO--5.06%
BANKING--1.30%
9,000 Wafabank (a)...................................... 718,035
-----------
</TABLE>
10
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<TABLE>
MOROCCO--(concluded)
<CAPTION>
SHARES VALUE
--------------------- -----------
<C> <S> <C>
CONGLOMERATES--1.58%
8,400 Omnium Nord Africain (a).......................... $ 873,175
-----------
CONSTRUCTION--0.81%
5,000 Cimenterie de l'Oriental (CIOR) (a)............... 449,763
-----------
FOOD & BEVERAGE--1.23%
5,400 Branoma........................................... 452,488
1,500 Brasseries du Maroc (BDM) (a)..................... 228,847
-----------
681,335
-----------
PROPERTY--0.14%
9,875 Credit Immobilier et Hotelier (CIH) (a)........... 80,167
-----------
2,802,475
-----------
OMAN--3.84%
BANKING--3.84%
153,900 Commercial Bank of Oman (a)....................... 819,467
97,440 National Bank of Oman (a)......................... 873,164
80,600 Oman International Bank (a)....................... 433,356
-----------
2,125,987
-----------
TUNISIA--4.48%
BANKING--3.77%
90,000 Banque Internationale Arabe de Tunisie (a)........ 1,587,174
12,499 Banque Internationale Arabe de Tunisie - GDR
(a)............................................. 104,682
22,500 Banque Internationale Arabe de Tunisie - Rights
(a)............................................. 396,794
-----------
2,088,650
-----------
FINANCIAL SERVICES--0.71%
12,000 Tunisie Leasing (a)............................... 394,389
-----------
2,483,039
-----------
TURKEY--22.68%
BANKING--9.73%
44,740,560 Turkiye Is Bankasi (C Shares) (a)................. 2,451,277
92,058,720 Yapi Kredi Bankasi (a)............................ 2,935,930
-----------
5,387,207
-----------
CONGLOMERATES--5.46%
14,859,000 Dogan Holding (a)................................. 461,731
158,400,000 Haci Omer Sabanci Holdings S.A.E.................. 2,564,700
-----------
3,026,431
-----------
CONSUMER DURABLES--2.60%
16,900,000 Arcelik (a)....................................... 1,437,263
-----------
</TABLE>
11
<PAGE>
<TABLE>
TURKEY--(concluded)
<CAPTION>
SHARES VALUE
--------------------- -----------
<C> <S> <C>
ELECTRONICS--2.72%
4,000,000 Vestel Electronic (a)............................. $ 1,504,645
-----------
GENERAL MANUFACTURING--2.17%
6,000,000 Koc Holdings (a).................................. 1,202,080
-----------
12,557,626
-----------
TOTAL EQUITIES (cost $40,584,182)--98.12%................................. 54,341,213
-----------
---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.49%
---------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
---------------------
US$824 Agreement with State Street Bank and Trust Co.,
<C> <S> <C>
3.50% dated 4/28/00 to be repurchased 5/01/00 in
the amount of $824,240 collateralized by
$855,000 Federal National Mortgage Association,
zero coupon due 6/29/00 (cost $824,000)......... 824,000
-----------
TOTAL INVESTMENTS (cost $41,408,182)--99.61%.............................. 55,165,213
Other assets in excess of liabilities--0.39%.............................. 214,344
-----------
NET ASSETS (applicable to 2,807,169 shares; equivalent to $19.73 per
share)--100.00%......................................................... $55,379,557
===========
</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 $2,225,320 or 4.02% of net assets.
(c) Fair valued security totalling $220,000 or 0.40% of net assets.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
See accompanying notes to financial statements
12
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 2000
---------------
<S> <C>
ASSETS
Investments in securities, at value (cost $41,408,182)..... $55,165,213
Cash (including foreign currency of $451,324 with a cost of
$451,709)................................................. 451,556
Dividends and interest receivable.......................... 66,657
Prepaid expenses........................................... 22,319
-----------
Total assets......................................... 55,705,745
-----------
LIABILITIES
Investment advisory fee payable............................ 57,587
Administration fee payable................................. 10,246
Accrued expenses and other liabilities..................... 258,355
-----------
Total liabilities.................................... 326,188
-----------
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............................ (904,371)
Accumulated net realized gain.............................. 5,443,790
Net unrealized appreciation of investments and other assets
and liabilities denominated in foreign currency........... 13,756,603
-----------
Net assets applicable to shares outstanding.......... $55,379,557
===========
NET ASSET VALUE PER SHARE.................................. $19.73
===========
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
APRIL 30, 2000
--------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $19,610).... $ 497,801
Interest................................................... 52,356
-----------
550,157
-----------
EXPENSES
Investment advisory fees................................... 356,303
Legal and audit fees....................................... 165,417
Custody and accounting fees................................ 134,697
Directors' fees and expenses............................... 64,418
Administration fees........................................ 62,158
Shareholder reports expense................................ 21,952
Insurance expense.......................................... 18,919
New York Stock Exchange listing fee........................ 8,096
Transfer agent fees and expenses........................... 7,754
Amortization of organizational expenses.................... 1,621
Other expenses............................................. 10,333
-----------
Total expenses............................................. 851,668
-----------
Net investment loss........................................ (301,511)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments.............................................. 5,694,513
Foreign currency transactions............................ (72,507)
Net change in unrealized appreciation/depreciation of:
Investments.............................................. 6,629,316
Other assets and liabilities denominated in foreign
currency............................................... (3,504)
-----------
Net realized and unrealized gain on investments and
foreign currency transactions............................. 12,247,818
-----------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS...... $11,946,307
===========
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR
APRIL 30, 2000 ENDED
(UNAUDITED) OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss)..................... $ (301,511) $ 162,521
Net realized gain on investments and foreign
currency transactions........................... 5,622,006 4,653,305
Net change in unrealized
appreciation/depreciation of investments and
other assets and liabilities denominated in
foreign currency................................ 6,625,812 (1,572,502)
----------- -----------
Total income from investment operations.......... 11,946,307 3,243,324
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
In excess of net investment income............... (19,650) --
From net realized gain on investments............ (4,590,002) (1,538,329)
----------- -----------
Total dividends and distributions................ (4,609,652) (1,538,329)
----------- -----------
Net increase in net assets....................... 7,336,655 1,704,995
NET ASSETS
Beginning of period.............................. 48,042,902 46,337,907
----------- -----------
End of period.................................... $55,379,557 $48,042,902
=========== ===========
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2000
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 have been
fully amortized.
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
16
<PAGE>
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.
17
<PAGE>
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 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.
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%
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<PAGE>
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 April 30,
2000 was substantially the same as the cost of securities for financial
statement purposes. Accordingly, net unrealized appreciation of investments of
$13,757,031 was comprised of gross appreciation of $16,558,810 for those
investments having an excess of value over cost and gross depreciation of
$2,801,779 for those investments having an excess of cost over value.
For the six months ended April 30, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $9,945,363 and
$14,031,650, 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 six months ended April 30,
2000 or for the year ended October 31, 1999.
At April 30, 2000, 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.
19
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FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period is
presented below.
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS NOVEMBER 4, 1994*
ENDED FOR THE YEARS ENDED OCTOBER 31, THROUGH
APRIL 30, 2000 ------------------------------------------------------------------ OCTOBER 31,
(UNAUDITED) 1999 1998 1997 1996 1995
-------------- --------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 17.11 $ 16.51 $ 21.50 $ 15.37 $ 13.45 $ 14.04**
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income
(loss).................. (0.11) 0.06 0.06 0.01 (0.03) 0.02
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions............ 4.37 1.09 (3.78) 6.33 1.95 (0.06)
------- ------- ------- ------- ------- -------
Total from investment
operations.......... 4.26 1.15 (3.72) 6.34 1.92 (0.04)
------- ------- ------- ------- ------- -------
DIVIDENDS AND
DISTRIBUTIONS
TO SHAREHOLDERS
In excess of net
investment income....... (0.01) -- (0.23) -- -- --
From net realized gain on
investments............. (1.63) (0.55) (1.04) (0.21) -- --
------- ------- ------- ------- ------- -------
Total dividends and
distributions....... (1.64) (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.................. $ 19.73 $ 17.11 $ 16.51 $ 21.50 $ 15.37 $ 13.45
======= ======= ======= ======= ======= =======
Market value, end of
period.................. $ 17.75 $ 13.25 $13.375 $ 17.75 $12.375 $ 11.00
======= ======= ======= ======= ======= =======
Total investment return
(a)..................... 45.15% 3.23% (19.01)% 45.46% 12.50% (21.65)%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).......... $55,380 $48,043 $46,338 $60,366 $43,157 $37,756
Ratio of expenses to
average net assets...... 2.99%(b) 3.50% 2.91% 2.89%(c) 3.16%(c) 2.99%(b)(d)
Ratio of net investment
income (loss) to average
net assets.............. (1.06)%(b) 0.34% 0.29% 0.06%(c) (0.23)%(c) 0.13%(b)(d)
Portfolio turnover........ 18% 94% 45% 57% 30% 19%
</TABLE>
-----------------
* 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 returns for
periods of less than one year are not annualized.
(b) Annualized.
(c) 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.
(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%.
20
<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
Karen J. Clarke President, Treasurer & Secretary
Arnab Banerji Executive Vice President
Jeffrey Chowdhry Executive Vice President
David McIlroy Vice President
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
[LOGO]
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND
WITHOUT EXAMINATION BY INDEPENDENT ACCOUNTANTS, WHO DO NOT EXPRESS AN OPINION
THEREON.
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.
FC00S
<PAGE>
The Foreign & Colonial Emerging Middle East Fund, Inc.
51 West 52nd Street
New York, NY 10019
Telephone: 201-318-4150
Fax: 201-533-2847
Foreign & Colonial Emerging Markets Limited
Exchange House, 8th Floor
Primrose Street
London, England EC2A 2NY
Telephone: 44-207-628-1234
Fax: 44-207-628-2281
[LOGO]
FOREIGN & COLONIAL EMERGING MARKETS LIMITED
