-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KhYhmm8KwMg5jJ97pCJIvgFQ8IYc4Of3evTMcjmurfD4pSUhhA5H5ZDBPtnuXVME cSU3b7XowWOUBf2tfATpzw== 0000912057-96-019355.txt : 19960903 0000912057-96-019355.hdr.sgml : 19960903 ACCESSION NUMBER: 0000912057-96-019355 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960830 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDONESIA FUND INC CENTRAL INDEX KEY: 0000859120 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06024 FILM NUMBER: 96624445 BUSINESS ADDRESS: STREET 1: C/O BEA ASSOCIATES STREET 2: 153 E 53RD ST CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128322626 MAIL ADDRESS: STREET 1: ONE CITICORP CENTER STREET 2: 153 EAST 53RD STREET CITY: NEW YORK STATE: NY ZIP: 10022 N-30D 1 N-30D THE INDONESIA FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1996 CONTENTS Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . 1 Portfolio Summary. . . . . . . . . . . . . . . . . . . . . . . . . . 7 Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . 8 Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . 10 Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . 11 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 12 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 13 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 14 Results of Annual Meeting of Shareholders. . . . . . . . . . . . . . 17 Description of Dividend Reinvestment and Cash Purchase Plan. . . . . 18 PICTURED ON THE COVER IS A SCENIC VIEW OF THE JALAN M.H. THAMRIN ROUNDABOUT AND NUSANTARA BUILDING LOCATED IN THE CENTER OF JAKARTA. LETTER TO SHAREHOLDERS August 8, 1996 DEAR SHAREHOLDER: We are pleased to report on the activities of The Indonesia Fund, Inc. (the "Fund") for the six months ended June 30, 1996. PERFORMANCE At June 30, 1996, the Fund's net assets were $45.6 million. The Fund's net asset value ("NAV") was $9.90 per share, as compared to $9.34 at December 31, 1995. For the period January 1, 1996 through June 30, 1996, the Fund's total return based on NAV was 6.0%. By comparison, the total return of the Morgan Stanley Capital International Indonesia Index (the "Index") was 16.1%. From the commencement of investment operations on March 9, 1990 through June 30, 1996, the Fund's total return, based on NAV and assuming reinvestment of dividends and distributions, declined 22.6%. The Index fell 20.4% during this period. HIGHLIGHTED HOLDINGS To illustrate our stock selection process, we'd like to discuss two of the Fund's holdings, PT Gudang Garam and PT Telekomunikasi Indonesia. Each should benefit from long-term trends affecting emerging markets generally. PT GUDANG GARAM A major trend throughout the developing world is the upward movement in standards of living. This bodes well for companies whose products or services should become more desirable as economies become increasingly consumer-oriented. Indonesia, certainly, is experiencing this trend. Several significant factors underscore the country's economic movement toward greater consumerism: -Total and per-capita GDP are growing much more rapidly than the population. -Consumer spending is rising. -The middle class is growing. -Its population of about 195 million is the world's fourth-largest and continues to grow, indicating a huge potential market both now and into the future. -The youthfulness of the population means that a huge source of future demand will almost certainly materialize over the next 5-20 years. -Indonesians, increasingly, are moving from rural to urban areas. - -------------------------------------------------------------------------------- 1 LETTER TO SHAREHOLDERS A natural beneficiary of Indonesia's rising consumerism is its tobacco industry, whose near- and long-term prospects are considerably enhanced by several strong positives: -The pool of habitual smokers is estimated at about 27 million and notably includes a large segment of the total male population. With about half the overall population under the age of 25 (new smokers generally start smoking at ages 16-18) and the social approval of smoking, the total number of smokers is likely to substantially increase. -Per-capita cigarette consumption is much lower than that of other Asian nations (e.g., China and Malaysia), indicating potential for growth. -Cigarette prices are much higher in China and Malaysia, where consumption also is much higher, suggesting that the current price will hold. This would help to raise future revenues. -The labor force, of which many tend to be smokers, is forecast to increase by 2.4 million annually. Domestic tobacco producers enjoy high barriers to entry. Of these, perhaps the most important is that the government takes a protectionist stance toward the industry. This is embodied in a complex system of taxes and pricing that serves to keep foreigners out while favoring the production and consumption of local cigarettes (known as "kreteks"). In addition, domestic tobacco manufacturers are the nation's second-largest overall source of tax revenues, the level of which might significantly drop if foreigners meaningfully penetrated the market. Furthermore, Indonesians have in the past generally shown a preference for the taste and aroma of kreteks to those of imported cigarettes. Finally, the logistics of building a distribution system that reaches most or all of the nation's widespread 12,000 islands are daunting. Indonesia's largest cigarette producer, PT Gudang Garam ("GG"), is ideally positioned to profit from the favorable environment formed by rising demand and high barriers to entry. GG dominates the market for kreteks, which are made in machine-rolled and the traditional hand-rolled form. It has chosen to focus on machine-rolled kreteks, which have demonstrated a more rapid rise in their rate of consumption. KRETEK MARKET SHARE BY PERCENTAGE OF VOLUME, 1995
COMPANY MACHINE-ROLLED HAND-ROLLED TOTAL MARKET SHARE - ------------------- ----------------- ------------- --------------------- GUDANG GARAM 59.7% 19.4% 46.9% Djarum 7.3 27.4 13.7 HM Sampoerna 5.4 22.8 10.9 Bentoel 7.5 0.3 5.2 Noyorono 0.5 7.2 2.6 Filasta 3.3 N/A* 2.2 All others 16.3 22.9 18.5 ------ ------ ------ INDUSTRY TOTAL 100.0% 100.0% 100.0%
- ------------------------------ * N/A = NOT AVAILABLE; FILASTA DOES NOT MAKE HAND-ROLLED KRETEKS. SOURCE: MERRILL LYNCH - -------------------------------------------------------------------------------- 2 LETTER TO SHAREHOLDERS In addition to the very strong benefits GG derives simply from being an Indonesian tobacco company, we like it for its many specific positive investment attributes. Among the most prominent: -It enjoys tremendous brand-name recognition and consumer loyalty built over time. -It is Indonesia's single largest payor of excise taxes (it paid about 71% of total excise taxes in 1995), meaning that its success is in the government's interest. -It should benefit most from recent tax and price changes mandated by the government. These changes have the effects of both lowering GG's costs and of removing certain pricing advantages from its competitors. As a result, GG's profit margins should rise and it should gain market share at the expense of the weakest players. -Its huge size and solid financial condition enable it to raise capital at favorable rates. -It is the only Indonesian tobacco company able to distribute its products both to urban and rural areas. GG in fact owns all of its distributors. -As a major blue-chip company and the third most highly weighted stock in the benchmark MSCI Indonesia Index, it serves as a core holding for any representative Indonesian portfolio. Based on this strong scenario, we increased our position in GG during the last six months such that it became the Fund's largest holding. We simultaneously reduced our position in GG's main competitor, HM Sampoerna, which had preceded GG as the Fund's largest holding as of our previous report. PT TELEKOMUNIKASI INDONESIA The development of physical infrastructure (I.E., energy, transportation, roads, bridges, telecommunications, construction) is a pressing necessity among emerging nations. In general, the outlook for companies involved in infrastructure development is quite positive. We consider Indonesia's domestic telecommunications provider, PT Telekomunikasi Indonesia ("Telkom"), an excellent long-term investment play on the country's infrastructure. This is our belief not simply because Telkom has a monopoly on vital domestic phone service. A closer look at the company paints a much more compelling picture. The business environment in which Telkom operates is very favorable relative to that found in other emerging Asian nations. This is due to Indonesia's unique regulatory framework for telecom. Unlike many of its neighbors (e.g., Malaysia and Thailand), Indonesia has chosen to modernize its telecom business NOT by allowing complete market competition to replace complete government control which approach has had negative results both for governments and companies. By contrast, Indonesia has adopted a scheme that combines traditional monopoly with market competition. The government designated Telkom in 1989 as the "organizing body" for basic domestic telecommunications services, meaning that all private entities wishing to provide such services may do so only with the involvement of Telkom. - -------------------------------------------------------------------------------- 3 LETTER TO SHAREHOLDERS Accordingly, Telkom is extensively involved in all aspects of the domestic business. Since the government (which still owns 80% of Telkom) retains the authority both to set phone rates and formulate regulatory and technical policies, there is no price competition and Telkom's profitability, essentially, is assured. To modernize its telecom service, Telkom has formed partnerships with teams (known as "KSO"s) of domestic and foreign companies to develop and operate telecom services in each of Telkom's seven regional divisions. KSOs function in five divisions, while Telkom keeps for itself the two most usage-intensive and, therefore, lucrative divisions. These divisions encompass the country's largest commercial centers of Jakarta and Surabaya. Telkom is also granted exclusivity over local service through the year 2011 and local long-distance service through 2006. The KSO structure conveys several strong benefits to Telkom, including revenue from each KSO in the form of an upfront payment, monthly fixed payments and an annual variable payment; large cost savings via reductions in capital spending and depreciation charges; and access to the financial strength, technological expertise and management skills of foreign telecom companies without having to relinquish management control. In addition to the Indonesian telecom environment, there are several other substantial positives for investment in Telkom: -Indonesia's rapidly growing economy should continue to be a catalyst for heavy telephone usage over the next few years. -Potential demand is larger in Indonesia's teledensity (I.E., the level of telephone penetration within the total population) is lower than that of most other developing nations and among the world's lowest generally. Despite massive building of new lines, demand is expected to outstrip supply well into the next century. -Substantial growth in phone-line installation has been mandated by the government and will make usage accessible to an increasingly larger customer base. -Financial and operating performance are reasonably predictable due to the government's well-laid-out telecom plans. -Shareholder value should be enhanced by Telkom's large ownership stakes in seven Indonesian cellular, international and satellite telecom companies. -Management is sharply focused on boosting profitability and productivity. -Telkom enjoys preeminent stature among Indonesian stocks. More so even than GG, Telkom is considered a core holding for a representative Indonesian portfolio. It is the country's largest-capitalized stock and also trades as an American Depositary Receipt on the New York Stock Exchange. This high liquidity will attract international investors seeking to increase their exposure to Indonesian equities. - -------------------------------------------------------------------------------- 4 LETTER TO SHAREHOLDERS Telkom's financial performance is expected to be strong over the next few years. As the chart below indicates, already high profit margins should rise even higher as pretax and net income grow at annualized rates faster than that of revenues. The proportion of revenues from core operations to total revenues should drop from 82% to 51%, indicating strong growth from KSO income and other non-operating sources. Earnings from equity stakes should also grow meaningfully. PT TELEKOMUNIKASI INDONESIA: SELECTED FINANCIAL PROJECTIONS 1995-2000E* (AMOUNTS IN BILLIONS OF RUPIAHS)
1995 1996E 1997E 1998E 1999E 2000E CAGR** ----------- --------- --------- --------- --------- --------- ------------------- Total revs. 5,103.4 5,206.3 6,657.9 8,149.0 9,221.9 10,680.7 15.92% % telephone 82.05% 56.53% 52.87% 51.33% 50.89% 50.69% % other svcs. 17.95% 43.47% 47.13% 48.67% 49.11% 49.31% Pretax income 1,286.0 1,921.9 2,657.4 3,782.2 4,490.2 5,518.2 33.82% % margin 25.20% 36.92% 39.91% 46.41% 48.69% 51.67% Net income 904.7 1,389.7 1,913.4 2,712.1 3,206.3 3,952.1 34.30% % margin 17.73% 26.69% 28.74% 33.28% 34.77% 37.00% Equity earnings from affiliates (5.5) 27.3 111.3 360.8 487.9 566.7 13.45% (from 1996) % margin N/M*** 0.05% 1.67% 4.43% 5.29% 5.31%
- ------------------------------ * E = ESTIMATE ** CAGR = COMPOUND ANNUAL GROWTH RATE *** N/M = NOT MEANINGFUL SOURCE: MORGAN STANLEY OUTLOOK We have described some of the very positive conditions for investment in Indonesian equities, particularly those that are consistent with the trends of rising consumerism and infrastructure development. These trends, although not new, are strong and should continue to apply well into the future. Our outlook remains favorable. There is one variable, however, that could dramatically impact Indonesian equities, whether positively or negatively. This is the issue of presidential succession. President Suharto is now 75 and has ruled for 30 years. Whether he will run for re-election for a seventh term in 1998 is unclear. Naturally, there is an abundance of speculation about his eventual succession. Since our last report, Suharto's wife has died (in April) and he had to fly abroad to receive urgent medical treatment for an unspecified ailment (in July). The mysterious nature of the latter set off much anxiety among Indonesians and investors generally. Fortunately, the problem turned out to be only a kidney stone, which was successfully treated. Suharto's doctors pronounced his health excellent. - -------------------------------------------------------------------------------- 5 LETTER TO SHAREHOLDERS With regard to the most recent political tension in Indonesia, we note that it is not unusual for an emerging nation to experience such difficulties and has in fact happened many times in other countries. Historically, the transition from a rural, agriculture-based economy to a modern, industrialized system is a long and difficult process that evolves over the course of decades or even centuries. In Indonesia, it has been compressed into about 40 years. We add that the effect of what is happening now in Indonesia on an emerging nation's capital markets is fairly short-lived, after which investors tend to pick up where they had left off. Having this long-term perspective enables us to feel comfortable about investing in Indonesia. We wish to remind shareholders whose shares are registered in their own name that they automatically participate in the Fund's dividend reinvestment program. The automatic Dividend Reinvestment Plan (the "Plan") can be of value to shareholders in maintaining their proportional ownership interest in the Fund in an easy and convenient way. A shareholder whose shares are held in the name of a broker/dealer or nominee should contact that party for details about participating in the Plan. The Fund also offers shareholders a voluntary Cash Purchase Plan. The Plan and the Cash Purchase Plan are described on pages 18 and 19 of this report. Sincerely, [SIG] Stephen M. Swift Chief Investment Officer* - -------------------------------------------------------------------------------- * Stephen M. Swift, who is a Managing Director of BEA Associates, is primarily responsible for management of the Fund's assets. He has served the Fund in such capacity since August 2, 1995. Mr. Swift joined BEA Associates (formerly Basic Appraisals, Inc. and BEA Associates, Inc.) in June of 1995. Mr. Swift is the Chief Investment Officer of the Fund and is also Senior Vice President and Investment Officer of The Emerging Markets Infrastructure Fund, Inc. and The Emerging Markets Telecommunications Fund, Inc. - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
6/30/96 12/31/95 Automotive 4.77% 7.24% Beer, Beverages, Liquors & Tobacco 11.76% 12.03% Conglomerates 2.75% 1.35% Construction & Heavy Equipment 8.75% 4.74% Financial Services 15.65% 13.33% Food & Kindred Products 10.00% 14.28% Housing 3.34% 3.29% Manufacturing 10.05% 14.10% Paper Products 2.07% 2.76% Pharmaceuticals 4.72% 4.91% Real Estate 5.36% 1.40% Retailing 3.44% 4.33% Telecommunications 9.04% 7.62% Transportation 0.00% 2.32% Other 4.10% 6.28% Cash & Other Assets 4.20% 0.02% 100.0% 100.0%
TOP 10 HOLDINGS, BY ISSUER
Percent of Net Holding Sector Assets - ------------------------------------------------------------------------------------------------------------------------------- 1. PT Gudang Garam Beer, Beverages, Liquors & Tobacco 6.8 - ------------------------------------------------------------------------------------------------------------------------------- 2. PT Bank Internasional Indonesia Financial Services 6.6 - ------------------------------------------------------------------------------------------------------------------------------- 3. PT Sari Husada Food & Kindred Products 6.3 - ------------------------------------------------------------------------------------------------------------------------------- 4. PT Telekomunikasi Indonesia Telecommunications 5.9 - ------------------------------------------------------------------------------------------------------------------------------- 5. PT HM Sampoerna Beer, Beverages, Liquors & Tobacco 5.0 - ------------------------------------------------------------------------------------------------------------------------------- 6. PT Trias Sentosa Manufacturing 4.9 - ------------------------------------------------------------------------------------------------------------------------------- 7. PT Astra International Automotive 4.8 - ------------------------------------------------------------------------------------------------------------------------------- 8. PT Semen Gresik Manufacturing 4.2 - ------------------------------------------------------------------------------------------------------------------------------- 9. PT Mulia Industrindo Construction & Heavy Equipment 3.9 - ------------------------------------------------------------------------------------------------------------------------------- 10. PT IndoFood Sukses Makmur Food & Kindred Products 3.7 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 1996 (UNAUDITED) - --------------------------------------------------------------------------------
No. of Value Description Shares (Note A) - ----------------------------------------------------- EQUITY OR EQUITY-LINKED SECURITIES-95.80% INDONESIA-95.80% AUTOMOTIVE-4.77% PT Astra International... 1,500,000 $ 2,175,081 ----------- BEER, BEVERAGES, LIQUORS & TOBACCO-11.76% PT Gudang Garam.......... 720,000 3,085,714 PT HM Sampoerna.......... 200,000 2,277,121 ----------- 5,362,835 ----------- CHEMICALS-0.75% PT Unggul Indah Corp..... 333,800 344,198 ----------- CONGLOMERATES-2.75% PT Bimantara Citra....... 1,000,000 1,256,713 ----------- CONSTRUCTION & HEAVY EQUIPMENT-8.75% PT Citra Marga Nusaphala Persada................. 825,000 1,258,324 PT Mulia Industrindo..... 1,199,800 1,778,436 PT United Tractors....... 606,000 956,842 ----------- 3,993,602 ----------- CONSUMER GOODS-1.57% PT Modern Photo Film Co...................... 166,500 715,360 ----------- FINANCIAL SERVICES-15.65% PT Bank Dagang Nasional Indonesia............... 1,363,250 1,142,143 PT Bank Danamon Indonesia............... 1,450,000 1,308,271 PT Bank Internasional Indonesia............... 605,200 2,990,247 PT BBL Dharmala Finance................. 900,000 1,256,713 PT Dharmala Intiland..... 575,000 444,683 ----------- 7,142,057 ----------- FOOD & KINDRED PRODUCTS-10.00% PT IndoFood Sukses Makmur.................. 370,830 1,672,917 PT Sari Husada........... 478,652 2,889,392 ----------- 4,562,309 ----------- No. of Value Description Shares (Note A) - ----------------------------------------------------- HOUSING-3.34% PT Jaya Real Property.... 260,500 $ 829,627 PT Surya Toto Indonesia............... 323,520 694,995 ----------- 1,524,622 ----------- MANUFACTURING-10.05% PT Indocement Tunggal Prakarsa................ 130,000 446,831 PT Semen Gresik.......... 655,000 1,906,606 PT Trias Sentosa......... 1,142,000 2,232,481 ----------- 4,585,918 ----------- MINING-1.78% PT Tambang Timah......... 440,000 812,889 ----------- PAPER PRODUCTS-2.07% PT Pabrik Kertas Tjiwi Kimia................... 504,498 514,794 PT Sumalindo Lestari Jaya.................... 362,000 396,606 PT Surabaya Agung Pulp & Kertas.................. 85,125 28,345 PT Surabaya Agung Pulp & Kertas, Warrants (expiring 3/13/01)+..... 28,375 2,438 ----------- 942,183 ----------- PHARMACEUTICALS-4.72% PT Darya Varia Laboratoria............. 371,000 761,128 PT Kalbe Farma........... 623,940 1,393,980 ----------- 2,155,108 ----------- REAL ESTATE-5.36% PT Kawasan Industri Jababeka................ 561,000 819,506 PT Lippo Land Development............. 700,000 1,624,060 ----------- 2,443,566 ----------- RETAILING-3.44% PT Matahari Putra Prima................... 859,000 1,568,529 -----------
- -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) - --------------------------------------------------------------------------------
No. of Value Description Shares (Note A) - ----------------------------------------------------- TELECOMMUNICATIONS-9.04% PT Indo Satellite Corp. ADR..................... 22,000 $ 737,000 PT Pasifik Satelit Nusantara ADR+.......... 35,000 700,000 PT Telekomunikasi Indonesia............... 300,000 454,350 PT Telekomunikasi Indonesia ADR........... 75,000 2,231,250 ----------- 4,122,600 ----------- TOTAL INVESTMENTS-95.80% (Cost $36,468,313) (Notes A,D)......... 43,707,570 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-4.20%...................... 1,914,862 ----------- NET ASSETS-100.00%...................... $45,622,432 ----------- ----------- - --------------------------------------------------------- + Security is non-income producing. ADR American Depositary Receipts.
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. 9 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS Investments, at value (Cost $36,468,313) (Note A)............................... $ 43,707,570 Deposit with broker for initial public offering............................... 1,000,000 Receivables: Investments sold...................... 1,304,961 Dividends............................. 320,710 Prepaid expenses........................ 22,209 ------------- Total Assets............................ 46,355,450 ------------- LIABILITIES Due to custodian........................ 470,318 Payables: Advisory fee (Note B)................. 126,571 Administration fees (Note B).......... 9,569 Other accrued expenses................ 126,560 ------------- Total Liabilities....................... 733,018 ------------- NET ASSETS (applicable to 4,608,989 shares of common stock outstanding) (Note C)............................... $ 45,622,432 ------------- ------------- NET ASSET VALUE PER SHARE ($45,622,432 DIVIDED BY 4,608,989)................. $9.90 ------------- ------------- NET ASSETS CONSIST OF Capital stock, $0.001 par value; 4,608,989 shares issued and outstanding (100,000,000 shares authorized)........ $ 4,609 Paid-in capital......................... 63,164,835 Accumulated net investment loss......... (30,937) Accumulated net realized loss on investments and foreign currency related transactions................... (24,755,147) Net unrealized appreciation in value of investments and translation of other assets and liabilities denominated in foreign currency....................... 7,239,072 ------------- Net assets applicable to shares outstanding............................ $ 45,622,432 ------------- -------------
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. 10 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME Income (Note A): Dividends............................. $ 443,255 Interest.............................. 15,337 Less: Foreign taxes withheld.......... (62,263) ------------- Total Investment Income............... 396,329 ------------- Expenses: Investment advisory fees (Note B)..... 233,793 Custodian fees........................ 51,641 Audit and legal fees.................. 33,535 Administration fees (Note B).......... 26,436 Accounting fees....................... 17,200 Printing.............................. 16,864 Insurance............................. 12,691 Directors' fees....................... 10,470 Transfer agent fees................... 9,484 NYSE listing fees..................... 8,063 Other................................. 7,089 ------------- Total Expenses........................ 427,266 ------------- Net Investment Loss................... (30,937) ------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS Net realized loss from: Investments........................... (4,690,231) Foreign currency related transactions......................... (33,570) Net change in unrealized depreciation in value of investments and translation of other assets and liabilities denominated in foreign currency........ 7,317,405 ------------- Net realized and unrealized gain on investments and foreign currency related transactions................... 2,593,604 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 2,562,667 ------------- -------------
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. 11 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the Six Months For the Year Ended June Ended 30, 1996 December 31, (unaudited) 1995 -------------------------------- INCREASE IN NET ASSETS Operations: Net investment income/(loss).......... $ (30,937) $ 22,444 Net realized loss on investments and foreign currency related transactions......................... (4,723,801) (5,207,387) Net change in unrealized depreciation in value of investments and translation of other assets and liabilities denominated in foreign currency............................. 7,317,405 5,947,467 ------------- ------------- Net increase in net assets resulting from operations.................... 2,562,667 762,524 ------------- ------------- NET ASSETS Beginning of period..................... 43,059,765 42,297,241 ------------- ------------- End of period........................... $ 45,622,432 $ 43,059,765 ------------- ------------- ------------- -------------
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. 12 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements and market price data for the Fund's shares. - --------------------------------------------------------------------------------
For the Six For the Period Months Ended For the Years Ended December 31, March 9, 1990* June 30, 1996 ------------------------------------------------- through (unaudited) 1995 1994 1993 1992 1991 December 31, 1990 -------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period............................ $9.34 $9.18 $14.03 $7.63 $7.72 $10.38 $13.78** --------------- ------- -------- -------- ------- ------- -------- Net investment income/(loss)....... -- -- (0.03) (0.03) 0.01 0.04 0.22 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions...................... 0.56 0.16 (4.82) 6.43 (0.10) (2.65) (2.90) --------------- ------- -------- -------- ------- ------- -------- Net increase/(decrease) in net assets resulting from operations........................ 0.56 0.16 (4.85) 6.40 (0.09) (2.61) (2.68) --------------- ------- -------- -------- ------- ------- -------- Dividends and distributions to shareholders: Net investment income............ -- -- -- -- -- (0.05) (0.19) Net realized gain on investments and foreign currency related transactions...................... -- -- -- -- -- -- (0.53) --------------- ------- -------- -------- ------- ------- -------- Total dividends and distributions to shareholders................... -- -- -- -- -- (0.05) (0.72) --------------- ------- -------- -------- ------- ------- -------- Net asset value, end of period..... $9.90 $9.34 $9.18 $14.03 $7.63 $7.72 $10.38 --------------- ------- -------- -------- ------- ------- -------- --------------- ------- -------- -------- ------- ------- -------- Market value, end of period........ $11.125 $10.125 $12.000 $20.750 $9.000 $8.375 $9.875 --------------- ------- -------- -------- ------- ------- -------- --------------- ------- -------- -------- ------- ------- -------- Total investment return(a)......... 9.88% (15.63)% (42.17)% 130.56% 7.46% (14.71)% (24.15)% --------------- ------- -------- -------- ------- ------- -------- --------------- ------- -------- -------- ------- ------- -------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted).......................... $45,622 $43,060 $42,297 $64,661 $35,186 $35,590 $47,817 Ratio of expenses to average net assets............................ 1.83%(b) 1.96% 1.83% 1.98% 2.04% 2.00% 2.15%(b) Ratio of net investment income/(loss) to average net assets............................ (0.13)%(b) 0.05% (0.25)% (0.30)% 0.09% 0.49% 2.05%(b) Portfolio turnover rate............ 18.29%(c) 24.10% 31.56% 63.77% 22.39% 32.27% 17.68%(c) Average commission rate per share(d).......................... $0.0097 -- -- -- -- -- --
- --------------------------------------------------------------------------- * Commencement of operations. ** Initial public offering price of $15.00 per share less underwriting discount of $1.05 per share and offering expenses of $0.17 per share. (a) Total investment return at market value is based on the changes in market price of a share during the period and assumes reinvestment of dividends and distributions, if any, at actual prices pursuant to the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions or initial underwriting discounts and has not been annualized. In addition, such returns have been restated to reflect the reinvestment of dividends and distributions, if any, on the ex-dividend date. (b) Annualized. (c) Not annualized. (d) Disclosure is required for fiscal years beginning on or after September 1, 1995. - -------------------------------------------------------------------------------- See accompanying notes to financial statements. 13 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE A. SIGNIFICANT ACCOUNTING POLICIES The Indonesia Fund, Inc. (the "Fund") was incorporated in Maryland on January 8, 1990 and commenced investment operations on March 9, 1990. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company. Significant accounting policies are as follows: PORTFOLIO VALUATION: Investments are stated at value in the accompanying financial statements. All equity securities for which market quotations are readily available are valued at the last sales price prior to the time of determination, or, if no sales price is available at that time, at the closing price quoted for the securities (but if bid and asked quotations are available, at the mean between the current bid and asked prices). Securities that are traded over-the-counter are valued at the mean between the current bid and the asked prices, if available. Ministry of Finance Decree 1055 (1989) states that foreign investors are allowed to purchase up to 49% of the shares of Indonesian companies offered to the public in the primary market. When 49% of the shares offered to the public are owned by foreign investors and a foreign market quotation available, the foreign quotation is used. If less than 49% of the shares offered to the public are owned by foreign investors, there is no foreign market quotation available, therefore the local market quotation is used. Local shares generally trade at a discount to foreign shares when 49% of the shares offered to the public are owned by foreign investors. All other securities and assets are valued at the fair value as determined in good faith by the Board of Directors. Short-term investments having a maturity of 60 days or less are valued on the basis of amortized cost. The Board of Directors has established general guidelines for calculating fair value of non-publicly traded securities. At June 30, 1996, the Fund held no securities valued in good faith by the Board of Directors. The net asset value per share of the Fund is calculated weekly, at the end of each month and at any other times determined by the Board of Directors. CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a variable rate account are classified as cash. At June 30, 1996, the interest rate was 4.6875% which resets on a daily basis. Amounts on deposit are generally available on the same business day. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis; dividend income is recorded on the ex-dividend date. TAXES: No provision is made for U.S. federal income or excise taxes as it is the Fund's intention to continue to qualify as a regulated investment company and to make the requisite distributions to its shareholders which will be sufficient to relieve it from all or substantially all U.S. federal income and excise taxes. At December 31, 1995, the Fund had a capital loss carryover for U.S. federal income tax purposes of $19,826,594 of which $2,239,330 expires in 1999; $1,666,081 expires in 2000; $683,625 expires in 2001; $8,617,662 expires in 2002, and $6,619,896 expires in 2003. For U.S. federal income tax purposes, realized capital losses and foreign exchange losses incurred after October 31, 1995, within the fiscal year, are deemed to arise on the first day of the following fiscal year. The Fund incurred and elected to defer such losses of $204,032 and $720, respectively. Income received by the Fund from sources within Indonesia and other countries may be subject to withholding and other taxes imposed by such countries. - -------------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, assets and liabilities at the current rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses in investments in equity securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. Accordingly, realized and unrealized foreign currency gains and losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions balances. The Fund reports certain foreign currency related transactions and foreign taxes withheld on security transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for U.S. federal income tax purposes. Net currency gains from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation/depreciation on investments, foreign currency holdings, and other assets and liabilities denominated in foreign currency. Net realized foreign exchange losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized between the trade date and settlement date on security transactions, and the difference between the amounts of interest and dividends recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received. DISTRIBUTIONS OF INCOME AND GAINS: The Fund expects to distribute at least annually to shareholders, substantially all of its net investment income and net realized short-term capital gains, if any. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses, including capital loss carryovers, if any. An additional distribution may be made to the extent necessary to avoid the payment of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are recorded by the Fund on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for U.S. federal income tax purposes due to U.S. generally accepted accounting principles/tax differences in the character of income and expense recognition. OTHER: Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. Investment in Indonesian securities requires consideration of certain factors that are not normally involved in investments in U.S. securities. The Indonesian securities market is an emerging market characterized by a small number of company listings, high price volatility and a relatively illiquid secondary trading environment. These factors, coupled with restrictions on investment by foreigners and other factors, limit the supply of securities available for investment by the Fund. This will affect the rate at which the Fund is able to invest in Indonesian securities, the purchase and sale prices for such securities and the timing of purchases and sales. - -------------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- THE INDONESIA FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- The limited liquidity of the Indonesian securities markets may also affect the Fund's ability to acquire or dispose of securities at a price and time that it wishes to do so. Accordingly, in periods of rising market prices, the Fund may be unable to participate in such price increases fully to the extent that is unable to acquire desired portfolio positions quickly; conversely the Fund's inability to dispose fully and promptly of positions in declining markets will cause its net asset value to decline as the value of unsold positions is marked to lower prices. The number of shares available for investment by the Fund is also limited by the fact that non-Indonesians are permitted to purchase only 49% of the listed shares of Indonesian companies. A high proportion of the shares of many listed Indonesian companies may be held by a limited number of persons, thus reducing the number of listed shares available for purchase by foreigners. NOTE B. AGREEMENTS BEA Associates ("BEA") serves as the Fund's investment adviser with respect to all investments. As compensation for its advisory services, BEA receives from the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.00% of the Fund's average weekly net assets. For the six months ended June 30, 1996, BEA earned $233,793 for advisory services. BEA also provides certain administrative services to the Fund and is reimbursed by the Fund for costs incurred on behalf of the Fund (up to $20,000 per annum). For the six months ended June 30, 1996, BEA was reimbursed $3,096 for administrative services rendered to the Fund. Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator. The Fund pays BSFM a monthly fee that is computed weekly at an annual rate of 0.10% of the first $100 million of the Fund's average weekly net assets and 0.08% of amounts in excess of $100 million. For the six months ended June 30, 1996, BSFM earned $23,340 for administrative services. NOTE C. CAPITAL STOCK The authorized capital stock of the Fund is 100,000,000 shares of common stock, $0.001, par value. Of the 4,608,989 shares outstanding at June 30, 1996, BEA owned 7,169 shares. NOTE D. INVESTMENT IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at June 30, 1996 was $36,468,313. Accordingly, the net unrealized appreciation of investments (including investments denominated in foreign currency) of $7,239,257, was composed of gross appreciation of $9,751,282 for those investments having an excess of value over cost and gross depreciation of $2,512,025 for those investments having an excess of cost over value. For the six months ended June 30, 1996, purchases and sales of securities, other than short-term obligations, were $8,335,695 and $10,315,633, respectively. NOTE E. CREDIT AGREEMENT The Fund, along with 17 other U.S. regulated investment companies for which BEA serves as investment adviser, has a credit agreement with The First National Bank of Boston. The agreement provides that each fund is permitted to borrow an amount equal to the lesser of $50,000,000 or 25% of the net assets of the fund. However, at no time shall the aggregate outstanding principal amount of all loans to any of the 18 funds exceed $50,000,000. The line of credit will bear interest at (i) the greater of the bank's prime rate or the Federal Funds Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The Fund had no amounts outstanding under the credit agreement for the six months ended June 30, 1996. - -------------------------------------------------------------------------------- 16 RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED) On April 23, 1996, the annual meeting of shareholders of The Indonesia Fund, Inc. (the "Fund") was held and the following matters were voted upon: (1) To re-elect one director to the Board of Directors of the Fund.
NAME OF DIRECTOR FOR WITHHELD NON-VOTES - ----------------------------------------------------------------------------------- ---------- --------- ---------- Peter Kaplan 2,969,856 96,112 1,543,021
In addition to the director re-elected at the meeting, Richard H. Francis, C. Oscar Morong, Jr., William W. Priest, Jr. and Daniel Sigg continue to serve as directors of the Fund. (2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public accountants for the year ending December 31, 1996.
FOR AGAINST ABSTAIN NON-VOTES ---------- --------- --------- ---------- 2,999,507 42,505 23,956 1,543,021
- -------------------------------------------------------------------------------- 17 DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to The Indonesia Fund, Inc.'s (the "Fund") Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless the Fund's transfer agent, as the Plan Agent (the "Plan Agent"), is otherwise instructed by the shareholder in writing, to have all distributions, net of any applicable U.S. withholding tax, automatically reinvested in additional shares of the Fund. Shareholders who do not participate in the Plan will receive all dividends and distributions in cash, net of any applicable U.S. withholding tax, paid in dollars by check mailed directly to the shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have dividend and distributions automatically reinvested should notify the Plan Agent for the Fund, at the address set forth below. Dividends and distributions with respect to shares registered in the name of a broker-dealer or other nominee (i.e., in "street name") will be reinvested under the Plan unless such service is not provided by the broker or nominee or the shareholder elects to receive dividends and distributions in cash. A shareholder whose shares are held by a broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name to participate in the Plan. Investors who own shares of the Fund's common stock registered in street name should contact the broker or nominee for details concerning participation in the Plan. Certain distributions of cash attributable to (a) some of the dividends and interest amounts paid to the Fund and (b) certain capital gains earned by the Fund that are derived from securities of certain foreign issuers are subject to taxes payable by the Fund at the time amounts are remitted. Such taxes, if any, will be borne by the Fund and allocated to all shareholders in proportion to their interests in the Fund. The Plan Agent serves as agent for the shareholders in administering the Plan. If the Board of Directors of the Fund declares an income dividend or a capital gains distribution payable either in the Fund's common stock or in cash, as shareholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive common stock to be issued by the Fund. If the market price per share on the valuation date equals or exceeds net asset value per share on that date, the Fund will issue new share to the participants valued at net asset value or, if the net asset value is less than 95% of the market price on the valuation date, then valued at 95% of the market price. If net asset value per share on the valuation date exceeds the market price per share on that date, the Plan Agent, as agent for the participants, will buy shares of common stock in the open market , on the New York Stock Exchange or elsewhere, for the participants' accounts. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next preceding trading day. If the Fund should declare an income dividend or capital gains distributions payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts on, or shortly after, the payment date. Participants in the Plan have the option of making additional cash payments to the Plan Agent, semi-annually, in any amount from $100 to $3,000, for investment in the Fund's common stock. The Plan Agent will use all funds received from participants to purchase Fund shares in the open market on or about February 15 and August 15 of each year. Any voluntary cash payments received more than 30 days prior to these dates will be returned by the Plan Agent and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Agent, it is suggested that participants send in voluntary cash payments to be received by the Plan Agent approximately 10 days before February 15 or - -------------------------------------------------------------------------------- 18 DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED) August 15, as the case may be. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Agent not less than 48 hours before the payment is to be invested. A participant's tax basis in his shares acquired through his optional investment right will equal his cash payments to the Plan, including any cash payments used to pay brokerage commissions allocable to his acquired shares. The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant and each shareholder's proxy will include those shares purchased pursuant to the Plan. In the case of a shareholder, such as a bank, broker or nominee, that holds shares for other who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholder as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There is no charge to participants for reinvesting dividends or capital gains distributions payable in either stock or cash. The Plan Agent's fees for the handling of reinvestment of such dividends and capital gains distributions will be paid 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 gains distributions payable either in stock of in cash. However, each participant will be charged by the Plan Agent a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with voluntary cash payments made by the participant or the reinvestment of dividends or capital gains distributions payable only in cash. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions because the Plan agent will be purchasing stock for all participants in blocks and prorating the lower commission thus obtainable. Brokerage commissions will vary based on, among other things, the broker selected to effect a particular purchase and the number of participants on whose behalf such purchase is being made. The Fund cannot predict, therefore, whether the cost to a participant who makes a voluntary cash payment will be less than if a participant were to make an open market purchase of the Fund's common stock on his own behalf. The receipt of dividends and distributions in stock under the Plan will not relieve participants of any income tax (including withholding tax) that may be payable on such dividends or distributions. The Fund and the Plan Agent reserve the right to terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice of the termination sent to the members of the Plan at least 30 days before the semi-annual contribution date, in the case of voluntary cash payments, or the record date for dividends or distributions. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, rules or policies of a regulatory authority) only by at least 30 days written notice to members of the Plan. All correspondence concerning the Plan should be directed to The First National Bank of Boston, Investor Relations Department, P.O. Box 644, Mail Stop 45-02-09, Boston, Massachusetts 02102-0644 or by telephone at 1-800-730-6001. - -------------------------------------------------------------------------------- 19 SUMMARY OF GENERAL INFORMATION The Fund--The Indonesia Fund, Inc.--is a closed-end, non-diversified management investment company whose shares trade on the New York Stock Exchange. Its principal investment objective is long-term capital appreciation with income as a secondary objective through investments primarily in Indonesian equity and debt securities. The Fund is managed and advised by BEA Associates ("BEA"). BEA is a diversified asset manager, handling equity, balanced, fixed income, international and derivative based accounts. Portfolios include international and emerging market investments, common stocks, taxable and non-taxable bonds, options, futures and venture capital. BEA manages money for corporate pension and profit-sharing funds, public pension funds, union funds, endowments and other charitable institutions and private individuals. As of June 30, 1996, BEA managed approximately $28.7 billion in assets. BEA also advises eight other international closed-end funds: The Brazilian Equity Fund, Inc., The Chile Fund, Inc., The First Israel Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The Latin America Equity Fund, Inc., The Latin America Investment Fund, Inc. and The Portugal Fund, Inc. SHAREHOLDER INFORMATION The market price is published in: THE NEW YORK TIMES (daily) under the designation "Indones" and THE WALL STREET JOURNAL (daily), and BARRON'S (each Monday) under the designation "IndonesiaFd". The Fund's New York Stock Exchange trading symbol is IF. Weekly comparative net asset value (NAV) and market price information about The Indonesia Fund, Inc.'s shares are published each Sunday in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL and BARRON'S, as well as other newspapers, in a table called "Closed End Funds." To request an annual report, or to be placed on the Fund's mailing list, shareholders should call 1-800-293-1232. DIVIDEND REINVESTMENT AND CASH PURHCASE PLAN--SUMMARY An automatic Dividend Reinvestment and Cash Purchase Plan (the "Plan") is available to provide shareholders with automatic reinvestment of their dividend income and capital gain distributions in additional shares of the Fund's common stock. As per the Plan, each shareholder will be automatically reinvested in additional shares of the Fund by The First National Bank of Boston, unless otherwise instructed by the shareholder in writing. Shareholders who do not participate in the Plan will receive all dividends and distributions in cash paid by check in U.S. dollars. Shares registered in street name will be reinvested under the Plan, unless the broker-dealer or other nominee does not provide a dividend reinvestment plan or the shareholder elects to receive their dividends in cash. DIRECTORS AND CORPORATE OFFICERS Emilio Bassini President and Secretary Stephen M. Swift Chief Investment Officer Richard H. Francis Director Peter Kaplan Director C. Oscar Morong, Jr. Director William W. Priest, Jr. Director Daniel Sigg Director and Senior Vice President Paul P. Stamler Senior Vice President Michael A. Pignataro Chief Financial Officer and Assistant Secretary Rachel D. Manney Vice President and Treasurer INVESTMENT ADVISER BEA Associates One Citicorp Center 153 East 53rd Street New York, NY 10022 ADMINISTRATOR Bear Stearns Funds Management Inc. 245 Park Avenue New York, NY 10167 CUSTODIAN Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 SHAREHOLDER SERVICING AGENT The First National Bank of Boston P.O. Box 1865 Mail Stop 45-02-62 Boston, MA 02105-1865 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, PA 19103 LEGAL COUNSEL Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, NY 10022 This report, including the financial statements herein, is sent to IF the shareholders of the Fund for their information. The financial Listed information included herein is taken from the records of the Fund NYSE without examination by independent accountants who do not express THE an opinion thereon. It is not a prospectus, circular or NEW YORK representation intended for use in the purchase or sale of shares STOCK of the Fund or of any securities mentioned in this report. EXCHANGE -----END PRIVACY-ENHANCED MESSAGE-----