<PAGE>
[GRAPHIC]
The Indonesia
Fund, Inc.
- --------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders.................................................... 1
Portfolio Summary......................................................... 5
Schedule of Investments................................................... 6
Statement of Assets and Liabilities....................................... 7
Statement of Operations................................................... 8
Statement of Changes in Net Assets........................................ 9
Financial Highlights...................................................... 10
Notes to Financial Statements............................................. 11
Results of Annual Meeting of Shareholders................................. 14
Description of InvestLink-SM- Program..................................... 14
</TABLE>
PICTURED ON THE COVER ARE THE SHRINES TO THE WATER DEITY LOCATED IN INDONESIA.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
July 23, 1998
DEAR SHAREHOLDER:
We are pleased to report on the activities of The Indonesia Fund, Inc. (the
"Fund") for the six months ended June 30, 1998.
PERFORMANCE
At June 30, 1998, the Fund's net assets were $8.3 million. The Fund's net asset
value ("NAV") was $1.79 per share, as compared to $3.58 at December 31, 1997.
For the period January 1, 1998 through June 30, 1998, the Fund's total return,
based on NAV, declined 50.0%. By comparison, the total return of the Morgan
Stanley Capital International Indonesia Index (the "Index") was -58.0%. From the
commencement of investment operations on March 9, 1990 through June 30, 1998,
the Fund's total return, based on NAV and assuming reinvestment of dividends and
distributions, fell 86.0%. The Index lost 90.8% during this same period.
By far, the most important ingredient in the Fund's outperformance of the Index
thus far in 1998 was our approach to managing the portfolio's cash position. We
maintained an unusually high level of total assets in cash (I.E., 17.6% at June
30), and also kept the cash in strong dollars while the Index held (as it always
does) the rupiah, whose value plunged. Stock selection was most effective in the
energy sector due to our significant position in Gulf Indonesia Resources Ltd.,
which fared better than many Indonesian equities and accounts for about 11% of
the portfolio. Sector allocation worked best in chemicals and banking, which we
meaningly underweighted relative to the Index; and was least helpful in tobacco,
food and textiles.
THE END OF THE BEGINNING?
Among so much that has occurred in Indonesia in 1998, the most significant
development, undoubtedly, was the resignation of President Suharto in late May
after 32 years in power.
Many observers of the Indonesian investment scene have raised the question, "Is
this the beginning of the end?" In other words, does Suharto's departure mark
the start of a sustained decline in Indonesia's economic and political health?
As we see it, however, the more appropriate question is, "Is this the end of the
beginning?" Our response to the latter is affirmative.
Objections to his political style aside, it should be pointed out that Suharto
succeeded during his reign in implementing modern capitalism to raise the
standard of living and bring unprecedented economic prosperity to a diverse
nation of 200 million people. In this sense, his resignation may be considered
the ending of the first chapter in a much longer story.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
WHAT HAPPENS NEXT?
Given the severity and fragility of Indonesia's problems, it is rather difficult
to make reasonable predictions about what may happen in the near term.
Our sense is that the government of the new President, B.J. Habibie, is most
likely transitional. He is a longtime associate of Suharto and thus lacks
credibility with much of the populace. He does not have the clear support of the
Indonesian military, which is vital to any post-Suharto administration. The
allowance of long-suppressed opposition points of view to be heard, furthermore,
means that Habibie faces substantial competition in gaining the support of the
electorate. Even under less volatile circumstances, it would be unrealistic to
expect that anyone could quickly implement the wholesale changes needed to place
the nation on a stable long-term economic and political footing.
That said, Habibie has taken some measures with regard to the economy and
political system that can be considered fairly progressive when viewed in the
context of his predecessor's approach. In aggregate, these may well play a role
in helping to bring the nation to the next step in its road to recovery.
Perhaps the most crucial factor in restoring the long-term viability of the
Indonesian economy is the restructuring of the corporate sector, particularly
banks. As we noted in our last report, it was corporate exploitation of the
government's policy of managing the devaluation of the rupiah currency, combined
with overly aggressive bank lending, that ultimately caused Indonesia's economic
downfall.
The direct result of this combination was the accumulation by the corporate
sector of approximately $80 billion in dollar-denominated debt, whose servicing
costs have skyrocketed as the value of the rupiah has plummeted. In early June,
corporations took the first substantive step toward resolving their debt burden
by agreeing with foreign lenders to a procedural framework for renegotiating
their debt-servicing obligations. Also positive is the fact that the government
has allowed several banks to fail and recommended measures to increase banks'
overall financial accountability.
An additional element in the corporate restructuring process is the elimination
of widespread cronyism, notably in the form of numerous companies controlled by
Suharto family members and friends. The removal of such companies' artificial
competitive advantages should result in more realistic competition and greater
overall efficiency in the economy. The Habibie administration has already begun
to move in this direction.
In late June, the government reached a new agreement on a major financial aid
package with the International Monetary Fund (IMF). We are hopeful that the new
agreement will provide badly needed funds to help get the nation back on its
feet. The agreement's underlying macroeconomic assumptions are fairly harsh,
however, meaning that Indonesia's ability to live up to the agreement may prove
problematic.
The agreement assumes, for example, that the historically robust economy will
shrink by over 10%; inflation will run at an annualized rate of 80% in 1998; and
the national budget deficit will soar to 8.5% of gross domestic product. A
potentially unrealistic assumption is that the rupiah will be valued at 10,000
per U.S. dollar, 33% above the current market level of around 15,000.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
A STRONG CASE FOR CLOSED-END FUNDS
The sharp decline in the Indonesian equity market underlines the strong case for
investors to utilize the professionally managed closed-end fund vehicle when
choosing to invest in an overseas market such as Indonesia. Indeed, the fact
that the Fund currently trades at a premium to NAV reflects widespread investor
awareness of such appeal.
Why else should investors choose the closed-end structure? Particularly during
volatile times like the present, we believe that investors should rely on
professional managers. Due to its direct access to the local market, in
addition, the Fund offers two benefits that simply are not available to most
investors. The first is the ability to construct a truly diversified Indonesian
portfolio that includes less liquid companies listed only domestically. The
second is the ability to gain exposure to a wide cross-section of the nation's
economy. The Fund also is able to assume the risks of trading, settlement and
share custody, and do so at a lower cost as well.
OUTLOOK
Macroeconomic conditions in Indonesia remain quite dire. Over the last year, the
rupiah has lost about 80% of its value, gross domestic product has dramatically
shrunken and foreign exchange reserves have been halved. All of these have
contributed to a massive compression of living standards. With enormous tasks
ahead, moreover, we believe that the next six months or so will be a very
challenging period for the nation to try to put its economy back on track.
At the same time, we see a few factors that suggest grounds for modest optimism:
- - Prices of many of the world's major commodities appear to have stabilized
after weakening due to the structural problems in Asia more generally. This is
quite relevant for Indonesia, which is rich in resources such as oil, tin,
wood and pulp.
- - Asset valuations have fallen to levels that are beginning to attract the
interest of foreign buyers, as exemplified by the recent bidding for a
controlling stake in cement maker PT Semen Gresik.
- - Sentiment toward Indonesia on Wall Street is unanimously bearish. Although
this is certainly understandable, its contrarian implications may also be
bullish for the equity market.
Clearly, a defensive investment stance toward Indonesian equities is most
appropriate in the near term. Our stock selection continues to emphasize
high-quality, large-capitalization companies whose revenues are largely
denominated in dollars and/or have relatively low dollar-denominated debt and
high cash balances. These companies have vital access to capital, whether
through internally generated cash flow or funds raised externally (I.E., from
bank
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
loans or the capital markets). They are the likeliest to survive a protracted
period of economic deterioration. We are also keeping a relatively high cash
position (as much as about 20% of total assets).
Sincerely,
/s/ Stephen M. Swift
Stephen M. Swift*
Chief Investment Officer
FROM BEA ASSOCIATES:
I. We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's dividend reinvestment
program which is known as the InvestLink Program (the "Program"). The
Program 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 the Fund's Transfer Agent for details about participating in the
Program. The Program also provides for additional share purchases. The
Program is described on pages 14 through 16 of this report.
II. Like other financial and business organizations, the Fund and its portfolio
could be adversely affected if the computer systems they rely on do not
properly process date-related information and data involving the years 2000
and after. We at BEA Associates are taking steps that we believe are
reasonable to address this problem in our own computer system and are
seeking assurances that comparable steps are being taken by the Fund's other
major service providers. BEA Associates is also attempting to evaluate the
potential impact of this problem on the issues of investment securities that
the portfolio purchases. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund
and portfolio.
- --------------------------------------------------------------------------------
*Stephen M. Swift is primarily responsible for management of the Fund's assets.
He has served the Fund in such capacity since August 2, 1995. Mr. Swift is a
Managing Director at Credit Suisse Asset Management Limited ("CSAM"). From June
1995 to February 1997, he was a Managing Director of BEA Associates. Prior to
that time, he was head of Global Equities at CSAM.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
30-JUN-98 31-DEC-97
<S> <C> <C>
Agriculture 1.17% 4.26%
Automotive 2.17% 0.66%
Beer, Beverages, Liquors &
Tobacco 8.59% 10.24%
Chemicals 0.77% 0.00%
Construction & Heavy Equipment 1.89% 2.18%
Financial Services 1.71% 0.58%
Food & Kindred Products 0.97% 0.00%
Manufacturing 5.38% 2.96%
Oil Exploration & Production 11.24% 10.76%
Paper Products 18.39% 7.47%
Pharmaceuticals 0.56% 1.82%
Retailing 0.43% 1.71%
Telecommunications 28.95% 17.65%
Textiles 1.01% 3.31%
Other 0.00% 1.59%
Cash & Other Assets 16.77% 34.81%
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------
1. PT Telekomunikasi Indonesia Telecommunications 18.5
- -------------------------------------------------------------------------------------------------
2. Gulf Indonesia Resources Ltd. Oil Exploration & Production 11.2
- -------------------------------------------------------------------------------------------------
3. PT Indosat Telecommunications 10.5
- -------------------------------------------------------------------------------------------------
4. PT Indah Kiat Pulp & Paper Corp. Paper Products 8.9
- -------------------------------------------------------------------------------------------------
5. PT Gudang Garam Beer, Beverages, Liquors & Tobacco 6.7
- -------------------------------------------------------------------------------------------------
6. Asia Pulp & Paper Company Ltd. Paper Products 5.1
- -------------------------------------------------------------------------------------------------
7. PT Semen Gresik Manufacturing 4.8
- -------------------------------------------------------------------------------------------------
8. PT Pabrik Kertas Tjiwi Kimia Paper Products 4.4
- -------------------------------------------------------------------------------------------------
9. PT Astra International Automotive 2.2
- -------------------------------------------------------------------------------------------------
10. PT Citra Marga Nusaphala Persada Construction & Heavy Equipment 1.9
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-83.23%
AGRICULTURE-1.17%
PT London Sumatra Indonesia+............ 1,235,600 $ 96,992
-----------
AUTOMOTIVE-2.17%
PT Astra International.................. 2,620,000 178,840
-----------
BEER, BEVERAGES, LIQUORS & TOBACCO-8.59%
PT Gudang Garam......................... 935,500 555,553
PT HM Sampoerna......................... 1,111,500 153,637
-----------
709,190
-----------
CHEMICALS-0.77%
PT Unggul Indah Corp.................... 645,600 63,899
-----------
CONSTRUCTION & HEAVY EQUIPMENT-1.89%
PT Citra Marga Nusaphala Persada........ 7,640,000 156,451
-----------
FINANCIAL SERVICES-1.71%
PT Bank Internasional Indonesia......... 6,875,132 140,788
-----------
FOOD & KINDRED PRODUCTS-0.97%
PT Indofood Sukses Makmur............... 811,500 80,319
-----------
MANUFACTURING-5.38%
PT Semen Gresik......................... 688,000 394,485
PT Unilever Indonesia................... 26,000 49,693
-----------
444,178
-----------
OIL EXPLORATION & PRODUCTION-11.24%
Gulf Indonesia Resources Ltd.*.......... 80,655 927,532
-----------
PAPER PRODUCTS-18.39%
Asia Pulp & Paper Company Ltd. ADR...... 37,600 423,000
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
PAPER PRODUCTS (CONTINUED)
PT Indah Kiat Pulp & Paper Corp.++...... 3,811,500 $ 734,983
PT Pabrik Kertas Tjiwi Kimia............ 2,846,311 359,432
-----------
1,517,415
-----------
PHARMACEUTICALS-0.56%
PT Kalbe Farma.......................... 1,687,880 46,085
-----------
RETAILING-0.43%
PT Matahari Putra Prima................. 3,436,000 35,181
-----------
TELECOMMUNICATIONS-28.95%
PT Indosat.............................. 737,500 865,870
PT Telekomunikasi Indonesia............. 2,346,500 668,712
PT Telekomunikasi Indonesia ADR......... 147,050 854,728
-----------
2,389,310
-----------
TEXTILES-1.01%
PT Indorama Synthetics.................. 1,060,000 83,208
-----------
TOTAL INVESTMENTS-83.23%
(Cost $23,448,748) (Notes A,D)........................ 6,869,388
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-16.77%.................................... 1,383,713
-----------
NET ASSETS-100.00%..................................... $ 8,253,101
-----------
-----------
- ---------------------------------------------------------
* Security is traded on the New York Stock Exchange.
+ Security is non-income producing.
++ Includes 5 warrants, expiring 7/11/02, with a market
value of $0.54.
ADR American Depositary Receipts.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $23,448,748)
(Note A)............................... $ 6,869,388
Cash (including $442,873 of foreign
currency with a cost of $713,250) (Note
A)..................................... 1,472,112
Receivables:
Dividends............................. 21,710
Investments sold...................... 2,157
Prepaid expenses........................ 16,315
------------
Total Assets............................ 8,381,682
------------
LIABILITIES
Payables:
Investment advisory fee (Note B)...... 30,695
Administration fees (Note B).......... 3,012
Other accrued expenses................ 94,874
------------
Total Liabilities....................... 128,581
------------
NET ASSETS (applicable to 4,608,989
shares of common stock outstanding)
(Note C)............................... $ 8,253,101
------------
------------
NET ASSET VALUE PER SHARE ($8,253,101
DIVIDED BY 4,608,989)................. $1.79
------------
------------
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......................... 63,035,295
Accumulated net investment loss......... (173,209)
Accumulated net realized loss on
investments and foreign currency
related transactions................... (37,760,543)
Net unrealized depreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... (16,853,051)
------------
Net assets applicable to shares
outstanding............................ $ 8,253,101
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 27,659
Interest.............................. 47,433
Less: Foreign taxes withheld.......... (2,636)
-----------
Total Investment Income............... 72,456
-----------
Expenses:
Investment advisory fees (Note B)..... 64,417
Custodian fees........................ 58,825
Audit and legal fees.................. 28,960
Printing.............................. 24,797
Accounting fees....................... 18,100
Transfer agent fees................... 10,860
Directors' fees....................... 10,413
Administration fees (Note B).......... 9,055
NYSE listing fees..................... 8,018
Insurance............................. 6,730
Other................................. 5,490
-----------
Total Expenses........................ 245,665
-----------
Net Investment Loss................... (173,209)
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized loss from:
Investments........................... (4,930,165)
Foreign currency related
transactions......................... (422,698)
Net change in unrealized depreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ (2,706,558)
-----------
Net realized and unrealized loss on
investments and foreign currency
related transactions................... (8,059,421)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $(8,232,630)
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months For the Year
Ended June 30, 1998 Ended
(unaudited) December 31, 1997
<S> <C> <C>
------------------------------------------
DECREASE IN NET ASSETS
Operations:
Net investment income/(loss).......... $ (173,209) $ 141,408
Net realized loss on investments and
foreign currency related
transactions......................... (5,352,863) (7,906,915)
Net change in unrealized
appreciation/(depreciation) in value
of investments and translation of
other assets and liabilities
denominated in foreign currency...... (2,706,558) (24,971,829)
------------------- -----------------
Net decrease in net assets resulting
from operations.................... (8,232,630) (32,737,336)
------------------- -----------------
NET ASSETS
Beginning of period..................... 16,485,731 49,223,067
------------------- -----------------
End of period........................... $ 8,253,101 $ 16,485,731
------------------- -----------------
------------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months For the Period
Ended For the Years Ended March 9, 1990*
June 30, December 31, through
1998 -------------------------------------------------------------------------- December 31,
(unaudited) 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period..... $3.58 $10.68 $9.34 $9.18 $14.03 $7.63 $7.72 $10.38 $13.78**
----------- -------- -------- -------- -------- -------- -------- -------- --------------
Net investment
income/(loss)........... (0.04) 0.03 0.01 -- (0.03) (0.03) 0.01 0.04 0.22
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions............ (1.75) (7.13) 1.33 0.16 (4.82) 6.43 (0.10) (2.65) (2.90)
----------- -------- -------- -------- -------- -------- -------- -------- --------------
Net increase/(decrease)
in net assets resulting
from operations......... (1.79) (7.10) 1.34 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.................. $1.79 $3.58 $10.68 $9.34 $9.18 $14.03 $7.63 $7.72 $10.38
----------- -------- -------- -------- -------- -------- -------- -------- --------------
----------- -------- -------- -------- -------- -------- -------- -------- --------------
Market value, end of
period.................. $3.438 $4.625 $9.750 $10.125 $12.000 $20.750 $9.000 $8.375 $9.875
----------- -------- -------- -------- -------- -------- -------- -------- --------------
----------- -------- -------- -------- -------- -------- -------- -------- --------------
Total investment
return(a)............... (25.68)% (52.56)% (3.70)% (15.63)% (42.17)% 130.56% 7.46% (14.71)% (24.15)%
----------- -------- -------- -------- -------- -------- -------- -------- --------------
----------- -------- -------- -------- -------- -------- -------- -------- --------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)......... $8,253 $16,486 $49,223 $43,060 $42,297 $64,661 $35,186 $35,590 $47,817
Ratio of expenses to
average net assets...... 3.81%(b) 1.89% 1.91% 1.96% 1.83% 1.98% 2.04% 2.00% 2.15%(b)
Ratio of net investment
income/(loss) to average
net assets.............. (2.69)%(b) 0.33% 0.10% 0.05% (0.25)% (0.30)% 0.09% 0.49% 2.05%(b)
Portfolio turnover
rate.................... 17.61% 48.19% 34.67% 24.10% 31.56% 63.77% 22.39% 32.27% 17.68%
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of investment 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 program. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
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:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
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 467 (1997) states that
foreign investors are now allowed to purchase up to 100% of the shares of
Indonesian companies offered to the public in the primary market, except for
shares in the banking sector. In the banking sector, foreign investors are
allowed to purchase up to 49% of the shares offered to the public in the primary
market. When 49% of such shares are owned by foreign investors and a foreign
market quotation available, the foreign quotation is used. If less than 49% of
these 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 banking shares generally trade at a discount to foreign banking
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 net asset value per share of the Fund is calculated on each business day,
with the exception of those days on which the New York Stock Exchange is closed.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At June 30, 1998, the interest
rate was 5.250% 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, 1997, the Fund had a capital loss carryover for U.S. federal
income tax purposes of $27,780,961 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; $6,619,896 expires in 2003 ; $4,688,411 expires in 2004 and $3,265,956
expires in 2005.
For U.S. federal income tax purposes, realized capital losses and foreign
exchange losses incurred after October 31, 1997, within the prior fiscal year,
are deemed to arise on the first day of the current fiscal year. The Fund
incurred and elected to defer such losses from the prior fiscal year of
$4,555,905 and $70,814, respectively.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
THE INDONESIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Income received by the Fund from sources within Indonesia and other countries
may be subject to withholding and other taxes imposed by such countries.
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 on 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.
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 in value of investments and translation of
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 distributes 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.
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
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12
<PAGE>
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THE INDONESIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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, in
the banking sector only, by the fact that non-Indonesians are permitted to
purchase only 49% of the listed shares of Indonesian finance companies. A high
proportion of the shares of many listed Indonesian finance 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, 1998,
BEA earned $64,417 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, 1998, BEA was reimbursed $2,613 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,
1998, BSFM earned $6,442 for administrative services.
Effective April 22, 1997, Credit Suisse Asset Management Limited ("CSAM") was
approved by the Fund's shareholders to serve as the Fund's investment
sub-adviser. In return for its services, CSAM is paid by BEA a quarterly fee of
$18,750. Both BEA and CSAM are part of the Credit Suisse Asset Management
Business Unit, which is controlled by Credit Suisse.
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, 1998, 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,
1998 was $23,475,452. Accordingly, the net unrealized depreciation of
investments (including investments denominated in foreign currency) of
$16,606,064, was composed of gross depreciation of $16,606,064 for those
investments having an excess of cost over value.
For the six months ended June 30, 1998, purchases and sales of securities, other
than short-term obligations, were $5,343,102 and $1,837,024, respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 other U.S. regulated investment companies for which BEA
serves as investment adviser, has a credit agreement with BankBoston, N.A.. 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 19
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, 1998.
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13
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 24, 1998, 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.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Richard H. Francis 2,923,072 38,048 1,647,869
</TABLE>
In addition to the director re-elected at the meeting, C. Oscar Morong, Jr.,
William W. Priest, Jr., and Peter Kaplan continue to serve as directors of the
Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand L.L.P.) as independent public accountants for the year ending December
31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
2,931,689 7,575 21,856 1,647,869
</TABLE>
DESCRIPTION OF INVESTLINK* PROGRAM
The InvestLink Program is sponsored and administered by BankBoston, N.A., not by
The Indonesia Fund, Inc. (the "Fund"). BankBoston, N.A. will act as program
administrator (the "Program Administrator") of the InvestLink Program (the
"Program"). The purpose of the Program is to provide interested investors with a
simple and convenient way to invest funds and reinvest dividends in Shares of
the Fund's common stock ("Shares") at prevailing prices, with reduced brokerage
commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions.) Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of Company Common Stock in the open market. Such purchases will be made
by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the the purchase date. In all cases, transaction processing will
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14
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
occur within 30 days of the receipt of funds, except where temporary curtailment
or suspension of purchases is necessary to comply with applicable provisions of
the Federal Securities laws or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
BankBoston, N.A., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program. Each participant in the Program
will receive a statement of his account following each purchase of Shares. The
statements will also show the amount of dividends credited to such participant's
account (if applicable), as well as the fees paid by the participant. In
addition, each participant will receive copies of the Fund's Annual Report to
shareholders, proxy statements and, if applicable, dividend income information
for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which
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15
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
participants hold in their Program accounts and with respect to all Shares
registered in their names will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or willful misconduct. Shares held in custody by the
Program Administrator are not subject to protection under the Securities
Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 969-3294; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: BankBoston, N.A.,
InvestLink Program, P.O. Box 1681, Boston, MA 02105-1681.
- --------------------------------------------------------------------------------
*InvestLink-SM- is a service mark of Boston EquiServe Limited
Partnership.
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16
<PAGE>
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, 1998, BEA
managed approximately $35.6 billion in assets.
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."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Brazilian Equity Fund, Inc. (BZL) BEA Emerging Markets Equity Fund
The Chile Fund, Inc. (CH) BEA Global Telecommunications Fund
The First Israel Fund, Inc. (ISL) BEA High Yield Fund
The Portugal Fund, Inc. (PGF) BEA International Equity Fund
MULTIPLE COUNTRY
The Emerging Markets Infrastructure Fund, Inc. (EMG)
The Emerging Markets Telecommunications Fund, Inc. (ETF)
The Latin America Equity Fund, Inc. (LAQ)
The Latin America Investment Fund, Inc. (LAM)
For shareholder information or a copy
FIXED INCOME of a prospectus for any of the
BEA Income Fund, Inc. (FBF) open-end mutual funds please call,
BEA Strategic Global Income Fund, Inc. (FBI) 1-800-401-2230.
For closed-end fund information Visit our website on the internet:
please call, 1-800-293-1232. http://www.beafunds.com
</TABLE>
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Richard H. Francis Director
Peter Kaplan Director
C. Oscar Morong, Jr. Director
William W. Priest, Jr. Director and President
Stephen M. Swift Chief Investment Officer
Robert B. Hrabchak Investment Officer
Michael A. Pignataro Chief Financial Officer and
Secretary
Hal Liebes Senior Vice President
Rocco A. Del Guercio Vice President
Wendy S. Setnicka 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
BankBoston, N.A.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
This report, including the financial statements herein, is sent
to the shareholders of the Fund for their information. 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. 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.
[LOGO]
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3913-SAR-6/98
