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Indonesian Fund Managers Plan Merger

In an unusual joint proxy statement filed Oct. 11, Credit Suisse Asset Management of New York, the adviser to the closed-end Indonesia Fund and NAM-USA, the manager of the closed-end Jakarta Growth Fund, announced plans to seek shareholder approval to merge the two geographically related but separately-managed funds. NAM-U.S.A. is the U.S. subsidiary of Nomura Asset Management of Tokyo.

If the merger is approved, The Indonesia Fund would be the surviving closed-end fund and would be managed solely by Credit Suisse. It would also become the only publicly available fund in the U.S. to invest in Indonesian securities, said the proxy. Jakarta is the largest city and the capital of Indonesia.

This is the first time the firm has sought to buy and merge the assets of another closed-end fund, said Leslie Mayock, a Credit Suisse spokesperson. Shareholders will vote on the proposed merger at separate meetings Dec. 18.

The merger proposal comes after both funds suffered dismal performance this year and consequently an enormous exodus of fund assets.

Year-to-date, each fund's value has been cut by more than half, according to Wiesenberger, Thomson Financial of Rockville, Md. Year-to-date through Oct. 13, The Indonesia Fund had lost 57.5 percent of its assets while the Jakarta Growth Fund had lost 64.6 percent, according to Wiesenberger. Wiesenberger is a division of Thomson Financial, the publisher of this newsletter.

These performance numbers have won the two funds the dubious distinction of being the two worst performing closed-end funds this year, said Ramy Shaalan, a mutual fund analyst with Wiesenberger.

The sharp decline in assets had already forced the Jakarta Growth Fund to stop trading on the New York Stock Exchange and to be delisted. In March, the New York Stock Exchange notified the manager of The Jakarta Growth Fund that its assets had fallen below the stock exchange's minimum market capitalization of $15 million and that it would be delisted the following month. On April 12, the $11.2 million Jakarta Growth Fund was formally delisted and began trading on two alternate securities exchanges, The Boston Exchange and the OTC Bulletin Board. As of June 30, the fund had grown even smaller, to $8.4 million, said the proxy. A Nomura spokesperson declined to comment.

The Indonesia Fund could be facing similar expulsion, although Credit Suisse has not yet received notification from the New York Stock Exchange, said Mayock of Credit Suisse.

"But we've been closely monitoring [the situation] because we are aware of it," she said. The fund has current assets of $9.4 million. Just six months earlier, at the end of March, the fund had $20.7 million, according to Wiesenberger.

As recently as the 30 consecutive trading days ending Aug. 31, The Indonesia Fund had just barely met the required minimum with an average market capitalization of $15 million, said the proxy. If the merger is approved by both sets of shareholders, the surviving Indonesia Fund's market cap is expect to be bolstered to $20 million, said the proxy.

Both of the closed-end Indonesian funds are 10 years old, with The Indonesia Fund opening on March 9, 1990, just six weeks before the launch of The Jakarta Growth Fund. And both funds have suffered because of the overall problems challenging the markets of Indonesia.

The Jakarta Composite Index, the primary index used to measure the publicly available stocks of Indonesia, is down over 50 percent so far this year through the end of September, said Paul Parsons, senior investment manager in London with Pictet International Investment Management. Pictet is the affiliate of Pictet & Cie, a private bank of Geneva and adviser to the five Pictet mutual funds.

Indonesia's 1997 currency problems are still having an impact on Indonesia's securities market, said Parsons. The region also is burdened by a still-growing debt, he said. To complicate matters, the region has been undergoing a shift towards democracy but is led by a new president who is mired in scandals, he said.

For closed-end funds, switching listings to a smaller exchange may make trading the security more difficult for investors, he said. In addition, if the fund has many institutional investors who may be barred from holding securities not traded on the New York Stock Exchange, there could be a flurry of selling, he said.

By agreeing to have its Jakarta Growth Fund merged into The Indonesia Fund, Nomura Asset Management is not getting out of the closed-end fund business. The company still manages three other closed-end funds - the Japan OTC Equity Fund, the Korea Equity Fund and the Nomura Pacific Basin Fund.

The expected merger of the two closed-end Indonesian funds comes shortly after Credit Suisse had made some changes to its overall closed-end fund roster.

Last year, Credit Suisse hired Paine Webber of New York to advise it on possible restructurings that would enhance shareholder value. Following Paine Webber's recommendations, on May 16, Credit Suisse announced plans to seek shareholders approval to merge the closed-end Latin America Investment Fund into the similar Latin American Equity Fund, and

the Emerging Markets Infrastructure

Fund into the Emerging Markets Telecommunications Fund.

The Latin American funds merger was approved Sept. 18 and the other, last week. The mergers are expected to take place within the next few weeks, said Mayock, the Credit Suisse spokesperson.