--------------------------------------------------------------------------------
Advantage Advisers, Inc.
The India Fund, Inc.
Annual Report
December 31, 2000
THE INDIA FUND, INC.
Investment Manager:
Advantage Advisers, Inc., a
wholly owned subsidiary of
CIBC World Markets Corp.
Administrator:
CIBC World Markets Corp.
Sub-Administrator:
PFPC, Inc.
Transfer Agent:
The Bank of New York
Custodian:
The Bank of New York
The India Fund, Inc.
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The India Fund, Inc.
February 13, 2001
Dear Fund Shareholder,
We are pleased to present you with the audited financial statements of The India
Fund, Inc. (the "Fund") for the fiscal year ended December 31, 2000. The Fund's
common stock closed on the New York Stock Exchange at $12.06 per share on
December 29, 2000, which represented a 25.5% discount to the $16.18 per share
net asset value ("NAV") as of that date.
The Fund's NAV fell (30.3%) during the 12 months ended December 31, 2000, in
line with both the Dollex Index of India's 200 leading stocks - which dropped
(30.4%) during the year - and the benchmark IFC Index, which declined (30.1%).
As indicated by these comparisons, the Fund's performance in 2000 reflected the
trend in the overall Indian market during the year. The market was impacted both
by negative developments within the domestic economy and by declines in the
information technology (IT) sector, which mirrored the steep drop in the Nasdaq
market in the United States. Nevertheless, the Indian market performed near the
top of all Asian markets during 2000.
During 2000, the Fund significantly reduced its heavy exposure in the two IT
services sectors - Computer Software & Programming and Computer Training. But
the Fund still remains overweight in Indian IT, which the Investment Manager
believes is positioned for outstanding long-term growth as a leader in
outsourcing for global manufacturing.
At the same time, the Fund added to its holdings in pharmaceuticals, consumer
non-durables and telecommunications equipment, and added modestly in cyclicals
and heavy industry.
The Indian economy slowed markedly in 2000, reflecting a number of negative
influences, including a disappointing monsoon season, soaring oil prices, and
reduced capital inflows. Going forward, the Investment Manager believes that a
better monsoon season and especially progress on restructuring and reform
initiatives such as privatization and reduced impediments to direct investment,
could act as catalysts to invigorate the economy.
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THE INDIA FUND, INC.
The Investment Manager believes that at current valuation levels, the
risk/reward ratio for the Indian market appears favorable, and plans to continue
a well-diversified portfolio strategy going forward.
On behalf of the Board of Directors, I thank you for your participation in the
Fund.
If you have any questions or comments, please do not hesitate to call our
toll-free number at (800) 421-4777.
Sincerely,
Bryan McKigney
Director, President and Secretary
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THE INDIA FUND, INC.
Report of the Investment Manager
For the Year Ended December 31, 2000
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OVERVIEW OF INDIA'S STOCK MARKET
The year 2000 was difficult for global equity markets, and the Indian market was
no exception. The Dollex Index of India's 200 leading stocks declined (30.4%)
for the year, while the IFC Index, the Fund's key benchmark, fell (30.1%).
Despite a domestic economy that remains relatively insulated, India's explosive
growth in its information technology (IT) service industries has led to an
ever-tighter relationship between the performance of its stock market and the
Nasdaq market in the United States. Given this relationship, it could not be
expected that Indian IT companies would escape unscathed from a sharp Nasdaq
sell-off, and, indeed, last year showed that they could not. The deterioration
in overall investor sentiment, prompted by concerns about overvaluation and
slowing growth, impacted the entire global technology sector - whether in the
U.S., Europe, or Asia - despite stark differences in regional valuation and
growth outlooks.
Even though absolute performance was disappointing, the Indian market remained
one of the best relative performers in the Asian region in 2000. Using the
Morgan Stanley Capital International (MSCI) country indices for direct
comparison, for calendar year 2000 the Indian market's U.S.
dollar-denominated performance ranked fifth among the 15 Far East markets. Only
Hong Kong, Australia, Pakistan, and Malaysia outperformed India. Looking more
closely, India's performance may have even placed it one or two ranks higher,
when taking into consideration the special circumstances of Pakistan and
Malaysia. As examples, a case can be made for excluding them from the
performance ranking, given Pakistan's practical investment constraints as well
as liquidity and settlement risks, and the Malaysian Government's exacting a 10%
"exit levy" on repatriated capital gains.
Looking ahead, we believe that the Indian stock market has the potential for
very good performance in 2001. Although the economy is currently growing more
slowly than investors had hoped for, in our opinion, this environment is
conducive to a monetary easing, especially with the country's
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Fund Updates
The Fund's toll-free phone number, (800) 421-4777, provides callers with a
recorded monthly update of the markets in which the Fund invests. It also offers
details about the Fund, its portfolio and performance. The Fund's net asset
value (NAV) is calculated weekly and published in The Wall Street Journal every
Monday under the heading "Closed End Funds." The Fund's NAV is also published in
Barron's on Saturdays and in The New York Times on Sundays. The Fund is listed
on the New York Stock Exchange under the ticker symbol IFN.
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THE INDIA FUND, INC.
currency stabilizing and the benign inflation outlook. Nevertheless, if the
market is to show an upward trend this year, investors need to see some positive
catalysts, such as the Indian Government's continuing restructuring and reform
efforts. In addition, a major privatization of a key state-owned enterprise
would provide a substantial boost to market sentiment and would perhaps even
re-ignite significant foreign direct investment into the country.
In our view, the key risks for the market in 2001 are likely to be: (1) the
global IT spending slowdown becoming deeper and more protracted than expected;
and (2) the Government's restructuring/reform (including privatization) effort
faltering.
Two additional possibilities that would present problems are: (1) crude oil
prices remaining in the US$25-US$30 per barrel range, rather than declining; and
(2) India experiencing another disappointing monsoon season (June to September),
as the rains were insufficient for the agricultural sector during 2000. On the
whole, however, we remain cautiously optimistic, and favor a positive stance on
the market.
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POLITICS
The political environment in India was relatively calm during 2000, a welcome
relief from the events of 1999. In April 1999, there was a no-confidence vote at
the national level that forced new elections in September. The ruling political
party, Bhartiya Janata Party (BJP), was voted back into power with a much
stronger mandate, thus easing the political uncertainty.
The highlight of 2000 came in March, when President Bill Clinton became the
first United States president to visit India in 22 years. Many issues were
discussed, including cross-border terrorism and India's rapidly expanding IT
services sector. At the visit's conclusion, both countries felt the visit had
contributed to improved Indian-U.S. relations.
Because of the BJP's stronger mandate following the elections, it is now able to
govern without major disruptive influences from political parties not allied
with the ruling coalition. As a result, the Government was able to make
substantive progress on several restructuring initiatives. Examples include: (1)
the insurance industry opening up to private and (within limits) foreign
investors; and (2) more recently, reform being enacted in the telecommunications
sector, paving the way for dismantling the state-owned monopolies and opening up
the industry to private competition.
In December 2000, the Indian Parliament passed the Fiscal Responsibility Bill,
setting the stage for the next phase of reforms. The law set a target for the
Government's fiscal deficit to be at 2% of the country's GDP by March 2006. (The
deficit is currently over 5%.) The Government also appears to be moving closer
toward privatization of state-owned assets. This is probably the most difficult
and yet crucial reform for the Indian Government to effect. (Privatization is
politically contentious
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THE INDIA FUND, INC.
because it can undermine the vested interests of the individuals who manage and
are employed by the various Government-owned entities.) While experience has
certainly taught investors to temper their optimism, there is sufficient reason
to expect further progress in India's structural reform in 2001.
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ECONOMY
The Indian economy faced a number of challenges during calendar year 2000,
including decelerating industrial production, poor monsoons (which negatively
impact rural incomes and consumption), a weak rupee (the Indian currency), and
soaring oil prices (which hit 10-year highs). As a result, the country's Central
Bank recently lowered its real GDP growth estimate for the fiscal year ending
March 31, 2001 from 6.5% to 6%.
Nevertheless, there were a number of bright spots. On the trade front, export
growth continued to be buoyant. In the first seven months of the fiscal year
ending March 31, 2001 (April through October 2000), exports rose 20.5% to US$25
billion, versus US$20.7 billion in the same period a year earlier. Textiles and
ready-made garments; engineering goods; and chemicals have all been key drivers
of the growth. This strong growth performance, however, is not expected to
prevent the trade deficit from expanding further, as India's oil import bill is
on track to almost double this fiscal year. Fortunately, as has been the trend
for the past five years, solid growth in services income (e.g., from IT
exports), is likely to keep India's current account deficit from expanding
outside the range of 1%-2% of GDP that it has maintained over the past five
years.
In addition, 2000 witnessed significant improvement in Government finances,
largely due to buoyant revenues and better expenditure management. Direct tax
collections were the major surprise: up 41% year-over-year to Rs 320 billion for
the period April to November 2000. (The budget estimate for the fiscal year
ending March 31, 2001 calls for only 15.7% year-over-year growth.) Although
indirect taxes (e.g., sales taxes, import tariffs) are running below budgeted
estimates, the net result remains positive. Nevertheless, the overall
improvement is reflected in the following: The fiscal deficit for April to
November 2000 was running at only 46% of the full fiscal year estimate, compared
to the 70% ratio in the April to November 1999 period.
The value of the Indian rupee against the U.S. dollar declined by almost 7%
during calendar year 2000, reflecting the negative impact of continued high oil
prices and weak capital inflows. Initially, the weak currency forced the Central
Bank to raise interest rates to the 9%-10% range to prevent further
deterioration. However, since early October, the currency appears to have
stabilized, and interest rates have been trending downward. Except for the
impact of higher oil prices, inflation in India remained fairly benign, with
year-over-year increases in the country's Consumer Price Index ranging between
4%-5% throughout most of the fiscal year to date. The stable inflation outlook
is expected to pave the way for a further reduction in interest rates of 50-100
basis points during 2001.
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THE INDIA FUND, INC.
Capital inflows during 2000 were disappointing. The most recent data shows that
portfolio inflows during the April to November 2000 period were only US$667
million, 32% below the US$978 million in the same period a year earlier.
Likewise, despite the Indian Government's policy impetus to raise foreign direct
investment (FDI), such inflows remained stagnant for the six months from April
through September 2000. (The policy includes efforts: (1) to raise the
percentage ceiling on foreign investors' ownership stakes in certain Indian
industries; (2) to lower the tariffs on a broad range of imported goods; and (3)
in general, to create a more attractive business environment.) However, the key
reason for the stagnation during this period was the cumbersome approval process
for making foreign direct investments, which in some cases may require as many
as 20 different permits. The combined effect of a widening current account
deficit and lower capital inflows resulted in foreign reserves being drawn down
by over US$3 billion to US$32 billion over the period from April 2000 to the end
of calendar 2000. Partly in response to this decline, the Government launched
the India Millennium Deposits (IMD) scheme through which bonds were sold to
Indian citizens living outside the country, in an effort to inject additional
liquidity into the financial system. The program raised US$5.5 billion and
brought foreign exchange reserves to almost US$39 billion, for an import
coverage ratio of over 8 months. (Import coverage is the ratio of the value of
annual imports to the level of foreign exchange reserves.) Clearly, the IMD
program was highly successful in replenishing reserves and easing India's
liquidity condition. Nevertheless, the Government realizes it must step up
efforts to attract non-debt capital inflows to maintain a sustainable level of
high GDP growth.
In summary, at the start of 2001, we believe the outlook for the Indian economy
can best be described as mixed. The repercussions from last year's poor monsoon
season, coupled with continued weak business investment, should, unfortunately,
cap GDP growth this year in the 5.5%-6% range. Nevertheless, with stable
currency and inflation outlooks, we believe conditions appear set for modest
monetary easing, an environment that is generally friendly for equities.
However, the economy clearly needs a kick-start to raise it to a higher level of
growth. A better monsoon season this year would be a major boost to agricultural
output and rural incomes, thus reversing the negative impact of last year's
disappointing season. However, given that the monsoons are a June to September
phenomenon, it will not be until the second half of 2001 before the weather will
have an impact on the economy.
In our opinion, an even more important, sustainable catalyst would be for the
Indian Government to take more aggressive action on structural reform. A
significant breakthrough would be the successful privatization of a major
state-owned company, such as Balco (the Government-owned aluminum company) or
Air India (the Government-owned airline). We believe such a measure would be a
positive catalyst for investor sentiment and would most likely re-ignite foreign
direct investor interest in India.
Barring such a development, significant progress on structural reform, in our
opinion, could still be achieved in such other areas as further industry
deregulation, improved tax collection, or reduction of excessive Government
subsidies.
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THE INDIA FUND, INC.
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PERFORMANCE
The Fund's net asset value (NAV) declined (30.3%) during the 12 months ended
December 31, 2000, basically in line with the Dollex Index of India's 200
leading stocks, which dropped (30.4%) and the IFC Index, which fell (30.1%).
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PORTFOLIO STRATEGY
During 2000, the Fund reduced the degree of its overweighted position in
Information Technology (IT) services - Computer Software & Programming and
Computer Training - through selective (and at times, aggressive) profit-taking.
Overall, however, the Fund remains overweight in the sector, and we want to
emphasize that longer-term, we remain extremely positive on the industry's
prospects. The Government's strategy is to position India as a major outsourcing
location for global IT services in the same way that much of Asia has become a
major outsourcing location for global manufacturing. We believe that Indian
companies have the capability to fulfill this role.
During 2000, the Fund used the proceeds from the sale of positions in IT
services to add to holdings in pharmaceuticals, consumer non-durables, and
telecommunications equipment. There was also some modest accumulation of
cyclicals and heavy industry stocks, although by and large, at year-end 2000,
the Fund remained underweighted in these sectors relative to its benchmark.
Looking forward, we see the telecommunications equipment sector as an area with
a particularly positive outlook, as the Government's deregulation effort is
expected to ignite a massive build-out of telecommunications infrastructure.
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KEY SECTOR HOLDINGS
% of Total Holdings
Sector December 31, 2000 Top Holdings in Sector
------------------------------- ------------------- -------------------------
Computer Software & Programming 24.2% Infosys Technologies,
Satyam Computers
Services
Pharmaceuticals 12.4% Ranbaxy Laboratories,
Dr. Reddy's
Laboratories
Consumer Non-Durables 12.1% Hindustan Lever, ITC
Telecommunications &
Telecommunications Equipment 11.0% Himachal Futuristic
Communications,
Mahanagar Telephone
Nigam
Computer Training 7.4% NIIT
Textiles-Synthetic 7.2% Reliance Industries
Vehicles 4.8% Punjab Tractors
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THE INDIA FUND, INC.
COMPUTER SOFTWARE & PROGRAMMING; COMPUTER TRAINING
Computer Software and Programming continues to be the highest-weighted sector in
the Fund, although down from its peak. Computer Training also remains a heavily
weighted sector in the Fund. Indian software companies continued to register
excellent operating performances during 2000, with earnings more than doubling.
That contrasts with the situation of European and U.S.-based software companies,
many of which have issued warnings of declining profits in recent months. Indian
software companies are known for offering high-quality software at globally
competitive prices. Spending on IT by U.S. industry is expected to expand 7%-8%
in 2001, according to a survey conducted by the management of Indian-based
Infosys Technologies.
With the U.S. economy having entered a cyclical slowdown, questions have been
raised about how this will impact Indian IT companies' earnings outlook.
Although the Indian software firms may have little room left in terms of margin
expansion, we believe that the continued scalability and cost-efficiency of
their business model will allow the sector to continue to record significant
revenue growth during 2001. As in Asia's manufacturing industry, the IT software
outsourcing trend remains firmly intact. With this continued positive outlook,
we expect to continue to maintain the Fund's overweighted position in software,
although we anticipate trimming back large positions when stock prices rise to
overvalued levels.
Infosys Technologies, the Fund's largest holding, reported a 124% increase in
net profit for its third fiscal quarter ended December 31, 2000, to Rs 1.66
billion from Rs 738 million in the comparable year-earlier period. Revenues
reported also rose 139% to Rs 5.5 billion in the three months ended December 31,
2000, from Rs 2.3 billion in the comparable year-earlier period. Business
continued to expand on the combination of clients' repeat business and the
addition of new customers.
Satyam Computers Services also announced a strong third fiscal quarter (three
months ended December 31, 2000), with reported net profits surging 142% to Rs
875 million from only Rs 361 million in the comparable year-earlier period.
Results were clearly boosted by new orders from customers such as Chubb
Corporation, and higher fees.
NIIT reported that in its fiscal fourth quarter (three months ended September
20, 2000), net profit surged 70% to Rs 908 million from Rs 533 million in the
comparable year-earlier period. The company earned about one-half of its revenue
from its fast-growing software services, up from 36% a year earlier. The firm's
software services business is expected to continue to expand rapidly, as NIIT
focuses on helping clients, especially in the U.S., to complete transactions on
the Internet.
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THE INDIA FUND, INC.
PHARMACEUTICALS
The Fund continues to have an overweighted position in pharmaceuticals, at 12.4%
of the Fund's total holdings as of December 31, 2000. During the second half of
2000, this sector sharply outperformed the broader Indian market, as industry
fundamentals remained buoyant while money rotated out of technology stocks. The
next several years look positive for Indian pharmaceutical companies as a number
of major patents in the U.S. are set to expire in the 2001-2005 period, opening
up key opportunities in the generics markets. Also, original research and
development is playing an increasingly important role in the valuation of these
companies, although the contribution of new products to earnings is not expected
to be significant in the short term.
Ranbaxy Laboratories is India's biggest drug-maker measured by sales volume. The
company derives about half of its revenue from overseas, selling drugs in 40
countries. Earnings reported for its third fiscal quarter ended September 30,
2000 increased 24% to Rs 531 million, from Rs 428 million in the year-earlier
period (excluding the previous year's extraordinary gain). The company continues
to gear up to exploit the generic market in the U.S. when U.S. pharmaceutical
patents expire.
Dr. Reddy's Laboratories, India's third largest drug-maker, remains a key
holding in the Fund. In November 2000, the company received approval from the
U.S. Food and Drug Administration to sell two generic drugs, both to treat
ulcers. The company's reported net profit for its third fiscal quarter ended
September 30, 2000 surged 145% to Rs 294 million from Rs 120 million in the
year-earlier period. Dr. Reddy's Laboratories reported that it plans to raise
US$150-US$200 million via an American Depository Receipt (ADR) offering in the
U.S. during 2001.
CONSUMER NON-DURABLES
The Fund continues to be positive on the consumer non-durables sector, largely
through holdings in Hindustan Lever and ITC Ltd. Both companies experienced
continued expansion of operating profit margins in 2000, driven by lower raw
materials prices and an improved product sales mix (i.e., a larger proportion of
higher-margin products). This helped to offset the slower revenue growth caused
by dampened rural incomes due to reduced agricultural harvests.
Hindustan Lever, a 51% subsidiary of Unilever, is the leading consumer products
company in India, with distribution in more than 1 million shops across the
country - especially in villages, where it sells more than half of its soaps,
detergents, and tea. For the third fiscal quarter ended September 30, 2000, the
company's reported earnings rose 16% to Rs 3.3 billion from Rs 2.85 billion in
the year-earlier period, even though slowing consumer demand resulted in flat
revenue growth at Rs 24.6 billion.
9
THE INDIA FUND, INC.
ITC Ltd., which is 38% owned by BAT Industries, Ltd., sells two out of every
three cigarettes sold in India. In addition, the company manages a chain of
luxury hotels, and has used its free cash flow to venture into new business
areas such as retail clothing and greeting cards. For its second fiscal quarter
ended September 30, 2000, net profits reported rose 22% to Rs 2.5 billion from
Rs 2.06 billion in the year-earlier period.
TELECOMMUNICATIONS/TELECOMMUNICATIONS EQUIPMENT
Including telecommunications equipment companies, the Fund increased its
weighting in the overall telecommunications sector from 6.7% on December 31,
1999 to 11.0% on December 31, 2000. India's telecommunications sector appears
poised for rapid growth, as there are currently less than 2 million wireless
users and 24 million fixed line connections in a country of 1 billion people,
amounting to penetration rates of only 1% and 2.2%, respectively. More
significantly, during 2000, the Government made significant strides in moving to
deregulate both the wireless and fixed line sectors of the industry.
Himachal Futuristic Communications is India's largest telecommunications
equipment provider. The company reported generating 63% of its revenue from
turnkey telecommunications solutions (i.e., end-to-end capability), 31% from
telecommunications equipment manufacturing, and 6% from software to monitor its
newly-installed networks. Himachal's customer base is split between the
Government (40%) and private telecommunications companies (60%). In its most
recent earnings announcement, Himachal reported a 385% surge in net profit for
the second fiscal quarter ended September 30, 2000, to Rs 946 million from Rs
195 million in the year-earlier period.
Mahanagar Telephone Nigam (MTNL) is India's leading fixed line services
provider, dominating the heavily-trafficked routes in, as well as between,
Bombay and Delhi. Once deregulation commences (the date remains uncertain) it is
expected that the Government will allow several ownership stakes in the company
to be sold to private investors, with the company expected to eventually become
fully privatized. For its fiscal second quarter ended September 30, 2000, MTNL
reported an earnings rise of 38% to Rs 4.4 billion from Rs 3.2 billion in the
comparable year-earlier period.
TEXTILES-SYNTHETIC
The Fund's exposure in the petrochemicals sector is largely represented by one
key holding, Reliance Industries, India's biggest petrochemicals company. In the
past three years, Reliance has spent over US$1 billion to expand its facilities
in western India, allowing it to reduce costs and undercut its competitors as it
increases its scale of operations. This strategy, we believe, has helped
Reliance Industries flourish, despite the jump in crude oil prices in 2000 to
10-year highs. For the second fiscal quarter ended September 30, 2000, its
reported earnings rose 20% to Rs 7.35 billion from Rs 6.1 billion in the similar
period a year earlier. Reliance has also laid out plans to expand into India's
rapidly deregulating telecommunications market, targeting a broad array of
services, from e-commerce and Internet telephony to call centers and web-hosting
facilities.
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THE INDIA FUND, INC.
VEHICLES
The Fund maintains a moderate weighting in the motor vehicles sector, primarily
through its holding in Punjab Tractors. Although the Fund has trimmed back this
holding substantially, Punjab remains a solid, well-managed company that has
averaged a return on equity of over 40% for the past five years. The past year's
results have been impacted by drought conditions in some parts of India, which
have cut into farmers' disposable incomes. For the second fiscal quarter ended
September 30, 2000, reported net profit fell (13%) to Rs 309 million from Rs 355
million in the comparable period of the previous year.
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OUTLOOK
Following last year's difficult market conditions, we believe that Indian
equities have a good chance to rebound in 2001. Given the market's sharp decline
last year, and the outlook for more stable conditions going forward, the
earnings growth-to-valuation profile looks compelling relative to the Asian
region as a whole. The Institutional Broker Estimate System (IBES) forecasts a
consensus earnings growth in the Indian market of 20.8% over the next 12 months,
putting the market on a 12.3x price-to-forward earnings ratio.
A key issue for all of Asia in 2001 is how quickly the U.S economy will be
slowing down, and whether or not there will be a "soft" or "hard" landing (i.e.,
slowdown or outright recession).
We believe the evidence to date favors the soft-landing scenario. For example, a
recent survey by AMR Research suggested that U.S. IT spending growth is expected
to slow to a still healthy 5%-8% in 2001 from 10% per annum during the past few
years. (This survey generally agrees with the survey, cited above, conducted by
the management of Infosys Technologies.) This would be good news for Indian IT
companies such as Infosys, Satyam Computers Services and NIIT. On the other
hand, if the global economic slowdown turns out to be deeper than expected, the
more insulated Indian economy is likely to weather this environment better than
its more export-dependent Asian neighbors. India's exports still account for
less than 9% of its GDP, one of the lowest percentages in the region.
Domestically, the outlook for the real Indian economy remains subdued, as last
year's poor monsoon season and the stagnant level of business investment are
expected to result in GDP growth for the first half of the year of "only"
5.8%-6%. (This is not considered a strong growth rate by emerging markets
standards.) However, the second half of calendar year 2001 is much more
difficult to forecast. We see a couple of potential catalysts. A favorable
monsoon season would probably provide a significant stimulus to both
agricultural production and subsequently, rural consumption. (For perspective,
2000 saw the worst overall drought conditions in eight years.) A second catalyst
would be the Government's enactment of additional structural economic reforms. A
number of major steps were taken in 2000, but we believe the momentum must be
maintained in order to continue significant economic growth. For 2001, a major
breakthrough would be the Government's firmly initiating the privatization of
state-owned assets.
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THE INDIA FUND, INC.
We will continue to focus the Fund's portfolio on companies that we believe are
in the best position to exploit the positive structural changes that will be
taking place in India.
In summary, at current valuation levels, the risk/reward ratio for the Indian
market appears favorable. We will continue to actively manage the portfolio in a
way that we believe will take advantage of the dynamism and opportunities that
this market holds.
We take note of the terrible tragedy that took place in western Gujarat on
January 26, in which a severe earthquake resulted in the deaths of many
thousands of people. We pray that the survivors of this calamity can take
comfort from the expressions of sympathy, as well as offers of aid, that have
poured in from throughout the world.
Punita Kumar-Sinha
Portfolio Manager
January 30, 2001
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THE INDIA FUND, INC.
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Share Repurchase Program
The Board of Directors of the Fund previously authorized the Fund to repurchase
from time to time in the open market up to 2,000,000 shares of the Fund's common
stock. The Fund's Board directed management to repurchase the Fund's shares at
such times and in such amounts as management believes will enhance shareholder
value, subject to review by the Fund's Board of Directors. Supplementally, in
May 2000, the Board of Directors authorized the Fund to repurchase up to an
additional 1,000,000 shares of the Fund's common stock, bringing to 3,000,000
the aggregate number of shares authorized for repurchase. During the year ended
December 31, 2000, the Fund repurchased a total of 1,931,400 shares of its
common stock. (For details regarding shares repurchased by the Fund, see Note E
to the financial statements.) In accordance with the Board's directions, the
Fund may from time to time repurchase additional shares of its common stock in
the open market.
Amendment of Bylaws
During May 2000, the Board of Directors of the Fund reviewed and approved
certain amendments to the Fund's bylaws that have been recommended by Maryland
counsel to the Fund. For example, the provisions relating to timely notice for
proposals to be brought before an annual meeting of stockholders (other than a
proposal under Rule 14a-8 of the Securities Exchange Act of 1934 to be included
in the Fund's proxy statement) have been amended. As amended, a stockholder's
notice generally must be delivered to the Fund not less than 90 days nor more
than 120 days prior to the first anniversary of the preceding year's annual
meeting. In addition, upon recommendation of the Fund's Maryland counsel, other
changes to certain bylaw provisions were made to conform to the bylaw provisions
of more recently incorporated Maryland corporations.
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THE INDIA FUND, INC.
Schedule of Investments December 31, 2000
India (100% of holdings)
COMMON STOCKS (99.94% of holdings)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Cement 2.02%
787,627 Associated Cement Companies Ltd........................... $ 1,813,573 $ 2,683,366
985,266 Gujarat Ambuja Cements Ltd................................ 4,338,440 3,337,702
1,462,700 India Cements Ltd......................................... 2,340,844 1,706,536
15,762 Madras Cements Ltd ....................................... 1,748,155 1,711,732
47,840 Panyam Cements and Mineral Industries Ltd+................ 481,082 131,516
443,630 Shree Cement Ltd+......................................... 947,396 550,379
------------ ------------
11,669,490 10,121,231
------------ ------------
Chemicals 0.17%
50 Atul Products Ltd+........................................ 93 13
22,919 Bayer (India) Ltd......................................... 838,579 291,312
846,600 BOC Ltd+.................................................. 1,072,264 544,204
------------ ------------
1,910,936 835,529
------------ ------------
Computer Hardware 0.17%
85,400 Digital Equipment (India) Ltd............................. 500,912 874,861
------------ ------------
500,912 874,861
------------ ------------
Computer Software & Programming 24.23%
46,450 DSQ Software Ltd.......................................... 294,188 390,899
646,854 Infosys Technologies Ltd.................................. 2,019,131 79,079,877
141,500 Rolta India Ltd........................................... 422,419 602,140
5,872,025 Satyam Computer Services Ltd.............................. 1,426,013 40,671,354
300 Silverline Technologies Ltd............................... 439 1,595
80,200 Trigyn Technologies Ltd................................... 760,364 479,275
------------ ------------
4,922,554 121,225,140
------------ ------------
Computer Training 7.44%
858,240 NIIT Ltd+................................................. 5,265,614 29,244,891
260,400 SSI Ltd................................................... 1,905,041 7,986,084
------------ ------------
7,170,655 37,230,975
------------ ------------
14
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Consumer Miscellaneous 1.87%
849,088 Bata India Ltd............................................ $ 3,914,352 $ 1,179,845
196,800 Timex Watches Ltd+........................................ 140,800 52,711
1,368,200 Zee Telefilms Ltd......................................... 9,391,165 8,120,664
------------ ------------
13,446,317 9,353,220
------------ ------------
Consumer Non-Durables 12.13%
161,624 Godfrey Philips India Ltd................................. 2,900,961 1,904,718
7,412,110 Hindustan Lever Ltd....................................... 24,210,174 32,772,421
1,355,184 ITC Ltd................................................... 23,135,184 26,035,097
------------ ------------
50,246,319 60,712,236
------------ ------------
Diversified Industries 3.39%
876,502 Grasim Industries Ltd..................................... 7,242,689 5,425,786
175 HMG Industries Ltd+*...................................... 359 4
1,744 Indian Rayon and Industries Ltd........................... 6,451 3,139
1,947,031 Larsen & Toubro Ltd....................................... 12,651,344 8,162,344
140,800 Larsen & Toubro Ltd GDR................................... 1,307,501 1,214,400
79,000 Sterlite Industries (India) Ltd........................... 261,112 260,258
112,000 Sterlite Optical Technologies Ltd+........................ 1,625,836 1,906,784
------------ ------------
23,095,292 16,972,715
------------ ------------
Electricity 0.00%
54 CESC Ltd+................................................. 342 29
150 Tata Power Company Ltd.................................... 797 316
------------ ------------
1,139 345
------------ ------------
Electronics & Electrical Equipment 2.19%
478,483 Alstom Power India Ltd+................................... 1,169,493 261,438
2,782,463 Bharat Heavy Electricals Ltd.............................. 13,117,338 9,747,862
1,096,550 Crompton Greaves Ltd+..................................... 5,784,838 671,980
703,943 KEC International Ltd..................................... 1,681,056 258,681
49 Siemens India Ltd......................................... 1,083 301
------------ ------------
21,753,808 10,940,262
------------ ------------
15
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Engineering 0.52%
458,876 Asea Brown Boveri Ltd..................................... $ 5,353,024 $ 2,585,418
2 Lakshmi Machine Works Ltd+................................ 393 45
------------ ------------
5,353,417 2,585,463
------------ ------------
Extractive Industries 2.79%
509,655 Hindalco Industries Ltd................................... 9,483,841 8,056,524
7,019,900 Hindustan Zinc Ltd........................................ 2,880,632 2,872,939
200 Indian Aluminium Company Ltd.............................. 1,144 493
2,773,050 National Aluminium Company Ltd............................ 3,515,181 3,033,302
600 Sesa Goa Ltd.............................................. 4,568 948
------------ ------------
15,885,366 13,964,206
------------ ------------
Fertilizers 0.18%
135,400 Aventis Cropscience India Ltd............................. 2,074,205 542,529
7,700 Chambal Fertilizers & Chemicals Ltd....................... 5,977 1,732
870 Hind Lever Chemicals Ltd.................................. 9,431 3,524
1,750 Nagarjuna Fertilizers & Chemicals Ltd..................... 1,911 347
50 Southern Petrochemicals Industries Corporation Ltd........ 43 11
200,300 United Phosphorous Ltd.................................... 757,471 343,776
------------ ------------
2,849,038 891,919
------------ ------------
Finance 0.00%
100 Bank of Baroda............................................ 190 97
50 ICICI Ltd++............................................... 105 101
2,300 Oriental Bank of Commerce................................. 2,099 1,703
------------ ------------
2,394 1,901
------------ ------------
Food 1.58%
84,500 Britannia Industries Ltd.................................. 1,154,418 1,456,616
197,726 Cadbury India Ltd ........................................ 2,454,234 2,392,243
123,590 International Bestfoods Ltd+.............................. 966,508 390,737
220,388 Nestle India Ltd.......................................... 2,368,756 2,591,814
250,000 Rahul Dairy and Allied Products+*......................... 79,643 6,696
50 Tata Tea Ltd.............................................. 539 237
553,300 United Breweries Ltd...................................... 3,044,239 1,078,858
------------ ------------
10,068,337 7,917,201
------------ ------------
16
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Hotels & Leisure 0.00%
121 Indian Hotels Company Ltd................................. $ 1,976 $ 610
------------ ------------
1,976 610
------------ ------------
Household Appliances 0.00%
100 IFB Industries Ltd+....................................... 97 10
500 Phil Corporation Ltd...................................... 1,366 155
200 Samtel Color Ltd.......................................... 395 143
450 Videocon Appliances Ltd................................... 2,629 132
519 Videocon International Ltd................................ 951 488
250 Voltas Ltd................................................ 507 236
------------ ------------
5,945 1,164
------------ ------------
Media 0.86%
193,000 Mukta Arts Ltd+........................................... 687,055 949,078
211,600 Pentamedia Graphics Ltd................................... 2,157,944 1,336,839
550,000 Pritish Nandy Communications Ltd+......................... 2,152,749 1,095,404
33,118 SRI Adhikari Brothers Television Network Ltd.............. 389,957 146,537
124,300 Television Eighteen India Ltd+............................ 3,301,937 690,748
250,000 Vans Information and Investor Services Ltd+............... 573,394 83,833
------------ ------------
9,263,036 4,302,439
------------ ------------
Packaging 0.05%
282,630 Flex Industries Ltd+...................................... 347,596 237,392
500 Universal Prime Aluminium+*............................... 789 22
------------ ------------
348,385 237,414
------------ ------------
Petroleum Related 1.91%
1,719,326 Chennai Petroleum Corporation Ltd......................... 3,202,971 1,134,674
433,360 Gas Authority of India Ltd................................ 445,753 478,209
2,628,578 Hindustan Petroleum Corporation Ltd....................... 17,929,786 7,933,045
820 Indian Petrochemicals Corporation Ltd..................... 1,740 1,101
------------ ------------
21,580,250 9,547,029
------------ ------------
17
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Pharmaceuticals 12.37%
310,000 Cadila Healthcare Ltd..................................... $ 1,777,523 $ 1,053,814
429,350 Cipla Ltd................................................. 3,438,874 9,604,027
1,790,000 Dabur India Ltd........................................... 1,496,133 2,596,593
540,022 Dr. Reddy's Laboratories Ltd.............................. 4,408,230 14,726,505
406,953 E. Merck (India) Ltd...................................... 2,546,521 3,772,185
4,550 Glaxo (India) Ltd......................................... 72,501 44,306
231,101 Hoechst Marion Roussel Ltd................................ 2,295,575 2,393,953
1,600 IPCA Laboratories Ltd..................................... 4,950 4,025
900,000 Morepen Laboratories Ltd.................................. 2,660,293 2,312,192
89,019 Novartis India Ltd........................................ 1,422,068 998,913
200 Orchid Chemicals & Pharmaceuticals Ltd.................... 677 446
50 Parke-Davis (India) Ltd................................... 506 288
1,110,397 Ranbaxy Laboratories Ltd.................................. 12,004,361 15,993,333
174,300 Rhone-Poulenc (India) Ltd................................. 2,450,055 2,813,374
423,300 Sun Pharmaceutical Industries Ltd......................... 967,042 4,881,963
89,019 Sygenta India Ltd+*....................................... 174,179 118,698
147,683 Torrent Pharmaceuticals Ltd............................... 1,365,130 553,772
------------ ------------
37,084,618 61,868,387
------------ ------------
Steel 1.97%
6,010 Essar Steel Ltd+.......................................... 23,144 869
3,529,876 Tata Iron and Steel Company Ltd........................... 14,585,913 9,840,087
------------ ------------
14,609,057 9,840,956
------------ ------------
Steel Products 0.20%
487,650 Bharat Forge Ltd.......................................... 2,078,001 1,027,649
------------ ------------
2,078,001 1,027,649
------------ ------------
Telecommunications 4.53%
3,400,000 Hughes Tele.com Ltd+...................................... 880,259 783,158
3,211,500 Mahanagar Telephone Nigam Ltd............................. 17,674,969 12,324,398
980,640 Videsh Sanchar Nigam Ltd.................................. 6,860,494 6,290,006
261,606 Videsh Sanchar Nigam Ltd ADR.............................. 6,219,228 3,253,725
------------ ------------
31,634,950 22,651,287
------------ ------------
18
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Telecommunications Equipment 6.46%
300 Bhagyanagar Metals Ltd.................................... $ 724 $ 329
295,258 Global Tele-Systems Ltd................................... 13,098,823 5,073,857
746,153 Himachal Futuristic Communications Ltd.................... 7,057,932 20,416,486
1,358,600 Shyam Telecom Ltd......................................... 8,955,126 6,857,044
------------ ------------
29,112,605 32,347,716
------------ ------------
Textiles - Cotton 0.05%
36 Arvind Mills Ltd+......................................... 133 10
100 H.P. Cotton Textile Mills Ltd+*........................... 233 11
500,000 Pantaloon Fashions (India)................................ 495,392 271,588
------------ ------------
495,758 271,609
------------ ------------
Textiles - Synthetic 7.24%
300 Haryana Petrochemicals Ltd+*.............................. 343 6
4,986,077 Reliance Industries Ltd................................... 21,957,535 36,217,701
5,800 SRF Ltd................................................... 15,613 2,722
------------ ------------
21,973,491 36,220,429
------------ ------------
Transportation 0.39%
2,232,484 Great Eastern Shipping Company Ltd........................ 1,669,954 1,679,027
175,000 South East Asia Marine Engineering
and Construction Ltd+................................ 1,132,781 255,732
------------ ------------
2,802,735 1,934,759
------------ ------------
Vehicle Components 0.45%
820,005 Cummins India Ltd ........................................ 1,953,050 1,468,876
125 FAG Bearings (India) Ltd.................................. 334 91
100 Gleitlager (India) Ltd+*.................................. 96 3
118,000 Swaraj Engines Ltd........................................ 1,298,970 761,678
------------ ------------
3,252,450 2,230,648
------------ ------------
19
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Vehicles 4.78%
1,790,462 Ashok Leyland Ltd......................................... $ 4,432,879 $ 1,678,438
175,125 Bajaj Auto Ltd............................................ 2,359,601 847,107
278,587 Hero Honda Motors Ltd..................................... 4,559,599 5,216,866
600 Hindustan Motors Ltd+..................................... 467 93
100 LML Ltd................................................... 178 64
940,189 Mahindra and Mahindra Ltd................................. 8,350,815 2,985,558
75,000 Mahindra and Mahindra Ltd GDR............................. 988,250 228,750
2,762,850 Punjab Tractors Ltd....................................... 6,441,601 10,948,985
470,550 Tata Engineering and Locomotive Company Ltd............... 911,568 886,251
363,700 TVS Suzuki Ltd............................................ 2,766,232 1,136,611
------------ ------------
30,811,190 23,928,723
------------ ------------
TOTAL COMMON STOCKS ...................................... 373,930,421 500,038,023
------------ ------------
20
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 2000
BONDS (0.06% of holdings)
Par Value Percent of
(000) Security Holdings Cost Value
----------------------------------------------------------------------------------------------------------
Diversified Industries 0.06%
INR 4,220 DCM Shriram Consolidated NCD 13.00%,
11/6/01*............................................. $ 134,584 $ 100,611
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/02*............................................. 130,627 97,651
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/03*............................................. 130,627 97,651
------------ ------------
395,838 295,913
------------ ------------
TOTAL BONDS............................................... 395,838 295,913
------------ ------------
TOTAL INDIA............................................... 374,326,259 500,333,936
------------ ------------
TOTAL INVESTMENTS** ................................100.00% $374,326,259 $500,333,936
============ ============
See page 22 for Footnotes and Abbreviations.
21
THE INDIA FUND, INC.
Schedule of Investments (concluded) December 31, 2000
Footnotes and Abbreviations
ADR - American Depository Receipts
GDR - Global Depository Receipts
INR - Indian Rupee
NCD - Non Convertible Debenture
+ Non-income producing security.
++ Passive Foreign Investment Company.
* At fair value as determined under the supervision of the Board
of Directors.
** Aggregate cost for Federal income tax purposes is
$374,929,677.
The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows:
Excess of value over tax cost $ 220,382,622
Excess of tax cost over value (94,978,363)
-------------
$ 125,404,259
=============
See accompanying notes to financial statements.
22
THE INDIA FUND, INC.
(This page intentionally left blank.)
23
THE INDIA FUND, INC.
Statement of Assets and Liabilities December 31, 2000
ASSETS
Investments, at value (Cost $374,326,259) .............................. $ 500,333,936
Cash (including Indian Rupees of $5,038,056 with a cost of $5,031,524) .. 4,529,551
Receivables:
Dividends and reclaims of excess taxes withheld .................... 548,656
Interest (net of withholding tax of $2,219) ........................ 17,073
Securities sold .................................................... 3,166,346
Prepaid expenses ........................................................ 116,957
-------------
Total Assets .................................................... 508,712,519
-------------
LIABILITIES
Payable for securities purchased ........................................ 2,675,892
Payable for Fund shares repurchased ..................................... 302,594
Due to Investment Manager ............................................... 490,908
Due to Administrator .................................................... 94,789
Accrued expenses ........................................................ 378,962
-------------
Total Liabilities ........................................... 3,943,145
-------------
Net Assets .................................................. $ 504,769,374
=============
NET ASSET VALUE PER SHARE ($504,769,374/31,203,333
shares issued and outstanding) .............................. $ 16.18
=============
NET ASSETS CONSIST OF:
Capital stock, $0.001 par value; 34,007,133 shares issued
(100,000,000 shares authorized) .................................... $ 34,007
Paid-in capital ......................................................... 460,635,809
Cost of 2,803,800 shares repurchased .................................... (36,319,982)
Accumulated net investment loss ......................................... (62,320)
Accumulated net realized loss on investments ............................ (45,403,056)
Net unrealized appreciation in value of investments, foreign
currency holdings and on translation of other assets and liabilities
denominated in foreign currency .................................... 125,884,916
-------------
Net Assets .................................................. $ 504,769,374
=============
See accompanying notes to financial statements.
24
THE INDIA FUND, INC.
For the Year Ended
Statement of Operations December 31, 2000
Investment Income
Dividends ..................................................... $ 5,616,733
Interest (net of Indian taxes withheld of $7,402) ............. 64,651
-------------
Total investment income ............................ 5,681,384
-------------
Expenses
Management fees ................................. $ 7,443,915
Administration fees ............................. 1,377,219
Custodian fees .................................. 948,159
Legal fees ...................................... 310,899
Insurance ....................................... 269,691
Audit fees ...................................... 208,580
Transfer agent fees ............................. 51,961
Directors' fees ................................. 48,750
NYSE fees ....................................... 32,340
Printing ........................................ 16,000
Interest expense ................................ 14,992
Miscellaneous expenses .......................... 34,299
-------------
Total expenses ..................................... 10,756,805
-------------
Net investment loss ................................ (5,075,421)
-------------
Net Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency Holdings and Translation of Other Assets
and Liabilities Denominated in Foreign Currency:
Net realized gain (loss) on:
Security transactions ..................................... 94,378,564
Foreign currency related transactions ..................... (719,536)
-------------
93,659,028
Net change in unrealized depreciation in value of investments,
foreign currency holdings and translation of other assets
and liabilities denominated in foreign currency ........... (325,968,238)
-------------
Net realized and unrealized loss on investments, foreign
currency holdings and translation of other assets and
liabilities denominated in foreign currency ............... (232,309,210)
-------------
Net decrease in net assets resulting from operations .......... ($237,384,631)
=============
See accompanying notes to financial statements.
25
THE INDIA FUND, INC.
Statement of Changes in Net Assets
For the Year For the Year
Ended Ended
December 31, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss ................................................. $ (5,075,421) $ (3,284,703)
Net realized gain on investments and foreign currency
related transactions ............................................ 93,659,028 42,168,620
Net change in unrealized appreciation (depreciation)
in value of investments, foreign currency holdings
and translation of other assets and liabilities denominated
in foreign currency ............................................. (325,968,238) 438,817,690
------------- -------------
Net increase (decrease) in net assets resulting from operations ..... (237,384,631) 477,701,607
------------- -------------
Capital Share Transactions
Shares repurchased under Stock Repurchase Plan
(1,931,400 shares and 830,700 shares respectively) .............. (26,793,808) (9,276,977)
------------- -------------
Net decrease in net assets resulting from capital share transactions (26,793,808) (9,276,977)
------------- -------------
Total increase (decrease) in net assets ............................. (264,178,439) 468,424,630
NET ASSETS
Beginning of year ................................................... 768,947,813 300,523,183
------------- -------------
End of year ......................................................... $ 504,769,374 $ 768,947,813
============= =============
See accompanying notes to financial statements.
26
THE INDIA FUND, INC.
Financial Highlights
For a Share Outstanding throughout Each Period
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996
------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year .. $ 23.21 $ 8.85 $ 8.11 $ 7.56 $ 8.94
------------- ------------- ------------- ------------- -------------
Net investment income (loss) ........ (0.16) (0.10) (0.03) (0.03) 0.02
Net realized and unrealized gain
(loss) on investments, foreign
currency holdings, and translation
of other assets and liabilities
denominated in foreign currency ... (7.27) 14.36 0.77 0.58 (1.39)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) from
investment operations ............. (7.43) 14.26 0.74 0.55 (1.37)
------------- ------------- ------------- ------------- -------------
Less: Dividends and Distributions
Dividends from net investment
income ............................ -- -- -- -- (0.01)
------------- ------------- ------------- ------------- -------------
Total dividends and distributions ... -- -- -- -- (0.01)
------------- ------------- ------------- ------------- -------------
Capital share transactions
Anti-dilutive effect of Share
Repurchase Program ................ 0.40 0.10 -- -- --
------------- ------------- ------------- ------------- -------------
Total capital share transactions .... 0.40 0.10 -- -- --
------------- ------------- ------------- ------------- -------------
Net asset value, end of year ........ $ 16.18 $ 23.21 $ 8.85 $ 8.11 $ 7.56
============= ============= ============= ============= =============
Per share market value, end of year . $ 12.0625 $ 16.7500 $ 6.3125 $ 7.3750 $ 7.6250
Total Investment Return Based
on Market Value * ................. (27.99)% 165.35% (14.41)% (3.28)% (14.08)%
Ratios/Supplemental Data
Net assets, end of year (in 000s) ... $ 504,769 $ 768,948 $ 300,523 $ 275,814 $ 257,156
Ratios of expenses to average
net assets ........................ 1.59% 1.84% 2.03% 1.98% 2.03%+
Ratios of net investment income
(loss) to average net assets ...... (0.75)% (0.68)% (0.34)% (0.37)% 0.22%+
Portfolio turnover .................. 19.24% 18.65% 28.85% 42.61% 33.57%
See page 28 for footnotes.
27
THE INDIA FUND, INC.
Financial Highlights (concluded)
For a Share Outstanding throughout Each Period
* Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions or
sales charges and is not annualized.
+ Includes expense waivers by the Custodian. If such expenses had not been
waived, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets would have been 2.12% and 0.13%,
respectively, for the year ended December 31, 1996.
See accompanying notes to financial statements.
28
THE INDIA FUND, INC.
Notes to Financial Statements December 31, 2000
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The India Fund, Inc. (the "Fund") was incorporated in Maryland on December 27,
1993, and commenced operations on February 23, 1994. The Fund operates through a
branch in the Republic of Mauritius. The Fund is registered under the Investment
Company Act of 1940, as amended, as a closed-end, non-diversified management
investment company.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Portfolio Valuation. Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at:
(i) the last sales price prior to the time of determination, if there
was a sale on the date of determination,
(ii) at the mean between the last current bid and asked prices, if there
was no sales price on such date and bid and asked quotations are
available, and
(iii) at the bid price if there was no sales price on such date and only
bid quotations are available.
Securities that are traded over-the-counter are valued, if bid and asked
quotations are available, at the mean between the current bid and asked prices.
Securities for which sales prices and bid and asked quotations are not available
on the date of determination may be valued at the most recently available prices
or quotations under policies adopted by the Board of Directors. Investments in
short-term debt securities having a maturity of 60 days or less are valued at
amortized cost which approximates market value. Securities for which market
values are not readily ascertainable, which totaled $421,353 (0.08% of net
assets) at December 31, 2000, are carried at fair value as determined in good
faith by or under the supervision of the Board of Directors. The net asset value
per share of the Fund is calculated weekly and at the end of each month.
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 reporting purposes. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date or, using reasonable
diligence, when known. The collectibility of income receivable from Indian
securities is evaluated
29
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 2000
periodically, and any resulting allowances for uncollectible amounts are
reflected currently in the determination of investment income.
Tax Status. 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 that will be
sufficient to relieve it from all or substantially all Federal income and excise
taxes.
At December 31, 2000, the Fund had a capital loss carryover of $44,799,638 which
is available to offset future net realized gains on securities transactions to
the extent provided for in the Internal Revenue Code. Of the aggregate capital
losses, $9,970,780 will expire in 2005 and $34,828,858 will expire in 2006.
During the year ended December 31, 2000, the Fund utilized $94,674,686 of
capital loss carried forward from prior periods.
The Fund's foreign exchange losses incurred after October 31, 2000, but before
December 31, 2000, are deemed to arise on the first business day of the
following year. The Fund incurred and elected to defer such foreign exchange
losses of approximately $62,320.
Foreign Currency Translation. 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
prevailing rates of exchange on the valuation date; and
(ii) purchases and sales of investment securities and investment income
at the relevant rates of exchange prevailing on the respective dates
of such transactions.
The Fund generally does not isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities. However, the Fund does isolate the effect of fluctuations in foreign
currency rates when determining the gain or loss upon the sale of foreign
currency denominated debt obligations pursuant to U.S. Federal income tax
regulations; such amounts are categorized as foreign currency gains or losses
for federal income tax purposes. The Fund reports certain realized foreign
exchange gains and losses as components of realized gains and losses for
financial reporting purposes, whereas such amounts are treated as ordinary
income for Federal income tax reporting purposes.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange. Foreign security and
currency transactions may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among
30
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 2000
other factors, the level of governmental supervision and regulation of foreign
securities markets and the possibility of political or economic instability, and
the fact that foreign securities markets may be smaller and have less developed
and less reliable settlement and share registration procedures.
Distribution of Income and Gains. The Fund intends to distribute annually to
shareholders, substantially all of its net investment income, including foreign
currency gains, and to distribute annually any net realized gains after the
utilization of available capital loss carryovers. An additional distribution may
be made to the extent necessary to avoid payment of a 4% Federal excise tax.
Distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized capital gains. To
the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of additional paid-in capital.
During the period ended December 31, 2000, the Fund reclassified
$719,536 from accumulated net realized loss on investments to accumulated net
investment loss as a result of permanent book and tax differences relating
primarily to realized foreign currency losses and reclassified $5,805,151 from
accumulated net investment loss to paid-in capital as a result of permanent tax
differences relating to the net operating loss for the year ended December 31,
2000. Net investment loss and net assets were not affected by the
reclassifications.
NOTE B: MANAGEMENT, INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
Advantage Advisers, Inc. ("Advantage"), a subsidiary of CIBC World Markets Corp.
("CIBC WM"), serves as the Fund's Investment Manager (the "Investment Manager")
under the terms of a management agreement (the "Management Agreement").
Infrastructure Leasing & Financial Services Limited ("ILFS") serves as the
Fund's Country Adviser (the "Country Adviser") under the terms of an advisory
agreement (the "Country Advisory Agreement"). Pursuant to the Management
Agreement, the Investment Manager supervises the Fund's investment program and
is responsible on a day-to-day basis for investing the Fund's portfolio in
accordance with its investment objective and policies. Pursuant to the Country
Advisory Agreement, the Country Adviser furnishes advice and makes
recommendations to the Investment Manager regarding the purchase, sale or
holding of particular Indian securities, provides research and statistical data
to the Fund and assists in the implementation
31
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 2000
and execution of investment decisions. For its services, the Investment Manager
receives monthly fees at an annual rate of 1.10% of the Fund's average weekly
net assets and the Country Adviser receives from the Investment Manager monthly
fees at an annual rate of 0.20% of the Fund's average weekly net assets. For the
year ended December 31, 2000, fees earned by the Investment Manager amounted to
$7,443,915, of which the Investment Manager informed the Fund it paid $1,353,439
to ILFS.
Because affiliations between ILFSand the Indian Government have precluded the
Fund from making certain investments, the Board of Directors at its February
2001 meeting authorized the Fund to terminate its agreement with ILFS. The Board
of Directors also approved a new subadvisory agreement between Advantage and
Advantage India, Inc. and directed the Fund to submit the new agreement to
stockholders for approval at the 2001 annual meeting of stockholders.
CIBC WM, an indirect wholly-owned subsidiary of Canadian Imperial Bank of
Commerce, serves as the Fund's Administrator (the "Administrator"). The
Administrator provides certain administrative services to the Fund. For its
services, the Administrator receives a monthly fee at an annual rate of 0.20% of
the Fund's average weekly net assets. For the year ended December 31, 2000,
these fees amounted to $1,353,439. The Administrator subcontracts certain of
these services to PFPC, Inc. In addition, Multiconsult Ltd. (the "Mauritius
Administrator") provides certain administrative services relating to the
operation and maintenance of the Fund in Mauritius. The Mauritius Administrator
receives a monthly fee of $1,500 and is reimbursed for certain additional
expenses. For the year ended December 31, 2000, fees and expenses of the
Mauritius Administrator amounted to $23,780. At December 31, 2000, CIBC WM owned
7,133 shares of the Fund's common stock.
The Fund pays each of its directors who is not a director, officer or employee
of the Investment Manager, the Country Adviser or the Administrator or any
affiliate thereof an annual fee of $5,000 plus up to $700 for each Board of
Directors meeting attended. In addition, the Fund reimburses all directors for
travel and out-of-pocket expenses incurred in connection with Board of Directors
meetings.
NOTE C: PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations, aggregated
$125,674,509 and $157,242,490 respectively, for the year ended December 31,
2000.
At December 31, 2000, the Fund owned securities valued at approximately $290,193
which were in the process of being registered in the name of the Fund or being
dematerialized. Significant delays are common in registering the transfer of
securities in India, and such transfers can take a year or longer. Indian
securities regulations normally preclude the Fund from selling such securities
until the completion of the registration or the dematerialization process, as
applicable.
32
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 2000
NOTE D: FOREIGN INCOME TAX
The Fund conducts its investment activities in India as a tax resident of
Mauritius and expects to obtain benefits under the double taxation treaty
between Mauritius and India. To obtain benefits under the double taxation
treaty, the Fund must meet certain tests and conditions, including the
establishment of Mauritius tax residence and related requirements. The Fund has
obtained a certificate from the Mauritian authorities that it is a resident of
Mauritius under the double taxation treaty between Mauritius and India. Under
current regulations, a fund which is a tax resident in Mauritius under the
treaty, but has no branch or permanent establishment in India, will not be
subject to capital gains tax in India on the sale of securities but was subject
to a 15% withholding tax on dividends declared, distributed or paid by an Indian
company prior to June 1, 1997. Effective June 1, 1997, dividend income from
domestic companies is exempt from Indian income tax. The Fund is subject to and
accrues Indian withholding tax on interest earned on Indian securities at the
rate of 20%.
The Fund will, in any year that it has taxable income for Mauritius tax
purposes, elect to pay tax on its net income for Mauritius tax purposes at any
rate between 0% and 35%. For the year ended December 31, 2000, no provision for
Mauritius taxes is considered necessary as a result of the net investment loss
incurred by the Fund.
The Indian tax authorities in March 2000 issued an assessment order ("March 2000
Assessment Order") with respect to the Fund's Indian income tax return filed for
the fiscal year ended March 31, 1997 denying the benefits of the tax treaty
between India and Mauritius. In the March 2000 Assessment Order, the Indian tax
authorities held that the Fund is not a resident of Mauritius and assessed tax
on the dividend income for the year ended March 31, 1997 at the rate of 20%
instead of the 15% rate claimed by the Fund under the tax treaty between India
and Mauritius. Similar assessment orders were issued to several other mutual
fund companies relying on the tax treaty between India and Mauritius. On April
13, 2000, the Central Board of Direct Taxes ("CBDT") of the Ministry of Finance
in India issued a circular ("Circular 789") "clarifying" their position on the
Indian taxation under the India-Mauritius tax treaty that wherever a certificate
of residence is issued by the Mauritian authorities, such certificate will
constitute sufficient evidence for accepting the status of residence as well as
beneficial ownership for applying the tax treaty between India and Mauritius.
The Fund, relying on Circular 789 and in absence of a rectification order from
the assessing officer, filed an appeal against the March 2000 Assessment Order
with the Indian income tax authorities. A hearing on the appeal filed by the
Fund is scheduled for March 19, 2001. Further, litigation has been initiated by
a public interest group in India in the courts challenging the CBDT circular
which is currently unresolved. No provision for additional income taxes of 5%
that may be payable with respect to dividends declared, paid or distributed
prior to June 1, 1997 earned by the
33
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 2000
Fund and on net realized gains and unrealized appreciation to date is considered
necessary in view of Circular 789. To the extent that it is later determined
that the Fund would be unable to obtain the benefits of the treaty, the Fund
would be subject to tax on capital gains in India on the sale of securities,
which is at the rates of 10% on long-term and 30% on short-term capital gains,
and could be subject to the applicable tax on dividends declared, distributed or
paid prior to June 1, 1997, which was at the rate of 20%.
The foregoing is based on current interpretation and practice and is subject to
any future changes in Indian or Mauritius tax laws or in the tax treaty between
India and Mauritius.
NOTE E: CAPITAL STOCK
During the year ended December 31, 2000, the Fund purchased 1,931,400 shares of
capital stock on the open market at a total cost of $26,793,808. The weighted
average discount of these purchases, comparing the purchase price to the net
asset value at the time of purchase, was 32.02%. These shares were purchased
pursuant to the Fund's Stock Repurchase Plan previously approved by the Fund's
Board of Directors authorizing the Fund to purchase up to 2,000,000 shares of
its capital stock. In addition, in May 2000, the Fund's Board of Directors
authorized the Fund to purchase an additional 1,000,000 shares of its capital
stock, bringing to 3,000,000 the aggregate number of shares authorized for
repurchase.
During the year ended December 31, 1999, the Fund purchased 830,700 shares of
capital stock at a total cost of $9,276,977 and at a weighted average discount
of 27.07%.
Subsequent to December 31, 2000, the Fund made additional purchases aggregating
105,000 shares of capital stock in the open market at a total cost of
$1,389,213. The weighted average discount of these purchases was 23.10%.
NOTE F: CONCENTRATION OF RISKS
At December 31, 2000, substantially all of the Fund's net assets were invested
in Indian securities. The Indian securities markets are among other things
substantially smaller, less developed, less liquid, subject to less regulation
and more volatile than the securities markets in the United States.
Consequently, and as further discussed above, acquisitions and dispositions of
securities by the Fund involve special risks and considerations not present with
respect to U.S. securities. At December 31, 2000, the Fund had a concentration
of its investment in computer and technology-related industries. The values of
such investments may be affected by changes in such industry sectors.
34
THE INDIA FUND, INC.
Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE INDIA FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The India Fund, Inc. (the "Fund")
at December 31, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 13, 2001
35
THE INDIA FUND, INC.
Dividends and Distributions
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially all of its
net investment income, and to distribute any net realized capital gains at least
annually. Net investment income for this purpose is income other than net
realized long and short-term capital gains net of expenses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
The Bank of New York (the "Plan Agent") in Fund shares pursuant to the Plan,
unless such shareholders elect to receive distributions in cash. Shareholders
who elect to receive distributions in cash will receive all distributions in
cash paid by check in dollars mailed directly to the shareholder by The Bank of
New York, as dividend paying agent. In the case of shareholders such as banks,
brokers or nominees, that hold shares for others who are beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of shares
certified from time to time by the shareholders as representing the total amount
registered in such shareholders' names and held for the account of beneficial
owners that have not elected to receive distributions in cash. Investors that
own shares registered in the name of a bank, broker or other nominee should
consult with such nominee as to participation in the Plan through such nominee,
and may be required to have their shares registered in their own names in order
to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. 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 shares to participants at net asset value; provided,
however, that if the net asset value is less than 95% of the market price on
valuation date, then such shares will be issued at 95% of the market price. The
valuation date will be 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 net asset value exceeds the market price of Fund shares at such time, or
if the Fund should declare an income dividend or capital gains distribution
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. If, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the distribution had been paid in shares
issued by the Fund on the dividend payment date.
36
THE INDIA FUND, INC.
Dividends and Distributions (continued)
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Because of the forgoing difficulty with respect to open market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and shareholders will receive the
uninvested portion of the dividend amount in newly issued shares at the close of
business on the last purchase date.
Participants have the option of making additional cash payments to the Plan
Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Fund shares in the open market on or about February 15.
Any voluntary cash payment received more than 30 days prior to this date will be
returned by the Plan Agent, and interest will not be paid on any uninvested cash
payment. 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
ten days before an applicable purchase date specified above. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an 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.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments 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 or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant. 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
commissions thus attainable.
37
THE INDIA FUND, INC.
Dividends and Distributions (continued)
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax that may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, 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 members of the Plan at
least 30 days before the record date for such dividend or distribution. 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 participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
101 Barclay Street, New York, New York 10286.
38
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