Advantage Advisers,Inc.
The India Fund, Inc.
Annual Report
December 31, 2001
THE INDIA FUND, INC.
THE INDIA FUND, INC.
February 18, 2002
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, 2001. In the
following pages, the Fund's Investment Manager provides a detailed look at the
Fund's sector allocations and investments, as well as the economic and market
conditions in India for the recently closed year.
The Fund's net asset value (NAV) declined (25.8%) during the 12 months ended
December 31, 2001, underperforming both its benchmark, the IFC Investable Index,
which fell (17.9%) and the Dollex Index of 200 leading Indian stocks, which
dropped (24.25%) during the period.
The period was fraught with one-of-a-kind events. Soon after February's budget
announcement, reports of three separate scandals rocked investor sentiment.
Then, like the rest of the world, India's market was shocked by the September 11
tragedy. Finally, on December 13, terrorists killed 14 people in the Indian
Parliament, in an incident which led to a possible military engagement with
Pakistan.
In addition to the tribulations, 2001 brought several noteworthy positive
developments for the Fund. The Indian government moved forward with its
privatization measures during the fourth quarter demonstrating the nation's
commitment to the divestment process. Also, this year's monsoon season brought
welcome relief to the agricultural sector which had suffered through two years
of drought. This year's ample rainfall led, by extension, to growth in a number
of sectors which are directly and indirectly related to agriculture.
The Investment Manager believes that the Indian market environment is poised to
improve in the coming months. An improvement in the U.S. and global economies
has the potential to boost the nation's economy and its equity markets. Also,
the Investment Manager believes that further advances in the government's
privatization process can directly result in faster
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THE INDIA FUND, INC.
economic growth. These catalysts have the potential to create exciting
opportunities in Indian equities.
On behalf of the Board of Directors, we thank you for your participation and
continued support of the Fund. If you have any questions, please do not hesitate
to call our toll-free number, (800) 421-4777.
Sincerely,
/s/ BRYAN McKIGNEY
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, 2001
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OVERVIEW OF INDIA'S STOCK MARKET
It was a difficult year for the Indian equity market, as both global and
domestic events created extremely challenging market conditions. Indeed, it was
a tough year for almost all international equity markets but India was
particularly disappointing, since so much of the damage during the year was, for
the most part, related to the regulatory and political landscape and not to
problems with corporate earnings or interest rates. For calendar year 2001, the
Dollex Index of India's 200 leading companies declined (24.25%) while the IFC
Index, the Fund's key benchmark, dropped (17.9%). The net asset value ("NAV") of
The India Fund, Inc. (the "Fund") declined (25.8%) during the 12 months ended
December 31, 2001.
The year began on a promising note. U.S. equity markets rallied in January 2001,
boosted by the Fed's first round of interest rate cuts, and the Indian market
(along with most other Asian markets) followed suit. In February, the government
announced an impressive, investor-friendly 2001-2002 Budget, to which the market
also responded positively.
Unfortunately, the next seven months were all downhill. In early March, a stock
market scandal was uncovered involving more than 20 high profile brokers engaged
in criminal manipulation of share prices. Although the stock market regulator,
the Securities and Exchange Board of India (SEBI), responded quickly and
effectively, the damage to market sentiment was extensive. Moreover, within
weeks, a second scandal erupted when members of the Indian Defense Ministry were
videotaped accepting bribes for agreeing to make certain purchases. As this was
directly government-related, many investors initially felt the ruling Bhartiya
Janata Party (BJP) could fall as a result of the scandal. Instead, quick action
by the government - including the appointment of a commission to investigate the
incident - saved the government from serious damage, although one party, the
Trinamul Congress party, did withdraw from the ruling coalition.
On July 2, 2001, scandal broke out at the Unit Trust of India ("UTI"), the
country's largest state-owned mutual fund. Several officials were arrested on
charges of defrauding the US64 Fund of millions of dollars, which prompted the
UTI temporarily to suspend redemptions from the US64 Fund for the rest of 2001.
Although it had been suspected for some time that the NAV of US64 was
overstated, the scandal was nevertheless a huge blow, rattling the confidence of
India's retail investors.
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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.
In the wake of these incidents, the Indian market drifted down gradually during
the third quarter until the September 11 tragedy, which, in line with equity
markets worldwide, caused the Indian market to plunge almost (20%), within 10
days. It was at this point, however, that the Indian equity market staged a
remarkable comeback, rallying 32% from September 21 to December 10, 2001.
Although much of this rally was attributable to the U.S. markets' equally
stunning gains, we believe that a number of pro-reform government initiatives
that were launched in the period helped as well. These initiatives included: 1)
measures to improve stock market liquidity, and 2) a revival of the government's
privatization program, both of which strongly helped market sentiment.
Finally, the year ended with more terrorist violence when on December 13, a
group of heavily-armed men opened fire in the Indian parliament, killing 14
people. Although initially it appeared that India and Pakistan could come to
military engagement over the incident, as of this writing, the tensions appear
to be defusing. The market, which fell (8%) in the two weeks following the
incident, had regained almost the entire loss by the time of this writing,
suggesting, in our opinion, that investors may believe the situation will be
normalized without full-scale hostilities erupting on both sides.
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POLITICS
Indian politics had an eventful year marked by scandals, revived reform efforts,
and ending with a terrorist attack.
The year got off to a promising start, with the Finance Ministry announcing a
2001-2002 Budget that impressed the market with its focus on boosting foreign
investment, accelerating privatization, and reducing the budget deficit. The
positive impact on sentiment, however, was short-lived. Within weeks of the
announcement, the market was hit with two separate scandals. The first involved
criminal manipulation of the stock market which nearly lead to a payments crisis
at the Calcutta Stock Exchange (CSE). The second was a bribery scandal involving
several prominent figures of the Indian Defense Ministry, where several senior
members of the ruling BJP party were videotaped receiving bribes for agreeing to
make certain purchases. The second scandal was more serious in terms of its
direct negative impact on the government. Swift action by the BJP - including
several high-end resignations and the appointment of an investigative committee
- contained the damage, but nevertheless the repercussions lingered, as
reflected in victories won by the ruling party's opposition in the states of
Kerala and Assam in mid-May.
On July 2, 2001, another shock hit the Indian market when Unit Trust of India
(UTI), India's largest mutual fund, announced that it would freeze all
sales/purchases for its largest fund, US64, until December 2001. UTI is a
state-owned institution with assets of approximately US$10.7 billion as of
September 30, 2001 and a domestic shareholder base of 40 million investors.
Several UTI officials were immediately arrested on charges of defrauding the
US64 fund. Since then, UTI has lifted its freeze for limited purchases (up to
3,000 units), and a staggered redemption schedule has been set up for 2002. In
addition, there are signs that the government will cover any losses resulting
from fraud or mismanagement. Despite its somewhat favorable resolution, in our
opinion, the UTI incident was another black eye for the government, and that
fund's financial future continues to be a concern, especially in terms of its
potential negative impact on India's budget deficit.
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THE INDIA FUND, INC.
By the third quarter 2001, it appeared that the government's attention had been
hopelessly diverted away from its asset divestment and reform program.
Fortunately, this did not prove to be the case, as the government responded in
the final quarter of the year with much needed, bold reform measures. First, in
September, in a bid to increase stock market volumes, the government: (a) raised
the foreign institutional investor ("FII") limit to match the existing foreign
direct investment ("FDI") limits; (b) introduced margin trading; and (c) relaxed
certain share buyback requirements for issuers. In November, the government also
introduced a stock futures market in order to boost liquidity.
An extremely noteworthy event for investors was the government's return to its
agenda for privatization, which occurred near the end of 2001. The government
has achieved some measurable progress in this area having already successfully
privatized two major entities. We believe that the re-emergence of the
divestment program is perhaps the strongest sign yet that the government has
moved past the scandals of the past 12 months, and is moving into 2002 with new
momentum.
Unfortunately, a new source of tension arose near the end of the fourth quarter.
On December 13, 2001, a heavily armed group opened fire in the Indian
Parliament, killing 14 people. The Indian government claims it has solid
evidence linking Pakistani-based terrorist groups with the attacks. India has
severed transportation and diplomatic links with Pakistan while both countries
have mobilized their armies. Alarmed, the international community, led by the
United States, sought compliance from Pakistan and cool-headedness from India.
As this commentary goes to publication, the standoff between India and Pakistan
continues, although it looks increasingly likely that the two countries will
avoid a military engagement. Pakistan's military-led government has arrested the
leaders of the two groups India blames for the attack (Lashkar-e-Taiba and
Jaish-e-Muhammad) along with about a hundred of their followers and frozen their
accounts. There is talk of a meeting between Indian and Pakistani officials, and
neither country wants war. Although the crisis is far from over, we believe
there will be a satisfactory ending to the current predicament, without any harm
done to the economy or the stock market.
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ECONOMY
The Indian economy slowed significantly during calendar year 2001, dragged down
by a very weak industrial sector. For the first nine months of 2001, that sector
saw average growth of only 2.6% year-on-year. By contrast, India's industrial
growth averaged 7.1% per annum from April 1995 through December 2000. As a
result, India's GDP averaged 4.9% growth from April 1 through September 30, 2001
(the first half of its fiscal year), compared to 6.1% in the comparable period
of 2000.
There were a number of reasons for India's weak economic performance in 2001,
including: (a) declining investment, due at least partly to stalled government
reform efforts; (b) weak global capital spending especially in the IT and
software sectors; and (c) residual effects of poor monsoons in 1999 and 2000.
Also disappointing was the government's inability to keep the fiscal deficit on
track. At the end of November 2001, the Indian government had only managed to
achieve 41% of its tax revenue target, putting it in severe jeopardy of missing
its budgeted fiscal deficit target, 4.7% of Gross Domestic Product ("GDP"). For
the fiscal year ending March 31, 2002, the deficit should close the year at
approximately 5.6%-5.8% of GDP, according to current consensus estimates.
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THE INDIA FUND, INC.
Nevertheless, it was not all bad news for the Indian economy in 2001. First,
after two consecutive years of disappointing rains, 2001's good monsoon season
(which runs from May to September) was a very positive event for investors. The
rains were not only timely, but approximately 30% above normal levels, with
reasonable dispersion. Given that almost 30% of India's GDP and nearly
two-thirds of its labor force are directly linked to agriculture, a good monsoon
season impacts not only agricultural output, but even more importantly, rural
incomes.
Although India is often viewed as a relatively insular economy because of its
closed capital account and low ratio of exports-to-GDP (i.e., 10%), it is, in
fact, not immune to global forces. Like the rest of Asia, the Indian economy
also suffered from decelerating export growth during the year. From April
through November 2001, India's exports rose only 0.5% year-on-year to US$28.85
billion compared to US$28.7 billion in the year-earlier period. Imports, by
contrast, rose 1.2% to US$34.7 billion from US$34.3 billion in the year-earlier
period. Assuming the global economy can recover next year, we do expect exports
to stage a rebound. India has seen double-digit export growth over the past two
years, and it has become an increasingly important "swing factor" in terms of
the country achieving its targeted GDP growth. In addition, during 2001, the
Indian economy saw many of the same underlying economic trends that pervaded the
entire Asian region, including:
LOW INFLATION - Wholesale price inflation in India hovered near a two-decade low
during 2001. Lower import duties, falling global commodity prices, huge stocks
of food grains, and a lack of pricing power by manufacturers all contributed to
lower inflation.
DECLINING INTEREST RATES - With a weakening economy and no threat of inflation,
the Reserve Bank of India ("RBI") slashed interest rates to levels not seen in
decades. The Cash Reserve Requirement ("CRR") ratio was reduced by a total of
250 basis points to 5.5% and the key interest rate at which RBI lends to banks
was cut 150 basis points to 6.5%. As Indian banks have generally been quicker to
drop deposit rates compared to lending rates, the net result has been positive
for bank margins.
STABLE CURRENCY - The rupee remained relatively stable during the year,
bolstered by positive FDI and portfolio inflows. The currency depreciated (3.3%)
for the year, attributable mainly to two atypical events. The bulk of the
depreciation occurred in September, in the wake of the World Trade Center
tragedy and in the final two weeks of the year, in response to the terrorist
attack in the Indian Parliament.
FALLING OIL PRICES - As an oil importing country, India benefited from 2001's
low oil prices. At times, oil was trading as much as 40% lower than the high
prices it had reached earlier in the year. It is estimated that every
$1-per-barrel drop in crude oil reduces India's import bill by $365 million.
Looking ahead to 2002, we see no reason to think that these positive trends -
namely, low inflation, low interest rates, stable currency, and low oil prices -
should not continue, at least in the short-term. Given this reasonably positive
backdrop, we believe a revival in economic growth in 2002 will result from two
likely catalysts: (a) a potential recovery in the U.S. and global economies
which, in our opinion, could happen by mid-year and (b) the Indian government's
anticipated return to its deregulation and asset privatization schedule.
In our opinion, the Indian government's deregulation and asset privatization
efforts in 2002 will be the key issue for investors. As already highlighted,
efforts were hindered in 2001 when various scandals diverted the government's
attention. We believe, however, that recent events give reason for
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THE INDIA FUND, INC.
optimism going forward. The government announced in October 2001 its plans to
divest 13 state-owned companies by the end of the fiscal year ending, March 31,
2002. Encouragingly, already two of the 13 companies that were slated have been
sold: software services company CMC and Hindustan Teleprinters Ltd. ("HTL").
Although the sales are not a major windfall for the treasury - approximately
US$2.5 billion in proceeds are expected - we believe that the government hopes
to use its achievements with these divestments to regain credibility with
foreign investors. Thus, in our opinion, disinvestment appears to be back on the
agenda for the Indian government.
Investors are also monitoring the deregulation progress in the oil sector. Under
the current schedule, privatization is anticipated to be completed by April
2002, so investors are keeping a careful eye on the process, to make sure it
remains on track.
We remain cautiously optimistic, noting that if the current full divestment
scheme unfolds on course, we believe it could help kick-start investment demand,
providing an excellent start for the first quarter of 2002. In addition to
reviving its disinvestments scheme, the government has announced that it is also
launching its tenth five-year plan in 2002, which will emphasize increased
spending on infrastructure development. As reported, the plan will also attempt
to raise the tax-to-GDP ratio (currently lower than 10%) through expansion of
the tax base.
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PERFORMANCE
The Fund declined (25.8%) during the 12 months ended December 31, 2001
underperforming both the Dollex Index of India's 200 leading stocks, which
dropped (24.25%) during the period, and the IFC Investable, the Fund's
benchmark, which fell (17.9%) during the same time period.
During 2001, information provider Standard & Poor's (S&P) purchased the IFC
Investable and IFC Global indices and made significant changes to them. In
particular, S&P increased the Information Technology (IT) weighting in the IFC
Investable by 5.8% on November 1, 2001, at the beginning of a six-week rally in
Indian IT shares. The result was a significant performance disparity between the
two indices, which historically have tracked each other quite closely.
Until August 1, 2001, the Fund was restricted from investing in almost any bank
stock. This legal restriction was imposed on the Fund because of the affiliation
between its then country adviser in India and the Indian government. This
restriction did prove costly in the first half of 2001, when the banking sector
sharply outperformed the IFC Investable Index (the Fund's benchmark). As of
August 1, 2001, the restriction had no longer applied, since the Fund terminated
its agreement with the country adviser.
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PORTFOLIO STRATEGY
During 2001, the Fund sold several of its smaller-capitalization holdings in the
computer software & programming sector and the pharmaceuticals sector,
consolidating its holdings into the highest-quality names. The Fund also pared
down its telecommunications exposure, while increasing its weighting in selected
consumer non-durables and motor vehicles shares, which registered positive
earnings surprises during the year.
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THE INDIA FUND, INC.
The Fund also actively increased its weighting in the petroleum-related sector,
mainly the oil refining industry, which can benefit dramatically from the price
deregulation which is scheduled for April 2002. As already highlighted, the Fund
was restricted from purchasing bank stocks before August 2001. With the
restriction lifted, the Fund spent the last five months of 2001 selectively
building positions in bank stocks, which are believed to be very attractively
valued relative to their growth prospects.
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KEY SECTOR HOLDINGS
PERCENT OF NET ASSETS
SECTOR AS OF DECEMBER 31, 2001 TOP HOLDINGS
-------------------------------- ---------------------- ------------------------------
Computer Software & Programming 20.0% Infosys Technologies,
Satyam Computers
Consumer Non-Durables 15.3% Hindustan Lever, ITC
Pharmaceuticals 14.2% Ranbaxy Laboratories,
Dr. Reddy's Laboratories
Petroleum Related 12.6% Reliance Industries
Vehicles 7.2% Hero Honda Motors
Telecommunications &
Telecommunications Equipment 5.7% Mahanagar Telephone Nigam
Finance 3.9% State Bank of India
COMPUTER SOFTWARE & PROGRAMMING
Computer software & programming remains the highest-weighted sector in the Fund.
Indian IT companies continued to report solid earnings results in 2001, although
stock prices suffered from valuation contraction pressure as nervous investors
worried that future growth prospects were overly optimistic. By the end of 2001,
however, it appeared that the pessimists were overstating their case. Put
simply, we believe that the Indian software outsourcing trend remains intact and
that the highest-quality Indian companies (i.e., Infosys, Satyam) are able to
avoid margin pressure by moving up to higher value-added services.
Moreover, based on surveys conducted by government and other non-governmental
organizations, we believe that the demand outlook for Indian IT in 2002 looks
reasonably healthy. Since November 2001, the pace of activity has picked up
noticeably. Many foreign companies have announced that they will either: (a)
maintain 2001's level of work flow to Indian companies in the coming year; (b)
increase the workflow in 2002; or in several cases, (c) start using Indian IT
outsourcers for the first time. For the sector overall, most analysts are
forecasting 25%-30% top-line growth for 2002, in line with 2001 growth.
INFOSYS TECHNOLOGIES LTD., the Fund's largest holding, reported a 31% increase
in net profit for its second fiscal quarter ended September 30, 2001, to 2.01
billion rupees (Rs) from Rs 1.54 billion in the comparable year-earlier period.
The company's resilience has surprised many investors, as management has
reportedly been able to sign up new clients in Asia and Europe to offset the
slowing pace of orders from the U.S. In addition, despite industry pricing
pressure, the company's margins
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THE INDIA FUND, INC.
as reported have maintained relatively high levels, reflecting what we believe
to be excellent cost control and an improving product/services mix.
SATYAM COMPUTER SERVICES also announced an impressive second fiscal quarter
(three months ended September 30, 2001); net profit doubled to Rs 1.34 billion
from Rs 669.4 million. Satyam's earnings rose on the back of sharply increased
orders to implement software that helps businesses manage their inventory,
customer relations, accounting, and purchasing. Although Satyam has not been as
effective as Infosys in controlling its costs, the company's reported sales
growth has consistently exceeded most analysts' expectations.
CONSUMER NON-DURABLES
For Indian consumer non-durables companies, 2001 was marked by modest revenue
growth, largely a result of two consecutive years of drought conditions, which
negatively impacted rural incomes. The highest-quality companies, HINDUSTAN
LEVER and ITC LTD., were able to offset this difficulty with margin expansion,
by improving product mix and reducing costs. Moreover, following 2001's strong
growth in agriculture, we expect an improvement in sales volume momentum for
consumer non-durables.
HINDUSTAN LEVER, India's biggest consumer products company, sells through one
million shops in the country, with at least half of its line of soaps and
detergents sold in most of the country's 580,000 villages. Sales growth slowed
over the past two years while rural incomes were negatively impacted by drought
conditions in 1999 and 2000. This situation has caused the company to shift its
focus temporarily to margin expansion. Specifically, the company reportedly is
focusing on its top 30 brands of soap, detergent, and food products, either
disposing of or de-emphasizing the less popular names. During 2001, the strategy
was successful as earnings reported for the third fiscal quarter ended September
30, 2001 rose 20.5% to Rs 3.99 billion from Rs 3.31 billion in the year-earlier
period.
ITC LTD., India's biggest cigarette maker (which is 32% owned by British
American Tobacco, Ltd.) was hit by a 15% hike in excise duty in the February
2001 budget. The company passed the increase on to consumers. In a bid to
protect margins, the company reportedly spent 2001 focused on selling more of
its premium brands such as India Kings and Gold Flake, with reasonable success.
For its second fiscal quarter ended September 30, 2001, reported net profit rose
29% to Rs 3.34 billion from Rs 2.59 billion in the year-earlier period. The
company also reported deriving about 20% of its income from non-tobacco
businesses, including hotels, sportswear, and greeting cards.
PHARMACEUTICALS
The relative weighting in the pharmaceutical sector continues to climb, and now
stands at about 14.2% of the Fund. Indian pharmaceutical companies spent 2001
continuing to raise their international profile. We believe the next few years
will be very exciting, as a number of major patents in the U.S. are set to
expire through 2005. In addition, industry leaders such as DR. REDDY'S
LABORATORIES and RANBAXY LABORATORIES are increasing their own original research
and development (R&D) efforts, in an effort to build up a steady pipeline of
marketable pharmaceutical products. As with Computer Software & Programming, we
believe Pharmaceuticals is an industry where India holds key competitive
advantages, most notably, a large, low-cost pool of talented scientists and a
huge domestic market.
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THE INDIA FUND, INC.
DR. REDDY'S LABORATORIES had an exciting year in 2001, achieving two separate
milestones. It was the first Asian pharmaceutical company to list an American
Depositary Receipt ("ADR") in the U.S., and the first Asian pharmaceutical
company to be awarded a certificate which authorizes it to produce generic
versions of certain drugs. In its most recent earnings release, the company's
second-quarter earnings reported for the fiscal year ended March 31, 2001
quadrupled to Rs 1.4 billion, from Rs 295 million in the year-earlier period,
driven largely by the sales of fluoxetine, the main ingredient used in Prozac.
RANBAXY LABORATORIES, India's largest pharmaceutical company by sales, is ranked
as one of the top dozen generic drugmakers in the world, according to its
website. The company has been successfully reducing its dependence on
investments and other passive income to focus on its core drugs business. In its
most recent earnings release, Ranbaxy Labs announced that profit for its third
quarter, ended September 30, 2001, rose 68% to Rs 891 million from Rs 531
million in the year-earlier period. (Unlike most Indian companies that have a
March fiscal year-end, Ranbaxy's fiscal year-end is December.)
PETROLEUM RELATED
By year-end, approximately 12.6% of the Fund's holdings were in the
petroleum-related sector. The sector has been in the process of gradual
deregulation over the past few years, and 2002 is expected to mark another
watershed. Recently, both the petroleum ministry and finance ministry reaffirmed
their commitments to dismantle the adjusted pricing mechanism ("APM"), allowing
for free market pricing of motor spirits, diesel, kerosene, and LPG by April
2002. In addition, the government is aggressively moving to privatize IBP, a
petroleum products marketing/distribution company reportedly by the end of the
first quarter 2002. Both of these measures, in our opinion, should lead to
exciting opportunities for India's leading oil refiners, including Bharat
Petroleum ("BPCL"), Hindustan Petroleum ("HPCL"), and Reliance Petroleum
("RPL").
RELIANCE INDUSTRIES is India's biggest manufacturer of petrochemicals. In its
most recent earnings announcement, the company reported that its second-quarter
net profit for the fiscal year ending March 31, 2002 rose 6.4% to Rs 7.0 billion
from Rs 6.6 billion in the year-earlier period. Although reported sales actually
declined (7%) year-over-year in the period to Rs 62.3 billion (from Rs 67.0
billion), the company managed to grow earnings by aggressively reducing costs.
The company's reported total expenses plunged (29%) year-over-year to Rs 49.0
billion, while its reported interest cost dropped (23%) year-over-year, because
the company prepaid its debt.
VEHICLES
The Fund maintains a moderate weighting relative to the benchmark in motor
vehicles, primarily represented by HERO HONDA, India's largest manufacturer of
motorcycles of which Japan's Honda Motor Company holds a 26% stake. In its most
recent earnings release, the company announced that its third-quarter net profit
for fiscal year ending March 31, 2002 rose 90% to Rs 1.3 billion, up from Rs 700
million in the year-earlier period. The company's reported operating margin rose
to 14.5% from 13%, as management was able to increase local content and improve
operational efficiency. For the remainder of the fiscal year ending March 31,
2002, the company increased its full-year sales forecast to 1.4 million
vehicles, from its initial forecast of only 1.25 million.
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THE INDIA FUND, INC.
TELECOMMUNICATIONS/TELECOMMUNICATIONS EQUIPMENT
By year-end, approximately 5.7% of the Fund consisted of telecommunications and
telecommunications equipment companies. Over the past two years, the Indian
government has pushed through a controlled, yet substantive liberalization of
the telecommunications industry. The new regulations have fueled industry-wide
mergers and acquisitions and spawned entirely new companies. Looking ahead to
2002, we expect to see increased competition in almost every sphere: cellular,
domestic long distance, and international long distance. The result is likely to
be even more consolidation, steadily declining tariffs, and an increase in
capital raisings. At this juncture, the main difficulty for an equity investor
is finding exposure to these dynamic opportunities, since most of the new
industry players remain unlisted.
MAHANAGAR TELEPHONE NIGAM (MTNL), India's second-largest phone company, reported
in its most recent earnings result that net profit for the fiscal third quarter
ended September 30, 2001 declined (14.5%) to Rs 3.8 billion from Rs 4.5 billion
in the year-earlier period. Investors continue to expect that the government
will reduce its 56% stake in MTNL, by bringing in a strategic investor and
possibly through an employee shareholder scheme. The company's state-owned
status continues to present challenges, both in terms of reducing its work force
and expanding into new competitive areas.
FINANCE
The Fund's weighting in the finance sector increased from almost nothing in the
first half of 2001 - a result of restrictions prohibiting the purchase of most
bank shares - to nearly 4% of total holdings by year-end. In the non-Japan Asian
region, we believe only South Korean bank shares rival Indian banks in terms of
offering the favorable combination of: (a) strong growth in loans, especially in
consumer finance; (b) asset restructuring potential; and (c) extremely
attractive valuations. Industry consolidation and rationalization also remain a
key theme as state-owned banks realize they must strengthen their operations to
compete with the "private banks" which were launched in the mid-1990s.
STATE BANK OF INDIA ("SBI"), the country's largest bank, is also the Fund's
largest holding in the finance sector. In its most recent earnings announcement,
SBI reported that for the second quarter of the fiscal year ending March 31,
2002, net profit rose 6% to Rs 6.4 billion from Rs 6.07 billion in the
year-earlier period. This result, however, masks the fact that its reported core
operating profit surged 25% year-over-year to Rs 14.4 billion from Rs 11.5
billion in the year-earlier period. As reported, SBI continues to move
aggressively to reduce its cost structure, invest in information technology
(IT), and improve its asset quality. The bank's reported cost-to-income ratio
has dropped to 54%, compared to 60% in the previous year.
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OUTLOOK
As this report goes to press, the aftermath of the December 13 suicide attack on
India's Parliament continues to unfold. New Delhi has restricted economic and
diplomatic ties with Pakistan, and is demanding that Islamabad crack down on
militant groups Lashkar-e-Taiba and Jaish-e-Muhammad, on which India blames the
attack. Pakistan's President Musharraf has responded to some of India's demands,
by arresting hundreds of anti-India militants. New Delhi, however, is insisting
that
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THE INDIA FUND, INC.
Pakistan must go further, demanding the extradition of the two groups' leaders.
Meanwhile, despite intense international diplomatic pressure, both countries
have amassed troops and weapons along their 1,800-mile border, and ammunition
rounds are being exchanged almost daily.
In our opinion, we do not expect the two countries to go to war, a point that
the market seems to agree on. By January, the equity markets had actually
recovered to their pre-attack levels. Given the mutual distrust between the two
sides, however, the situation is by no means risk-free. Although we expect a
satisfactory conclusion with no hostilities erupting, nevertheless, it will be a
big relief to the entire world when the current crisis is defused.
Despite the current crisis with Pakistan, we find plenty of reasons to be
bullish on Indian stocks in 2002, the most important point being the Indian
government's recent revival of its reform measures. We believe this positive
momentum can be carried forward into 2002. In addition, the market is
fundamentally attractive: FactSet, an online financial information provider,
forecasts a consensus earnings growth of 58% for calendar 2002, putting the
market on a fiscal year-end March 31, 2002 price-earnings ratio ("PER") of 12x
and a fiscal year-end March 31, 2003 PER of 10.7x. Additionally, a recovery in
the U.S. economy during the second half of 2002 would be extremely positive for
India. Domestically, GDP growth appears to be accelerating after disappointing
growth in the fiscal year ended March 31, 2001. It looks increasingly clear that
the beneficial effects of last year's excellent monsoon season are spilling over
into the broader economy. Since November, data for the broader economy appears
to be pointing toward increased activity in the agricultural, industrial, and
services sectors.
As 2001 revealed, sources of risk in the Indian marketplace can be quite
unpredictable, and are therefore impossible to anticipate or to quantify. One
could argue that the potential for crippling scandals exists in any market at
any time. On the other hand, India has a history of higher-than-average
volatility. Yet, investors may see a silver lining in last year's UTI and
Defense Ministry scandals, if their resolution can pave the way to positive
reform. For example, it had been speculated for years in India that the NAV of
US64 was unfounded, and that UTI was actually becoming heavily indebted trying
to keep up the pretense. Now, however, the scandal has led to a positive
resolution of that problem.
Overall, however, the Indian equity market remains a "restructuring story,"
whose long-term potential centers on the country's ability to correct the
imbalances brought on by its socialist mindset of the past. Simply put, this
involves reducing the government's direct role in the economy, and replacing it
with intelligent regulation whether it is in the banking, power, agricultural,
or other industrial sectors. We continue to believe that the combination of
attractive valuations, huge domestic market, a qualified and hard-working
population, and massive potential for positive structural changes makes India
stand out as one of the most exciting Asian equity markets for investors over
both the short- and long-term.
Punita Kumar-Sinha
/s/ PUNITA KUMAR-SINHA
Portfolio Manager
Advantage Advisers, Inc.
12
THE INDIA FUND, INC.
--------------------------------------------------------------------------------
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 3,000,000 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
February 2001, 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 4,000,000
the aggregate number of shares authorized for repurchase.
During the year ended December 31, 2001, the Fund repurchased a total of 480,000
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.
--------------------------------------------------------------------------------
13
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS DECEMBER 31, 2001
INDIA (100% OF HOLDINGS)
COMMON STOCKS (99.88% of holdings)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
CEMENT 3.21%
1,927,698 Associated Cement Companies Ltd ................ $ 5,136,753 $ 6,068,531
734,744 Gujarat Ambuja Cements Ltd ..................... 3,065,235 2,894,331
1,513,400 India Cements Ltd .............................. 2,220,100 1,202,058
15,762 Madras Cements Ltd ............................. 1,748,155 1,408,741
47,840 Panyam Cements and Mineral Industries Ltd+ ..... 481,082 72,226
189,430 Shree Cement Ltd ............................... 340,862 178,155
------------ ------------
12,992,187 11,824,042
------------ ------------
CHEMICALS 0.05%
50 Atul Ltd ....................................... 93 16
496,800 BOC Ltd+ ....................................... 658,373 192,147
------------ ------------
658,466 192,163
------------ ------------
COMPUTER HARDWARE 0.94%
332,701 Digital Globalsoft Ltd ......................... 3,028,898 3,451,894
------------ ------------
3,028,898 3,451,894
------------ ------------
COMPUTER SOFTWARE & PROGRAMMING 19.91%
500 DSQ Software Ltd ............................... 3,380 585
375,230 HCL Technologies Ltd ........................... 1,523,100 2,134,500
559,442 Infosys Technologies Ltd ....................... 2,578,877 47,261,363
4,909,279 Satyam Computer Services Ltd ................... 1,754,730 24,057,707
1,300 Silverline Technologies Ltd .................... 4,371 1,754
------------ ------------
5,864,458 73,455,909
------------ ------------
COMPUTER TRAINING 1.10%
869,040 NIIT Ltd ....................................... 5,324,673 4,042,424
937 SSI Ltd ........................................ 11,267 3,942
------------ ------------
5,335,940 4,046,366
------------ ------------
CONSUMER MISCELLANEOUS 1.25%
849,088 Bata India Ltd ................................. 3,914,352 622,465
1,719,600 Zee Telefilms Ltd .............................. 10,606,920 3,981,612
------------ ------------
14,521,272 4,604,077
------------ ------------
14
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES 15.17%
179,567 Godfrey Philips India Ltd ...................... $ 3,109,433 $ 1,517,121
7,743,956 Hindustan Lever Ltd ............................ 25,724,524 35,917,374
1,320,851 ITC Ltd ........................................ 22,566,684 18,539,029
------------ ------------
51,400,641 55,973,524
------------ ------------
DIVERSIFIED INDUSTRIES 3.24%
664,502 Grasim Industries Ltd .......................... 5,605,907 3,784,161
175 HMG Industries Ltd+* ........................... 359 3
1,744 Indian Rayon and Industries Ltd ................ 6,451 2,628
1,891,831 Larsen & Toubro Ltd ............................ 12,305,748 7,509,259
57,900 Larsen & Toubro Ltd GDR ........................ 473,464 434,250
79,000 Sterlite Industries (India) Ltd ................ 261,112 206,265
------------ ------------
18,653,041 11,936,566
------------ ------------
ELECTRICITY 0.00%
54 CESC Ltd+ ...................................... 342 13
150 Tata Power Company Ltd ......................... 797 372
------------ ------------
1,139 385
------------ ------------
ELECTRONICS & ELECTRICAL EQUIPMENT 2.26%
477,633 Alstom Power India Ltd+ ........................ 1,167,587 378,382
2,726,252 Bharat Heavy Electricals Ltd ................... 10,763,921 7,949,213
49 Siemens India Ltd .............................. 1,083 191
------------ ------------
11,932,591 8,327,786
------------ ------------
ENGINEERING 0.53%
458,026 Asea Brown Boveri Ltd .......................... 5,343,518 1,937,729
2 Lakshmi Machine Works Ltd ...................... 394 30
------------ ------------
5,343,912 1,937,759
------------ ------------
EXTRACTIVE INDUSTRIES 2.71%
416,255 Hindalco Industries Ltd ........................ 7,353,100 5,523,018
3,911,230 Hindustan Zinc Ltd ............................. 2,220,892 1,614,133
100 Indian Aluminium Company Ltd ................... 572 168
2,773,050 National Aluminium Company Ltd ................. 3,515,181 2,846,660
600 Sesa Goa Ltd ................................... 4,568 624
------------ ------------
13,094,313 9,984,603
------------ ------------
15
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
FERTILIZERS 0.00%
7,700 Chambal Fertilizers and Chemicals Ltd .......... $ 5,977 $ 1,717
1,750 Nagarjuna Fertilizers and Chemicals Ltd+ ....... 1,911 170
50 Southern Petrochemical Industries Corporation Ltd 43 7
------------ ------------
7,931 1,894
------------ ------------
FINANCE 3.87%
419,100 Bank of Baroda ................................. 315,978 359,390
305,675 Corporation Bank ............................... 842,225 867,516
411,900 HDFC Bank Ltd .................................. 2,032,006 1,919,410
26,100 HDFC Bank Ltd ADR+ ............................. 367,443 379,755
310,585 Housing Development Finance Corporation Ltd++ .. 4,418,840 4,270,705
1,221,650 ICICI Ltd++ .................................... 1,319,335 1,113,470
2,300 Oriental Bank of Commerce ...................... 2,099 1,583
1,416,975 State Bank of India ............................ 5,786,141 5,364,346
------------ ------------
15,084,067 14,276,175
------------ ------------
FOOD 2.54%
114,805 Britannia Industries Ltd ....................... 1,538,406 1,466,847
114,256 Cadbury India Ltd .............................. 1,306,314 1,148,839
361,088 Nestle India Ltd ............................... 3,957,184 3,863,986
250,000 Rahul Dairy and Allied Products+* .............. 79,643 6,481
280,950 Tata Tea Ltd ................................... 1,040,682 983,791
553,300 United Breweries Ltd ........................... 3,044,238 1,889,849
------------ ------------
10,966,467 9,359,793
------------ ------------
HOTELS & LEISURE 0.00%
121 Indian Hotels Company Ltd ...................... 1,976 390
------------ ------------
1,976 390
------------ ------------
HOUSEHOLD APPLIANCES 0.00%
100 IFB Industries Ltd+ ............................ 97 3
500 Phil Corporation Ltd ........................... 1,366 95
200 Samtel Color Ltd ............................... 395 107
450 Videocon Appliances Ltd ........................ 2,629 62
519 Videocon International Ltd ..................... 951 238
250 Voltas Ltd ..................................... 507 249
------------ ------------
5,945 754
------------ ------------
16
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
MEDIA 0.72%
76,700 Balaji Telefilms Ltd ........................... $ 489,975 $ 476,790
255,500 Mukta Arts Ltd+ ................................ 886,952 378,587
1,061,100 Pentamedia Graphics Ltd ........................ 3,826,241 1,336,828
550,000 Pritish Nandy Communications Ltd ............... 2,152,749 436,282
250,000 Vans Information Ltd+ .......................... 573,395 31,107
------------ ------------
7,929,312 2,659,594
------------ ------------
PACKAGING 0.00%
16,669 Flex Industries Ltd+ ........................... 17,410 3,543
500 Universal Prime Aluminium+* .................... 788 26
------------ ------------
18,198 3,569
------------ ------------
PETROLEUM RELATED 12.57%
562,353 Bharat Petroleum Corporation Ltd ............... 2,002,278 2,204,162
2,700 Chennai Petroleum Corporation Ltd .............. 3,200 1,142
433,360 Gas Authority of India Ltd ..................... 445,753 566,190
2,566,778 Hindustan Petroleum Corporation Ltd ............ 17,353,918 7,430,987
820 Indian Petrochemicals Corporation Ltd .......... 1,740 894
5,712,787 Reliance Industries Ltd ........................ 27,463,519 36,152,156
------------ ------------
47,270,408 46,355,531
------------ ------------
PHARMACEUTICALS 14.23%
246,101 Aventis Pharma Ltd ............................. 2,448,421 2,121,868
456,237 Cipla Ltd ...................................... 4,008,053 10,770,107
1,730,796 Dabur India Ltd ................................ 1,450,828 2,437,185
808,380 Dr. Reddy's Laboratories Ltd ................... 3,894,512 15,481,097
7,000 Dr. Reddy's Laboratories Ltd ADR ............... 150,918 132,650
14,813 E. Merck (India) Ltd ........................... 73,803 84,802
48,951 Glaxosmithkline Pharmaceuticals Ltd ............ 398,546 291,757
1,600 IPCA Laboratories Ltd .......................... 4,950 2,688
573,500 Morepen Laboratories Ltd ....................... 1,686,448 741,554
200 Orchid Chemicals and Pharmaceuticals Ltd ....... 677 290
50 Parke-Davis (India) Ltd ........................ 506 156
1,114,196 Ranbaxy Laboratories Ltd ....................... 12,120,753 15,951,580
17
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (CONTINUED)
276 Rhone-Poulenc (India) Ltd ...................... $ 5,131 $ 2,012
335,300 Sun Pharmaceutical Industries Ltd .............. 973,047 3,985,077
65,769 Syngenta India Ltd ............................. 129,803 81,973
147,683 Torrent Pharmaceuticals Ltd .................... 1,365,097 419,589
------------ ------------
28,711,493 52,504,385
------------ ------------
STEEL 1.84%
6,010 Essar Steel Ltd+ ............................... 23,144 387
3,758,116 Tata Iron and Steel Company Ltd ................ 14,097,627 6,796,095
------------ ------------
14,120,771 6,796,482
------------ ------------
STEEL PRODUCTS 0.24%
487,650 Bharat Forge Ltd ............................... 1,568,409 870,226
------------ ------------
1,568,409 870,226
------------ ------------
TELECOMMUNICATIONS 4.40%
1,718,174 Hughes Tele.com Ltd+ ........................... 444,835 281,493
3,453,200 Mahanagar Telephone Nigam Ltd .................. 18,273,236 9,069,842
1,141,640 Videsh Sanchar Nigam Ltd ....................... 8,053,881 4,883,103
221,106 Videsh Sanchar Nigam Ltd ADR ................... 4,281,753 2,012,065
------------ ------------
31,053,705 16,246,503
------------ ------------
TELECOMMUNICATIONS EQUIPMENT 1.22%
300 Bhagyanagar Metals Ltd ......................... 724 286
968,180 Himachal Futuristic Communications Ltd ......... 5,406,908 1,762,883
1,358,600 Shyam Telecom Ltd .............................. 8,955,126 1,448,197
386,518 Sterlite Optical Technologies Ltd .............. 1,782,093 1,291,733
------------ ------------
16,144,851 4,503,099
------------ ------------
TEXTILES - COTTON 0.08%
36 Arvind Mills Ltd+ .............................. 133 7
100 H.P. Cotton Textile Mills Ltd+ ................. 233 4
500,000 Pantaloon Fashions (India)+ .................... 495,392 313,666
------------ ------------
495,758 313,677
------------ ------------
18
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
COMMON STOCKS (concluded)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
TEXTILES - SYNTHETIC 0.00%
300 Haryana Petrochemicals Ltd+* ................... $ 343 $ 6
------------ ------------
343 6
------------ ------------
TRANSPORTATION 0.23%
1,149,193 Great Eastern Shipping Company Ltd ............. 854,692 567,208
174,900 South East Asia Marine Engineering
and Construction Ltd+ ........................ 1,132,009 300,326
------------ ------------
1,986,701 867,534
------------ ------------
UTILITIES 0.01%
487,650 Bharat Forge Utilities+ ........................ 509,591 45,509
------------ ------------
509,591 45,509
------------ ------------
VEHICLE COMPONENTS 0.47%
1,068,005 Cummins India Ltd .............................. 2,369,490 1,165,016
125 FAG Bearings (India) Ltd ....................... 334 137
100 Gleitlager (India) Ltd+* ....................... 96 3
118,000 Swaraj Engines Ltd ............................. 1,298,970 582,414
------------ ------------
3,668,890 1,747,570
------------ ------------
VEHICLES 7.09%
1,566,962 Ashok Leyland Ltd .............................. 3,818,023 2,263,354
337,833 Bajaj Auto Ltd ................................. 2,504,096 2,654,953
1,953,655 Hero Honda Motors Ltd .......................... 6,591,915 10,157,223
600 Hindustan Motors Ltd+ .......................... 467 57
100 LML Ltd+ ....................................... 178 36
742,689 Mahindra and Mahindra Ltd ...................... 6,969,556 1,374,637
2,154,119 Punjab Tractors Ltd ............................ 5,174,029 7,757,419
939,058 Tata Engineering and Locomotive Company Ltd+ ... 1,865,500 1,943,550
41,527 Tata Engineering and Locomotive Company Ltd
Warrants Expire 9/30/04+* .................... 0 0
------------ ------------
26,923,764 26,151,229
------------ ------------
TOTAL COMMON STOCKS 349,295,438 368,438,994
------------ ------------
19
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001
BONDS (0.12% of holdings)
PAR VALUE PERCENT OF
(000) SECURITY HOLDINGS COST VALUE
--------------------------------------------------------------------------------------------------------
DIVERSIFIED INDUSTRIES 0.05%
INR 4,096 DCM Shriram Consolidated NCD 13.00%, 11/6/02* $ 130,627 $ 84,940
INR 4,096 DCM Shriram Consolidated NCD 13.00%, 11/6/03* 130,626 84,940
------------ ------------
261,253 169,880
------------ ------------
VEHICLES 0.07%
INR 20,750 Tata Engineering and Locomotive Company Ltd
FCD 7.00%, 03/31/02* ......................... 337,540 279,708
------------ ------------
337,540 279,708
------------ ------------
TOTAL BONDS ................................... 598,793 449,588
------------ ------------
TOTAL INDIA ................................... 349,894,231 368,888,582
------------ ------------
TOTAL INVESTMENTS** .................... 100.00% $349,894,231 $368,888,582
============ ============
See page 21 for Footnotes and Abbreviations.
20
THE INDIA FUND, INC.
SCHEDULE OF INVESTMENTS (CONCLUDED) DECEMBER 31, 2001
FOOTNOTES AND ABBREVIATIONS
ADR - American Depository Receipts
FCD - Fixed Convertible Debenture
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 $354,070,318.
The aggregate gross unrealized appreciation (depreciation) for all
securities is as follows:
Excess of value over tax cost $ 120,475,816
Excess of tax cost over value (105,657,552)
-------------
$ 14,818,264
=============
See accompanying notes to financial statements.
21
THE INDIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2001
ASSETS
Investments, at value (Cost $349,894,231) ................................ $368,888,582
Receivables:
Dividends and reclaims of excess taxes withheld ..................... 810,415
Interest (net of withholding tax of $1,162) ......................... 5,913
Securities sold ..................................................... 1,769,583
Prepaid expenses ......................................................... 121,107
------------
TOTAL ASSETS ........................................... 371,595,600
------------
LIABILITIES
Cash Overdraft (including Indian Rupees of $21,237 with a cost of $21,237) 1,026,428
Payable for securities purchased ......................................... 933,147
Distribution payable ..................................................... 2,150,633
Due to Investment Manager ................................................ 351,211
Due to Administrator ..................................................... 73,357
Accrued expenses ......................................................... 569,521
------------
TOTAL LIABILITIES ...................................... 5,104,297
------------
NET ASSETS ............................................. $366,491,303
============
NET ASSET VALUE PER SHARE ($366,491,303/30,723,333
SHARES ISSUED AND OUTSTANDING) ......................... $ 11.93
============
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 3,283,800 shares repurchased ..................................... (41,415,196)
Accumulated net investment loss .......................................... (168,030)
Accumulated net realized loss on investments ............................. (71,471,048)
Net unrealized appreciation in value of investments, foreign
currency holdings and on translation of other assets and liabilities
denominated in foreign currency ..................................... 18,875,761
------------
NET ASSETS ............................................. $366,491,303
============
See accompanying notes to financial statements.
22
THE INDIA FUND, INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2001
INVESTMENT INCOME
Dividends .......................................................................... $ 8,877,422
Interest (net of Indian taxes withheld of $5,845) .................................. 119,417
-------------
TOTAL INVESTMENT INCOME .......................................... 8,996,839
-------------
EXPENSES
Management fees ....................................................... $4,348,875
Administration fees ................................................... 816,206
Custodian fees ........................................................ 803,029
Legal fees ............................................................ 218,227
Audit fees ............................................................ 193,451
Insurance ............................................................. 159,252
Transfer agent fees ................................................... 54,576
Directors' fees ....................................................... 38,000
Printing .............................................................. 34,854
NYSE fees ............................................................. 33,255
Miscellaneous expenses ................................................ 26,220
----------
TOTAL EXPENSES ................................................... 6,725,945
-------------
NET INVESTMENT INCOME ............................................ 2,270,894
-------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS, FOREIGN CURRENCY HOLDINGS AND
TRANSLATION OF OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY:
Net realized loss on:
Security transactions ......................................................... (26,067,992)
Foreign currency related transactions ......................................... (225,970)
-------------
(26,293,962)
Net change in unrealized depreciation in value of investments, foreign currency
holdings and translation of other assets and liabilities denominated in
foreign currency .............................................................. (107,009,155)
-------------
Net realized and unrealized loss on investments, foreign currency holdings and
translation of other assets and liabilities denominated in foreign currency ... (133,303,117)
-------------
Net decrease in net assets resulting from operations ............................... $(131,032,223)
=============
See accompanying notes to financial statements.
23
THE INDIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
-----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) ..................................... $ 2,270,894 $ (5,075,421)
Net realized gain (loss) on investments and foreign currency
related transactions ........................................ (26,293,962) 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 ................. (107,009,155) (325,968,238)
------------- -------------
Net decrease in net assets resulting from operations ............. (131,032,223) (237,384,631)
------------- -------------
DISTRIBUTION TO SHAREHOLDERS
Net investment income ($0.07 per share) .......................... (2,150,634) --
------------- -------------
Decrease in net assets resulting from distributions .............. (2,150,634) --
------------- -------------
CAPITAL SHARE TRANSACTIONS
Shares repurchased under Stock Repurchase Plan
(480,000 shares and 1,931,400 shares respectively) .......... (5,095,214) (26,793,808)
------------- -------------
Net decrease in net assets resulting from capital
share transactions .......................................... (5,095,214) (26,793,808)
------------- -------------
Total decrease in net assets ..................................... (138,278,071) (264,178,439)
NET ASSETS
Beginning of year ................................................ 504,769,374 768,947,813
------------- -------------
End of year (Including undistributed net investment income
of $57,940 at December 31, 2001) ............................ $ 366,491,303 $ 504,769,374
============= =============
See accompanying notes to financial statements.
24
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, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year ..... $ 16.18 $ 23.21 $ 8.85 $ 8.11 $ 7.56
-------- -------- -------- -------- --------
Net investment income (loss) ........... 0.07 (0.16) (0.10) (0.03) (0.03)
Net realized and unrealized gain (loss)
on investments, foreign currency
holdings, and translation of other
assets and liabilities denominated
in foreign currency ................. (4.29) (7.27) 14.36 0.77 0.58
-------- -------- -------- -------- --------
Net increase (decrease) from
investment operations ............... (4.22) (7.43) 14.26 0.74 0.55
-------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment
income ............................ (0.07) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions ...... (0.07) -- -- -- --
-------- -------- -------- -------- --------
Capital share transactions
Anti-dilutive effect of Share
Repurchase Program .................. 0.04 0.40 0.10 -- --
-------- -------- -------- -------- --------
Total capital share transactions ....... 0.04 0.40 0.10 -- --
-------- -------- -------- -------- --------
Net asset value, end of year ........... $ 11.93 $ 16.18 $ 23.21 $ 8.85 $ 8.11
======== ======== ======== ======== ========
Per share market value, end of year .... $ 9.5000 $12.0625 $16.7500 $ 6.3125 $ 7.3750
TOTAL INVESTMENT RETURN BASED ON
MARKET VALUE* ....................... (20.69)% (27.99)% 165.35% (14.41)% (3.28)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000s) ...... $366,491 $504,769 $768,948 $300,523 $275,814
Ratios of expenses to average net assets 1.70% 1.59% 1.84% 2.03% 1.98%
Ratios of net investment income (loss)
to average net assets ............... 0.57% (0.75)% (0.68)% (0.34)% (0.37)%
Portfolio turnover ..................... 16.06% 19.24% 18.65% 28.85% 42.61%
See page 26 for footnotes
25
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.
See accompanying notes to financial statements.
26
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001
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 $456,104 (0.12% of net
assets) at December 31, 2001, 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
27
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
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.
Income and capital gain distributions are determined in accordance with
federal income tax regulations, which may differ from GAAP.
The tax character of distributions paid during year ended December 31, 2001:
Ordinary income ....................................................... $ 2,150,634
============
At December 31, 2001, the components of net assets (excluding paid in capital)
on a tax basis were as follows:
Currently Distributable Ordinary Income ............... $ 0
Plus/Less: Cumulative Timing Differences .............. (120,505)
------------
Accumulated net investment loss ....................................... $ (120,505)
------------
Tax basis capital loss carryover ...................... $(65,735,515)
Plus/Less: Cumulative Timing Differences .............. (1,606,972)
------------
Accumulated capital loss ............................................... (67,342,487)
------------
Book unrealized foreign exchange loss .................................. (118,589)
------------
Book unrealized appreciation .......................... $ 18,994,351
Plus/Less: Cumulative Timing Differences .............. (4,176,087)
------------
Unrealized appreciation ................................................ 14,818,264
------------
Net assets (excluding paid in capital) ................................. $(52,763,317)
============
The differences between book and tax basis unrealized appreciation is primarily
attributable to wash sales, Passive Foreign Investment Companies mark-to-market,
and a dividend overdistribution. The cumulative timing difference for ordinary
income and capital loss carryover are due to Post October Losses.
Net Asset Value ...................................................................... $ 366,491,303
Paid in Capital ...................................................................... (419,254,620)
-------------
Net assets (excluding paid in capital) ............................................... $ (52,763,317)
=============
28
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
At December 31, 2001, the Fund had a capital loss carryover of $65,735,515 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, $34,828,858 will expire in 2006 and
$20,935,877 will expire in 2009.
The Fund's foreign exchange losses and realized capital losses incurred after
October 31, 2001, but before December 31, 2001, 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 $118,141 and realized capital losses of
$1,606,972.
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 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.
29
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
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 accounting principles generally accepted in the United
States of America. 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, 2001, the Fund reclassified $225,970 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. Net investment income 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") served until July
31, 2001 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 furnished advice and made
recommendations to the Investment Manager regarding the purchase, sale or
holding of particular Indian securities, provided research and statistical data
to the Fund and assisted in the implementation 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 received 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,
2001, fees earned by the Investment Manager amounted to $4,348,875.
Because affiliations between ILFS and 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., a subsidiary of CIBC WM ("Advantage India"),
30
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
which was submitted and approved by stockholders at the annual meeting held on
April 20, 2001. As of August 1, 2001 Advantage India serves as the Fund's
country adviser. For its services, Advantage India receives from the Investment
Manager a fee to be agreed upon by the Investment Manager and Advantage India
from time to time.
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, 2001,
these fees amounted to $790,704. 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, 2001, fees and expenses of the
Mauritius Administrator amounted to $25,502. At December 31, 2001, 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
$65,400,862 and $63,680,830 respectively, for the year ended December 31, 2001.
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%.
31
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
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%.
In March 2000, the Indian tax authorities 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 which denied 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" its
position on 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 was adjourned until August 2001. Additionally, a public interest
group in India initiated litigation in the courts challenging Circular 789 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 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%. While
management currently feels that the likelihood is remote, to the extent that the
benefits of the longstanding treaty between India and Mauritius were rescinded
and were not available to the Fund, the cumulative amount of related taxes could
have a material impact on the financial statements.
In addition, the Fund had refiled (without any changes) its Indian income tax
return for the year ended March 31, 1997 in response to a notice issued by the
Indian tax authorities in connection with the March 2000 Assessment Order. The
Indian tax authorities have requested various information in connection with
their detailed review of the Indian income tax return for the year ended March
31, 1997 for which the assessment has to be completed by March 31, 2002 by the
Indian tax authorities.
32
THE INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) DECEMBER 31, 2001
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, 2001, the Fund purchased 480,000 shares of
capital stock on the open market at a total cost of $5,095,214. The weighted
average discount of these purchases, comparing the purchase price to the net
asset value at the time of purchase, was 19.11%. 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 3,000,000 shares of
its capital stock on the open market. In addition, in February 2001, the Fund's
Board of Directors authorized the Fund to purchase an additional 1,000,000
shares of its capital stock, bringing to 4,000,000 the aggregate number of
shares authorized for repurchase.
During the year ended December 31, 2000, the Fund purchased 1,931,400 shares of
capital stock at a total cost of $26,793,808 and at a weighted average discount
of 32.02%.
Subsequent to December 31, 2001, the Fund made additional purchases aggregating
25,000 shares of capital stock in the open market at a total cost of $251,525.
The weighted average discount of these purchases was 18.46%.
On February 1, 2002, the Fund announced a tender offer to be conducted during
the third quarter of 2002 for 10% of the Fund's outstanding shares.
NOTE F: CONCENTRATION OF RISKS
At December 31, 2001, 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, 2001, the Fund has 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.
33
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, 2001, 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, 2001 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 19, 2002
34
THE INDIA FUND, INC.
INFORMATION ABOUT DIRECTORS AND OFFICERS
The business and affairs of The India Fund, Inc. (the "Fund") are managed under
the direction of the Board of Directors. Information pertaining to the Directors
and executive officers of the Fund is set forth below.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED(1) DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Leslie H. Gelb Director and Since 1994 President, The Council 2 Britannica.com; Director
Member of on Foreign Relations of 10 registered
The Council on Foreign the Audit and (1993-Present); investment companies
Relations Nominating Columnist (1991- advised by Salomon
58 East 68th Street Committees, 1993), Deputy Brothers Asset
New York, NY 10021 Class I Editorial Page Editor Management ("SBAM").
(1986-1990) and
Age: 64 Editor, Op-Ed Page
(1988-1990), THE NEW
YORK TIMES.
------------------------------------------------------------------------------------------------------------------------------------
Luis Rubio Director and Since 1999 President, Centro de 2 Director of 4 registered
Member of Investigacion para el investment companies
Jaime Balmes No. 11, D-2 the Audit and Desarrollo, A.C. advised by CIBC
Los Morales Polanco Nominating (Center of Research for Oppenheimer Advisers,
Mexico, D.F. 11510 Committees, Development) (1981- L.L.C. ("CIBC
Class I Present); frequent Oppenheimer Advisers").
Age: 46 contributor of op-ed
pieces to THE LOS
ANGELES TIMES and THE
WALL STREET JOURNAL.
------------------------------------------------------------------------------------------------------------------------------------
Gabriel Seeyave Director, Since 1994 Tax Advisor; formerly 1 Director, The United
Class I Partner, De Chazal De Basalt Products Limited.
De Chazal De Mee Mee & Co. (chartered
Building 10, accountants). Director,
Frere Felix de Valois Street The United Basalt
Port Louis, Mauritius Products Limited.
Age: 70
------------------------------------------------------------------------------------------------------------------------------------
Charles F. Barber Director, Since 1993 Consultant; formerly 2 Director of 4 registered
Chairman of Chairman of the investment companies
66 Glenwood Drive Audit Board, ASARCO advised by CIBC
Greenwich, CT 06830 Committee Incorporated. Oppenheimer Advisers;
and Member, Director of 3 registered
Age: 84 Audit investment companies
Committee, advised by SBAM.
Class II
------------------------------------------------------------------------------------------------------------------------------------
35
THE INDIA FUND, INC.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED(1) DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Jeswald W. Salacuse Director, Since 1993 Henry J. Braker 2 Director of 10 registered
Member of Professor of investment companies
Tufts University, Audit Commercial Law, The advised by SBAM;
The Fletcher School of Committee Fletcher School of Law Director, Municipal
Law & Diplomacy and Chairman & Diplomacy (1990- Advantage Fund.
Packard Avenue of Nominating Present); Dean, The
Medford, MA 02155 Committee, Fletcher School of Law
Class II & Diplomacy, Tufts
Age: 64 University (1986-
1994).
------------------------------------------------------------------------------------------------------------------------------------
Sir Rene Maingard, C.B.E. Director, Since 1994 Retired. 1 Director, Rogers & Co.,
Class III Ltd. (shipping, banking).
De Chazal De Mee
Building 10
Frere Felix de Valois Street
Port Louis, Mauritius
Age: 86
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Howard M. Singer Director and Since 2000 Managing Director, 2 Director of 8 registered
Chairman of CIBC World Markets investment companies
622 Third Avenue 8th Floor the Board of Corp., CIBC advised by CIBC
New York, NY 10017 Directors, Oppenheimer Advisers Oppenheimer Advisers.
Class II and Advantage
Age: 38 Advisers, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Bryan McKigney Director, Since 2000 Managing Director 1 None
President and (2000-Present) and
622 Third Avenue 8th Floor Secretary of Executive Director
New York, NY 10017 the Fund, (1993-2000), CIBC
Class III World Markets Corp.,
Age: 43 Managing Director,
CIBC Oppenheimer
Advisers and
Advantage Advisers,
Inc., President and
Secretary, The Asia
Tigers Fund, Inc.,
Vice President and
Division Executive,
Head of Derivative
Operations
(1986-1993) and
Assistant Vice
President,
Securities and
Commodity Operations
(1981-1985), Chase
Manhattan Bank.
------------------------------------------------------------------------------------------------------------------------------------
36
THE INDIA FUND, INC.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED(1) DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
OFFICER(S) WHO ARE NOT DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Alan E. Kaye Treasurer Since 1999 Executive Director N/A N/A
622 Third Avenue 8th Floor (1976-Present), CIBC
New York, NY 10017 World Markets Corp.
Age: 50
------------------------------------------------------------------------------------------------------------------------------------
1 The Fund's Board of Directors is divided into three classes: Class I, Class
II, and Class III. The terms of office of the Class I, Class II, and Class III
Directors expire at the Annual Meeting of Stockholders in the year 2002, year
2003, and year 2004, respectively, or thereafter in each case when their
respective successors are duly elected and qualified. The Fund's executive
officers are chosen each year at the first meeting of the Fund's Board of
Directors following the Annual Meeting of Stockholders, to hold office until
the meeting of the Board following the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified.
37
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 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 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.
38
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.
39
THE INDIA FUND, INC.
DIVIDENDS AND DISTRIBUTIONS (CONCLUDED)
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
400 Bellevue Parkway, Wilmington, Delaware 19809.
40
ADVANTAGE ADVISERS, INC.
THE INDIA FUND, INC.
(A WHOLLY OWNED SUBSIDIARY OF CIBC WORLD MARKETS CORP.)
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CIBC OPPENHEIMER PRIVACY POLICY
YOUR PRIVACY IS PROTECTED
At CIBC Oppenheimer, the Private Client Division of CIBC World Markets Corp., an
important part of our commitment to you is our respect for your right to
privacy. Protecting all the information we are either required to gather or
which accumulates in the course of doing business with you is a cornerstone of
our relationship with you. While the range of products and services we offer
continues to expand, and the technology we use continues to change, our
commitment to maintaining standards and procedures with respect to security
remains constant.
COLLECTION OF INFORMATION
The primary reason that we collect and maintain information is to more
effectively administer our customer relationship with you. It allows us to
identify, improve and develop products and services that we believe could be of
benefit. It also permits us to provide efficient, accurate and responsive
service, to help protect you from unauthorized use of your information and to
comply with regulatory and other legal requirements. These include those related
to institutional risk control and the resolution of disputes or inquiries.
Various sources are used to collect information about you, including (i)
information you provide to us at the time you establish a relationship, (ii)
information provided in applications, forms or instruction letters completed by
you, (iii) information about your transactions with us or our affiliated
companies, and/or (iv) information we receive through an outside source, such as
a bank or credit bureau. In order to maintain the integrity of client
information, we have procedures in place to update such information, as well as
to delete it when appropriate. We encourage you to communicate such changes
whenever necessary.
DISCLOSURE OF INFORMATION
CIBC Oppenheimer does not disclose any nonpublic, personal information (such as
your name, address or tax identification number) about our clients or former
clients to anyone, except as permitted or required by law. We maintain physical,
electronic and procedural safeguards to protect such information, and limit
access to such information to those employees who require it in order to provide
products or services to you.
The law permits us to share client information with companies within the CIBC
family which provide financial, credit, insurance, trust, legal, accounting and
administrative services to CIBC Oppenheimer or its clients. This allows us to
enhance our relationship with you by providing a broader range of products to
better meet your needs and to protect the assets you may hold with us by
preserving the safety and soundness of our firm.
41
ADVANTAGE ADVISERS, INC.
THE INDIA FUND, INC.
(A WHOLLY OWNED SUBSIDIARY OF CIBC WORLD MARKETS CORP.)
--------------------------------------------------------------------------------
Finally, we are also permitted to disclose nonpublic, personal information to
unaffiliated outside parties who assist us with processing, marketing or
servicing a financial product, transaction or service requested by you,
administering benefits or claims relating to such a transaction, product or
service, and/or providing confirmations, statements, valuations or other records
or information produced on our behalf.
CIBC Oppenheimer is committed to upholding this Privacy Policy. We will notify
you on an annual basis of our policies and practices in this regard and at any
time that there is a material change that would require your consent. If you
have any questions regarding this matter we suggest that you speak with your
Account Executive.
42
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43
THE INDIA FUND, INC.
INVESTMENT MANAGER:
Advantage Advisers, Inc., a
subsidiary of CIBC World
Markets Corp.
ADMINISTRATOR:
CIBC World Markets Corp.
SUB-ADMINISTRATOR:
PFPC, Inc.
TRANSFER AGENT:
PFPC, Inc.
CUSTODIAN:
Deutsche Bank AG