THE INDIA FUND, INC.
Semiannual Report
June 30, 1997
ADVANTAGE ADVISERS, INC.
<PAGE>
The India Fund, Inc.
August 15, 1997
Dear Fund Shareholder,
We are pleased to present you with the unaudited financial statements of The
India Fund, Inc. (the "Fund") for the first half of the fiscal year beginning
January 1, 1997. In the following pages Barclays Global Investors International,
Inc., the Fund's Investment Adviser until August 1, 1997 provides a detailed
look at the Fund's investments and allocations, as well as the economic and
market conditions in India during the six months ended June 30. On June 30,
1997, the Fund's common stock closed on the New York Stock Exchange at $9.56 per
share, a 1.14% discount to its net asset value (NAV) of $9.67 per share.
In the first half of 1997, political volatility had a powerful influence on the
Indian market. With investors looking for relative security, investments in
blue-chip, market-leading companies once again increased as
larger-capitalization stocks continued to outperform their mid- and small-cap
counterparts. Over this period, the Fund's NAV rose 27.9%, compared to IFC
Index's return of 35.5% and the Dollex's return of 32.1%. The Fund's investment
in large-capitalization stocks increased relative to their mid- and small-cap
counterparts in order to take advantage of potential opportunities in the
market. At June 30, the Fund's investments were allocated approximately 60% in A
Group Stocks (which tend to be large-cap stocks) and 40% in B Group Stocks
(which tend to be both mid- and small-cap stocks). We will continue to consider
opportunities across all market capitalizations and to adopt a flexible approach
consistent with our market outlook.
Over the period, the Indian economy has continued to maintain its high level of
growth and, while slightly lower than fiscal '96, GDP growth for fiscal '97 is
estimated to be 6.8%. Despite such growth, interest rates continued to fall over
the period and the Investment Adviser believes this will help spur industrial
production and, likewise, corporate earnings growth in fiscal '98. With such
fundamentals in line, the Investment Adviser believes that the Indian economy
will continue to develop and expand over the long term.
As previously reported, effective August 1, 1997, Punita Kumar-Sinha of
Advantage Advisers, Inc., the Fund's Investment Manager, assumed responsibility
for the portfolio management of the Fund. Future shareholder reports will
reflect Ms. Kumar-Sinha's analysis of the Indian market and economy, as well as
her views on the various sectors and companies in which the Fund has invested.
Finally, on July 22, 1997, Oppenheimer Group Inc. and Oppenheimer Equities, Inc.
agreed to sell all of the stock of Oppenheimer Holding, Inc., the indirect
parent company of the Investment Manager, to CIBC Wood Gundy Securities Corp.
This transaction will result in a change of control of the Investment Manager
and, in accordance with the Investment Company Act, requires shareholder
approval of new investment advisory agreements for the Fund with the Investment
Manager and the Investment Adviser. The new agreements will be considered at an
upcoming special meeting of shareholders of the Fund.
If you have questions about the Fund, please call our toll-free number, (800)
421-4777. On behalf of the Board of Directors, thank you for your participation
in The India Fund.
Sincerely,
/s/ Alan Rappaport
Alan Rappaport
Chairman
<PAGE>
Report of the Investment Adviser The India Fund, Inc.
Semiannual Report, June 30, 1997
Overview of India's Stock Markets
Despite some political volatility, positive momentum built up through the first
six months of the year in the Indian stock markets. Equity market interest was
inspired by rapidly declining yields in the local bond market, the result of the
looser monetary policy followed by the Reserve Bank of India. Foreign investors
were somewhat left behind by the rally and bid up stocks furiously at the end of
the period, partly due to the perception of India as a safe haven from problems
elsewhere in Asia.
The stock market revival from the lows of December continued into January. At
the end of February, Mr. Chidambaram, the Finance Minister of the United Front
coalition government, delivered on promises of market-boosting reforms with an
investor- and business-friendly tax cutting budget. The market surged 12% in
three trading sessions following his speech. These gains, however, were capped
by unexpected political turmoil at the end of March, which resulted in the
resignation of Mr. Deve Gowda and the subsequent swearing in of Mr. I.K. Gujral
as the new Prime Minister.
Corporate results for the year ending March 1997 were generally disappointing.
Profit growth figures reported by Indian companies were at decade lows. A survey
of nearly 600 companies showed sales growth slowing to 11%. Operating margins
fell slightly, indicating an inability to pass on cost increases to consumers,
such that operating profits rose an overall 3.5%. Bottom-line figures were
depressed by sharply increased tax and interest costs, resulting in an average
net earnings decline of 6%. The market reaction to these results was generally
muted, however, showing that the weak numbers had been generally factored into
market expectations and, as the market continued to rise, attention was focused
increasingly on the profits rebound expected in fiscal '98.
Politics
Politics had a powerful influence on the Indian stock markets in the first half
of 1997. The credibility of the United Front (UF) government was boosted by the
warm reception given to the end-February budget, but, a month later, the
Congress Party unexpectedly withdrew its essential parliamentary support for the
coalition. The UF could not command a majority in the lower house of parliament
on its own, and so had been reliant for its survival on external support, most
importantly from the 148 seats controlled by the Congress Party. Without the
backing of Congress Party leader Mr. Sitaram Kesri, the Prime Minister Mr. Deve
Gowda had no chance in the inevitable confidence motion in parliament. His loss
and subsequent resignation precipitated a volatile period for the stock markets
as the parties negotiated the formation of a new government. Another election
seemed inevitable, but the Congress Party finally promised to renew support for
the coalition, subject to the UF appointing a new leader. Thus the 77-year-old
ex-Foreign Minister, Mr. Inder Kumar Gujral, was sworn in as the new Prime
Minister of India. He immediately endeared himself to the financial community by
committing to the "deepening and widening" of India's economic reforms.
Economics
Industrial production growth decelerated to 6.7% in the year ended March 1997, a
significant drop from the 11.9% recorded in fiscal '96. This was the inevitable
outcome of the high real interest rate environment of the previous two years.
Yet fiscal '97 GDP growth is still estimated to come in at
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6.8%, while fiscal '96 GDP growth has been raised up to 7.1%. The surprising
maintenance of this high level of growth is largely due to the strength of the
agricultural sector. Agriculture comprises over a quarter of GDP and produced
its strongest performance since 1989, sufficient to mask the weakness in the
manufacturing sector.
Mr. Chidambaram's budget speech at the very end of February was greeted with
euphoria in financial circles and much of the media. He announced wide-ranging
tax cuts for both individuals and corporations, with the aim of raising consumer
spending and industrial investment to achieve a target of 7.0% GDP growth in
fiscal '98. Other proposals included the abolition of double taxation on
dividends, higher limits for foreign portfolio ownership in Indian stocks and
legislation enabling share buybacks. With the personal tax cut came a drive to
improve tax compliance, aiming to double India's present base of twelve million
taxpayers within three years. The government's ability to meet revenue
collection targets was viewed with skepticism in some quarters, given the
sweeping nature of the tax cuts. However, direct tax collections from both
corporate and personal taxes rose during the quarter ended June 1997, primarily
as a result of the minimum tax on profits now levied on Indian corporations.
Despite the tax cuts, the budget deficit target was set at 4.5% of GDP for
fiscal '98, down from the 5.2% estimate for fiscal '97. Much of the budget
deficit decrease has been achieved through government expenditure cuts. Over the
period, the Disinvestment Commission established by the UF administration
recommended several forms of sales of state-owned enterprises, including full
privatization and issuance of equity in the market to the market or strategic
investors. Importantly, the rationale behind this disinvestment was not only to
augment government receipts, but also to enhance competitiveness and
profitability amongst public companies.
Interest rates continued to fall across the period. The prime lending rates of
major banks were down to 13.5% by the end of June, representing a drop of 300
basis points since the beginning of fiscal '97. Yields in the government
Treasury bill market also declined sharply, particularly at the short-dated end;
coupon rates on 91 day paper fell almost 600 basis points to just over 6% in the
twelve months to June 1997. In April, the Reserve Bank of India (RBI) announced
its monetary policy for the first half of fiscal '98. The main features were
that the reference bank rate was reduced, credit reserve requirements were eased
further, greater freedom was allowed to banks in taking credit decisions and
regulations were relaxed in the foreign exchange market. This was an important
statement by the RBI, although rather drowned out by the political noise at the
time. It sent a clear signal for bank lending rates to come down further, while
accelerating the deregulation of the financial sector. However, the monetary
stimulus has yet to have the desired effect, as industrial production remains
stubbornly sluggish. Despite the apparent focus on growth, the RBI lowered its
inflation target for fiscal '98 to 6%. Inflation (as indicated by the Wholesale
Price Index) fell steadily over the period, due largely to lower food prices
after the good winter harvest, to below 6% at the end of June. The average for
fiscal '97 was 7.4%.
Performance
Despite a strong start to the period and a strong finish, the net asset value of
The India Fund rose 27.9% between January 1st and June 30th, while the Dollex
Index of 200 leading stocks rose 32.1% and the IFC Index rose 35.5%. The Fund's
underperformance was concentrated in the middle of the period, when the markets
were volatile and heavily influenced by political events. As is typical in such
circumstances, investors sought the relative security of blue-chip, market
leading stocks, while mid-capitalization stocks were once again left behind. In
fact, the Mid-Cap 200 underperformed the
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Dollex by 20% over the first half of the year. The number of holdings in the
portfolio was further reduced during the buoyant market conditions over the
period, from 160 to 130, at an obvious cost to Fund performance, although this
restructuring process is largely complete now.
Portfolio Strategy
The market rally in 1997 has thus far been largely confined to a relatively
narrow set of leading stocks and broad participation has been poor. At current
index levels, valuations look stretched in certain blue-chip companies, while
many mid-capitalization stocks with reasonable growth prospects are trading at
attractive multiples. The rapidly-changing dynamics in the Indian economy have
brought an unprecedented vulnerability to smaller operations, as both domestic
and foreign competition has intensified, but stockmarket rejection of mid cap
has been indiscriminate. By the end of the period, however, there were
encouraging signs that this pattern was fading.
The industrial slowdown has continued longer than most commentators predicted,
delayed by greater than expected inventory destocking, a result of
over-production in fiscal '96 and the first half of '97. Analysts are decreasing
estimates for financial results for the first half of fiscal '98. These numbers
are likely to be depressed despite indications of a cyclical recovery, such as
improvement in steel and cement dispatches and a recent increase in export
volumes. In anticipation of an industrial rebound and given the historically low
valuations of industrial stocks, the Fund's exposure to sectors geared to an
increase in economic activity, was increased during the period, including steel,
engineering and cement companies. Profits were taken in some aluminum companies
after strong performance over the period. The India Fund's exposure to Indian
pharmaceutical and technology companies again increased over the period. The
Fund was effectively fully invested at the end of the period.
Our Outlook for India
Foreign portfolio investment reached its highest level in over a year in June
and the domestic Indian mutual funds are seeing strong inflows, and so are
likely to become sustained buyers of the Indian market for the first time in two
years. Investors appear to be confident that a revival in Indian industrial
production will soon come about. Lending rates have fallen sharply and financial
sector reforms have opened up a number of new routes for Indian corporations to
raise cheaper funds. Deposit rates are now so low as to make equity yields an
attractive alternative for retail investors--some "B-group" stocks yield
comfortably over 10%. This fundamental re-rating of equity valuations through
lower background interest rates, combined with a consensus view for average
profits growth of 20% in the current year, makes for a compelling investment
story.
The Rupee has been stable against the dollar for over a year, and some suggest
this real effective appreciation means the currency is now overvalued. However,
in comparison with other Asian economies, India enjoys a low and manageable
current account deficit, easily financed by foreign capital inflows, which are
primarily of a long-term, non-speculative nature. Foreign exchange reserves have
grown 45% to over $25 billion in the twelve months ended June. Although pressure
is building from exporters to allow a small slippage in the exchange rate, we do
not believe this will bring about any loss of confidence. Indeed it should be
beneficial to the Fund given the "natural hedge" against Rupee weakness provided
by our high proportion of dollar-earning companies, such as those in the
technology sector.
There is always the possibility of political turmoil in India, particularly so
with the coalition politics now prevailing. We do not see this as a significant
cause for concern as there is a broad
4
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macro-economic policy consensus across the political spectrum. Political shocks
have no more than a short-term effect on the Indian equity markets and present
significant buying opportunities. In fact, the political risk to investors in
India has probably diminished over the past year, as the UF government has made
overtures of rapprochement with Pakistan, India's traditional rival. The two
countries have agreed to talks on the future of Kashmir and there appears to be
a personal warmth between the two new leaders, Mr. Gujral and his Pakistani
counterpart Mr. Nawaz Sharif. There is great economic potential in this thawing
of relations as trade between the two countries is negligible at present. This
would be an appropriate way to commemorate this year's 50th anniversary of
Indian and Pakistani independence.
Key Sector Holdings
Vehicles & Vehicle Components -- 12.3% of the Fund's total investments as of
June 30, 1997
Automobiles, as well as commercial vehicles, suffered from sluggish demand in
the first half of 1997, but tractors and motorcycles, for which demand is
largely rural-based, grew strongly. In general, the industry segments insulated
from the industrial slowdown have continued to perform ahead of the broader
vehicles sector.
The tractor industry again achieved double-digit growth in sales volumes in
fiscal '97, as agricultural output reached record levels. The share price of
Punjab Tractors, India's only fully indigenous tractor manufacturer, continued
its strong performance and the stock has become the Fund's second largest
holding. Punjab Tractors now has an all-India market share of 15% due to sales
growth at a compounded rate of 20% per annum over the last five years. We
anticipate growth to continue at these levels for at least two years, and
ongoing productivity improvements, along with economies of scale, mean that
earnings should grow at twice this rate. Management has consistently exceeded
expectations and the company generates sufficient cash flow to cover all of its
planned capital expenditure for production volume growth.
Extractive Industries -- 11.6% of the Fund's total investments as of
June 30, 1997
Globally, the outlook for the non-ferrous metals sector is bright for fiscal
'98, largely because of higher prices forecast for aluminum and zinc. Demand
currently exceeds supply in both these metals, as a result of accelerating
global industrial production growth. This has quickly been translated into
rising price as inventories, both with producers and at London Metal Exchange
(LME) warehouses, are generally at or near historic lows.
India has a globally competitive aluminum industry, with some of the lowest-cost
producers in the world. Despite some profit-taking ahead of the usual metal
price weakness during the northern hemisphere summer, Hindalco, India's largest
private sector aluminum producer, remains the Fund's eighth largest holding. In
addition to being well-positioned to capitalize on the expected rise in global
aluminum prices, Hindalco should enjoy a production volume increase of at least
20% this year.
The price of zinc had reached a six-year high at June 30th, yet there is little
sign of new supply coming onstream. LME inventories continue to fall, in
response to strong consumption growth in the first half of 1997 and reduced
supply due to mine closures. The Fund's exposure to zinc is through India's
largest producer, Hindustan Zinc. After two years of declining earnings, we
believe Hindustan Zinc is poised for a strong turnaround this year, based on
increased production volumes, higher zinc prices and, most importantly,
improvements in operational efficiencies.
5
<PAGE>
Pharmaceuticals -- 11.4% of the Fund's total investments as of June 30, 1997
Indian law recognizes only "process patents" and not "product patents." For the
pharmaceutical industry this means that anyone is free to sell products in India
that are under patent protection overseas, as long as the manufacturing process
differs. The growth of many Indian pharmaceutical companies has been based on
this "reverse engineering" strategy, but, as a signatory to GATT (the General
Agreement on Tariffs and Trade), India will enforce product patents recognition
beginning in the year 2005. This means the traditional approach to growth will
need to be modified. Investor focus will therefore increasingly be on which
companies have the strategies to compete in the post-GATT world.
Ranbaxy Laboratories, the Fund's sixth largest holding, has invested in creating
a marketing infrastructure overseas, particularly in western Europe and the
U.S., through which it intends to sell products manufactured in India. To this
end, the company has already filed five new drug applications with the U.S. FDA.
In the domestic market, where it is currently the second largest player, Ranbaxy
is concentrating on brand-building and diversifying its product portfolio into
new therapeutic groups. Despite the costs of these investments, post-tax profits
rose 11% in fiscal '97, export sales were up 27% and the company expanded its
operating margins, reflecting its continuing move into higher margin products.
Technology -- 9.8% of the Fund's total investments as of June 30, 1997
The Indian information technology industry showed 38% growth in fiscal '97,
within which software exports rose 55%, earning just over $1 billion. The U.S.
accounts for two-thirds of this market, but the trend is increasingly away from
the "export" of low-cost technicians to service clients on-site, towards
higher-margin "off-shore" work, often in purpose-built software development
centers in India linked to U.S. clients by state-of-the-art communications
technology. We feel the growth of the industry is assured as companies with
relatively high cost bases continue to "outsource" their information technology
requirements. In addition, Indian companies are enthusiastically embracing the
opportunities arising from the "year 2000 problem," whereby computers,
especially mainframes, are expected to fail to recognize the new century. But,
with the recent proliferation of software companies in India, however, employee
turnover is becoming a significant constraint on growth as wage costs are rising
around 25% per annum on average. The successful companies will be those that can
progress towards value-added products and services rather than simply relying on
being a source of cheap labor.
The Fund's largest holding in the sector is NIIT, the well-established
information technology (IT) training company that now derives 40% of sales from
exports of software services. In results for the six months ending March 1997,
NIIT showed sales up 50% year-on-year with improved margins leading to a 68%
rise in operating profit. For the Fund's second largest IT holding, Infosys
Technologies, software exports provide around 90% of total revenues. Infosys has
taken the lead in India in using developments in communications technology, such
as the Internet, to provide clients with a "virtual office." It also leads in
product development, having created branded products for inventory management,
banking and year-2000 solutions. The result is that earnings grew 76% in fiscal
'97 and the company currently has an order book worth 130% of last year's sales.
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Petroleum Related -- 9.1% of the Fund's total investments as of June 30, 1997
Energy demand is driven by continued healthy economic growth and oil products
are taking an increasing share of the energy market, replacing traditional
sources like wood. Government regulation of refined petroleum products prices,
however, keeps an artificial cap on the profits of downstream oil companies in
India. Integrated refining and marketing companies stand to gain significantly
from higher margins as the government moves towards market pricing for oil
products.
Hindustan Petroleum Corporation (HPCL) is the second largest integrated refining
and marketing company in India and represents the Fund's fourth largest
position. HPCL has a strong distribution network and two well-located,
wholly-owned refineries with good performance track records. Net profits rose
19% in fiscal '97 on the back of improved sales volumes. Industry experts
suggest the company has earnings upside in excess of 100% on industry
deregulation.
Textiles - Synthetic -- 9.1% of the Fund's total investments as of June 30, 1997
Reliance Industries, the largest holding of The India Fund, is the dominant
holding in this sector, but it has long since ceased to be simply a textiles
company. Reliance is a globally competitive company and is India's largest
private sector company in terms of assets and profits and is number two in terms
of sales. These sales encompass dominant market shares in India in
petrochemicals and polymers, and fibers and fiber intermediates, leaving just 5%
of fiscal '97 sales being derived from textiles.
Reliance's recent major investment program should yield significant results in
terms of cash flow visible over the next three years. For example, in March of
this year, the company commissioned its 750,000 tonnes per annum naphtha
cracker, the largest single such unit in the world and at a capital cost per
tonne nearly 30% below what such capacity would cost in the U.S. Despite strong
stock price performance, we believe the near-term cash generation is not yet
being fully factored into the stock price and that Reliance stock trades at a
significant discount to the value of its assets and its organic growth
prospects.
Barclays Global Investors
London
July 15, 1997
7
<PAGE>
Schedule of Investments The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIA 100.00%
==================================================================================================================================
COMMON STOCKS 99.87%
==================================================================================================================================
Cement 1.65%
27,095 Associated Cement Companies+......................................... $ 2,168,912 $ 1,099,315
133,000 Dalmia Cement ...................................................... 1,582,861 859,113
316,300 Gujarat Ambuja Cements............................................... 2,994,149 3,061,395
5,532 Jaiprakash Industries+............................................... 15,425 2,117
1,600 Mysore Cements....................................................... 3,683 693
443,640 Shree Cement......................................................... 947,401 266,432
-------------- -------------
7,712,431 5,289,065
-------------- -------------
Chemicals 0.82%
150 Atul Products........................................................ 292 94
6,020 Caprihans India ..................................................... 25,444 5,886
515,500 ICI (India).......................................................... 2,743,294 2,620,698
50 Indian Organic Chemicals+............................................ 140 6
1,000 JF Laboratories+..................................................... 1,741 85
-------------- -------------
2,770,911 2,626,769
-------------- -------------
Construction & Building Materials 0.02%
98,750 Novopan Industries................................................... 278,625 63,443
-------------- -------------
Consumer Miscellaneous 0.05%
400 Hytaisun Magnetics+.................................................. 462 20
100 Nahar Spinning Mills................................................. 2,574 372
459,650 Premier Vinyl Flooring............................................... 775,946 156,640
375 Surya Roshni......................................................... 990 230
1,800 Titan Industries+.................................................... 8,877 3,168
-------------- -------------
788,849 160,430
-------------- -------------
Consumer Non-Durable 4.77%
376,952 Hindustan Lever...................................................... 8,347,367 15,157,051
8,100 ITC ................................................................. 54,919 127,326
-------------- -------------
8,402,286 15,284,377
-------------- -------------
Diversified Industries 3.37%
1,200 DCM Shriram Consolidated............................................. 3,060 1,398
125,000 DCM Shriram Consolidated Warrants, exp. date 11/08/99+*.............. 0 0
650 Grasim Industries ................................................... 14,645 6,777
300 HMG Industries+...................................................... 616 19
741,750 Indian Rayon......................................................... 11,381,866 7,660,951
250,000 Indian Rayon GDR..................................................... 2,293,625 3,125,000
10,300 Kesoram Industries................................................... 48,727 13,163
-------------- -------------
13,742,539 10,807,308
-------------- -------------
</TABLE>
8
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electricity 0.03%
100,900 CESC Ltd............................................................. $ 826,642 $ 107,805
439,000 CESC Ltd Class B Warrants, exp. date 9/30/99+*....................... 2,969,313 0
450 Tata Power Co........................................................ 2,389 1,685
-------------- -------------
3,798,344 109,490
-------------- -------------
Electronics & Electrical 4.96%
573,333 Asea Brown Boveri ................................................... 9,307,754 10,758,001
350,000 Asian Electronics+................................................... 2,200,052 1,217,179
1,226,600 Crompton Greaves .................................................... 7,957,142 2,552,561
1,000,000 KEC International.................................................... 3,276,480 1,347,765
3,850 Siemens India........................................................ 85,241 26,644
-------------- -------------
22,826,669 15,902,150
-------------- -------------
Engineering 3.34%
657,150 Advani Oerlikon...................................................... 1,797,260 642,465
88,100 Kabra Extrusiontechnik............................................... 425,818 73,827
100 Lakshmi Machine Works................................................ 39,517 18,994
1,334,950 Larsen & Toubro...................................................... 8,554,007 9,098,542
50,000 Larsen & Toubro GDR.................................................. 700,000 862,500
-------------- -------------
11,516,602 10,696,328
-------------- -------------
Extractive Industries 11.59%
461,125 Hindalco Industries.................................................. 9,195,381 12,597,214
11,810,200 Hindustan Zinc....................................................... 5,279,742 7,587,558
631,750 Indian Aluminium..................................................... 3,976,574 2,351,416
418,830 Indian Aluminium GDR................................................. 2,294,816 1,518,259
6,788,500 National Aluminium Company+.......................................... 7,992,469 8,627,842
804,780 Sesa Goa ............................................................ 10,189,704 4,439,778
-------------- -------------
38,928,686 37,122,067
-------------- -------------
Fertilizers 0.73%
8,370,500 Chambal Fertilizers & Chemicals...................................... 7,131,735 2,338,128
11,900 Nagarjuna Fertilizer & Chemicals..................................... 12,995 4,903
6,200 Southern Petrochemicals Industrial Corporation....................... 24,152 4,763
-------------- -------------
7,168,882 2,347,794
-------------- -------------
Finance 3.68%
1,800,100 Bank of Baroda+...................................................... 3,198,730 4,651,096
3,619,300 Oriental Bank of Commerce............................................ 8,876,054 7,152,667
-------------- -------------
12,074,784 11,803,763
-------------- -------------
Food 0.03%
700 American Dry Fruits+................................................. 1,397 124
1,350 Nestle India......................................................... 11,956 11,228
52,000 Praj Industries ..................................................... 368,619 68,268
</TABLE>
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Schedule of Investments (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food (continued)
250,000 Rahul Dairy & Allied Products+ $ 79,643 $ 6,983
700 Rank Aqua Estates+................................................... 1,775 28
-------------- -------------
463,390 86,631
-------------- -------------
Hotels & Leisure 0.00%
150 Indian Hotels ...................................................... 2,449 2,732
-------------- -------------
Household Appliances 0.20%
600,000 IFB Industries....................................................... 3,271,110 368,715
2,700 Kalyani Sharp+....................................................... 3,694 1,357
12,200 Phil Corporation..................................................... 33,334 9,457
30 Phillips India....................................................... 29 73
645,100 Samtel Colour+....................................................... 1,557,877 216,234
3,747 Videocon Appliances.................................................. 21,892 1,690
1,800 Videocon International............................................... 5,876 1,559
78 Voltas .............................................................. 362 54
25,300 Whirlpool of India+.................................................. 148,290 32,862
-------------- -------------
5,042,464 632,001
-------------- -------------
Packaging 0.32%
660,320 Flex Industries..................................................... 4,118,949 745,166
77,310 Flex Industries Warrants, exp. date 11/30/97+*...................... 0 64,504
588,100 Polyplex Corporation................................................. 2,041,672 207,806
500 Universal Prime Aluminium+........................................... 788 17
-------------- -------------
6,161,409 1,017,493
-------------- -------------
Petroleum Related 9.14%
1,300,000 Hindustan Petroleum Corporation...................................... 16,287,794 16,486,033
2,200,000 Indian Petrochemicals................................................ 8,185,831 8,910,615
110,000 Indian Petrochemicals GDR............................................ 1,235,810 1,540,000
1,799,950 Madras Refineries.................................................... 5,625,925 2,350,493
-------------- -------------
31,335,360 29,287,141
-------------- -------------
Pharmaceuticals 11.39%
1,136,800 Dr. Reddy's Laboratories............................................. 9,810,478 7,930,609
600,000 E. Merck (India)..................................................... 3,952,219 3,075,419
318,550 Glaxo (India) ....................................................... 2,258,714 3,296,726
109,150 Merind+.............................................................. 1,349,119 246,959
798,800 Orchid Chemicals & Pharmaceuticals................................... 2,530,514 2,387,475
800 Pfizer India......................................................... 9,917 5,508
800,000 Ranbaxy Laboratories................................................. 15,833,616 15,234,637
224,800 Rhone-Poulenc India.................................................. 3,109,285 3,638,872
100,000 Sun Pharmaceuticals.................................................. 582,052 689,944
-------------- -------------
39,435,914 36,506,149
-------------- -------------
</TABLE>
10
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pulp & Paper 0.65%
1,300,000 Andhra Pradesh Rayons+............................................... $ 3,399,423 $ 1,307,262
250,000 Orient Paper Industries.............................................. 1,862,427 333,450
1,250 Pudumjee Pulp & Paper................................................ 10,224 1,449
835,000 Rama Newsprint+...................................................... 671,275 74,637
530,000 Seshasayee Papers.................................................... 1,353,440 370,112
-------------- -------------
7,296,789 2,086,910
-------------- -------------
Steel 1.48%
9,300 Essar Steel.......................................................... 35,853 4,806
300,000 Isibars.............................................................. 947,217 209,497
9,700 Jindal Strips........................................................ 127,964 15,376
300,000 Steel Authority of India GDR......................................... 2,990,500 2,647,500
351,600 Tata Iron & Steel.................................................... 1,856,474 1,878,310
-------------- -------------
5,958,008 4,755,489
-------------- -------------
Steel Products 0.00%
800 Choksi Tubes......................................................... 1,897 949
100 Super Forging+....................................................... 179 12
-------------- -------------
2,076 961
-------------- -------------
Technology 9.76%
300,000 BFL Software......................................................... 808,705 787,709
1,000 Digital Equipment (India)............................................ 2,113 4,365
705,200 DSQ Software......................................................... 1,160,223 630,346
200,000 Infosys Technologies................................................. 3,133,097 10,391,061
100,000 Mastek .............................................................. 558,538 483,939
1,272,700 NIIT ................................................................ 6,947,231 15,357,721
323,300 Pentafour Software and Exports....................................... 1,315,982 1,153,675
961,780 Satyam Computer ..................................................... 1,965,254 2,458,181
400 Silverline Industries................................................ 547 168
-------------- -------------
15,891,690 31,267,165
-------------- -------------
Telecom 8.33%
2,120,000 Mahanagar Telephone Nigam............................................ 12,954,810 17,987,430
419,200 Videsh Sanchar Nigam GDR+............................................ 6,887,668 8,698,400
-------------- -------------
19,842,478 26,685,830
-------------- -------------
Telecom Equipment 0.20%
600 Bhagyanagar Metals................................................... 1,448 519
175,000 MSL Industries....................................................... 725,099 153,492
286,600 Punjab Wireless ..................................................... 2,483,915 428,299
355,400 Telephone Cables..................................................... 1,656,770 66,513
-------------- -------------
4,867,232 648,823
-------------- -------------
Textiles - Cotton 1.81%
1,402,250 Arvind Mills+........................................................ 4,921,731 5,091,969
</TABLE>
11
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Textiles - Cotton (continued)
100 HP Cotton Textile Mills $ 233 $ 36
385,650 Morarjee Goculdas Spinning & Weaving................................. 2,270,867 301,626
200,000 Vardhaman Spinning & General Mills................................... 455,739 420,950
-------------- -------------
7,648,570 5,814,581
-------------- -------------
Textiles - Synthetic 9.07%
1,932,000 DCL Polyesters+...................................................... 3,838,809 304,911
1,600 Ester Industries+.................................................... 1,673 469
600 Haryana Petrochemicals+.............................................. 685 23
842,500 JCT ............................................................... 1,601,351 150,615
2,480,909 Reliance Industries ................................................ 18,276,489 25,761,953
115,000 Reliance Industries GDR.............................................. 1,827,500 2,645,000
1,167,300 Sanghi Polyesters+................................................... 2,166,217 195,637
5,800 SRF.................................................................. 15,613 3,159
-------------- -------------
27,728,337 29,061,767
-------------- -------------
Transport 0.17%
1,164,600 Modiluft+ ........................................................... 1,871,930 152,894
1,492,700 NEPC Micon+.......................................................... 4,312,234 387,769
-------------- -------------
6,184,164 540,663
-------------- -------------
Vehicles 11.48%
450 Bajaj Auto .......................................................... 9,282 11,577
4,900 Hindustan Motors .................................................... 6,416 1,780
311,050 Mahindra & Mahindra.................................................. 3,105,493 3,762,141
1,000,000 Punjab Tractors...................................................... 6,988,502 18,784,916
399,060 Tata Engineering & Locomotive........................................ 4,614,403 5,038,411
300,000 Tata Engineering & Locomotive GDS.................................... 3,701,250 4,605,000
351,650 TVS Suzuki .......................................................... 2,389,011 4,567,521
-------------- -------------
20,814,357 36,771,346
-------------- -------------
Vehicle Components 0.83%
25 Antifriction Bearings Corporation.................................... 100 36
231,650 Auto Corp of Goa..................................................... 1,194,052 355,887
125 FAG Precision Bearings............................................... 334 270
100 Gleitlager (India)+.................................................. 96 13
348,500 Kirloskar Oil Engines................................................ 1,651,947 574,344
195 Motor Industries Company............................................. 24,892 38,213
950,000 Patheja Forgings & Auto Parts........................................ 2,748,828 380,796
95 SKF Bearings India................................................... 10,539 6,810
84,300 Swaraj Engines....................................................... 896,369 1,256,258
-------------- -------------
6,527,157 2,612,627
-------------- -------------
TOTAL COMMON STOCKS 335,211,452 319,991,293
============== =============
</TABLE>
12
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Percent
(000) Security of Holdings Cost Value
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
==================================================================================================================================
BONDS 0.13%
==================================================================================================================================
Construction & Building Materials 0.02%
INR 3,000 Bharat Earth Movers NCD 12.50%, 02/26/02*........................... $ 95,587 $ 72,514
-------------- -------------
Diversified Industries 0.11%
INR 4,250 DCM Shriram NCD 13.00%, 11/6/01*..................................... 135,544 116,804
INR 4,125 DCM Shriram NCD 13.00%, 11/6/02*..................................... 131,558 113,368
INR 4,125 DCM Shriram NCD 13.00%, 11/6/03*..................................... 131,558 113,368
-------------- -------------
398,660 343,540
-------------- -------------
TOTAL BONDS 494,247 416,054
============== =============
TOTAL INDIA 335,705,699 320,407,347
============== =============
TOTAL INVESTMENTS** 100.00% $335,705,699 $320,407,347
============== =============
</TABLE>
- - -------------
Footnotes and Abbreviations
GDR - Global Depository Receipt
GDS - Global Depository Security
INR - Indian Rupee
NCD - Non Convertible Debenture
+ Non-income producing security.
* At fair value as determined under the supervision of the Board of
Directors.
** Aggregate cost for Federal income tax purposes is $335,882,074.
The aggregate gross unrealized appreciation (depreciation) for all
securities is as follows:
Excess of value over tax cost $68,633,135
Excess of tax cost over value (84,107,862)
------------
($15,474,727)
============
See accompanying notes to financial statements.
13
<PAGE>
Statement of Assets and Liabilities The India Fund, Inc.
June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $335,705,699) ........................................................ $ 320,407,347
Cash (including Indian rupees of $7,874,413 with a cost of $7,878,486) ............................ 10,050,893
Receivables:
Dividends and reclaims of excess taxes withheld ............................................. 1,384,780
Interest (net of withholding tax of $3,205) ................................................ 54,884
Securities sold ............................................................................. 8,749,131
Unamortized organization costs .................................................................... 106,594
Prepaid expenses .................................................................................. 50,767
-------------
Total Assets ................................................................................ 340,804,396
-------------
Liabilities
Payable for securities purchased .................................................................. 10,932,226
Due to Investment Manager ......................................................................... 277,691
Due to Administrator .............................................................................. 53,489
Accrued expenses .................................................................................. 708,712
-------------
Total Liabilities .......................................................................... 11,972,118
-------------
Net Assets ........................................................................................ $ 328,832,278
=============
-------------
NET ASSET VALUE PER SHARE ($328,832,278/34,007,133) ............................................... $ 9.67
=============
Net assets consist of:
Capital stock, $0.001 par value; 34,007,133 shares issued
and outstanding (100,000,000 shares authorized) ........................................... $ 34,007
Paid-in capital ................................................................................... 473,199,468
Accumulated net investment loss ................................................................... (1,028,875)
Accumulated net realized loss on investments ...................................................... (127,790,356)
Net unrealized depreciation in value of investments, foreign currency holdings and on
translation of other assets and liabilities denominated in foreign currency ............... (15,581,966)
-------------
$ 328,832,278
=============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
Statement of Operations The India Fund, Inc.
For the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends (net of Indian taxes withheld of $267,594) ....................................................... $1,511,843
Interest (net of Indian taxes withheld of $16,501) ......................................................... 403,228
-------------
Total investment income .................................................................................. 1,915,071
-------------
Expenses
Management fees .................................................................... $1,568,416
Custodian fees ..................................................................... 522,329
Administration fees ................................................................ 296,571
Insurance........................................................................... 88,067
Legal fees.......................................................................... 72,648
Audit fees.......................................................................... 62,483
Printing............................................................................ 39,672
Transfer agent fees ................................................................ 34,712
Amortization of organizational costs ............................................... 31,997
Directors' fees .................................................................... 19,340
NYSE fees .......................................................................... 16,037
Interest expense.................................................................... 985
Miscellaneous expenses.............................................................. 9,917
----------
Total expenses ............................................................................................ 2,763,174
-------------
Net investment loss ................................................................................. (848,103)
-------------
Net Realized and Unrealized Gain (Loss) On Investments,
Foreign Currency Holdings and Translation of Other Assets
and Liabilities Denominated in Foreign Currency:
Net realized loss on:
Security transactions ................................................................................. (30,162,501)
Foreign currency related transactions ................................................................. (347,434)
-------------
(30,509,935)
Net change in unrealized appreciation in value of investments, foreign currency holdings
and translation of other assets and liabilities denominated in foreign currency .......................... 103,034,161
-------------
Net realized and unrealized gain on investments, foreign currency holdings and translation
of other assets and liabilities denominated in foreign currency .......................................... 72,524,226
-------------
Net increase in net assets resulting from operations ........................................................ $ 71,676,123
=============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Statement of Changes in Net Assets The India Fund, Inc.
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year
June 30, 1997 Ended
(Unaudited) December 31, 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) ......................................................... $ (848,103) $ 668,886
Net realized loss on investments and foreign currency
related transactions ........................................................... (30,509,935) (70,396,376)
Net change in unrealized appreciation in value of investments,
foreign currency holdings and translation of other assets
and liabilities denominated in foreign currency ................................ 103,034,161 23,283,691
------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 71,676,123 (46,443,799)
------------- -------------
Distribution to shareholders
Net investment income ($0.01 per share) .............................................. -- (340,071)
------------- -------------
Decrease in net assets from distributions ...................................... -- (340,071)
------------- -------------
Total increase (decrease) in net assets .............................................. 71,676,123 (46,783,870)
------------- -------------
Net Assets
Beginning of period .................................................................. 257,156,155 303,940,025
------------- -------------
End of period ........................................................................ $ 328,832,278 $ 257,156,155
============= =============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
Financial Highlights The India Fund, Inc.
For a Share Outstanding throughout Each Period
<TABLE>
<CAPTION>
For the Period
February 23, 1994
For the Six (Commencement
Months Ended For the For the of Operations)
June 30, 1997 Year Ended Year Ended Through
(Unaudited) December 31, 1996 December 31, 1995 December 31, 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period ................... $7.56 $8.94 $13.92 $13.98(1)
----- ----- ------ -------
Net investment income (loss) ........................... (0.02) 0.02 (0.05) (0.01)
Net realized and unrealized gain (loss)
on investments, foreign currency
holdings, and translation of other
assets and liabilities denominated
in foreign currency ................................. 2.13 (1.39) (4.93) 0.08
----- ----- ------ -------
Net increase (decrease) from investment
operations .......................................... 2.11 (1.37) (4.98) 0.07
----- ----- ------ -------
Less Dividends and Distributions
Dividends from net investment income ................ -- (0.01) -- --
Distributions from net realized gains ............... -- -- -- (0.13)
----- ----- ------ -------
Total dividends and distributions ...................... -- (0.01) -- (0.13)
----- ----- ------ -------
Net asset value, end of period ......................... $9.67 $7.56 $8.94 $13.92
===== ===== ===== ======
Per share market value, end of period .................... $9.5625 $7.625 $8.875 $10.75
Total Investment Return Based on
Market Value2 ............................................ 25.41% (14.08)% (17.44)% (23.32)%
Ratios/Supplemental Data
Net assets, end of period (in 000s) ................... $328,832 $257,156 $303,940 $473,241
Ratios of expenses to average net assets .............. 1.94%(3) 2.03%(4) 2.03% 1.98%(3)
Ratios of net investment income (loss) to
average net assets .................................... (0.59)%(3) 0.22%(4) (0.38)% (0.06)%(3)
Portfolio turnover .................................... 28.11% 33.57% 25.28% 20.93%
Average commission rate paid* ......................... $0.0159 $0.0176 N/A N/A
</TABLE>
1 Initial public offering price $15.00 per share less underwriting discount
of $0.98 per share and offering costs of $0.04 per share.
2 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, except that for the
period ended December 31, 1994, total investment return is based on a
beginning of period price of $14.02 (initial offering price of $15.00 less
underwriting discount of $0.98). 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.
3 Annualized.
4 Includes expense waivers by the Custodian. If such expenses had not been
waived, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets would have been 2.12% and 0.13%,
respectively, for the year ended December 31, 1996.
* Computed by dividing the total amount of brokerage commissions paid by the
total number of shares of investment securities purchased and sold during
the period for which commissions were charged as required by the SEC for
fiscal years beginning on or after September 1, 1995.
See accompanying notes to financial statements.
17
<PAGE>
Notes to Financial Statements The India Fund, Inc.
June 30, 1997 (Unaudited)
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 conducts its
investment activities in India as a tax resident 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. Prior to commencing
its operations on February 23, 1994, the Fund had no activities other than the
sale of 7,133 shares of capital stock to Oppenheimer & Co., Inc.
("Oppenheimer"). At June 30, 1997, Oppenheimer owned 7,133 shares of the Fund's
capital stock.
The preparation of financial statements in accordance with generally accepted
accounting principles 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 $480,558 (0.15% of net
assets) at June 30, 1997, 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 purposes. Interest income is recorded on the accrual basis; dividend
income is recorded on the ex-dividend date or when known. The collectibility of
income receivable from Indian securities is evaluated 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.
18
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
At December 31, 1996, the Fund had a capital loss carryover of $90,041,406 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, $24,657,681 will expire in the year 2003 and $65,383,725 will expire in
the year 2004.
The Fund's capital losses and foreign exchange losses incurred after October 31,
1996, but before December 31, 1996, are deemed to arise on the first business
day of the following year. The Fund incurred and elected to defer such capital
losses and foreign exchange losses of $7,056,040 and $98,879, respectively.
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.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange.
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 both financial reporting and federal income tax purposes. The Fund reports
certain foreign exchange realized gains and losses on foreign currency related
transactions as components of realized gains and losses for financial reporting
purposes, whereas such components are treated as ordinary income for Federal
income tax purposes.
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.
Distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis
19
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
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, 1996, the Fund reclassified $467,015 from
accumulated net realized loss on investments to undistributed net investment
income as a result of permanent book and tax differences primarily relating to
realized foreign currency losses during the year ended December 31, 1996. Net
investment income and net assets were not affected by the reclassifications.
Other. Costs of $322,971 incurred by the Fund in connection with its
organization are being amortized on a straight-line basis over a five-year
period beginning with the commencement of operations of the Fund.
NOTE B: Management, Investment Advisory and Administrative Services
Advantage Advisers, Inc., a subsidiary of Oppenheimer, serves as the Fund's
Investment Manager under the terms of a management agreement (the "Management
Agreement"). Through July 31, 1997, Barclays Global Investors International Inc.
served as Investment Adviser to the Fund under the terms of an investment
advisory agreement (the "Advisory Agreement"). Effective August 1, 1997,
Advantage Advisers, Inc. assumed the portfolio management responsibility that
the Investment Adviser previously provided. Infrastructure Leasing & Financial
Services Limited serves as the Fund's Country Adviser under the terms of an
advisory agreement (the "Country Advisory Agreement"). Pursuant to the
Management Agreement, the Investment Manager will supervise the Fund's
investment program, including advising and consulting with the Fund's Investment
Adviser. Pursuant to the Country Advisory Agreement, the Country Adviser will
furnish advice and make recommendations to the Investment Adviser regarding the
purchase, sale or holding of particular Indian securities, provide research and
statistical data to the Fund and assist in the implementation and execution of
investment decisions. For its services, the Investment Manager received monthly
fees at an annual rate of 1.10% of the Fund's average weekly net assets and the
Investment Adviser and Country Adviser each received from the Investment Manager
monthly fees at an annual rate of 0.30% of the Fund's average weekly net assets.
Effective August 1, 1997, the Investment Manager will receive monthly fees at an
annual rate of 1.10% of the Fund's average weekly net assets and the Country
Adviser will receive from the Investment Manager monthly fees at an annual rate
of 0.30% of the Fund's average weekly net assets. For the six months ended June
30, 1997, fees earned by the Investment Manager amounted to $1,568,416.
Oppenheimer serves as the Fund's Administrator (the "Administrator") pursuant to
the terms of an Administration Agreement. 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 six months ended June 30, 1997, these fees amounted to
$285,166. 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 six months ended June 30,
1997, fees and expenses of the Mauritius Administrator amounted to $11,405.
20
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
On July 22, 1997, Oppenheimer Group Inc. and Oppenheimer Equities, Inc. agreed
to sell all of the stock of Oppenheimer Holdings, Inc. the parent company of the
Investment Manager and the Administrator, to CIBC Wood Gundy Securities Corp.
This transaction will result in a change of control of the Investment Manager
and, in accordance with the Investment Company Act, requires shareholder
approval of new investment advisory agreements for the Fund with the Investment
Manager and the Country Adviser.
The Fund pays each of its directors who is not a director, officer or employee
of the Investment Manager, the Investment Adviser, the Country Adviser or
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
$97,235,834 and $75,384,959, respectively, for the six months ended June 30,
1997.
At June 30, 1997, the Fund owned securities valued at approximately $46,982,543
which were in the process of being registered in the name of the Fund.
Significant delays are common in registering the transfer of securities in
India, and such transfers can take a year or longer. Indian securities
regulations normally preclude the Fund from selling such securities until the
completion of the registration process.
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. 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, which
has been provided for by the Fund. Effective June 1, 1997, under India tax law,
no taxes shall be withheld on dividends declared, distributed or paid by an
Indian company after June 1, 1997. Instead, the company distributing the
dividend is liable for tax at the rate of 10% of dividend amount. Effective June
1, 1997, the Indian government repealed the 15% withholding tax on dividends.
Going forward a 10% tax will be withheld at the source by each Indian
corporation. The Fund is subject to and accrues Indian withholding tax on
interest earned on Indian securities at the rate of 20%.
In Mauritius, the Fund is not liable for income tax under the current Mauritian
legislation. However, the Fund may, in any year, elect to pay tax on its net
investment income at any rate between 0% and 35%. For the six months ended June
30, 1997, no provision for Mauritius taxes has been made. Moreover, to the
extent
21
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
June 30, 1997 (Unaudited)
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.
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: Other
At June 30, 1997, 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.
Concentration of Credit Risk. The Fund maintains cash at Bank of New York
("BONY"), its custodian, in interest bearing accounts and the State Bank of
India ("SBI"), its sub-custodian, in a non-interest bearing account. Total cash
of the Fund at June 30, 1997, represents 3.1% of net assets.
22
<PAGE>
Results of the Annual Shareholders Meeting The India Fund, Inc.
The Fund held its annual shareholders meeting on April 18, 1997. At this
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors and ratified the selection of Price Waterhouse LLP as
the independent accountants of the Fund for the year ending December 31, 1997.
The following tables provide information concerning the matters voted on at the
meeting:
I. Election of Directors
Nominee Votes For Votes Abstained
- - ------- --------- ---------------
Jeswald W. Salacuse 25,805,900 464,733
Charles F. Barker 25,789,900 479,923
II. Ratification of Price Waterhouse LLP as the
Independent Accountants of the Fund
Votes For Votes Against Votes Abstained
- - --------- ------------- ---------------
25,932,943 227,473 109,407
23
<PAGE>
THE INDIA FUND, INC.
INVESTMENT ADVISER:
BARCLAYS GLOBAL INVESTORS
INTERNATIONAL, INC.
INVESTMENT MANAGER:
ADVANTAGE ADVISERS, INC.
ADMINISTRATOR:
OPPENHEIMER & CO., INC.
SUB-ADMINISTRATOR:
PFPC, INC.
TRANSFER AGENT:
PNC BANK, N.A.
CUSTODIAN:
THE CHASE MANHATTAN BANK, N.A.
