================================================================================
The India Fund, Inc.
Annual Report
December 31, 1997
Advantage Advisers, Inc.
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<PAGE>
The India Fund, Inc.
February 11, 1998
Dear Fund Shareholder,
We are presenting you with the audited financial statements of The India Fund,
Inc. (the "Fund") for the fiscal year ended December 31, 1997. Beginning on page
2, we provide a detailed look at the Fund's sector allocations and investments,
as well as the economic and market conditions in India.
As you are probably already aware, this has been an extremely difficult period
for all Asia-Pacific Funds. Despite volatility in the general region, India
fared well in comparison to its neighbors as a result of low inflation, low
interest rates and ample liquidity. The Fund's net asset value ("NAV") closed at
$8.11 per share on December 31, 1997, returning 7.3% over the year versus its
benchmark, the Dollex Index which returned 5.7% and the IFC Investable Index
which returned 7.3% over the same time period.
1997 was a difficult year for the Indian markets. While up for the year, the
market witnessed significant declines in the second half of the year caused by
internal political uncertainties and Asia-wide economic crisis. 1998 holds
promise: the election of a strong government could lead to much needed
infrastructure spending which, in combination with strong current consumer
spending and low interest rates, could create a favorable environment for
equities.
On behalf of the Board of Directors, thank you for your participation in the
Fund.
Sincerely,
/s/ Alan Rappaport
Alan Rappaport
<PAGE>
Report of the Investment Manager The India Fund, Inc.
For The Year Ended December 31, 1997
Overview of India's Stock Markets
The Asian currency collapse that began in July made 1997 a very difficult year
for the Asian markets. India fared relatively well during this period, as the
Indian market was one of the few markets in the region that ended the year with
a positive return. The market fell over 16% in dollar terms in the second half
after being up over 30% in the first half. The Dollex Index of 200 stocks ended
the year with a return of 5.7% in dollar terms. Similar to the other Asian
markets, the Indian market was very volatile during the year, especially during
the second half. The rupee, which had remained fairly stable during 1996,
weakened about 10% in 1997, primarily as a reaction to the large scale
devaluations of over 30-40% in other Asian currencies.
Apart from Asian market declines, other factors contributing to the market fall
in the second half of the year were political uncertainty, foreign institutional
investor selling and slow economic growth. India's ruling United Front
government, a coalition of several leftist and regional parties, lost the
support of the Congress party in November leading to yet another election
scheduled for early 1998. November 1997 was the first month in over three years
during which foreign investor flows to India were negative. India attracted
approximately $2.6 billion in foreign portfolio money during 1997 versus about
$4.3 billion in 1996.
The much anticipated economic recovery did not materialize, which further
dampened market sentiment. Corporate results for the first half of fiscal year
1998 (ended September 30, 1997), however, were quite encouraging. Companies in
the consumer goods, software, and pharmaceutical sectors announced earnings
growth ranging from 15%-60%, suggesting that the increase in disposable incomes
due to tax reductions was strengthening domestic demand. In general, companies
in the manufacturing and commodities sectors continued to see weak earnings due
to further cost increases in their inputs (such as oil), as well as weaker
pricing of global commodities due to a slowdown in demand from Asia.
The market is now focusing on the upcoming elections, which start in the middle
of February and are likely to be completed by the end of March. It is widely
believed that the new government, regardless of who it is, will continue the
gradual liberalization of the economy. Furthermore, the increased possibility of
a strong party coming to power may cause the market to rally on expectations of
increased political stability.
Politics
Political uncertainty came at an inopportune time for India. Just when India was
looking like a safe haven relative to Asian markets, the government fell and it
was subsequently announced that elections
- --------------------------------------------------------------------------------
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 Mondays. The Fund is listed
on the New York Stock Exchange under the ticker symbol IFN.
- --------------------------------------------------------------------------------
2
<PAGE>
would be held mid-term. The BSE 200 Dollex Index fell over 14% during November
and December when these actions took place.
During the first half of 1997, the coalition government was led by the United
Front but continued to be influenced by the Congress party. This resulted in the
resignation of prime minister Deve Gowda and the appointment of I.K. Gujral as
the new Prime Minister. In the second half of the year, the Congress party
raised yet another issue, demanding that the United Front remove its coalition
partner, the DMK, for its alleged involvement in the assassination of the former
Prime Minister Rajiv Gandhi. When the United Front refused, Congress withdrew
its support, leaving the President with no choice but to dismiss the government,
dissolve the parliament and ask for mid-term elections. In the interim, a
caretaker government was put in place.
We believe the uncertain political situation has not hurt the reform process in
any significant way. The 1997 budget was very favorable for the Indian consumer
with widespread tax cuts. Stock market reforms also continued with the
announcement of mandatory trading of selected large-capitalization stocks in
scripless form. The disinvestment of a part of the government's stake in the
domestic telecommunications monopoly Mahanagar Telephone Nigam Limited went
through smoothly despite the government collapse. The caretaker government is
continuing with reforms and has started the phased deregulation of the oil
sector which will eventually link petroleum prices in India to world prices.
Economy
The economy was generally expected to accelerate in the second half of 1997, but
failed to take off as the Asian crisis unfolded and government spending slowed.
CMIE (Center for Monitoring of the Indian Economy) recently revised their
forecast for 1997-98 industrial production growth down to 6.5% against 7.3% the
previous year. The slowdown has been largely concentrated in the manufacturing
sector, while both the agricultural and consumer sectors have remained strong.
The tax cuts for companies and individuals announced in the budget raised
consumer spending but did not positively impact industrial spending. Although
the government announced an increase of Rs 71 billion in public sector pay
hikes, it was largely offset by the unexpectedly high tax collection from the
Voluntary Disclosure Income scheme which generated Rs 100 billion. This should
help the government come close to achieving its fiscal deficit target of 4.5% of
GDP.
Monetary conditions were quite favorable with low inflation, low interest rates
and ample liquidity. In October, inflation dropped close to an eleven year low
of 4.0% and the latest reported year on year inflation stands at 4.83%. This
kept interest rates low during the year and helped the Reserve Bank of India
maintain an easy monetary policy to stimulate growth. Yields on 91 day T-Bills
fell from 12.97% in mid-1996 to 7.95% in mid-1997. Despite lower rates, bank
deposits continued to rise, creating abundant liquidity in the banking system.
This liquidity has not yet been absorbed by corporations because of slow
industrial activity; as a result, credit growth remains weak. Money supply
growth, however, remained within the Reserve Bank's target of 15.5-16.0%.
In response to plummeting Asian currencies, the rupee lost approximately 10% of
its value versus the U.S. dollar in the second half of 1997. The Reserve Bank of
India defended the currency, causing it to stabilize around Rs 39-40 to the U.S.
dollar. To prevent the rupee from weakening further, the lowering of the cash
reserve ratio and bank rates by 2%, which was announced in the October credit
policy, has been delayed. The current account deficit is almost half its
1990-1991 levels, when the rupee had its last significant devaluation.
3
<PAGE>
Performance
After being up 27.9% in net asset value terms during the first half of 1997, the
Fund's NAV fell 16.1% in the second half, leading to an overall increase of 7.3%
in net asset value terms for the full year. This compares favorably to market
indices, with the Dollex index of 200 leading stocks up 5.7% and the IFC
Investable Index up 7.3% for the year. The Fund's overweighting in the
technology and pharmaceutical sectors helped performance, while exposure to
commodities, such as steel and aluminum, hurt returns, as they underperformed on
worries of pricing pressures due to the slowdown in Asia.
Portfolio Strategy
The Fund remained overweighted in technology and pharmaceutical companies
throughout 1997. Earnings from these companies were sheltered from the effects
of the economic slowdown in India as well as the emerging slowdown in Asia. The
Fund continues to favor these companies due to their strong growth prospects and
high export earnings, which serves as an inherent hedge in case of a weakening
currency. Stocks in the technology sector outperformed the market dramatically
throughout the year, with stronger performance in the third quarter when signs
of an economic recovery were not visible. Pharmaceutical stocks also generally
performed better than the broad market, again with stronger performance mainly
in the second half of the year. We believe that India is competitive in these
industries due to the knowledge-intensive nature of these businesses. These
stocks should also perform relatively well in the short term due to a still weak
economic scenario.
In the first half of this year, the Fund increased its exposure to stocks that
the Investment Adviser believed would benefit from an economic recovery. This
strategy was moderated in the second half as disappointing first half results
for the fiscal year 1997-1998 (ended September 30, 1997) came in and the Asian
crisis worsened the outlook for commodities. The Fund reduced its holdings in
steel, aluminum and petrochemicals and increased its exposure to defensive
consumer related stocks. Small increases were made to holdings in selected
recovery plays, such as cement and two-wheeled vehicles, as we believe they are
more insulated from global supply and demand dynamics. When we see clearer signs
of an economic pickup and more attractive valuations emerge, we may again
increase our exposure to these recovery orientated companies.
Key Sector Holdings
<TABLE>
<CAPTION>
% of Total holdings
Sector December 31, 1997 Top holdings in sector
- ------ ----------------- ----------------------
<S> <C> <C>
Technology 15.7% NIIT, Infosys
Pharmaceuticals 13.1% Ranbaxy, Dr. Reddy's
Vehicles & Vehicle Components 11.8% Punjab Tractors, TELCO
Consumer Non-Durables 9.3% Hindustan Lever, ITC
Textiles (synthetic & cotton) 8.9% Reliance Industries
Telecommunications 7.8% MTNL, VSNL
Petroleum Related 7.3% Hindustan Petroleum Corporation
Indian Petrochemicals
</TABLE>
4
<PAGE>
Technology is the Fund's most heavily weighted sector. The software services
segment of the technology sector has grown by 55% annually over the last 5
years, spurred by domestic deregulation and escalating global demand for
low-cost, high-quality software and services.
The top companies in the sector have demonstrated rapid growth in revenues and
earnings. NIIT, the Fund's top holding in the sector, reported 42% growth in
both sales and net profits for the fiscal year ended September 30, 1997. NIIT is
an outstanding Information Technology (IT) training and software development
company that is riding the software services export boom, while continuing to
exploit its position as the leading brand in the domestic IT training market.
Infosys Technologies, another significant holding of the Fund, reported 79%
growth in sales and 63% growth in earnings year-on-year for the half year ended
September 30, 1997.
The software segment is expected to maintain its growth rate for the next 2-3
years as an increasing number of Western companies turn to Indian software
companies for help in dealing with the year 2000 date conversion problem.
Furthermore, the sector is an excellent hedge in an uncertain political scenario
and benefits from any depreciation of the rupee.
The Fund is significantly overweighted in the Pharmaceuticals sector in relation
to the Bombay Sensitive Index as well as the IFC Investable Index. The Indian
pharmaceutical industry has grown 15-17% annually over the last several years.
Prospects for strong players in the sector appear to be attractive due to
several factors. Several blockbuster drugs will come off-patent over the next
few years and domestic companies able to meet exacting regulatory standards can
target the large generic drug market overseas; multi-national pharmaceutical
companies are likely to use India as a low-cost manufacturing base to source
drugs; as Indian patent laws come on par with U.S. patent laws, domestic
companies with strong marketing/distribution networks will be attractive
partners for product-rich multi-national companies that do not want to set up
production in India.
Ranbaxy Laboratories, the Fund's top holding in the sector, is creating a
marketing infrastructure overseas through which it plans to distribute
off-patent drugs manufactured in India. It has also successfully navigated the
FDA drug approval process and is launching generic drugs in the U.S. beginning
in 1998. Simultaneously, Ranbaxy has built a strong stable of domestic brands
and is expanding into new therapeutic areas. In results for the six months ended
September 30, 1997, Ranbaxy showed sales up 19% year-on-year and net profits up
24%. In addition, the sector as a whole benefits from rupee depreciation and is
a key defensive play at a time when the economic recovery is delayed.
Vehicles is the third largest sector in the Fund. The commercial and
agricultural segments of the sector are distinct in terms of their sensitivity
to the economy. The commercial segment is highly economy-sensitive and was
impacted negatively by the delayed economic recovery. The Fund is underweighted
in the commercial segment. Tata Engineering and Locomotive, the Fund's largest
holding in the segment, reported a 16% decline in sales and 35% decline in
earnings year-on-year for the half year ended September 30, 1997.
In contrast, the agricultural segment did well due to rising rural disposable
incomes generated by good monsoons. The Fund is overweighted in the agricultural
segment. Punjab Tractors, India's
5
<PAGE>
only fully indigenous tractor manufacturer, is the Fund's largest holding in the
sector, and posted sales growth of 29% and earnings growth of 75% year-on-year
for the half year ended September 30, 1997.
The Fund is currently underweighted in Consumer Non-Durables, which had sales
growth of approximately 20% in 1996-97. The winners in this sector have
demonstrated strong non-cyclical growth and have been rewarded with high market
valuations. Hindustan Lever (HLL), India's largest company in terms of market
capitalization, is the Fund's largest holding in the sector. In results for the
half year ended June 30, 1997, HLL posted 19% growth in sales and 39% growth in
net profits year-on-year. Formidable entry barriers such as ownership of strong
brands and control of extensive distribution networks have protected existing
players in this sector from new entrants. However, competition among current
players is intense and heavy expenditure on advertising and promotions has lead
to pressure on operating margins. To increase its exposure to this defensive
sector, the Fund is focusing on companies with strong but under-leveraged brands
that are at relatively attractive valuations.
The Fund is overweighted in the Petroleum sector, which is on the threshold of a
transformation from a highly-regulated industry to a deregulated industry open
to market forces. In 1997, the Indian government announced a phased decontrol of
the sector to be completed by 2002. As market pricing for oil products becomes a
reality, integrated refining and marketing companies with established
infrastructure and distribution will gain significantly. Hindustan Petroleum
Corporation (HPCL), India's second largest integrated refining and marketing
company, is the Fund's largest holding in the sector and is expected to
significantly benefit from deregulation. In results for the half year ended
September 30, 1997, HPCL posted 14% growth in sales and 15% growth in net
profits year-on-year.
In the Telecommunications sector, Mahanagar Telephone Nigam Limited (MTNL) and
Videsh Sanchar Nigam Limited (VSNL), the Fund's top holdings in the sector,
fared well in 1997.
MTNL is the sole provider of telecommunication services in Bombay and Delhi,
India's fastest-growing cities. While the government has recently allowed one
competitor in each city, the new competition is expected to pose only a limited
risk to MTNL. The high license fees that new entrants have to pay the government
places a great deal of financial strain on their network rollout and a lack of
number portability will make it difficult for them to lure MTNL's customers
away. MTNL posted 13% growth in revenues and 21% in net profits year-on-year for
the half year ended September 30, 1997.
VSNL, which offers international long-distance service, is one of the last
international long distance monopolies in the Asia-Pacific region. With an
assured monopoly till 2004, a depreciating rupee, and increasing call volumes,
VSNL is well positioned for growth. VSNL posted 22% growth in revenues and 57%
in net profits year-on-year for the half year ended September 30, 1997.
The Fund is overweighted in the Synthetic Textiles/Petrochemicals sector. India
is one of the largest and fastest growing petrochemicals markets in the world.
In both the primary product segments, polymers and fibers, demand growth
exceeded 15% in fiscal 1997 and is expected to remain strong over the next two
years. The Fund's overweight exposure in the sector is the result of an
overweight position in Reliance Industries (RIL). For the half year ended
September 30, 1997, RIL announced 65% growth in sales and 29% growth in net
profits year-on-year.
6
<PAGE>
Outlook for India
There are a number of positive developments which have taken place in India over
the last year. Savings rates have increased from 22.8% of GDP in 1991-1992 to
25.6% in 1995-1996. The fiscal deficit decreased from 8.3% of GDP to 5.0% in the
last six years. Privatization and disinvestment by the government has continued
despite changes in government. Import tariffs have come down to reasonable
levels in most industries and oil sector deregulation has begun. The stock
market reforms have also progressed at a reasonable pace with the latest being
the start of mandatory trading on January 15th of eight large-capitalization
stocks in scripless form. This, over time, is expected to decrease the delays in
share transfer due to a decrease in handling of paper. Interest rates are low
and there is plenty of liquidity in the banking system. Consumer spending is
also strong both due to a rise in disposable incomes in the rural sector
generated by good monsoons as well as widespread tax cuts on income. This should
provide a good foundation for growth in the economy.
There are a few impediments to this growth. Political uncertainty will delay
significant government spending and, in turn, will delay the economic recovery
which is heavily dependent on large infrastructure projects being cleared by the
government. The currency crisis and slowdown in Asia pose risk to certain
sectors in terms of oversupply and a weak pricing scenario. It also puts the
Indian rupee at some risk due to fears of a competitive devaluation. While this
risk cannot be ignored, some of the concerns that affected the other currencies
are not applicable to India. The current account deficit as a percentage of GDP
is about 1.5% versus 4-5% for other Asian countries. The financial system is not
heavily exposed to foreign debt. The current depreciation of the rupee has
already reduced the propensity of the corporations to use cheaper foreign debt
instead of going to Indian banks. This may stimulate lending of banks.
Overall, we remain positive on the long term prospects for the Indian market. We
do expect volatility at least until we see a clearer outcome of the elections. A
stronger political party in the center could provide a catalyst for a market
rally. Early polls indicate a lead by the BJP but since Sonia Gandhi, the wife
of the former Prime Minister Rajiv Gandhi, has agreed to campaign for the
Congress party, there may be some shift in votes. We may see the rupee weaken
slightly but do not expect a major crisis as evidenced in the rest of Asia.
Relative to its five-year average price earning ratio of 19, we believe the
market is currently trading at an attractive valuation of 11.4.
Punita Kumar-Sinha
February 11, 1998
In response to recent amendments to Maryland corporate law, the Board of
Directors recently reviewed various corporate governance provisions in the
Fund's By-Laws and approved amendments to the Fund's By-Laws to (1)
increase the percentage of stockholders' voting power that is required to
call a special meeting of its stockholders to a majority of the votes
entitled to be at the meeting and (2) reduce the minimum permissible board
committee size to one director.
At a recent meeting, the Board of Directors of the Fund approved an
amendment to the Country Advisory Agreement among the Investment Adviser,
Infrastructure Leasing & Financial Services Limited ("ILFS") and the Fund.
The effect of the amendment is to reduce ILFS' portion of the overall
investment advisory fees paid by the Fund.
7
<PAGE>
Schedule of Investments The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
INDIA 98.68%
==============================================================================================================================
COMMON STOCKS 98.55%
==============================================================================================================================
<S> <C> <C> <C> <C>
Cement 2.11%
72,920 Associated Cement Companies ................................ $3,753,445 $2,579,638
133,000 Dalmia Cement .............................................. 1,582,861 458,036
267,600 Gujarat Ambuja Cements ..................................... 2,352,473 1,884,122
70,000 Gujarat Ambuja Cements GDR ................................. 616,000 498,750
5,532 Jaiprakash Industries+ ..................................... 15,425 1,411
1,600 Mysore Cements ............................................. 3,683 376
443,640 Shree Cement+ .............................................. 947,401 165,233
---------- ----------
9,271,288 5,587,566
---------- ----------
Chemicals 0.87%
150 Atul Products .............................................. 292 85
515,500 ICI (India) ................................................ 2,743,294 2,321,065
50 Indian Organic Chemicals+ .................................. 140 8
1,000 JF Laboratories+ ........................................... 1,741 59
---------- ----------
2,745,467 2,321,217
---------- ----------
Consumer Miscellaneous 0.00%
100 Nahar Spinning Mills ....................................... 2,574 292
375 Surya Roshni ............................................... 990 158
---------- ----------
3,564 450
---------- ----------
Consumer Non-Durables 9.33%
384,752 Hindustan Lever ............................................ 8,650,959 13,579,194
598,000 ITC ........................................................ 9,030,803 9,435,280
41,000 Ponds India ................................................ 1,040,195 1,045,134
70,000 Reckitt & Colman of India .................................. 713,909 694,643
---------- ----------
19,435,866 24,754,251
---------- ----------
Diversified Industries 2.27%
138 DCM Limited ................................................ 352 147
124,115 DCM Limited Warrants, expiration date 11/08/99+* ........... 0 0
650 Grasim Industries .......................................... 14,645 5,787
300 HMG Industries+ ............................................ 616 10
1,112,625 Indian Rayon ............................................... 11,381,866 5,258,005
175,000 Indian Rayon GDR ........................................... 1,132,292 748,125
10,300 Kesoram Industries ......................................... 48,727 5,991
---------- ----------
12,578,498 6,018,065
---------- ----------
</TABLE>
8
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (continued)
Electricity 0.00%
900 CESC Ltd ................................................... $ 7,373 $ 758
439,000 CESC Ltd Class B Warrants, expiration date 9/30/99+* ....... 2,969,313 0
450 Tata Power Co .............................................. 2,389 1,257
------------ ------------
2,979,075 2,015
------------ ------------
Electronics & Electrical 3.20%
528,333 Asea Brown Boveri .......................................... 8,522,646 6,334,605
350,000 Asian Electronics .......................................... 2,200,052 803,571
846,600 Crompton Greaves ........................................... 5,481,835 642,509
1,000,000 KEC International .......................................... 3,276,480 688,776
3,850 Siemens India+ ............................................. 85,241 19,225
------------ ------------
19,566,254 8,488,686
------------ ------------
Engineering 2.76%
623,450 Advani Oerlikon ............................................ 1,748,384 413,513
200 Lakshmi Machine Works ...................................... 39,518 10,714
1,334,950 Larsen & Toubro ............................................ 8,560,293 6,904,620
------------ ------------
10,348,195 7,328,847
------------ ------------
Extractive Industries 6.75%
451,125 Hindalco Industries ........................................ 8,986,766 8,550,660
11,815,200 Hindustan Zinc ............................................. 5,281,428 4,295,066
631,750 Indian Aluminium ........................................... 3,976,574 1,188,560
100,000 Indian Aluminium GDR ....................................... 312,979 200,000
4,106,500 National Aluminium Company ................................. 5,336,725 3,090,351
123,930 Sesa Goa 927,689 576,970
------------ ------------
24,822,161 17,901,607
------------ ------------
Fertilizers 0.01%
25,000 Chambal Fertilizers & Chemicals ............................ 19,407 6,569
11,900 Nagarjuna Fertilizer & Chemicals ........................... 12,995 4,250
6,200 Southern Petrochemicals Industrial Corporation ............. 24,152 3,717
------------ ------------
56,554 14,536
------------ ------------
Finance 4.84%
1,800,100 Bank of Baroda ............................................. 4,955,513 5,074,261
749,300 Corporation Bank+ .......................................... 1,725,028 1,873,250
3,619,300 Oriental Bank of Commerce .................................. 8,876,054 5,885,979
------------ ------------
15,556,595 12,833,490
------------ ------------
</TABLE>
9
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMONSTOCKS (continued)
Food 0.01%
700 American Dry Fruits+ ....................................... $ 1,397 $ 88
1,350 Nestle India ............................................... 11,956 9,367
100 Praj Industries ............................................ 608 107
250,000 Rahul Dairy & Allied Products+ ............................. 79,643 5,740
700 Rank Aqua Estates+ ......................................... 1,775 16
----------- -----------
95,379 15,318
----------- -----------
Hotels & Leisure 0.00%
150 Indian Hotels .............................................. 2,449 2,384
----------- -----------
Household Appliances 0.18%
600,000 IFB Industries+ ............................................ 3,271,110 296,939
2,700 Kalyani Sharp+ ............................................. 3,693 964
12,200 Phil Corporation ........................................... 33,334 7,781
30 Phillips India ............................................. 29 50
645,100 Samtel Colour .............................................. 1,557,877 158,806
3,747 Videocon Appliances ........................................ 21,892 1,195
1,800 Videocon International ..................................... 5,876 1,343
78 Voltas+ .................................................... 362 54
450 Whirlpool of India+ ........................................ 2,661 270
----------- -----------
4,896,834 467,402
----------- -----------
Packaging 0.12%
660,320 Flex Industries+ ........................................... 4,118,949 320,895
77,310 Flex Industries Warrants, expiration date 11/30/99+* ....... 0 6,547
300 Polyplex Corporation ....................................... 1,018 73
500 Universal Prime Aluminium+ ................................. 788 22
----------- -----------
4,120,755 327,537
----------- -----------
Petroleum Related 7.25%
1,230,000 Hindustan Petroleum Corporation ............................ 15,299,356 15,202,423
994,400 Indian Petrochemicals ...................................... 3,644,451 1,794,740
50,000 Indian Petrochemicals GDR .................................. 238,500 256,250
1,799,950 Madras Refineries .......................................... 5,625,585 1,985,914
----------- -----------
24,807,892 19,239,327
----------- -----------
</TABLE>
10
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMONSTOCKS (continued)
Pharmaceuticals 13.05%
1,136,800 Dr. Reddy's Laboratories ................................... $ 9,826,330 $ 9,316,250
600,000 E. Merck (India) ........................................... 3,952,219 3,221,939
318,550 Glaxo (India) .............................................. 2,258,714 3,315,520
1,250 Merind ..................................................... 14,974 3,547
798,800 Orchid Chemicals & Pharmaceuticals ......................... 2,530,413 1,584,354
800 Pfizer India ............................................... 9,917 8,332
800,000 Ranbaxy Laboratories ....................................... 15,833,512 14,372,449
224,800 Rhone-Poulenc India ........................................ 3,109,285 2,253,735
100,000 Sun Pharmaceuticals ........................................ 582,052 565,689
----------- ------------
38,117,416 34,641,815
----------- ------------
Pulp & Paper 0.26%
1,300,000 Andhra Pradesh Rayons ...................................... 3,399,420 630,102
1,250 Pudumjee Pulp & Paper Mills ................................ 10,224 1,188
835,000 Rama Newsprint & Papers+ ................................... 671,275 53,252
200 Seshasayee Papers & Boards ................................. 219 101
----------- ------------
4,081,138 684,643
----------- ------------
Steel 1.38%
9,300 Essar Steel ................................................ 35,853 4,033
9,700 Jindal Strips .............................................. 127,963 12,682
1,063,000 Tata Iron & Steel .......................................... 6,586,726 3,640,504
----------- ------------
6,750,542 3,657,219
----------- ------------
Steel Products 0.00%
800 Choksi Tubes ............................................... 1,897 428
100 Super Forging Steel+ ....................................... 179 11
----------- ------------
2,076 439
----------- ------------
Technology 15.72%
300,000 BFL Software+ .............................................. 808,541 463,010
1,000 Digital Equipment (India) .................................. 2,112 3,533
705,200 DSQ Software ............................................... 1,160,223 724,089
400,000 Infosys Technologies ....................................... 3,133,097 12,579,082
100,000 Mastek ..................................................... 558,538 591,837
1,272,700 NIIT ....................................................... 6,947,231 22,077,449
263,300 Pentafour Software and Exports ............................. 1,076,853 1,088,128
961,780 Satyam Computer Services ................................... 1,965,254 4,195,520
400 Silverline Industries ...................................... 547 339
----------- ------------
15,652,396 41,722,987
----------- ------------
</TABLE>
11
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMONSTOCKS (continued)
Telecom 7.56%
2,240,000 Mahanagar Telephone Nigam .................................. $13,649,306 $14,742,857
379,200 Videsh Sanchar Nigam GDR ................................... 6,330,469 5,318,280
----------- -----------
19,979,775 20,061,137
----------- -----------
Telecom Equipment 0.19%
600 Bhagyanagar Metals ......................................... 1,448 383
175,000 MSL Industries ............................................. 725,100 110,937
286,600 Punjab Wireless ............................................ 2,483,915 407,601
100 Telephone Cables+ .......................................... 444 7
----------- -----------
3,210,907 518,928
----------- -----------
Textiles-Cotton 1.04%
1,063,000 Arvind Mills ............................................... 3,896,588 2,393,106
100 HP Cotton Textile Mills* ................................... 233 29
200,000 Vardhaman Spinning & General Mills ......................... 455,739 357,143
----------- -----------
4,352,560 2,750,278
----------- -----------
Textiles - Synthetic 7.85%
5,200 DCL Polyesters ............................................. 10,254 464
1,600 Ester Industries+ .......................................... 1,673 347
600 Haryana Petrochemicals+ .................................... 685 23
150 JCT+ ....................................................... 216 24
4,789,018 Reliance Industries ........................................ 18,817,078 20,218,941
60,000 Reliance Industries GDR .................................... 476,220 516,000
500,100 Sanghi Polyesters+ ......................................... 485,262 88,028
5,800 SRF ........................................................ 15,613 3,122
----------- -----------
19,807,001 20,826,949
----------- -----------
Transportation 0.05%
8,700 Modiluft+ .................................................. 11,092 1,665
1,370,100 NEPC (India) ............................................... 3,925,314 143,301
----------- -----------
3,936,406 144,966
----------- -----------
</TABLE>
12
<PAGE>
Schedule of Investments (continued) The India Fund, Inc.
December 31, 1997
<TABLE>
<CAPTION>
Number Percent
of Shares Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMONSTOCKS (continued)
Vehicles 11.16%
68,175 Bajaj Auto ................................................. $ 1,059,504 $ 1,052,191
110,000 Bajaj Auto GDR ............................................. 1,952,500 2,208,250
4,900 Hindustan Motors ........................................... 6,416 1,500
311,050 Mahindra & Mahindra ........................................ 3,106,820 2,551,086
1,000,000 Punjab Tractors ............................................ 6,988,502 17,366,072
326,060 Tata Engineering & Locomotive .............................. 3,710,223 2,464,165
350,650 TVS Suzuki ................................................. 2,430,258 3,967,175
------------- ------------
19,254,223 29,610,439
------------- ------------
Vehicle Components 0.59%
25 Antifriction Bearings Corporation .......................... 100 20
1,000 Auto Corp of Goa ........................................... 4,901 638
125 FAG Precision Bearings ..................................... 334 156
100 Gleitlager+ ................................................ 96 9
348,500 Kirloskar Oil Engines ...................................... 1,651,947 257,819
195 Motor Industries Company ................................... 24,892 24,499
1,400 Patheja Forgings & Auto Parts+ ............................. 4,069 230
95 SKF Bearings India ......................................... 10,539 3,037
93,500 Swaraj Engines ............................................. 1,040,449 1,288,010
------------- ------------
2,737,327 1,574,418
------------- ------------
TOTAL COMMON STOCKS 289,168,593 261,496,916
============= ============
<CAPTION>
Par Value Percent
(000) Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
==============================================================================================================================
BONDS 0.13%
==============================================================================================================================
Diversified Industries 0.13%
4,220 INR DCM Limited NCD 13.00%, 11/6/01* ........................... $ 134,584 $ 117,716
4,096 INR DCM Limited NCD 13.00%, 11/6/02* ........................... 130,627 114,254
4,096 INR DCM Limited NCD 13.00%, 11/6/03* ........................... 130,627 114,254
------------ -------------
395,838 346,224
------------ -------------
TOTAL BONDS 395,838 346,224
============ ============
TOTAL INDIA 289,564,431 261,843,140
============ ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Par Value Percent
(000) Security of Holdings Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATION 1.32%
$3,500 FHLMC Discount Note 5.77%, 01/08/98 ........................ $ 3,496,073 $ 3,496,073
------------ ------------
TOTAL SHORT TERM OBLIGATION 3,496,073 3,496,073
============ ============
TOTAL INVESTMENTS** 100.00% $293,060,504 $265,339,213
============ ============
</TABLE>
Footnotes and Abbreviations
GDR - Global Depository Receipt
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 substantially the same as
for book purposes.
The aggregate gross unrealized appreciation (depreciation) for all
securities is as follows:
Excess of value over tax cost $48,505,244
Excess of tax cost over value (76,226,535)
------------
($27,721,291)
============
See accompanying notes to financial statements.
14
<PAGE>
Statement of Assets and Liabilities The India Fund, Inc.
December 31, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $293,060,504) ............................................................. $ 265,339,213
Cash (including Indian Rupees of $4,943,894 with a cost of $4,934,393) ................................. 11,062,635
Receivables:
Dividends and reclaims of excess taxes withheld ..................................................... 310,151
Interest (net of withholding tax of $2,919) ......................................................... 54,167
Securities sold ..................................................................................... 1,968,997
Unamortized organization costs ......................................................................... 74,067
Prepaid expenses ....................................................................................... 85,099
-------------
Total Assets ..................................................................................... 278,894,329
-------------
Liabilities
Payable for securities purchased ....................................................................... 2,316,060
Due to Investment Manager .............................................................................. 248,822
Due to Administrator ................................................................................... 49,631
Accrued expenses ....................................................................................... 465,357
-------------
Total Liabilities ................................................................................ 3,079,870
-------------
Net Assets ............................................................................................. $ 275,814,459
=============
NET ASSET VALUE PER SHARE ($275,814,459/34,007,133) .................................................... $ 8.11
=============
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 ........................................................................................ 471,424,988
Accumulated net investment loss ........................................................................ (444,890)
Accumulated net realized loss on investments ........................................................... (167,343,789)
Net unrealized depreciation in value of investments, foreign currency holdings and
on translation of other assets and liabilities denominated in foreign currency ...................... (27,855,857)
-------------
Net Assets ............................................................................................. $ 275,814,459
=============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Statement of Operations The India Fund, Inc.
For the Year Ended December 31, 1997
<TABLE>
<S> <C> <C>
Investment Income
Dividends (net of Indian taxes withheld and uncollectible amounts of
$112,273 and $61,917, respectively) ..................................................................... $ 4,336,212
Interest (net of Indian taxes withheld of $21,828) ......................................................... 516,540
------------
Total investment income ................................................................................. 4,852,752
------------
Expenses
Management fees ............................................................................ $ 3,323,805
Custodian fees ............................................................................. 1,311,260
Administration fees ........................................................................ 626,327
Insurance .................................................................................. 169,855
Legal fees ................................................................................. 151,500
Audit fees ................................................................................. 148,502
Transfer agent fees ........................................................................ 76,000
Amortization of organizational costs ....................................................... 64,525
Directors' fees ............................................................................ 39,503
NYSE fees .................................................................................. 32,339
Interest expense ........................................................................... 4,077
Miscellaneous expenses ..................................................................... 20,685
------------
Total expenses .......................................................................................... 5,968,378
------------
Net investment loss ..................................................................................... (1,115,626)
------------
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 .................................................................................. (70,063,368)
Foreign currency related transactions .................................................................. (922,972)
------------
(70,986,340)
Net change in unrealized appreciation in value of investments, foreign currency holdings
and translation of other assets and liabilities denominated in foreign currency ......................... 90,760,270
------------
Net realized and unrealized gain on investments, foreign currency holdings and
translation of other assets and liabilities denominated in foreign currency ............................. 19,773,930
------------
Net increase in net assets resulting from operations ....................................................... $ 18,658,304
============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
Statement of Changes in Net Assets The India Fund, Inc.
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) ........................................................... $ (1,115,626) $ 668,886
Net realized loss on investments and foreign currency
related transactions ........................................................... (70,986,340) (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 ................................................ 90,760,270 23,283,691
------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 18,658,304 (46,443,799)
------------- -------------
Distribution to shareholders
Net investment income ($0.01 per share) ................................................ -- (340,071)
Decrease in net assets from distribution ....................................... -- (340,071)
Total increase (decrease) in net assets ................................................ 18,658,304 (46,783,870)
------------- -------------
Net Assets
Beginning of year ...................................................................... 257,156,155 303,940,025
------------- -------------
End of year ............................................................................ $ 275,814,459 $ 257,156,155
============= =============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Financial Highlights The India Fund, Inc.
For a Share Outstanding throughout Each Period
<TABLE>
<CAPTION>
For the Period
February 23,1994
(Commencement
For the For the For the of Operations)
Year Ended Year Ended Year Ended through
December 31, 1997 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) ................. (0.03) 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 ........................ 0.58 (1.39) (4.93) 0.08
------------- ------------- ------------ ------------
Net increase (decrease) from investment
operations ................................. 0.55 (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 ............... $ 8.11 $ 7.56 $ 8.94 $ 13.92
============= ============= ============ ============
Per share market value, end of period ........ $ 7.375 $ 7.625 $ 8.875 $ 10.75
Total Investment Return Based on
Market Value(2) ............................ (3.28)% (14.08)% (17.44)% (23.32)%
Ratios/Supplemental Data
Net assets, end of period (in 000s) .......... $ 275,814 $ 257,156 $ 303,940 $ 473,241
Ratios of expenses to average net assets ..... 1.98% 2.03%(4) 2.03% 1.98%(3)
Ratios of net investment income (loss)
to average net assets ...................... (0.37)% 0.22%(4) (0.38)% (0.06)%(3)
Portfolio turnover ........................... 42.61% 33.57% 25.28% 20.93%
Average commission rate paid(5) .............. $ 0.0139 $ 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.
5 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.
18
<PAGE>
Notes to Financial Statements The India Fund, Inc.
December 31, 1997
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 has established 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. 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
CIBC Oppenheimer Corp. ("CIBC Oppenheimer"), formerly known as Oppenheimer &
Co., Inc. At December 31, 1997, CIBC 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 $352,800 (0.13% of net
assets) at December 31, 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 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 periodically, and any resulting allowances for
uncollectible amounts are reflected currently in the determination of investment
income.
19
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
December 31, 1997
Tax Status. No provision is made for U.S. Federal income or excise taxes as it
is the Fund's intention to continue to qualify as a regulated investment company
and to make the requisite distributions to its shareholders that will be
sufficient to relieve it from all or substantially all Federal income and excise
taxes.
At December 31, 1997, the Fund had a capital loss carryover of $146,977,338
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, $65,383,725
will expire in the year 2004, and $56,935,932 will expire in 2005.
The Fund's capital losses and foreign exchange losses incurred after October 31,
1997, but before December 31, 1997, 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 approximately $20,366,451 and $444,890,
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.
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 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.
20
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
December 31, 1997
Distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized capital gains. To
the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of additional paid-in capital.
During the period ended December 31, 1997, the Fund reclassified $922,972 from
accumulated net realized loss on investments to accumulated net investment loss
as a result of permanent book and tax differences relating to realized foreign
currency losses and reclassified $1,774,480 from accumulated net investment loss
to paid in capital as a result of permanent tax differences relating to net
operating loss for the year ended December 31, 1997. Net investment loss 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
On November 3, 1997, CIBC Wood Gundy Securities Corp., the broker-dealer
subsidiary of The Canadian Imperial Bank of Commerce, acquired all of the stock
of Oppenheimer Holdings, which at the time was the indirect parent of Advantage
Advisers, Inc., the Fund's Investment Manager. In connection with the
acquisition, CIBC Wood Gundy Securities Corp. was merged into Oppenheimer & Co.,
Inc., whose name was changed to CIBC Oppenheimer Corp.
Advantage Advisers, Inc., 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. ("BGI") 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
("ILFS") 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 supervises the Fund's investment program and
is responsible on a day-to-day basis for investing the Fund's portfolio in
accordance with its investment objective and policies. Pursuant to the Country
Advisory Agreement, the Country Adviser furnishes advice and makes
recommendations to the Investment Manager regarding the purchase, sale or
holding of particular Indian securities, provides research and statistical data
to the Fund and assists in the implementation 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 Country
Adviser received from the Investment Manager monthly fees at an annual rate of
0.30% of the Fund's average weekly net assets.
21
<PAGE>
Notes to Financial Statements (continued) The India Fund, Inc.
December 31, 1997
Through July 31, 1997, Barclays Global Investors International Inc. received
from the Investment Manager monthly fees at an annual rate of 0.30% of the
Fund's average weekly net assets. For the year ended December 31, 1997, fees
earned by the Investment Manager amounted to $3,323,805, of which the Investment
Manager informed the Fund it paid $512,811 to BGI and $906,492 to ILFS.
CIBC 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 year ended December 31, 1997, these fees
amounted to $604,328. 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, 1997, fees and expenses of the Mauritius Administrator
amounted to $21,999.
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
$136,172,667 and $120,562,136, respectively, for the year ended December 31,
1997.
At December 31, 1997, the Fund owned securities valued at approximately
$28,567,000, 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, the
Indian government repealed the 15% withholding tax on dividends declared,
distributed or paid by an Indian company after June 1, 1997. Under Indian 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 the dividend amount. The Fund
is subject to and accrues Indian withholding tax on interest earned on Indian
securities at the rate of 20%.
22
<PAGE>
Notes to Financial Statements (concluded) The India Fund, Inc.
December 31, 1997
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 year ended December
31, 1997, no provision for Mauritius taxes has been made. Moreover, 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 and would be subject to the applicable tax on
dividends declared, distributed or paid prior to June 1, 1997, which was at the
rate of 20%.
The foregoing is based on current interpretation and practice and is subject to
any future changes in Indian or Mauritius tax laws or in the tax treaty between
India and Mauritius.
NOTE E: Other
At December 31, 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 December 31, 1997, represents 4.0% of net assets.
- --------------------------------------------------------------------------------
U.S. Federal Taxation Notice (unaudited)
The Fund paid foreign taxes of $131,182 during the fiscal year ended December
31, 1997, which it intends to pass through pursuant to Section 853 of the
Internal Revenue Code, to its shareholders, which is deemed to be foreign source
income for tax information reporting purposes.
- --------------------------------------------------------------------------------
23
<PAGE>
Report of Independent Accountants The India Fund, Inc.
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, 1997, 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 three years in the period then ended
and for the period February 23, 1994 (commencement of operations ) through
December 31, 1994, in conformity with generally accepted accounting principles.
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 generally accepted auditing standards 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, 1997 by correspondence with the custodians and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 24, 1998
24
<PAGE>
Dividends and Distributions The India Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
The Fund intends to distribute annually to shareholders substantially all of its
net investment income, and to distribute any net realized capital gains at least
annually. Net investment income for this purpose is income other than net
realized long and short-term capital gains net of expenses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
The Bank of New York (the "Plan Agent") in Fund shares pursuant to the Plan,
unless such shareholders elect to receive distributions in cash. Shareholders
who elect to receive distributions in cash will receive all distributions in
cash paid by check in dollars mailed directly to the shareholder by The Bank of
New York, as dividend paying agent. In the case of shareholders such as banks,
brokers or nominees, that hold shares for others who are beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of shares
certified from time to time by the shareholders as representing the total amount
registered in such shareholders' names and held for the account of beneficial
owners that have not elected to receive distributions in cash. Investors that
own shares registered in the name of a bank, broker or other nominee should
consult with such nominee as to participation in the Plan through such nominee,
and may be required to have their shares registered in their own names in order
to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value; provided,
however, that if the net asset value is less than 95% of the market price on the
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. Because of the foregoing
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 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.
25
<PAGE>
Dividends and Distributions (continued) The India Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
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
commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax that may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
101 Barclay Street, New York, New York 10286.
26
<PAGE>
Results of Special Meeting The India Fund, Inc.
The Fund held a Special Meeting of Shareholders on September 30, 1997, at which
a new Management Agreement, with Advantage Advisers, Inc. and a new Country
Advisory Agreement with Infrastucture Leasing & Financial Services Limited were
approved. The following table provides information concerning the matters voted
on at the meeting:
I. Approval of a new Management Agreement
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
25,098,289 303,899 243,206
II. Approval of a new Country Advisory Agreement
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
24,666,598 309,499 669,297
27
<PAGE>
================================================================================
THE INDIA FUND, INC.
INVESTMENT ADVISER:
ADVANTAGE ADVISERS, INC.
INVESTMENT MANAGER:
ADVANTAGE ADVISERS, INC.
ADMINISTRATOR:
CIBC OPPENHEIMER CORP.
SUB-ADMINISTRATOR:
PFPC, INC.
TRANSFER AGENT:
BANK OF NEW YORK
CUSTODIAN:
BANK OF NEW YORK
================================================================================
