Advantage Advisers, Inc.
The India Fund, Inc.
Annual Report
December 31, 1998
The India Fund, Inc.
<PAGE>
The India Fund, Inc.
January 21, 1999
Dear Fund Shareholder,
We are pleased to present you with the audited financial statements of The India
Fund, Inc. (the "Fund") for the fiscal year ended December 31, 1998. The Fund's
common stock closed on the New York Stock Exchange at $6.31 per share on
December 31, 1998, which represents a 28.67% discount to the net asset value
("NAV") per share.
The Fund's NAV rose 9.1% during 1998, outperforming the Dollex Index of India's
200 leading companies, which fell 18.1%, and the IFC Index, which dropped 21.4%.
The Fund's strategy of overweighting the fast-growing sectors of technology and
consumer non-durables while avoiding economically-sensitive sectors contributed
to the outperformance. Although overall corporate earnings growth for the first
half of the 1998 fiscal year increased 12%, sectors such as information
technology grew 50% or more. We are pleased with our strategy and results.
For much of the year the Indian market experienced considerable volatility, as
the Fund's Investment Manager details on the following pages. The same unique,
insulated economy that enabled India to weather the 1997 crisis more
successfully than its regional peers restrained investor sentiment during the
second half of 1998 while India's Asian neighbors enjoyed a rally. International
investors retreated due to potential sanctions induced by the new political
coalition's nuclear testing, a rising fiscal deficit and slowing progress in
economic reform.
The Investment Manager believes there are several factors that should promote
India's economic development: positive changes in the regulatory environment;
growth opportunities for pharmaceutical companies prompted by India's disease
burden; business reforms in general; and the largely untapped demand from
India's awakening consumer market.
On behalf of the Board of Directors, thank you for your participation in the
Fund. If you have questions for us, do not hesitate to call our toll-free number
at (800) 421-4777.
Sincerely,
/s/ Alan Rappaport
Alan Rappaport
Chairman
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THE INDIA FUND, INC.
Report of the Investment Manager
For the Year Ended December 31, 1998
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OVERVIEW OF INDIA'S STOCK MARKETS
India remained a volatile market during 1998, rising 18% in the first four
months, only to fall over 20% in the second quarter when the newly-elected
Bhartiya Janata Party (BJP) government conducted nuclear tests in May. After
retreating further in the second half of the year on concerns due to potential
losses incurred by the Unit Trust of India (UTI), the market ended the year on a
strong note, rising 8% in December alone. For the full year, the Dollex Index of
India's 200 leading companies fell 18.1% in US dollar terms and the IFC Index
fell 21.4% in US dollar terms.
It was very much a two-tiered market, with sharply contrasting performances
between a handful of high-growth sectors (i.e., software and consumer
non-durables) and economically sensitive cyclicals. Although overall corporate
earnings growth for the first half of the fiscal year 1998 was 12%, sectors such
as information technology (IT) saw growth of 50% or more.
It was disappointing that India did not participate more in Asia's second-half
rally that drove several markets up by as much as 50%-100% in US dollar terms.
However, just as its relatively insulated economy helped it weather the 1997
crisis much better than its regional peers, India's unique attributes also
restrained investor sentiment during the second half of 1998. We believe that
the impact of potential sanctions resulting from nuclear tests, a rising fiscal
deficit, and slowing progress in economic reform contributed to a negative
performance by the market during the year.
Nevertheless, reform in India does continue to move ahead, although at a slower
pace than investors would like. Several new measures were announced during the
year, including a proposal for share buybacks, an amendment of the patent law,
and a proposal to repeal the Urban Land Ceiling Act. Although one can point to
areas of backsliding as well -- such as the mid-year budget, which raised import
tariffs on several items -- the point remains that reform momentum is still
alive and well in India. We therefore remain bullish long-term on the Indian
market.
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Fund Updates
The Fund's toll-free phone number, (800) 421-4777, provides callers with a
recorded monthly update of the markets in which the Fund invests. It also offers
details about the Fund, its portfolio and performance. The Fund's net asset
value (NAV) is calculated weekly and published in The Wall Street Journal every
Monday under the heading "Closed End Funds." The Fund's NAV is also published in
Barron's on Saturdays and in The New York Times on Sundays. The Fund is listed
on the New York Stock Exchange under the ticker symbol IFN.
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THE INDIA FUND, INC.
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POLITICS
Politically, 1998 was a very eventful year. The 12th general election in March
resulted in a BJP-led coalition government. In May the BJP tested nuclear
devices, which, although temporarily raising the BJP's domestic popularity, also
provoked similar testing from Pakistan and ultimately resulted in economic
sanctions from the United States and other countries. Before year end, most of
the major sanctions had already been removed, while the BJP failed to achieve
any sustainable political gains from the entire episode. In June, the BJP
announced the annual budget, which contained several measures to stimulate
economic growth but which failed to meet market expectations.
The key events during the fourth quarter of 1998 were the BJP's surprise losses
in several key state elections. The ruling party lost power in Delhi (India's
capital), Rajasthan and also failed to take control from the Congress party in
Madhya Pradesh. Soaring food prices, especially for onions, was the pivotal
issue in the elections.
After nine months in office, the BJP's fractious 18-member coalition has been
rocky, and fears are developing that political instability may jeopardize
India's efforts in implementing further reform. However, we believe that the
attempts by the BJP government to push through important reform measures in the
most recent parliamentary session indicate its resolve to continue
liberalization. The support of the Congress party, the main opposition party for
these measures, is also evidence of India's common purpose in boosting economic
growth.
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ECONOMY
The economy remained weaker-than-expected during the year, although there were
pockets of growth in certain sectors. Recent data indicates that industrial
production averaged an increase of only 3.6% year-over-year from April to
November 1998, compared with 6% for the same period in 1997. Of more concern,
activity decelerated further to 1%-2% in September and October, making it almost
certain that industrial growth will not match fiscal year 1998's 5.8%. On the
bright side, monsoons were normal for the 11th consecutive year and a record
food-grain harvest is projected for the fiscal year ending March 31, 1999.
Hence, the agricultural sector is expected to grow 2%-3%, compared with
1997-98's 1.5% contraction.
Assuming only slightly slower growth in services, GDP growth is being forecast
at 4.5%-5% for the fiscal year ending March 31, 1999, compared with 5.1% in
1998. The sharp retreat in food prices since October has temporarily helped ease
inflation in the economy. After rising to 8.9% in November, provisional
inflation numbers as of December are again at reasonable rates of 5.3%. We
believe that diesel price cuts will also help inflation, although longer term
low inflation may be hard to sustain as money supply growth remains strong and
the government carries a huge fiscal deficit.
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THE INDIA FUND, INC.
The government had targeted a 5.6% fiscal deficit but now finds this goal most
likely unreachable. Indirect taxes, the most important source of revenue
collection, were running below target during the year, a situation only partly
offset by better-than-expected direct tax collection (personal and corporate
income tax). Reportedly, the government is considering various steps to avoid a
deficit overshoot, including postponing budget commitments and/or accelerating
privatization.
Although not overly dependent on trade, India's trade performance has been
negatively affected by the regional economic crisis. In the first eight months
of the fiscal year (April-November 1998), exports declined 3.9% although imports
rose by 10%, resulting in a trade deficit of $6.7 billion, nearly double the
level a year ago. Assuming just a modest surplus in the services account, the
current account deficit is likely to surpass fiscal year 1998's 1.7% of GDP.
That said, the rupee has remained relatively stable, with virtually all of its
7.5% decline against the US dollar coming in the weeks following the nuclear
testing, on the back of Moody's and Standard & Poor's downgrading of Indian
sovereign debt.
Despite a slowing economy, capital flows remained relatively buoyant, helped by
the highly successful US $4.1 billion RIBs (Resurgent India Bonds), a unique
issue that was subscribed by non-resident Indians (NRI). Hence, foreign reserves
ended the year at a comfortable $30 billion, representing over eight months of
import cover. In contrast, foreign direct investment into India (FDI) continues
to be meager, with roughly $11 billion in approvals and $3 billion in actual
inflows, which is in line with performance of the past two years.
- --------------------------------------------------------------------------------
PERFORMANCE
The Fund's NAV rose 9.1% during 1998, comparing very favorably with market
indices, while the Dollex Index of 200 leading stocks fell 18.1% and the IFC
Index declined 21.4%. The Fund's strategy of overweighting the fast-growing
sectors of technology and consumer non-durables while avoiding the
economically-sensitive sectors continued to generate outperformance. Stocks in
the technology sector outperformed the market dramatically throughout the year,
following strong earnings results every quarter. Pharmaceutical and other
consumer stocks also performed better than the market, again with stronger
performance mainly in the fourth quarter, on the belief that the patent bill
which would enable product patents to be honored in India would be approved by
the government.
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PORTFOLIO STRATEGY
We maintained a defensive stance in the Fund's portfolio in 1998 as the Indian
economy remained sluggish. The Fund continued to be overweighted in the Indian
information technology sector owing to the sector's strong growth rates of over
50%, but the Fund took profits in NIIT and Infosys because of their strong
outperformance. The Fund increased its positions in other attractively valued
names such as Software Solutions and Leading Edge Systems. During the second
half of the year,
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THE INDIA FUND, INC.
the Fund also boosted its overall position in pharmaceuticals from 11.3% to
13.1% by adding to multinational companies such as Wyeth and Pfizer, while at
the same time trimming exposure in Indian pharmaceutical companies that were
marginally hurt because of slowing exports to Russia, such as Dr. Reddy's
Laboratories. We believe that multinational pharmaceutical companies are likely
to benefit due to the government's desire to amend the patent bill by granting
exclusive marketing rights to these companies for patented products. Positions
were also built up in consumer non-durables and infrastructure-related stocks
such as Bharat Heavy Electricals (BHEL).
Earnings from software, pharmaceutical and consumer companies were sheltered
from the effects of the economic slowdown in India and the rest of Asia. The
Fund continues to maintain a core position in these companies because of their
strong growth prospects and India's competitiveness in these industries as a
result of the knowledge-intensive nature of these businesses. However, the Fund
has taken profits and may continue to do so when valuations are viewed as
unjustifiably high. The Fund has been monitoring signs of economic recovery and
may add to its positions in the economically-sensitive stocks as infrastructure
spending or other signs turn more positive.
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KEY SECTOR HOLDINGS
% of Total Holdings
Sector December 31, 1998 Top Holdings in Sector
- ------ ------------------- ----------------------
Technology:
Computer Hardware 0.3% Wipro
Computer Training 11.5% NIIT
Computer Software & Programming 15.8% Infosys Technologies
Pharmaceuticals 13.1% Dr. Reddy's Laboratories
Consumer Non-Durables 12.8% Hindustan Lever
Vehicles & Vehicle Components 11.1% Punjab Tractors
Telecommunications 6.1% Mahanagar Telephone Nigam
Textiles (synthetic & cotton) 4.6% Reliance Industries
Electronics & Electrical 4.5% Bharat Heavy Electricals
TECHNOLOGY
Technology is the highest-weighted sector in the Fund. The software services
segment of the technology sector remained buoyant in 1998, as Indian software
companies continued to get outsourcing business from foreign companies, with an
estimated 158 companies in the Fortune 500 outsourcing a portion of their
software requirements to India. As a result, India's software exports have been
growing at 45%-50% annually for the past few years, a pace we expect to be more
or less maintained over the next two to three years.
NIIT, the Fund's top holding in the sector, reported 41% sales growth and 60%
earnings growth for its fiscal year ended September 30, 1998. Infosys
Technologies, another significant holding, reported
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THE INDIA FUND, INC.
stunning half-year results at the end of September with revenue surging 109%
year-over-year and an increase in net profit of 126%. A higher value-added
product mix, rising economies of scale and rupee depreciation all contributed to
expanding margins. The company indicates that it is still planning a listing on
a US exchange, although this has now been delayed until the first half of 1999.
PHARMACEUTICALS
The Fund is also significantly overweighted in Pharmaceuticals. Although the
industry saw a temporary slowdown during the year, partly because of local
pricing pressures and partly because of the debacle in Russia, an important
market, the overall operating profile remained robust, with 15%-20% revenue
growth.
Going forward, we believe that changes in the regulatory environment and the
country's disease burden will present growth opportunities for the strongest
companies. We feel that the change in the patent regime from 2004 to 2005 is
likely to lead to an industry shakeout, providing a better earnings environment
for the surviving companies. Multinational companies that have been wary of
introducing new products into India may start to do so, enhancing their growth
prospects. Additionally, as Indian patent laws begin to correspond with US
patent laws, domestic companies that focus on basic research or those with
strong marketing/distribution networks should remain strong. Dr. Reddy's
Laboratories, which at one point accounted for as much as 5% of the Fund, was
reduced in the wake of Russia's crisis, as Russia represents a key export market
for the company. However, the company continues to have solid domestic growth
prospects, as evidenced by half-yearly sales growth of 30% and is expected to
remain a survivor because of its strong focus on basic research.
CONSUMER NON-DURABLES
The Fund continues to be positive on Consumer Non-Durables, but remains
underweighted versus the index. Hindustan Lever (HLL) and ITC dominate the
holdings in the sector although several other stocks were purchased during the
course of the year. HLL's wide brand portfolio and continuous product
innovations continued to fuel solid earnings growth. Results for the first nine
months of 1998 showed a 20% sales increase and 30% rise in the net profit for
the year-ended in December. ITC, India's leading cigarette company, with a
strong business franchise, also registered solid first half of the fiscal year
sales and an earnings growth of 16%. We expect consumer non-durables to remain a
steady growth, low-risk sector.
VEHICLES
Vehicles is the fourth largest sector in the Fund. The commercial and
agricultural segments of the sector are distinct in terms of their sensitivity
to the economy. The Fund is heavily overweighted in the agricultural segment.
Punjab Tractors (PTL) is the Fund's largest holding in the sector. PTL is
considered an excellent company, with sales and earnings growth that continue to
outstrip industry growth year after year. Hence, even though the agricultural
sector is expected to post only 3% growth for the fiscal year ending March 1999,
PTL remains on track for a projected 30% growth in earnings,
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THE INDIA FUND, INC.
with first half results already showing a 24% sales increase and a 43% jump in
net profit. We remain underweighted in the commercial vehicle sector, which had
a difficult 1998, and although recent trends are positive, we would only expect
to add to the sector if signs of an economic recovery become more visible.
TELECOMMUNICATIONS
In the Telecommunications sector, Mahanagar Telephone Nigam (MTNL) is the Fund's
largest holding. Recent half-yearly results were significantly above consensus
estimates, with revenues increasing 17% and net profit up 28%. The stock
continues to trade at attractive valuations. Videsh Sanchar Nigam (VSNL), the
international telephone monopoly provider, is also a significant holding, and
produced half-year results that topped market forecasts, with EBITDA up 33% and
net profits spiking up 77%, helped in part by huge foreign exchange gains. We
expect that the big news for this sector in 1999 will be the proposed new
telecommunications policy, although it remains unclear exactly when this will be
unveiled. A key issue to be addressed is a new procedure for licensing new
entrants. Whatever the new policy, final political approval is likely to take
some time.
ELECTRONICS AND ELECTRICAL
Electronics and Electrical moved up to the Fund's seventh largest weighting in
1998, as the Fund built positions following a sharp sell-off over fears that
sanctions would adversely affect various power project developments. Bharat
Heavy Electrical (BHEL), a top holding, is considered to be a solid company with
a good strategic position, a healthy order book, and net cash on the balance
sheet. The company's half-year results showed 13% earnings growth, despite
several delays with new power projects. As infrastructure spending increases and
several power projects in the pipeline are completed, we believe that BHEL will
be affected positively.
SYNTHETIC TEXTILES/PETROCHEMICALS
Finally, the Fund also remains underweighted in the Synthetic
Textiles/Petrochemicals sector and is invested mainly in one stock, Reliance
Industries (RIL). Despite an extremely tough operating environment, RIL's
operating performance has held up well, assisted by lower raw material costs,
higher import duties imposed by the mid-year budget and decent demand within
India. Half-yearly results showed net sales up 20% although net profit managed a
10% increase. The stock's valuation remains compelling but its pricing is still
dependent on Asia's recovery.
- --------------------------------------------------------------------------------
OUTLOOK
Compared with other Asian markets, the Indian economy performed reasonably well.
Even with growth slowing, it is still expected to expand 4%-5% while Asia
(ex-China) should see a 3%-4% contraction. Inflation, which spiked up sharply at
one point because of mismanagement of food supplies, particularly onions, is now
drifting down to more normal levels. Foreign exchange reserves,
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THE INDIA FUND, INC.
at $30 billion, stand largely unchanged from 1997 levels. Despite the general
drying-up of capital flows to emerging markets, the government managed to raise
$4.1 billion from non-resident Indians during the month of August. Although the
BJP could have done more to revitalize the economy, India did manage to avoid a
balance-of-payments crisis in addition to other financial concerns that plagued
other countries in the region. Looking ahead, we envision two possible scenarios
for 1999: the BJP government will push through substantive reform to revitalize
the economy, or India will have fresh elections, which will result in a change
in government. We believe that either scenario fortells good news for the equity
market.
Despite the sluggish economic environment, several Indian companies performed
remarkably well during the year. Many of them embarked on large-scale
restructuring programs, including productivity-enhancement schemes, aggressive
cost-cutting efforts, and workforce reduction through voluntary retirement
plans. Additionally, companies are gradually consolidating their positions in
various industries through mergers and acquisitions and divestment of unrelated
businesses. All of these measures should improve Indian companies' earnings and
global competitiveness. We believe that merger-and-acquisition activity and
other forms of industry consolidation are likely to unlock value in the Indian
stock market as the benefits become more steadily visible.
We remain positive on the Indian market over the long term. Although there will
undoubtedly be periods of volatility and political crisis, India's corporate
sector has shown itself to be quite resilient. Furthermore, the Fund will adhere
to its philosophy of investing in strong companies with good management and
attractive growth prospects. The consensus earnings per-share growth forecast
for the market is 17%. On a price-to-earnings ratio of 9, the market is trading
on a growth-to-PE ratio slightly below 2, which we believe is attractive
relative to other global markets.
Punita Kumar-Sinha
Senior Portfolio Manager
January 20, 1999
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THE INDIA FUND, INC.
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During May 1998, the Board of Directors of the Fund reviewed and approved
various amendments to the Fund's bylaws. For example, the provisions relating to
timely notice for proposals to be brought before an annual meeting of
stockholders (other than a proposal under Rule 14a-8 of the Securities Exchange
Act of 1934 to be included in the Fund's proxy statement) have been amended. As
amended, a stockholder's notice generally must be delivered to the Fund not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. The Board believes that the amended timely
notice provisions will provide greater certainty to stockholders because,
previously, timely notice keyed off the date of the current year's meeting or
the date the public disclosure of the current year's meeting is made. In
addition, the provisions provide that any business to be brought before a
special meeting of stockholders must be specified in the notice of meeting or
otherwise properly brought before the meeting by or at the direction of the
Board of Directors. Finally, upon recommendation of the Fund's Maryland counsel,
other changes to certain bylaw provisions were made to conform to the bylaw
provisions of more recently incorporated Maryland corporations.
During July 1998, the Board of Directors of the Fund authorized the Fund to
repurchase from time to time in the open market up to 1,000,000 shares of the
Fund's common stock. The Fund's Board directed management to repurchase the
Fund's shares at such times and in such amounts as management believes will
enhance shareholder value, subject to review by the Fund's Board of Directors.
For the fiscal year ended December 31, 1998, the Fund repurchased a total of
41,700 shares of its common stock.
In accordance with the Board's directions, the Fund may from time to time
repurchase additional shares of its common stock in the open market.
Year 2000 Processing Issues
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. The Year 2000 issue affects virtually all companies
and organizations.
Both the Investment Manager and the Country Adviser have advised the Fund that
they are implementing steps intended to ensure that their computer systems are
capable of Year 2000 processing. In addition, the Fund is inquiring with third
parties to assess the adequacy of their Year 2000 compliance efforts. The Fund
intends to develop contingency plans intended to ensure that third-party
non-compliance will not materially affect the Fund's operations. The Fund does
not currently anticipate that the Year 2000 issue will have an adverse effect on
the Investment Manager's or the Country Adviser's ability to continue to provide
the services currently provided to the Fund.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
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THE INDIA FUND, INC.
Schedule of Investments December 31, 1998
INDIA (100% OF HOLDINGS)
COMMON STOCKS (99.89% of holdings)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cement 1.92%
102,220 Associated Cement Companies ...................... $ 4,140,004 $ 2,484,238
133,000 Dalmia Cement .................................... 1,582,861 485,116
267,600 Gujarat Ambuja Cements ........................... 2,352,473 1,637,905
70,000 Gujarat Ambuja Cements GDR ....................... 616,000 462,000
2,301 Jaiprakash Industries+ ........................... 5,663 460
47,860 Panyam Cements+ .................................. 482,694 337,875
443,630 Shree Cement ..................................... 947,396 232,281
------------ ------------
10,127,091 5,639,875
------------ ------------
Chemicals 1.33%
48 Atul Products .................................... 93 24
27,500 Bayer ............................................ 1,006,193 1,294,270
515,500 ICI (India) ...................................... 2,743,294 2,326,695
50 Indian Organic Chemicals+ ........................ 140 12
100 JF Laboratories+ ................................. 174 3
100,000 United Phosphorus ................................ 380,857 304,977
------------ ------------
4,130,751 3,925,981
------------ ------------
Computer Hardware 0.32%
21,700 Wipro ............................................ 280,827 938,955
------------ ------------
280,827 938,955
------------ ------------
Computer Software & Programming 15.81%
600,700 DSQ Software ..................................... 1,240,788 4,968,727
317,300 Infosys Technologies ............................. 2,533,160 22,090,412
195,400 Leading Edge Systems ............................. 1,868,593 1,754,209
111,500 Mastek Limited ................................... 597,781 1,355,868
62,800 Pentafour Software ............................... 264,712 1,044,080
20,000 Pentafour Software GDR ........................... 373,000 305,000
875,780 Satyam Computers ................................. 2,077,498 14,993,057
400 Silverline Industries ............................ 547 1,022
------------ ------------
8,956,079 46,512,375
------------ ------------
Computer Training 11.55%
829,900 NIIT ............................................. 4,947,234 31,710,793
</TABLE>
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THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer Training (continued)
159,500 Software Solutions ............................... $ 1,875,931 $ 2,259,536
------------ ------------
6,823,165 33,970,329
------------ ------------
Consumer Miscellaneous 1.23%
330,300 Bata India+ ...................................... 1,886,855 1,517,227
135 Surya Roshni ..................................... 356 37
196,800 Timex Watches+ ................................... 140,800 90,770
133,300 Zee Telefilms+ ................................... 1,817,238 2,007,577
------------ ------------
3,845,249 3,615,611
------------ ------------
Consumer Non-Durables 12.77%
566,924 Hindustan Lever .................................. 16,520,791 22,192,683
702,281 ITC .............................................. 11,135,992 12,394,652
101,050 Ponds India ...................................... 2,616,868 2,960,519
1,682 Reckitt & Colman ................................. 16,947 14,853
------------ ------------
30,290,598 37,562,707
------------ ------------
Diversified Industries 0.32%
124,115 DCM Shriram Consolidated Warrants,
expiration date 11/08/99+* ....................... 0 0
454 Grasim Industries ................................ 10,229 1,926
175 HMG Industries+ .................................. 359 4
350,275 Indian Rayon ..................................... 2,242,361 927,308
820 Kesoram Industries ............................... 3,879 381
------------ ------------
2,256,828 929,619
------------ ------------
Electricity 0.37%
331,000 Bombay Suburban Electric Supply Co.+ ............. 1,252,399 1,101,386
2 CESC Ltd ......................................... 16 1
52 CESC Ltd Class B Warrants,
expiration date 9/30/99+* ........................ 301 0
150 Tata Power Co. ................................... 797 371
------------ ------------
1,253,513 1,101,758
------------ ------------
Electronics & Electrical 4.51%
352,983 Asea Brown Boveri ................................ 5,753,833 4,196,839
350,000 Asian Electronics ................................ 2,200,052 543,593
1,114,700 Bharat Heavy Electricals ......................... 7,861,539 6,888,345
</TABLE>
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THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electronics & Electrical (continued)
996,600 Crompton Greaves ................................. $ 5,691,655 $ 1,133,912
704,000 KEC International ................................ 1,681,175 497,000
49 Siemens India+ ................................... 1,083 260
------------ ------------
23,189,337 13,259,949
------------ ------------
Engineering 2.44%
2 Lakshmi Machine Works ............................ 393 85
1,286,201 Larsen & Toubro .................................. 8,054,021 4,857,872
302,300 Larsen & Toubro GDR .............................. 3,235,851 2,320,152
------------ ------------
11,290,265 7,178,109
------------ ------------
Extractive Industries 3.02%
257,075 Hindalco Industries .............................. 5,344,554 3,100,387
190,200 Hindalco Industries GDR .......................... 2,301,754 2,230,095
9,020,100 Hindustan Zinc ................................... 3,165,243 1,846,685
200 Indian Aluminium ................................. 1,143 428
3,806,500 National Aluminium Company ....................... 5,015,073 1,688,493
606 Sesa Goa ......................................... 4,614 1,827
------------ ------------
15,832,381 8,867,915
------------ ------------
Fertilizers 0.00%
7,700 Chambal Fertilizers & Chemicals .................. 5,977 2,174
1,950 Nagarjuna Fertilizer & Chemicals ................. 2,130 734
400 Southern Petrochemicals Industrial Corporation ... 492 236
------------ ------------
8,599 3,144
------------ ------------
Finance 2.46%
1,800,100 Bank of Baroda ................................... 4,955,514 2,101,070
912,500 Corporation Bank ................................. 2,176,678 1,921,844
240,000 ICICI++ .......................................... 501,453 265,725
3,339,300 Oriental Bank of Commerce ........................ 8,178,973 2,935,001
------------ ------------
15,812,618 7,223,640
------------ ------------
Food 2.17%
600 American Dry Fruits+ ............................. 1,198 73
67,700 International Bestfoods+ ......................... 693,225 607,779
212,950 Nestle India ..................................... 2,228,736 2,290,108
</TABLE>
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THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food (continued)
250,000 Rahul Dairy & Allied Products+* .................. $ 79,643 $ 7,354
100 Rank Aqua Estates+ ............................... 254 3
180,693 Smithkline Beecham Consumer Healthcare ........... 1,827,616 2,234,479
148,471 Tata Tea ......................................... 1,635,243 1,246,429
------------ ------------
6,465,915 6,386,225
------------ ------------
Hotels & Leisure 0.14%
25,000 East India Hotels GDR ............................ 138,750 137,500
121 Indian Hotels .................................... 1,976 1,021
30,000 Indian Hotels GDR ................................ 225,625 262,500
------------ ------------
366,351 401,021
------------ ------------
Household Appliances 0.03%
600,000 IFB Industries+ .................................. 3,271,110 81,892
300 Kalyani Sharp+ ................................... 410 64
500 Phil Corporation ................................. 1,366 212
20 Phillips India ................................... 19 59
4,400 Samtel Colour+ ................................... 8,719 1,294
450 Videocon Appliances .............................. 2,629 196
519 Videocon International ........................... 951 565
73 Voltas+ .......................................... 339 217
150 Whirlpool of India+ .............................. 887 102
------------ ------------
3,286,430 84,601
------------ ------------
Packaging 0.04%
660,320 Flex Industries .................................. 4,118,949 120,425
77,310 Flex Industries Warrants, expiration date 11/30/99+* 0 924
100 Polyplex Corporation ............................. 339 21
500 Universal Prime Aluminum+* ....................... 789 25
------------ ------------
4,120,077 121,395
------------ ------------
Petroleum Related 3.40%
1,441,900 Hindustan Petroleum Corporation .................. 16,596,689 7,977,190
1,120 Indian Petrochemicals ............................ 4,132 1,510
2,385,950 Madras Refineries ................................ 6,582,939 2,021,278
------------ ------------
23,183,760 9,999,978
------------ ------------
</TABLE>
13
<PAGE>
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 13.06%
127,600 Cipla ............................................ $ 2,392,884 $ 2,578,574
280,200 Dabur India ...................................... 2,124,847 2,808,923
661,800 Dr. Reddy's Laboratories ......................... 5,502,772 7,560,981
600,000 E. Merck (India) ................................. 3,952,219 5,227,674
100 German Remedies .................................. 670 1,476
69,050 Glaxo (India) .................................... 466,176 999,312
183,300 Hoechst Marion ................................... 1,792,844 1,771,749
400 Orchid Chemicals & Pharmaceuticals ............... 1,355 967
146,632 Pfizer India ..................................... 1,956,253 2,915,732
1,166,900 Ranbaxy Laboratories ............................. 10,970,744 7,359,200
212,800 Rhone-Poulenc India .............................. 2,958,133 3,626,789
161,100 Sun Pharmaceuticals .............................. 1,083,482 1,037,606
175,000 Wyeth Lederle .................................... 1,810,382 2,533,680
------------ ------------
35,012,761 38,422,663
------------ ------------
Pulp & Paper 0.00%
6,000 Andhra Pradesh Rayons+ ........................... 5,820 2,195
100 Pudumjee Pulp & Paper ............................ 818 68
------------ ------------
6,638 2,263
------------ ------------
Steel 1.20%
6,010 Essar Steel+ ..................................... 23,144 2,135
500 Jindal Strips .................................... 6,596 518
400 Steel Authority of India+ ........................ 237 53
1,272,926 Tata Iron & Steel ................................ 7,010,409 3,516,685
------------ ------------
7,040,386 3,519,391
------------ ------------
Steel Products 0.00%
100 Choksi Tubes ..................................... 237 30
20 Super Forging+ ................................... 36 1
------------ ------------
273 31
------------ ------------
Telecommunication 6.06%
2,686,400 Mahanagar Telephone Nigam ........................ 15,546,516 11,581,327
131,500 Videsh Sanchar Nigam ............................. 2,242,900 2,404,412
312,500 Videsh Sanchar Nigam GDR ......................... 5,277,019 3,828,125
------------ ------------
23,066,435 17,813,864
------------ ------------
</TABLE>
14
<PAGE>
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunication Equipment 0.00%
300 Bhagyanagar Metals ............................... $ 724 $ 134
------------ ------------
724 134
------------ ------------
Textiles-Cotton 0.22%
390,700 Arvind Mills ..................................... 1,382,087 355,349
100 HP Cotton Textile Mills+* ........................ 233 23
200,000 Vardhaman Spinning & General Mills ............... 455,739 301,212
------------ ------------
1,838,059 656,584
------------ ------------
Textiles - Synthetic 4.41%
131,000 Bombay Dyeing GDR ................................ 379,550 222,700
650 DCL Polyesters+ .................................. 1,282 43
100 Ester Industries+ ................................ 105 8
300 Haryana Petrochemicals+ .......................... 343 6
4,523,784 Reliance Industries .............................. 18,087,238 12,753,249
5,800 SRF+ ............................................. 15,613 1,365
------------ ------------
18,484,131 12,977,371
------------ ------------
Transportation 0.01%
574,100 NEPC Micon+ ...................................... 1,423,245 34,450
------------ ------------
1,423,245 34,450
------------ ------------
Vehicles 10.59%
314,525 Bajaj Auto ....................................... 4,585,998 3,858,011
81,200 Bajaj Auto GDR ................................... 1,171,288 1,268,750
124,915 Hero Honda `B'+ .................................. 1,580,759 1,598,365
600 Hindustan Motors ................................. 467 102
190,937 Mahindra & Mahindra .............................. 1,992,470 741,372
1,000,000 Punjab Tractors .................................. 6,988,502 18,684,551
62,935 Tata Engineering & Locomotive .................... 721,065 241,403
100,000 Tata Engineering & Locomotive GDR ................ 330,000 400,000
350,650 TVS Suzuki ....................................... 2,430,257 4,344,446
------------ ------------
19,800,806 31,137,000
------------ ------------
Vehicle Components 0.51%
25 Antifriction Bearings Corporation ................ 100 9
125 FAG Precision Bearings ........................... 334 93
</TABLE>
15
<PAGE>
THE INDIA FUND, INC.
Schedule of Investments (continued) December 31, 1998
COMMON STOCKS (continued)
<TABLE>
<CAPTION>
Number Percent of
of Shares Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vehicle Components (continued)
100 Gleitlager (India)+* ............................. $ 96 $ 5
200,000 Kirloskar Oil Engines ............................ 962,750 145,899
118,000 Swaraj Engines ................................... 1,298,956 1,361,325
------------ ------------
2,262,236 1,507,331
------------ ------------
TOTAL COMMON STOCKS .............................. 280,455,528 293,794,269
------------ ------------
BONDS (0.11% of holdings)
<CAPTION>
Par Value Percent of
(000) Security Holdings Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Industries 0.11%
INR 4,220 DCM Shriram Consolidated NCD 13.00%,
11/6/01* ......................................... $ 134,584 $ 110,496
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/02* ......................................... 130,627 107,245
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/03* ......................................... 130,627 107,245
------------ ------------
395,838 324,986
------------ ------------
TOTAL BONDS ...................................... 395,838 324,986
------------ ------------
TOTAL INDIA ...................................... 280,851,366 294,119,255
------------ ------------
TOTAL INVESTMENTS ** ......................100.00% $280,851,366 $294,119,255
============ ============
</TABLE>
See Page 17 for Footnotes and Abbreviations.
16
<PAGE>
THE INDIA FUND, INC.
Schedule of Investments (concluded) December 31, 1998
Footnotes and Abbreviations
GDR - Global Depository Receipt
INR - Indian Rupee
NCD - Non Convertible Debenture
+ Non-income producing security.
++ Passive Foreign Investment Company.
* At fair value as determined under the supervision of the Board
of Directors.
** Aggregate cost for Federal income tax purposes is
$281,139,350.
The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows:
Excess of value over tax cost $ 94,922,388
Excess of tax cost over value (81,942,483)
------------
$ 12,979,905
============
See accompanying notes to financial statements.
17
<PAGE>
The India Fund, Inc.
Statement of Assets and Liabilities December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $280,851,366) ................................ $ 294,119,255
Cash (including Indian Rupees of $1,172,732 with a cost of $1,171,905) ... 4,816,219
Receivables:
Dividends and reclaims of excess taxes withheld ..................... 1,613,728
Interest (net of withholding tax of $2,401) ........................ 27,209
Securities sold ..................................................... 1,361,382
Unamortized organization costs ........................................... 9,542
Prepaid expenses ......................................................... 166,221
-------------
Total Assets ................................................ 302,113,556
-------------
LIABILITIES
Payable for securities purchased ......................................... 799,339
Due to Investment Manager ................................................ 262,791
Due to Administrator ..................................................... 51,765
Accrued expenses ......................................................... 476,478
-------------
Total Liabilities ............................................ 1,590,373
-------------
Net Assets ................................................... $ 300,523,183
=============
NET ASSET VALUE PER SHARE ($300,523,183 / 33,965,433
shares issued and outstanding) ............................... $ 8.85
=============
NET ASSETS CONSIST OF:
Capital stock, $0.001 par value; 34,007,133 shares issued
(100,000,000 shares authorized) ..................................... $ 34,007
Paid-in capital .......................................................... 469,857,129
Cost of 41,700 shares held in treasury stock ............................. (249,197)
Accumulated net investment loss .......................................... (60,040)
Accumulated net realized loss on investments ............................. (182,094,180)
Net unrealized appreciation in value of investments, foreign currency
holdings and on translation of other assets and liabilities
denominated in foreign currency ..................................... 13,035,464
-------------
Net Assets ................................................... $ 300,523,183
=============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE INDIA FUND, INC.
For the Year Ended
Statement of Operations December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends (net of uncollectible amounts of $45,254) ...................... $ 4,579,642
Interest (net of Indian taxes withheld of $8,999) ........................ 299,452
------------
Total investment income ...................................... 4,879,094
------------
Expenses
Management fees ............................................. $ 3,175,273
Custodian fees .............................................. 1,344,873
Administration fees ......................................... 601,971
Legal fees .................................................. 171,000
Audit fees .................................................. 146,414
Insurance ................................................... 137,806
Transfer agent fees ......................................... 93,531
Amortization of organizational costs ........................ 64,525
Directors' fees ............................................. 39,701
NYSE fees ................................................... 32,339
Printing .................................................... 24,604
Miscellaneous expenses ...................................... 15,900
------------
Total expenses ............................................... 5,847,937
------------
Net investment loss .......................................... (968,843)
------------
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 ................................................ (14,750,391)
Foreign currency related transactions ................................ (214,166)
------------
(14,964,557)
Netchange in unrealized appreciation in value of
investments, foreign currency holdings and
translation of other assets and liabilities
denominated in foreign currency ....................................... 40,891,321
------------
Netrealized and unrealized gain on investments,
foreign currency holdings and translation of
other assets and liabilities denominated in
foreign currency ...................................................... 25,926,764
------------
Net increase in net assets resulting from
operations ............................................................ $ 24,957,921
============
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
THE INDIA FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss ................................................... $ (968,843) $ (1,115,626)
Net realized loss on investments and foreign currency
related transactions ............................................... (14,964,557) (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 ........................ 40,891,321 90,760,270
------------- -------------
Net increase in net assets resulting from operations ............... 24,957,921 18,658,304
------------- -------------
Capital Share Transactions
Shares repurchased under Stock Repurchase Plan (41,700 shares) ........ (249,197) --
------------- -------------
Net decrease in net assets resulting from capital share transactions .. (249,197) --
------------- -------------
Total increase in net assets .......................................... 24,708,724 18,658,304
NET ASSETS
Beginning of year ..................................................... 275,814,459 257,156,155
------------- -------------
End of year ........................................................... $ 300,523,183 $ 275,814,459
============= =============
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
THE INDIA FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share Outstanding throughout Each Period
<TABLE>
<CAPTION>
For the Period
February 23,
1994
(Commencement
For the Year For the Year For the Year For the Year of Operations)
Ended Ended Ended Ended Through
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period ....... $ 8.11 $ 7.56 $ 8.94 $ 13.92 $ 13.98*
-------- -------- -------- -------- --------
Net investment income (loss) ............... (0.03) (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 ..................... 0.77 0.58 (1.39) (4.93) 0.08
-------- -------- -------- -------- --------
Net increase (decrease) from
investment operations ................ 0.74 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 ............. $ 8.85 $ 8.11 $ 7.56 $ 8.94 $ 13.92
======== ======== ======== ======== ========
Per share market value, end of period ...... $ 6.3125 $ 7.375 $ 7.625 $ 8.875 $ 10.75
Total Investment Return Based
on Market Value** ....................... (14.41)% (3.28)% (14.08)% (17.44)% (23.32)%
Ratios/Supplemental Data
Net assets, end of period
(in 000s) ............................... $300,523 $275,814 $257,156 $303,940 $473,241
Ratios of expenses to average
net assets .............................. 2.03% 1.98% 2.03%+ 2.03% 1.98%***
Ratios of net investment income (loss)
to average net assets ................... (0.34)% (0.37)% 0.22%+ (0.38)% (0.06)%***
Portfolio turnover ......................... 28.85% 42.61% 33.57% 25.28% 20.93%
</TABLE>
See page 22 for footnotes.
21
<PAGE>
THE INDIA FUND, INC.
FINANCIAL HIGHLIGHTS (concluded)
For a Share Outstanding throughout Each Period
* Initial public offering price $15.00 per share less underwriting discount
of $0.98 per share and offering costs of $0.04 per share.
** 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.
*** Annualized.
+ Includes expense waivers by the Custodian. If such expenses had not been
waived, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets would have been 2.12% and 0.13%,
respectively, for the year ended December 31, 1996.
See accompanying notes to financial statements.
22
<PAGE>
THE INDIA FUND, INC.
Notes to Financial Statements December 31, 1998
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"). At December 31, 1998, 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 $333,317 (0.11% of net
assets) at December 31,1998, 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
23
<PAGE>
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 1998
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.
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, 1998, the Fund had a capital loss carryover of $181,806,196
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, $56,935,932 will expire in 2005 and $34,828,858
will expire in 2006.
The Fund's foreign exchange losses incurred after October 31, 1998, but before
December 31, 1998, are deemed to arise on the first business day of the
following year. The Fund incurred and elected to defer such foreign exchange
losses of approximately $60,040.
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.
24
<PAGE>
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 1998
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.
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, 1998, the Fund reclassified $214,166 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 $1,567,859 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, 1998. 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
Advantage Advisers, Inc., a subsidiary of CIBC Oppenheimer Corp., serves as the
Fund's Investment Manager under the terms of a management agreement (the
"Management Agreement"). Infrastructure
25
<PAGE>
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 1998
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 0.20% (0.30% prior to
January 1, 1998) of the Fund's average weekly net assets. For the year ended
December 31, 1998, fees earned by the Investment Manager amounted to $3,175,273,
of which the Investment Manager informed the Fund it paid $577,322 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, 1998, these fees
amounted to $577,322. 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, 1998, fees and expenses of the Mauritius Administrator
amounted to $24,649.
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
$87,001,141 and $81,053,729, respectively, for the year ended December 31, 1998.
At December 31, 1998, the Fund owned securities valued at approximately
$37,618,000 which were in the process of being registered in the name of the
Fund or being dematerialized. Significant delays are common in registering the
transfer of securities in India, and such transfers can take a
26
<PAGE>
THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 1998
year or longer. Indian securities regulations normally preclude the Fund from
selling such securities until the completion of the registration or the
dematerialization process, as applicable.
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, there is
no withholding tax on Indian dividends. The Fund is subject to and accrues
Indian withholding tax on interest earned on Indian securities at the rate of
20%.
Under current Mauritian Law the Fund is not liable for Mauritian income tax.
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, 1998, 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: CAPITAL STOCK
During the year ended December 31, 1998, the Fund purchased 41,700 shares of
capital stock on the open market at a total cost of $249,197. The weighted
average discount of these purchases, comparing the purchase price to the net
asset value at the time of purchase, was 27.93%. These shares were purchased
pursuant to the Fund's Stock Repurchase Plan approved by the Fund's Board of
Directors at their meeting held on July 14, 1998 authorizing the Fund to
purchase up to 1,000,000 shares of its capital stock. The shares purchased
during the year ended December 31, 1998 are held in treasury. Subsequent to
December 31, 1998, the Fund made additional purchases aggregating
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THE INDIA FUND, INC.
Notes to Financial Statements (continued) December 31, 1998
154,000 shares of capital stock in the open market at a total cost of
$1,119,203. The weighted average discount of these purchases was 26.60%.
NOTE F: OTHER
At December 31, 1998, 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.
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THE INDIA FUND, INC.
Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE INDIA FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The India Fund, Inc. (the "Fund")
at December 31, 1998, 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 four 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, 1998 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 16, 1999
29
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THE INDIA FUND, INC.
Dividends and Distributions
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially all of its
net investment income, and to distribute any net realized capital gains at least
annually. Net investment income for this purpose is income other than net
realized long and short-term capital gains net of expenses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
The Bank of New York (the "Plan Agent") in Fund shares pursuant to the Plan,
unless such shareholders elect to receive distributions in cash. Shareholders
who elect to receive distributions in cash will receive all distributions in
cash paid by check in dollars mailed directly to the shareholder by The Bank of
New York, as dividend paying agent. In the case of shareholders such as banks,
brokers or nominees, that hold shares for others who are beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of shares
certified from time to time by the shareholders as representing the total amount
registered in such shareholders' names and held for the account of beneficial
owners that have not elected to receive distributions in cash. Investors that
own shares registered in the name of a bank, broker or other nominee should
consult with such nominee as to participation in the Plan through such nominee,
and may be required to have their shares registered in their own names in order
to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value; provided,
however, that if the net asset value is less than 95% of the market price on
valuation date, then such shares will be issued at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If net asset value exceeds the market price of Fund shares at such time, or
if the Fund should declare an income dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants, buy
Fund shares in the open market, on the New York Stock Exchange or elsewhere, for
the participants' accounts on, or shortly after, the payment date. If, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund's 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.
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THE INDIA FUND, INC.
Dividend Reinvestment and Cash Purchase Plan (continued)
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Because of the forgoing difficulty with respect to open market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and shareholders will receive the
uninvested portion of the dividend amount in newly issued shares at the close of
business on the last purchase date.
Participants have the option of making additional cash payments to the Plan
Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Fund shares in the open market on or about February 15.
Any voluntary cash payment received more than 30 days prior to this date will be
returned by the Plan Agent, and interest will not be paid on any uninvested cash
payment. To avoid unnecessary cash accumulations, and also to allow ample time
for receipt and processing by the Plan Agent, it is suggested that participants
send in voluntary cash payments to be received by the Plan Agent approximately
ten days before an applicable purchase date specified above. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transaction in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commissions thus attainable.
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THE INDIA FUND, INC.
Dividends and Distributions (concluded)
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax that may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
101 Barclay Street, New York, New York 10286.
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THE INDIA FUND, INC.
Investment Manager:
Advantage Advisers, Inc., a wholly owned subsidiary of CIBC Oppenheimer Corp.
Administrator:
CIBC Oppenheimer Corp.
Sub-Administrator:
PFPC, Inc.
Transfer Agent:
The Bank of New York
Custodian:
The Bank of New York
Effective May 3, 1999, CIBC Oppenheimer Corp. will change its name to CIBC World
Markets Corp. All references to the company thereafter shall automatically be
modified without further action.
