As filed with the Securities and Exchange Commission
on October 7, 1997
Securities Act File No. 333-
Investment Company Act File No. 811-8284
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO.
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 3
---------------
JARDINE FLEMING INDIA FUND, INC.
(Exact Name of Registrant as Specified in Charter)
---------------
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
Registrant's Telephone Number,
including Area Code: (212) 713-2848
---------------
Brian S. Shlissel
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and Address of Agent for Service)
Copies to:
Christopher E. Austin, Esq. Thomas A. Hale, Esq.
Cleary, Gottlieb, Skadden, Arps, Slate, Meagher
Steen & Hamilton & Flom (Illinois)
56th Floor, Bank of China Tower 333 West Wacker Drive
One Garden Road Chicago, Illinois 60606
Hong Kong
---------------
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, other than securities offered
in connection with a dividend reinvestment plan, check the
following box. [ ]
---------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=====================================================================
Proposed
Maximum Proposed
Title of Offering Maximum
Securities Amount Price Aggregate Amount of
Being Being Per Offering Registration
Registered Registered Share(1) Price(1) Fee(1)
- ---------------------------------------------------------------------
Common Stock,
par value
$0.001 per share... 100,000 shares $9.00 $900,000 $272.73
=====================================================================
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) based on the
average of the high and low price for the Company's Common
Stock reported on the New York Stock Exchange consolidated
reporting system on October 1, 1997.
---------------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=====================================================================
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
Form N-2
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
Item Number, Form N-2 Location in Prospectus
--------------------- ----------------------
Part A -- Information Required in a Prospectus
1. Outside Front Cover............. Outside Front Cover Page
2. Inside Front and Outside
Back Cover Page............... Outside Front Cover Page;
Inside Front Cover Page;
Outside Back Cover Page
3. Fee Table and Synopsis.......... Fund Expenses
4. Financial Highlights............ Financial Highlights
5. Plan of Distribution............ Cover Page; Distribution
Arrangements; The Offer
6. Selling Shareholders............ Not Applicable
7. Use of Proceeds................. The Offer; Use of Proceeds;
Investment Objective
and Policies
8. General Description of
the Registrant................ Outside Front Cover Page;
Market and Net Asset
Value Information; The
Offer; The Fund; Risk
Factors and Special
Considerations; Investment
Objective and Policies;
Investment Restrictions;
Common Stock
9. Management...................... Management of the Fund;
Custodian and Transfer
and Dividend-Paying Agent;
Common Stock
10. Capital Stock, Long-Term
Debt and Other
Securities.................... Common Stock; Dividends and
Distributions; Dividend
Reinvestment Plan;
Taxation
11. Defaults and Arrears
on Senior Securities.......... Not Applicable
12. Legal Proceedings............... Not Applicable
13. Table of Contents of
the Statement of
Additional Information........ Table of Contents of the
Statement of Additional
Information
Part B -- Information Required in a Statement of Additional
Information
14. Cover Page...................... Cover Page
15. Table of Contents............... Table of Contents
16. General Information
and History................... Not Applicable
17. Investment Objective
and Policies.................. Investment Objective and
Policies; Investment
Restrictions
18. Management...................... Management of the Fund
19. Control Persons and
Principal Holders of
Securities.................... Management of the Fund
20. Investment Advisory
and Other Services............ Management of the Fund
(in Part A and Part B);
Custodians and Transfer
and Dividend-Paying
Agent (in Part A);
Experts (in Part A)
21. Brokerage Allocation
and Other Practices........... Portfolio Transactions and
Brokerage
22. Tax Status...................... Taxation
23. Financial Statements............ Financial Statements
Part C -- Other Information
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C to this
Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER , 1997
[LOGO]Jardine Fleming India Fund, Inc.
Shares of Common Stock
Issuable Upon Exercise of
Rights to Subscribe for Such Shares
---------------
Jardine Fleming India Fund, Inc. (the "Fund") is issuing to
its shareholders of record ("Record Date Shareholders") as of the
close of business on , 1997 (the "Record Date")
non-transferable rights ("Rights") entitling Record Date
Shareholders to subscribe for an aggregate of shares of the
Fund's Common Stock ("Shares") at the rate of one Share for each
Rights held (the "Offer"). Record Date Shareholders who fully
exercise their Rights will be entitled to subscribe for
additional Shares pursuant to the Over-Subscription Privilege as
described herein. The Fund may increase the number of Shares
subject to subscription by up to % of the Shares or Shares,
for an aggregate of Shares. Fractional Shares will not be
issued upon the exercise of Rights. The Rights are
non-transferable and will not be admitted for trading on the New
York Stock Exchange (the "NYSE") or any other exchange and,
accordingly, may not be purchased or sold. See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE %
OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES
PRICES OF A SHARE ON THE NYSE ON THE EXPIRATION DATE OF THE OFFER
(THE "PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS DAYS AND
(ii) THE NET ASSET VALUE PER SHARE AS OF THE CLOSE OF BUSINESS ON
THE PRICING DATE.
The Fund announced the Offer after the close of trading on
the NYSE on October 7, 1997. The Fund's Shares trade on the NYSE
under the symbol "JFI." Shares issued upon the exercise of Rights
and the Over-Subscription Privilege are expected to be listed for
trading on the NYSE. The net asset value per Share at the close
of business on October 2, 1997 (the last trading date on which the
Fund publicly reported its net asset value prior to the announcement
of the Offer) and , 1997 (the last trading date on which the Fund
publicly reported its net asset value prior to the Record Date of
the Offer) was $9.46 and $ , respectively, and the last reported
sales price of a share of the Fund's Shares on the NYSE on October 2,
1997 and , 1997 was $9.13 and $ , respectively. ALTHOUGH THE
BOARD OF DIRECTORS HAS APPROVED THE FILING WITH THE SECURITIES AND
EXCHANGE COMMISSION OF A REGISTRATION STATEMENT RELATING TO THE
OFFER, THE BOARD OF DIRECTORS HAS NOT GIVEN ITS FINAL APPROVAL TO
THE MAKING OF THE OFFER. THERE CAN BE NO ASSURANCE THAT THE FUND
WILL MAKE THE OFFER ON THE TERMS DESCRIBED IN THIS PROSPECTUS OR
ON ANY OTHER TERMS.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME,
ON , 1997 UNLESS EXTENDED AS DESCRIBED HEREIN (THE
"EXPIRATION DATE").
The Fund is a non-diversified, closed-end management
investment company that seeks long-term capital appreciation by
investing substantially all of its assets in equity securities of
Indian companies (as defined herein). Under normal market
conditions, the Fund invests at least 65% of its assets in such
Indian equity securities, and assets of the Fund not invested in
Indian equity securities are invested, subject to certain
limitations, in high-quality debt obligations, Indian debt
securities and equity securities of Region companies (in each
case as defined herein). See "Investment Objective and Policies."
There can be no assurance that the Fund's investment objective
will be achieved.
INVESTMENT IN INDIA INVOLVES CERTAIN RISKS AND SPECIAL
CONSIDERATIONS NOT TYPICALLY ASSOCIATED WITH INVESTMENTS IN THE
UNITED STATES. IN ADDITION, A NUMBER OF THE SECURITIES IN WHICH
THE FUND MAY INVEST MAY BE ILLIQUID. AN INVESTMENT IN THE FUND
SHOULD BE CONSIDERED SPECULATIVE. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."
This Prospectus sets forth concisely the information about
the Fund that a prospective investor ought to know before
investing and should be read and retained for future reference. A
Statement of Additional Information dated , 1997 (the "SAI"),
containing additional information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated
by reference in its entirety into this Prospectus. A copy of the
SAI, the table of contents of which appears on page of this
Prospectus, may be obtained without charge by calling at .
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
=========================================================================
Estimated Estimated
Subscription Estimated Proceeds to
Price(1) Sales Load(1) Fund(3)(4)
- -------------------------------------------------------------------------
Per Share.......... $ $ $
- -------------------------------------------------------------------------
Total Maximum(5)... $ $ $
=========================================================================
(Footnotes on the following page)
---------------
PaineWebber Incorporated
---------------
The date of this Prospectus is , 1997
<PAGE>
(Continued from the previous page)
Because the Subscription Price per Share will be less than
the net asset value per Share and because the number of Shares
outstanding after the Offer will increase in a greater percentage
than the increase in the size of the Fund's assets, the Offer
will result in a dilution of the aggregate net asset value of the
Shares owned by Record Date Shareholders, which will
disproportionately affect Record Date Shareholders who do not
exercise their Rights. In addition, as a result of the terms of
the Offer, Record Date Shareholders who do not fully exercise
their Rights should expect that they will, upon the completion of
the Offer, own a smaller proportional interest in the Fund than
would otherwise be the case if the Offer had not been made.
Although it is not possible to determine currently the amount of
such dilution because it is not known how many Shares will be
subscribed for or what the Subscription Price will be, such
dilution could be substantial. See "The Offer -- Dilution and
Effect of Non-Participation in the Offer." Except as described
herein, Record Date Shareholders will have no right to rescind
their subscriptions after receipt of their payment for Shares by
the Subscription Agent.
Jardine Fleming International Management Inc. acts as
investment adviser to the Fund (the "Investment Adviser"). See
"Management of the Fund." The address of the Fund is 1285 Avenue
of the Americas, New York, New York 10019, and the Fund's
telephone number is (212) 713-2848.
--------------------
(Footnotes from the previous page)
(1) Estimated on the basis of % of the Fund's net asset value per
Share on , 1997. See "The Offer-- Subscription Price."
(2) In connection with the Offer, PaineWebber Incorporated (the
"Dealer Manager") and other broker-dealers soliciting the
exercise of Rights will receive soliciting fees equal to %
of the Subscription Price per Share for each Share issued
pursuant to the exercise of Rights and the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager
a fee for marketing and financial advisory services in
connection with the Offer equal to % of the aggregate
Subscription Price for the Shares issued pursuant to the
exercise of Rights and the Over-Subscription Privilege. In
addition, the Fund and the Investment Adviser has agreed to
indemnify the Dealer Manager against certain liabilities,
including liabilities under the Securities Act of 1933, as
amended.
(3) Before deduction of offering expenses to be incurred by the Fund
estimated at $ , including $ payable to the
Dealer Manager as partial reimbursement of its expenses.
(4) Funds received by check or money order prior to the final due
date of the Offer will be deposited into a segregated
interest-bearing account at (the interest on which will be
paid to the Fund) pending proration and distribution of the
Shares.
(5) Assumes all Rights are exercised at the Estimated
Subscription Price. Pursuant to the Over-Subscription Privilege,
the Fund may at the discretion of the Board of Directors increase
the number of Shares subject to subscription by up to % of
the Shares offered in the Primary Subscription (defined below). If
the Fund increases the number of Shares subject to subscription
by %, the total maximum Estimated Subscription Price,
Estimated Sales Load and Estimated Proceeds to Fund will be
$ , $ and $ , respectively.
--------------------
Unless otherwise specified herein, all references to "U.S.
dollars," "dollars," "US$" and "$" are to United States dollars;
all references to "Rupees" and "Rs" are to Indian Rupees, which
is the legal tender currency of India.
This Prospectus includes translations of certain amounts from
Rupees into U.S. dollars solely for the convenience of the
reader. Except for U.S. dollar equivalent information for
information in Rupees appearing in Appendix A, such U.S. dollar
information for a period is based upon the interbank exchange
rate on the last day of the period, as published in the Economic
Times, and U.S. dollar equivalent information for information in
Rupees as of a date is based on the interbank exchange rate on
such date. All U.S. dollar information appearing in Appendix A
was contained in the publications or published by the
organizations referred to therein.
On , 1997, the noon buying rate for Rupees, as certified
for customs purposes by the Federal Reserve Bank of New York, was
US$1.00 = Rs . No representation is made that the currency
amounts shown in this Prospectus could have been or could be
converted into U.S. dollars at any particular rate or at all. See
"Risk Factors and Special Considerations -- Currency Devaluations
and Fluctuations."
References in this Prospectus to "fiscal years" (i.e., fiscal
year 1995-96) are to fiscal years used by the government of India
for budget and certain statistical purposes, and includes a
period that begins on April 1 of one year and ends on March 31 of
the following year.
In Indian terminology, a lakh is a unit of one hundred
thousand, and a crore is a unit of ten million.
Certain numbers and percentages have been rounded for ease of
presentation, which may result in amounts not totalling
precisely.
2
<PAGE>
FUND EXPENSES
Shareholder Transaction Expenses
Sales Load (as a percentage of Subscription
Price per Share)(1)(2)........................ %
Dividend Reinvestment Plan Fees............... none(3)
Annual Expenses (as a percentage of net assets
attributable to Common Stock)(4)
Management Fees............................... %
Interest Payments on Borrowed Funds........... %
Other Expenses(2)............................. %
Administration Fees................. %
Other Operating Expenses............ %
-----
Total Annual Expenses......................... %
=====
- ----------
(1) The Dealer Manager and the other broker-dealers soliciting
the exercise of Rights will receive soliciting fees payable
by the Fund equal to % of the Subscription Price per Share
for each Share issued pursuant to the exercise of Rights and
the Over-Subscription Privilege. The Fund has also agreed to
pay the Dealer Manager a fee for marketing and financial
advisory services in connection with the Offer equal to %
of the aggregate Subscription Price for the Shares issued
pursuant to the exercise of Rights and the Over-Subscription
Privilege. These fees will be borne by the Fund and
indirectly by all of the Fund's shareholders, including those
who do not exercise their Rights.
(2) Does not include expenses to be incurred by the Fund in connection
with the Offer, estimated at $ , including $
payable to the Dealer Manager as partial reimbursement of its
expenses.
(3) There is no charge to participants for reinvesting dividends
or net capital gains distributions. However, each participant
in the plan will pay a pro rata share of brokerage
commissions incurred in connection with open market purchases
of Fund Shares under the Plan.
(4) "Management Fees" and "Administration Fees" are calculated on
the basis of the Fund's net assets on , 1997 and assume the
Offer (including an additional % of the Shares offered in
the Primary Subscription that may be made available to
satisfy over-subscription requests) is fully subscribed, and
that the average net assets of the Fund do not increase or
decrease thereafter. "Administration Fees" include fees of
the Administrator only; other administrative fees are
included in "Other Expenses." "Other Expenses" have been
estimated based on the current fiscal year.
The foregoing table is intended to assist Fund investors in
understanding the various costs and expenses that an investor in
the Fund will bear directly and indirectly. For more complete
descriptions of certain of the Fund's costs and expenses, see
"Management of the Fund -- The Investment Advisory Agreement," "
- -- Administrator" and " -- Expenses" in this Prospectus and
"Portfolio Transactions and Brokerage" in the SAI.
Example:
The following example demonstrates the projected dollar
amount of total cumulative expense that an investor would incur
over various periods with respect to a hypothetical investment of
$1,000 in the Fund assuming (i) a 5% annual return, (ii)
reinvestment of all dividends and other distributions at net
asset value and (iii) payment of a % Sales Load on the entire
$1,000 investment.
Cumulative Expenses Paid for the Period of:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$ $ $ $
This example assumes that the Fund pays operating expenses at
the levels set forth under Annual Expenses in the years shown,
except as to Ten Years, which reflects the completion of
organizational expenses amortization. The above tables and the
assumption in the example of a 5% annual return and reinvestment
of dividends at net asset value are required by regulations of
the Securities and Exchange Commission applicable to all
closed-end investment companies. The assumed 5% annual return is
not a prediction of, and does not represent, the projected or
actual performance of the Common Stock. In addition, although the
example
3
<PAGE>
assumes reinvestment of all dividends and other distributions
at net asset value, participants in the Fund's Dividend
Reinvestment Plan may receive shares of the Common Stock
obtained by the Plan Agent at or based on the market price in
effect at that time, which may be at, above or below net asset
value.
This example should not be considered a representation of
past or future expenses or annual rates of return. Actual
expenses and annual rates of return may be more or less than
those assumed for purposes of the example.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a
share of Common Stock outstanding throughout each period
presented. This information is derived from the financial and
accounting records of the Fund. The financial highlights
presented below have been audited by Price Waterhouse LLP, the
Fund's independent accountants, whose report thereon was
unqualified. The following information should be read in
conjunction with the Financial Statements of the Fund, the notes
thereto and the report of Price Waterhouse LLP thereon included
in the SAI, which is available from the Information Agent without
charge upon request.
For the
For the Period
Six Months March 3,
Ended For the For the 1994(1)
May 31, Year Ended Year Ended through
1997 November 30, November 30, November 30,
(unaudited) 1996 1995 1994
----------- ------------ ------------ ------------
PER-SHARE
OPERATING PERFORMANCE
Net asset value:
Beginning of period.... $ 6.82 $ 7.74 $ 15.41 $ 13.95(2)
Offering costs charged
additional paid-up
capital................ -- -- -- (0.10)
------- ------- ------- -------
6.82 7.74 15.41 13.85
------- ------- ------- -------
Net investment loss..... (0.10) (0.14) (0.16) (0.08)
Net realized and
unrealized gain (loss)
on investments and
other assets and
liabilities
denominated in
foreign currency........ 2.42 (0.78) (7.32) 1.64
------- ------- ------- -------
Total from investment
operations.............. 2.32 (0.92) (7.48) 1.56
------- ------- ------- -------
Less distributions to
shareholders:
From net realized
gain on investments.... -- -- (0.12) --
In excess of net
realized gain on
investments............ -- -- (0.07) --
------- ------- ------- -------
Total distributions
to shareholders......... -- -- (0.19) --
------- ------- ------- -------
Net asset value,
end of period........... 9.14 6.82 7.74 15.41
======= ======= ======= =======
Market price,
end of period........... 8.75 6.375 9.00 13.75
======= ======= ======= =======
Total investment
return based on:(3)(4)
Net asset value........ 34.02% (11.89)% (48.96)% 11.26%
Market price........... 37.25% (29.17)% (33.48)% (1.43)%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of period
(000 omitted)........... $103,307 $77,123 $87,479 174,285
Ratio of expenses
to average net
assets.................. 2.67%(5) 3.28% 2.90% 2.29%(5)
Ratio of expenses
to average net
assets, excluding
interest expense........ 2.28%(5) 2.83% 2.35% --
Ratio of net
investment loss to
average net assets...... (2.39)%(5) (1.55)% (1.38)% (0.75)%
Portfolio turnover
rate.................... 18% 81% 49% 32%
Average commission
rate paid per
share of common
stock investments
purchased/sold(6)...... $ 0.0291 $0.0297 -- --
------- ------- ------- -------
- ----------
(Footnotes on the following page)
5
<PAGE>
(1) Commencement of operations.
(2) Initial public offering price of $15.00 per share net of
underwriting discount of $1.05 per share.
(3) Total investment return is calculated assuming a purchase of
common stock on the opening of the first day and a sale on
the closing of the last day of each period reported.
Dividends and distributions, if any, are assumed for purposes
of this calculation to be reinvested at prices obtained under
the Fund's dividend reinvestment plan. Total investment
return does not reflect sales charges or brokerage
commissions. Generally, total investment return based on net
asset value will be higher than total investment return based
on market price in periods where there is an increase in the
discount or a decrease in the premium of the market price to
the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on net
asset value will be lower than total investment return based
on market value in periods where there is a decrease in the
discount or an increase in the premium of the market value to
the net asset value from the beginning to the end of such
periods.
(4) Total investment return for a period of less than one year is
not annualized.
(5) Annualized.
(6) Disclosure effective for fiscal years beginning on or after
September 1, 1995.
6
<PAGE>
THE OFFER
Purpose of the Offer
The Board of Directors of the Fund has determined that it is
in the best interests of the Fund and its shareholders to
increase the assets of the Fund available for investment in order
to put the Fund in a better position to take advantage of
investment opportunities in India, consistent with the Fund's
investment objective of long-term capital appreciation. The
Investment Adviser has informed the Board of Directors of its
belief that attractive investment opportunities may develop in
the Indian equities market in the near future based on the
current level of market valuations, particularly relative to
earnings growth forecasts. As a result, the Investment Adviser
believes that increasing the Fund's investments in Indian
securities has the potential to improve the overall return to the
Fund from its investment portfolio.
The Fund is fully invested in Indian equity securities and
equity securities of Region companies. However, the Investment
Adviser believes it inadvisable to sell a portion of the Fund's
current holdings in order to seek to take advantage of other
investment opportunities because it believes such holdings have
strong investment merit. The Investment Adviser therefore
believes that raising new capital is the preferred alternative
and is in the best interests of the Fund's shareholders.
In reaching its decision, the Board of Directors also took
into account that a well-subscribed rights offering may
marginally reduce the Fund's expense ratio (although the Offer
would increase the absolute amount of fees payable by the Fund),
which would be of long-term benefit to shareholders, and could
increase liquidity for trading of the Fund's Shares on the NYSE,
although no assurance can be given that either of these results
will be achieved. Furthermore, the Board of Directors considered
that the Offer would provide existing shareholders the
opportunity to purchase additional Shares at a price below both
market value and net asset value.
The Board of Directors considered specifically the proposed
terms of the Offer, including the effect of dilution on
shareholders of the Fund, especially those who do not participate
in the Offer, and the expenses of the Offer to the Fund, which
will indirectly be borne by its shareholders. However, based
primarily on the factors noted above, the Board of Directors of
the Fund has determined that the Offer is in the best interests
of the Fund's shareholders.
The Board of Directors approved the general terms of the
Offer and the filing with the Securities and Exchange Commission
of a registration statement relating to the Offer at a meeting
held on September 16, 1997. The Offer remains subject to the
final approval of the Fund's Board of Directors, and there can be
no assurance that the Fund will make the Offer on the terms
described in this Prospectus or on any other terms. One of the
Fund's five directors who voted to authorize the Offer is an
"interested person" of the Fund within the meaning of the
Investment Company Act. This Director could benefit indirectly
from the Offer because of his affiliation with the Investment
Adviser. The other four directors are not "interested persons" of
the Fund. See "Management of the Fund."
Each of the Investment Adviser, the Administrator and
PaineWebber Incorporated (in addition to in its capacity as
Dealer Manager) will benefit from the Offer because they will be
paid higher fees, which are based on the net assets of the Fund.
It is not possible to state precisely the amount of the
additional compensation these entities will receive as a result
of the Offer because it is not known how many Shares will be
purchased, or the actual Subscription Price, and because the
proceeds of the Offer will be invested in additional portfolio
securities which will fluctuate in value. However, assuming that
all Shares are subscribed for (including the additional % of
the Shares offered in the Primary Subscription that may be
available pursuant to the Over-Subscription Privilege) and that
the Fund receives the maximum proceeds of the Offer on the basis
of the Estimated Subscription Price of $ per Share, the annual
compensation payable to each of the Investment Adviser, the
Administrator and PaineWebber Incorporated (other than in its
capacity as Dealer Manager) would increase by approximately $ ,
$ and $ , respectively. See "Management of the Fund."
The Fund may, in the future and at its discretion, choose to
make additional rights offerings from time to time for a number
of Shares and on terms which may or may not be similar to the
Offer. Any such future
7
<PAGE>
rights offering will be made in accordance with the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
Terms of the Offer
The Fund is issuing to Shareholders of record ("Record Date
Shareholders") as of the close of business on , 1997 (the
"Record Date") of its common stock, par value $0.001 per share
(the "Common Stock"), non-transferable rights ("Rights") to
subscribe for an aggregate of shares of the Fund's Common Stock
(the "Shares") ( Shares if the Fund increases the number of
Shares available pursuant to the Offer by up to % in connection
with the Over-Subscription Privilege as described below). Each
Record Date Shareholder is being issued one non-transferable
Right for each whole share of Common Stock owned on the Record
Date. The Rights entitle Record Date Shareholders to acquire at
the Subscription Price one Share for each Rights held (1 for ).
Fractional Shares will not be issued upon the exercise of
Rights. Record Date Shareholders who receive or have remaining
fewer than Rights will not be able to purchase a Share upon the
exercise of such Rights and will not be entitled to receive any
cash in lieu thereof, although such Record Date Shareholders may
request additional Shares pursuant to the Over-Subscription
Privilege. Rights may be exercised at any time during the
subscription period, which commences on , 1997 and ends at 5:00
p.m., New York time, on , 1997, unless extended by the Fund until
5:00 p.m., New York time, on a date not later than , 1997 (the
"Subscription Period"). A Record Date Shareholder's right to
acquire during the Subscription Period at the Subscription Price
one Share for every Rights held is referred to herein as the
"Primary Subscription." The Rights are evidenced by subscription
certificates ("Subscription Certificates"), which will be mailed
to Record Date Shareholders, except as discussed below under
"Foreign Restrictions." The Fund does not currently anticipate
that it will declare any dividend for the year ended November 30,
1997 prior to the issuance of additional Shares pursuant to the
Offer.
Record Date Shareholders who fully exercise all Rights issued
to them pursuant to the Primary Subscription may subscribe for
additional Shares pursuant to the Over-Subscription Privilege.
Shares not subscribed for pursuant to the Primary Subscription
will be made available for subscription. Shares available, if
any, pursuant to the Over-Subscription Privilege are subject to
allotment and may be subject to increase, as more fully discussed
below in "-- Over-Subscription Privilege." For the purposes of
determining the maximum number of Shares a Record Date
Shareholder may acquire pursuant to the Offer, Record Date
Shareholders whose shares are held of record by Cede & Co., Inc.
("Cede"), the nominee for The Depository Trust Company ("DTC"),
or by any other depository or nominee will be deemed to be the
holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf.
Record Date Shareholders will have no right to rescind a
purchase after the Subscription Agent has received payment either
by means of a Notice of Guaranteed Delivery or a check, except as
described below under "-- Notice of Net Asset Value Decline."
Over-Subscription Privilege
To the extent Record Date Shareholders do not exercise all
Rights issued to them pursuant to the Primary Subscription, any
underlying Shares represented by such unexercised Rights will be
offered, by means of the Over-Subscription Privilege, to the
Record Date Shareholders who have exercised all the Rights issued
to them pursuant to the Primary Subscription. Such Record Date
Shareholders may indicate on the Subscription Certificate the
number of additional Shares they desire to subscribe for pursuant
to the Over-Subscription Privilege; there is no limit to the
number of such Shares that Record Date Shareholders may request.
If sufficient Shares are available as a result of unexercised
Rights in the Primary Subscription, all over-subscription
requests will be honored in full. If sufficient Shares are not
available to honor all over-subscription requests, the Fund may,
at the discretion of the Board of Directors, issue up to an
additional % of the Shares available pursuant to the Primary
Subscription (up to Shares) in order to cover such
over-subscription requests. Regardless of whether the Fund issues
any such additional Shares, to the extent Shares are not
available to honor all over-subscription requests, the available
Shares will be allocated among those Record Date Shareholders who
over-subscribe based on the number of shares owned by them in the
Fund on the Record Date. The allocation process may involve a
series of allocations in order to assure that the total number of
Shares available for over-subscription is distributed on a pro
rata basis.
8
<PAGE>
Banks, brokers, trustees and other nominee holders of Rights
will be required to certify to the Subscription Agent (as defined
herein), before any Over-Subscription Privilege may be exercised
with respect to any particular beneficial owner, as to the
aggregate number of Rights exercised pursuant to the Primary
Subscription and the number of Shares subscribed for pursuant to
the Over-Subscription Privilege by such beneficial owner and that
such beneficial owner's Primary Subscription was exercised in
full. Nominee Holder Over-Subscription Forms and Beneficial Owner
Certification Forms will be distributed to banks, brokers,
trustees and other nominee holders with the Subscription
Certificates.
The Fund will not offer or sell any Shares that are not
subscribed for pursuant to the Primary Subscription or the
Over-Subscription Privilege.
Subscription Price
The subscription price per Share (the "Subscription Price")
for the Shares to be issued pursuant to the Offer will be % of
the lower of (i) the average of the last reported sales prices of
a share of the Common Stock on the NYSE on the expiration date of
the Offer (the "Pricing Date") and the four preceding business
days and (ii) the net asset value per share as of the close of
business on the Pricing Date. For example, if the average of the
last reported sales prices on the NYSE on the Pricing Date and
the four preceding business days of a share of the Fund's Common
Stock is $ , and the net asset value per share on the Pricing
Date is $ , the Subscription Price will be $ ( % of $ ).
If, however, the average of the last reported sales prices on the
NYSE on the Pricing Date and the four preceding business days is
$ , and the net asset value per share on the Pricing Date is
$ , the Subscription Price will be $ ( % of $ ).
The Fund announced the Offer after the close of trading on
the NYSE on October 7, 1997. The net asset value per share of
Common Stock at the close of business on October 2, 1997 (the last
trading date on which the Fund calculated its net asset value per
share prior to the announcement) and , 1997 (the last trading
date on which the Fund calculated its net asset value prior to
the date of this Prospectus) was $9.46 and $ , respectively, and
the last reported sales price of a share of the Fund's Common
Stock on the NYSE on each of these dates was $9.13 and $ ,
respectively. The Common Stock traded at a discount to net asset
value of 3.49% on October 2, 1997 and at a premium to net asset
value of % on , 1997.
Non-Transferability of Rights
The Rights are non-transferable and, accordingly, may not be
purchased or sold. The Rights will not be listed for trading on
the NYSE or any other exchange. However, the Shares to be issued
upon the exercise of the Rights will be listed for trading on the
NYSE, subject to notice of official issuance. Rights are offered
to Record Date Shareholders, which term, for purposes of the Offer,
includes (i) the person or persons who are the owners, co-owners and
beneficiaries of the account(s) in which the Shares are held
(collectively, the "Designated Persons") and (ii) any account
(including a trust, Individual Retirement Account, qualified plan
account or other similar arrangement) of which any Designated Person
is directly or indirectly an owner, a co-owner or beneficiary.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York time, on , 1997,
unless extended by the Fund until 5:00 p.m., New York time, to a
date not later than , 1997 (such expiration date, as it may be so
extended, the "Expiration Date"). Any extension of the Offer will
be followed as promptly as practicable (but no later than 9:00
a.m., New York time, on the next business day following the
previously scheduled Expiration Date) by announcement thereof.
Without limiting the manner in which the Fund may choose to make
such announcement, the Fund will not, unless otherwise required
by law, have any obligation to publish, advertise or otherwise
communicate any such announcement other than by making a release
to the Dow Jones News Service or such other means of announcement
as the Fund deems appropriate. Information about any extension
also may be obtained from the Information Agent.
The Rights will expire on the Expiration Date and thereafter
may not be exercised. Since the Expiration Date and the Pricing
Date will be the same date, Record Date Shareholders who decide
to acquire Shares in the Primary Subscription or pursuant to the
Over-Subscription Privilege will not know when they make such
decision the purchase price of such Shares.
9
<PAGE>
Notice of Net Asset Value Decline
The Fund has, pursuant to the U.S. Securities and Exchange
Commission's regulatory requirements, undertaken to suspend the
Offer until it amends this Prospectus if, subsequent to the date
of this Prospectus, the Fund's net asset value declines more than
10% from its net asset value as of that date. Accordingly, the
Fund will notify Record Date Shareholders of any such decline and
thereby permit them to cancel their exercise of Rights in such
event.
Subscription Agent
The subscription agent is (the "Subscription Agent"), which
will receive for its administrative processing, invoicing and
other services as subscription agent, a fee estimated to be $
plus reimbursement for all out-of-pocket expenses related to the
Offer. The Subscription Agent is also the Fund's dividend
disbursing agent, transfer agent and registrar. Inquiries
regarding the Subscription Certificates should be directed to the
Subscription Agent (toll free at (800)- ); shareholders may
also consult their brokers or nominees.
Completed Subscription Certificates, together with payment of
the Estimated Subscription Price, should be sent to the
Subscription Agent by one of the methods described below. Notices
of Guaranteed Delivery may also be sent by facsimile, with the
original Notice of Guaranteed Delivery to be sent promptly
thereafter by one of the methods described below, to be received
by the Subscription Agent prior to 5:00 P.M., New York time, on
the Expiration Date. Facsimiles should be confirmed by telephone
to . The Fund will accept only Subscription Certificates or
Notices of Guaranteed Delivery (see " -- Exercise of Rights and
Payment for Shares" below) actually received by either method
described below, prior to 5:00 P.M., New York time, on the
Expiration Date.
(1) BY HAND, FIRST CLASS MAIL, (2) BY FACSIMILE:
EXPRESS MAIL OR (Notice of Guaranteed
OVERNIGHT COURIER: Delivery Only)
DELIVERY TO AN ADDRESS OTHER THAN THOSE LISTED ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
Information Agent
Any questions or requests for assistance may be directed
to (the "Information Agent") at its telephone number and
address listed below:
Shareholders may also contact their brokers or nominees for
information with respect to the Offer.
The Information Agent will receive a fee estimated to be
$ plus reimbursement for all out-of-pocket expenses related
to the Offer.
Method for Exercising Rights
Rights are evidenced by subscription certificates (the
"Subscription Certificates") which will be mailed to Record Date
Shareholders or, if a Record Date Shareholder's shares are held
by Cede or any other depository or nominee on its behalf, to Cede
or such depository or nominee, except as discussed below under
"-- Foreign Restrictions." Rights may be exercised by completing
and signing the Subscription Certificate that accompanies this
Prospectus and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to
the Subscription Agent, together with payment in full for the
Shares at the Estimated Subscription Price. Rights may also be
exercised by contacting your broker, banker or trust company,
which can arrange, on your behalf, to guarantee delivery of
payment and delivery of a properly completed and executed
Subscription Certificate pursuant to a Notice of Guaranteed
Delivery. A fee may be charged for this service. Fractional
shares will not be issued and shareholders who receive or who
have remaining fewer than three Rights will not be able to
purchase a Share upon the exercise of such remaining Rights and
will not be entitled to receive any cash in lieu thereof. Such
shareholders may, however, request additional Shares pursuant to
the Over-Subscription Privilege. Completed Subscription
Certificates must be
10
<PAGE>
received by the Subscription Agent prior to 5:00 P.M., New
York City time, on the Expiration Date at one of the addresses
set forth above (unless the guaranteed delivery procedures are
complied with as described below under "Payment for Shares").
Shareholders Who Are Registered Record Shareholders. Record
Date Shareholders who are registered record shareholders can
choose between either option set forth below under "Payment for
Shares". If time is of the essence, option (2) below will permit
delivery of the Subscription Certificate and payment for the
Shares after the Expiration Date. If a Record Date Shareholder
who is a registered record shareholder chooses option (2) below,
an additional fee may be charged for this service.
Shareholders Whose Shares Are Held by a Nominee. Record Date
Shareholders whose shares are held by a nominee, such as a broker
or trustee, must contact that nominee to exercise their Rights.
In that case, the nominee will complete the Subscription
Certificate on behalf of the Record Date Shareholder and arrange
for proper payment by one of the methods set forth under "Payment
for Shares" below.
Nominees. Nominees who hold shares for the account of others
should notify the beneficial owners of such shares as soon as
possible to ascertain such beneficial owners' intentions and to
obtain instructions with respect to the Rights. If the beneficial
owner so instructs, the nominee should complete the Subscription
Certificate and submit it to the Subscription Agent with the
proper payment described under "Payment for Shares" below.
Payment for Shares
Record Date Shareholders may exercise their Rights and pay
for Shares for which they have subscribed pursuant to the Primary
Subscription or the Over-Subscription Privilege in one of the
following ways:
(1) Deliver Exercise Instructions and Payment to Subscription
Agent by Expiration Date:
(a) Registered Record Date Shareholders may deliver to
the Subscription Agent (i) a complete and executed
Subscription Certificate indicating the number of Rights they
have been issued and the number of Shares for which they are
subscribing pursuant to the Primary Subscription, as well as
the number of any additional Shares for which they wish to
subscribe pursuant to the Over-Subscription Privilege, and
(ii) payment for all such ordered Shares based on the
Estimated Subscription Price of $ per Share, both prior to
5:00 p.m., New York time, on the Expiration Date.
(b) Beneficial Record Date Shareholders Holding Through a
Nominee Holder may direct their Nominee Holder to cause to be
delivered to the Subscription Agent (i) instructions
(electronically or by a form of Beneficial Owner
Certification) regarding the exercise of their Rights and the
number of Shares for which they are subscribing pursuant to
the Primary Subscription, as well as the number of any
additional Shares for which they wish to subscribe pursuant
to the Over-Subscription Privilege, and (ii) payment for all
such ordered Shares based on the Estimated Subscription Price
of $ per Share, both prior to 5:00 p.m., New York time, on
the Expiration Date.
(2) Deliver Notice of Guaranteed Delivery by Expiration Date
and Deliver Payment Together with Exercise Instructions
by , 1997:
(a) Registered Record Date Shareholders may (i) request a
NYSE member or a bank or trust company with an office or
correspondent in the United States to execute and deliver to
the Subscription Agent prior to 5:00 p.m., New York time, on
the Expiration Date a Notice of Guaranteed Delivery (or
equivalent electronic information) (A) indicating the number
of Rights they wish to exercise, the number of Shares for
which they are subscribing pursuant to the Primary
Subscription and the number of any additional Shares for
which they wish to subscribe pursuant the Over-Subscription
Privilege and (B) guaranteeing delivery of a completed
Subscription Certificate and payment from such Record Date
Shareholders by , 1997 and (ii) subsequently deliver to the
Subscription Agent by , 1997 a complete and executed
Subscription Certificate indicating the number of Rights such
Record Date Shareholders have been issued and the number of
Shares they have ordered, together with payment for all such
ordered Shares at the Estimated Subscription Price of $ per
Share.
11
<PAGE>
(b) Beneficial Record Date Shareholders Holding Through a
Nominee Holder may direct their Nominee Holder (i) to execute
a Notice of Guaranteed Delivery (or equivalent electronic
information) by the Expiration Date (A) indicating the number
of Rights they wish to exercise, the number of Shares for
which they are subscribing pursuant to the Primary
Subscription and the number of any additional Shares for
which they wish to subscribe pursuant to Over-Subscription
Privilege and (B) guaranteeing delivery of complete exercise
instructions and payment by , 1997 and to cause such Notice
(or equivalent electronic information) to be delivered to the
Subscription Agent prior to 5:00 p.m., New York time, on the
Expiration Date and (ii)(A) to cause final exercise
instructions regarding the number of Rights issued and
exercised and the number of Shares for which they wish to
subscribe pursuant to the Primary Subscription and the
Over-Subscription Privilege to be delivered electronically or
by a form of Beneficial Owner Certification and (B) to send
payment for all such ordered Shares based on the Estimated
Subscription Price of $ per Share, both to the Subscription
Agent prior to 5:00 p.m., New York time, on , 1997.
SUBSCRIPTIONS WILL BE ACCEPTED ONLY IF PAYMENT IN U.S.
DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK OR BRANCH LOCATED
IN THE UNITED STATES PAYABLE TO JARDINE FLEMING INDIA FUND, INC.
AND PROPERLY COMPLETED EXERCISE INSTRUCTIONS ARE RECEIVED BY THE
SUBSCRIPTION AGENT IN ACCORDANCE WITH THE PROCEDURES AND
DEADLINES SET FORTH ABOVE. The Subscription Agent will deposit
all checks received by it prior to the final payment date into a
segregated interest-bearing account of the Fund (the interest on
which will belong to the Fund) pending proration and distribution
of the Shares.
THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATES
SHOULD BE READ CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND
SUBSCRIPTION CERTIFICATES TO THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND
PAYMENTS WILL BE AT THE ELECTION AND RISK OF THE EXERCISING
RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT
NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION
AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME,
ON THE EXPIRATION DATE (OR , 1997 IF A NOTICE OF GUARANTEED
DELIVERY IS USED). THE FUND CANNOT BE RESPONSIBLE FOR
SUBSCRIPTION CERTIFICATES AND PAYMENTS RECEIVED AFTER SUCH
DEADLINES. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR, EXERCISING RIGHTS HOLDERS ARE
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
RECORD DATE SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR
SUBSCRIPTION AFTER RECEIPT BY THE SUBSCRIPTION AGENT OF EXERCISE
INSTRUCTIONS OR A NOTICE OF GUARANTEED DELIVERY (OR EQUIVALENT
ELECTRONIC INFORMATION), EXCEPT AS PROVIDED ABOVE UNDER "--
NOTICE OF NET ASSET VALUE DECLINE."
Within eight Business Days following the Expiration Date (the
"Confirmation Date") ( , 1997, unless the Offer is extended),
the Subscription Agent will send a confirmation certificate to each
subscribing shareholder (or, if the shareholder's shares are held
by Cede or any other depository or nominee, to Cede or such other
depository or nominee), showing (i) the number of Shares acquired
pursuant to the Primary Subscription, (ii) the number of Shares,
if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price for the Shares and
(iv) any additional amount payable by such shareholder to the
Fund or any excess to be refunded by the Fund to such
shareholder, in each case based on the Subscription Price as
determined on the Pricing Date. Any additional payment required
from a shareholder must be received by the Subscription Agent
within ten business days after the Confirmation Date ( , 1997,
unless the Offer is extended). Any excess payment to be refunded
by the Fund to a shareholder will be mailed by the Subscription
Agent to such shareholder as promptly as practicable. All
additional payments by
12
<PAGE>
a shareholder must be in United States dollars by money
order or check drawn on a bank located in the United States of
America and payable to JARDINE FLEMING INDIA FUND, INC.
Whichever of the two methods described above is used,
issuance and delivery of confirmation certificates for the Shares
purchased are subject to collection of checks and actual payment
pursuant to any Notice of Guaranteed Delivery.
If a Record Date Shareholder who subscribes for Shares
pursuant to the Primary Subscription or the Over-Subscription
Privilege does not make payment of any or all amounts due, the
Fund reserves the right to take any or all of the following
actions: (i) sell such subscribed and unpaid-for Shares to other
Record Date Shareholders, (ii) apply any payment actually
received by the Fund toward the purchase of the greatest whole
number of Shares which could be acquired by such Record Date
Shareholder upon exercise of the Primary Subscription and/or the
Over-Subscription Privilege and/or (iii) exercise any and all
other rights or remedies to which it may be entitled, including,
without limitation, the right to set off against payments
actually received by the Fund with respect to such subscribed
Shares and to enforce the relevant Notice of Guaranteed Delivery.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the
Fund, whose determinations will be final and binding. The Fund in
its sole discretion may waive any defect or irregularity to be
corrected within such time as it may determine, or reject the
purported exercise of any Right. Subscriptions will not be deemed
to have been received or accepted until all irregularities have
been waived or cured within such time as the Fund determines in
its sole discretion. Neither the Fund nor the Subscription Agent
will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription
Certificates or the method of payment or incur any liability for
failure to give such notification.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date
Shareholders whose addresses are outside the United States. (For
these purposes, the United States includes its territories and
possessions and the District of Columbia.) The Rights to which
those Subscription Certificates relate will be held at the
Subscription Agent for such Record Date Shareholders' accounts
until instructions are received to exercise the Rights, subject
to applicable law. If no instructions are received prior to the
Expiration Date, such Rights will expire.
Delivery of Stock Certificates
Except as noted below in this paragraph, share certificates
for all Shares acquired pursuant to the Primary Subscription and
the Over-Subscription Privilege will be mailed promptly after the
expiration of the Offer and full payment for the Shares
subscribed for has been received and cleared (which may take up
to fifteen days from the date of receipt) and all allocations
have been effected. Participants in the Fund's Dividend
Reinvestment Plan (the "Plan") will have any Shares acquired in
the Primary Subscription or pursuant to the Over-Subscription
Privilege credited to their shareholder dividend reinvestment
accounts in the Plan. Such Shares will remain subject to the same
investment option previously selected by the Plan participant.
Share certificates will not be issued for Shares credited to Plan
accounts. Shareholders whose shares of Common Stock are held of
record by Cede or by any other depository or nominee on their
behalf or their broker-dealers' behalf will have any Shares
acquired during the Primary Subscription or pursuant to the
Over-Subscription Privilege credited to the account of Cede or
such other depository or nominee.
Dilution and Effect of Non-Participation in the Offer
Because the Subscription Price per Share will be less than
the net asset value per Share and because the number of Shares
outstanding after the Offer will increase in a greater percentage
than the increase in the size of the Funds' assets, the Offer
will result in a dilution of the aggregate net asset value of the
Shares owned by Record Date Shareholders, which will
disproportionately affect Record Date Shareholders who do not
exercise their Rights. In addition, as a result of the terms of
the Offer, Record Date Shareholders who do not fully exercise
their Rights should expect that they will, upon completion of the
Offer, own a
13
<PAGE>
smaller proportionate in the Fund than would otherwise be the
case if the Offer had not been made. Although it is not possible
to determine currently the amount of such dilution in net asset
value because it is not known at the date of this Prospectus what
the net asset value will be on the Expiration Date, how many
Shares will be subscribed for or what the Subscription Price will
be, such dilution could be substantial. For example, assuming
that all Shares (including an additional % of the Shares
offered in the Primary Subscription to satisfy over-
subscriptions) are sold at the Estimated Subscription Price
and after deducting all expenses related to the Offer, the Fund's
net asset value as of , 1997 of $ per share would be
reduced by approximately $ , or %. See "Risk Factors and
Special Considerations -- Dilution and the Effect of Non-
Participation in the Offer."
Federal Income Tax Consequences of the Offer
The following is a general summary of certain U.S. federal
income tax considerations applicable to Record Date Shareholders
upon the distribution, exercise or lapse of the Rights. The
discussion is based on the federal income tax laws, regulations,
rulings and decisions in effect on the date of this Prospectus,
which are subject to change (possibly with retroactive effect).
The discussion does not purport to deal with all of the federal
income tax consequences applicable to all categories of
investors, some of which may be subject to special rules (for
example, banks, dealers in securities, life insurance companies
and tax-exempt organizations), nor does it discuss any tax
consequences arising under any state, local or foreign tax laws.
This summary is limited to taxpayers that will hold the Rights as
a "capital asset" (generally, property held for investment)
within the meaning of section 1221 of the Internal Revenue Code.
Rights distributed to a Record Date Shareholder generally will be
a capital asset in the hands of such shareholder if the shares
with respect to which the Rights were distributed were capital
assets in the hands of such shareholder. Record Date Shareholders
are urged to consult their tax advisors with respect to the
particular federal, state, local, foreign and other tax
consequences to them of the distribution and exercise of the
Rights.
For U.S. federal income tax purposes, Record Date
Shareholders will not recognize taxable income upon the
distribution of the Rights or the exercise of the Rights, and
will not realize gain or loss if the Rights distributed to them
expire without exercise. A Record Date Shareholder who, as to the
United States, is a foreign investor (such as a non-resident
alien individual, a foreign trust or estate, a foreign
corporation or foreign partnership) will not recognize taxable
income for U.S. federal income tax purposes, and will not be
subject to withholding of U.S. federal income tax, in connection
with the receipt or exercise of the Rights.
Except as provided in the following sentence, the basis of a
Right distributed to a Record Date Shareholder will be zero. If
either (i) the fair market value of the Right on the date of
distribution is 15% or more of the fair market value on such date
of the shares with respect to which the Right is distributed or
(ii) the shareholder elects, in its federal income tax return for
the taxable year in which the Right is received, to allocate part
of the basis of such shares to the Right, then upon the exercise
or transfer of the Right, the Record Date Shareholder's basis in
such shares will be allocated between such shares and the Right
in proportion to the fair market values of each on the date of
distribution. The holding period of a Right received by a Record
Date Shareholder will include such shareholder's holding period
for the shares with respect to which the Right was distributed.
HOLDERS OF RIGHTS WILL NOT RECOGNIZE GAIN OR LOSS UPON THE
EXERCISE OF RIGHTS. THE HOLDING PERIOD FOR A SHARE ACQUIRED UPON
THE EXERCISE OF A RIGHT BEGINS WITH THE DATE OF EXERCISE. A
SHAREHOLDER'S BASIS FOR DETERMINING GAIN OR LOSS UPON THE SALE OF
A SHARE ACQUIRED UPON THE EXERCISE OF A RIGHT WILL BE EQUAL TO
THE SUM OF THE SHAREHOLDER'S BASIS IN THE RIGHT, IF ANY, AND THE
SUBSCRIPTION PRICE. SEE "TAXATION -- UNITED STATES FEDERAL INCOME
TAXES -- SALES OF SHARES" AND "-- FOREIGN SHAREHOLDERS" IN THE
SAI FOR A DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF
THE SALE OF A SHARE ACQUIRED THROUGH THE EXERCISE OF A RIGHT.
Employee Plan Considerations
Shareholders that are employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including corporate savings and 401(k) plans), Keogh
or H.R. 10 plans of
14
<PAGE>
self-employed individuals and Individual Retirement Accounts
("IRAs") (collectively, "Plans") should be aware that additional
contributions of cash to the Plan (other than rollover
contributions or trustee-to-trustee transfers from other Plans)
in order to exercise Rights would be treated as Plan
contributions and, when taken together with contributions
previously made, may subject a Plan, among other things, to
excise taxes for excess or nondeductible contributions. In the
case of Plans qualified under Section 401(a) of the Code,
additional cash contributions could cause the maximum
contribution limitations of Section 415 of the Code or other
qualification rules to be violated.
ERISA contains fiduciary responsibility requirements, and
ERISA and the Code contain prohibited transaction rules, that may
impact the exercise of Rights. Due to the complexity of these
rules and the penalties for noncompliance, Plans should consult
with their counsel regarding the consequences of their exercise
of Rights under ERISA and the Code.
Important Dates to Remember
Event Date
- ----- ----
Record Date................................... , 1997
Subscription Period........................... , 1997
through , 1997*
Expiration Date and Pricing Date.............. , 1997*
Subscription Certificates and Payment for
Shares or Notices of Guaranteed Delivery
Due+........................................ , 1997*
Payment Deadline for Shares subscribed for
pursuant to Notices of Guaranteed Delivery.. , 1997*
Confirmation Date............................. , 1997*
Deadline for payment of unpaid balance of
final Subscription Price (if final
Subscription Price is higher than Estimated
Subscription Price)......................... , 1997*
* Dates subject to change in the event the Offer is extended to a
date not later than , 1997.
+ A shareholder exercising Rights must deliver by the
Expiration Date either (i) a Subscription Certificate with
payment for Shares or (ii) a Notice of Guaranteed Delivery.
15
<PAGE>
THE FUND
The Fund has been engaged in business as a non-diversified,
closed-end management investment company since March 3, 1994. The
Fund was incorporated under the laws of the State of Maryland on
January 5, 1994 and is registered under the Investment Company
Act. The Fund completed an initial public offering of 11,300,000
shares of its Common Stock in March 1994. The net proceeds to the
Fund from such offering were approximately $156.6 million. As of
May 31, 1997, the net assets of the Fund were $103.3 million,
and the Fund had paid since inception capital gains distributions
aggregating $2,148,362. The Fund's address is 1285 Avenue of the
Americas, New York, New York 10019, and the Fund's telephone
number is (212) 713-2848.
The Fund has established a branch office in the Republic of
Mauritius ("Mauritius") and has registered with the Mauritius
Offshore Business Activities Authority ("MOBAA") as an offshore
company in Mauritius.
The Fund's investment adviser is Jardine Fleming
International Management Inc. (the "Investment Adviser"). The
Investment Adviser is a wholly-owned indirect subsidiary of
Jardine Fleming Group Limited and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act"). See "Management of the Fund --
Investment Adviser."
As of May 31, 1997, approximately 103% of the Fund's net
assets were invested in equity securities of Indian companies.
The Fund's ten largest holdings as of May 31, 1997 were:
Percentage
of Net Assets
-------------
Hindustan Lever Ltd. 9.4%
Mahanagar Telephone Nigam Ltd. 7.4
State Bank of India 7.3
Reliance Industries Ltd. 6.1
Tata Engineering & Locomotive Co. 5.7
Ltd.
Bharat Heavy Electricals Ltd. 5.1
Larsen & Toubro Ltd. 4.7
Hindustan Petroleum Corporation Ltd. 4.6
Hindalco Industries Ltd. 4.0
Mahindra & Mahindra Ltd. 4.0
----
58.3%
====
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered
hereby are sold at the Estimated Subscription Price of $ per
Share ( % of the Fund's net asset value per Share on , 1997),
are estimated to be approximately $ million after payment by the
Fund of offering expenses estimated to be $ and Dealer Manager
and soliciting fees. Expenses related to the issuance of the
Shares will be borne by the Fund and will reduce the net asset
value of the Common Stock. If the Fund increases the number of
Shares subject to the Offer by %, or Shares, in order to
satisfy over-subscription requests, the additional net proceeds
are estimated to be $ .
The net proceeds of the Offer will be invested in accordance
with the Fund's investment objective and policies. The Investment
Adviser believes that it may take up to three months after
completion of the Offer to invest such net proceeds in accordance
with the Fund's investment objective and policies, depending on
market conditions and the availability of suitable investments.
Pending such investment, it is anticipated that the proceeds may
be invested in certain high-quality debt obligations (as defined
below). See "Investment Objective and Policies" in this
Prospectus and "Investment Restrictions" in the SAI.
16
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
General
The investment objective of the Fund is long-term capital
appreciation. The Fund seeks to achieve its investment objective
by investing substantially all of its assets in the equity
securities of Indian companies (as defined below). Under normal
market conditions, the Fund will invest at least 65% of its total
assets in equity securities of Indian companies ("Indian equity
securities"). The Fund defines equity securities to include
common stock, preferred stock and equity-related securities
(including convertible debt obligations, warrants, rights and
interests in trusts and partnerships), and depositary receipts
representing such stock and other securities. "Indian companies"
are companies (a) that are organized under the laws of India or
for which the principal securities trading market is in India or
(b) that have 50% or more of their assets in, or derive 50% or
more of their revenues or profits from, India. As of May 31, 1997
approximately 103% of the Fund's net assets (96% of total assets)
were invested in Indian equity securities.
The Fund's investment objective and fundamental policy of
investing at least 65% of its total assets in Indian equity
securities cannot be changed without the approval of a majority
of the Fund's outstanding voting securities, as defined in the
Investment Company Act. The Fund's other investment policies
described herein are not fundamental and may be changed by the
Board of Directors of the Fund without shareholder approval. The
Fund is designed primarily for long-term investment, and
investors should not consider it a trading vehicle. There can be
no assurance that the Fund's investment objective will be
achieved.
Under normal market conditions, assets of the Fund not
invested in Indian equity securities will be invested, subject to
certain restrictions described below, in high-quality debt
obligations, Indian debt securities and equity securities of
Region companies (in each case as defined below). The Fund
defines "high-quality debt obligations" as (a) obligations of the
U.S. government, its agencies or instrumentalities (including
repurchase agreements with respect to these obligations), (b)
obligations (including certificates of deposit, time deposits and
bankers' acceptances) of U.S. banks and banks organized and
existing under the laws of countries that are members of the
Organization for Economic Cooperation and Development ("OECD")
(including repurchase agreements with respect to these
obligations), (c) obligations denominated in any currency issued
by international development institutions, OECD member
governments and their agencies and instrumentalities (including
repurchase agreements with respect to these obligations) and (d)
obligations of U.S. and other corporations that are rated no
lower than A-2 by Standard & Poor's Ratings Group ("S&P") or P-2
by Moody's Investors Service, Inc. ("Moody's"), or the equivalent
by another rating service or, if unrated, determined by the
Investment Adviser to be of equivalent quality.
"Indian debt securities" are debt securities denominated in
Rupees or issued or guaranteed by an Indian company or the
government of India or its agencies or instrumentalities. The
Fund will not invest more than 10% of its assets in Indian debt
securities that are not rated in the top four categories by S&P
or Moody's, or the equivalent by another rating service or, if
unrated, determined by the Investment Adviser to be of equivalent
quality.
"Region companies" are companies (a) that are organized under
the laws of Pakistan, Sri Lanka or Bangladesh (the "Region
Countries") or for which the principal securities trading market
is in a Region Country or (b) that have 50% or more of their
assets in, or derive 50% or more of their revenues or profits
from, a Region Country. Not more than 10% of the Fund's assets
may be invested in equity securities of Region companies.
The Fund may invest up to 25% of its total assets in equity
securities that are not listed on any securities exchange. Under
current Indian regulations, opportunities for such investment in
Indian equity securities are limited, as investments by approved
foreign institutional investors ("FIIs") and their clients are
limited to securities that are listed or to be listed on an
Indian stock exchange or the approved over-the-counter exchange.
Unlisted securities tend to be relatively illiquid compared to
investments in securities listed on a securities exchange.
The Investment Adviser's determination as to whether a
company qualifies as an Indian company will be based on
information contained in financial statements, reports, analyses
and other available information,
17
<PAGE>
which may include information obtained directly from such
company. Where the available information regarding a company's
assets, revenues and profits is not sufficient to permit a
conclusive determination regarding its status as an Indian
company, the Investment Adviser may make estimates of such
amounts based on the information that is available for purposes
of making such determination.
The Fund may invest indirectly in equity securities of Indian
companies through sponsored or unsponsored American depositary
receipts ("ADRs"), global depositary receipts ("GDRs") and other
types of depositary receipts (which, together with ADRs and GDRs,
are hereinafter collectively referred to as "Depositary
Receipts"). Depositary Receipts evidence ownership of underlying
securities issued by either a foreign or a United States
corporation that have been deposited with a depositary or
custodian bank. Depositary Receipts may be issued in connection
with an offering of securities by the issuer of the underlying
securities or issued by a depositary bank as a vehicle to promote
investment and trading in the underlying securities. ADRs are
Depositary Receipts typically issued by a U.S. bank or trust
company and traded principally in the U.S. markets, and GDRs and
other types of Depositary Receipts are typically issued by U.S.
or foreign banks or trust companies and traded in the U.S. and
other international markets. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the
issuers of the stock underlying unsponsored Depositary Receipts
are not obligated to disclose material information in the United
States and, therefore, there may not be a correlation between
such information and the market value of the Depositary Receipts.
For the purposes of the Fund's investment policies, the Fund's
investment in ADRs, GDRs and other types of Depositary Receipts
will be deemed to be investments in the underlying securities.
The Fund intends to comply with certain diversification
requirements imposed by the Internal Revenue Code for
qualification as a regulated investment company. See "Taxation --
United States Federal Income Taxes" in the SAI. As of May 31,
1997, the Fund held investments in 74 different companies; the
Fund's five largest and ten largest holdings accounted for,
respectively, approximately 35.9% and 58.3% of its total
portfolio.
For temporary defensive purposes, and during periods in which
the Investment Adviser believes that adverse changes in the
Indian securities markets or other economic or political
conditions in India have occurred or may occur, the Fund may
depart from its investment policy by reducing its position in
equity securities of Indian companies and increasing its position
in high-quality debt securities, in which case the amount of net
assets invested in Indian equity securities may fall below 65%.
The Fund may also at any time temporarily invest funds in U.S.
dollar-denominated money-market instruments as reserves for
dividends and other distributions to shareholders.
Consistent with provisions of the Investment Company Act and
any administrative exemptions granted by the Securities and
Exchange Commission, the Fund may invest in the securities of
other investment companies that invest in equity securities of
Indian companies. Absent special relief from the Securities and
Exchange Commission, the Fund may invest up to 10% of its assets
in the aggregate in shares of other investment companies and up
to 5% of its assets in any one investment company, as long as
that investment does not represent more than 3% of the voting
stock of the acquired investment company. As a shareholder in any
investment company, the Fund will bear its ratable share of that
investment company's expenses, and would remain subject to
payment of the Fund's advisory, administrative, custodial and
other fees with respect to assets so invested.
Under the Investment Company Act, absent exemptive relief,
the Fund may not purchase any security of which the Investment
Adviser or any of its affiliates is a principal underwriter
during the public offering of such security. In addition, absent
exemptive relief, the Investment Company Act prohibits the Fund
from participating in joint ventures and similar transactions
with any of its affiliates.
When-Issued and Delayed Delivery Transactions
The Fund may purchase or sell portfolio securities on a
delayed delivery basis or purchase securities on a when-issued
basis on fixed purchase or sale terms. These transactions arise
when securities are purchased or sold by the Fund with payment
and delivery taking place in the future. The purchase will be
recorded on the
18
<PAGE>
date the Fund enters into the commitment and the
value of the obligation will thereafter be reflected in the
calculation of the Fund's net asset value. The value of the
obligation on the delivery date may be more or less than its
purchase price. A separate account of the Fund will be
established with its custodian consisting of cash or liquid,
high-grade debt securities having a market value at all times at
least equal to the amount of the commitment. The Fund will make
commitments to purchase securities on such basis only with the
intention of actually acquiring the securities. To the extent the
Fund engages in when-issued and delayed delivery transactions, it
will do so for the purpose of acquiring securities for the Fund's
portfolio consistent with the Fund's investment objective and
policies and not for the purpose of investment leverage.
Foreign Currency Hedging Transactions and Options and Futures
Contracts
The Fund may seek to hedge against foreign currency exchange
rate risks by entering into spot and forward foreign currency
exchange contracts and (to the extent that a market develops in
such contracts) foreign currency futures contracts. The Fund may
also purchase and sell (write) put and call options on foreign
currency and (to the extent that a market develops in such
contracts) options on foreign currency futures contracts. The
Fund may also seek to hedge against interest rate fluctuations
affecting portfolio securities by entering into interest rate
futures contracts and options thereon.
The Fund may seek to increase its return or hedge all or a
portion of its portfolio investments through transactions in
options on securities or indices of securities. In addition, the
Fund may seek to hedge all or a portion of the investments held
by it, or which it intends to acquire, against adverse market
fluctuations by entering into futures contracts and options
thereon.
Currently there is no established market in which the Fund
may engage in exchange-traded options and futures transactions
involving the Rupee or Indian securities or indices of Indian
securities, and the nature of the strategies adopted by the
Investment Adviser and the extent to which those strategies are
used will depend on the development of those markets. To the
extent that such markets develop, however, the Fund's policies
will be as described herein.
Such transactions will not result in the operation of the
Fund being subject to regulations of the Commodity Futures
Trading Commission ("CFTC") governing "commodity pools" or
"commodity pool operators" (as defined in such regulations),
provided that the Fund purchases and sells futures contracts,
options on futures contracts and "commodity options" (as defined
in such regulations) only for (i) bona fide hedging purposes (as
defined in such regulations) and (ii) for non-hedging purposes,
if, in general, the aggregate initial margin and premiums
required to establish non-hedging positions in such options and
futures contracts do not exceed 5% of the liquidation value of
the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such options and futures
contracts.
For a further discussion of these investment practices,
including a description of the instruments referred to herein and
an explanation of certain of the associated risks, limitations on
use and possible strategies the Fund may utilize in connection
therewith, see "Investment Practices" in the SAI.
Repurchase and Reverse Repurchase Agreements
The Fund may enter into repurchase agreements and reverse
repurchase agreements for the purpose of realizing additional
income with respect to cash or securities held by the Fund. The
Fund's counterparty in such transactions will usually be a bank,
broker-dealer or other financial institution that the Fund's
Board of Directors has approved as being creditworthy. Repurchase
agreements and reverse repurchase agreements are transactions in
which one party purchases securities and simultaneously agrees to
resell such securities to the seller on an agreed-upon date at a
price equal to the purchase price plus interest computed at a
market rate unrelated to the coupon rate or date of maturity of
the purchased securities. In a repurchase agreement, the Fund
will act as buyer, and thus will effectively be acting as a
lender in a secured loan transaction. In such transactions, the
seller's obligation to repurchase the securities sold, and thus
repay the loan from the Fund, will be fully collateralized by
cash and cash equivalents, U.S. government securities or other
high-quality governmental debt obligations, certificates of
deposit and certain bankers' acceptances and the seller will be
required to deliver additional securities, if necessary, to
ensure that the current total market value of the
19
<PAGE>
collateral will at all times exceed the sum of the purchase
price and the accrued interest thereon. In a reverse repurchase
agreement, the Fund will act as the seller, and thus will
effectively be acting as the borrower in a secured loan
transaction (and in connection therewith will be subject to the
limitations on borrowing described herein). In such transactions,
the Fund would be required to maintain in a segregated account
liquid assets equal in value to the repurchase price of the
securities sold.
Portfolio Turnover
It is the Fund's policy to sell any security whenever, in the
judgment of the Investment Adviser, the appreciation
possibilities of such security have been substantially realized
or the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Investment Adviser anticipates that
the Fund's annual rate of portfolio turnover will not exceed
100%. A 100% annual turnover rate would occur if all the
securities in the Fund's portfolio were replaced once within a
period of one year. The turnover rate has a direct effect on the
transaction costs borne by the Fund and indirectly by the Fund's
shareholders. The Fund's portfolio turnover rate for the fiscal
periods ended November 30, 1995 and 1996 and through May 31, 1997
was 49%, 81% and 18% (not annualized), respectively.
Lending of Portfolio Securities
In order to increase its income, the Fund may lend securities
in its portfolio representing up to 25% of its net assets to
certain banks and dealers, provided that the loan is secured
continuously by collateral in the form of cash, bank letters of
credit or U.S. government securities, which must, on each
business day in India, have a market value at least equal to the
current market value of the securities loaned. Such loans are
terminable at any time, and the Fund will receive any interest or
dividends paid on the loaned securities. In addition, it is
anticipated that the Fund may share with the borrower some of the
income received on the collateral for the loan or the Fund will
be paid a premium for the loan. The risks in lending portfolio
securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower become insolvent. In
determining whether the Fund will lend securities, the Investment
Adviser will consider all relevant factors and circumstances,
including the creditworthiness of the borrower.
Leverage
The Fund may utilize leverage by borrowing or by issuing
short-term debt securities in an amount up to 15% of the Fund's
total assets. Borrowings may be secured by the Fund's assets.
Temporary borrowings in an additional amount of up to 5% of the
Fund's total assets may be made without regard to the foregoing
limitation for temporary or emergency purposes, for clearance or
settlement of portfolio transactions, share repurchases and
payment of dividends. The Fund may also borrow amounts up to 33
1/3% of its total assets from a bank for the purpose of making
distributions for qualification as a registered investment
company or to avoid imposition of an excise tax under U.S. tax
laws. During the fiscal year ended November 30, 1996 and the six
months ended May 31, 1997, the average amount outstanding
pursuant to borrowings by the Fund was $8,008,941 and $4,745,468,
respectively, representing an average of 8.18% and 5.15% of
monthly net assets during such periods.
* * * *
For a more detailed description of investment practices
referred to above and an explanation of certain of the associated
risks, limitations on use and possible strategies the Fund may
utilize in connection therewith, see "Investment Practices" in
the SAI.
NET ASSET VALUE AND MARKET PRICE INFORMATION
The outstanding shares of Common Stock of the Fund are listed
and traded on the NYSE. The average weekly trading volume of the
Common Stock on the NYSE during the period March 3, 1994 (commence-
20
<PAGE>
ment of operations) through August 31, 1997 was 199,600 shares.
The following table shows, for each fiscal quarter since the
quarter ended May 31, 1994, (i) the high and low sales price per
share of Common Stock of the Fund, (ii) the net asset value per
share of the Fund as determined on the date closest to the date
of each such high and low market price and (iii) the premium to
or discount from the Fund's net asset value per share represented
by each of the high and low market prices.
Net Asset
Market Price(1) Value(2)(3)
Quarter Ended High Low High Low
- ------------------ ------------ ------------ ------------ ------------
May 31, 1994(4)... 16.500 13.000 14.42 13.93
August 31, 1994... 16.375 13.500 14.64 15.41
November 30, 1994. 15.375 13.500 16.58 14.96
February 28, 1995. 14.875 10.625 15.15 14.02
May 31, 1995...... 12.500 10.000 11.66 12.03
August 31, 1995... 12.750 10.375 12.02 11.23
November 30, 1995. 10.750 8.250 11.01 9.36
February 29, 1996. 10.250 8.750 8.52 7.54
May 31, 1996...... 11.125 9.25 10.000 9.52
August 31, 1996... 10.00 7.75 10.14 8.49
November 30, 1996. 8.125 6.375 8.41 6.80
February 28, 1997. 8.375 6.375 7.74 6.80
May 31, 1997...... 8.875 7.50 9.07 8.73
August 31, 1997... 11.4375 8.750 10.45 9.05
Premium(3)
(or Discount)
as a % of NAV
Quarter Ended High Low
- ------------------ ------------ --------
May 31, 1994(4)... 14.42 (6.68)
August 31, 1994... 11.85 (12.39)
November 30, 1994. (1.24) (9.76)
February 28, 1995. (1.82) (24.22)
May 31, 1995...... 7.20 (16.87)
August 31, 1995... 6.07 (7.61)
November 30, 1995. (3.50) (11.86)
February 29, 1996. 20.31 16.05
May 31, 1996...... 11.25 (2.84)
August 31, 1996... (1.38) (8.72)
November 30, 1996. (3.39) (6.25)
February 28, 1997. 8.20 (6.25)
May 31, 1997...... (2.15) (14.09)
August 31, 1997... 9.45 (3.31)
- ----------
(1) As reported on the NYSE's consolidated transaction reporting
system.
(2) Based on the Fund's computations.
(3) Where the shares of the Fund traded at their high or low
share price for more than one day during the period, the net
asset value (and the corresponding premium or discount)
specified is for the day on which the premium or discount was
the greatest.
(4) For the period March 3, 1994 (commencement of operations) to
May 31, 1994.
On , 1997, the last reported sales price of a share
on the NYSE was $ and the net asset value per share was
$ , representing a premium of %.
Shares of closed-end funds frequently trade at a discount
from net asset value. If, at any time, shares of the Fund's
Common Stock trade publicly for a substantial period of time at a
substantial discount from the Fund's then current net asset value
per share, or if such discount is materially greater than the
discounts prevailing for comparable investment companies, the
Board of Directors will consider, at its next regularly scheduled
meeting, taking various actions designed to reduce or eliminate
the discount. The actions considered by the Board of Directors
may include periodic repurchases of shares. There can be no
assurance that such actions will be taken or that, if taken, they
will reduce or eliminate the market discount. Since the
commencement of its investment operations in March 1994, the Fund
has not taken any such actions, and the Fund does not currently
contemplate repurchasing any of its shares. Should any such
repurchases be made in the future, it is expected that they would
be made out of available cash reserves rather than the proceeds
of a sale of portfolio securities and would be made at prices at
or below the then current net asset value per share. Any such
repurchases would cause the Fund's total assets to decrease,
which may have the effect of increasing the Fund's expense ratio.
Although the Fund's shares have recently traded in the market at
a premium to net asset value, the Fund's shares also have at
times traded at a discount to net asset value.
21
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund is a closed-end investment company designed for
long-term investment, and investors should not consider it a
trading vehicle. Because the Fund intends to invest primarily in
Indian equity securities, an investor in the Fund should be aware
of certain special considerations and risk factors relating to
India, and international investment generally (including those
discussed below), which are not typically involved in investments
in securities of U.S. companies. The Fund should be considered a
means of diversifying an investment portfolio and not in itself a
balanced investment program.
Dilution and the Effect of Non-Participation in the Offer
As a result of the Offer, all shareholders will experience an
immediate dilution of the net asset value per share of Common
Stock of the Offer because the Subscription Price per Share will
be less than the net asset value per share of the Fund's Common
Stock as of the Pricing Date and because the offering expenses
will be borne by the Fund. Such dilution will disproportionately
affect Record Date Shareholders who do not exercise their Rights.
In addition, Record Date Shareholders who do not fully exercise
their Rights should expect that they will, at the completion of
the Offer, own a smaller proportional interest in the Fund than
they owned prior to the Offer. Although it is not possible to
determine currently the amount of such dilution because it is not
known at this time what the net asset value will be on the
Pricing Date, how many Shares will be subscribed for or what the
Subscription Price will be, such dilution could be substantial.
For example, assuming that all of the Shares are sold at the
Estimated Subscription Price and after deducting all expenses
related to the Offer, the Fund's net asset value per share of
$ at , 1997 would be reduced by approximately $ or
% (or, in the event that all of the Rights are exercised and
the Fund increases the number of Shares available for subscription
by % pursuant to the Over-Subscription Privilege, by approximately
$ or %). The actual dilution may be greater or less than
these examples.
Political Considerations
The value of the Fund's assets may be adversely affected by
uncertainties such as political, economic or social instability,
diplomatic developments and changes in laws or regulations.
Expropriation, confiscator taxation, nationalization or other
developments could also adversely affect the assets of the Fund.
In addition, it may be difficult to obtain and enforce a judgment
in India.
In particular, India's population is comprised of numerous
ethnic groups with diverse religions and languages, and in recent
years India has experienced considerable sectarian tension
between Hindus and Moslems, marked by periodic violence. In
December 1992, widespread rioting throughout the country,
resulted from the destruction on December 6, 1992 of an Islamic
mosque in Ayodhya by Hindu militants. The riots resulted in more
than 2,000 deaths, including 700 in Mumbai, considerable loss of
property and the closure of the Bombay Stock Exchange (the "BSE")
for a period of three days.
India has been a democracy since its independence in 1947 and
is the world's largest democracy. Hindu-Moslem tensions have been
a constant source of instability in India's political system. In
addition, separatist movements have been ongoing in several
states for a number of years. Political extremists involved in
these conflicts have been responsible for assassinating two of
India's prime ministers in the past fifteen years. Despite such
tensions and related incidents, India has, in general, conducted
peaceful elections and experienced orderly governmental
transitions. Instability caused by such tensions may lower the
priority given to economic reform.
India held elections for a new government in May 1996. No
party won a majority of the seats in the Lok Sabha (the lower
house of Parliament) in the elections, and, following the
elections, the President of India called upon the Bharatiya
Janata Party (the "BJP"), the largest party in the Lok Sabha, to
form a government. On May 28, 1996, the BJP-led Government
resigned, and the President of India called upon the United
Front, a coalition of 13 different parties, to form a government.
The leader of the United Front, Mr. H.D. Deve Gowda, was sworn in
as Prime Minister on June 1, 1996 and, with the support of the
Congress Party, won a parliamentary vote of confidence on June
12, 1996. Mr. Deve Gowda subsequently lost a parliamentary vote
of confidence on April 11, 1997 upon the withdrawal of support of
the Congress (I) Party
22
<PAGE>
for the coalition government. Thereafter, the President of
India once again invited the United Front to form a government.
Mr. I.K. Gujral was appointed Prime Minister to lead the new
government and, with the support of the Congress (I) Party,
won a parliamentary vote of confidence on April 21, 1997. There
can be no assurance, however, that the support of the Congress
Party will continue.
On February 28, 1997, the United Front government announced
its budget for the financial year ending March 31, 1998. The
budget in general continues the previous government's policy of
economic liberalization and includes significant reductions in
personal and corporate income taxes. See "Republic of India --
Economic Growth and Inflation". There can be no assurance,
however, that the Government will not change its economic,
political or other policies in the future. A significant change
in the economic liberalization policies of the Government could
adversely affect business and economic conditions in India
generally and the Fund's business in particular.
India's relations with other neighboring countries
historically have been tense. Since the separation of India and
Pakistan, a source of ongoing tension between the two countries
has been the dispute over the northern border state of Kashmir,
an area that was partitioned between the two countries at
independence. The majority of Kashmir's population at
independence was Moslem, although the state was ruled by Hindus.
India and Pakistan have fought three wars since independence,
partly over Kashmir and in connection with the establishment of
Bangladesh in 1971, and both India and Pakistan continue to
allocate substantial resources to the defense of their borders as
a result. The Indian government is also confronted by separatist
movements in several states.
After independence, India formed trade relationships with the
former USSR through a series of trade agreements. A barter
arrangement was made between the two countries that enabled India
to export capital and consumer goods to the USSR in return for
oil, petroleum products and defense equipment. The break up of
the USSR in 1991 has had a detrimental effect on India's economy.
India is currently reassessing its relations with the separate
nations that have emerged from the former USSR.
India's relationship with the People's Republic of China has
been strained in certain periods since independence. Some border
disputes remain outstanding, but trade between the two countries
has recently increased.
Market Characteristics
The securities markets in India are fragmented,
substantially smaller, less liquid and more volatile than the
major securities markets in the United States. In India, there
are 23 approved regional stock exchanges, of which the BSE and
the National Stock Exchange ("NSE") are the largest. At June 30,
1997, the aggregate market capitalization of listed securities on
the BSE was approximately US$164.3 billion, and aggregate trading
volume in 1997 equaled approximately US$84.8 billion. By
comparison, at June 30, 1997, the market capitalization for the
New York Stock Exchange was approximately US$8.6 trillion and the
value of aggregate trading volume in 1997 was approximately
US$2.7 trillion. A high proportion of the shares of many issuers
may be held by a limited number of persons and financial
institutions, which may limit the number of shares available for
investment by the Fund. A limited number of issuers in the
securities markets in India may represent a disproportionately
large percentage of market capitalization and trading value. At
July 31, 1997, the 20 largest companies by market capitalization
accounted for approximately 72% of the aggregate market
capitalization of the Bombay Stock Exchange.
India currently has no formal "margin trading" in shares
financed by bank credit, as is prevalent in many countries.
India's carry over settlement system operates as a surrogate cash
margin and forward system. The absence of a cash margin system
has resulted in increased volatility in share prices by making
speculation relatively inexpensive and exposure low. This
increased volatility combined with low margin requirements may
reduce market liquidity during periods of pronounced share price
fluctuations and may serve to exacerbate such fluctuations. These
pressures may be intensified given the relatively low minimum
capital requirements prescribed for brokers.
23
<PAGE>
The limited liquidity of securities markets in India may also
affect the Fund's ability to acquire or dispose of securities at
the price and time it wishes to do so. Accordingly, during
periods of rising securities prices, the Fund may be unable to
participate fully in such price increases as it may be unable to
acquire its desired portfolio positions as quickly as it wishes.
Conversely, the Fund's inability to dispose fully and promptly of
positions in declining markets will cause the Fund's net asset
value to decline as the value of the unsold positions is marked
to lower prices. In addition, Indian securities markets are
susceptible to being influenced by large investors trading
significant blocks of securities.
Anticipation by market participants of the Offer, and of the
possible offering of other investment funds seeking to invest in
the equity securities of Indian companies, may increase demand
for such Indian securities, thereby adversely influencing the
prices paid by the Fund to purchase securities for its portfolio
and increasing the period required for the Fund to invest the
proceeds of the Offer in equity securities of Indian companies.
Substantially less public information is available about
Indian companies than U.S. companies. The disclosure and
regulatory standards applicable to Indian companies are in many
respects less stringent than U.S. standards, and issuers are
subject to accounting, auditing and financial standards and
requirements that are less rigorous than those applicable to U.S.
issuers. As a result, certain material disclosures may not be
made by publicly traded companies in India, and less information
may be available to the Fund and other investors than if the
Fund's investments were restricted to listed securities of U.S.
issuers. In particular, the assets and profits appearing on the
financial statements of an Indian issuer may not reflect its
financial position or results of operations in the way they would
be reflected had such financial statements been prepared in
accordance with U.S. generally accepted accounting principles or
international accounting standards.
Regulation of the Indian securities market is significantly
less developed than regulation of the United States securities
market. The Securities and Exchange Board of India ("SEBI"), the
government's principal securities regulatory authority, has been
given the power and authority, among other things, to prohibit
fraudulent and unfair trading practices in the securities
markets, including insider trading, and to regulate substantial
acquisitions of shares and corporate takeovers. Certain of these
practices generally would be considered unlawful if conducted in
the U.S. securities market. The prices at which the Fund may
acquire investments may be affected by trading by persons with
material non-public information and by securities transactions by
brokers in anticipation of transactions by the Fund in particular
securities. There is a low level of monitoring of the activities
of investors in such markets and limited enforcement of existing
regulations. It may be more difficult for the Fund to obtain a
judgment in a court outside the United States to the extent that
there is a default with respect to a security of an Indian
company or the Fund has other claims against any Indian issuers.
Indian stock exchanges have in the past been subject to
repeated closure. Markets were closed for eight days as a result
of a broker's strike in December 1993 in protest over a
government proposal to eliminate the carry over settlement system
described above. In 1992, the BSE was forced to suspend trading
for several weeks to permit the government to investigate
allegations of significant financial fraud involving manipulative
trading practices. There can be no assurance that closures or
suspensions of trading will not recur.
It is common for Indian companies to raise capital through
offerings of rights. If the Fund owns securities that are the
subject of such a rights offering at a time when it does not wish
to increase its investment in the issuer of such rights or is
subject to any limit (by the FII rules, the U.S. securities laws
or otherwise) on its ability to exercise such rights, the
issuance of shares pursuant to such rights at a discount to the
market price of such shares would have an adverse effect on the
net asset value of the Fund.
Settlement System; Custodian
The settlement system in the Indian securities market is less
developed and less reliable than the settlement systems in more
mature markets. Significant delays have been common in India in
settling trades on Indian stock exchanges and in registering
transfers of securities, although recently there has been
significant improvement in the settlement system.
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<PAGE>
As a result of weaknesses in the settlement system, the Fund
may experience delays or other material difficulties in settling
transactions effected in the Indian securities market. In
addition, should transaction volumes continue to increase or
should anticipated increases in capacity not occur, it is
possible that the Fund may become subject to operational
restrictions or limitations on the volume of trading during
particular periods. The foregoing factors could adversely affect
the ability of the Fund to effect portfolio transactions, the
timing of such transactions and the net asset value and market
price of the Shares. Such factors are not expected to affect the
ability of the Fund to invest in Depository Receipts, convertible
bonds and other equity securities of Indian companies issued and
traded outside of India.
Economic Considerations
The Indian economy may differ favorably or unfavorably from
the U.S. economy in such respects as rate of growth of gross
national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. The
government of India has exercised and continues to exercise
significant influence over many aspects of the Indian economy,
and the number of public sector enterprises in India is
substantial. Accordingly, governmental actions in the future
could have a significant effect on the Indian economy, which
could adversely affect private sector companies and the
performance of the Fund.
Since mid-1991, the government of India has been committed to
implementing an economic structural reform program, with the
objective of liberalizing India's exchange and trade policies,
reducing the fiscal deficit, controlling inflation, promoting a
sound monetary policy, reforming the financial sector, and
placing greater reliance on market mechanisms to direct economic
activity. A significant component of the program is the promotion
of foreign investment in key areas of the economy and the further
development of the private sector. These policies have been
coupled with the expressed intention to redirect the government's
central planning function away from the allocation of resources
and toward the issuance of indicative guidelines. There can be no
assurance that these reforms will persist and any discontinuation
or reversal thereof by the current or any future government could
adversely affect the Fund.
The integration of the Indian economy with international
trade is increasing and, accordingly, it may continue to be
adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other projectionist
measures imposed or negotiated by its trading partners, as well
as by economic conditions in such countries.
Agriculture accounted for approximately 29% of India's GDP
and employed approximately 69% of the workforce in 1996.
Agricultural output is dependent upon the rainfall during the
annual monsoon, as most irrigation projects rely for water on
rainfall during the four month wet season. A bad monsoon
generally has an adverse impact on the Indian economy.
Investment and Repatriation Restrictions
Foreign investment in the securities of Indian companies is
restricted. These restrictions or controls may at times limit or
preclude foreign investment in certain companies. In addition,
governmental approval may be required for the repatriation of
investment income and capital, and the proceeds of sales of
securities by foreign investors. India's guidelines under which
foreign investors, such as the Fund, may invest directly in
Indian equity securities are relatively new and evolving. Under
the guidelines that apply to FIIs, no FII or client of an FII
(including the Fund) may hold more than 10% of the total issued
capital of an Indian company. In addition, portfolio investments
by all non-residents, including those of all FIIs and their
clients, may not exceed 24% or, upon the approval of the board of
directors and the shareholders, by special resolution of a
company, 30% of the issued share capital of any Indian company.
The maximum holding of 24% or 30%, as the case may be, for all
non-resident portfolio investments including those of the
registered FIIs does not, however, include foreign investments
made under Indian laws governing financial collaboration (i.e.,
non-portfolio investments) or investments by FIIs through certain
types of authorized offshore funds (other than FIIs and their
clients) and offshore equity issues. Furthermore, all clients of
an FII, including clients of any affiliated entities of the FII
which are not themselves FIIs, may not, in the aggregate, hold
more than 30% of their total investments in listed debt
securities of Indian companies. Recent amendments to the
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<PAGE>
guidelines, however, permit 100% of the corpus of India-dedicated
debt funds launched by FIIs to be invested in listed debt
securities of Indian companies. There can be no assurance that
these guidelines will not be amended, clarified, interpreted by
judicial or administrative ruling or superseded in the future in
such a way that may adversely affect the Fund.
In addition, since the Fund invests in India as a client of
the Investment Adviser, which has been approved as an FII, if the
Fund were to terminate the contract of the Investment Adviser the
Fund's ability to continue to invest in India may be severely
curtailed.
Under current guidelines, FIIs and their clients may freely
remit and convert into Rupees amounts for investment into India
and convert into dollars and repatriate capital, income and gains
from India. If the government balance of payments in India
deteriorates, or for other reasons, the government may impose
restrictions on foreign capital remittances abroad. The Fund
could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation of capital or
income, as well as by the application to the Fund of any
additional restrictions on investments. If for any reason the
Fund were unable to distribute an amount equal to substantially
all of its investment company taxable income (as defined for U.S.
tax purposes) within applicable time periods, the Fund would
cease to qualify for the favorable tax treatment afforded to
regulated investment companies under the Internal Revenue Code.
See "Taxation" in the SAI.
Taxation
Income earned by the Fund on Indian securities will be
subject to tax in India. The tax rates applicable to such income
may vary widely, depending on a number of factors including
whether the Fund will be taxed at rates applicable to FIIs, which
is not free from doubt, and whether the Fund's investments in
India will qualify for favorable treatment, available under
applicable tax treaties, including the India-Mauritius tax
treaty. See "Taxation -- Indian Taxes" in the SAI.
Currency Devaluations and Fluctuations
The Fund invests in securities that are primarily quoted or
denominated in Rupees, but the Fund computes its income and net
capital gains and makes distributions in U.S. dollars.
Accordingly, a change in the value of the Rupee against the
dollar will result in a corresponding change in the dollar value
of the Fund's assets quoted or denominated in Rupees as well as
the dollar equivalent of dividends distributed in Rupees by
Indian companies and of capital gains realized by the Fund on a
sale of such assets. Such changes may also affect the Fund's
income. For example, the Fund is permitted to borrow money to
make distributions required to maintain its status as a regulated
investment company for U.S. tax purposes. If the value of the
Rupee against the dollar declines between the time the Fund
incurs borrowing expenses in U.S. dollars and the time cash
expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay expenses in U.S.
dollars will be greater than the equivalent amount in Rupees of
such expenses at the time they are incurred. The exchange rate
for the Rupee in terms of dollars has ranged from Rs 31.20 to
$1.00 to Rs 37.90 to $1.00 for the period from March 1, 1993 to
August 31, 1997. See "India" in the SAI.
The Fund may seek to protect the value of some portion or all
of its portfolio holdings against currency risks by engaging in
hedging transactions. Currently, there is no established market
in which the Fund may engage in these hedging transactions with
respect to the Rupee. To the extent such a market develops, the
Fund is authorized to enter into forward currency exchange
contracts, foreign currency futures contracts and options on such
futures contracts, as well as to purchase and sell (or write) put
and call options on foreign currencies, in the U.S. or foreign
markets. In order to seek to increase its return and hedge
against adverse markets shifts, the Fund is permitted to purchase
put and call options on stocks, write covered call options on
stocks and enter into stock index futures contracts and related
options. The Fund is also authorized to hedge against interest
rate fluctuations affecting portfolio securities by entering into
interest rate futures contracts and options thereon. There can be
no guarantee that instruments suitable for hedging currency
against market or interest rate shifts will be available at the
time when the Fund wishes to use them. For a description of the
hedging transactions in which the Fund may engage and the hedging
strategies the Fund may pursue, see
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<PAGE>
"Investment Objective and Policies." For a description of
the risks associated with these hedging transactions, see
"Investment Practices" in the SAI.
Unlisted Securities
Although the Fund will invest primarily in listed securities
of established companies, it may, subject to the rules governing
FIIs and other applicable Indian investment regulations, invest
up to 25% of its assets in unlisted equity securities, including
investments in new and small companies, which may involve a high
degree of business and financial risk that can result in
substantial or total loss of the Fund's investment. Under
applicable Indian regulations, opportunities for such investments
in Indian equity securities are limited, as investments by FIIs
and their clients are limited to securities that are listed or to
be listed on an Indian stock exchange or the approved
over-the-counter exchange. Unlisted securities tend to be
relatively illiquid compared to investments in securities listed
on a securities exchange and, because of the absence of any
liquid trading market for these investments, the Fund may take
longer to liquidate these positions than would be the case for
publicly traded securities. The absence of a liquid trading
market may also affect the procedures for valuation of such
securities for financial reporting purposes and in calculating
the Fund's net asset value. See "Net Asset Value" in the SAI.
Although these securities may be resold in privately negotiated
transactions, the price realized on such sales could be less than
that originally paid by the Fund. Further, companies whose
securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded.
Exchange-Traded Options and Futures Contracts
Currently there is no market in which the Fund may engage in
exchange-traded options and futures transactions involving the
Rupee or Indian securities or indices of Indian securities. If
such a market develops, the Fund may engage in such transactions,
which actively may give rise to the risks discussed immediately
below and more fully described in "Investment Practices" in the
SAI.
The liquidity of a secondary market in futures contracts and
options is subject to, among other factors, the risk of trading
halts, suspensions, exchange or clearing house equipment
failures, governmental intervention, insolvency of a brokerage
firm or clearing house or other disruptions of normal trading
activity. Any such events would significantly affect the Fund's
ability to trade such contracts or otherwise to close out its
positions, and could create potentially significant discrepancies
between the cash and market value of the Fund's positions.
Similarly, the availability of a market in a futures contract or
option on a futures contract could be adversely affected by
"daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a contract
during a single trading day and prevent traders from entering
into or closing out positions at price levels beyond such limits.
Futures contracts have in the past traded at or near such limits
for several consecutive days, with little or no trading taking
place in such contracts.
In the event of the default or insolvency of an exchange
clearing broker or clearing house, if a clearing broker or
clearing house does not segregate assets belonging to customers,
the Fund might be able to recover only its pro rata share of
property available for distribution to customers of the clearing
broker. The amount held in segregation by a clearing broker or
clearing house could be used to satisfy a default by another
customer or clearing broker, which could reduce the amount
available for distribution to other customers in the event of a
default by the Fund's clearing broker. Under such circumstances,
the Fund could be exposed to risk of loss of initial or variation
margin held by its clearing broker or owed to the Fund as a
result of profitable transactions.
Net Asset Value Discount
Shares of closed-end investment companies frequently trade at
a discount from net asset value. This characteristic of shares of
a closed-end fund is a risk separate and distinct from the risk
that a fund's net asset value will decrease. The risk that shares
of a closed-end fund might trade at a discount is more
significant for investors who wish to sell their shares in a
relatively short period of time. For those investors, realization
of gain or loss on their investment is likely to be more
dependent upon the existence of a premium or discount
27
<PAGE>
than upon portfolio performance. Accordingly, the Fund is designed
primarily for long-term investors and should not be considered a
vehicle for trading purposes. Although the Fund's shares have
recently traded in the market at a premium to net asset value,
the Fund's shares have also at times traded at a discount to net
asset value. The Fund cannot predict whether its shares will in
the future trade below, at or above net asset value.
Repurchase and Reverse Repurchase Agreements
The use of repurchase agreements and reverse repurchase
agreements involve certain risks not associated with direct
investment in securities. For example, if the seller of
securities under a repurchase agreement (in which the Fund acts
as buyer) defaults on its obligation to repurchase the underlying
securities at the agreed-upon repurchase price at a time when the
value of such securities has declined, the Fund may incur a loss
upon their disposition. Similarly, if the buyer of securities
under a reverse repurchase agreement (in which the Fund acts as
seller) defaults on its obligation to sell such securities at the
agreed-upon repurchase price at a time when the value of such
securities has increased, the Fund may incur a loss upon the
acquisition of substitute securities with the proceeds obtained
from such buyer. In each case, if the defaulting seller or buyer
were to become involved in insolvency proceedings, the Fund's
exercise of its rights under the relevant repurchase or reverse
repurchase agreement could be subject to certain costs or delays
pending court action.
While the Investment Adviser recognizes these risks, it is
expected that they can be controlled by the Investment Adviser by
evaluating initially and monitoring the creditworthiness of the
institutions with which the Fund enters into repurchase and
reverse repurchase agreements. In repurchase agreements, when the
Fund is effectively acting as a lender, the Investment Adviser
will continuously monitor the value of the underlying securities
to help ensure that their value equals or exceeds the repurchase
price. In reverse repurchase agreements, when the Fund is
effectively acting as a borrower, the Investment Advisor will
cover its liability by maintaining a segregated account as
described above and will continuously monitor the value of the
Fund's securities subject to reverse repurchase agreements to
help ensure that their value is not substantially in excess of
the minimum amount required to collateralize the Fund's
repurchase obligations under such agreements.
Leverage
The Fund may utilize leverage by borrowing or by issuing
short-term debt securities in an amount up to 15% of the Fund's
total assets (in addition to temporary borrowing for certain
specified purposes). Leverage by the Fund creates an opportunity
for increased return but, at the same time, creates special
risks. For example, leverage may exaggerate changes in the net
asset value of the Fund and in the return on the Fund's
portfolio. Although the principal of any leverage will be fixed,
the Fund's assets may change in value during the time the
leverage is outstanding. Leverage will create expenses for the
Fund which can exceed the income from the assets acquired with
the proceeds of the leverage. In an extreme case, if the Fund's
current investment income were not sufficient to meet interest
payments on the loans, it could be necessary for the Fund to
liquidate certain of its investments. Furthermore, an increase in
interest rates could reduce or eliminate the benefits of leverage
and could reduce the value of the Fund's securities. During the
fiscal year ended November 30, 1996 and the six months ended May
31, 1997, the average amount outstanding pursuant to borrowings
by the Fund was $8,008,941 and $4,745,468, respectively,
representing an average of 8.18% and 5.15% of monthly net assets
for such periods. See "Investment Objective and Policies --
Leverage."
Enforcement of Judgments Against the Investment Adviser
The Investment Adviser is a corporation organized under the
laws of the British Virgin Islands ("BVI") and is registered as
an investment adviser under the Investment Advisers Act; a
majority of the Investment Adviser's directors and executive
officers are residents of Hong Kong. The Investment Adviser has
irrevocably designated the Securities and Exchange Commission as
its agent to accept service of process in any suit, action or
proceedings to enforce the provisions of the U.S. securities
laws, which means that investors may effect valid service of
process upon the Investment Adviser by delivering appropriate
documents to the Securities and Exchange Commission. There can be
no assurance that the Investment Adviser will have
28
<PAGE>
any assets in the United States that could be attached in connection
with any action, suit or proceeding. In addition, the Fund has been
advised by BVI counsel that there is doubt as to the
enforceability in BVI, in original actions brought in BVI courts
or actions in BVI for enforcement of judgments of U.S. courts, of
liabilities predicated upon the U.S. securities laws.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act, which means that the
Fund is not limited by the Investment Company Act in the
proportion of its assets that the Fund may invest in the
securities of a single issuer. The Fund is, however, subject to
certain local laws limiting investments in a single issuer and
complies with the diversification requirements imposed by the
Internal Revenue Code for qualification as a regulated investment
company. As a non-diversified investment company, the Fund may
invest a greater proportion of its assets in the obligations of a
smaller number of issuers and, as a result, may be subject to
greater risk than other types of investment companies with
respect to portfolio securities. See "Investment Restrictions"
and "Taxation -- United States Federal Income Taxes -- The Fund
and Its Investments" in the SAI.
Non-U.S. Investors
In general, distributions of net investment income and net
short-term capital gains on the Fund's shares to non-U.S.
investors that are not otherwise subject to U.S. federal income
taxation will be subject to a 30% U.S. federal withholding tax,
which may be reduced by an applicable tax treaty. Non-U.S.
investors are advised to consult their own tax advisers with
respect to the tax consequences to them of an investment in the
Fund. See "Taxation -- United States Federal Income Taxes --
Foreign Shareholders" in the SAI.
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Fund are managed under the
direction of the Fund's Board of Directors, and the day-to-day
operations of the Fund are conducted through or under the
direction of the officers of the Fund. For certain information
regarding the directors and officers of the Fund, see "Management
of the Fund" in the SAI.
None of the directors or officers of the Fund (other than Mr.
Brian S. Shlissel and Ms. Stephanie Kleinman) are U.S. residents,
and substantially all of the assets of such persons may be
located outside of the United States. As a result, it may be
difficult for U.S. investors to effect service of process upon
such directors or officers within the United States or to realize
judgments of courts of the United States predicated upon civil
liabilities of such directors or officers under the federal
securities laws of the United States. In addition, it is not
certain that civil liabilities predicated upon the federal
securities laws on which a valid judgment of a court in the
United States is obtained would be enforceable in the courts of
the jurisdiction other than the United States in which a director
or officer resides. Finally, it is not certain that the courts of
the jurisdiction other than the United States in which a director
or officer resides would enforce, in original actions,
liabilities predicated solely upon the U.S. federal securities
laws. See "Management of the Fund" in the SAI.
Investment Adviser
The Fund has appointed Jardine Fleming International
Management Inc. to act as the Fund's investment adviser pursuant
to an Investment Advisory and Management Agreement dated as of
March 2, 1994 (the "Investment Advisory Agreement") with the
Fund. The Investment Adviser was incorporated in the British
Virgin Islands on May 8, 1992 and is registered as an investment
adviser under the Investment Advisers Act of 1940. The Investment
Adviser's principal address is 47th Floor, Jardine House, 1
Connaught Place, Hong Kong.
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<PAGE>
The Investment Adviser is an indirect wholly-owned subsidiary
of Jardine Fleming Group Limited ("Jardine Fleming"). Jardine
Fleming is jointly owned by Jardine Matheson Holdings Limited, a
Hong Kong-based trading group with over 150 years of experience
in Asia, and Robert Fleming Holdings Limited, a London-based
investment banking group founded in 1873. See "Management of the
Fund -- Investment Adviser" in the SAI. Since July 1992, the
Investment Adviser has also served as the investment adviser for
Jardine Fleming China Region Fund, Inc., a closed-end,
non-diversified investment company. The Investment Adviser has
appointed executive officers with specialist asset management
capabilities and experience in the securities markets of India.
The Investment Adviser may draw upon the research
capabilities of, and information resources available to, Jardine
Fleming and its affiliates in India, including Jardine Fleming
India Securities Private Limited ("Jardine Fleming India"), and
elsewhere in Asia. It also may draw upon the research and
investment ideas of other companies from which it obtains
brokerage services. The Investment Adviser has sole investment
discretion with respect to the Fund's assets and makes all
decisions affecting such assets under the supervision of the
Fund's Board of Directors and in accordance with the Fund's
stated policies. The Investment Adviser selects investments for
the Fund and places related purchase and sale orders on behalf of
the Fund.
Mr. Jonathan Boyer has acted as the portfolio manager of the
Fund since commencement of its investment operations in March
1994. Mr. Boyer is a director of Jardine Fleming and Jardine
Fleming Investment Management Limited, and is the principal
investment manager with responsibility for Jardine Fleming's
investments in the Indian securities markets. Prior to joining
Jardine Fleming in 1991, Mr. Boyer's experience included fund
management and equity-linked securities sales positions with
other investment management and investment banking firms.
The Investment Adviser has entered into a written agreement
under which it pays PaineWebber Incorporated (but not in
PaineWebber Incorporated's capacity as Dealer Manager), out of
the Investment Adviser's own assets, a fee in consideration for
the provision by PaineWebber Incorporated of certain consulting
and support services (not including advice or recommendations
regarding the purchase or sale of portfolio securities) designed
to publicize the Fund's features and benefits to brokers and
their clients in order to facilitate the liquidity of the Fund
and minimize potential trading discounts from net asset value.
See "-- The Investment Advisory Agreement." Such services include
periodic seminars or conference calls, producing and distributing
internal and external publications, presentations at retail
systems meetings and responding to broker and client inquiries.
PaineWebber Incorporated also makes available to its brokers and
customers market price and net asset value information regarding
the Fund. At the request of the Fund, PaineWebber Incorporated
provides advice and consultation with respect to tender offers
and share repurchases. This agreement has a term of one year and
is renewable annually; the current term expires on March 1,
1998.
The Investment Advisory Agreement
For its services under the Investment Advisory Agreement, the
Fund pays the Investment Adviser an annual fee of 1.35% of the
Fund's weekly net assets. The fee accrues weekly and is payable
monthly. For the period from March 3, 1994 (commencement of
operations) to November 30, 1994, the fiscal year ended November
30, 1995 and the fiscal year ended November 30, 1996, the Fund
paid the Investment Adviser advisory fees of $1,688,041,
$1,795,187 and $1,321,378 respectively. The Investment Adviser,
out of its own assets, pays to PaineWebber Incorporated a fee in
an amount equal to 0.10% of the Fund's weekly net assets in
consideration for certain consulting and support services (not
including advice or recommendations regarding the purchase or
sale of investment securities and not in connection with its
services as Dealer Manager for this Offer). See " -- Investment
Adviser." For the period from March 3, 1994 (commencement of
operations) to November 30, 1994, the fiscal year ended November
30, 1995 and the fiscal year ended November 30, 1996, the
Investment Adviser paid PaineWebber Incorporated fees for such
services of $116,071, $132,977 and 97,880, respectively. The
Investment Adviser and PaineWebber Incorporated will benefit from
the Offer because their fees are based on the average weekly net
assets of the Fund. See "Management of the Fund -- Investment
Advisory Agreement" in the SAI.
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<PAGE>
Administrator
The Administrator of the Fund is Mitchell Hutchins Asset
Management Inc., a Delaware corporation and an affiliate of
PaineWebber Incorporated, the Dealer Manager. The Administrator's
principal offices are located at 1285 Avenue of the Americas, New
York, New York. As of May 31, 1997, the Administrator was
providing fund administration services to 89 open-end and
closed-end investment companies with approximately $38.4 billion
in assets.
Under an administration agreement with the Fund dated as of
March 2, 1994 (the "Administration Agreement"), the Administrator
performs, arranges for or supervises the performance of the
following services for the Fund: maintenance of the books and
records of the Fund required under the Investment Company Act;
preparation of the Fund's federal, state and local income tax
returns; preparation of financial information for the Fund's
proxy statements and semiannual and annual reports to
shareholders; responding to inquiries from Fund shareholders;
oversight of the performance of administrative and professional
services rendered to the Fund by others, including its custodian,
registrar, dividend paying agent, transfer agent, as well as
accounting, auditing and other services; providing the Fund with
administrative office space; and preparation of the Fund's
reports to the Securities and Exchange Commission. For these
services, the Administrator receives a monthly fee at an annual
rate of 0.15% of the first $200 million and 0.10% of the excess
over $200 million of the Fund's average weekly net assets,
subject to a minimum annual fee of $200,000. The Administration
Agreement was most recently renewed at the meeting of the Board
of Directors on February 9, 1996. For the period from March 3,
1994 (commencement of operations) to November 30, 1994, the
fiscal year ended November 30, 1995 and the fiscal year ended
November 30, 1996, the Fund paid the Administrator fees of
$187,560, $200,000 and $200,000, respectively. The Administrator
will benefit from the Offer because its fees are based on the
average weekly net assets of the Fund.
The Administration Agreement provides that the Administrator
shall not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which such
Agreement relates except a loss resulting from willful
misfeasance, bad faith or gross negligence on the Administrator's
part in the performance of, or from reckless disregard by it of,
its obligations and duties under such Agreement.
PFPC Inc., a wholly-owned subsidiary of PNC Bank Corp. (the
"Accounting Agent"), maintains the books and records of the Fund
required under the Investment Company Act and assists with the
calculation of the Fund's net asset value, pursuant to an
Accounting Services Agreement with the Fund dated as of March 2,
1994. The Accounting Agent is paid a monthly fee of $6,167 plus a
monthly fee based on the Fund's assets in excess of $100 million,
calculated at an annual rate of 0.045% of the first $50 million
over $100 million, 0.03% of the next $50 million and 0.02% of the
excess over $200 million of the Fund's average weekly net assets.
The Fund's Mauritius Administrator is Multiconsult, Ltd. (the
"Mauritius Administrator"), a Mauritius company, the principal
offices of which are located at Les Jamalacs Building, Vieux
Conseil Street, Mauritius. Under an administration agreement with
the Fund dated as of March 2, 1994, the Mauritius Administrator
provides certain services relating to the operation and
maintenance of the Fund's Mauritius branch, and is paid a monthly
fee of $1,500 and a quarterly fee of $1,000 and is reimbursed for
certain out-of-pocket expenses.
Expenses
The Investment Adviser, the Administrator and the Accounting
Agent are each obligated to pay expenses associated with
providing the services contemplated by the agreements to which
they are parties, including compensation of and office space for
their respective officers and employees connected with investment
and economic research, trading and investment management and
administration of the Fund. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other
things, expenses for legal and independent accountants' services,
costs of printing proxies, stock certificates and shareholder
reports, charges of the custodians, any sub-custodians and the
transfer and dividend paying agent, expenses in connection with
the Dividend Reinvestment Plan, Securities and Exchange
Commission fees, fees and expenses of unaffiliated directors,
travel expenses of all directors and officers, accounting and
pricing costs, membership fees in trade associations, fidelity
bond coverage for the Fund's officers and employees, directors'
and officers' errors and omissions insurance coverage, interest,
brokerage costs and stock exchange fees, expenses of qualifying
the
31
<PAGE>
Fund's shares for sale in various states, litigation and
other extraordinary or non-recurring expenses and other expenses
properly payable by the Fund (including the expenses of the
Offer).
Regulatory Proceedings
In August 1996, an affiliate of the Investment Adviser was
fined by the Investment Management Regulatory Organisation
Limited ("IMRO") for failure to supervise an investment
management delegate in respect of ensuring adequate dealing and
compliance systems and procedures, failing to take action when it
learnt of weaknesses, failing to disclose that certain
commissions disclosed to customers were retained by an associated
broker and failing to inform IMRO that investment business had
been delegated to a firm which had dealing and compliance
procedures which did not meet IMRO's standards. The affiliate
accepted the termination of its authorization with IMRO.
In a related investigation arising out of the same
circumstances, a Hong Kong based affiliate of the Investment
Adviser, was publicly reprimanded in August 1996 by the Hong Kong
Securities and Futures Commission ("SFC") for breaches of the
code of Conduct for Persons Registered with the SFC. The breaches
related to the affiliate's inadequate and ineffective internal
controls and compliance monitoring. The affiliate also agreed
with the SFC, without admitting liability, to make voluntary
payments to compensate three clients which were considered by the
SFC to have been disadvantaged by the late allocation of deals by
one fund manager after changes in the price of instruments traded
had occurred. The SFC revoked the fund manager's registration on
the grounds of misconduct.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Fund distributes to shareholders, at least annually,
substantially all of its net investment income and any net
capital gains (net long-term capital gains in excess of the sum
of net short-term capital losses and any capital loss carryover).
Net investment income for this purpose includes dividends,
interest and any net short-term capital gains.
On December 20, 1994, the Board of Directors declared a
short-term capital gain distribution of $0.178 per share, which
was paid on January 19, 1995 to shareholders of record on
December 30, 1994. On August 14, 1995, the Board of Directors
declared an additional short-term capital gain distribution of
$0.012 per share, which was paid on September 14, 1995 to
shareholders of record on August 24, 1995. No distribution was
declared in 1996.
Pursuant to the Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions automatically
reinvested by State Street Bank and Trust Company (the "Plan
Agent") in Fund shares. Shareholders who do not participate in
the Plan will receive all distributions in cash paid by check in
dollars mailed directly to the shareholder by State Street Bank
and Trust Company, as dividend paying agent.
The Plan Agent serves as agent for the shareholders in
administering the Plan. If the Board of Directors of the Fund
declares an income dividend or net capital gains distribution
payable either in the Fund's Common Stock or in cash, as
shareholders may have elected, non-participants in the Plan will
receive cash and participants in the Plan will receive Common
Stock. 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 the greater of the following
on the valuation date: (a) net asset value, or (b) 95% of the
market price. If net asset value exceeds the market price of Fund
shares at such time or if the Fund declares an income dividend or
net 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 NYSE or elsewhere, for the participants'
account on, or shortly after, the payment date. The valuation
date will be the dividend or distribution payment date or, if
that date is not a NYSE trading day, the next preceding trading
day.
The Plan Agent maintains all shareholder accounts in the Plan
and furnishes written confirmation of all transactions in the
account, including information needed by shareholders for
personal and tax records. Shares
32
<PAGE>
in the account of each Plan participant are held by the Plan
Agent in non-certificated form in the name of the participant,
and each shareholder's proxy includes those shares purchased
pursuant to the Plan.
In the case of shareholders, such as banks, brokers or
nominees, which hold shares for others who are the beneficial
owners, the Plan Agent administers the Plan on the basis of the
number of shares certified from time to time by the shareholder
as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who
participate in the Plan.
There is no charge to participants for reinvesting dividends
or net capital gains distributions. The Plan Agent's fees for the
handling of the reinvestment of dividends and net capital gains
distributions are paid by the Fund. There are no brokerage
charges with respect to shares issued directly by the Fund as a
result of dividends or net capital gains distributions payable
either in stock or in cash. However, each participant pays a pro
rata share of brokerage commissions incurred with respect to the
Plan Agent's open market purchases of Fund shares in connection
with the reinvestment of dividends or net capital gains
distributions payable only in cash.
Receiving dividends and distributions in Common Stock under
the Plan will not relieve participants of any U.S. income tax
which may be payable on such dividends or distributions. See
"Taxation -- United States Federal Income Taxes" in the SAI.
Experience under the Plan may indicate that changes are
desirable. Accordingly, the Fund and the Plan Agent reserve the
right to terminate the Plan with notice of the termination sent
to the members of the Plan at least 30 days before the record
date for any 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, State Street Bank
and Trust Company, at P.O. Box 8200, Boston, Massachusetts
02266-8200.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000
shares of Common Stock, $0.001 par value per share. All shares of
Common Stock have equal rights as to dividends and voting
privileges and, when issued, will be fully paid and
nonassessable. There are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of
Common Stock is entitled to its proportion of the Fund's assets
after debts and expenses. Shareholders are entitled to one vote
per share and do not have cumulative voting rights.
Set forth below is information with respect to the Common
Stock as of May 31, 1997.
Amount of Common
Amount of Common Stock Stock Held by Fund
Authorized for its own Account Amount of Common Stock
- ---------------------- ------------------- ----------------------
100,000,000 shares 0 shares 11,307,169 shares
The number of shares outstanding as of October 2, 1997, adjusted
to give effect to the issuance of the maximum number of Shares to be
issued pursuant to the Offer, would be .
The Fund has no current intention of offering additional
shares other than pursuant to the Offer except that additional
shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of
shares, if made, will require approval of the Fund's Board of
Directors. Any additional offering will be subject to the
requirement of the Investment Company Act that shares not be sold
at a price below the then current net asset value (exclusive of
sales load) except in connection with an offering to existing
shareholders or with the consent of a majority of the Fund's
outstanding shares.
Shares of closed-end funds frequently trade at a discount
from net asset value. If, at any time, shares of the Fund's
Common Stock trade publicly for a substantial period of time at a
substantial discount from the Fund's then current net asset value
per share, or if such discount is materially greater than the
discounts prevailing for comparable investment companies, the
Board of Directors will consider, at its next regularly scheduled
meeting, taking various actions designed to reduce or eliminate
the discount. The actions considered by the Board of Directors
may include periodic repurchases of shares. There can be no
assurance that such actions will be taken or that, if taken, they
will reduce or eliminate the market discount. Since the
33
<PAGE>
commencement of its investment operations in March 1994, the Fund
has not taken any such actions, and the Fund does not currently
contemplate repurchasing any of its shares. Should any such
repurchases be made in the future, it is expected that they would
be made out of available cash reserves rather than the proceeds
of a sale of portfolio securities and would be made at prices at
or below the then current net asset value per share. Any such
repurchases would cause the Fund's total assets to decrease,
which may have the effect of increasing the Fund's expense ratio.
Special Voting Provisions
The Fund has provisions in its Articles of Incorporation and
Bylaws that could have the effect of limiting the ability of
other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify its
structure. The Board of Directors is divided into three classes.
At the annual meeting of stockholders in each year, the term of
one class expires and successor directors are elected to serve in
that class for a term of three years. This provision could delay
for up to two years the replacement of a majority of the Board of
Directors. A director may be removed from office only for cause
and then only by a vote of the holders of at least 75% of the
shares of the Fund entitled to be voted on the matter. The
affirmative vote of at least 75% of the shares of the Fund
entitled to vote on the matter will be required to amend the
Articles of Incorporation or Bylaws to change any of the
foregoing provisions.
In addition, under the Fund's Articles of Incorporation, the
Fund has elected to be subject to provisions of the Maryland
General Corporation Law that generally provide that, unless an
exemption is available, certain mergers, consolidations, share
exchanges, asset sales, stock issuances, liquidations or
dissolutions, recapitalizations, and other transactions
("Business Combinations"), with a beneficial owner of 10% or more
of the voting power of a Maryland corporation (an "Interested
Stockholder") or any affiliate of an Interested Stockholder are
prohibited for a period of five years following the most recent
date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, such a Business Combination must be
recommended by the Board of Directors and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be
cast by holders of outstanding shares of voting stock of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by
holders of voting stock other than voting stock held by the
Interested Stockholder who is (or whose affiliate is) a party to
the Business Combination or an affiliate or associate of the
Interested Stockholder (with dissenting stockholders having
certain appraisal rights), unless certain value and other
standards are satisfied or some other statutory exemption is
available. The vote specified in the preceding sentence will be
required to amend the Articles of Incorporation to change the
provisions subjecting the Fund to the provisions of the Maryland
General Corporation Law discussed above.
The percentage of votes required under these provisions,
which are greater than the minimum requirements under Maryland
law absent the elections described above or under the Investment
Company Act, will make it more difficult a change in the Fund's
business or management and may have the effect of depriving
stockholders of an opportunity to sell shares at a premium over
prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or
similar transaction. The Board of Directors, however, has
considered these anti-takeover provisions and believes they are
in the best interests of stockholders.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New
York, New York 10019, will act as dealer manager for the Offer.
Under the terms and subject to the conditions contained in a
Dealer Manager Agreement (the "Dealer Manager Agreement"), the
Dealer Manager will provide marketing assistance and financial
advisory services in connection with the Offer and will solicit
the exercise of Rights and participation in the Over-Subscription
Privilege by Record Date Shareholders. The Fund has agreed to pay
the Dealer Manager a fee for its marketing and financial advisory
services equal to % of the aggregate Subscription Price for
Shares issued pursuant to the exercise of Rights and the
Over-Subscription Privilege and to pay broker-dealers, including
the Dealer Manager, fees for their soliciting efforts (the
"Soliciting Fees") equal to % of the Subscription Price for
each Share issued pursuant to the exercise of Rights and the
Over-Subscription Privilege. The Soliciting Fees will be paid
either directly to a broker-dealer designated on the applicable
portion of the Subscription Certificate, which may be the Dealer
Manager, or directly to the Dealer
34
<PAGE>
Manager on all undesignated exercises of Rights. The Fund
also has agreed to pay the Dealer Manager $ as partial
reimbursement for expenses incurred in connection with the Offer.
In addition, the Fund and the Investment Adviser have agreed
to indemnify the Dealer Manager with respect to certain
liabilities, including liabilities under the Securities Act of
1933, as amended. The Dealer Manager Agreement also provides that
the Dealer Managers will not be subject to any liability to the
Fund in rendering the services contemplated by such Agreement
except for any act of bad faith, willful misconduct or gross
negligence of the Dealer Managers or reckless disregard by the
Dealer Managers of their obligations and duties under such
Agreement.
The Fund has agreed not to offer or sell, or enter into any
agreement to sell, any equity or equity-related securities of the
Fund or securities convertible into such securities for a period
of 180 days after the date of the Dealer Manager Agreement,
except for the Shares and Common Stock issued pursuant to the
Company's dividend reinvestment plan.
Mitchell Hutchins Asset Management, Inc., the Fund's
administrator, is a wholly-owned subsidiary of the Dealer
Manager.
CUSTODIAN; DIVIDEND-PAYING AGENT, TRANSFER AGENT AND REGISTRAR
Rules adopted under the Investment Company Act permit the
Fund to maintain its portfolio securities and cash in the custody
of an overseas branch of certain eligible U.S. banks and certain
eligible foreign banks and depositories. Citibank, N.A., acting
through its Bombay branch, acts as custodian of the Fund's assets
in India, and Citibank, N.A., acting through its Hong Kong
branch, acts as custodian of the Fund's other assets, except for
assets of the Fund held in Mauritius and Bangladesh. Barclays
Bank plc acts as the custodian of the Fund's assets in Mauritius.
The Fund currently has no assets in Bangladesh. To the extent
necessary, the Fund's custodians employ sub-custodians approved
by the directors of the Fund in accordance with regulations of
the Securities and Exchange Commission with respect to assets
held outside the United States.
The transfer and dividend-paying agent for the Fund is State
Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.
LEGAL MATTERS
Certain matters of United States law in connection with the
Offer will be passed on for the Fund and the Investment Adviser
by Cleary, Gottlieb, Steen & Hamilton, Hong Kong, and for the
Dealer Manager by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois. The validity of the Shares and
certain other matters will be passed on for the Fund and the
Dealer Manager by Piper & Marbury, Baltimore, Maryland. Matters
of Indian law will be passed on for the Fund and the Dealer
Manager by Crawford Bayley & Co., Bombay. Matters of Mauritius
law will be passed on for the Fund and the Dealer Manager by
Collendavelloo Chambers, Mauritius. Matters of British Virgin
Islands law will be passed on for the Investment Adviser by
Harney, Westwood & Riegels, British Virgin Islands.
EXPERTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York 10036, acts as independent accountants for the Fund and
in such capacity audits the Fund's annual financial statements.
The audited financial statements of the Fund as of November 30,
1996, incorporated by reference herein, and the audited financial
information of the Fund included herein under the caption
"Financial Highlights" have been so incorporated or included in
reliance on the report of Price Waterhouse LLP, given on the
authority of said firm as experts in auditing and accounting.
OFFICIAL DOCUMENTS
The tabular and other statistical information set forth in
this Prospectus is, unless otherwise indicated, based upon or
derived from public official documents or information of the
government of India and its ministries, central bank, major stock
exchanges or official statistical agencies.
35
<PAGE>
FURTHER INFORMATION
The Fund is subject to the informational requirements of The
Securities Exchange Act of 1934, as amended, and the Investment
Company Act, and in accordance therewith files reports and other
information with the Securities and Exchange Commission. Such
reports and other information can be inspected and copied at the
public reference facilities maintained by the Securities and
Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, Washington, D.C. 20549 and the Securities and Exchange
Commission's regional offices at Seven World Trade Center, Suite
1300, New York, New York 10048 and Northwest Atrium Center, 500
West Madison, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street,
Washington, D.C. 20549 at prescribed rates. Such reports and
other information concerning the Fund may also be inspected at
the office of the NYSE at 20 Broad Street, New York, New York
10005.
Additional information regarding the Fund and the Shares is
contained in the Registration Statement on Form N-2, including
amendments, exhibits and schedules thereto, relating to such
Shares filed by the Fund with the Securities and Exchange
Commission, Washington, D.C. This Prospectus and the SAI do not
contain all of the information set forth in the Registration
Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the Fund and the
Shares offered hereby, reference is made to the Registration
Statement. Statements contained in this Prospectus and the SAI as
to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the
Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be
obtained from the Securities and Exchange Commission upon the
payment of certain fees prescribed by the Securities and Exchange
Commission.
A copy of the Fund's annual report for the fiscal year ended
November 30, 1996 was mailed to shareholders on January 27, 1997.
36
<PAGE>
TABLE OF CONTENTS
OF STATEMENT OF ADDITIONAL INFORMATION
Page
----
Investment Objective and Policies........................ 2
Investment Restrictions.................................. 2
Investment Practices..................................... 3
Management of the Fund................................... 10
India.................................................... 14
Securities Markets of India.............................. 27
Portfolio Transactions and Brokerage..................... 37
Net Asset Value.......................................... 38
Taxation................................................. 39
Financial Statements..................................... F-1
37
<PAGE>
=================================================================
No person has been authorized to give any information
or to make any representation in connection with this offering
other than those contained in this Prospectus and the SAI and, if
given or made, such other information and representations must
not be relied upon as having been authorized by the Fund, the
Investment or the Dealer Manager. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no
change in the affairs of the Fund since the date hereof or that
the information contained herein is correct as of any time
subsequent to its date. However, if any material change occurs
while this Prospectus is required by law to be delivered, this
Prospectus will be amended or supplemented accordingly. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered
securities to which it relates. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
such securities in any circumstances in which such offer or
solicitation is unlawful.
---------------
TABLE OF CONTENTS
Page
----
Fund Expenses.................... 3
Financial Highlights............. 5
The Offer........................ 6
The Fund......................... 15
Use of Proceeds.................. 15
Investment Objective and Policies 16
Net Asset Value and Market Price
Information.................... 19
Risk Factors and Special
Considerations................. 21
Management of the Fund........... 28
Dividends and Distributions;
Dividend Reinvestment Plan....... 31
Common Stock..................... 32
Distribution Arrangements........ 33
Custodian; Dividend-Paying Agent,
Transfer Agent and Registrar... 34
Legal Matters.................... 34
Experts.......................... 34
Official Documents............... 34
Further Information.............. 34
Table of Contents of Statement of
Additional Information......... 36
=================================================================
=================================================================
Jardine Fleming
India Fund, Inc.
Shares of
Common Stock Issuable
Upon Exercise of
Rights to Subscribe
for Such Shares
---------------
PROSPECTUS
---------------
PaineWebber Incorporated
---------------
, 1997
=================================================================
<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration
statement becomes effective. This Statement of Additional
Information does not constitute a prospectus.
Subject to Completion, Dated October , 1997
JARDINE FLEMING INDIA FUND, INC.
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus,
dated , 1997 (the "Prospectus"). This SAI does not include all
information that a prospective investor should consider before
purchasing shares of the Fund, and Investors should obtain and
read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's
Information Agent, . This SAI incorporates by reference the
entire Prospectus. Defined terms used herein shall have the same
meaning as provided in the Prospectus. The date of this SAI
is , 1997.
---------------
TABLE OF CONTENTS
Page
----
Investment Objective and Policies........................ 2
Investment Restrictions.................................. 2
Investment Practices..................................... 3
Management of the Fund................................... 10
India.................................................... 14
Securities Markets of India.............................. 27
Portfolio Transactions and Brokerage..................... 37
Net Asset Value.......................................... 38
Taxation................................................. 39
Financial Statements..................................... F-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve its investment objective
by investing substantially all of its assets in the equity
securities of companies that (a) are organized under the laws of
India or for which the principal securities trading market is in
India or (b) have 50% or more of their assets in, or derive 50%
or more of their revenues or profits from, India. There can be no
assurance that the Fund's investment objective will be achieved.
See "Investment Objectives and Policies" in the Prospectus.
INVESTMENT RESTRICTIONS
The following limitations are fundamental policies of the
Fund, which cannot be changed without the approval of a majority
of the Fund's outstanding voting securities, as defined in the
Investment Company Act. If a percentage limitation on investment
or use of assets set forth below is complied with at the time a
transaction is effected, later changes in the percentage
resulting from changed values or circumstances will not be
considered a violation. Also, if the Fund receives from an issuer
of securities subscription rights to purchase securities of that
issuer, and exercises such subscription rights at a time when the
Fund's portfolio holdings of securities of that issuer or that
issuer's industry would otherwise exceed the limits set forth
below, it will not constitute a violation if, prior to receipt of
securities or exercise of such rights, and after announcement of
such rights, the Fund has sold at least as many shares of the
same class and value as it would receive on exercise of such
rights. Under its fundamental investment restrictions, the Fund
may not:
(1) Invest 25% or more of the total value of its assets in a
particular industry. This restriction does not apply to
investments in U.S. Government securities.
(2) Purchase securities on margin, except as set forth in
paragraph (3) below.
(3) Issue senior securities, borrow money or pledge its
assets, except that the Fund may (i) borrow amounts up to 33 1/3%
of the Fund's total assets (including the amount borrowed) from a
bank for the purpose of obtaining amounts necessary to make
distributions for qualification as a registered investment
company or to avoid imposition of an excise tax under United
States tax laws, (ii) borrow money (including through reverse
repurchase agreements) in an aggregate amount not to exceed 15%
(calculated at the lower of cost or current market value) of its
total assets (not including the amount borrowed) and (iii) borrow
an additional amount of up to 5% of its total assets (a) for
temporary or emergency purposes, (b) for such short-term credits
as may be necessary for the clearance or settlement of
transactions, (c) for repurchase of its Common Stock and (d) for
payment of dividends. The Fund may also pledge its assets to
secure such borrowings. Notwithstanding the above, initial and
variation margin in respect of futures contracts and options
thereon and any collateral arrangement in respect of options on
securities or indices will not be prohibited by this paragraph
(3) or any other investment restrictions.
(4) Buy or sell any commodity futures contracts or commodity
options, or real estate or interests in real estate or real
estate mortgages, except that the Fund may buy or sell securities
of companies that invest or deal in commodities or real estate,
and except that the Fund may enter into interest rate, foreign
currency and stock index futures contracts and options thereon
and may buy or sell forward currency contracts.
(5) Make loans, except through the purchase of debt
obligations and the entering into of repurchase agreements and
securities lending agreements consistent with the Fund's
investment policies.
(6) Underwrite securities of other issuers, except, in
connection with the purchase of securities for the Fund's own
portfolio or the disposition of portfolio securities or of
subscription rights thereto, to the extent that the Fund may be
deemed an underwriter under applicable U.S. securities laws.
(7) Make any investment for the purpose of exercising
control or management.
(8) Make any investment that would involve the Fund in a
situation of unlimited liability, such as that of a general
partner.
2
<PAGE>
As a matter of operating policy, the Fund will not make short
sales of securities or maintain a short position in any security.
Unlike fundamental policies, operating policies of the Fund may
be changed by the Directors of the Fund, without a vote of the
Fund's shareholders, if the Directors determine such action is
warranted. Foreign institutional investors ("FIIs") are not
currently permitted to engage in short sales in the Indian
securities markets.
In addition to the foregoing restrictions, the Fund will be
subject to certain relations and restrictions in effect in India.
For a discussion of certain investment restrictions in effect in
India, see "Securities Markets of India."
Further, the Fund intends to comply with certain
diversification requirements imposed by the Internal Revenue Code
for qualification as a regulated investment company. See
"Taxation -- United States Federal Income Taxes."
INVESTMENT PRACTICES
The Board of Directors of the Fund have adopted the
investment practices below. These investment practices are
periodically reviewed by the Board of Directors and may be
amended from time to time by the Board of Directors.
Loans of Portfolio Securities. In order to increase its
income, the Fund may lend its portfolio securities, subject to
the limitation that the Fund will not lend a security if, as a
result of such loan, all securities then subject to loans would
exceed 25% of the Fund's net assets. Under applicable regulatory
requirements (which are subject to change), the loan collateral
must, on each business day in Hong Kong, be at least equal to the
value of the loaned securities and must consist of cash, bank
letter of credit or U.S. government securities. To be acceptable
as collateral, letters of credit must obligate a bank to pay
amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to
the Fund. When the Fund lends a security, it continues to be
entitled to receive any dividends or interest on the loaned
security and also receives one or more of: (i) a negotiated loan
fee; (ii) interest on securities used as collateral for the loan;
or (iii) interest on short-term debt securities purchased with
the loan collateral. Either type of interest may be shared with
the borrower of the security. The Fund may also pay reasonable
finders, custodian and administrative fees. The terms of the
Fund's loans of securities must meet certain requirements under
the Internal Revenue Code, such as providing that the Fund may
terminate the loan upon no more than five days' notice, and must
permit the Fund to reacquire loaned securities in time to vote on
any important matter. The Fund will make such loans only to banks
and dealers with which it may enter into repurchase agreements.
If the borrower fails to return the loaned security, the Fund's
risks include: (1) any costs in disposing of the collateral; (2)
loss from a decline in value of the collateral to an amount less
than 100% of the securities loaned; (3) the inability to exercise
its voting or consent rights with respect to the security; (4)
any loss arising from the Fund being unable to settle a sale of
such securities in a timely manner; and (5) the inability of the
Fund to reacquire the loaned securities.
Hedging. In order to hedge against changes in the value of
its portfolio securities, the Fund may from time to time engage
in certain hedging strategies.
The Fund will engage in hedging activities from time to time
in the Investment Adviser's discretion, and may not necessarily
be engaging in such activities when movements in the securities
markets, foreign exchange rates, or interest rates that could
affect the value of the assets of the Fund occur. The Fund's
ability to pursue certain of these strategies may be limited by
applicable regulations of the Commodity Futures Trading
Commission ("CFTC") and the U.S. federal income tax requirements
applicable to regulated investment companies.
Although the Fund believes that the use of such strategies
will benefit the Fund, if the Investment Adviser's judgment about
the general direction of securities market movements, foreign
exchange rates or interest rates is incorrect, the Fund's overall
performance could be poorer than if it had not pursued those
strategies. Moreover, changes in the value of the instruments
that the Fund purchases to hedge its portfolio securities may not
correlate precisely with changes in the value of the portfolio
securities the Fund is
3
<PAGE>
attempting to hedge. In addition, in situations where the
Fund has insufficient cash, it may have to sell assets from its
portfolio to meet margin requirements at a time when it may be
disadvantageous to do so. The Fund's hedging activities may also
result in a higher portfolio turnover rate and additional
brokerage costs. It will not always be possible for the Fund to
precisely hedge foreign currency exposure associated with
portfolio securities, since the value of such securities (and
hence the extent of exposure to foreign exchange rates) may
fluctuate as a result of factors other than changes in foreign
currency rates.
There are no limits on the amount of Fund assets that may be
invested in hedging transactions.
Repurchase and Reverse Repurchase Agreements. The Fund is
permitted to enter into repurchase agreements and reverse
repurchase agreements for the purpose of realizing additional
income with respect to cash or securities held by the Fund. The
Fund's counterparty in such transactions will usually be a bank,
broker dealer or other financial institution. Repurchase
agreements and reverse repurchase agreements are transactions in
which one party purchases securities, usually U.S. government and
agency securities or other high quality governmental debt
obligations, and simultaneously agrees to resell such securities
to the seller on an agreed-upon date at a price equal to the
purchase price plus interest computed at a market rate unrelated
to the coupon rate or date of maturity of the purchased
securities. In a repurchase agreement, the Fund will act as
buyer, and thus will effectively be acting as a lender in a
secured loan transaction. In such transactions, the seller's
obligation to repurchase the securities sold will be
collateralized by cash and cash equivalents, U.S. government
securities or other high quality government debt obligations,
certificates of deposit and certain bankers' acceptances, and the
seller will be required to deliver additional securities, if
necessary, to ensure that the current total market value of the
collateral will at all times exceed the sum of the purchase price
and the secured interest thereon. In a reverse repurchase
agreement, the Fund will act as the seller, and thus will
effectively be acting as the borrower in a secured loan
transaction. In such transactions, the Fund would be required to
maintain in a segregated account liquid assets equal in value to
the repurchase price of the securities sold.
The use of repurchase agreements and reverse repurchase
agreements involves certain risks not associated with direct
investment in securities. For example, if the seller of
securities under a repurchase agreement (in which the Fund acts
as buyer) defaults on its obligation to repurchase the underlying
securities at the agreed-upon repurchase price at a time when the
value of such securities has declined, the Fund may incur a loss
upon their disposition. If such a defaulting seller were to
become insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, disposition of the
underlying securities could involve certain costs or delays
pending court action. In addition, it is not certain whether the
Fund would be entitled, as against a claim of the seller or its
receiver, trustee in bankruptcy or creditors, to retain the
underlying securities.
Similarly, if the buyer of securities under a reverse
repurchase agreement (in which the Fund acts as seller) defaults
on its obligation to sell such securities at the agreed-upon
repurchase price at a time when the value of such securities has
increased, the Fund may incur a loss upon the acquisition of
substitute securities with the proceeds obtained from such buyer.
If such a defaulting buyer were to become insolvent and/or be
subject to liquidation or reorganization under applicable
bankruptcy or other laws, recovery of the underlying securities
or use of the purchase price to obtain substitute securities
could involve certain costs or delays pending court action.
Finally, it is not certain whether the Fund would be entitled, as
against a claim of the buyer or its receiver, trustee in
bankruptcy or creditors, to obtain the underlying securities or
use the proceeds obtained from the buyer to purchase substitute
securities.
While the Investment Adviser acknowledges these risks, it is
expected that they can be controlled by the Investment Adviser by
evaluating initially and monitoring the creditworthiness of the
institution with which the Fund enters into repurchase and
reverse repurchase agreements. In repurchase agreements, when the
Fund is effectively acting as a lender, the Investment Adviser
will continuously monitor the value of the underlying securities
to help ensure that their value always equals or exceeds the
repurchase price. In reverse repurchase agreements, when the Fund
is effectively acting as borrower, the Investment Adviser will
cover the Fund's liability by maintaining a segregated account as
described above and will continuously monitor the value of the
Fund's securities subject to reverse repurchase agreements to
help ensure that their value is not
4
<PAGE>
substantially in excess of the minimum amount required to
collateralize the Fund's repurchase obligations under such
agreements.
Options on Securities
In order to seek to increase the return on its assets or to
hedge against changes in the value of its portfolio securities
that result from changes in interest rates or movements in the
price of securities, the Fund may purchase and sell (or write)
over-the-counter ("OTC") put or call options (or, if a market
develops in such products, exchange-traded put or call options)
on any security in which it is permitted to invest or on any
securities the change in value of which has a high degree of
correlation with the changes in value of the Fund's portfolio
securities.
Purchasing Put and Call Options. By purchasing a call option
on a security, the Fund will obtain the right to buy the
securities underlying the option from its counterparty at a
specified exercise price prior to, or at the expiration of, the
option. The Fund would normally purchase call options in
anticipation of an increase in the price of the security.
Conversely, by purchasing a put option on a security, the
Fund will obtain the right to sell the securities underlying the
option to its counterparty at the exercise price prior to, or at
the expiration of, the option. The Fund would normally purchase
put options in anticipation of a decline in the market value of
securities in its portfolio (or which the Fund intends to, or has
the right to, acquire.)
In the case of either put or call options that it has
purchased, if the option expires without being sold or exercised,
the Fund will experience a loss in the amount of the option
premium plus any related commissions.
Writing Put and Call Options. When the Fund sells (or writes)
put and call options, it receives a premium as the writer of the
option. By selling (or writing) a call option, the Fund will
obligate itself to sell the securities underlying the option to
its counterparty at the specified exercise price prior to, or at
the expiration of, the option if it is assigned an exercise
notice in the case of exchange traded options, or if so notified
by any OTC option counterparty. If the price of the underlying
securities at expiration of the option is below the exercise
price, the Fund will retain the full amount of the option
premium. That amount, less the commission paid for the option,
provides a partial hedge against any decline that may have
occurred in the Fund's portfolio securities. During the term of
the option, however, a covered call writer has, in return for the
premium on the option, given up the opportunity for capital
appreciation above the exercise price of the option if the value
of the underlying security increases, but has retained the risk
of loss should the price of the underlying security decline.
Conversely, by selling (or writing) a put option, the Fund
obligates itself to buy the securities underlying the option from
its counterparty at the exercise price prior to, or at the
expiration of, the option if it is assigned an exercise notice in
the case of exchange traded options, or if so notified by any OTC
option counterparty. If the price of the securities at the
expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. A covered put
writer, however, retains the risk of loss should the market value
of the underlying security decline below the exercise price of
the option, less the premium received on the sale of the option.
Closing Purchase or Sale Transaction. Prior to exercise or
expiration, an option position can be terminated only by entering
into a closing purchase or sale transaction. Closing purchase
transactions are ordinarily effected to realize a profit on an
outstanding call option, to prevent an underlying security from
being called, to permit the sale of an underlying security or to
enable another call option on the underlying security (with
either a different exercise price or expiration date or both) to
be written. If the Fund is not able to enter into a closing
transaction or an offsetting position, it will be required to
maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into or the
option is exercised or expires.
The Fund's ability to close out its position as a writer of
an option is dependent upon the existence of a liquid secondary
market. There is no assurance that a liquid market will exist,
particularly in the case of
5
<PAGE>
OTC options, since OTC options will generally be closed out
only by entering into a closing transaction with a dealer. In the
case of OTC options, the Fund is also subject to the credit risk
associated with its counterparties.
Stock Index Options
The Fund may purchase and sell (or write) options on stock
indices ("index options"). Index options are similar to options
on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon
exercise, an index option gives the holder the right to receive
cash upon exercise of the option if the level of the stock index
upon which the option is based is greater, in the case of a call,
or less, in the case of a put, than the exercise price of the
option.
The Fund will enter into transactions in index options to
hedge against adverse price movements in the stock market
generally or in particular market segments. If the Investment
Adviser anticipates a general market decline, the Fund could
purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's
portfolio securities would be offset to the extent of the
increase in the value of the put option. If the Investment
Adviser anticipates a market rise, the Fund may purchase a stock
index call option to enable the Fund to participate in the rise
until the Fund completes anticipated purchases of securities.
Purchasing and selling stock index options may also enable the
Investment Adviser to achieve changes in equity positions more
efficiently.
Stock index options involve risks similar to those associated
with options on securities. Because exercises of stock index
options are settled in cash, however, call writers such as the
Fund cannot provide in advance for their potential settlement
obligations by acquiring and holding the underlying securities.
Exchange Rate Risk
The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") and may purchase and sell (or
write) exchange-traded or OTC options on currencies, foreign
currency futures contracts and options on foreign currency
futures contracts to protect against a decline in the U.S. dollar
equivalent value of its foreign currency portfolio securities or
the payments thereon that may result from an adverse change in
foreign currency exchange rates. The accurate projection of
short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is
highly uncertain.
Forward Contracts. A forward contract obligates one party to
purchase, and the other party to sell, a definite amount of a
given foreign currency at some specified future date. In some
circumstances the purchase or sale of appropriate forward
contracts may help offset declines in the U.S. dollar equivalent
value of the Fund's foreign currency denominated assets and
income available for distribution to the Fund's shareholders that
result from adverse changes in the exchange rate between the U.S.
dollar and the various foreign currencies in which the Fund's
assets or income may be denominated. The U.S. dollar equivalent
value of the principal of, and rate of return on, foreign
currency denominated securities will decline if the exchange rate
of the U.S. dollar rises in relation to that currency. Such
declines could be partially or completely offset by an increase
in the value of a forward contract on that foreign currency.
While the use of foreign currency forward contracts may
protect the Fund against declines in the U.S. dollar equivalent
value of its assets, their use will reduce the possible gain from
advantageous changes in the value of the U.S. dollar against
particular currencies in which their assets are denominated.
Moreover, the use of foreign currency forward contracts will not
eliminate fluctuations in the underlying U.S. dollar equivalent
value of the prices of, or rates of return on, the assets held in
the portfolio, and the use of such techniques will subject the
Fund to certain risks.
The foreign exchange markets can be highly volatile and are
subject to sharp price fluctuations. In addition, trading forward
contracts can involve a significant degree of leverage. As a
result, relatively small movements in the rates of exchange
between the currencies underlying a contract could result in
immediate and substantial losses to the Fund. Trading losses that
are not offset by corresponding gains in assets being hedged
could sharply reduce the value of the Fund's portfolio.
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<PAGE>
Options on Foreign Currencies. Similarly, the Fund may
purchase and sell (or write) put and call options on foreign
currencies to protect against a decline in the U.S. dollar
equivalent value of its portfolio securities or payments due
thereon or a rise in the U.S. dollar equivalent cost of
securities that it intends to purchase. A foreign currency put
option grants the holder the right, but not the obligation, at a
future date to sell a specified amount of a foreign currency to
its counterparty at a predetermined price. Conversely, a foreign
currency call option grants the holder the right, but not the
obligation, to purchase at a future date a specified amount of a
foreign currency at a predetermined price. Where currency
exchange rates do not move in the direction, or to the extent,
anticipated, however, the Fund could sustain losses on
transactions in foreign currency options which would require them
to forego a portion or all of the benefits of advantageous
changes in such rates.
As with options on securities or future contracts, the Fund
may write options on foreign currencies in order to receive a
premium that may wholly or partially offset any declines in the
value of its portfolio securities denominated in foreign
currencies. When the Fund writes options on foreign currencies,
the Fund also may be required to forego all or a portion of the
benefits that might otherwise have been obtained from favorable
movements in exchange rates.
Coverage Requirements
All options on securities, securities indices, other indices
and foreign currencies written by the Fund are required to be
covered. When the Fund writes a call option, this means that,
during the life of the option, the Fund will own or have the
contractual right to acquire the securities or foreign currency
subject to the option, or will maintain with the Fund's custodian
in a segregated account cash, U.S. government securities or the
appropriate high quality liquid debt obligations in an amount at
least equal to the market value of the securities or foreign
currency underlying the option. When the Fund writes a put
option, this means that the Fund will maintain with the Fund's
custodian in a segregated account cash, U.S. government
securities or other appropriate high quality liquid debt
obligations in an amount at least equal to the exercise price of
the option.
All futures and forward currency contracts purchased or sold
by the Fund are also required to be covered. When the Fund
purchases a futures or forward currency contract, this means that
the Fund will maintain with the Fund's custodian in a segregated
account an amount of cash, U.S. government securities or other
appropriate high quality liquid debt obligations in an amount at
least equal to the market value of the securities or foreign
currency underlying the futures or forward currency contract.
If the market value of the contract moves adversely to the
Fund, or if the value of the securities in the segregated account
declines, the Fund will be required to deposit additional cash or
securities in the segregated account at a time when it may be
disadvantageous to do so.
Exchange-Traded Futures and Options Contracts
Currently, there is no market in which the Fund may engage in
exchange-traded options and futures transactions involving the
Rupee or Indian securities or indices of Indian securities. If
such a market develops, the Fund may engage in such transactions,
which are described below. Such activity may give rise to the
risks discussed below.
Futures Contracts and Options on Futures Contracts
Futures Contracts. The Fund may enter into contracts for
purchase or sale for future delivery (a "futures contract") of
baskets of securities, financial indices, financial instruments
or foreign currencies. The Fund may purchase or sell futures
contracts to attempt to protect the value of its securities from
market-wide price movements and fluctuations in interest or
foreign exchange rates without actually buying or selling
securities or foreign currency.
A "sale" of a futures contract (or a "short" futures
position) means the assumption of a contractual obligation to
deliver the securities or currency underlying the contract at a
specified price at a specified future
7
<PAGE>
time. A "purchase" of a futures contract (or a "long"
futures position) means the assumption of a contractual
obligation to acquire the securities or currency underlying the
contract at a specified price at a specified future time.
Options on Futures Contracts. Upon exercise of a call option
on a futures contract purchased by the Fund, the Fund would
receive a long position in the underlying futures contract. As
with the purchase of futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures
contract to hedge against increases in the U.S. dollar value of
portfolio securities it intends to acquire. The purchase of a put
option on a futures contract is similar in some respects to the
purchase of protective put options on portfolio securities. Upon
exercise of a put option purchased by the Fund, the Fund would
receive a short position in the underlying futures contract. For
example, the Fund may purchase a put option on a futures contract
to hedge the Fund portfolio against the risk of declining
securities values.
The writing of a call option on a futures contract
constitutes a partial hedge against increasing prices of the
financial instrument which is deliverable upon termination of the
futures contracts. If the options expire unexercised, the Fund
will retain the full amount of the option premium, which provides
a partial hedge against any increase in the price of securities
which the Fund intends to purchase. If a put or call option the
Fund has written is exercised, the Fund will incur a loss which
may significantly exceed the amount of the premium it received
for the sale thereof.
Margin Requirements. At the time a futures contract is
purchased or sold, the Fund must allocate cash or securities as a
deposit payment ("initial margin"). It is expected that the
initial margin on U.S. exchanges may range from approximately 3%
to approximately 15% of the value of the securities or
commodities underlying the contract. Under certain circumstances,
however, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial
margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An
outstanding futures contract is valued daily and the payment in
cash of "variation margin" may be required, a process known as
"mark to the market".
Regulatory Limitations on the Use of Futures Contracts and
Options on Futures Contracts. Regulations of the CFTC applicable
to the Fund currently impose certain limitations on the Fund's
futures and options on futures transactions. In order to qualify
for an exemption from certain CFTC regulations regarding
"commodity pool operators" (as defined in CFTC regulations), the
Fund may not purchase or sell futures contracts or options
thereon for purposes other than bona fide hedging (as defined in
CFTC regulations) if immediately thereafter the sum of the
amounts of initial margin deposits on the Fund's existing futures
and options on futures positions entered into for such purposes
and premiums paid for options on futures would exceed 5% of the
liquidation value of the Fund's portfolio, after taking into
account any unrealized profits and unrealized losses on any such
contracts and options. The Investment Adviser reserves the right
to comply with such different standards as may be established by
CFTC rules and regulations with respect to the purchase or sale
of futures contracts or options thereon.
Considerations Concerning Futures Contracts and Options on
Futures Contracts. Futures contracts entail special risks. The
ordinary spreads between values in the cash and futures markets,
due to differences in the character of these markets, are subject
to distortions relating to (1) an investor's obligations to meet
additional initial or variation margin requirements, (2)
decisions to make or take delivery, rather than entering into
offsetting transactions and (3) the difference between margin
requirements in the securities markets and margin deposit
requirements in the futures markets. The possibility of such
distortion means that the correct forecast of general market,
foreign exchange rate or interest rate trends by the Investment
Adviser may still not result in a successful transaction. The
Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although the Fund
generally will purchase or sell only those futures contracts and
options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at
any particular time.
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<PAGE>
Risks of Exchange-Traded Options and Futures Contracts
Liquidity. The liquidity of a secondary market in futures
contracts and options is subject to, among other factors, the
risk of trading halts, suspensions, exchange or clearing house
equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal
trading activity. Any such events would significantly affect the
Fund's ability to trade such contracts or otherwise to close out
its positions, and could create potentially significant
discrepancies between the cash and market value of the Fund's
positions. Similarly, the availability of a market in a futures
contract or option on a futures contract could be adversely
affected by daily price fluctuation limits, established by the
exchanges, which limit the amount of fluctuation in the price of
a contract during a single trading day and prevent traders from
entering into or closing out positions at price levels beyond
such limits. In markets on which futures contracts trade, such
contracts have in the past traded at or near such limits for
several consecutive days, with little or no trading taking place
in such contracts.
Default or Insolvency. In the event of the default or
insolvency of an exchange clearing broker or clearing house, or,
if a clearing broker or clearing house does not segregate assets
belonging to customers, the Fund might be able to recover only
its pro rata share of property available for distribution to
customers of the clearing broker. The amount held in segregation
by a clearing broker or clearing house could be used to satisfy
default by another customer or clearing broker, which could
reduce the amount available for distribution to other customers
in the event of a default by the Fund's clearing broker. Under
such circumstances, the Fund could be exposed to risk of loss of
initial or variation margin held by its clearing broker or owed
to the Fund as a result of profitable transactions.
Futures Contracts and Options on Foreign Currency Futures.
Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures
generally. In addition, there are risks associated with foreign
currency futures contracts and their use as hedging devices
similar to those associated with options on foreign currencies
described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the
underlying currency. Thus, unless the Fund is able to enter into
an offsetting futures contract prior to expiration, the Fund must
accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions regarding the
maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the country of the underlying
currency.
Options on foreign currency futures contracts may involve
certain additional risks. Trading options on foreign currency
futures contracts is relatively new. The ability to establish and
close out positions in such options is subject to the maintenance
of a liquid secondary market. To mitigate this problem, the Fund
will not purchase or write options on foreign currency futures
contracts unless and until, in the Investment Adviser's opinion,
the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign
currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put
options thereon involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the option
(plus transaction costs). However, there may be circumstances
when the purchase of a call or put option on a foreign currency
futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures
contract, when the use of the underlying futures contract would
not.
9
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Fund are managed under the
direction of the Fund's Board of Directors, and the day-to-day
operations of the Fund are conducted through or under the
direction of the officers of the Fund. The names of the directors
and principal officers of the Fund are set forth below, together
with their positions and their principal occupations during the
past five years.
Positions Principal Occupations
Name, Address with During Past
and Age (1) this Fund Five Years
- ----------- --------- ----------
Julian M.I. Reid*..... Director and Director of Jardine Fleming
Class I, Age: 52 President International Holdings Limited,
47th Floor, Jardine Fleming Investment
Jardine House Management Limited and other
Hong Kong companies and funds in the
Jardine Fleming Group. Former
Director for Business Development
(Asia) for Jardine Fleming
Holdings Ltd (financial services).
Former Director of HSBC Asset
Management (1982-89); CEO, HSBC
Asset Management, Singapore
office (1984-89).
Jean Jocelyn de
Chasteauneuf (2)...... Director Adviser to the Executive
Class II, Age: 59 Committee of the Mauritius
59B, Botanical Commercial Bank Limited. Director
Garden Street of Union Commercial Bank of the
Curepipe Malagasy Republic. Former director
Republic of Mauritius of Banque International des
Mascaseignes Ltee.
Ashok V. Desai (2).... Director Consultant Editor of Business
Class II, Age: 61 Standard. Former Secretary and
B308 Purvasha Chief Consultant, Ministry of
Mayur Vihar I Finance, Government of India
Delhi 110091 (1991-1993).
India
Timothy R.H.
Kimber (2)........... Director Former Investment Manager and
Class I, Age: 61 Executive Director of Lazard
Newton Hall Brothers & Co. Limited (1966-89).
Whittington, Chairman of Dartmoor Investment
via Carnforth Trust Plc., Exeter Preferred
Lancashire LA6 2NZ Capital Investment Trust Plc.,
United Kingdom Martin Currie Pacific Trust Plc.
and Taiwan Opportunity Fund.
Director of New Zealand Investment
Trust Plc., Invesco Japan
Discovery Trust Plc., Adam &
Company Investment & Management
Ltd., Border Asset Management
Ltd., Noble Group Ltd., and
Cumberland Building Society.
E.L. Rene Noel........ Director Former Chairman and Managing
Class III, Age: 73 Director of Compagnie de
Royal Road Beau-Vallon Group of Companies,
Cap Malheureaux Chairman of Mauritius Sugar
Republic of Mauritius Industry Research Institute,
Director of Central Electricity
Board and Member of the Board
of Mauritius Sugar Authority
International, Sugar Consultant.
Brian S. Shlissel*.... Treasurer Vice President of Mitchell
Age: 33 and Hutchins Asset Management Inc.
1285 Avenue of Secretary and formerly Assistant Vice
the Americas President of SunAmerica Asset
New York, Management Corporation.
New York 10019
Stephanie Kleinman*... Assistant Assistant Vice President of
Age: 30 Treasurer Mitchell Hutchins Asset
1285 Avenue of Management Inc. Formerly,
the Americas Assistant Treasurer at
New York, Bankers Trust Co. (1993-1994)
New York 10019 and Senior Accountant with
Deloitte & Touche (1989-1993)
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<PAGE>
- ----------
* "Interested Person" of the Fund within the meaning of the
Investment Company Act.
(1) Number I, II or III below a director's name indicates whether
he serves in Class I, II or III of the Board of Directors.
Class I directors will serve until the 1999 Annual Meeting
with the position then becoming one for subsequent three-year
terms; Class II directors will serve until the 2000 Annual
Meeting with the position then becoming one for subsequent
three-year terms; and the term of Class III directors expires
at the 1998 Annual Meeting with the position then becoming
one for subsequent three-year terms. See "Common Stock" in
the Prospectus.
(2) Denotes member of the Audit Committee of the Board of Directors.
None of the directors or officers of the Fund (other than Mr.
Shlissel and Ms. Kleinman) are U.S. residents, and substantially
all of the assets of such persons may be located outside of the
United States. As a result, it may be difficult for U.S.
investors to effect service of process upon such directors or
officers within the United States or to realize judgments of
courts of the United States predicated upon civil liabilities of
such directors or officers under the federal securities laws of
the United States. In addition, it is not certain that civil
liabilities predicated upon the federal securities laws on which
a valid judgment of a court in the United States is obtained
would be enforceable in the courts of the jurisdiction other than
the United States in which a director or officer is resides.
Finally, it is not certain that the courts of the jurisdiction
other than the United States in which a U.S. director or officer
resides would enforce, in original actions, liabilities
predicated solely upon the U.S. federal securities laws.
In particular, Mr. Reid is a resident of Hong Kong, Mr.
Chasteauneuf and Mr. Noel are residents of Mauritius, Mr. Kimber
is a resident of the United Kingdom and Mr. Ashok V. Desai is a
resident of India. The Fund has been advised that a final and
conclusive judgment for a definite sum of money entered by a U.S.
court may be enforced by the Hong Kong courts, without
re-examination or re-litigation of the matters adjudicated upon
provided that the judgment was not obtained by fraud, the
enforcement of the judgment would not be contrary to Hong Kong
public policy, the judgment was not obtained in proceedings
contrary to natural justice, the judgment is not inconsistent
with a Hong Kong judgment in respect of the same matter, the
judgment is not for multiple damages, the judgment does not
contravene the provisions of the Foreign Judgment (Restriction on
Recognition and Enforcement) Ordinance, which restricts the
recognition and enforcement of any foreign judgment given in
breach of any agreement for the settlement of disputes or where
the Hong Kong courts consider that the person against whom the
judgment was given should not be treated as having submitted to
the jurisdiction of the foreign court, and enforcement
proceedings are instituted within six years after the date of the
judgment. Enforcement will also be subject to applicable
bankruptcy, insolvency and liquidation laws and Hong Kong legal
procedure affecting enforcement of creditors' rights generally.
The Fund has been advised by its Mauritius counsel,
Collendavelloo Chambers, that an order executing a foreign
judgment may only be granted by a Mauritian court if (i) the
judgment is, at the time enforcement is sought, valid and capable
of being executed in the country in which it was delivered, (ii)
the judgment is not contrary to any principal affecting public
order in Mauritius, (iii) the defendant was properly summoned in
the original action, (iv) the court that delivered the judgment
had jurisdiction over the matter and (v) the judgment was not
obtained by fraud or in proceedings contrary to natural justice.
Enforcement of a foreign judgment may be denied if there is undue
delay in seeking execution thereof.
The Fund has been advised by English counsel that a final and
conclusive judgement for a definitive sum of money entered by a
U.S. court may be enforced by the English courts, provided that
the judgement is not obtained by fraud, the enforcement of the
judgement is not contrary to English public policy, the judgement
is not obtained in proceedings contrary to natural or substantial
justice, or in breach of an agreement as to where the matter
should be litigated, the matter has not already been tried in the
English courts, and the judgement is not for multiple damages.
The defendant, if not resident in the relevant state, must have
submitted to the jurisdiction of the court by voluntarily
appearing in the proceedings, or must have agreed to submit to
the jurisdiction of the court or had an office or place of
business in the country of the court. Enforcement proceedings
must be brought within six years of the date of the judgement.
Enforcement will be subject to
11
<PAGE>
bankruptcy and insolvency laws of the United Kingdom and
procedures affecting the enforcement of creditors' rights
generally.
The Fund has been advised by its Indian Counsel, Crawford
Bayley & Co., that India is not a party to any international
treaty in relation to the recognition or enforcement of foreign
judgments. The statutory basis for recognition and enforcement of
foreign judgments in India is provided in Section 13 of the
Indian Code of Civil Procedure, 1908 (the "Code"). The Code
provides that a foreign judgment shall be conclusive as to any
matter thereby directly adjudicated upon except (i) where the
judgment has not been pronounced by a court of competent
jurisdiction, (ii) where the judgment has not been given on the
merits of the case, (iii) where the judgment appears on the face
of the proceedings to be founded on an incorrect view of
international law or a refusal to recognize the law of India in
cases where such law is applicable, (iv) where the proceedings in
which the judgment was obtained were opposed to natural justice,
(v) where the judgment has been obtained by fraud and (vi) where
the judgment sustains a claim founded on a breach of any law in
force in India. Section 44A of the Code provides that where a
foreign judgment has been rendered by a court in any country or
territory outside India which the Government of India has by
notification declared to be a reciprocating territory, it may be
enforced in India by proceedings in execution as if the judgment
had been rendered by the relevant court in India. The United
Kingdom, but not the United States, has been declared by the
Government of India to be a reciprocating territory for the
purposes of Section 44A. Accordingly, a judgment of a court in
the United States may be enforced only by a suit upon the
judgment, not by proceedings in execution. The suit must be
brought in India within three years from the date of the judgment
in the same manner as any other suit filed to enforce a civil
liability claim in India. It is unlikely that an Indian court
would enforce foreign judgments if it viewed the amount of
damages awarded as excessive or inconsistent with Indian
practice. A party seeking to enforce a foreign judgment in India
is required to obtain approval under the Foreign Exchange
(Regulations) Act of 1973 ("FERA") from the RBI to execute such a
judgment or to repatriate any amount recovered. The date of
passing of the judgment would be the date for fixing the rate of
exchange at which the foreign currency amount should be converted
to Rupees.
The Articles of Incorporation and Bylaws of the Fund provide
that the Fund will indemnify directors and officers and may
indemnify employees or agents of the Fund against liabilities and
expenses incurred in connection with litigation in which they may
be involved because of their offices with the Fund to the fullest
extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will
not be liable to the Fund or its shareholders for money damages.
Executive Compensation
The Fund pays each of its directors who is not a director,
officer or employee of the Investment Adviser, Mitchell Hutchins
Asset Management Inc., the Fund's administrator (the
"Administrator"), or any affiliate thereof an annual fee of
$10,000, plus $500 for each meeting of the Board of Directors or
of a committee of the Board of Directors attended. In addition,
the Fund reimburses directors and officers for travel and
out-of-pocket expenses incurred in connection with Board of
Directors meetings and meetings of committees of the Board of
Directors.
The following table sets forth the aggregate compensation
paid by the Fund to the Directors for the fiscal year ended
November 30, 1996 and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other
funds for which Jardine Fleming International Management Inc.
acts as investment adviser (the "Fund Complex") for the fiscal
year ended November 30, 1996.
Compensation Table for the Fiscal Year ended November 30, 1996
Total
Pension or Compensation
Retirement Estimated From
Benefits Annual Fund and
Aggregate Accrued Benefits Fund Complex
Name and Compensation As Part of Upon Paid to
Position From Fund Fund Expenses Retirement Director
- -------- ------------ ------------- ---------- ------------
Julian M.I. Reid $ 0 $ 0 $ 0 $ 0(1)*
- -- Director and
President
Sir Satcam Boolell $ 6,536 $ 0 $ 0 $ 6,536(1)*
- -- Director #
Jean Jocelyn de $13,000 $ 0 $ 0 $13,000(1)*
Chasteauneuf--
Director
Ashok V. Desai $12,500 $ 0 $ 0 $12,500(1)*
- -- Director
Timothy R.H. $13,000 $ 0 $ 0 $13,000(1)*
Kimber
- -- Director
E.L. Rene Noel $ 3,240 $ 0 $ 0 $ 3,240(1)*
- -- Director
- ----------
* Indicates number of funds in Fund Complex (including the
Fund) to which total compensation relates.
# Resigned, effective May 15, 1996
No current or former employees, officers or directors of the
Fund received remuneration in excess of $60,000 in the last
fiscal year for service in all their respective capacities.
Control Persons and Principal Holders of Securities
To the best knowledge of the Fund's management, based on a
search of forms required to be filed with the Fund and the
Securities and Exchange Commission by holders of more than five
percent of the Fund's outstanding securities, Morgan Stanley,
Dean Witter, Discover & Co. ("Morgan Stanley"), whose address is
1585 Broadway, New York, New York 10036, beneficially owns
1,320,900 of the outstanding Shares (or 11.68%). Such Shares
include Shares held in accounts managed on a discretionary basis
by wholly-owned subsidiaries of Morgan Stanley, including Miller
Anderson & Sherrerd LLP, whose address is 1 Tower Bridge, Suite
1100, West Conshohoken,
12
<PAGE>
Pennsylvania 19428, who beneficially owns 1,269,800 of the
outstanding Shares (or 11.23%). The Shares managed by Miller
Anderson & Sherrerd LLP include shares beneficially owned by the
Commonwealth of Pennsylvania State Employees Retirement System,
whose address is 30 North Third Street, Fifth Floor, Harrisburg,
Pennsylvania 17101, who beneficially owns 751,000 of the
outstanding Shares (or 6.6%). With the exception of the
Commonwealth of Pennsylvania State Employees Retirement System,
no such account holds more than 5% of the Shares. The officers
and directors of the Fund, as a group, own less than one percent
of the outstanding Shares.
Investment Adviser
The Fund has appointed Jardine Fleming International
Management Inc. to act as the Fund's investment adviser pursuant
to the Investment Advisory Agreement with the Fund. The
Investment Adviser is an indirect wholly-owned subsidiary of
Jardine Fleming Group Limited ("Jardine Fleming") which is
jointly owned by Jardine Matheson Holdings Limited, a Hong
Kong-based trading group, and Robert Fleming Holdings Limited, a
London-based investment banking group. See "Management of the
Fund--Investment Adviser" in the Prospectus.
Jardine Fleming Group Limited
Established in 1970 in Hong Kong, Jardine Fleming provides a
fully integrated range of investment services, including
investment management, securities sales and trading, corporate
finance and currency trading. Jardine Fleming maintains a network
of offices in the Asia Pacific region, including offices in Hong
Kong, Shanghai, Japan, South Korea, Taiwan, Singapore, Thailand,
Malaysia, Philippines, Indonesia, India, Australia, New Zealand,
Sri Lanka and Pakistan, with a staff of over 3,750, of which
approximately 1,284 are based in Hong Kong and approximately
163 are based in India. The investment management activities of
Jardine Fleming are centered in Hong Kong, where 29 specialist
fund managers are based, managing investment funds for a broad
range of investment clients, including employee benefit plans,
dedicated single country funds, regional funds, a wide range of
unit trusts and individual accounts. At May 31, 1997, Jardine
Fleming had approximately US$20 billion under management or
advice.
Jardine Fleming India has had an office in Bombay since April
1992 and opened an office in Delhi in December 1995. In November
1993, Jardine Fleming India was granted a Category 1 Merchant
Bank Certificate by the SEBI. The Investment Adviser will have
access to the Jardine Fleming India research department in
Bombay, which includes 23 analysts dedicated to the Indian
securities markets, the research department in Pakistan, which
includes five analysts dedicated to the Pakistani securities
markets, and the research department in Sri Lanka, which includes
five analysts dedicated to the Sri Lankan securities markets.
Jardine Matheson Holdings Limited
Jardine Matheson Holdings Limited ("Jardine Matheson") is the
holding company of the Jardine Matheson group of companies.
Jardine Matheson has its primary listing on the London Stock
Exchange, with further listings in Hong Kong, Australia,
Luxembourg and Singapore. Jardine Matheson's principal activities
are based mainly in the Asia Pacific region but it also has
significant interests in the United Kingdom, Continental Europe
and the United States. The group has operations in over 30
countries and employs over 200,000 people in subsidiary and
associated companies.
Robert Fleming Holdings Limited
Robert Fleming Holdings Limited ("Robert Fleming") is the
holding company of a London-based investment banking group that
can trace its origins to 1873. It provides a broad range of
financial services and had over US$86 billion under management
at May 31, 1997. Its office network extends from the United
Kingdom to France, Germany, Italy, Luxembourg, Switzerland, South
Africa, Bahrain, the United States and Canada. Robert Fleming
operates throughout the Asia Pacific region through Jardine
Fleming.
13
<PAGE>
Investment Advisory Agreement
For its services under the Investment Advisory Agreement, the
Fund pays the Investment Adviser an annual fee of 1.35% of the
Fund's weekly net assets. The Fund's Board of Directors believes
that the advisory fees paid by the Fund are higher than those
paid by most U.S. investment companies investing in the
securities of U.S. issuers, primarily because of the additional
time and expense required in pursuing the Fund's investment
objective of investing in Indian equity securities. Investing in
Indian equity securities entails additional time and expense
because available public information concerning such securities
is limited in comparison to, and is not as comprehensive as, that
available for U.S. equity securities. Nevertheless, the Fund's
Board of Directors believes the advisory fees paid by the Fund
are comparable to the advisory fees paid by other funds investing
in the equity securities of emerging market issuers.
Certain other clients of the Investment Adviser or its
affiliates may have investment objectives and policies similar to
those of the Fund. The Investment Adviser and its affiliates may,
from time to time, make recommendations which result in the
purchase or sale of a particular security by such other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect, on the price or quantity of
such securities available to the Fund. It is the policy of the
Investment Adviser and its affiliates to allocate advisory
recommendations and the placing of orders in a manner that is
deemed equitable by the Investment Adviser and such affiliates to
the accounts involved, including the Fund.
The Investment Advisory Agreement provides that the
Investment Adviser shall not be liable for any act or omission,
error of judgment or mistake of law or for any loss suffered by
the Fund in the course of, connected with or arising out of any
services to be rendered under the Investment Advisory Agreement
except by reason of willful misfeasance, bad faith or gross
negligence on the Investment Adviser's part in the performance of
its duties or by reason of reckless disregard on the part of the
Investment Adviser of its obligations and duties under the
Investment Advisory Agreement. In addition, the Fund has agreed
to indemnify the Investment Adviser from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgment, suits, costs, expenses or disbursements of any kind or
nature whatsoever (collectively, "Claims") which may be imposed
on, incurred by or asserted against the Investment Adviser as a
result of or in connection with the exercise, performance of, or
failure to exercise or perform, the functions, obligations,
duties, discretions or privileges of the Investment Adviser under
the Investment Advisory Agreement, except for Claims resulting
from the Investment Adviser's bad faith, willful misfeasance or
gross negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties under the
Investment Advisory Agreement.
The Investment Advisory Agreement provides that the
Investment Adviser and its affiliates (including Jardine Fleming,
Jardine Matheson and Robert Fleming) may use or grant to others
the right to use the name "Jardine Fleming," or any combination
or abbreviation thereof, and the Jardine Fleming logo, as all or
a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment
company, and that at the request of the Investment Adviser the
Fund will make such action as may be required to provide its
consent to such use or grant. The Investment Advisory Agreement
also provides that upon the termination of any investment
advisory agreement into which the Investment Adviser and the Fund
may enter, the Fund shall, upon request by the Investment
Adviser, promptly take such action, as its own expense, as may be
necessary to change its corporate name to one not containing the
name "Jardine Fleming," and following such change shall not use
the phrase "Jardine Fleming" or any combination or abbreviation
thereof or the Jardine Fleming logo as part of its corporate name
or for any other commercial purpose. See "Management of the Fund
- -- Investment Advisory Agreement" in the Prospectus.
INDIA
Except as otherwise indicated, the information set forth in
this Appendix has been extracted from various government and
private publications. The Fund and its Board of Directors make no
representation as to the accuracy of such extracted information,
nor has the Fund or its Board of Directors attempted independently to
14
<PAGE>
verify it; furthermore, no representation is made that any
correlation exists or will exist between the Indian economy in
general and the performance of the Fund.
* * * *
India is the seventh largest country in the world, with a
land mass of 3.13 million square kilometers, and occupies most of
the Indian sub-continent from the Himalayan mountain range in the
north across the plains of the Indus and Ganges rivers and the
Deccan Plateau to the southern peninsula.
With a population estimated at 936 million as of October 1,
1996, representing a growth rate of approximately 10.6% from 846
million at the last census in 1991, India is the second most
populous country in the world after China, accounting for
approximately one-sixth of the world's total population. The
population is increasing at approximately two per cent per year.
India has a relatively low literacy rate by world standards
of approximately 52% and large numbers of people live in poverty.
At the same time it has a large middle class, estimated to be
between 150 and 200 million, with professional qualifications and
a tradition of entrepreneurial skills. Approximately 74% of
India's people live in rural areas. Urban migration has been
increasing steadily, however, and is expected to continue through
the 1990s.
India's population is comprised of numerous ethnic groups
with diverse religions and languages. Hindus form the largest
group, equaling approximately 83% of the population, followed by
Moslems, Christians and Sikhs. The most common of the sixteen
constitutionally recognized languages is Hindi, although English
is used as the language of business, law and government
throughout the country.
Government
India can trace its history to 3000 B.C., and its
civilization is one of the oldest in the world. It came under the
influence of the British in the late 18th century and formed part
of the British Empire until it gained independence in August
1947. Subsequently, it was divided into predominantly Hindu India
and predominantly Moslem Pakistan. East Pakistan broke away and
formed the separate country of Bangladesh in 1971. India has
maintained a tradition of political secularism since
independence.
Since independence in 1947, India has been a federal and
democratic republic and currently consists of 25 states and 7
union territories. The union territories are administered
directly by the central government, and each has a governor
appointed by the President. The states have elected governments
which resemble the structure of the central government and
legislate on a variety of subjects.
India is governed under a constitution adopted on January 26,
1950. The Constitution provides for the separation of the
executive, legislative and judicial powers. It has a bicameral
parliamentary system consisting of the Lok Sabha (the House of
the People) and the Rajya Sabha (the Council of States). The Lok
Sabha as constituted at present consists of 545 members, two of
whom are appointed by the President, and the Rajya Sabha has 250
members, 12 of whom are presidential appointments. India has
regular elections and universal suffrage.
According to the Constitution, the President heads the
executive branch of government, advised by the Prime Minister and
the Council of Ministers. The President appoints the Prime
Minister and appoints the Ministers on the advice of the Prime
Minister. The current President is Mr. K.R. Narayanan. In
practice, power effectively resides with the Prime Minister; the
President's role is largely ceremonial. India has an independent
judiciary based on the British model.
Generally, the government is formed by the party holding the
majority of seats in the Lok Sabha, and the leader of the ruling
party becomes the Prime Minister. India has only recently moved
away from one-party political domination by the Congress (I)
Party. Between 1947 and 1989 the government was effectively
controlled by the Congress (I) Party, which in turn was dominated
by the Nehru-Gandhi family. After the general election in
November 1989, a coalition of the Janata Dal Party, the Bharatiya
Janata Party ("BJP") and other parties formed a minority
government under the leadership of V.P. Singh. This government
was replaced in November 1990 by another coalition government
headed by Chandra Shekhar and composed of members of the Congress
(I) Party and a faction of the Janata Dal Party. Several months
later, general
15
<PAGE>
elections were called when the Congress (I) Party withdrew
from the coalition. The Congress (I) Party and allied parties won
the greatest number of seats in the June 1991 election and formed
a government headed by Mr. P.V. Narasimha Rao. The Rao government
was elected on a platform of economic reform which had previously
been initiated by Rajiv Gandhi's government. The BJP has called
for greater Hindu self-assertiveness but is committed, like the
Congress (I) Party, to economic reform. The more fundamentalist
members of the BJP, however, oppose the entry of multinationals
in specific areas of the economy such as consumer products.
The election of May 1996 resulted in a hung parliament as no
party won a majority of the seats in the Lok Sabha in the
elections. Following the elections, the President of India called
upon the BJP, the largest party in the Lok Sabha, to form a
government. After being unable to prove a majority on the floor
of Parliament, the BJP-led Government resigned on May 28, 1996
and the President of India called upon the United Front (the
"UF"), a coalition of 14 different parties led by the Janata Dal
Party, to form a government. The leader of the UF, Mr. H.D. Deve
Gowda, was sworn in as Prime Minister on June 1, 1996 and, with
the support of the Congress (I) Party, won a parliamentary vote
of confidence on June 12, 1996. The UF championed a platform of
secularism, federalism and social justice and differed from
previous coalition experiments in its wide regional support and
its attempt to forge a common minimum program. Mr. Deve Gowda
subsequently lost a parliamentary vote of confidence on April 11,
1997 upon the withdrawal of support of the Congress (I) Party for
the coalition government. Thereafter, the President of India once
again invited the UF to form a government. Mr. I.K. Gujral of the
UF was appointed Prime Minister to lead the new government and, with
the support of the Congress (I) Party, won a parliamentary vote of
confidence on April 21, 1997.
Religious and ethnic differences have been a source of
tension in India and have occasionally led to violence. In
December 1992, widespread rioting throughout the country resulted
from the destruction on December 6, 1992 of an Islamic mosque in
Ayodhya by Hindu militants. The mosque was built in 1528 on a
site which Hindus believe was the birthplace of their most
important deity, Ram. The BJP supported the destruction of the
mosque and the proposal to build a Ram temple on the site. As a
result of the destruction of the mosque, a wave of communal
violence swept the country.
Mumbai and its surrounding area were affected by riots in
January 1993 and by bomb blasts in March 1993, one of which
occurred in the Bombay Stock Exchange (the "BSE") building and
interrupted trading for a day. The riots resulted in more than
2,000 deaths, including 700 in Mumbai, considerable loss of
property and the closure of the BSE for a period of three days.
These events disrupted daily life and affected transportation of
raw materials and goods, and industrial production declined as a
result. The pace of economic reform initiated by the Rao
government slowed following the riots, particularly efforts to
control inflation and interest rates.
There has also been communal unrest in the past as a result
of a Sikh separatist movement. The movement began in 1978-79 as a
demand for a separate country, Khalistan, to be ceded from the
state of Punjab. The unrest peaked in the 1980s with widespread
murders and looting. Sikh extremists took control of the Golden
Temple at Amritsar and used it as their base until the government
under Mrs. Indira Gandhi forced them out in 1982. The
assassination of Mrs. Gandhi on October 31, 1984 by her Sikh
bodyguards triggered a wave of anti-Sikh riots in Delhi.
Mrs. Gandhi's son, Mr. Rajiv Gandhi subsequently became Prime
Minister, but was assassinated on May 21, 1991 allegedly in
retaliation for his initiative in sending a peace keeping force
to Sri Lanka to assist the Sri Lankan government's management of
the Tamil separatist movement in northern Sri Lanka.
External Affairs
India is a member of international organizations including
the United Nations, the General Agreement on Trade and Tariffs,
the International Monetary Fund (the "IMF"), the International
Bank for Reconstruction and Development (the "World Bank") and
the Asian Development Bank ("ADB"). It is also a member of the
Commonwealth of Nations and the South Asian Association for
Regional Cooperation ("SAARC").
16
<PAGE>
India has recently come under pressure from the international
community to participate in international agreements for the
control of nuclear weapons. India has been reluctant to
participate in such agreements because of the nuclear
capabilities of its neighboring countries, particularly Pakistan,
with whom India's relations have been strained. The United States
has attempted to secure India's compliance by pressuring India's
major trading partners into discontinuing important trade
negotiations.
Since the separation of India and Pakistan in 1947, a source
of ongoing tension between the two countries has been the dispute
over the northern border state of Kashmir, an area that was
partitioned between the two countries at independence. The
majority of Kashmir's population at the time of independence was
Moslem, although the state was ruled by the Hindu Maharaja, Hari
Singh.
In 1948, the Maharaja ceded Kashmir to India in return for
support against a Pakistan invasion. In 1948 and 1949, the United
Nations adopted resolutions which called for a plebiscite to
resolve the issue, but such a plebiscite has not been held.
Pakistan gained control of half of Kashmir after a war in 1965.
Both India and Pakistan continue to allocate substantial
resources to the defense of their borders as a result of the
dispute. Bilateral talks held in Islamabad in January 1994
between the two countries failed to make any progress on the
issue, although the talks themselves were interpreted as a sign
of interest in reducing tensions. In addition, there is an
ongoing movement calling for an independent state of Kashmir.
After independence, India formed trade relationships with the
former USSR and the communist countries of Eastern Europe through
a series of trade agreements. A barter arrangement was made
between the USSR and India enabling India to export capital and
consumer goods to the USSR in return for oil, petroleum products
and defense equipment. The break up of the USSR in 1991
detrimentally affected India's economy. India is currently
reassessing its relations with the separate nations which have
emerged from the former USSR. See "Foreign Trade."
India's relationship with the Peoples' Republic of China has
been strained at certain periods since independence. A border
dispute over the northeastern boundary of India which resulted in
a war in 1962 remains outstanding, but trade between the two
countries has recently increased. In September 1993, the two
nations signed an agreement which put on hold their territorial
claims.
Relations with Bangladesh improved significantly after a
dispute related to the sharing of water from the Ganges River was
successfully resolved in 1996-97.
Economy
India had the twelfth largest economy in the world on the
basis of market exchange rates and at the close of fiscal year
1997 had an estimated GDP equivalent to US$355 billion and a GDP
per capita of US$379 for that year. The IMF calculated that the
economy was the sixth largest on the basis of purchasing power
parity.
In July 1991, the Rao government introduced a number of
economic reforms (the "1991 Reforms") designed to increase
economic growth by transforming India from a planned to a more
market-oriented economy. The 1991 Reforms abolished most
industrial licensing requirements, liberalized import controls
and licenses and checked the growth of the money supply. The
exchange rate of the Rupee was adjusted downwards by
approximately 20%. Additional reforms were implemented as part of
the 1992 and 1993 central budgets. The 1992 budget included
certain tax reforms, as well as reductions in custom and excise
duties.
17
<PAGE>
In August 1997, the Centre for Monitoring the Indian Economy
(the "CMIE") estimated that real GDP grew in 1996-97 by 6.1%. The
following table sets out selected economic data for India for
each of the fiscal years commencing from 1992-93:
Selected Economic Data(1)
1992-93 1993-94 1994-95
------- ------- -------
GDP at Current Prices......... 7,053,000 8,010,000 9,537,000
Gross Domestic Savings........ 1,495,236 1,714,140 2,374,713
Agricultural Production Index
(1979-82=100)............... 152 157 165
Industrial Production Index
(1980-81=100)............... 219 232 254
Electricity Generated (TWH)... 301 324 351
Gross Fiscal Deficit of
Central Government............ 401,730 602,570 677,030
As % of GDP................... 5.7 7.4 6.1
Outstanding Internal Debt of
Central Government.......... 1,991,000 2,457,120 2,664,670
Consumer Price Index 240 258 284
(1982=100)....................
Foreign Exchange Reserves 4... 6,434 15,068 20,809
Exports ($ millions).......... 18,537 22,238 26,223
Imports ($ millions).......... 21,882 23,306 26,261
Trade Balance ($ millions).... (-3,345) (-1,068) (-2,028)
1995-96 1996-97 1997-98(2)
------- ------- ----------
GDP at Current Prices......... 10,986,000 12,600,000 14,200,000
Gross Domestic Savings........ 2,812,416
Agricultural Production Index
(1979-82=100)............... 164 169 --
Industrial Production Index
(1980-81=100)............... 283 291 --
Electricity Generated (TWH)... 380 292 --
Gross Fiscal Deficit of
Central Government............ 602,430 631,310 654,640
As % of GDP................... 5.5 5.0 4.5
Outstanding Internal Debt of
Central Government.......... 3,033,590 332,883 --
Consumer Price Index 312 342 373
(1982=100)....................
Foreign Exchange Reserves..... 17,044 22,367 29,000
Exports ($ millions).......... 31,831 33,106 36,600
Imports ($ millions).......... 36,370 38,548 43,000
Trade Balance ($ millions).... (-4,539) (-5,442) (-6,500)
- ----------
Source: CMIE
(1) All figures in Rs millions
(2) CMIE estimates.
India's balance of payments historically has been in deficit.
The following table sets forth India's balance of payments
for each of the fiscal years commencing from 1992-93:
Balance of Payments(1)
1992-93 1993-94 1994-95
------- ------- -------
Trade Balance............ (3,345) (1,068) (2,028)
Current Account Balance.. (3,526) (1,158) (2,701)
Foreign Capital Inflow 4,254 10,022 7,660
(net)....................
Foreign Exchange Reserves 6,434 15,068 20,809
1995-96 1996-97 1997-98(2)
------- ------- ----------
Trade Balance............ (4,539) (5,442) (6,500)
Current Account Balance.. (5,487) (4,500) (5,700)
Foreign Capital Inflow 2,568 9,800 12,400
(net)....................
Foreign Exchange Reserves 17,044 22,367 29,000
- ----------
Source: CMIE, Economic Survey 1996-97
(1) All figures in U.S. dollar millions
(2) CMIE estimates.
The government has planned the economy through a series of
five-year plans commencing with the First Five-Year Plan
introduced by the Nehru government in 1951. The Central Planning
Commission, which was established in 1950, is responsible for
preparing five-year plans. From 1951 to 1968, the emphasis was on
boosting agricultural production, building an industrial base and
attempting to obtain a more equitable distribution of wealth. The
government of Mrs. Indira Gandhi from 1969 to 1984 stressed
socialism and public ownership. Capital controls were introduced
during the period and multinationals were discouraged from
investing in the country.
18
<PAGE>
For almost forty years after independence in 1947, India
maintained predominately socialist and isolationist economic
policies with a high level of state ownership and bureaucratic
intervention. Government policy controlled prices and protected
domestic industries from import competition rather than
encouraging exports. A complex system existed of public
monopolies of industries and services, industrial licensing,
import restrictions and state direction, combined with tight
controls on foreign exchange transactions and investments by
foreigners. The public monopolies were granted government
contracts, subsidized credit and insulation from competition. The
government operated most of the financial institutions, and
financial services were tightly regulated.
In addition, India entered into barter trade arrangements
with the USSR based on a fixed rupee-rouble exchange rate in
which India exported capital and consumer goods in return for
oil, petroleum products and defence equipment. India also had
substantial trade links with Iraq and the communist countries of
Eastern Europe. This system produced stable growth in real GDP of
between 3% and 4% a year which was little more than the rate of
population growth. As a result, the increase in real GDP per
capita and living standards was considerably below that achieved
by many neighboring Asian countries.
In the mid-1980s, under the leadership of Prime Minister
Rajiv Gandhi, the government implemented reforms to reverse its
protectionist policies. More liberal and free-market economic
policies were adopted, reducing restrictions and tariffs on
imports, removing certain controls on industry, increasing the
role of private enterprise and lowering corporate taxes. These
reforms resulted from a general perception by the Gandhi
government that Indian economic progress was slow compared with
that of other Asian countries. It was encouraged in its economic
reforms by the emerging affluent middle class.
Following these reforms, the rate of real GDP growth
increased to an average of 6% in the fiscal years 1985 to 1990
and peaked at 10.5% in the year ended March 31, 1989. However,
this was accompanied by increasingly large trade and budget
deficits, higher government borrowing, both externally and
domestically, and higher rates of inflation. See "Inflation and
Monetary Policy."
In the middle of 1991, India suffered a severe balance of
payments crisis exacerbated by the Gulf War, the break up of the
former USSR and the collapse of Communism in Eastern Europe.
Crude oil imports accounted for approximately 27% of India's
total imports and, as a result of the Gulf War, India's oil
import expenses increased substantially. Also, a significant
proportion of India's foreign exchange inflows were gained from
remittances by Indians living in the Gulf states who were forced
to return to India as a result of the war. In addition,
commercial borrowings and suppliers credit fell drastically as
Standard & Poor's and Moody's downgraded India's credit rating.
In the same year, the collapse of the USSR and the
rupee-rouble parity affected India's exports to the Eastern
European countries. Trade with the Eastern European countries
that accounted for approximately 18% of total foreign trade in
1991 accounted for only approximately 1.65% in 1995-96.
The following table set forth details of India's external
debt from the end of March 1991 to 1996.
US$ Millions
----------------------------------------------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
Multilateral............ 20,900 23,090 25,008 26,263 28,542 28,571
Bilateral............... 14,168 15,466 16,154 17,450 20,270 10,705
IMF..................... 2,623 3,451 4,799 5,040 4,300 2,374
Export Credit........... 4,301 3,990 4,322 5,203 6,629 5,523
Commercial Borrowing.... 10,209 11,715 11,643 12,363 12,991 12,748
NRI & Foreign
Currency Deposits(1)
(Banks
& Others) > 1 years... 10,209 10,063 11,141 12,665 12,383 11,011
Rupee Debt(2)(3)........ 12,847 10,420 10,616 10,084 9,624 8,233
Short-term debt(4)...... 8,539 7,070 6,340 3,627 4,269 5,034
------- ------- ------- ------- ------- -------
Total(5).............. 83,801 85,285 90,023 92,692 99,008 92,199
======= ======= ======= ======= ======= =======
19
<PAGE>
- ----------
Source: Finance Survey 1996-1997
(1) Includes accrued interest credited to foreign currency
non-rupee deposits from end of March 1990 onwards.
(2) Debt owed to Russia denominated in rupees and converted at
current exchange rates, payable in exports.
(3) Includes rupee suppliers' credit from end of March 1990
onwards.
(4) Does not include LC-based trade credit for which no
estimates are available.
(5) Excluding defense debt.
The Rao government, under pressure from the IMF and the World
Bank, which had provided large emergency loans to India,
introduced a structural adjustment program in July 1991 designed
to make radical economic reforms. Pursuant to such program,
industrial licensing was largely abandoned, public spending
restricted, the private sector allowed to enter areas previously
reserved for state monopolies and foreign corporations permitted
majority equity ownership of Indian companies.
Further freeing of the financial system occurred in 1992. The
rupee was made partially convertible on the trade account based
on a 60:40 formula, in which 60% of foreign currency could be
converted at the market rate and 40% at the lower Reserve Bank of
India ("RBI") administered official rate. In addition, tariffs
were cut, import licensing was abolished, Indian companies were
permitted, with appropriate authorizations, to issue securities
outside India and foreign institutions were authorized to invest
directly in Indian securities markets. Foreign ownership was
encouraged for the first time since independence. India's
foreign currency reserves increased from a low of approximately
US$1.1 billion, equivalent to two weeks' imports, in June 1991 to
US$5.6 billion by March 1992.
The following table sets forth India's total reserves and
transactions with the IMF for the fiscal years 1980-81 to
1995-96.
Transactions with the IMF
Total (US$ millions)
Reserves(1) --------------------------------------
----------- Outstanding
RS Repurchase
Crore Drawings Repurchases Obligations
----- -------- ----------- -----------
1980-81...... 6,823 342 16 327
1981-82...... 4,390 692 40 964
1982-83...... 4,896 1,968 2,876
1983-84...... 5,649 1,376 70 4,150
1984-85...... 5,952 201 134 3,232
1985-86...... 6,520 -- 209 4,290
1986-87...... 6,574 -- 521 4,291
1987-88...... 6,223 -- 930 3,653
1988-89...... 4,802 -- 1,070 2,365
1989-90...... 3,962 -- 873 1,493
1990-91...... 5,834 1,858 647 2,623
1991-92...... 9,220 1,240 460 3,451
1992-93...... 9,832 1,623 335 4,799
1993-94...... 19,254 325 134 5,040
1994-95...... 25,166 -- 1,146 4,300
1995-96...... 21,687 -- 1,710 2,374
- ----------
Source:Government of India, Economic Survey 1992-93; CMIE.
(1) Includes gold, SDRs and Foreign Exchange.
The budget for the fiscal year ending March 31, 1994
continued the process of reform by further relaxing elements of
the government's regulation of the economy. The Rupee was made
fully convertible on the trade account. Exporters were permitted
to convert 100% of their foreign currency into Rupees at a
market-determined rate as compared to the previous 60:40 formula.
Import tariffs were reduced. Domestic tariffs on a range of
products, including consumer durables, cars and textile-related
goods, which dampened industrial production and economic growth,
also were reduced. In addition, the gradual program of
privatization of state-owned companies was confirmed.
20
<PAGE>
The proposed 1994-95 budget, announced on February 28, 1994,
incorporated additional measures intended to promote industrial
growth in India, including reducing the minimum lending rate for
nationalized banks from 15% to 14%, further reducing import
duties and facilitating convertibility of the Rupee.
Fiscal balance, tax reform, social equity and poverty
alleviation were some of the major considerations of the
government's 1995-96 budget, with the goal of fully recovering
from the fiscal set-back of 1993-94. The budget for 1995-96
emphasized strengthening the incentives for investment,
simplifying the tax system, reducing tax rates and increasing
buoyancy in revenues.
The UF presented its maiden budget for 1996-97 on July 22,
1996. It exhibited a commitment to carry forward the fiscal
consolidation within the framework of the common minimum program
of the government, focusing on accelerating economic growth,
providing basic minimum services to the poor and enhancing
infrastructure investment. Highlights of the budget included
proposals to establish the Infrastructure Development Finance
Company, which will act as a direct lender, a refinancer and
financial guarantor, raise the percentage of an Indian company's
total issued capital allowed to be held by an individual FII to
10% from 5% for an individual FII to 10% within the aggregate
limit of 24%, set up a drafting team to rewrite the Companies Act
of 1956, allow non-voting shares up to 25% of a company's issued
capital, and establish the Disinvestment Commission and Tariff
Commission. The budget introduced a "Minimum Alternate Tax" on
companies that do not pay taxes due to numerous exemptions
available but show high book profits, reduced long term capital
gains tax from 30% to 20% for domestic companies and brought
about further reductions in, and the rationalization of, the
indirect duty structure. The budget indicated the government's
resolve to reduce the fiscal deficit to below 4% of GDP.
The Eighth Five Year Plan (1992-1997) that came to a close in
1996-97 encompassed the initial five years of India's reform and
globalization efforts. As shown in the Economic Survey 1996-97,
reforms in areas like industrial delicensing, foreign investment,
trade policy, financial sector and capital markets were generally
successful. The manufacturing sector grew at an average of 200
basis points faster than in the years of the Seventh Plan
(1985-1990), while GDP at factor cost grew at an average rate of
6.5% compared to 6% in the Seventh Plan. The openness of the
economy increased significantly with external trade (exports plus
imports) increasing from 15.6% of GDP in 1990-1991 to 22.5% in
1995-96. The balance of payments improved considerably, and the
central government's fiscal deficit as a proportion to GDP
declined significantly. The average rate of gross domestic
savings rose from 20.6% of GDP in the Seventh Plan to 23.9% in
the first four years of the Eighth Plan.
The 1997-98 budget was bold in its approach towards taxation
and was intended to encourage growth in an economy that was
showing signs of slowing down due to high real interest rates and
decelerating consumption and investment demand. Significant
announcements included: the abolition of ad hoc treasury bills,
to be replaced by "ways and means advances" from the RBI; a
statement of intent to move towards capital account
convertibility; a reduction in personal income tax rates (for
example, from 40% to 30% for the highest income tax bracket); a
reduction in corporate tax rates from 43% to 35% for Indian
companies and from 55% to 40% for foreign companies; and the
elimination of the 7.5% surcharge on corporate taxes. The tax on
shareholders' dividend income has been replaced by a 10% tax on
the distributable profits (funds allocated for dividends of
Indian corporations) and the minimal alternate tax was modified
to exclude export profits.
In addition, the government has introduced other legal and
regulatory reforms to increase investment. Ownership of
domestically issued share capital of listed companies by
non-resident Indians ("NRI"), overseas corporate bodies ("OCBs")
and FIIs was increased from 24% to 30%, provided that the board
of directors and the shareholders of a company approve of the
increase by a special resolution. The limit for investment by a
venture capital fund in any single company is to be increased
from 5% to 20% of the corpus of the company. Telecommunications,
oil exploration and industrial parks have been added to the list
of sectors enjoying infrastructure status, which means that
certain projects in such sectors will enjoy a five-year tax
holiday. There was a reduction in the peak import duty from 50%
to 40% and a rationalization of excise duties to eventually
achieve an average rate of 18%. Additional measures requiring
further legislation are the amendments to the Companies Act to
permit companies to buy-back their shares, replacement of the
21
<PAGE>
FERA with a Foreign Exchange Management Act and a proposal to
open up the health insurance sector to private Indian firms.
Despite these reforms, India remains a relatively tightly
controlled economy. A large proportion of industry and the
financial system remain under state control with limited progress
having been made in privatization. State-owned companies still
receive large subsidies and are heavily-staffed, and India has an
extensive bureaucracy.
Public-sector employee unions have exerted pressure on the
government in an attempt to slow privatization reforms. In
December 1993, employees from the telecommunications, airline and
postal sectors went on strike for one day in protest against the
government's privatization program. Privatization, referred to as
disinvestment, is the government's policy of allowing 49% private
ownership of state-owned organizations. Disinvestments of the
government's shareholding in public sector companies through
March 1997 amounted to Rs 105 billion and disinvestment in the
public sector companies has been progressing at a steady rate.
The following table set out the employment in the public
sector by industry in 1995.
Employment in public sector Percentage
by Industry Persons Share Share
------------------- ----- ----------
Agriculture........................... 5 3%
Mining and Manufacturing.............. 49 25%
Mining and quarrying................ 10 5%
Manufacturing and repair............ 18 9%
Utilities........................... 9 5%
Construction........................ 12 6%
Services.............................. 141 72%
Transport, Storage and 31 16%
Communications........................
Trade and commerce.................. 14 7%
Others (community/personal/social).. 95 48%
--- ---
Total............................. 195 100%
=== ===
- ----------
All figures in lakh.
Source: Economic Survey 1996-97
The following table shows approvals granted by the Indian
government for foreign direct investment in India by investors in
selected countries for the calendar years 1995 to 1997:
Foreign Direct Investment Inflows(1)
1995 1996 1997
------ ------- ------
Mauritius.. 97 507 846
USA........ 203 195 242
Germany.... 35 100 166
Netherlands 45 50 124
Japan...... 95 61 97
Singapore.. 25 60 76
Sweden..... 18 2 61
Korea...... 12 24 58
UK......... 144 71 54
Others..... 100 349 334
------ ------ ------
Total...... 872 1,418 2,057
====== ====== ======
- ----------
Source: RBI Annual Report, 1996-97
(1) In US$ millions. The table does not include NRI investments
22
<PAGE>
Although the contribution of agriculture to GDP has
progressively declined, agriculture remains one of the most
important sectors of the Indian economy, accounting for
approximately 29% of GDP and providing employment, directly or
indirectly, to around 69% of the working population. These are
far larger percentages than in most developed industrial
countries. India has devoted considerable resources to improving
agriculture and has been self-sufficient in food since 1974. It
is now a net exporter of food grains. The main agricultural
exports are cotton, sugar, sugar cane, tea and juice.
The climate has a significant impact on the agricultural
sector. India has three distinct seasons: summer from March to
June, the wet season from July to October and winter from
November to February. Rainfall in the four wet months provides
the source of water for most irrigation projects. As 23.3% of the
total cultivated land is irrigated, low rainfall has a
significant effect on the supply of water available for
agriculture. Given the high employment in the sector, a bad
monsoon has a profound effect on the country. In 1996-7, India
experienced its ninth consecutive good monsoon.
Industry accounts for approximately 29% of India's GDP. The
main industries are finished steel, cloth, cement, fertilizers
and vehicles. Services account for approximately 42% of GDP.
During the Eight Five Year Plan (1992-1997) agriculture grew at
an average rate of 3.6%, industry at 8.1% and services at 7.3%.
The following table shows the sectoral share of agriculture,
industry and services as a percentage of GDP in calendar years
1970, 1980, 1990 and 1996.
Percentage of GDP
-----------------------------
1970 1980 1990 1996
---- ---- ---- ----
Agriculture... 45 38 33 29
Industry...... 23 25 28 29
Services...... 32 37 39 42
- ----------
Source: Economic Survey 1996-97
Inflation and Monetary Policy
The Reserve Bank of India (the "RBI") is responsible for
formulating the country's monetary policy. However, in practice,
fiscal policy influences the monetary policy. Price stability and
adequate supply of bank credit to the productive sector have been
the two basic objectives of the monetary policy.
The inflation rate measured by the movement of the Wholesale
Price Index shows four distinct phases between 1991-92 to
1996-97. The first phase involved an escalating inflationary path
with the annual inflation rate attaining a peak level of over 16%
in September 1991, just before the start of economic reforms. The
second phase saw a gradual decline, with the inflation rate
declining to 6.9% in April-May 1993. The third phase (1994-95)
exhibited a new upward trend in prices, albeit not as strong as
the first phase (1991-92), which peaked at 12% by January 1995.
India is now in the fourth phase with the inflation rate
decelerating to 5.3% in July 1997.
The basic objectives of monetary policy for 1994-95 were to
meet the challenge of a large increase in capital inflow by
increasing the productive use of foreign exchange and to bring
about a reduction in the inflation rate. Two major initiatives
were undertaken to improve the working of the monetary system.
First, an agreement was signed in September 1994 between the RBI
and the Ministry of Finance to gradually phase out, by the end of
1996-97, the central government's borrowing from the RBI through
ad-hoc treasury bills, thereby ending the automatic monetization
of the central government's deficit. This was intended to sever
the link between the fiscal deficit and monetary growth and force
the government to borrow directly from the market at market
rates. Second, the minimum lending rate on bank loans above Rs
0.2 million was freed from the government's control, and banks
were given the freedom to set market determined lending rates.
Monetary management in 1995-96 moderated money supply growth,
thereby restoring the downward trend in inflation. Money supply
growth was brought down from 22.3% in 1994-95 to 13.7% in
1995-96. Interest rate deregulation was extended from the lending
side to the deposit side. From October 1, 1995,
23
<PAGE>
scheduled commercial banks were allowed to fix their own
interest rates on domestic term deposits with maturities of over
four years.
Monetary policy for 1996-97 sought to consolidate the gains
on the inflation front. The decline in industrial production from
a growth rate of 11.8% in 1995-96 to one of 6.5% in 1996-97
motivated the RBI's attempts to increase the availability of
lendable resources and thereby reduce the cost of credit to the
industrial sector. There was a significant reduction in the cash
reserve ratio (the "CRR") required to be maintained by banks from
14% to 13% effective April 27, 1996 and 13% to 12% effective July
6, 1996. Effective July 2, 1996, the minimum period of term
deposit of banks was reduced from 45 days to 30 days, the maximum
interest rate on deposits between 30 days to one year was reduced
from 12% to 11% and interest rates on term deposits over 1 year
were deregulated. The busy season credit policy announced on
October 19, 1996 attempted to facilitate the speedy delivery of
credit and was aimed at bringing about a reduction in interest
rates. The policy also called for the further reduction of the
CRR from 12% to 10% in four phases, to be implemented between
October 1996 to January 1997. Each percentage cut in the CRR was
expected to enhance lendable resources by about Rs 42.75 billion.
The maximum interest rate chargeable on deposits between 30 days
to one year was further reduced to 10%. Banks were allowed to
invest up to five percent of its incremental deposits in the
previous year in shares and debentures of private companies in
the secondary market.
Sluggish industrial growth, slow growth in non-food bank
credit and the persistence of relatively high lending rates
despite comfortable liquidity prompted the RBI to structure the
slack season credit policy to further reduce the cost of credit.
By eliminating the requirement to maintain the CRR on overnight
interbank liabilities, the RBI paved the way for greater
integration of the money market, the government securities market
and the forex market, thereby facilitating the emergence of a
continuous yield curve. The policy revived the bank rate as the
reference rate by linking it to the interest rates related to
term deposits of varying maturities and to the refinance rate
offered by the central bank. The RBI also reduced the bank rate
from 12% to 11%. The quantitative limits on lending inherent in
the consortium lending rules were removed. The rules limiting a
bank's investment in shares, debentures and bonds to 5% of its
incremental deposits in the previous year was modified so that
the limit applies to only ordinary shares of corporate shares. In
other words, banks were allowed to invest freely in corporate
bonds and debentures based on their own investment judgment and
subject to other prudent norms. The policy gave a fillip to the
development of long term rupee-forex swap market by allowing
authorized dealers to run a swap book within their open positions
and gap limits without the RBI's prior approval. On June 25, 1997
the RBI reduced the bank rate from 11% to 10%, signaling further
downward revision in the interest rate structure.
Due to these various measures, interest rates declined
significantly. At the shorter end, 91-day treasury bill rates
have declined from 9.96% in August 1996 to 6.59% in August 1997
and 364-day treasury bill rates have gone down from 12.61% in
August 1996 to 8.33% in August 1997. The prime lending rates have
come down by approximately 300 basis points from 16.0%-16.5% in
August 1996 to 13.5% in August 1997.
24
<PAGE>
The following table sets out the inflation rate as measured
by the percentage change in the Consumer Price Index for calendar
years since 1990.
Percentage Change in Consumer Price Index
Percentage Change
Year (percent per annum)
------ --------------------
1990......... 6.1
1991......... 11.6
1992......... 13.5
1993......... 9.6
1994......... 7.5
1995......... 10.1
1996......... 9.9
1997......... 9.6
- ----------
Source: CMIE
Foreign Trade
Due to the inward looking policies followed during the first
four decades of India's independence, the country's share of
world trade has historically been low and was at only 0.61% in
1994. With the onset of reforms and movement towards
globalization since 1991-92, the openness of the Indian economy,
measured by the ratio of foreign trade to GDP (Exports and
Imports together as a percentage of GDP), has increased
significantly from 14.2% in 1990-91 to 20.1% in 1996-97. The
terms of trade, which measure the terms of exchange between a
unit of exports and a unit of imports, have also improved with
the net terms of trade (base year 1987) increasing from 96 to
1980 to 150 in 1995 and the income terms of trade (base year
1987) increasing from 68 in 1980 to 314 in 1995. The increase in
the ratio of exports to imports from 66.2% in 1990-91 to above
85% in 1996-97 and an increase in the inflow of net receivables
has resulted in a decline in the current account deficit from
3.2% of GDP in 1990-91 to 1.3% in 1996-97. The reduction in the
current account deficit coupled with strong capital inflows
(stemming from foreign direct investment and foreign portfolio
investment) has led to an increase of India's foreign exchange
reserves from US$2.2 billion in 1990-91 to US$26.0 as on
September 5, 1997.
The substantial deregulation, delicensing and removal of
quantitative restrictions on imports and exports, the
rationalization and simplification of export/import procedures,
the progressive reduction of import tariffs, and the significant
fiscal incentives given to exporters paved the way for the robust
growth of external trade during the post reform period. Exports
grew by 20%, 17.9%, and 21.4% in 1993-94, 1994-95, and 1995-96
while imports grew by 6.5%, 21.2%, and 28.7% during the same
period. The deceleration in both the domestic demand growth and
the growth in trading partner economies led to the decline in
export growth to 4% and in import growth to 6% in 1996-97.
Agriculture and allied products accounted for 19.2%, while
manufactured products accounted for 75.4%, of total exports in
1995-96. Among manufactured goods, gems and jewelry accounted for
16.6%, textiles for 19.7%, metals machinery, and transport
equipment for 9.7% and leather products for 5.4% of total
exports. Among imports, fuel (including coal and petroleum, oil
and lubricants) imports accounted for 23% and capital goods for
27.8% of total imports. The USA has been the largest market for
Indian exports and the USA, the UK, Germany and other European
countries accounted for 43.8% of India's total exports while the
[LDCs] accounted for 26% of total exports in 1995-96. Almost 21%
of total imports in 1995-96 were from OPEC countries and 37.4%
were from the USA, the UK, Germany and other European countries.
In accordance with the terms of GATT, a country is required
to lift quantitative restrictions on imports imposed for balance
of payments reasons when the position improves. As its foreign
exchange reserve position
25
<PAGE>
improves, India is bound to phase out quantitative
restrictions in respect of all items. As a part of the WTO
agreement, India was required to bring its laws and regulations
into conformity with its obligations under the agreement. India
has a transition period of five years with effect from January 1,
1995 to apply the provisions of the agreement. An additional
transition period of five years is also available for extending
product patent protection to areas of technology not provided so
far.
Currency
The official currency of India is the Rupee. Until March 1,
1992, the official value of the Rupee was determined by the RBI
in relation to a weighted basket of currencies of India's major
trading partners. In the 1992 Budget, a new dual exchange rate
mechanism was introduced to make the rupee partially convertible
by permitting conversion of 60% of the foreign exchange received
on a trade or revenue account at a market determined rate, and
the remaining 40% at the official rate. All importers were,
however, required to buy foreign exchange at the market rate.
India moved towards current account convertibility with the
budget announced in March 1993. The foreign exchange budget was
abolished, the exchange rate was unified and transactions on the
trade account were freed from exchange control. The determination
of the exchange rate was left to the market. With its
announcements on February 28, 1994 and August 19, 1994, the RBI
made the rupee convertible for the current account transactions
(related to goods and services) of the balance of payments.
There were further relaxations of restrictions on current account
transactions in 1995-96 and 1996-97.
The rupee is not fully convertible on the capital account for
resident Indians. But capital account convertibility exists for
foreign investors and non-resident Indian for undertaking direct
and portfolio investments in India and repatriating profits, net
of taxes, out of India.
On an annual average basis, the rupee has consistently
declined against the dollar since 1982. As part of its economic
package, the Rao government devalued the rupee twice in three
days in July 1991 by an aggregate of 21.5% against the US dollar.
The rupee had previously been devalued by 33.6% in 1996 and by
17.9% in 1967.
Despite the shift to a market determined system, the
rupee-dollar rate remained steady at about Rs 31.4 for over two
years after March 1993 mainly because of the large inflow of
foreign portfolio investment in 1993 and 1994. To prevent
appreciation of the domestic currency, the RBI bought dollars
through open intervention in the market. Between the end of March
1993 and December 1994, about US$13 billion were added to foreign
currency reserves. These inflows slowed in the last quarter of
1994-95, but the exchange rate of the rupee versus the US dollar
remained stable until August 1995. The reduction in net capital
inflows and the widening of the current account deficit in
1995-96 led to periodic speculative pressures on the exchange
rate of the rupee and the eventual depreciation against the US
dollar to Rs 37.0 as of February 9, 1996.
The RBI's policy responses in early February 1996 to counter
speculative pressures against the rupee were effective in rapidly
restoring stability leading to the recovery in the rupee-dollar
exchange rate to Rs 34.4 in March 1996 and further to 34.2 in
April 1996. The exchange rate of the rupee moved in a narrow
range of Rs 35.0 to Rs 35.9 between May 1996 and January 1997
owing to the relatively stable trade deficit, strong foreign
capital inflows and relatively low domestic inflation rates. The
combination of deceleration in imports growth, implying the
further decline in industrial growth, and strong portfolio
inflows driven by the expectations of economic recovery due to
the significant downward movement of interest rates imparted
strength to the rupee which appreciated by 0.36% against the
dollar during April-July 1997. During April-July 1997, the RBI
purchased US$4.5 billion from the forex market to avoid the
appreciation of the rupee. Due to the public references by the
Governor and the Deputy Governor of the RBI indicating that the
rupee could be overvalued, the exchange rate depreciated from Rs
35.7 per dollar on August 20, 1997 to an intra-day high of Rs
36.5 per dollar on August 22, 1997. As on September 5, 1997, the
exchange rate was Rs 36.56 per dollar.
A Committee on Capital Account Convertibility was established
by the RBI pursuant to a commitment made by the Finance Minister
in the Budget for 1997-98. The committee presented its report on
June 3, 1997
26
<PAGE>
and recommended a phased implementation of capital account
convertibility over a three year period commencing 1997-98. The
committee has recommended that fiscal consolidation, a mandated
inflation target of three to five percent and strengthening of
the financial system should be regarded as crucial preconditions
and signposts for leading the economy towards capital account
convertibility. In the conduct of exchange rate policy, the
committee recommended that, the RBI should have a monitoring band
of plus or minus five percent around the neutral Real Effective
Exchange Rate ( the "REER") and ordinarily intervene as and when
the REER is outside the band. The committee also stressed the
need to have transparency in the management of foreign exchange
policy.
The following table sets out exchange rates for the Rupee
against selected major currencies for each of the fiscal years
ended March 31, 1993 to March 31, 1997:
Average for the Fiscal Year Ended March 31,
------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
US$............ 30.65 31.37 31.40 33.45 35.50
DM............. 19.59 18.74 20.20 23.40 22.92
Pounds 51.69 47.21 48.82 52.35 56.36
Sterling.......
Japanese Yen... 0.246 0.291 0.316 0.348 0.316
- ----------
Source: RBI Annual Reports, 1993-94, 1994-95, 1996-97
SECURITIES MARKETS OF INDIA
Except as otherwise indicated, the information set forth in
this section has been extracted from various public and private
sources. The Fund and its Board of Directors make no
representation as to the accuracy of the information, nor has the
Fund or its Board of Directors attempted independently to verify
it; furthermore, no representation is made that any correlation
exists between the securities markets of India or their
performance in general and the performance of the Fund.
Indian Markets
India has a long history of organized securities trading. At
the end of the eighteenth century, transactions were recorded in
loan stock of the East Indian Company. In 1875, the BSE, the
oldest stock exchange in Asia, was established. India currently
has 23 stock exchanges, including the fully automated National
Stock Exchange of India Limited (the "NSE") which opened on July
23, 1994, and the Over The Counter Exchange of India (the "OTC
Exchange"). The BSE and the NSE are the major stock exchanges in
India. At the end of June 1997, there were 5,844 companies listed
on the BSE (market capitalization: Rs 5.9 trillion) and 1,496 on
the NSE (market capitalization: Rs 5.7 trillion), many of which
are family-controlled or tax shelter companies whose shares are
frequently traded. As of June 30, 1997, the New York Stock
Exchange comprised 2,979 listed companies with a total market
capitalization as of US$8.6 trillion. According to the BSE, there
were about 6,000 brokers in India as of August 29, 1997.
The BSE accounted for about 33% of the aggregate trading
turnover (in Rs) on the BSE and the NSE during the first half of
1997. The other principal regional exchanges in India are the
Ahmedabad, Calcutta, Delhi, and Madras Stock exchanges. Many
companies are listed and traded on more than one exchange. The
OTC Exchange was established on September 29, 1992 as part of the
move towards scripless trading. Its objective is to assist
smaller companies which do not meet the criteria for listing on
the major stock exchanges to list and develop a secondary market
for their shares. As of April 30, 1997, the shares of 110
companies and debentures of 15 companies were traded on the OTC
Exchange, with a total market capitalization of Rs 3.2 billion.
As part of India's program of economic reform which began in
1991, the government announced its intention to establish a
national stock exchange in 1994. On April 27, 1994, the Indian
government gave final clearance for establishing the NSE in
Bombay by financial institutions and banks. The NSE serves as a
national exchange, integrating stock markets all over India by
providing nationwide, on-line screen facilities
27
<PAGE>
with market-making, electronic clearing and settlement. The NSE
commenced its operations with a wholesale debt market on June 30,
1994 and recorded average daily trading volume of approximately
Rs 400 million during July 1994. Trading in equity securities,
primarily of large companies, commenced on November 3, 1994. The
main participants in the wholesale debt market segment are banks,
financial institutions and large corporations. As of June 14,
1995, the number of securities admitted for trading on the
capital market segment had reached 1,028, and trading volume had
achieved levels equal to those on the BSE. The gross traded value
on the NSE has risen from an average daily figure of Rs 100
million in November 1994 to Rs 1,200 million in May 1995.
Listed companies on the BSE are divided into 3 groups, the
"A", "B1" and "B2" groups. The distinction between B1 and B2
results from an historical difference wherein B2 group shares
were settled "broker to broker" and within a settlement cycle of
15 days, while transactions in A and B1 group shares had a seven
day settlement cycle and were settled through clearing house.
Currently, shares in all three groups have a seven day settlement
cycle and settle through a clearing house. Forward trading is
permitted only in A group shares, and custodial settlement is
permitted only for A group and B1 group shares. The exchange
categorizes these shares on the basis of liquidity, market
capitalization and trading frequency in the respective counters.
As of August 1997, the 100 leading "A" group of shares accounted
for 94.4% of total turnover on the BSE, and the "B1" and "B2"
groups accounted for about 5.6% of total market turnover.
The Indian securities markets are generally smaller and more
volatile than the securities markets in major OECD countries.
There is also a lower level of regulation and monitoring of the
Indian securities market and the activities of investors, brokers
and other participants than in major OECD markets. The Indian
stock exchanges have in the past experienced substantial
fluctuations in the prices of listed securities. The BSE
Sensitive Index decreased from 3,110.49 on December 22, 1995 to
3,085.2 on December 24, 1996, reaching a high for 1996, of
4,069.26 on June 18, 1996 and a low of 2,745.1 on December 4,
1996. In 1997, the index has risen further to 3,876.08 on August
29, 1997, reaching a high of 4,612.47 on August 5, 1997 and a low
of 3,060.56 on January 1, 1997.
The Indian stock exchanges (including the BSE) have
experienced problems which, if such or similar problems were to
continue or recur, could affect the market price and liquidity of
the securities of Indian companies in both domestic and
international markets. These problems have included temporary
exchange closures, broker defaults, settlement delays and strikes
by brokers. In December 1993, the Ahmedabad, Bombay, Calcutta and
Delhi exchanges were closed for a period of eight days as a
result of a strike by brokers protesting the ban of the
Securities and Exchange Board of India (the "SEBI") on forward
trading on specified shares. In addition, the governing bodies of
the Indian stock exchanges have from time to time imposed
restrictions on trading in certain securities, limitations on
price movements and margin requirements.
Primary Markets
Under the Companies Act, 1956 (the "Companies Act"), a
public offering of securities in India must generally be made by
means of a prospectus, which must contain information specified
in the Companies Act by SEBI and be filed with the Registrar of
Companies having jurisdiction over the place where a Company's
registered office is situated. A company's directors and
promoters are subject to civil and criminal liability for
misstatements in the prospectus. The Companies Act also sets
forth procedures for the acceptance of subscriptions and the
allotment of securities among subscribers and establishes maximum
commission rates for the sale of securities.
The SEBI has issued detailed guidelines concerning disclosure
by public companies and investor protection which impose further
disclosure requirements and provide for review by the SEBI of all
prospectuses. Under rules effective until mid-1992, Indian
authorities regulated the prices at which companies could issue
securities. SEBI guidelines now permit existing listed companies
to freely price their issues, though the pricing of initial
public offerings is subject to certain restrictions. Existing
private and closely held companies coming out with their first
public issue are permitted to price the issue freely only if they
have a three year track record of consistent profitability. A new
company (a company which has not completed
28
<PAGE>
12 months of commercial operations and whose audited operative
results are not available) can issue capital at par.
All new issues governed by the SEBI guidelines are
conditional upon a minimum subscription requirement of 90 percent
of the securities being issued. In July 1996, SEBI relaxed the
foregoing minimum subscription requirement in the case of "offer
for sale" of securities, but introduced regulation which requires
that there be a minimum of ten shareholders for every Rs 100,000
of the nominal value of shares offered to the public. In the case
of public issues, the requirement is for a minimum of five
shareholders for every Rs 100,000 of the nominal value of shares
offered to the public. Formerly, the promoters were required to
retain a certain minimum specified holding of equity capital
which was subject to a lock-up of five years. This requirement
has been relaxed recently by SEBI for listed companies with a
three year record of profitability and dividend payments.
Promoters making an offering must subscribe for a minimum
percentage of such issue Moreover, such promoters are required to
pay their full subscription amount in advance before the public
issue except in cases where the promoter contribution exceeds Rs
1 billion, in which case they are required to pay 50% of their
contribution including premium, if any, before opening of the
issue to the public and the remaining 50% in advance pro rata
before calls on the public are made.
Public limited companies are required under the Companies Act
to prepare, file with the Registrar of Companies and circulate to
their shareholders audited annual accounts which comply with the
Companies Act's minimum disclosure requirements and regulations
governing their manner of presentation. In addition, a listed
company is subject to continuing disclosure requirements pursuant
to the terms of its listing agreement with the relevant stock
exchange. Such requirements include the publication of
half-yearly unaudited financial statements.
The admission of securities to listing on a recognized Indian
stock exchange is regulated by the Securities Contracts
Regulation Rules, 1957 (the "Rules"). Only those companies with
an issued share capital par value of Rs 100 million and whose
shares are widely held are allowed to list their shares on the
BSE and NSE, and only those companies whose issued share capital
par value is more than Rs 50 million may list their shares on
other existing recognized stock exchanges. Companies with paid-up
share capital of more than Rs 3.0 million but less than Rs 250
million may list their securities on the OTC Exchange. Although
the listing of a company's shares is generally optional, the
government may compel public companies to list their securities
on the stock exchange if the listing would be in the public
interest. Generally, at least 25% of the equity shares of a
company seeking a listing are required to be offered to the
public. The Indian government now permits statutory governmental
bodies which have been formed by special Acts of Parliament or by
State legislation on a case-by-case basis to have their shares
listed on stock exchanges.
Under the standard terms of the stock exchange listing
agreements, the governing body of each stock exchange is
empowered to suspend trading or dealings in a listed security for
breach of its obligations under such agreement, subject to the
company receiving prior notice of the intent of the exchange. A
listed company can also be delisted after a notice period of six
months if the number of public shareholders falls below five for
every Rs 100,000 nominal value of shares offered to the public,
the public shareholding falls below 50 percent of the number of
shares offered to the public or the listed company fails to pay
annual listing fees to the relevant stock exchange. In the event
that a suspension of a company's securities continues for a
period in excess of three months, the company may appeal to the
government to set aside the suspension. The government has the
power to veto stock exchange decisions in this regard.
The primary market for equity shares has grown tremendously
since the late 1970s, when a spate of foreign companies divested
themselves of a part of their "foreign" equity stake to comply
with the FERA. Market growth accelerated in 1985, reflecting the
general buoyancy of the stock markets and the increase in the
number of new issues offered to the public. Simultaneously,
equity investment gained acceptance as a means of saving by
India's growing urban population.
Under the controlled price regime that had been promoted by
the Controller of Capital Issues, equity issues by new companies
had to be priced at par value while the pricing of new issues of
existing non-listed
29
<PAGE>
companies and rights issues of listed companies was based
primarily on the weighted value ascribed to historic earnings and
book value. For this reason, offerings were generally made at a
substantial discount to prevailing market price and tended to be
heavily over-subscribed. After the introduction of a freer
pricing mechanism, recent offerings have been made closer to the
expected discounted market price. Consequently, the number of
over-subscribed offerings has declined significantly, with some
issues being under-subscribed.
Based on statistics published by the Centre for Monitoring
the Indian Economy, an independent research institute, total
finances raised through the capital market declined by 48.4% from
Rs 491.4 billion in 1994-95 to Rs 253.4 billion in 1996-97.
Equity issues (Rs 359.4 billion) that contributed almost 73% of
total resources raised in 1994-95 declined significantly to 39.6%
(Rs 100.3 billion) of total resources raised in 1996-97. Debt
issues accounted for 60.4% of total finances raised in 1996-97 as
opposed to 27% of total resources in 1994-95.
With appropriate approvals of the Indian government, Indian
companies with satisfactory earnings histories may also issue
convertible bonds and global depository receipts in the
international financial markets.
Secondary Markets
There are two indices generally used to monitor the aggregate
price movements on Indian stock exchanges. The BSE Sensitive
Index, the most commonly quoted index, is based on the price
changes of the 30 most actively traded companies on the BSE
representing 18 industries. The base year is 1978-79 and the
index is calculated daily. The price of each component share in
the index is weighted by the number of shares outstanding. The
BSE National Index is a more broad-based index and is calculated
based on the prices of 100 companies trading on the five major
stock exchanges of Mumbai, Ahmedabad, Calcutta, Delhi and Madras,
including the 30 companies which comprise the BSE Sensitive
Index. The base year is 1983-84. The following table sets forth
the yearly high, low and close of the BSE Sensitive Index and the
BSE National Index for the years 1985 to 1996.
BSE Sensitive Index
-------------------------------
High Low Close
---- --- -----
1985..... 539.70 273.41 527.36
1986..... 664.54 482.41 524.45
1987..... 578.75 405.57 442.17
1988..... 719.07 390.00 666.26
1989..... 798.01 625.32 778.64
1990..... 1,559.43 659.30 1,048.29
1991..... 1,915.12 956.11 1,908.85
1992..... 4,546.00 1,945.48 2,615.37
1993..... 3,454.81 2,036.81 3,346.06
1994..... 4,630.54 3,454.08 3,926.90
1995..... 3,932.09 2,922.16 3,110.49
1996..... 4,069.26 2,745.06 3,085.20
BSE National Index
-------------------------------
High Low Close
---- --- -----
1985..... 236.19 121.18 236.19
1986..... 282.64 229.95 249.25
1987..... 267.24 211.02 227.81
1988..... 361.04 206.67 340.49
1989..... 421.89 324.20 419.13
1990..... 762.72 370.32 528.57
1991..... 917.10 491.77 893.27
1992..... 2,048.97 901.73 1,184.60
1993..... 1,658.90 933.96 1,613.64
1994..... 2,176.48 1,677.77 1,863.76
1995..... 1,860.77 1,342.10 1,430.75
1996..... 1,842.50 1,217.09 1,363.38
- ----------
Source: Bombay Stock Exchange
30
<PAGE>
The table below sets out selected information on the top 20
companies by market capitalization listed on the BSE National
Index as of July 31, 1997.
Market
Number Capitalization
of ---------------
Shares US $
Rank Company Sector (1) Rs Cr million
- ---- -------------------------- ---------------------- ------- ------ -------
1 Hindustan Lever Ltd Consumer non-durables 146.0 28,257 7,926
2 MTNL Health & Personal Care 54.4 17,550 4,923
3 SBI Banking 473.8 17,019 4,774
4 Reliance Industry Ltd Textiles & Apparel 456.0 16,804 4,714
5 ITC Beverages & Tobacco 242.4 12,639 3,545
6 HPCL Energy Sources 208.9 10,826 3,037
7 Bharat Heavy Electricals Energy Equipment & 244.8 10,445 2,930
Ltd.
Services
8 The Tata Engineering and Automobiles 241.9 9,981 2,800
Locomotive Co., Ltd.
9 SAIL Metals, Steel 3,986.0 9,913 2,781
10 Hindalco Industries Ltd Metals, Non-Ferrous 49.5 8,364 2,346
11 Tata Iron & Steel Co. Ltd. Metals, Steel 338.0 8,044 2,256
12 Bajaj Auto Ltd Automobiles 79.6 7,116 1,996
13 IDBI Financial Services 673.0 6,815 1,912
14 Larsen & Toubro Ltd Machinery & 228.8 6,709 1,882
Engineering
15 Mah & Mah Automobiles 97.1 4,484 1,258
16 HDFC Financial Services 11.9 4,406 1,236
17 Colgate-Palmolive (India) Consumer non-durables 135.5 4,370 1,226
Ltd
18 Castrol Energy Sources 77.2 4,249 1,192
19 The Industrial Credit & Financial Services 388.5 4,209 1,181
Investment Corporation of
India
Ltd
20 IPCL Chemicals 249.0 3,381 948
- ----------
Rs/$ exchange Rate : 1 US$ = Rs 35.56
Source: The Stock Exchange Review August 1997
(1) Millions
31
<PAGE>
The following table shows a breakdown of the BSE National
Index by sector as of August 29, 1997.
Sector Companies Market Capitalization* Weightage
- ------ --------- ---------------------- ---------
Rs million US$ million %
Personal Care................ 5 356,757 9,820 15.5%
Automobiles.................. 7 207,354 5,708 9.0%
Capital Goods................ 9 200,762 5,526 8.7%
Petrochemicals............... 4 189,013 5,203 8.2%
Food, Beverages & Tobacco.... 5 178,380 4,910 7.7%
Development Financial 4 160,012 4,404 6.9%
Institutions.................
Metals, Steel................ 3 151,578 4,172 6.6%
Telecommunication............ 1 143,700 3,955 6.2%
Downstream Oil............... 3 126,479 3,481 5.5%
Metals-- Aluminum............ 2 80,773 2,223 3.5%
Pharmaceuticals.............. 4 67,252 1,851 2.9%
Diversified.................. 5 59,099 1,627 2.6%
Cement....................... 5 57,497 1,583 2.5%
Leisure & Tourism............ 2 47,799 1,316 2.1%
Power........................ 3 42,922 1,181 1.9%
Auto Ancillaries............. 5 41,413 1,140 1.8%
Lubricants................... 1 40,616 1,118 1.8%
Chemicals.................... 2 32,691 900 1.4%
Textiles & Apparel........... 8 23,830 656 1.0%
Paints....................... 2 21,517 592 0.9%
Tires........................ 4 15,418 424 0.7%
Fertilizers.................. 3 13,691 377 0.6%
Shipping..................... 1 12,221 336 0.5%
Telecom Equipments........... 1 11,215 309 0.5%
Miscellaneous................ 4 9,440 260 0.4%
Paper........................ 3 8,469 233 0.4%
Consumer Durables............ 2 5,594 154 0.2%
Pesticides & Agrochemicals... 1 1,1699 47 0.1%
--- --------- ------
99# 2,307,191 63,506
=== ========= ======
- ----------
Rs/$ exchange rate as at August 29, 1997 1 US$ = Rs 36.3
* As on August 1997
# No new entry, post merger of Hindustan Lever and Brooke Bond
Lipton Industries
Source: Market information
Market Performance
On June 30, 1997, the market capitalization of BSE was about 40%
of India's GDP. The market capitalization of the BSE has grown at a
compound annual growth rate of 33% from March 1991 to March 1997
while the turnover has increased at a compound annual rate of 23%
during the same period. There have been five major rallies in the
stock markets since 1980. The first occurred in 1985 when Rajiv
Gandhi initiated economic reforms. The second rally occurred in
the later half of 1990. The third rally in 1991 was driven by the
artificial liquidity surge created by a securities scam.
Unearthing of the securities scandal, communal unrest, and
industrial recession in 1992 and 1993 led to the subsequent
decline of the market. The increasing pace of reforms, the
consolidation by the Rao government of its majority in the
parliament, and the risk in foreign portfolio investment helped
the market rally to an all time high of 4,630 in September 1994.
A slow-down in the pace of reforms, a crisis in the paper-based
trading system due to the significant rise in turnover volumes, and
higher cash calls on both the GDR and domestic markets led to the
32
<PAGE>
deceleration of foreign portfolio investments and led to a
market decline that lasted up to December 1996. The Central
Bank's attempts to infuse liquidity into the system by a bank's
mandated reserve requirements, the slow down in the industrial
growth, and falling inflation, softened interest rates. From
December 1996, the market rallied as a result of expectations of
economic recovery due to falling interest rates and the
pro-investor budget presented by the Finance Minister in March
1997.
The following graph sets forth the annual trading volume of
the BSE for the fiscal years 1983-84 to 1996-97.
[Graph showing annual trading volume
of the BSE for fiscal years
1983-84 to 1996-97.]
Source: Bombay Stock Exchange
Regulation and Supervision
The Ministry of Finance regulates India's stock exchanges
under the Securities Contracts (Regulation) Act, 1956 ("SCRA")
and the Rules. Currently, there are 23 stock exchanges in India
recognized under SCRA.
The Ministry of Finance reviews and approves the manner of
organization, rules and regulations of each recognized stock
exchange, including qualifications for membership and the manner
in which contracts are entered into and enforced between members.
The Ministry of Finance may make or amend an exchange's by-laws
and rules, may overrule an exchange's governing body and may
withdraw recognition of an exchange.
The SEBI was established by the government in April 1988. Its
main function is to protect the interests of investors in
securities and to regulate and promote the development of the
Indian securities markets. In the past, the SEBI's regulation of
market practices has been limited. Legislation enacted in early
1992 grants the SEBI powers to regulate the business of Indian
securities markets, regulate stockbrokers and other financial
intermediaries, promote and monitor self-regulatory
organizations, prohibit fraudulent and unfair practices and
insider trading and regulate substantial acquisitions and
takeovers of Companies. The SEBI has issued guidelines and a code
of conduct for merchant banks which includes powers to suspend or
cancel a merchant bank's authorization for repeated or serious
breaches of the code. The SEBI has also promulgated rules and
regulations for portfolio managers, mutual funds and securities
registrars, transfer agents and other capital market
participants, issued capital adequacy norms for stockbrokers and
issued draft regulations to regulate stockbrokers. In November
1992, the SEBI regulations on insider trading became effective,
imposing India's first legal constraints on insider trading. The
SEBI has also issued guidelines concerning minimum disclosure by
public companies. The SEBI is currently engaged in discussions
with the major stock exchanges in order to
33
<PAGE>
eliminate breaches of the trading rules by brokers relating to
settlement procedures. The SEBI has issued stringent draft
disciplinary requirements which it proposes to adopt in order to
ensure compliance.
Attempts by the SEBI to implement more stringent regulation
of the securities markets have been resisted in the past by the
Indian brokerage community. In December 1993, the Ahmedabad,
Mumbai, Calcutta and Delhi exchanges were closed for a period of
eight days as a result of a strike by brokers protesting the
SEBI's ban on forward trading in specified shares. Such forward
trading has continued, and relations between the SEBI and brokers
remain strained.
In April 1992, a series of significant transactions were
uncovered involving the fraudulent diversion of funds from the
banking system into the securities markets for speculative
purposes. As a result, the Indian Central Bureau of
Investigations commenced a comprehensive investigation into the
activities of a number of securities market participants,
including prominent stockbrokers. The RBI conducted its own
investigation and has imposed several corrective measures. The
Indian parliament constituted a special court to adjudicate cases
arising in connection with these transactions. In December 1993,
the Joint Parliamentary Committee issued a report which
criticized the government's failure to prevent and detect these
transactions and the behavior of various market participants, and
recommended strengthening the regulatory and supervisory
structure generally applicable to banks, scrutinizing and
penalizing in particular foreign banks involved in securities
fraud, reconsidering the role of and need for brokers in the
interbank market, establishing an effective system for monitoring
investors complaints and periodic reporting by stock exchanges to
the SEBI. There were significant disruptions in trading during
the investigation of the transactions, in part in protest by
brokers against regulatory actions taken by various government
authorities. Reverberations of the investigations continue to be
felt by the securities industry. See "Appendix A: Government" in
the Prospectus.
Trading and Settlement on the BSE
Trading Hours. Trading on the BSE is conducted from 10:00
a.m. to 3:30 p.m. on weekdays, except for public holidays.
Special trading sessions are held outside normal trading hours
simultaneously with the annual government budget announcement and
on the Hindu New Year (Diwali). Historically, a one hour trading
session for odd lots has been held on alternate Saturdays
although the volume has been low and in recent months no odd-lot
sessions have been held.
Trading Procedure. Until recently, brokers and members of the
BSE received individual orders from which any cross-orders were
matched and taken off. The balance of the orders was transmitted
to the trading floor for execution in an open outcry system. The
BSE has now introduced an on-line trading system ("BOLT") on the
exchange. It is expected that the enhanced transparency in
dealings due to implementation of the BOLT will assist
considerably in smoothening settlement cycles and improving
efficiency in back office work, and will thereby eliminate
incidence of objections arising in connection with differences in
matching transactions. From July 3, 1995, all listed shares have
been transferred to BOLT.
Market Lots. The market lot is generally five or 10 for
stocks which have a par value of Rs 100 and 100 for stocks listed
since 1988 which have a par value of Rs 10. The market lot for
stocks with a par value of Rs 10 listed prior to that date is 50.
The Company issues jumbo certificates for bulk shareholdings as
well as certificates in marketable lots. The Government has
recently published guidelines that would permit companies to form
a separate trust specifically for the purpose of buying the
company's own shares which are in odd lots for trading purposes
and to dispose of such shares through transactions on stock
exchanges.
Settlement. The BSE has classified its listed stocks into
specified and non-specified categories commonly known as the "A"
group (forward share group -- 100 scrips) and the "B" group (cash
share group), which has been further subdivided into the "B1"
group (comprised of the more actively traded scrips) and the "B2"
group (comprised of not actively traded scrips). Settlement
arrangements are similar for all groups.
The trading period for all group shares lasts from Monday to
Friday. The trades are normally settled by the broker's net
payment to the BSE clearing house for securities on the following
Thursday and the broker's delivery of securities to the BSE
clearing house on the same Thursday and, in the case of overflow of
34
<PAGE>
securities, on Friday. The BSE clearing house then makes
payments and delivers securities to the brokers on the following
Monday. Trades are settled by physical delivery only if the trade
is declared at execution to be "off market" for "delivery versus
payment."
Since the settlement process is based on a "netting"
principle, all payments are exchanged between the BSE clearing
house and its members at a specified Standard Rate, which is the
closing price of the scrip on the last day of the settlement
period (normally Friday), for each scrip for the particular
settlement. The difference between the specified Standard Rate
and the actual transacted rate is settled between the members of
the exchange. Clients using custodian banks as settlement agents
have an optional facility to settle trades directly with the BSE
clearing house. If a broker has executed a Direct Custodial
Settlement trade for a client, the client's custodian bank would,
on pay-in-day, have to deliver the stock or cash, directly to the
BSE clearing house. Correspondingly, on pay-out-day they receive
payment or delivery of stocks directly from the BSE clearing
house. For short deliveries, an automatic buy-in process has been
initiated by the BSE clearing house.
Clearing House. The BSE clearing house is managed by the Bank
of India which receives payments and deliveries on behalf of
members of the BSE in respect of "A" and "B1" group shares. In
the case of "B2" group shares, only payments are made through the
BSE clearing house, while deliveries are arranged directly among
members.
Negotiated Trades. Negotiated trades, although executed
off-market, are normally reported to the BSE through its on-line
trading system. Such trades are settled directly between the
trading counterparties for value as well as securities and not
through the clearing house of the BSE.
Price Limits, Margin Requirements and Intra-day Limits. There
are generally no restrictions on price movements of any security
on any given day but the stock exchanges have installed a
"circuit breaker" to restrict trading in times of volatility.
Generally, shares on the BSE are in three groups, alpha, beta and
gamma. The corresponding price movement bands allocated to these
three groups are 10 percent, 15 percent, and 20 percent,
respectively. The BSE has in the recent past, in common with
other Indian stock exchanges imposed both daily limits and
settlement period limits for individual stocks.
Daily margin payments by members has been mandatory. The
margin payable by any member is deemed to be the highest of (a)
the mark to market loss of the net position of the member, (b) a
percentage of the gross exposure (computed on the aggregate of
the net cumulative outstanding positions for each scrip (net
purchases plus net sales)), and (c) a percentage of the net
exposure margin (computed on the net cumulative outstanding
positions (net purchases -- net sales)).
In addition, the exchanges impose a limit on intra-day
turnover. Daily gross turnover (purchases plus sales) is
restricted to 33 times base capital deposited with the exchange.
However, the purchase and sale trades executed on behalf of FIIs
and SEBI registered Mfs are exempt from the payment of margin
[and intra-day turnover limits].
Badla. After being banned for approximately two years by the
SEBI, the Indian version of carry forward trading, the Badla, is
currently available. In Badla, settlement of trades can be
deferred and carried forward for a maximum of 90 days for a
finance charge. Carry forward trading is allowed in 'A' group
scrips only. However, SEBI regulations do not permit FIIs to
carry forward transactions. All Badla trades must be settled by
physical delivery.
Post Settlement Issues. After settlement, the client's
custodian immediately sends the stock out for name-registration.
The name registration process generally takes four to six months
despite the statutory time frame of two months. Only at the end
of this process can a company identify stocks that it cannot
transfer due to invalid documentation. Such stocks are termed
"under objection".
A stock which a company refuses to name-register is returned
to the custodian along with a memo stating the reasons for such
refusal. The custodian reports to the delivering broker, who then
collects from the custodian the transfer deed and certificate
relating to the stock and attempts to remove the objection that
the company had raised. The most common objection is that the
seller's signature on the transfer deed differs from that lodged
with the company. In that case, the delivering broker approaches
the originating broker who
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contacts the seller (transferor) and procures a fresh transfer
deed duly executed. The originating broker returns the newly
executed transfer deed to the delivering broker in order to clear
the objection on the stock. The delivering broker may supply
replacement stocks if it cannot clear the objection.
Service Tax. In addition to normal broker's commissions,
clients have to pay a government imposed levy of 5% on the
commission charged. The broker collects the tax from the client
and remits the same to the government. The service tax is charged
to the client on the broker's contract note.
Stamp Duty. The Broker is liable to pay a stamp duty equal to
0.01% of trade value. This levy may be paid either by affixing
"Broker Note" stamps on the face of each individual contract note
issued or on a consolidated basis, per settlement or per month.
Transfer Charge. The "Share Transfer" stamps at 0.5% of the
value of stocks need to be affixed on the transfer deed relating
to the shares when the same are lodged for name-registration.
This charge is borne by the transferee of the stock and is
usually charged to the client by the custodian.
Depositories. In September 1995, the Government promulgated
the Depositories Ordinance to provide a legal framework for the
establishment of depositories to record ownership details and
effectuate transfers in book-entry form. The Depositories
Ordinance provides for the establishment of one or more
depositories. In May 1996, SEBI passed the Securities and
Exchange Board of India (Depositories and Participants)
Regulations, 1996 which provides for the formation of such
depositories (including the requirement that they have a minimum
net worth of Rs 1 billion). Every depository is required to be
registered with SEBI. The new depository system is expected
eventually to improve significantly the operations of the Indian
securities markets. In August 1996, the Indian Parliament enacted
the Depositories Act, 1996 on the lines of the Depositories
Ordinance. The Depositories Related Law (Amendment) Act, 1997,
issued through an ordinance, allows banks, mutual funds and the
Industrial Development Bank of India to dematerialize their
securities. The shares of approximately 120 companies have been
admitted for trading in dematerialized form. Trading in
dematerialized form of the shares of two companies has commenced
since December 1996, and several settlements have been completed.
Trading in dematerialized shares is at an early stage and methods
and procedures for such trading are not yet well-defined. Dealing
in dematerialized securities is currently available only on the
NSE.
The first depository, the National Securities Depository
Limited was established by the NSE, the Unit Trust of India and
the Industrial Bank of India and commenced operations in October
1996.
Commissions. The maximum commission that is charged by
brokers for trading equities is 2.5% of the transaction value,
but, in practice, commissions are normally in the range of .1% to
two percent. In addition, a 0.5% stamp duty is payable.
Foreign Investment Restrictions
Investment by non-residents and foreigners in the securities
of Indian companies has been tightly controlled for many years,
although recent regulations have lifted the restrictions in
several significant respects. Foreign investment in Indian
securities is generally regulated by the FERA. Under section
29(1)(b) of the FERA, no person resident outside India and no
company that is not incorporated in India (other than a banking
company) can purchase the shares of any company carrying on any
trading, commercial or industrial activity in India without the
permission of the RBI. Also, under section 19(1)(b) and 19(1)(d)
of the FERA, the transfer and issuance of any security of an
Indian company in favor of or to a person resident outside India
requires the permission of the RBI. Under section 19(5) of the
FERA, no transfer of shares in a company registered in India by a
non-resident to a resident of India is valid unless the transfer
is confirmed by the RBI upon application filed by the transferor
or the transferee. Under guidelines issued by the RBI, the RBI
will approve such transfers if such transfer is transacted on a
stock exchange through a registered stockbroker. Furthermore, the
issuance of rights and other distributions of securities to a
non-resident also requires the prior consent of the RBI.
A variety of special facilities for making investments in
shares of Indian companies is available to individuals of Indian
nationality or origin resident outside India ("NRIs") and to
overseas corporate
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bodies ("OCBs") predominantly owned by such persons. These
facilities permit NRIs and OCBs to make portfolio investments in
shares and other securities of Indian companies on a basis not
generally available to other foreign investors.
In September 1992, the government of India issued guidelines
which enable FIIs, including institutions such as pension funds,
mutual funds, investment trusts, asset management companies,
nominee companies and incorporated/institutional portfolio
managers, to invest in all securities traded on the primary and
secondary markets in India. FIIs may invest in India for their
own accounts or for the account of clients approved by the SEBI.
Under the guidelines, FIIs are required to obtain an initial
registration from the SEBI. When it receives the initial
registration, the FII also obtains general permission from the
RBI to engage in transactions regulated under the FERA. Together,
the initial registration and RBI's general permission enable the
registered FII to buy and sell freely securities issued by Indian
companies, to realize capital gains on investments made through
the initial amount invested in India, to subscribe or renounce
rights offerings of shares, to appoint a domestic custodian for
custody of investments held, and to repatriate the capital,
capital gains, dividends, income received by way of interest, and
any compensation received towards sale or renunciation of rights
offerings of shares. As of August 11, 1997 a total of 168 FIIs
(which number does not include clients of FIIs) had been
registered.
Under the FII guidelines, there is no restriction on the
volume of investment in India by any FII and no lock-in period on
the investments. The aggregate holding of all registered FIIs
along with NRIs and OCBs in a Company, however, cannot exceed 24%
or, upon approval of the board of directors and the shareholders,
by a special resolution of such company, 30% of the issued share
capital in any Indian company. The holding of a single FII or any
client of an FII in any Indian company is also subject to a
ceiling of 10% of the company's total issued capital. The maximum
holding of 24% or 30%, as the case may be, for all non-resident
portfolio investments including those of the registered FIIs does
not, however, include foreign investments made under Indian laws
governing financial collaboration (i.e., non-portfolio
investments) or investments by FIIs through certain types of
authorized offshore funds (other than FIIs and their clients) and
offshore equity issues. More detailed provisions relating to FII
investment have been introduced recently by SEBI with the issue
of the SEBI (Foreign Institutional Investors) Regulations, 1995.
These relate to the registration of FIIs, and their general
obligations and responsibilities and impose certain investment
conditions and restrictions. One such restriction is that the
total investments in equity and equity related investments should
be not less than 70% of the aggregate of all the investments of
the FII in India. SEBI has also permitted private placement of
shares by listed companies with FIIs, subject to the prior
approval of the RBI under the FERA. Such private placements must
be made at the average of the weekly highs and lows of the
closing price over the preceding six months or the preceding two
weeks, whichever is the higher.
FIIs investing under the new scheme are subject to a
beneficial tax rate of 20% on dividend and interest income, 10%
on long-term capital gains and 30% on short-term capital gains.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions to buy and sell securities for the Fund are made by
the Investment Adviser, subject to overall review by the Fund's
Board of Directors. Portfolio securities transactions for the
Fund are placed on behalf of the Fund by persons authorized by
the Investment Adviser. The primary objective of the Investment
Adviser in placing orders for the purchase and sale of securities
for the Fund's portfolio is to obtain the most favorable net
results taking into account on a continuing basis such factors as
price, commission, size of order, difficulty of execution and
skill required of the broker. The capability and financial
condition of the broker may also be criteria for the choice of
that broker.
The Investment Adviser may place brokerage transactions
through brokers and dealers who supply market quotations to the
Fund or its agents for portfolio evaluation purposes, or who
supply brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934)
to the Fund or other accounts over which the Investment Adviser
may in the future exercise investment discretion. Such brokerage
and research services may include advice as to the value of
securities, the advisability of investing in, purchasing or
selling securities, the availability of securities or purchasers
or sellers of securities,
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and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends and portfolio
strategy. The Fund will not, in connection with portfolio
transactions with a dealer, compensate such dealer for providing
investment research or other non-execution services. Except for
implementing the policy stated above, there is no intention to
place portfolio transactions with particular brokers or dealers
or groups thereof. It is the opinion of the management of the
Fund that this information is only supplementary to the
Investment Adviser's own research effort, since the information
must still be analyzed, weighed and reviewed by the Investment
Adviser's staff. The Investment Adviser's fee under the
Investment Advisory Agreement is not reduced as a result of its
receipt of such brokerage and research services.
The Fund may place brokerage transactions through Jardine
Fleming Securities Limited, Robert Fleming Securities Limited,
Jardine Fleming India and/or their affiliates, each of which is
an affiliate of the Investment Adviser, in connection with the
purchase or sale of securities in accordance with rules or
exemptive orders adopted by the Securities and Exchange
Commission, when the Fund's Board of Directors believes that the
fees from such transactions do not exceed usual and customary
levels. In addition, under certain circumstances the Fund may
purchase securities in a placement for which Jardine Fleming
Securities Limited, Robert Fleming Securities Limited and/or
their affiliates are acting as placement agents. The Fund will
not purchase securities in transactions in which Jardine Fleming
Securities Limited, Robert Fleming Securities Limited or any
affiliate of either of them is acting as principal.
The Board of Directors reviews the commissions paid by the
Fund at regularly scheduled Board of Directors meetings to
determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits accruing to the
Fund.
The aggregate amount of brokerage commissions paid by the
Fund for the period March 3, 1994 (commencement of operations)
through November 30, 1994 and for the fiscal years ended November
30, 1995 and 1996 was $607,351, $666,742 and $1,042,916
respectively.
For the period March 3, 1994 (commencement of operations)
through November 30, 1994, the Fund paid $137,859 in brokerage
commissions to HDF Securities, (Pvt) Ltd and Jardine Fleming
India Securities (Pvt) Ltd, affiliated broker/dealers, amounting
to 22.7% of total brokerage commissions paid during the period,
and effected 19.7% of the total dollar amount of transactions
involving brokerage commissions effected during this period with
such affiliated broker/dealers. During the fiscal years ended
November 30, 1995 and 1996, the Fund paid $145,062 and $246,320,
respectively, in brokerage commissions to HDF Securities, (Pvt)
Ltd, and Jardine Fleming India Broking (Pvt) Ltd, affiliated
broker/dealers, amounting to 21.8% and 23.6%, respectively, of
total brokerage commissions paid during this period, and effected
21.0% and 16.1%, respectively, of the total dollar amount of
transactions involving brokerage commissions effected during this
period with such affiliated broker/dealers.
NET ASSET VALUE
Net asset value per share of the Fund's Common Stock is
calculated no less frequently than the close of business on
Thursday of each week in New York by dividing the value of the
Fund's net assets (the value of its assets less its liabilities,
exclusive of capital stock and surplus) by the total number of
shares of Common Stock outstanding. All securities for which
market quotations are readily available are valued at the last
sales price prior to the time of determination, or, if no sales
price is available at that time, at the closing price quoted for
the securities (but if bid and asked quotations are available, at
the mean between the last current bid and asked prices, rather
than the quoted closing price). Forward contracts are valued at
the current cost of covering or offsetting the contracts.
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. If bid and asked quotations are not
available, then over-the-counter securities are valued as
determined in good faith by the Board of Directors. In making
this determination the Board of Directors considers, among other
things, publicly available information regarding the issuer,
market conditions and values ascribed to comparable companies. In
instances in which the price determined above is deemed not to
represent fair market value, the price is determined in such
manner as the Board of Directors may prescribe. Investments in
short-term debt securities having a maturity of 60 days or less
will be valued at amortized cost if their term to maturity from
the date of
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purchase is less than 60 days, or by amortizing their value on
the 61st day prior to maturity if their term to maturity from the
date of purchase when acquired by the Fund is more than 60 days,
unless this is determined by the Board of Directors not to
represent fair value. All other securities and assets are valued
at fair value as determined in good faith by the Board of
Directors, although the actual calculation may be done by others.
In valuing the Fund's assets, quotations of foreign securities in
a foreign currency are converted to U.S. dollar equivalents at
the then current currency value. The Fund's obligation to pay any
local tax on remittances from a country in respect of its
portfolio securities becomes a liability on the record date for
such payment and has the effect of reducing the Fund's net asset
value per share.
TAXATION
The following is a summary of certain material U.S. federal
income tax considerations, and Indian and Mauritius tax
considerations, regarding the purchase, ownership and disposition
of shares in the Fund. Each prospective shareholder is urged to
consult their own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing
in the Fund. This summary is based on the laws in effect on the
date of this Prospectus, which are subject to change.
United States Federal Income Taxes
The Fund and Its Investments
The Fund intends to qualify and elect to be treated as a
regulated investment company for each taxable year under the
Internal Revenue Code of 1986 (the "Code"). To so qualify, the
Fund must, among other things: (a) derive at least 90% of its
gross income in each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale
or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains
from options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; (b) before December 1, 1997 derive less than 30% of
its gross income in each taxable year from the sale or other
disposition of (i) stock or securities held for less than three
months, (ii) options, futures or forward contracts (other than
options, futures or forward contracts on foreign currencies) held
for less than three months and (iii) foreign currencies (or
options, futures or forward contracts on such foreign currencies)
held for less than three months, but only if such currencies (or
options, futures or forward contracts) are not directly related
to the Fund's principal business of investing in stock or
securities (or options or futures with respect to stock or
securities); and (c) diversify its holdings so that, at the end
of each quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Fund's assets is represented by cash,
securities of other regulated investment companies, U.S.
government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and not greater than 10%
of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities or
securities of other regulated investment companies) of any one
issuer or any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The Fund expects that
all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.
As a regulated investment company, the Fund will not be
subject to U.S. federal income tax on the portion of its income
and gains that it distributes to its shareholders in any taxable
year in which it distributes at least 90% of its investment
company taxable income (which includes the Fund's investment
income, other than net capital gains). The Fund will, however, be
subject to tax on its income, including distributed income, for
any year in which it fails to meet the 90% distribution
requirement.
The Fund may retain for investment its net capital gains
(which consist of the excess of net long-term capital gains over
net short-term capital losses). However, if the Fund retains such
net capital gains, it will be subject to a tax of 35% on the
amount retained. In that event, the Fund expects to designate the
retained amount as undistributed capital gains in a notice to its
shareholders who (i) if subject to U.S. federal income tax on
long-term capital gains, will be required to include in income
for tax purposes, as long-term capital gain,
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their shares of such undistributed amount and (ii) will be
entitled to credit their proportionate shares of the 35% tax paid
by the Fund against their U.S. federal income tax liabilities, if
any, and to claim refunds to the extent the credit exceeds such
liabilities. Non-U.S. shareholders who are not subject to U.S.
federal income tax on net capital gains can obtain a refund of
their proportionate shares of the 35% tax paid by the Fund by
filing a U.S. federal income tax return. For U.S. federal income
tax purposes, the tax basis of shares owned by a shareholder of
the Fund will be increased (i) by an amount equal to 65% of the
amount of undistributed capital gains included in the
shareholder's gross income for all taxable years ending before
December 1, 1997 and (ii) by an amount equal to the excess of
such includible gains less the amount deemed paid by the
shareholders for all taxable periods ending on or after December 1,
1997. The Fund intends to distribute at least annually to its
shareholders substantially all of its investment company taxable
income and will determine annually whether to distribute net
capital gains. The Fund currently intends to distribute net
capital gains annually.
The Fund will be subject to a nondeductible excise tax of 4%
to the extent that it does not meet certain minimum distribution
requirements as of the end of each calendar year. The Fund
intends to make timely distributions of the Fund's income
(including any net capital gain) in compliance with these
requirements. As a result, it is anticipated that the Fund will
not be subject to the excise tax.
Exchange control regulations may restrict repatriation of
investment income and capital or the proceeds of sale of
securities by foreign investors such as the Fund and may limit
the Fund's ability to pay sufficient dividends and make
sufficient distributions to satisfy the 90% and excise tax
distribution requirements. Further, certain U.S. federal income
tax rules discussed below may cause the Fund's income for tax
purposes to be different from its income for accounting or other
purposes and, in any particular year, the Fund's income for tax
purposes may exceed the cash available for distributions. The
Fund intends, however, to borrow money or liquidate assets if
necessary to make distributions required to meet the 90% and
excise tax distribution requirements (although there can be no
assurance of success in any particular year).
For U.S. federal income tax purposes, dividends declared in
October, November or December to the holders of record as of a
specified date in such month that are actually paid in January of
the following year will be treated as if they were paid on
December 31 of the year declared. These dividends will be taxable
to shareholders in the year declared and not in the year in which
shareholders actually receive the dividend.
The Fund will maintain accounts and calculate income in U.S.
dollars. In general, gains or losses on the disposition of debt
securities denominated in a foreign currency that are
attributable to fluctuations in exchange rates between the date
the debt security is acquired and the date of disposition, gains
and losses attributable to fluctuations in exchange rates that
occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects
such receivables or pays such liabilities, and gains and losses
from the disposition of foreign currencies and foreign currency
forward contracts will be treated as ordinary income or loss.
These gains or losses increase or decrease, respectively, the
amount of the Fund's investment company taxable income available
to be distributed to its shareholders as ordinary income. The
Fund may acquire a debt security bearing interest at a high
nominal rate that takes into account potential decreases in the
value of the principal amount of the security that would result
from significant devaluations of the currency in which it is
denominated. In the case of such debt securities, the Fund would
be required to include the stated interest in income as it
accrues, but would generally realize a currency loss with respect
to principal only when the security is disposed of or the
principal amount is received. The Fund's transactions in foreign
currencies, forward contracts, options and futures contracts
(including options and futures contracts on foreign currencies)
are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by
the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders.
These provisions also (a) require the Fund to mark-to-market
certain types of positions in its portfolio (i.e., treat them as
if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution
requirements for avoiding U.S. federal income and excise taxes.
The Fund will monitor its transactions, make
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the appropriate tax elections and make the appropriate entries in
its books and records when it acquires any foreign currency,
forward contract, option, futures contract or hedged investment
in order to mitigate the effect of these rules. The Fund
anticipates that its hedging activities will not adversely affect
its regulated investment company status.
If the Fund purchases shares in certain foreign investment
entities, referred to as passive foreign investment companies
("PFICs"), the Fund may be subject to U.S. federal income tax,
and an additional charge in the nature of interest, on a portion
of any "excess distribution" from such entity or gain from the
disposition of such shares, even if the distribution or gain is
paid by the Fund as a dividend to the Fund's shareholders. If the
Fund were able to elect to treat any particular PFIC as a
"qualified electing fund," in lieu of the treatment described
above, the Fund would be required each year to include in income
and distribute to shareholders in accordance with the
distribution requirements set out above, the Fund's pro rata
share of the ordinary earnings and net capital gains of the PFIC,
whether or not distributed to the Fund. The Fund may not be able
to make a qualified electing fund election with respect to some
or all of the PFICs in which it owns stock. In lieu of either
treatment described above, the Fund may also choose to elect to
"mark to market" the shares of some or all of the PFIC's in which
it owns stock.
Certain companies in which the Fund will invest may pay
dividends in the form of additional shares of stock. Depending on
the circumstances, any such dividend may be a taxable dividend
for U.S. tax purposes, effectively increasing the amount the Fund
is required to distribute to meet the 90% and excise tax
distribution requirements, without providing the Fund with
additional cash to actually distribute. If a stock dividend is
not a taxable dividend for U.S. federal tax purposes, but
nonetheless is subject to non-U.S. withholding taxes, the ability
of a U.S. shareholder of the Fund to claim a foreign tax credit
in respect of the withholding tax may be limited. See "-- Foreign
Taxes" below.
Dividends and Distributions
Dividends of net investment income (including any
distributions of net realized short-term capital gains) are
taxable to a U.S. shareholder as ordinary income, whether paid in
cash or in shares. Distributions of net long-term capital gains,
if any, that the Fund designates as capital gains dividends are
taxable as long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has held his Fund
shares. The Fund does not anticipate that dividends and
distributions paid by the Fund will qualify for the deduction for
dividends received by corporations. Distributions in excess of
the Fund's current and accumulated earnings and profits will, as
to each shareholder, be treated as a tax-free return of capital
to the extent of a shareholder's basis in his Fund shares, and as
a capital gain to the extent the distribution exceeds the
shareholder basis, if the shareholder held his Fund shares as
capital assets.
Shareholders receiving a distribution in the form of
newly-issued shares should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the
fair market value, determined as of the distribution date, of the
shares received and should have a cost basis in each share
received equal to the fair market value of a share of the Fund on
the distribution date. Shareholders receiving a distribution in
the form of shares purchased by the Plan Agent in the open market
will be treated for U.S. federal income tax purposes as receiving
a distribution of the cash distribution that such shareholder
would have received had it not elected to have such distribution
reinvested and will have a cost basis in such shares equal to the
amount of such distribution. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of newly-issued
shares will receive a report as to the fair market value of the
shares received.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the
price of shares purchased at that time may reflect the amount of
the forthcoming distribution, those who purchase just prior to
such a distribution will receive a distribution which will
nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the
record date for any dividends payable with respect to such stock,
such dividends are included in the Fund's gross income not as of
the date received but as of the later of the date such stock
became ex-dividend with respect to such dividends (i.e., the date
on which a buyer of the stock would not be entitled to receive
the declared, but unpaid, dividends) or the date the Fund
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acquired such stock. Accordingly, in order to satisfy its
distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the
case.
Sales of Shares
Upon the sale or exchange of shares, a shareholder will
realize a taxable gain or loss equal to the difference between
the amount realized and the shareholder's basis in such shares.
Such gain or loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more
than one year and short-term capital gain or loss if the shares
are held for one year or less. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of
are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund under the
Plan, within a period of 61 days beginning 30 days before and
ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Fund share held by the shareholder for six
months or less will be treated for U.S. federal income tax
purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share.
Foreign Taxes
Income received by the Fund from sources outside the United
States may be subject to withholding and other taxes imposed by
countries other than the United States. See "-- Indian Taxes" and
"-- Mauritius Taxes" below. If the Fund qualifies as a regulated
investment company, if certain distribution requirements are
satisfied and if more than 50% of the value of the Fund's assets
at the close of the taxable year consists of stocks or securities
of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to treat as paid by its shareholders any
foreign income taxes (which excludes, among others, stamp,
securities transaction or similar taxes) paid by the Fund that
can be treated as income taxes under U.S. federal income tax
principles. The Fund anticipates that it will be able to treat
most of the foreign income taxes it will have to pay as foreign
income taxes for U.S. federal income tax purposes. The Fund
expects to qualify for and make this election in most, but not
necessarily all, of its taxable years. For any year that the Fund
makes such an election, an amount equal to the foreign income
taxes paid by the Fund that can be treated as income taxes under
U.S. federal income tax principles will be included in the income
of its shareholders and each shareholder will be entitled
(subject to certain limitations) to credit the amount included in
his income against his U.S. federal tax liabilities, if any, or
to deduct such amount from his U.S. federal taxable income, if
any. Shortly after any year for which it makes such an election,
the Fund will report to its shareholders, in writing, the amount
per share of such foreign income taxes that must be included in
each shareholder's gross income and the amount which will be
available for deduction or credit. In general, a shareholder may
elect each year whether to claim deductions or credits for
foreign taxes. However, no deductions for foreign taxes may be
claimed by noncorporate shareholders (including certain non-U.S.
shareholders as described below) who do not itemize deductions.
If a shareholder elects to credit foreign taxes, the amount of
credit that may be claimed in any year may not exceed such
shareholder's U.S. federal income tax liability attributable to
the shareholder's foreign source income. This limitation may be
applied separately to certain categories or baskets of foreign
source income and the related foreign taxes. Pursuant to recently
enacted legislation, shareholders will also only be able to
credit foreign taxes paid with respect to stock held by the Fund
that passes certain holding period requirements. Because the
source of capital gains is determined by reference to the
residence of the taxpayer, the Fund expects that capital gains
distributions to U.S. shareholders will not generally be treated
as foreign source income. As a result of these rules, certain
shareholders may not be able to claim a credit for the full
amount of their proportionate share of the foreign taxes paid by
the Fund.
Backup Withholding
The Fund may be required to withhold, for U.S. federal income
tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification
42
<PAGE>
number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may
be credited against a shareholder's U.S. federal income tax
liabilities. Additional tax withholding requirements that apply
with respect to non-U.S. investors are discussed below.
Non-U.S. Shareholders
Taxation of a shareholder who is a non-U.S. investor (i.e., a
nonresident alien individual, a foreign trust or estate, a
foreign corporation or a foreign partnership) depends, in part,
on whether the shareholder's income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the
shareholder.
If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a non-U.S. investor,
distributions of net investment income (including any net
realized short-term capital gains), will be subject to a 30% (or
lower treaty rate) U.S. federal withholding tax. Furthermore,
non-U.S. investors may be subject to an increased U.S. tax on
their income resulting from the Fund's election (described above)
to "pass through" amounts of foreign taxes paid by the Fund, but
may not be able to claim a credit or deduction with respect to
the foreign taxes treated as having been paid by them.
Distributions of net long-term capital gains, amounts retained by
the Fund which are designated as undistributed capital gains, and
gains realized upon the sale of shares of the Fund will not be
subject to U.S. federal income tax unless a non-U.S. investor is
an individual who is physically present in the United States for
more than 182 days during the taxable year and certain other
conditions are met. A determination by the Fund not to distribute
long-term capital gains may reduce a non-U.S. investor's overall
return from an investment in the Fund, since the Fund will incur
a U.S. federal income tax liability with respect to retained
long-term capital gains (thereby reducing the amount of cash held
by the Fund that is available for distribution) and the non-U.S.
investor may not be able to claim a credit or deduction with
respect to such taxes. However, if the Fund designates the
retained amounts as undistributed capital gains, as discussed
above in "-- United States Federal Income Taxes -- The Fund and
Its Investments," non-U.S. investors who are not subject to U.S.
federal income tax on net capital gains can obtain a refund of
their proportionate shares of the tax paid by the Fund by filing
a U.S. federal income tax return.
If dividends or distributions from the Fund, or gains
realized upon the sale of shares of the Fund, are effectively
connected with a U.S. trade or business carried on by a non-U.S.
investor, dividends of net investment income, distributions of
long-term capital gains, amounts retained by the Fund that are
designated as undistributed capital gains and any gains realized
upon the sale of shares of the Fund will be subject to U.S.
income tax at the rates applicable to U.S. citizens or domestic
corporations.
The value of shares of the Fund held by a non-U.S.
shareholder who is a non-resident alien individual at his death
will (subject to any applicable treaty) be includible in such
shareholder's gross estate for U.S. estate tax purposes.
In the case of a non-U.S. shareholder who is a nonresident
alien individual and who is not otherwise subject to withholding
as described above, the Fund may be required to withhold U.S.
federal income tax at the rate of 31% unless IRS Form W-8 is
provided. See "-- Backup Withholding" above.
The tax consequences to a non-U.S. shareholder entitled to
claim the benefits of an applicable tax treaty may be different
from those described in this section. Shareholders may be
required to provide appropriate documentation to establish their
entitlement to the benefits of such a treaty. Non-U.S. investors
are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively
connected with a U.S. trade or business carried on by them, (b)
whether they may claim the benefits of an applicable tax treaty
and (c) any other tax consequences to them of an investment in
the Fund.
Notices
Shareholders will be notified annually by the Fund as to the
U.S. federal income tax status of the dividends, distributions
and deemed distributions made by the Fund to its shareholders.
Furthermore,
43
<PAGE>
shareholders will also receive, if appropriate, various written
notices after the close of the Fund's taxable year regarding the
U.S. federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that
are treated as having been paid) by the Fund to its shareholders
during the preceding taxable year.
Indian Taxes
The following discussion of Indian tax laws is based on the
advice of Crawford Bayley & Co., Indian legal counsel to the
Fund. This discussion is based upon the laws of India and
regulations thereunder and is subject to any change in Indian
laws and regulations that may come into effect after the date
hereof.
Dividends received on shares of Indian companies or exempt
from tax. However, interest received on Indian securities and
gains from the disposition of Indian securities will be subject
to Indian taxes. The applicable rates will depend on whether the
Fund is entitled to concessionary rates applicable to FIIs and
whether the Fund qualifies for the benefits of the
India-Mauritius Income Tax Treaty (the "Mauritius Treaty") or the
India-United States Income Tax Treaty (the "U.S. Treaty").
Under the FII regime, capital gains realized on the
disposition of securities listed on a recognized stock exchange
in India would be subject to tax at a rate of 10% for long-term
gains and 30% for short-term gains. Gains from the disposition of
shares of Indian companies and any other security listed on a
recognized stock exchange in India or a unit of the Unit Trust of
India or of a mutual find are treated as long-term if they are
held for more than one year. Other Indian securities are treated
as long-term if they are held for more than three years. Gains
from the disposition of shares and debentures in the hands of a
non resident are first computed in the foreign currency utilized
in their initial purchase and then converted into Indian rupees.
Losses from the disposition of one security can only be used to
offset gains from the disposition of other capital assets and not
other income, and may be carried forward for eight years. Under
the FII regime, interest income from such securities would be
subject to tax at a rate of 20%. Such taxes are collectible
through withholding at source.
The Fund invests in India as a client of an FII. The Fund is
registered with the Securities and Exchange Board of India and it
has also been notified by the Central Government for purposes of
availability of the concessionary FII tax regime. The Fund is not
aware of any reason why it would be subject to tax in India on
interest and capital gains on Indian securities at rates that
differ from the rates applicable to other institutions investing
in Indian securities as clients of an FII.
The Fund also may be entitled to reduced rates of tax under
the Mauritius Treaty or the U.S. Treaty. Under the Mauritius
Treaty, no tax may be imposed on short-term or long-term gains in
India. The Fund has established a branch office in Mauritius and
makes its investments through such branch, and has obtained a
Certificate of Tax Residency from the Mauritius Commissioner of
Income Tax. If the Fund were unable to maintain a tax residence
in Mauritius (or otherwise to qualify for benefits available
under the Mauritius Treaty) the return to the Fund's investors
from its investments in securities of Indian companies could be
adversely affected.
The Fund may also be entitled to the benefits of the U.S.
Treaty. Under the U.S. Treaty, the tax imposed on the Fund's
interest income derived from Indian securities will generally be
reduced to a rate of 15%.
In the event that the Fund does not receive FII tax
treatment and is not entitled to the benefits of the Mauritius
Treaty or the U.S. Treaty, the Fund will be subject to a 48% tax
on short-term gains and on interest and a 20% tax on long-term
gains in India.
Shareholders of the Fund will not be subject to Indian tax on
dividends or capital gains distributions received from the Fund
or on capital gains realized on the sale of the Common Stock of
the Fund.
44
<PAGE>
Mauritius Taxes
The following discussion of Mauritius tax laws is based on
the advice of Collendavelloo Chambers, Mauritius legal counsel to
the Fund. This discussion is based upon the laws of Mauritius,
and the regulations thereunder, and is subject to any subsequent
change in Mauritius laws and regulations that may come into
effect after the date hereof.
The Fund has been established as an "offshore company" for
the purpose of the Mauritius Offshore Business Activities Act
1992, with the result that its income will not be subject to
income tax in Mauritius unless it elects to pay tax at a
specified rate not exceeding 35%. It is the intention of the Fund
to elect to pay tax on income distributions received from the
Fund's investments in India at a rate which, when offset by the
credits available in respect of tax withheld in India on payments
of income to the Mauritian Company, will result in a net payment
in Mauritius in respect of such distribution at a maximum rate of
1%.
Shareholders of the Fund outside of Mauritius will not be
subject to Mauritius tax on dividends or capital gains
distributions received from the Fund or on capital gains realized
on the sale of the Common Stock.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX
CONSEQUENCES AFFECTING THE FUND AND ITS SHAREHOLDERS.
SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUND.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED
- ---------
Investment Portfolio at May 31, 1997................. F-2
Statement of Assets and Liabilities at May 31, 1997.. F-6
Statement of Operations for the six months
ended May 31, 1997................................. F-7
Statement of Changes in Net Assets for the six
months ended May 31, 1997.......................... F-8
May 31, 1997
Notes to Financial Statements at May 31, 1997........ F-9
AUDITED
- -------
Investment Portfolio at November 30, 1996............ F-13
Statement of Assets and Liabilities at
November 30, 1996.................................. F-17
Statement of Operations for the year ended
November 30, 1996.................................. F-18
Statement of Changes in Net Assets for the years
ended November 30, 1995 and November 30, 1996...... F-19
Notes to Financial Statements at November 30, 1996... F-20
Financial Highlights for the period from
March 3, 1994 to November 30, 1995, for the
years ended November 30, 1995 and November 30,
1996 and for the period from November 30,
1996 to May 31, 1997.............................. F-24
Report of Independent Accountants.................... F-25
F-1
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
INVESTMENT PORTFOLIO
At May 31, 1997
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Indian Equities & Equity
Equivalents (101.7%)
Autos & Transport Equipment (15.8%)
Ashok Leyland Ltd. GDR ......... 167,500 1,245,781 1.2
Bajaj Auto Ltd. ................ 126,000 3,035,975 2.9
Hero Honda Ltd. ................ 63,000 910,440 0.9
Mahindra & Mahindra Ltd ........ 422,170 4,112,543 4.0
*Pal Peugeot Ltd. .............. 850,000 141,370 0.1
Tata Engineering and
Locomotive Co. Ltd. .......... 300,000 3,312,369 3.2
Tata Engineering and
Locomotive Co. Ltd. GDR ...... 200,000 2,550,000 2.5
TVS Suzuki Ltd. ................ 96,000 1,014,340 1.0
--------- ---------- -----
16,322,818 15.8
========= ========== =====
Banking & Financial Services (16.0%)
*Bank of Baroda Ltd. ........... 1,000,000 2,040,531 2.0
Federal Bank Ltd. .............. 83,436 190,661 0.2
Housing Development
Finance Corp. ................ 36,995 3,274,743 3.2
*Oriental Bank of Commerce ..... 1,200,000 2,524,109 2.4
State Bank of India ............ 611,750 5,245,403 5.1
*State Bank of India GDR ....... 90,000 2,306,250 2.2
20th Century Finance
Corporation Ltd. ............. 678 521 0.0
Vysya Bank Ltd. ................ 200,000 944,794 0.9
--------- ---------- -----
16,527,012 16.0
========= ========== =====
Basic Materials (5.3%)
Hindalco Industries Ltd. ....... 160,000 4,174,983 4.0
National Aluminum Ltd. ......... 1,000,000 1,292,802 1.3
--------- ---------- -----
5,467,785 5.3
========= ========== =====
Building Materials/Cement (2.6%)
Associated Cement
Companies Ltd. ............... 3,648 109,619 0.1
Gujarat Ambuja Cement Ltd. ..... 266,200 2,077,885 2.0
Gujarat Ambuja Cement Ltd. GDR . 50,000 462,500 0.5
*Jaiprakash Industries Ltd. .... 100,750 39,849 0.0
--------- ---------- -----
2,689,853 2.6
========= ========== =====
Business & Industry Services (0.5%)
NIIT Ltd. 51,400 544,172 0.5
--------- ---------- -----
Chemicals (2.9%)
BOC Ltd. ....................... 5,416 10,446 0.0
Finolex Industries Ltd. ........ 150 42 0.0
Hi-Tech Drilling
Services Ltd. ................ 300,000 415,094 0.4
Indian Petrochemicals
Corp. Ltd. ................... 600,000 2,033,543 2.0
*Indian Petrochemicals
Corp. Ltd. GDR. ................ 50,000 578,125 0.5
--------- ---------- -----
3,037,250 2.9
========= ========== =====
F-2
<PAGE>
Investment Portfolio (continued)
At May 31, 1997
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Consumer Products (9.4%)
Godrej Soaps Ltd. .............. 2,100 1,424 0.0
Hindustan Lever Ltd. ........... 309,997 9,659,515 9.4
--------- ---------- -----
9,660,939 9.4
========= ========== =====
Electronics & Components (5.8%)
Bharat Heavy Electricals Ltd. .. 450,000 5,279,874 5.1
IFB Industries Ltd. ............ 675 510 0.0
Otis Elevator Co. (India) Ltd. . 54,300 446,998 0.4
Samtel Colour Ltd. ............. 2,300 723 0.0
Unitech Ltd. ................... 166,000 284,207 0.3
Videocon International Ltd. .... 900 698 0.0
--------- ---------- -----
6,013,010 5.8
========= ========== =====
Energy (10.3%)
Bharat Petroleum Corp. Ltd. .... 150,000 1,665,618 1.6
BSES Ltd. ...................... 400,000 2,661,076 2.6
Calcutta Electric Supply
Company Ltd. ................. 4,292 4,649 0.0
Gujarat Gas Ltd. ............... 125,000 440,252 0.4
*Hindustan Oil
Exportation Ltd. ............. 10,800 10,038 0.0
Hindustan Petroleum
Corporation Ltd. ............. 399,800 4,760,721 4.6
Oil & Natural Gas
Corporation Ltd. ............. 150,000 1,092,243 1.1
--------- ---------- -----
10,634,597 10.3
========= ========== =====
Food & Beverage (0.1%)
Cadbury India Ltd. ............. 5,383 43,786 0.1
Cadbury India Ltd.-- Rights..... 1,076 4,241 0.0
Dhampur Sugar Mills Ltd. ....... 375 823 0.0
--------- ---------- -----
48,850 0.1
========= ========== =====
Hotels & Tourism (0.7%)
Bharat Hotels Ltd. ............. 165 457 0.0
East Indian Hotels Ltd. ........ 1,634 18,829 0.0
Indian Hotels Co. Ltd. ......... 40,000 676,170 0.7
--------- ---------- -----
695,456 0.7
========= ========== =====
Machinery (1.2%)
Carrier Aircon Ltd. ............ 195,000 1,231,866 1.2
========= ========== =====
Mechanical Engineering (0.7%)
Kirloskar Cummins Ltd. ......... 68,800 763,964 0.7
========= ========== =====
Media (0.6%)
*New Delhi Television Ltd.(a)... 324,335 634,618 0.6
Zee Telefilms Ltd. ............. 700 2,397 0.0
--------- ---------- -----
637,015 0.6
========= ========== =====
F-3
<PAGE>
Investment Portfolio (continued)
At May 31, 1997
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Miscellaneous Industrials (6.5%)
Larsen & Toubro Ltd. ........... 550,437 3,277,235 3.2
Larsen & Toubro Ltd. GDR........ 120,000 1,575,000 1.5
*Namaste Exports Ltd. .......... 100 12 0.0
Satyam Computer Ltd. ........... 255,524 567,831 0.6
Sundaram Fasteners Ltd. ........ 74,950 1,255,452 1.2
--------- ---------- -----
6,675,530 6.5
========= ========== =====
Paper & Packaging (0.0%)
Transpek Industry Ltd. ......... 450 1,066 0.0
========= ========== =====
Pharmaceuticals (1.0%)
Glaxo India Ltd. ............... 100,300 916,087 0.9
Kopran Pharmaceuticals Ltd. .... 28,400 126,024 0.1
Ranbaxy Laboratories Ltd. ...... 150 2,618 0.0
Wockhardt Ltd. ................. 100 588 0.0
--------- ---------- -----
1,045,317 1.0
========= ========== =====
Shipping/Marine (0.0%)
Great Eastern Shipping
Co. Ltd. ..................... 259 224 0.0
========= ========== =====
Steel (2.8%)
Essar Steel Ltd. ............... 3,663 1,254 0.0
*Jindal Iron & Steel Co. Ltd.
-- Warrants(a)............... 83,950 2,347 0.0
Saw Pipes Ltd. ................. 100 111 0.0
Tata Iron & Steel Co. Ltd. ..... 599,998 2,897,265 2.8
--------- ---------- -----
2,900,977 2.8
========= ========== =====
Telecommunications (11.1%)
Bharti Telecom Ltd. ............ 100 291 0.0
Finolex Cables Ltd. ............ 200 604 0.0
Mahanagar Telephone
Nigam Ltd. ................... 960,000 7,661,216 7.4
Videsh Sanchar Nigam
Ltd. ......................... 47,300 1,652,690 1.6
Videsh Sanchar Nigam
Ltd. GDR...................... 105,000 2,178,750 2.1
--------- ---------- -----
11,493,551 11.1
========= ========== =====
Textiles (6.1%)
Arvind Mills Ltd. .............. 968 3,375 0.0
*Century Textiles &
Industries Ltd. .............. 7 363 0.0
*Orkay Industries Ltd. ......... 4,427 507 0.0
*Parasrampuria Synthetics Ltd.
10% Cum. Conv. Pfd.(a) ....... 45,000 8,491 0.0
Reliance Industries Ltd. ....... 744,520 6,321,396 6.1
--------- ---------- -----
6,334,132 6.1
========= ========== =====
Trading/Commerce (0.0%)
*Altos India Ltd. .............. 1,300 712 0.0
========= ========== =====
F-4
<PAGE>
Investment Portfolio (continued)
At May 31, 1997
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Transport, Utilities, Services (2.3%)
*Gas Authority of India Ltd. ... 450,000 1,949,686 1.9
*Modi Luft Ltd. ................ 3,134,400 376,741 0.4
--------- ---------- -----
2,326,427 2.3
========= ========== =====
Total Indian Equities &
Equity Equivalents (101.7%)
(cost $96,612,627)........ 105,052,523 101.7
========= ========== =====
Indian Bonds (1.0%)
Chemicals (1.0%)
Indian Petrochemicals Corp.
Ltd. Convertible Bonds,
2.50%, 3/11/02 (cost
$1,023,903)................... $1,000,000 1,005,000 1.0
========= ========== =====
Total Investments (102.7%)
(cost $97,636,530)(b)..... 106,057,523 102.7
========= ========== =====
Liabilities in excess of other
assets (2.7%).................... (2,750,383) (2.7)
========= ========== =====
Net Assets (100.0%)......... 103,307,140 100.0
========= ========== =====
- --------
GDR -- Global Depositary Receipt
* Non-income producing security
(a) Fair valued security, aggregating $645,456 or 0.6% of net
assets. (See Note 2).
(b) Aggregate cost for federal income tax purposes is
substantially the same as the cost for financial statement
purposes. The aggregate unrealized appreciation
(depreciation) for all securities is as follows:
US$
Excess of market value over tax
cost............................. 19,682,269
Excess of tax cost over market
value............................ (11,261,276)
------------
Net unrealized appreciation...... 8,420,993
============
See accompanying notes to financial statements.
F-5
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
At May 31,
1997
US$
---------
(unaudited)
ASSETS
Investments at value (cost $97,636,530).............. $ 106,057,523
Cash (including Indian rupees with a value of
$236,058 and a cost of $235,837)................... 713,265
Receivable for investments sold...................... 2,177,344
Dividends and interest receivable.................... 981,621
Deferred organizational costs and other assets....... 40,972
-------------
Total Assets...................................... $ 109,970,725
=============
LIABILITIES
Loan payable......................................... $ 5,683,801
Payable for investments purchased.................... 489,243
Payable to Investment Adviser........................ 226,544
Accrued expenses and other liabilities............... 224,897
Payable to Administrators............................ 39,100
-------------
Total Liabilities................................. $ 6,663,585
=============
Net Assets........................................ $ 103,307,140
=============
Net assets consist of:
Common stock, $0.001 par value (100,000,000
shares authorized; 11,307,169 shares issued and
outstanding)....................................... $ 11,307
Additional paid-in capital........................... 152,613,867
Net investment loss.................................. (1,099,400)
Accumulated net realized loss........................ (56,580,948)
Net unrealized appreciation of investments and
other assets and liabilities denominated in
foreign currency................................... 8,362,314
-------------
Net Assets........................................ $ 103,307,140
=============
Net Asset Value Per Share ($103,307,140/11,307,169).. $ 9.14
=============
See accompanying notes to financial statements.
F-6
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
May 31, 1997
US$
(unaudited)
Investment Income
Dividends (net of foreign withholding taxes of
$31,219)............................................ 118,174
Interest.............................................. 8,103
-----------
Total Investment Income............................ 126,277
===========
Expenses
Investment advisory fees.............................. 620,482
Interest expense...................................... 177,383
Custodian and accounting fees......................... 122,890
Administration fees and expenses...................... 111,224
Directors' fees and expenses.......................... 51,624
Audit and tax service fees............................ 40,607
Reports to shareholders............................... 23,867
Legal fees............................................ 23,300
Insurance expense..................................... 13,035
New York Stock Exchange listing fee................... 12,097
Amortization of organizational costs.................. 10,609
Transfer agent fees................................... 7,817
Miscellaneous expenses................................ 10,742
-----------
Total Expenses..................................... 1,225,677
===========
Net Investment Loss................................... (1,099,400)
===========
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Loss on:
Investments......................................... (2,142,350)
Foreign currency transactions....................... (35,392)
Net Change in Unrealized Appreciation/Depreciation of:
Investments......................................... 29,438,074
Other assets and liabilities denominated in
foreign currency................................. 23,045
-----------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions................... 27,283,377
===========
Net Increase in Net Assets Resulting From Operations.. 26,183,977
===========
See accompanying notes to financial statements.
F-7
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the Year
Six Months ended
ended November 30,
May 31, 1997 1996
US$ US$
----------- ------------
(unaudited)
Increase (Decrease) in Net Assets
Operations:
Net investment loss........................... (1,099,400) (1,521,041)
Net realized loss on investments
and foreign currency transactions........... (2,177,742) (36,617,209)
Net change in unrealized appreciation/
depreciation of investments and other
assets and liabilities...................... 29,461,119 27,782,225
------------- ------------
Net increase (decrease) in net assets
resulting from operations..................... 26,183,977 (10,356,025)
============= ============
Net Assets:
Beginning of period........................... 77,123,163 87,479,188
------------- ------------
End of period................................. 103,307,140 77,123,163
============= ============
See accompanying notes to financial statements.
F-8
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
At May 31, 1997 (unaudited)
1. ORGANIZATION AND CAPITAL
Jardine Fleming India Fund, Inc. (the "Fund") was
incorporated in the State of Maryland on January 5, 1994 after
the sale of 7,169 shares to Jardine Fleming International
Management Inc. (the "Adviser") and is registered as a
non-diversified, closed-end management investment company under
the Investment Company Act of 1940. The Fund commenced operations
on March 3, 1994 after issuing 10,750,000 shares of common stock
in its initial public offering. An additional 550,000 shares were
issued in connection with the exercise of the underwriters'
over-allotment option. Offering costs of $1,061,266 have been
charged to additional paid-in capital. Organizational costs of
$135,644 have been deferred and are being amortized on a
straight-line basis over a 60-month period from the date the Fund
commenced operations.
The preparation of financial statements in accordance with
generally accepted accounting principles requires Fund management
to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
followed by the Fund, which are in conformity with generally
accepted accounting principles.
(i) Security Valuation
Net asset value is calculated at the close of business each
Thursday or the preceding business day if the Bombay Stock
Exchange is not open for trading. All securities for which market
quotations are readily available are valued at the last sales
price prior to the time of determination, or, if no sales price
is available at that time, at the mean between the last current
bid and asked prices. 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. Investments in
short-term debt securities having a maturity of 60 days or less
are valued at amortized cost, which approximates market value, or
by amortizing their value on the 61st day prior to maturity if
their term to maturity from the date of purchase is greater than
60 days. All other securities and assets are valued at fair value
as determined in good faith by or under the direction of the
Board of Directors.
(ii) Foreign Currency Translation
The books and records of the Fund are maintained in US
dollars. Foreign currency amounts are translated into US dollars
as follows:
- investments and other assets and liabilities denominated in
foreign currency at the prevailing rates of exchange on the
valuation date;
- purchases and sales of investments, income and expenses
at the prevailing rates of exchange on the respective
dates of such transactions.
The resulting net foreign currency gain or loss is included
in the Statement of Operations.
The Fund does not generally isolate that portion of the
results of operations arising as a result of changes in the
foreign currency exchange rates from the fluctuations arising
from changes in market prices of securities. Accordingly, such
foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, the Fund does
isolate the effect of fluctuations in foreign currency rates when
determining the gain (loss) upon the sale or maturity of foreign
currency denominated debt obligations pursuant to US federal
income tax regulations; such amount is categorized as foreign
currency gain or loss for both financial reporting and income tax
reporting purposes.
F-9
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Net foreign currency gain (loss) from valuing foreign
currency denominated assets and liabilities at period end
exchange rates is reflected as a component of net unrealized
appreciation of investments and other assets and liabilities
denominated in foreign currency. Net realized foreign currency
gain (loss) is treated as ordinary income for income tax
reporting purposes.
(iii) Investment Transactions and Investment Income
Investment transactions are accounted for on the date the
securities are purchased or sold (the trade date). Realized gains
and losses on the sale of investments and foreign currency
transactions are determined on the identified cost basis.
Interest income is recorded on an accrual basis. Dividend income
and other distributions are recorded on the ex-dividend date,
except for certain dividends which are recorded as soon after the
ex-dividend date as the Fund, using reasonable diligence, becomes
aware of such dividends.
(iv) Dividends and Distributions
Dividends and distributions to shareholders are recorded on
the ex-dividend date. The amount of dividends and distributions
from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles.
These "book/tax" differences are considered either 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 distributions in excess of net realized
gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as
distributions of additional paid-in capital.
3. INVESTMENT ADVISER AND ADMINISTRATORS
(i) The Adviser provides investment advisory services to the
Fund under the terms of an Investment Advisory Agreement. Under
the Investment Advisory Agreement, the Adviser is paid a monthly
fee at an annual rate of 1.35% of the value of the Fund's average
weekly net assets.
(ii) Mitchell Hutchins Asset Management Inc. (the
"Administrator"), a wholly-owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), provides administrative services to
the Fund under an Administrative Services Agreement. The Fund
pays the Administrator a monthly fee at an annual rate of 0.15%
of the value of the Fund's average weekly net assets up to $200
million and 0.10% of the value of such net assets in excess of
$200 million, with a minimum annual fee of $200,000.
Multiconsult Ltd. (the "Mauritius Administrator") provides
certain administrative services relating to the operation and
maintenance of the Fund's Mauritius branch. The Mauritius
Administrator is paid a monthly fee of $1,500, a quarterly fee of
$1,000, and receives reimbursement for certain out-of-pocket
expenses.
4. PORTFOLIO TRANSACTIONS
For the six months ended May 31, 1997, aggregate purchases
and sales of portfolio securities, excluding short-term
securities, were $17,310,032 and $20,069,821, respectively.
At May 31, 1997, the Fund owned securities valued at
approximately $6,600,000 which were in the process of being
registered in the name of the Fund. Indian securities regulations
normally preclude the Fund from selling such securities until the
completion of the registration process.
F-10
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. US FEDERAL INCOME TAXES
The Fund intends to distribute all of its taxable income and
to comply with the other requirements of the US Internal Revenue
Code applicable to regulated investment companies. Accordingly,
no provision for US federal income taxes is required. In
addition, by distributing during each calendar year substantially
all of its net investment income, realized capital gains and
certain other amounts, if any, the Fund intends not to be subject
to US federal excise tax.
At November 30, 1996, the Fund had a capital loss
carryforward of $54,255,798 ($17,537,219 of which expires in the
year 2003 and $36,718,579 of which expires in the year 2004)
available as a reduction, to the extent provided in the
regulations, of any future net realized capital gains. To the
extent that these losses are used to offset future capital gains,
such gains will not be distributed.
6. FOREIGN INCOME TAXES
The Fund invests in India through a registered branch office
established in 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 criteria and conditions including the establishment of
Mauritius tax residence and related requirements. The Fund has
obtained a tax residence certification from the Mauritian
authorities and believes such certification is determinative of
its resident status for treaty purposes. 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 is subject to a
15% withholding tax on dividends which has been provided for in
the accounts. The Fund is subject to and accrues 20% Indian
withholding tax on interest earned on Indian securities.
The Fund will pay tax in Mauritius on income distributions
received from the Fund's investments in India at rates which,
when offset by the credit available in respect of tax withheld in
India on payment of income to the Fund, will result in a net
payment in Mauritius in respect of such distributions at an
effective rate of approximately 1%. For the six months ended May
31, 1997, no provision for Mauritius taxes is considered
necessary as a result of a net investment loss incurred by the
Fund.
The foregoing is based on current interpretation and practice
and is subject to future changes in Indian or Mauritius tax laws
and in the tax treaty between India and Mauritius.
7. TRANSACTIONS WITH AFFILIATES
The Adviser, out of its advisory fee, pays PaineWebber a fee
in an amount equal to 0.10% of the Fund's average weekly net
assets in consideration for certain consulting and support
services (not including advice or recommendations regarding the
purchase or sale of investments). For the six months ended May
31, 1997, $45,962 was paid or accrued by the Adviser to
PaineWebber for such services. For the six months ended May 31,
1997, the Administrator, an affiliate of PaineWebber, earned
$99,726 in administration fees from the Fund.
For the six months ended May 31, 1997, the Fund paid
approximately $28,000 in brokerage commissions to Jardine Fleming
India Broking, (Pvt) Ltd., an affiliate of the Adviser.
The Fund has a multi-currency Revolving Credit Agreement (the
"Agreement"), payable on demand, with Robert Fleming & Co.
Limited (the "Lender"), an affiliate of the Adviser. The maximum
credit available under the Agreement is the lower of $10,000,000
or 25% of the Fund's total net assets. Interest payments on
borrowings are based on the Lender's cost of funds. For the six
months ended May 31, 1997, the weighted average interest rate
paid by the Fund was 7.36% and the maximum and average amount of
the loan outstanding during the period was $5,928,569 and
$4,991,032, respectively. For the six months ended May 31,
F-11
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1997, $38,770 was paid by the Fund to the Lender for interest
under the Agreement. At May 31, 1997, no amount was outstanding
pursuant to the Agreement.
8. LOAN AGREEMENT
The Fund has a multi-currency Revolving Credit Agreement (the
"Agreement"), payable on demand, with HSBC HK ("HSBC"). The
maximum credit available under the Agreement is the lower of
$15,000,000 or 15% of the Fund's gross asset value. Interest
payments on borrowings are based on HSBC's cost of funds. For the
six months ended May 31, 1997, the weighted average interest rate
paid by the Fund was 7.30% and the maximum and average amount of
the loan outstanding during the period was $7,506,498 and
$4,745,468, respectively. For the six months ended May 31, 1997,
$138,613 was paid or accrued by the Fund to HSBC for interest
under the Agreement. At May 31, 1997, $5,683,801 was outstanding
pursuant to the Agreement.
9. CAPITAL STOCK
There were no transactions in capital stock for the six
months ended May 31, 1997 and for the year ended November 30,
1996.
10. CONCENTRATION OF RISK
Investments in India may involve certain considerations and
risks not typically associated with investments in the US as a
result of, among other things, the possibility of future
political and economic conditions of developing countries and the
level of Indian governmental supervision and regulation of its
securities markets. The ability of the issuers of the debt
securities held by the Fund to meet their obligations may be
affected by economic and political developments in a specific
industry or region.
F-12
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
INVESTMENT PORTFOLIO
At November 30, 1996
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Equities (105.7%)
INDIA (103.2%)
Autos & Transport Equipment (19.1%)
Ashok Leyland Ltd. GDR .......... 150,000 1,293,000 1.7
Bajaj Auto Ltd. ................. 175,000 4,134,938 5.4
Hero Honda Ltd. ................. 79,400 517,367 0.6
Mahindra & Mahindra Ltd. ........ 423,152 3,426,560 4.4
Tata Engineering and
Locomotive Co. Ltd. ........... 250,200 2,216,918 2.9
Tata Engineering and
Locomotive Co. Ltd. GDR ....... 230,000 2,301,150 3.0
TVS Suzuki Ltd. ............... 96,000 833,147 1.1
--------- ---------- -----
14,723,080 19.1
========== =====
Banking & Financial Services (16.4%)
Federal Bank Ltd. ............... 213,600 678,712 0.9
Housing Development
Finance Corp. ................. 55,000 3,271,592 4.2
Karur Vysya Bank Ltd. ........... 73,000 347,731 0.4
Oriental Bank of Commerce ....... 1,000,000 2,064,670 2.7
State Bank of India ............. 611,950 3,739,028 4.8
*State Bank of India GDR ........ 90,000 1,429,200 1.9
*Sundaram Finance Ltd. .......... 5,000 41,643 0.1
20th Century Finance
Corporation Ltd. .............. 1,350 1,200 0.0
Vysya Bank Ltd. ................. 200,000 1,086,226 1.4
--------- ---------- -----
12,660,002 16.4
========== =====
Basic Materials (4.8%)
Hindalco Industries Ltd. ........ 160,000 2,634,938 3.4
National Aluminum Ltd. .......... 1,500,000 1,091,825 1.4
--------- ---------- -----
3,726,763 4.8
========== =====
Building Materials/Cement (5.0%)
Associated Cement
Companies Ltd. ................ 4,277 120,066 0.2
Gujarat Ambuja Cement Ltd. ...... 8,000 48,432 0.1
Gujarat Ambuja Cement
Ltd. GDR ...................... 460,000 3,622,500 4.7
*Jaiprakash Industries Ltd. ..... 100,800 36,403 0.0
Kajaria Ceramics Ltd. ........... 300 945 0.0
Madras Cement Ltd. .............. 15 3,659 0.0
--------- ---------- -----
3,832,005 5.0
========== =====
Business & Industry Services (0.9%)
Infosys Technologies Ltd......... 400 7,805 0.0
NIIT Ltd......................... 100,000 666,293 0.9
--------- ---------- -----
674,098 0.9
========== =====
Chemicals (3.7%)
BOC Ltd.......................... 323,675 448,542 0.6
Finolex Industries Ltd........... 4,000 1,389 0.0
F-13
<PAGE>
Investment Portfolio (continued)
At November 30, 1996
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Indian Petrochemicals
Corp. Ltd. .................... 375,000 1,125,945 1.5
Indian Petrochemicals Corp.
Ltd. GDR....................... 150,000 1,256,250 1.6
--------- ---------- -----
2,832,126 3.7
========== =====
Consumer Products (5.1%)
Godrej Soaps Ltd. ............... 4,400 4,773 0.0
Hindustan Lever Ltd. ............ 175,000 3,918,148 5.1
--------- ---------- -----
3,922,921 5.1
========== =====
Electronics & Components (3.3%)
Bharat Heavy Electricals Ltd. ... 350,000 1,915,593 2.5
IFB Industries Ltd. ............. 775 853 0.0
Otis Elevator Co. (India) Ltd. .. 50,000 358,343 0.5
Samtel Colour Ltd. .............. 2,400 941 0.0
Unitech Ltd. .................... 166,000 248,628 0.3
Videocon International Ltd. ..... 1,560 1,408 0.0
--------- ---------- -----
2,525,766 3.3
========== =====
Energy (11.3%)
Bharat Petroleum Corp. Ltd. ..... 225,000 1,713,326 2.2
BSES Ltd. ....................... 400,000 2,206,047 2.9
Calcutta Electric Supply
Company Ltd. .................. 28,992 29,422 0.0
Gujarat Gas Ltd. ................ 125,000 429,556 0.6
Hindustan Petroleum Ltd. ........ 400,000 3,586,226 4.6
NEPC Micon Ltd. ................. 300,100 136,104 0.2
Oil & Natural Gas Corporation.... 150,000 612,052 0.8
Western Paques India Ltd. ....... 100 42 0.0
--------- ---------- -----
8,712,775 11.3
========== =====
Food & Beverage (3.8%)
Brooke Bond Ltd. ................ 300,000 2,849,244 3.7
Cadbury India Ltd................ 6,850 51,202 0.1
Dhampur Sugar Mills Ltd.......... 375 462 0.0
*The Simbhaoli Sugar Mills
Ltd.-- PCD..................... 1,000 209 0.0
--------- ---------- -----
2,901,117 3.8
========== =====
Hotels & Tourism (1.0%)
Bharat Hotels Ltd................ 665 1,494 0.0
East Indian Hotels Ltd........... 2,821 29,083 0.0
Indian Hotels Co. Ltd............ 40,050 732,718 1.0
--------- ---------- -----
763,295 1.0
========== =====
Machinery (1.3%)
Carrier Aircon Ltd............... 195,000 1,019,492 1.3
========= ========== =====
Mechanical Engineering (1.0%)
Kirloskar Cummins Ltd............ 68,800 741,545 1.0
========= ========== =====
Media (0.8%)
*New Delhi Television Ltd.(a).... 324,335 635,595 0.8
Zee Telefilms Ltd. .............. 2,100 5,262 0.0
--------- ---------- -----
640,857 0.8
========== =====
F-14
<PAGE>
Investment Portfolio (continued)
At November 30, 1996
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Miscellaneous Industrials (4.7%)
Grasim Industries Ltd............ 200 2,150 0.0
Larsen & Toubro Ltd 323,500 1,938,102 2.5
*Larsen & Toubro Ltd. GDR........ 20,000 285,000 0.4
*Namaste Exports Ltd............. 200 35 0.0
Satyam Computer Ltd.............. 580,524 511,940 0.7
Sundaram Fasteners Ltd........... 50,000 853,863 1.1
--------- ---------- -----
3,591,090 4.7
========== =====
Paper & Packaging (0.0%)
Transpek Industry Ltd............ 900 1,487 0.0
========== =====
Pharmaceuticals (1.3%)
Glaxo India Ltd.................. 70,300 476,769 0.6
Kopran Pharmaceuticals Ltd....... 96,300 519,648 0.7
Ranbaxy Laboratories Ltd......... 1,300 21,855 0.0
Wockhardt Ltd.................... 1,000 5,368 0.0
--------- ---------- -----
1,023,640 1.3
========== =====
Shipping/Marine (0.0%)
Great Eastern Shipping Co. Ltd... 12,384 9,881 0.0
========== =====
Steel (2.7%)
Essar Gujarat Ltd................ 8,963 5,056 0.0
*Jindal Iron & Steel
Co. Ltd.-- Warrants (a)........ 83,950 2,350 0.0
Saw Pipes Ltd.................... 100 146 0.0
Tata Iron & Steel Co. Ltd........ 484,098 2,076,932 2.7
--------- ---------- -----
2,084,484 2.7
========== =====
Telecommunications (10.4%)
Bharti Telecom Ltd............... 200 526 0.0
Finolex Cables Ltd............... 445 1,498 0.0
Mahanagar Telephone Nigam Ltd.... 1,000,000 6,033,035 7.8
Usha Beltron Ltd................. 25,200 34,569 0.1
Videsh Sanchar Ltd............... 72,000 1,935,050 2.5
--------- ---------- -----
8,004,678 10.4
========== =====
Textiles (6.3%)
Arvind Mills Ltd................. 1,068 3,311 0.0
Century Textiles &
Industries Ltd................ 7 366 0.0
*Orkay Industries Ltd............ 19,425 2,665 0.0
*Orton Synthetics Ltd............ 200 8 0.0
*Parasrampuria Synthetics Ltd.
-- 10% Cum. Conv. Pfd.(a).. 45,000 21,920 0.0
Reliance Industries Ltd.......... 884,570 4,476,093 5.8
*Reliance Industries Ltd. GDR.... 35,000 398,125 0.5
--------- ---------- -----
4,902,488 6.3
========== =====
Trading/Commerce (0.0%)
Altos India Ltd.................. 2,500 1,977 0.0
========= ========== =====
Transport, Utilities, Services (0.3%)
Modi Luft Ltd.................... 3,134,900 267,678 0.3
========= ========== =====
F-15
<PAGE>
Investment Portfolio (continued)
At November 30, 1996
-------------------------------
% of
Value Net
Description Shares US$ Assets
- ----------- ------ --- ------
(unaudited)
Total India
(cost $100,664,259).......... 79,563,245 103.2
========== =====
PAKISTAN (0.9%)
Telecommunications (0.9%)
*Pakistan Telecommunications
GDR (cost $782,500).............. 10,000 665,000 0.9
========= ========== =====
SRI LANKA (1.6%)
Conglomerates (1.6%)
John Keells Holdings
(cost $1,076,900)................ 377,000 1,278,333 1.6
========= ========== =====
Total Equities (105.7%)
(cost $102,523,659)(b)............. 81,506,578 105.7
========== =====
Liabilities in excess of
other assets (5.7%)................ (4,383,415) (5.7)
========== =====
Net Assets (100.0%)................ 77,123,163 100.0
========== =====
GDR -- Global Depositary Receipt
GDS -- Global Depositary Security
PCD -- Partly Convertible Debentures
*Non-income producing security
(a) Fair valued security. At November 30, 1996, these securities
totaled $659,865 or 0.8% of net assets. (See Note 2).
(b) Aggregate cost for federal income tax purposes is
$102,671,067. The aggregate unrealized appreciation
(depreciation) for all securities is as follows:
US$
Excess of market value over tax
cost............................ 2,102,329
Excess of tax cost over market
value........................... (23,266,818)
------------
Net unrealized depreciation..... (21,164,489)
============
F-16
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
At November 30, 1996
US$
ASSETS
Investments at value (cost $102,523,659)........ 81,506,578
Cash (including Indian rupees with a cost and
value of $4,812)................................ 1,361,683
Dividends and interest receivable............... 1,093,727
Receivable for investment securities sold....... 495,172
Deferred organizational costs................... 48,323
Prepaid expenses................................ 16,293
-----------
Total Assets................................. 84,521,776
===========
LIABILITIES
Loan payable.................................... 5,928,569
Payable for investment securities purchased..... 823,306
Accrued expenses and other liabilities.......... 531,011
Payable to Investment Adviser................... 89,334
Payable to Administrators....................... 26,393
-----------
Total Liabilities............................ 7,398,613
===========
Net Assets................................... 77,123,163
-----------
Net Assets......................................
Net assets consist of:
Common stock, $0.001 par value
(100,000,000 shares authorized
11,307,169 shares issued and
outstanding)................................ 11,307
Additional paid-in capital.................... 152,613,867
Accumulated net realized loss................. (54,403,206)
Net unrealized depreciation of investments
and other assets and liabilities
denominated in foreign currency.............. (21,098,805)
-----------
Net Assets................................... 77,123,163
===========
Net Asset Value Per Share ($77,123,163/
11,307,169)................................... 6.82
===========
See accompanying notes to financial statements.
F-17
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF OPERATIONS
For the Year ended
November 30, 1996
US%
Investment Income
Dividends (net of withholding taxes of $273,713).... 1,608,747
Interest (net of withholding taxes of $11,951)...... 84,586
------------
Total Investment Income............................... 1,693,333
============
Expenses
Investment advisory fees............................ 1,321,378
Custodian and accounting fees....................... 662,373
Interest expense.................................... 447,415
Legal fees.......................................... 253,015
Administration fees and expenses.................... 222,660
Directors' fees and expenses........................ 90,960
Audit and tax services fees......................... 56,490
Reports to shareholders............................. 47,350
Insurance expense................................... 28,512
New York Stock Exchange listing fee................. 24,260
Amortization of organizational costs................ 21,333
Transfer agent fees................................. 13,946
Miscellaneous expenses.............................. 24,682
------
Total Expenses...................................... 3,214,374
============
Net Investment Loss................................. (1,521,041)
============
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Loss on:
Investments......................................... (36,098,188)
Foreign currency transactions....................... (519,021)
Net Change in Unrealized Appreciation/Depreciation
of:
Investments......................................... 27,736,969
Other assets and liabilities denominated in
foreign currency.................................. 45,256
------------
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions......................... (8,834,984)
============
Net Decrease in Net Assets Resulting From Operations.. (10,356,025)
============
See accompanying notes to financial statements.
F-18
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Year For the Year
ended ended
November 30, 1996 November 30, 1995
----------------- -----------------
US$ US$
Increase (Decrease) in Net Assets
Operations:
Net investment loss.................... (1,521,041) (1,827,184)
Net realized loss on investments
and foreign currency transactions..... (36,617,209) (17,693,377)
Net change in unrealized
appreciation/depreciation of
investments and other assets
and liabilities denominated
in foreign currency................... 27,782,225 (65,150,405)
----------- -----------
Net decrease in net assets
resulting from operations............... (10,356,025) (84,670,966)
=========== ===========
Distributions to Shareholders:
From net realized gain
on investments....................... -- (1,355,399)
In excess of net realized
gain on investments.................. -- (792,963)
-- --------
Total distributions................ -- (2,148,362)
=========== ===========
Capital Share Transactions:
Adjustment to additional
paid-in capital...................... -- 13,734
-- ------
Net increase in capital share
transactions........................... -- 13,734
== ======
Net Decrease In Net Assets............... (10,356,025) (86,805,594)
Net Assets:
Beginning of year...................... 87,479,188 174,284,782
----------- -----------
End of year............................ 77,123,163 87,479,188
=========== ===========
See accompanying notes to financial statements.
F-19
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
At November 30, 1996
1. ORGANIZATION AND CAPITAL
Jardine Fleming India Fund, Inc. (the "Fund") was
incorporated in the State of Maryland on January 5, 1994 after
the sale of 7,169 shares to Jardine Fleming International
Management Inc. (the "Adviser") and is registered as a
non-diversified, closed-end management investment company under
the Investment Company Act of 1940. The Fund commenced operations
on March 3, 1994 after issuing 10,750,000 shares of common stock
in its initial public offering. An additional 550,000 shares were
issued in connection with the exercise of the underwriters'
over-allotment option. Offering costs of $1,061,266 have been
charged to additional paid-in capital. Organizational costs of
$135,644 have been deferred and are being amortized on a
straight-line basis over a 60-month period from the date the Fund
commenced operations.
The preparation of financial statements in accordance with
generally accepted accounting principles requires Fund management
to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
followed by the Fund, which are in conformity with generally
accepted accounting principles.
(i) SECURITY VALUATION
Net asset value is calculated at the close of business on
Thursday of each week or the preceding business day if the Bombay
Stock Exchange is not open for trading. All securities for which
market quotations are readily available are valued at the last
sales price prior to the time of determination, or, if no sales
price is available at that time, at the mean between the last
current bid and asked prices. 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.
Investments in short-term debt securities having a maturity of 60
days or less are valued at amortized cost, which approximates
market value, or by amortizing their value on the 61st day prior
to maturity if their term to maturity from the date of purchase
is greater than 60 days. All other securities and assets are
valued at fair value as determined in good faith by or under the
direction of the Board of Directors.
(ii) FOREIGN CURRENCY TRANSLATION
The books and records of the Fund are maintained in US
dollars. Foreign currency amounts are translated into US dollars
as follows:
- investments and other assets and liabilities denominated in
foreign currency at the prevailing rates of exchange on the
valuation date;
- purchases and sales of investments and income and expenses
at the prevailing rates of exchange on the respective dates
of such transactions.
The resulting net foreign currency gain or loss is included
in the Statement of Operations.
The Fund does not generally isolate that portion of the
results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes
in the market prices of the securities held at period end.
Accordingly, such foreign currency gain (loss) is included in net
realized and unrealized gain (loss) on investments. However, the
Fund does isolate the effect of fluctuations in foreign currency
rates when determining the gain (loss) upon the sale or maturity
of foreign currency denominated debt obligations pursuant to US
federal income tax regulations.
F-20
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Net foreign currency gain (loss) from valuing foreign
currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized
depreciation on investments and other assets and liabilities
denominated in foreign currency.
Net realized foreign currency losses of $519,021 represent
foreign currency gains and losses from holdings of foreign
currencies, sales and maturities of foreign debt securities,
transactions in foreign currencies, currency gains or losses
realized between the trade and settlement dates on security
transactions, and the difference between the amounts of interest
and dividends recorded on the Fund's books and the US dollar
equivalent of the amounts actually received or paid.
(iii)Investment Transactions and Investment Income
Investment transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses on
the sale of investments are determined on the identified cost
basis. Interest income is recorded on an accrual basis. Dividend
income and other distributions are recorded on the ex-dividend
date, except for certain dividends which are recorded as soon
after the ex-dividend date as the Fund becomes aware of such
dividends.
(iv) Dividends and Distributions
Dividends and distributions to shareholders are recorded on
the ex-dividend date. The amount of dividends and distributions
from net investment income and net realized capital 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 distributions in excess of net realized
gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as
distributions of additional paid-in capital. As a result of
permanent book/tax differences, $2,040,062 has been reclassified
from accumulated net investment loss to additional paid-in
capital relating to the net investment and net realized foreign
currency loss during the year ended November 30, 1996. Net assets
were not affected by this reclassification.
3. INVESTMENT ADVISER AND ADMINISTRATORS
(i) The Adviser provides investment advisory services to the
Fund under the terms of an Investment Advisory Agreement. Under
the Investment Advisory Agreement, the Adviser is paid a monthly
advisory fee at an annual rate of 1.35% of the value of the
Fund's average weekly net assets.
(ii) Mitchell Hutchins Asset Management Inc. (the
"Administrator"), a wholly-owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), provides administrative services to
the Fund under an Administrative Services Agreement. The Fund
pays the Administrator a monthly fee at an annual rate of 0.15%
of the value of the Fund's average weekly net assets up to $200
million and 0.10% of the value of such net assets in excess of
$200 million, with a minimum annual fee of $200,000.
Multiconsult Ltd. (the "Mauritius Administrator") provides
certain administrative services relating to the operation and
maintenance of the Fund's Mauritius branch. The Mauritius
Administrator is paid a monthly fee of $1,500, a quarterly fee of
$1,000, and receives reimbursement for certain out-of-pocket
expenses.
F-21
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. PORTFOLIO TRANSACTIONS
For the year ended November 30, 1996, aggregate purchases and
sales of portfolio securities, excluding short-term securities,
were $79,628,827 and $81,045,153, respectively.
At November 30, 1996, the Fund owned securities valued at
approximately $9,300,000 which were in the process of being
registered in the name of the Fund. Indian securities regulations
normally preclude the Fund from selling such securities until the
completion of the registration process.
5. US FEDERAL INCOME TAXES
It is the Fund's intention to qualify as a regulated
investment company and to distribute, at least annually,
substantially all of its net investment income and any net
capital gains. Accordingly, no provision for US federal income
taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, the Fund intends
not to be subject to US federal excise tax.
At November 30, 1996, the Fund had a capital loss
carryforward of $54,255,798 ($17,537,219 of which expires in the
year 2003 and $36,718,579 of which expires in the year 2004),
available as a reduction, to the extent provided in the
regulations, of any future net realized capital gains. To the
extent that these losses are used to offset future capital gains,
such gains will not be distributed.
6. FOREIGN INCOME TAXES
The Fund invests in India through a registered branch office
established in 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 tax residence certification from the Mauritian
authorities and believes such certification is determinative of
its resident status for treaty purposes. 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 is subject to a
15% withholding tax on dividends which has been provided for in
the accounts. The Fund is subject to and accrues 20% Indian
withholding tax on interest earned on Indian securities.
The Fund will pay tax in Mauritius on income distributions
received from the Fund's investments in India at rates which,
when offset by the credit available in respect of tax withheld in
India on payment of income to the Fund, will result in a net
payment in Mauritius in respect of such distributions at an
effective rate of approximately 1%. For the year ended November
30, 1996, no provision for Mauritius taxes is considered
necessary as a result of a net investment loss incurred by the
Fund.
The foregoing is based on current interpretation and practice
and is subject to any future changes in Indian or Mauritius tax
laws and in the tax treaty between India and Mauritius.
7. TRANSACTIONS WITH AFFILIATES
The Adviser, out of its advisory fee, pays PaineWebber a fee
in an amount equal to 0.10% of the Fund's average weekly net
assets in consideration for certain consulting and support
services (not including advice or recommendations regarding the
purchase or sale of investment securities). For the year ended
November 30, 1996, $97,880 was paid or accrued by the Adviser to
PaineWebber for such services. For the year ended November 30,
1996, the Administrator, which is an affiliate of PaineWebber,
earned $200,000 in administration fees from the Fund.
F-22
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
For the year ended November 30, 1996, the Fund paid $226,208
and $2,854 in brokerage commissions to Jardine Fleming India
Broking, (Pvt) Ltd. and Jardine Fleming Securities Ltd,
respectively, affiliates of the Adviser.
The Fund has a multi-currency Revolving Credit Agreement (the
"Agreement"), payable on demand, with Robert Fleming & Co.
Limited (the "Lender"), an affiliate of the Adviser. The maximum
credit available under the Agreement is the lower of $10,000,000
or 25% of the Fund's total net assets. Interest payments on
borrowings are based on the Lender's cost of funds. For the year
ended November 30, 1996, the weighted average interest rate paid
by the Fund was 7.18% and the maximum and average amount of the
loan outstanding during the year was $9,839,521 and $8,008,941,
respectively. For the year ended November 30, 1996, $241,069 was
paid or accrued by the Fund to the Lender for interest under the
Agreement. At November 30, 1996, $5,928,569 was outstanding
pursuant to the Agreement.
In addition, the Fund has a multi-currency Revolving Credit
Agreement ("Credit Agreement") payable on demand, with Jardine
Fleming Bank Limited ("JF Bank"), an affiliate of the Adviser.
The maximum credit available under the Credit Agreement is the
lower of $15,000,000 or 20% of the Fund's total assets. Interest
payments on borrowings are based on 1.75% per annum over JF
Bank's cost of funds. During the year ended November 30, 1996,
the weighted average interest rate paid by the Fund was 5.83% and
the maximum and average amount of the loan outstanding during the
year was $13,267,318 and $5,748,214, respectively. During the
year ended November 30, 1996, $206,346 was paid by the Fund to JF
Bank for interest under the Credit Agreement. At November 30,
1996, no amount was outstanding pursuant to the Credit Agreement.
8. CONCENTRATION OF RISK
Investments in India may involve certain considerations and
risks not typically associated with investments in the US as a
result of, among others, the possibility of future political and
economic conditions of developing countries and the level of
Indian governmental supervision and regulation of its securities
markets. The ability of the issuers of the debt securities held
by the Fund to meet their obligations may be affected by economic
and political developments in a specific industry or region.
9. CAPITAL STOCK
There were no transactions in common stock for the years
ended November 30, 1996 and 1995.
F-23
<PAGE>
JARDINE FLEMING INDIA FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding
throughout each period is presented below.
For the
Six Months For the Year
ended ended
May 31, 1997 November 30, 1996
------------- -----------------
US$ US$
(unaudited)
Net asset value, beginning of
period............................ 6.82 7.74
Offering costs charged to
additional paid-in capital........ -- --
------ ------
6.82 7.74
====== ======
Income (Loss) from Investment
Operations:
Net investment loss............. (0.10) (0.14)
Net realized and unrealized
gain (loss) on investments
and other assets and
liabilities denominated
in foreign currency............ 2.42 (0.78)
------ ------
Total from investment
operations................. 2.32 (0.92)
====== ======
Distributions to Shareholders:
From net realized gain
on investments................ -- --
In excess of net realized gain
on investments................ -- --
------ ------
Total distributions to
Shareholders............... -- --
====== ======
Net Asset Value, End of Period.... 9.14 6.82
====== ======
Market Price, End of Period....... 8.75 6.375
====== ======
Total Investment Return based
on :(a)(b)
Net asset value................. 34.02% (11.89)%
Market price.................... 37.25% (29.17)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted).......... $ 103,307 $ 77,123
Ratio of expenses to average
net assets.................... 2.67%+ 3.28%
Ratio of expenses to average
net assets, excluding
interest expense.............. 2.28+ 2.83
Ratio of net investment loss
to average net assets......... (2.39)+ (1.55)
Portfolio turnover rate......... 18% 81%
Average commission rate
paid per share of common
stock investments purchased/
sold(c)....................... $ 0.0291 $ 0.0297
For the Period
For the Year March 3, 1994*
ended through
November 30, 1995 November 30, 1994
----------------- -----------------
US$ US$
(unaudited)
Net asset value, beginning of
period............................ 15.41 13.95**
Offering costs charged to
additional paid-in capital........ -- (0.10)
------ ------
15.41 13.85
====== ======
Income (Loss) from Investment
Operations:
Net investment loss............. (0.16) (0.08)
Net realized and unrealized
gain (loss) on investments
and other assets and
liabilities denominated
in foreign currency............ (7.32) 1.64
------ ------
Total from investment
operations................. (7.48) 1.56
====== ======
Distributions to Shareholders:
From net realized gain
on investments................ (0.12) --
In excess of net realized gain
on investments................ (0.07) --
------ ------
Total distributions to
Shareholders............... (0.19) --
====== ======
Net Asset Value, End of Period.... 7.74 15.41
====== ======
Market Price, End of Period....... 9.00 13.75
====== ======
Total Investment Return based
on :(a)(b)
Net asset value................. (48.96)% 11.26%
Market price.................... (33.48)% (1.43)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted).......... $ 87,479 $174,285
Ratio of expenses to average
net assets.................... 2.90% 2.29%+
Ratio of expenses to average
net assets, excluding
interest expense.............. 2.35 --
Ratio of net investment loss
to average net assets......... (1.38) (0.75)+
Portfolio turnover rate......... 49% 32%
Average commission rate
paid per share of common
stock investments purchased/
sold(c)....................... $ -- $ --
- ----------
* Commencement of operations.
** Initial public offering price of $15.00 per share net of
underwriting discount of $1.05 per share.
+ Annualized.
(a) Total investment return is calculated assuming a purchase of
common stock on the opening of the first day and a sale on
the closing of the last day of each period reported.
Dividends and distribution, 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 sales charges or
brokerage commissions. Generally, total investment return
based on net asset value will be higher than total
investment return based on market price in periods where
there is an increase in the discount or a decrease in the
premium of the market price to the net asset value from the
beginning to the end of such periods. Conversely, total
investment return based on net value will be lower than
total investment return based on market value in periods
where there is a decrease in the discount or an increase in
the premium of the market value to the net asset value from
the beginning to the end of such periods.
(b) Total investment return for a period of less than one year
is not annualized.
(c) Disclosure effective for fiscal years beginning on or after
September 1, 1995.
See accompanying notes to financial statements.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Jardine Fleming India Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the investment portfolio, 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 Jardine Fleming India Fund, Inc. (the
"Fund") at November 30, 1996, 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 two years in the period then ended and
for the period March 3, 1994 (commencement of operations) through
November 30, 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 November 30,
1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 10, 1997
F-25
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Audited
(i) Portfolio of Investments, November 30, 1996;
(ii) Statement of Assets and Liabilities, November 30, 1996;
(iii) Statement of Operations for the fiscal year ended
November 30, 1996;
(iv) Statement of Changes in Net Assets for the fiscal years
ended November 30, 1995 and November 30, 1996;
(v) Financial Highlights for the fiscal years ended November
30, 1995 and November 30, 1996, for the period ended May 31, 1997
and for the period March 3, 1994 through November 30, 1994;
(vi) Notes to Financial Statements at November 30, 1996;
(vii) Report of Independent Accountants, dated January 10, 1997.
(b) Unaudited
(i) Statement of Assets and Liabilities, May 31, 1997;
(ii) Statement of Operations for the six months ended May 31, 1997;
(iii) Statement of Changes in Net Assets for the six months ended
May 31, 1997;
(iv) Portfolio of Investments, May 31, 1997;
(v) Notes to Financial Statements at May 31, 1997.
(2) Exhibits
(a) -- Articles of Incorporation (incorporated by reference to
the Fund's Registration Statement on Form N-2 (33-74004;
811-8284), Exhibit (a), filed on January 12, 1994)
(b) -- By-Laws (incorporated by reference to the Fund's
Registration Statement on Form N-2 (33-74004; 811-8284),
Exhibit (b), filed on January 12, 1994)
(c) -- Not Applicable
(d)(1) -- Specimen certificate of Common Stock par value $0.001
per share (incorporated by reference to Amendment No. 2 to
the Fund's Registration Statement on Form N-2 (33-74004;
811-8284), Exhibit (d), filed on March 2, 1994)
(2) -- Form of Subscription Certificate*
(3) -- Form of Notice of Guaranteed Delivery*
(4) -- Form of DTC Participant Oversubscription
Exercise Form*
(5) -- Form of Nominee Holder Oversubscription Exercise
Form*
(6) -- Form of Beneficial Owner Certification*
(e) -- Form of Dividend Reinvestment Plan (incorporated by
reference to Amendment No. 2 to the Fund's Registration
Statement on Form N-2 (33-74004; 811-8284), Exhibit (c),
filed on March 2, 1994)
(f) -- Not applicable
(g) -- Form of Investment Advisory and Management Agreement
between the Fund and Jardine Fleming International
Management Inc. ("JFIM") (incorporated by reference to
Amendment No. 2 to the Fund's Registration Statement on Form
N-2 (33-74004; 811-8284), Exhibit (g), filed on March 2,
1994)
(i)
<PAGE>
(h) -- Form of Dealer Manager Agreement among the Fund, JFIM and
PaineWebber Incorporated*
(i) -- Not applicable
(j)(1) -- Form of Custodial Services Agreement between the Fund
and Citibank, N.A., Bombay Branch (incorporated by reference
to Amendment No. 2 to the Fund's Registration Statement on
Form N-2 (33-74004; 811-8284), Exhibit (j)(A), filed on
March 2, 1994)
(2) -- Form of Custodial Services Agreement between the Fund and
Citibank, N.A., Hong Kong Branch (incorporated by reference
to Amendment No. 2 to the Fund's Registration Statement on
Form N-2 (33-74004; 811-8284), Exhibit (j)(B), filed on
March 2, 1994)
(3) -- Form of Custodial Services Agreement between the Fund and
Barclays Bank plc (incorporated by reference to Amendment
No. 2 to the Fund's Registration Statement on Form N-2
(33-74004; 811-8284), Exhibit (j)(C), filed on March 2,
1994)
(k)(1) -- Form of Registrar, Transfer Agency and Service
Agreement between the Fund and State Street Bank and Trust
Company (incorporated by reference to Amendment No. 2 to the
Fund's Registration Statement on Form N-2 (33-74004;
811-8284), Exhibit (k)(A), filed on March 2, 1994)
(2) -- Administrative Services Agreement between the Fund and
Mitchell Hutchins Asset Management Inc. (incorporated by
reference to Amendment No. 1 to the Fund's Registration
Statement on Form N-2 (33-74004; 811-8284), Exhibit (k)(B),
filed on February 9, 1994)
(3) -- Form of Accounting Services Agreement between the Fund
and PFPC Inc. (incorporated by reference to Amendment No. 2
to the Fund's Registration Statement on Form N-2 (33-74004;
811-8284), Exhibit (k)(C), filed on March 2, 1994)
(4) -- Form of Mauritian Administration Agreement between the
Fund and Multiconsult, Ltd. (incorporated by reference to
Amendment No. 2 to the Fund's Registration Statement on Form
N-2 (33-74004; 811-8284), Exhibit (d)(D), filed on March 2,
1994)
(5) -- Revolving Credit Agreement between the Fund and Jardine
Fleming Bank Limited*
(l) -- Opinion and consent of Maryland counsel*
(m) -- Not applicable
(n)(1) -- Consent of Price Waterhouse LLP, independent
accountants*
(2) -- Consent of Cleary, Gottlieb, Steen & Hamilton*
(3) -- Consent of Crawford Bayley & Co*
(4) -- Consent of Mauritius Counsel*
(5) -- Consent of BVI Counsel*
(o) -- Not applicable
(p) -- Not applicable
(q) -- Not applicable
(r) -- Financial Data Schedule*
---------------
* to be filed by amendment
Item 25. Marketing Arrangements
See Section of the Dealer Manager Agreement to be filed as
Exhibit (h) hereto.
(ii)
<PAGE>
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be
incurred in connection with the Offer described in this
Registration Statement.
Registration fees............................... $ *
New York Stock Exchange listing fee............. *
Printing (other than stock certificates)........ *
Engraving and printing stock certificates....... *
Fees and expenses of qualification under state
securities *
laws (including fees of counsel)..............
Accounting fees and expenses.................... *
Dealer Manager expense reimbursement............ *
Information Agent's fees and expenses........... *
Subscription Agent's fees and expenses.......... *
Legal fees and expenses......................... *
Travel and related out-of-pocket expenses....... *
Miscellaneous................................... *
---
Total........................................... *
===
- ----------
*to be completed by amendment.
Item 27. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 28. Number of Holders of Securities
As of May 31, 1997:
Title of Class Number of Registered Holders
-------------- ----------------------------
Common Stock, $0.001 par
value......................... 142
Item 29. Indemnification
Under Registrant's Articles of Incorporation and Bylaws, the
directors and officers of Registrant will be indemnified to the
fullest extent allowed and in the manner provided by Maryland law
and applicable provisions of the Investment Company Act of 1940,
including by advancing expenses incurred in connection therewith.
Indemnification shall not be provided, however, to any officer or
director against any liability to the Registrant or its security
holders to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office.
Section 2-418 of the General Corporation Law of the State of
Maryland, the state in which the Fund is organized, empowers a
corporation, subject to certain limitations, to indemnify its
directors, officers, employees and agents against expenses
(including attorney's fees, judgments, penalties, fines and
settlements) actually and reasonably incurred by them in
connection with any suit or proceedings to which they are a party
so long as they acted in good faith or without active and
deliberate dishonesty, or they received no actual improper
personal benefit in money, property or services, or, with respect
to any criminal proceeding, so long as they had no reasonable
cause to believe their conduct to have been unlawful.
The form of Investment Advisory and Management Agreement
filed as Exhibit (g) to the Registration Statement contains
provisions requiring indemnification of the Registrant's
investment adviser by the Registrant. The form of Dealer Manager
Agreement filed as Exhibit (h) hereto contains provisions
requiring indemnification of the Registrant's dealer manager by
the Registrant.
(iii)
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted
to directors, officers and controlling persons of the Fund
pursuant to the foregoing provisions or otherwise, the Fund has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Fund of expenses incurred or paid
by a director, officer or controlling person of the Fund in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the Fund will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Registrant is fulfilling the requirement of this Item 30 to
provide a list of the executive officers and director of JFIM,
together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by
those entities or those of their respective executive officers
and directors during the past two years, by incorporating by
reference the information contained in the Form ADV filed by JFIM
with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (SEC File No. 810-41622 (order
dated June 3, 1992)).
Item 31. Location of Accounts and Records
Jardine Fleming India Fund, Inc.
c/o Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
U.S.A.
(Registrant's Articles of Incorporation and By-Laws)
Jardine Fleming International Management, Inc.
47/F, Jardine House
1 Connaught Place
Central
Hong Kong
(with respect to its services as the Adviser)
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
U.S.A.
(with respect to its services as the Administrator)
Multiconsult, Ltd.
Les Jamalacs, Vieux Conseil Street
Port Louis
Mauritius
(with respect to its services as Mauritius Administrator
for the Fund)
Citibank, N.A., Hong Kong Branch
Citibank Plaza
3 Garden Road
Hong Kong
(with respect to its services as Custodian for the Fund's
assets outside of India)
(iv)
<PAGE>
Citibank, N.A., Bombay Branch
Sakhar Bhaian
Nauman Point
Bombay 400 021
India
(with respect to its services as Custodian of the Fund's
assets in India)
State Street Bank & Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
U.S.A.
(with respect to its services as the Registrar, Transfer
Agent & Dividend Paying Agent)
Item 32. Management Services
Not applicable
Item 33. Undertakings
(1) Registrant undertakes to suspend offering its shares
until it amends its prospectus contained herein if (1) subsequent
to the effective date of its Registration Statement, the net
asset value declines more than 10 percent from its net asset
value as of the effective date of this Registration Statement, or
(2) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus contained herein.
(2) Registrant hereby undertakes that:
(a) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by Registrant under 497(h) under the Securities Act of
1933 shall be deemed to be part of the Registration Statement
as of the time it was declared effective; and
(b) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) Registrant undertakes to send by first class mail or
other means designed to ensure prompt delivery, within two
business days of receipt of a written or oral request, the
Statement of Additional Information filed as part of this
Registration Statement.
(v)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in Hong Kong on the
7th day of October, 1997.
JARDINE FLEMING INDIA FUND, INC.
By /s/ Julian M.I. Reid
-----------------------------
Julian M.I. Reid
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Julian M.I.
Reid, with full power to act without the other, his true and
lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this
Registration Statement, and file the same, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratify and
conforming all that said attorney-in-fact and agent or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registrant's Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Julian M.I. Reid Director and October 7, 1997
- -------------------------------- President
Julian M.I. Reid
/s/ Jean Jocelyn de Chasteauneuf Director October 7, 1997
- --------------------------------
Jean Jocelyn de Chasteauneuf
Director
- --------------------------------
Ashok V. Desai
/s/ Timothy R.H. Kimber Director October 3, 1997
- --------------------------------
Timothy R.H. Kimber
/s/ E.L. Rene Noel Director October 7, 1997
- --------------------------------
E.L. Rene Noel
/s/ Brian S. Shlissel Treasurer and October 6, 1997
- -------------------------------- Secretary
Brian S. Shlissel
/s/ Stephanie Kleinman Assistant October 6, 1997
- -------------------------------- Treasurer
Stephanie Kleinman
(vi)
