Advantage Advisers, Inc.
The India Fund, Inc.
Semi-Annual Report
June 30, 2001
THE INDIA FUND, INC.
Investment Manager:
Advantage Advisers, Inc., a wholly
owned subsidiary of CIBC World
Markets Corp.
Administrator:
CIBC World Markets Corp.
Sub-Administrator:
PFPC, Inc.
Transfer Agent:
The Bank of New York
Custodian:
Deutsche Bank AG
The India Fund, Inc.
The India Fund, Inc.
August 1, 2001
Dear Fund Shareholder,
We are pleased to present you with the unaudited financial statements of The
India Fund, Inc. (the "Fund") for the semi-annual period ended June 30, 2001. In
the following pages, the Fund's Investment Manager provides a detailed look at
the Fund's sector allocations and investments, as well as the economic and
market conditions in India for the six months ended June 30, 2001.
The Fund's net asset value (NAV) declined (24.5%) during the six months ended
June 30, 2001, underperforming both its benchmark, IFC Investable Index, which
fell (17.4%) and the Dollex Index of 200 leading Indian stocks, which dropped
(18.8%) during the period.
The overall market environment was extremely volatile in India during the
six-month period. Although the February announcement of the Budget boosted
investors' confidence briefly, reports of two scandals - the first revealing
manipulation of the stock market and the second involving some prominent
government officials - brought the positive sentiment to an abrupt halt.
In addition to the market fallout which resulted from the scandals, the Indian
economy continued to suffer from last year's dry monsoon season. Growth in gross
domestic product (GDP) decreased for the reporting period, compared with the
comparable period last year, due largely to the decline in agricultural
production, which had repercussions throughout the Indian economy. Furthermore,
weak business investment spending contributed to the slowdown.
The Investment Manager believes, however, that the Indian market environment can
improve in the coming months, if an appropriate catalyst can help to begin the
turnaround. An improvement in the U.S. and global economies, a resumption in
IT-related spending, a favorable monsoon season, and further reductions in
interest rates have the potential to boost the nation's economy and its equity
market. Also, the Investment Manager believes the government can build the
nation's economic infrastructure and attract foreign investors by renewing its
focus on the goals of reform and privatization.
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THE INDIA FUND, INC.
In addition, the Investment Manager views the current valuations for most Indian
equities as extremely attractive now, because of the large amount of discounting
which has occurred over the past six months.
On behalf of the Board of Directors, we thank you for your participation and
continued support of the Fund. If you have any questions, please do not hesitate
to call our toll-free number, (800) 421-4777.
Sincerely,
/s/ Bryan McKigney
Bryan McKigney
President and Secretary
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THE INDIA FUND, INC.
Report of the Investment Manager
For the Six Months Ended June 30, 2001
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OVERVIEW OF INDIA'S STOCK MARKET
India's stock market continued to struggle during the first six months of 2001,
impacted by domestic scandals, slowing growth in gross domestic product (GDP),
and the effects of the faltering U.S. equity markets. The Dollex Index of
India's 200 leading stocks declined (18.8%) for the year, while the IFC Index,
the Fund's benchmark, fell (17.4%). Among non-Japan Asian markets, only
Singapore performed worse during the six-month period. On the bright side, as a
result of the discounting of share prices that followed the recent negative
news, we believe that Indian equities now trade with very little downside
exposure.
The Sensex, India's major stock market index, ended the second quarter trading
in a range between 2,700 and 3,000, which, in our opinion, appears to be its
technical support level, based on its performance over the last six years. We
believe that valuations look extremely compelling for Indian equities, relative
to both their historical performance and their peers in Asia. According to
I/B/E/S International Inc., a global financial information services and
technology company, the consensus forecast for the Indian market through the
second quarter of 2002 estimates earnings-per-share growth at +23% and forecasts
the price-to-earnings ratio at 9x.
We believe the Indian market is currently in a position to take advantage of
several possible developments which we feel can be positive catalysts in the
near term. If there is an end to the decline in spending on information
technology (IT), especially in the U.S., India's growing software industry
stands to benefit. Also, a favorable start to the monsoon season already makes
this year seem much better than 2000 was for agriculture. Thus, a resumption in
worldwide IT spending and a return to agricultural profitability can, in our
opinion, ignite a revival in the Indian economy. Furthermore, we believe that a
renewed effort by the Indian government to reform the nation's economic
structure is likely to contribute to further gains in growth. We also believe
that a smooth transition to a rolling settlement system for equity trading (see
below) can increase investors' confidence in the integrity of the Indian stock
market.
On July 2, 2001, the Securities Exchange Board of India (SEBI) launched a
completely overhauled
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Fund Updates
The Fund's toll-free phone number, (800) 421-4777, provides callers with a
recorded monthly update of the markets in which the Fund invests. It also offers
details about the Fund, its portfolio and performance. The Fund's net asset
value (NAV) is calculated weekly and published in The Wall Street Journal every
Monday under the heading "Closed End Funds." The Fund's NAV is also published in
Barron's on Saturdays and in The New York Times on Sundays. The Fund is listed
on the New York Stock Exchange under the ticker symbol IFN.
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THE INDIA FUND, INC.
settlement system for the equity market, abolishing the antiquated carry-forward
system. The new rolling settlement system, which is combined with the
international system of futures and options, establishes in India standards for
trade settlement in line with the more developed stock markets throughout the
world. We expect that, at first, the new system is likely to result in lower
daily traded volumes, since local speculators can no longer trade in and out of
the market without settling their trades promptly. On the other hand, we expect
that the new system will eventually enable greater transparency, which we see as
a positive factor for the long-term health of the Indian equity market.
Furthermore, since foreign investors are familiar with this type of settlement
system, we believe that its implementation will make them feel more comfortable
investing in India.
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POLITICS
The year got off to a promising start. The government announced the 2001-2002
Budget, which included a number of exciting initiatives designed to boost
foreign investment into the country, to further the privatization of a number of
state-owned entities, and to reduce the budget deficit. Unfortunately, the
positive impact of the Budget on investor sentiment was short-lived, because two
separate developments - the first involved criminal manipulation of the stock
market and the second a political bribery scandal - erupted within a few weeks
of the Budget announcement, overshadowing the effect of its reform-oriented
strategy.
In early March, India's security markets regulator, SEBI, launched an
investigation into the practices of more than 20 high-profile Indian brokers
whose actions had caused the agency to suspect market manipulation. The
investigation led to the resignation of the President of the Bombay Stock
Exchange (BSE). Further investigation resulted in the arrest of one influential
broker, Ketan Parekh, on charges that he had colluded with a large bank to
defraud brokers in Calcutta. The broker's alleged malfeasance led to a crisis in
payments at the Calcutta Stock Exchange (CSE) which was only resolved after the
CSE invoked Rs 750 million in bank guarantees to meet the shortfall.
In our opinion, SEBI's response to the scandal was quick and effective. The
agency promptly banned short sales, increased margin requirements, and
ultimately introduced the rolling settlement system, attempting to rectify the
situation. Although the recent criminal activity was not as severe as previous
acts of market manipulation (such as the "market scam" of 1992), we believe that
in its handling of this issue, SEBI has demonstrated its seriousness in trying
to raise the integrity of the Indian equity market to internationally accepted
standards.
The second development which damaged investor sentiment in the period was a
bribery scandal involving some prominent political figures. Just a few weeks
after the stock market incident, a local news portal conducted a "sting"
operation, with journalists posing as arms dealers, attempting to sell their
wares to members of the Indian Defense Ministry. Captured on videotape were
senior members of the ruling Bhartiya Janata Party (BJP) and the Samata Party
accepting bribes for agreeing to make purchases. Although at first many analysts
thought the government could fall because of the
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THE INDIA FUND, INC.
incident, in the end, only one party, the Trinamul Congress, withdrew from the
National Democratic Alliance (NDA), the ruling coalition of parties. (In India,
political parties band together as coalitions in order to strengthen their
collective voting power.) The withdrawal of the Trinamul Congress cost the NDA
only nine seats (from 297 to 288) and did not threaten the coalition's majority.
The rest of the BJP's allies pledged to continue supporting the government.
Quick action by the BJP - including several high-end resignations and the
appointment of a commission to investigate the corruption charges - contained
the damage, but there were still some negative effects. We believe that the
victories by the ruling party's opposition in the states of Kerala and Assam in
mid-May demonstrate that the BJP's mandate has been weakened by the bribery
incident. Unfortunately for investors, with its authority undermined, the BJP is
likely to face added difficulty in its attempts to enact fiscally necessary (but
unpopular) structural reforms.
The scandals involving the stock market and the Defense Ministry were both
instrumental in damaging market sentiment during the second quarter of 2001.
Although, by the start of the third quarter, the Sensex Index had rebounded from
its April lows, negative fallout from the scandals continued to affect
investors' confidence. The established momentum for reform was lost when the
government was forced to shift its attention to coping with the crises. On the
other hand, we believe that, although the incidents of the past few months did
set back the government's reform efforts, the government continues to make
progress towards its goals. We expect that the government will be able to return
to its agenda of positive reform during the second half of 2001.
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ECONOMY
India's economy slowed significantly over the fiscal year ended March 31, 2001.
(At the time of writing, later figures were not yet available.) For the fiscal
year, India's reported real GDP expanded 5.2% year-over-year, falling below the
government's initial estimate of 6%. Moreover, the economy saw only 3.8%
reported growth in GDP, year-over-year during the three months ended March 31,
2001, making it one of the weakest quarters in several years.
A major culprit for the lower-than-expected GDP growth was agricultural
production, which expanded a reported 0.2% during the fiscal year ended March
31, 2001, falling short of the 0.7% growth reported for the previous fiscal
year. We attribute the decreased growth in agricultural production to 2000's
poor monsoon season (June through September) which produced one of the lowest
rainfalls in eight years. Not surprisingly, agricultural incomes reportedly fell
(9%) in nominal terms during the fiscal year ended March 31, 2001. Since
agriculture employs almost two-thirds of India's entire work force, and it
accounts for approximately 25% of GDP, disappointing output and declining
incomes in the sector are likely to have negative repercussions for the entire
Indian economy.
A second disappointing factor was investment spending by businesses, which
continued to be too weak to meet India's GDP growth needs. Although the global
slowdown in spending for IT and
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THE INDIA FUND, INC.
related industries contributed to the lagging GDP growth, we believe the
nation's economy remains generally insulated from the effects of worldwide
trends; exports, for example, accounted for only 9% of India's GDP for the
fiscal year ended March 2001. (Despite the worldwide downturn in IT-related
spending, India's overall exports managed to grow 20% to $44.1 billion during
the recently ended fiscal year.)
We believe that India's sluggish investment spending in the recent past results
from domestic issues, specifically the inflexibility and distortion which stem
from excessive control by the state. We also believe that the nation's relative
lack of privatized industries discourages many would-be foreign investors. The
average annualized growth rate for India's foreign direct investment (FDI)
inflows have ranged from approximately 2.5% to 3% over the past five years.We
believe that if the government focuses on accelerating the growth in FDI inflows
for the future, it can achieve its targeted GDP growth rate of 8% per year
during 2000-2010. In our opinion, if the government returns to its mission of
structural reform, focusing on asset privatization, India could become a more
attractive destination for foreign money.
India's Central Bank, the Reserve Bank of India (RBI) has responded to the
sluggish economy by reducing interest rates to near historic lows. Since the
beginning of 2001, the key interest rate has been reduced twice, ending the
second quarter at 7%. Similarly, the Cash Reserve Requirement (the funds that
banks are legally required to hold in reserve) has also been brought down to
7.5% as of June 30, 2001. We anticipate that interest rates are likely to be
brought down further, since we believe that inflation and currency valuation
appear to pose no economic problems for the near term. The overall inflation
rate averaged between 5% and 5.5% during the fiscal year ended March 31, 2001,
below its historical average of between 7% and 13%.
The rupee (Rs), meanwhile, has remained firm, trading around 46 to 47 rupees to
the U.S. dollar, far stronger than in the past when the rupee's normalized rate
of depreciation averaged approximately 6.5% per year.
On the other hand, we view the public sector's high debt levels, both at the
federal and state levels, as an obstacle to near-term economic growth. Although
the government successfully brought the fiscal deficit down to its forecasted
level of 5.2% of GDP for the recently ended fiscal year, its progress may not be
enough to achieve the degree of economic relief required to strengthen the
economy. The Finance Minister's stated objective as reported is to lower the
fiscal deficit gradually every year, targeting a level of 2.5% of GDP for 2005.
Our outlook for the Indian economy appears much brighter for several reasons.
Increasingly, it appears to us that the global economy is close to "bottoming
out," and may start seeing a rise in growth as early as the fourth quarter of
2001. Domestically, while we view the pace of recovery from the recent political
crises as gradual, we believe the Indian government will eventually be in a
position to regain the structural reform momentum that had been evident earlier
in the year.
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THE INDIA FUND, INC.
Furthermore, an auspicious start to 2001's monsoon season bodes well for a
recovery in agricultural production, as well as in consumer demand.
Over the next year, we expect the government to follow through on its pledge to
privatize state-owned assets. Analysts forecast that the telecommunications
sector and the airline industry are likely to be among the first
government-owned entities to become fully privatized. They also project that the
government will deregulate certain industries, such as oil refining, which we
believe has the potential to be almost fully deregulated by April 2002. This
combination of a cyclical upturn and structural initiatives lead us to believe
that the Indian economy may be capable of achieving stronger growth through the
fiscal year ending March 2002.
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PERFORMANCE
The net asset value (NAV) of The India Fund, Inc. (the "Fund") declined (24.5%)
during the six months ended June 30, 2001. The Fund underperformed both the
Dollex Index of 200 leading Indian stocks, which dropped (18.8%) during the
period, and the IFC Investable Index, the Fund's benchmark, which fell (17.4%)
during the same period.
Despite a reduction in the Fund's holdings in Information Technology (IT) during
the six-month period, the portfolio remained overweighted in the sector,
relative to its benchmark. The Fund's overweighting in IT, a notably volatile
sector during this period, negatively impacted its relative performance.
In addition to the woes of the Indian IT sector, the Fund had been burdened with
a legal restriction which had barred it from investing in almost any bank stock.
This legal restriction was imposed on the Fund because of the affiliation
between the Fund's country adviser in India and the Indian Government. Since the
banking sector sharply outperformed the IFC Investable Index (the Fund's
benchmark) during the first half of 2001, the restriction was especially costly
in terms of relative performance. Going forward, this restriction will no longer
apply to the Fund, since the Fund has terminated its agreement with the country
adviser.
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PORTFOLIO STRATEGY
During the first half of 2001, the Fund sold some of its smaller-capitalization
holdings in the Computer Software & Programming sector, to consolidate into
top-tier, high-quality IT companies. Yet, as noted above, despite selling some
of its holdings in IT, the Fund remains overweighted in the sector, relative to
its benchmark, the IFC Investable Index.
Although we believe Indian software companies cannot escape the effects of the
current slowdown in global IT spending, we continue to believe that the industry
has a superior long-term growth outlook because of its sustainable cost
competitiveness, scalable business model, and expanding geographical reach.
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THE INDIA FUND, INC.
During the six months ended June 30, 2001, the Fund also reduced its weightings
in Telecommunications and Pharmaceuticals, while adding modestly to positions in
selected equities in the Consumer Non-Durables sector.
Given the favorable start to this year's monsoon season, we anticipate an
increase in consumer spending which can benefit consumer products companies.
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KEY SECTOR HOLDINGS
% of Net Assets
Sector June 30, 2001 Top Holdings in Sector
------------------------------- --------------- ------------------------
Computer Software & Programming 17.9% Infosys Technologies
Satyam Computer Services
Consumer Non-Durables 14.6% Hindustan Lever
ITC
Petroleum Related 14.0% Reliance Industries
Pharmaceuticals 13.5% Ranbaxy Laboratories
Dr. Reddy's Laboratories
Vehicles 6.0% Punjab Tractors
COMPUTER SOFTWARE & PROGRAMMING
Although down sharply from last year's levels of portfolio weighting, Computer
Software & Programming continued to be the Fund's highest-weighted sector in the
first half of 2001. Concern over the slowdown in global IT spending led most
analysts to revise downward their short-term estimates for projected earnings
across the sector, dampening its short-term outlook. Nevertheless, we believe
the medium- to longer-term outlook remains solid for this sector. India's top
software companies continue to add new customers while reducing costs. Most
Indian software companies continue to operate according to the business model of
offering high-quality service at competitive rates.
Infosys Technologies continues to be the Fund's top holding overall as well as
its top holding in the Computer Software & Programming sector. Infosys announced
impressive results for the fiscal year ended March 31, 2001; its reported
earnings of Rs 6.28 billion represented a 114% increase over the Rs 2.9 billion
in earnings reported in the preceding fiscal year. Revenue growth was also
impressive, reportedly surging 115% to Rs 19 billion from Rs 8.8 billion in the
preceding fiscal year.
Satyam Computer Services also announced excellent results for the recently-ended
fiscal year; reported earnings for the 12 months ended March 31, 2001 rose 135%
to Rs 3.1 billion from Rs 1.3 billion in the year-earlier period. Likewise,
revenues reportedly increased 81% to Rs 12.2 billion from Rs 6.7 billion in the
previous fiscal year. Despite worries about a slowdown in global IT spending,
especially in the U.S., Satyam's management stated in an announcement that they
remain "cautiously optimistic" about the company's growth prospects for the
current fiscal year.
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THE INDIA FUND, INC.
CONSUMER NON-DURABLES
Consumer Non-Durables continues to be a key sector for the Fund. Although
India's domestic consumer demand has been disappointing over the year ended June
30, 2001, companies such as Hindustan Lever and ITC Ltd. have been able to
compensate for slowing demand by raising prices and improving operating
efficiency. We also anticipate that a normal monsoon season, which appears
possible for 2001, will benefit these companies during the current fiscal year.
Hindustan Lever, 51% owned by Unilever Plc, announced that net profits rose 31%
to Rs 3.4 billion from Rs 2.6 billion during the three months ended March 2001.
(The company's fiscal year ends in December.) Sales growth for the last fiscal
year, however, was negatively impacted by 2000's drought, which spread to eight
of India's 28 states, depressing rural incomes. Fortunately for investors,
cost-cutting and increased efficiency helped the company weather the drop in
consumer spending.
ITC Ltd., which is 38% owned by BAT Industries Plc, announced that its fiscal
year 2001, which ended March 31, 2001, saw net profits rise 27% to a reported Rs
10 billion, up from Rs 7.9 billion reported in the previous fiscal year.
Although sales growth for the fiscal year rose only 10% to a reported Rs 42
billion, the company augmented its revenues with price increases on all of its
cigarette brands. First, in November 2000, ITC raised average prices between 3%
and 20% and then in March 2001, the company again raised average prices by 10%
to 20%. ITC's second price increase followed a 15% increase in the excise duty
on cigarettes, which was announced in February as part of the 2001-02 Budget.
PETROLEUM RELATED
The Fund's position in the Petroleum Related sector consists largely of one
company, Reliance Industries. Its stock price has outperformed the market during
the first six months of 2001, rising 9%, in contrast to the Sensex Index, which
declined (13%) during the period. For the fiscal year ended March 31, 2001,
earnings reportedly rose 10% to Rs 26.5 billion from Rs 24 billion reported in
the previous fiscal year. Reported revenue grew by 52%, to Rs 204.3 billion in
the fiscal year ended March 31, 2001 up from Rs 133.8 billion in the previous
fiscal year. This company's recent growth is especially noteworthy since it came
at a time when the rising prices of key raw material inputs (such as naphtha)
pressured profit margins and intense competition within the industry kept prices
low.
PHARMACEUTICALS
We see Pharmaceuticals in India as an exciting growth sector. Several of the
companies we identify as industry leaders are increasing their research and
development expenditures, making themselves globally competitive for the first
time, and seeking out new export opportunities. We believe that the
Pharmaceuticals sector is second only to Software in terms of the opportunities
it offers for growth. In Pharmaceuticals, as with Software, we see comparative
advantages in India, such as a
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THE INDIA FUND, INC.
large pool of talented scientists available at lower cost than in the West,
coupled with a huge domestic market which together give the nation significant
potential to become a strong competitor in the global drug market.
Dr. Reddy's Laboratories remains a sizable holding for the Fund. The company
announced stellar results for the fiscal year ended March 31, 2001, with
reported revenues rising 25% to nearly Rs 9 billion from Rs 7.17 billion in the
previous year. Net profit soared a reported 55% to Rs 1.3 billion from Rs 870
million as reported in the year-earlier period. In early April of 2001, Dr.
Reddy's Laboratories completed a highly successful American Depositary Receipt
(ADR) offering in the United States, raising approximately US$132.8 million.
Ranbaxy Laboratories, another significant holding for the Fund, is also highly
focused on research and development, with ambitious growth plans. In its most
recently reported earnings results, Ranbaxy announced that net profit for the
three months ended March 31, 2001 surged 47% to Rs 574 million from Rs 391
million reported for the year-earlier period. The company also reported 19%
growth in revenues during the three-month period, to Rs 4.5 billion up from Rs
3.7 billion reported for the comparable year-earlier period.
VEHICLES
The Fund maintains a significant weighting in the Motor Vehicles sector, and
almost half of the Fund's holdings in this sector are in Punjab Tractors. Many
of the Indian Motor Vehicle companies have initiated major cost-cutting
programs, which have helped preserve margins in the face of severe pricing
pressure and rising competition from imports. Punjab Tractors announced that,
for the fiscal year ended March 31, 2001, net profit declined (15%) to Rs 1.12
billion, compared with Rs 1.33 billion reported in the year-earlier period. The
company's results were adversely affected by 2000's severe drought conditions in
parts of India, which cut into farmers' incomes. However, our outlook for the
company is greatly improved through the fiscal year ending March 31, 2002, since
the monsoon season appears to have begun with normal rainfall levels.
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OUTLOOK
Looking ahead, since prices on the Indian equity market have already been
discounted for most of the bad news reported over the past few months, we
believe that there is limited downside risk at the current levels. We believe
our view is supported by both long-term technical charts of the Sensex Index
(which is near what we identify as its lowest level) as well as by our study of
the historic behavior of individual Indian equities over long-term cycles.
For the second half of 2001, we identify five possible developments, each of
which has the potential to become a positive catalyst for the Indian equity
market, if it were to occur: (1) an improvement in both the U.S. economy and the
global economies which may lead to foreign investment inflows;
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THE INDIA FUND, INC.
(2) a resumption in IT-related spending worldwide, which can boost Indian IT
exports; (3) a favorable monsoon season, which seems likely, given the positive
start to the season; (4) falling domestic interest rates; and (5) a renewed
focus by the government on structural reforms. Given the battering endured by
the Indian equity market during the first half of 2001, we believe that recovery
is possible during the second half, provided one or more of these catalysts,
which we consider likely, can occur.
At the time this report went to print, the Indian market was dealing with
another potential market risk. Several officials at the Unit Trust of India
(UTI), India's biggest money manager, were arrested on allegations of defrauding
the US64 Fund of millions of dollars. In response to the arrests, UTI announced
it would temporarily prohibit shareholders from taking redemptions from its
largest fund, US64, for approximately six months starting in early July. UTI, a
state-run institution, is India's largest mutual fund manager with reported
total assets under management of approximately US$12.3 billion as of June 30,
2001 and an investor base of approximately 41 million. While it had been widely
known that UTI was borrowing to meet its obligations for redemptions, and that
the US64's net asset value was significantly below the redemption price (Rs
14.25 per share), the announcement nevertheless came as a shock. We believe that
the confidence of India's small investors was damaged by UTI's suspension of
redemptions.
It is difficult to forecast the outcome of the situation with UTI, since it is
still developing. Yet, we increasingly expect that UTI will work out a plan to
lift the freeze before it is scheduled to end, at least in part. We anticipate
that UTI will probably use credit extensions granted by state-owned banks. As
with the stock market scandal, the UTI situation highlights India's need to
continue with its process of reforming its institutions and bringing their level
of operation up to modern, international standards.
For the Indian Financial Services industry, we see a "silver lining" to UTI's
problems. We believe that the current situation is likely to fuel the
development of India's small but growing private mutual fund business, adding a
much wider diversity of offerings, and trimming the influence of the massive
US64 Fund in the marketplace.
Punita Kumar-Sinha
Portfolio Manager
June 30, 2001
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THE INDIA FUND, INC.
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Share Repurchase Program
The Board of Directors of the Fund previously authorized the Fund to repurchase
from time to time in the open market up to 3,000,000 shares of the Fund's common
stock. The Fund's Board of Directors directed management to repurchase the
Fund's shares at such times and in such amounts as management believes will
enhance shareholder value, subject to review by the Fund's Board of Directors.
Supplementally, in February 2001, the Board of Directors authorized the Fund to
repurchase up to an additional 1,000,000 shares of the Fund's common stock,
bringing to 4,000,000 the aggregate number of shares authorized for repurchase.
During the six-month period ended June 30, 2001, the Fund repurchased 295,000
shares of its common stock. (For details regarding shares repurchased by the
Fund, see Note E to the financial statements.)
In accordance with the Board's directions, the Fund may from time to time
repurchase additional shares of its common stock in the open market.
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THE INDIA FUND, INC.
Schedule of Investments June 30, 2001
(Unaudited)
INDIA (100% of holdings)
COMMON STOCKS (99.7% of holdings)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Cement 2.44%
1,324,498 Associated Cement Companies Ltd .................. $ 3,448,238 $ 3,840,594
611,766 Gujarat Ambuja Cements Ltd ....................... 2,552,357 2,409,869
1,462,700 India Cements Ltd ................................ 2,340,844 981,041
15,762 Madras Cements Ltd+ .............................. 1,748,155 1,430,592
47,840 Panyam Cements and Mineral Industries Ltd+ ....... 481,082 87,717
443,630 Shree Cement Ltd+ ................................ 947,396 296,602
-------------- ---------------
11,518,072 9,046,415
-------------- ---------------
Chemicals 0.08%
50 Atul Products Ltd ................................ 93 15
846,600 BOC Ltd+ ......................................... 1,072,264 288,859
-------------- ---------------
1,072,357 288,874
-------------- ---------------
Computer Hardware 0.53%
187,400 Digital Equipment (India) Ltd .................... 1,613,747 1,984,552
-------------- ---------------
1,613,747 1,984,552
-------------- ---------------
Computer Software & Programming 18.21%
500 DSQ Software Ltd ................................. 3,379 642
599,942 Infosys Technologies Ltd ......................... 1,923,474 47,971,765
5,420,179 Satyam Computer Services Ltd ..................... 1,318,776 19,640,083
1,300 Silverline Technologies Ltd ...................... 4,371 1,714
-------------- ---------------
3,250,000 67,614,204
-------------- ---------------
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THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Computer Training 2.41%
865,240 NIIT Ltd ........................................ $ 5,448,429 $ 7,015,360
296,400 SSI Ltd ......................................... 2,550,818 1,930,633
-------------- ---------------
7,999,247 8,945,993
-------------- ---------------
Consumer Miscellaneous 1.34%
849,088 Bata India Ltd .................................. 3,914,352 618,224
196,800 Timex Watches Ltd+ .............................. 140,800 37,653
1,705,200 Zee Telefilms Ltd ............................... 10,395,022 4,317,375
-------------- ---------------
14,450,174 4,973,252
-------------- ---------------
Consumer Non-Durables 14.88%
179,567 Godfrey Philips India Ltd+ ...................... 3,109,433 1,274,605
7,412,110 Hindustan Lever Ltd ............................. 24,210,174 32,357,075
1,348,084 ITC Ltd+ ........................................ 23,096,564 21,635,544
-------------- ---------------
50,416,171 55,267,224
-------------- ---------------
Diversified Industries 4.32%
876,502 Grasim Industries Ltd ........................... 7,242,689 5,600,184
175 HMG Industries Ltd+* ............................ 359 4
1,744 Indian Rayon and Industries Ltd ................. 6,451 2,951
1,947,031 Larsen & Toubro Ltd ............................. 12,651,344 9,095,665
115,800 Larsen & Toubro Ltd GDR+ ........................ 1,030,876 1,186,950
79,000 Sterlite Industries (India) Ltd+ ................ 261,112 172,141
-------------- ---------------
21,192,831 16,057,895
-------------- ---------------
14
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Electricity 0.00%
54 CESC Ltd+ ....................................... $ 342 $ 19
150 Tata Power Company Ltd .......................... 797 415
-------------- ---------------
1,139 434
-------------- ---------------
Electronics & Electrical Equipment 3.30%
478,483 Alstom Power India Ltd+ ......................... 1,169,492 352,963
3,130,963 Bharat Heavy Electricals Ltd .................... 14,374,279 11,741,111
703,943 KEC International Ltd ........................... 1,681,056 154,137
49 Siemens India Ltd ............................... 1,083 211
-------------- ---------------
17,225,910 12,248,422
-------------- ---------------
Engineering 0.66%
458,026 Asea Brown Boveri Ltd ........................... 5,343,518 2,432,290
2 Lakshmi Machine Works Ltd ....................... 394 30
-------------- ---------------
5,343,912 2,432,320
-------------- ---------------
Extractive Industries 3.85%
468,655 Hindalco Industries Ltd ........................ 8,557,252 8,313,047
6,319,900 Hindustan Zinc Ltd+ ............................. 2,776,617 2,492,223
100 Indian Aluminium Company Ltd .................... 572 187
2,773,050 National Aluminium Company Ltd .................. 3,515,181 3,481,050
600 Sesa Goa Ltd+ ................................... 4,568 635
-------------- ---------------
14,854,190 14,287,142
-------------- ---------------
Fertilizers 0.09%
135,400 Aventis Cropscience India Ltd ................... 2,074,205 331,304
7,700 Chambal Fertilizers and Chemicals Ltd+ .......... 5,977 1,883
870 Hind Lever Chemicals Ltd ........................ 9,431 2,848
15
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Fertilizers (continued)
1,750 Nagarjuna Fertilizers and Chemicals Ltd $ 1,911 $ 244
50 Southern Petrochemicals Industries Corporation Ltd 43 8
-------------- ---------------
2,091,567 336,287
-------------- ---------------
Finance 0.21%
100 Bank of Baroda .................................. 191 119
176,000 HDFC Bank Ltd++ ................................. 920,876 787,959
50 ICICI Ltd++ ..................................... 105 76
2,300 Oriental Bank of Commerce ....................... 2,099 1,763
-------------- ---------------
923,271 789,917
-------------- ---------------
Food 1.98%
82,000 Britannia Industries Ltd+ ....................... 1,166,352 1,083,223
167,726 Cadbury India Ltd ............................... 2,044,743 1,466,711
310,888 Nestle India Ltd ................................ 3,409,848 3,687,830
250,000 Rahul Dairy and Allied Products+* ............... 79,643 6,643
50 Tata Tea Ltd+ ................................... 539 196
553,300 United Breweries Ltd ............................ 3,044,238 1,122,714
-------------- ---------------
9,745,363 7,367,317
-------------- ---------------
Hotels & Leisure 0.00%
121 Indian Hotels Company Ltd+ ...................... 1,976 512
-------------- ---------------
1,976 512
-------------- ---------------
Household Appliances 0.00%
100 IFB Industries Ltd+ ............................. 97 4
500 Phil Corporation Ltd ............................ 1,366 106
200 Samtel Color Ltd+ ............................... 395 69
16
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Household Appliances (continued)
450 Videocon Appliances Ltd ......................... $ 2,629 $ 80
519 Videocon International Ltd ...................... 951 270
250 Voltas Ltd ...................................... 507 216
-------------- ---------------
. 5,945 745
-------------- ---------------
Media 0.84%
255,500 Mukta Arts Ltd+ ................................. 886,952 798,709
1,061,100 Pentamedia Graphics Ltd ......................... 3,826,241 1,826,021
550,000 Pritish Nandy Communications Ltd+ ............... 2,152,749 447,226
18,350 Television Eighteen India Ltd ................... 227,472 26,604
250,000 Vans Information Ltd+ ........................... 573,395 37,203
-------------- ---------------
7,666,809 3,135,763
-------------- ---------------
Packaging 0.03%
282,630 Flex Industries Ltd+ ............................ 347,596 122,569
500 Universal Prime Aluminium+* ..................... 789 26
-------------- ---------------
348,385 122,595
-------------- ---------------
Petroleum Related 14.22%
53,271 Bharat Petroleum Corporation Ltd ................ 213,795 212,790
1,204,086 Chennai Petroleum Corporation Ltd ............... 2,000,806 628,408
433,360 Gas Authority of India Ltd+ ..................... 445,753 596,976
2,628,578 Hindustan Petroleum Corporation Ltd ............. 17,929,786 8,834,570
820 Indian Petrochemicals Corporation Ltd ........... 1,740 893
5,413,887 Reliance Industries Ltd ......................... 25,629,922 42,526,174
-------------- ---------------
46,221,802 52,799,811
-------------- ---------------
17
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Pharmaceuticals 13.72%
132,500 Cadila Healthcare Ltd ........................... $ 759,748 $ 262,662
456,237 Cipla Ltd+ ...................................... 4,008,053 11,088,770
1,790,000 Dabur India Ltd ................................. 1,496,133 2,347,853
420,540 Dr. Reddy's Laboratories Ltd .................... 3,347,389 14,395,717
303,927 E. Merck (India) Ltd ............................ 1,802,398 2,235,518
48,951 Glaxo (India) Ltd ............................... 398,546 329,098
246,101 Hoechst Marion Roussel Ltd ...................... 2,448,421 2,060,782
1,600 IPCA Laboratories Ltd ........................... 4,950 2,126
734,000 Morepen Laboratories Ltd ........................ 2,165,168 1,490,157
200 Orchid Chemicals & Pharmaceuticals Ltd .......... 677 337
50 Parke-Davis (India) Ltd+ ........................ 506 169
1,110,397 Ranbaxy Laboratories Ltd ........................ 12,004,361 11,358,908
28,976 Rhone-Poulenc (India) Ltd ....................... 539,170 272,882
423,300 Sun Pharmaceutical Industries Ltd+ .............. 967,042 4,679,337
65,769 Sygenta India Ltd+ .............................. 129,803 66,342
147,683 Torrent Pharmaceuticals Ltd ..................... 1,365,096 366,068
-------------- ---------------
31,437,461 50,956,726
-------------- ---------------
Steel 2.75%
6,010 Essar Steel Ltd+ ................................ 23,144 504
4,145,876 Tata Iron and Steel Company Ltd ................. 16,478,859 10,206,047
-------------- ---------------
16,502,003 10,206,551
-------------- ---------------
Steel Products 0.16%
487,650 Bharat Forge Ltd ................................ 2,078,001 578,981
-------------- ---------------
2,078,001 578,981
-------------- ---------------
18
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Telecommunications 5.51%
3,400,000 Hughes Tele.com Ltd+ ............................ $ 880,259 $ 683,036
3,300,500 Mahanagar Telephone Nigam Ltd ................... 17,981,127 8,858,166
1,077,140 Videsh Sanchar Nigam Ltd ........................ 7,637,055 7,319,468
266,106 Videsh Sanchar Nigam Ltd ADR .................... 6,067,762 3,603,075
-------------- ---------------
32,566,203 20,463,745
-------------- ---------------
Telecommunications Equipment 1.06%
300 Bhagyanagar Metals Ltd+ ......................... 724 341
700,653 Himachal Futuristic Communications Ltd+ ......... 6,419,024 1,319,682
1,358,600 Shyam Telecom Ltd ............................... 8,955,126 1,818,110
112,000 Sterlite Optical Technologies Ltd+ .............. 1,625,836 807,619
-------------- ---------------
17,000,710 3,945,752
-------------- ---------------
Textiles - Cotton 0.05%
36 Arvind Mills Ltd+ ............................... 133 6
100 H.P. Cotton Textile Mills Ltd+ .................. 233 8
500,000 Pantaloon Fashions (India) ...................... 495,392 191,326
-------------- ---------------
495,758 191,340
-------------- ---------------
Textiles - Synthetic 0.00%
300 Haryana Petrochemicals Ltd+* .................... 343 6
-------------- ---------------
343 6
-------------- ---------------
Transportation 0.45%
2,232,484 Great Eastern Shipping Company Ltd+ ............. 1,669,954 1,547,172
174,900 South East Asia Marine
Engineering and Construction Ltd+ ............... 1,132,008 131,250
-------------- ---------------
2,801,962 1,678,422
-------------- ---------------
19
THE INDIA FUND, INC.
Schedule of Investments (continued) June 30, 2001
(Unaudited)
COMMON STOCKS (continued)
Number Percent of
of Shares Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Utilities 0.00%
487,650 Bharat Forge Utilities Ltd+* .................... $ -- $ --
-------------- ---------------
.................................................................. -- --
-------------- ---------------
Vehicle Components 0.46%
982,005 Cummins India Ltd ............................... 2,264,076 1,061,542
125 FAG Bearings (India) Ltd ........................ 334 90
100 Gleitlager (India) Ltd+* ........................ 96 1
118,000 Swaraj Engines Ltd .............................. 1,298,970 659,737
-------------- ---------------
3,563,476 1,721,370
-------------- ---------------
Vehicles 6.15%
1,790,462 Ashok Leyland Ltd ............................... 4,432,483 2,182,887
165,394 Bajaj Auto Ltd+ ................................. 1,673,962 912,761
1,745,155 Hero Honda Motors Ltd+ .......................... 5,688,424 5,362,716
600 Hindustan Motors Ltd+ ........................... 467 55
100 LML Ltd+ ........................................ 178 37
940,189 Mahindra and Mahindra Ltd ....................... 8,350,815 1,602,958
45,000 Mahindra and Mahindra Ltd GDR+ .................. 602,750 86,625
2,688,350 Punjab Tractors Ltd ............................. 6,286,363 10,838,554
830,550 Tata Engineering
and Locomotive Company Ltd+ ................... 1,676,988 1,104,398
363,700 TVS Suzuki Ltd+ ................................. 2,766,232 729,101
-------------- ---------------
31,478,662 22,820,092
-------------- ---------------
TOTAL COMMON STOCKS ............................. 353,867,447 370,262,659
-------------- ---------------
20
THE INDIA FUND, INC.
Schedule of Investments (concluded) June 30, 2001
(Unaudited)
BONDS (0.30% of holdings)
Par Value Percent of
(000) Security Holdings Cost Value
---------------------------------------------------------------------------------------------------------
Cement 0.22%
$ 800 Gujarat Ambuja Cements Ltd
Convertible Bond 1.00%, 01/30/06 .............. $ 806,750 $ 833,360
-------------- ---------------
806,750 833,360
-------------- ---------------
Diversified Industries 0.08%
INR 4,220 DCM Shriram Consolidated NCD 13.00%,
11/6/01* ...................................... 134,584 99,820
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/02* ...................................... 130,627 96,883
INR 4,096 DCM Shriram Consolidated NCD 13.00%,
11/6/03* ...................................... 130,627 96,883
-------------- ---------------
395,838 293,586
-------------- ---------------
TOTAL BONDS ..................................... 1,202,588 1,126,946
============== ===============
TOTAL INDIA ..................................... 355,070,035 371,389,605
============== ===============
TOTAL INVESTMENTS** 100.00% $355,070,035 $371,389,605
============== ===============
Footnotes and Abbreviations
ADR - American Depository Receipts
GDR - Global Depository Receipts
INR - Indian Rupee
NCD - Non Convertible Debenture
+ Non-income producing security.
++ Passive Foreign Investment Company.
* At fair valued as determined under the supervision of the Board of
Directors.
** Aggregate cost for Federal income tax purposes is $356,009,381.
The aggregate gross unrealized appreciation (depreciation) for all
securities is as follows:
Excess of value over tax cost $ 120,033,103
Excess of tax cost over value (104,652,879)
-------------
$ 15,380,224
=============
See accompanying notes to financial statements.
21
THE INDIA FUND, INC.
Statement of Assets and Liabilities June 30, 2001
(Unaudited)
Assets
Investments, at value (Cost $355,070,035) ..................... $ 371,389,605
Cash (including Indian Rupees of $2,212,456 with a cost
of $2,214,054) ........................................... 3,489,422
Receivables:
Dividends and reclaims of excess taxes withheld .......... 3,153,065
Interest (net of withholding tax of $2,141) .............. 17,029
Securities sold .......................................... 1,582,902
Prepaid expenses .............................................. 76,285
-------------
Total Assets ................................ 379,708,308
-------------
Liabilities
Payable for securities purchased .............................. 678,217
Payable for Fund shares repurchased ........................... 301,500
Due to Investment Manager ..................................... 346,283
Due to Administrator .......................................... 66,860
Accrued expenses .............................................. 582,107
-------------
Total Liabilities ........................... 1,974,967
-------------
Net Assets .................................. $ 377,733,341
=============
NET ASSET VALUE PER SHARE ($377,733,341/
30,908,333 shares issued and outstanding) ... $12.22
=============
Net assets consist of:
Capital stock, $0.001 par value; 34,007,133 shares issued
(100,000,000 shares authorized) .......................... $ 34,007
Paid-in capital ............................................... 460,635,809
Cost of 3,098,800 shares repurchased .......................... (39,703,893)
Accumulated net investment loss ............................... (966,419)
Accumulated net realized loss on investments .................. (58,469,731)
Net unrealized appreciation in value of investments,
foreign currency holdings and on translation of other
assets and liabilities denominated in foreign currency ... 16,203,568
-------------
Net Assets .................................. $ 377,733,341
=============
See accompanying notes to financial statements.
22
THE INDIA FUND, INC.
Statement of Operations
For the Six
Months Ended
June 30, 2001
(Unaudited)
Investment Income
Dividends ............................................................................ $ 2,983,944
Interest (Net of Indian taxes withheld of $3,546) .................................... 22,945
--------------
Total Investment Income ............................................ 3,006,889
--------------
Expenses
Management fees .................................................. $ 2,421,211
Custodian fees ................................................... 648,247
Administration fees .............................................. 454,421
Legal fees ....................................................... 145,964
Insurance ........................................................ 78,554
Audit fees ....................................................... 71,781
Transfer agent fees .............................................. 24,588
Directors' fees .................................................. 23,468
NYSE fees ........................................................ 16,493
Printing ......................................................... 10,909
Miscellaneous Expenses ........................................... 15,352
-------------
Total Expenses ..................................................... 3,910,988
..................................................................................... --------------
Net Investment Loss (904,099)
--------------
Net Realized and Unrealized Loss On Investments, Foreign Currency Holdings and
Translation of Other Assets and Liabilities Denominated In Foreign Currency: Net
realized loss on:
Security transactions .......................................................... (13,015,212)
Foreign currency related transactions .......................................... (51,463)
--------------
(13,066,675)
Net change in unrealized depreciation in value of investments, foreign
currency holdings and translation of other assets and liabilities
denominated in foreign currency ................................................ (109,681,348)
--------------
Net realized and unrealized loss on investments, foreign currency holdings and
translation of other assets and liabilities denominated in foreign currency .... (122,748,023)
--------------
Net decrease in net assets resulting from operations ................................. $ (123,652,122)
==============
See accompanying notes to financial statements.
23
THE INDIA FUND, INC.
Statements of Changes in Net Assets_
For the Six
Months Ended For the Year
June 30, 2001 Ended
(Unaudited) December 31, 2000
-----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss .................................................................. $ (904,099) $ (5,075,421)
Net realized gain (loss) on investments and foreign currency
related transactions ........................................................... (13,066,675) 93,659,028
Net change in unrealized depreciation in value of
investments, foreign currency holdings and translation of other
assets and liabilities denominated in foreign currency ......................... (109,681,348) (325,968,238)
------------- -------------
Net decrease in net assets resulting from operations ................................. (123,652,122) (237,384,631)
------------- -------------
Capital Share Transactions
Shares repurchased under Stock Repurchase Plan
(295,000 and 1,931,400 shares respectively) .................................... (3,383,911) (26,793,808)
------------- -------------
Net decrease in net assets resulting
from capital share transactions ................................................ (3,383,911) (26,793,808)
------------- -------------
Total decrease in net assets ......................................................... (127,036,033) (264,178,439)
------------- -------------
Net Assets
Beginning of period .................................................................. 504,769,374 768,947,813
------------- -------------
End of period ........................................................................ $ 377,733,341 $ 504,769,374
============= =============
See accompanying notes to financial statements.
24
THE INDIA FUND, INC.
Financial Highlights
For a Share Outstanding throughout Each Period
For the Six For the Year For the Year For the Year For the Year For the Year
Months Ended Ended Ended Ended Ended Ended
June 30, 2001 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year ........ $16.18 $23.21 $8.85 $8.11 $7.56 $8.94
------ ------ ----- ----- ----- -----
Net investment income (loss) .............. (0.03) (0.16) (0.10) (0.03) (0.03) 0.02
Net realized and unrealized gain (loss)
on investments, foreign currency
holdings, and translation of other
assets and liabilities denominated
in foreign currency .................... (3.96) (7.27) 14.36 0.77 0.58 (1.39)
------ ------ ----- ----- ----- -----
Net increase (decrease) from
investment operations .................. (3.99) (7.43) 14.26 0.74 0.55 (1.37)
------ ------ ----- ----- ----- -----
Less: Dividends and Distributions
Dividends from net investment
income ................................. -- -- -- -- (0.01)
------ ------ ----- ----- ----- -----
Total dividends and distributions ......... -- -- -- -- -- (0.01)
------ ------ ----- ----- ----- -----
Capital share transactions
Anti-dilutive effect
of Share Repurchase Program ............ 0.03 0.40 0.10 -- -- --
------ ------ ----- ----- ----- -----
Total capital share transactions .......... 0.03 0.40 0.10 -- -- --
------ ------ ----- ----- ----- -----
Net asset value, end of year .............. $12.22 $16.18 $23.21 $8.85 $8.11 $7.56
====== ====== ====== ===== ===== =====
Per share market value, end of year ....... $10.3600 $12.0625 $16.7500 $6.3125 $7.3750 $7.6250
Total Investment Return Based
on Market Value* ....................... (14.11)% (27.99)% 165.35% (14.41)% (3.28)% (14.08)%
Ratios/Supplemental Data:
Net assets, end of year (in 000s) ......... $377,733 $504,769 $768,948 $300,523 $275,814 $257,156
Ratios of expenses to average
net assets ............................. 1.78%++ 1.59% 1.84% 2.03% 1.98% 2.03%+
Ratios of net investment income (loss)
to average net assets .................. (0.41)%++ (0.75)% (0.68)% (0.34)% (0.37)% 0.22%+
Portfolio turnover ........................ 5.60% 19.24% 18.65% 28.85% 42.61% 33.57%
See page 26 for footnotes.
25
THE INDIA FUND, INC.
Financial Highlights (concluded)
For a Share Outstanding throughout Each Period
* Total investment return is calculated assuming a purchase of common stock
at the current market price on the last day of each period reported.
Dividends and distributions, if any, are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions or sales charges and is not annualized.
+ Includes expense waivers by the Custodian. If such expenses had not been
waived, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets would have been 2.12% and 0.13%,
respectively, for the year ended December 31, 1996.
++ Annualized.
See accompanying notes to financial statements.
26
THE INDIA FUND, INC.
Notes to Financial Statements June 30, 2001
(Unaudited)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The India Fund, Inc. (the "Fund") was incorporated in Maryland on December 27,
1993, and commenced operations on February 23, 1994. The Fund operates through a
branch in the Republic of Mauritius. The Fund is registered under the Investment
Company Act of 1940, as amended, as a closed-end, non-diversified management
investment company.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Portfolio Valuation. Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at:
(i) the last sales price prior to the time of determination, if there
was a sale on the date of determination,
(ii) at the mean between the last current bid and asked prices, if there
was no sales price on such date and bid and asked quotations are
available, and
(iii) at the bid price if there was no sales price on such date and only
bid quotations are available.
Securities that are traded over-the-counter are valued, if bid and asked
quotations are available, at the mean between the current bid and asked prices.
Securities for which sales prices and bid and asked quotations are not available
on the date of determination may be valued at the most recently available prices
or quotations under policies adopted by the Board of Directors. Investments in
short-term debt securities having a maturity of 60 days or less are valued at
amortized cost which approximates market value. Securities for which market
values are not readily ascertainable, which totaled $300,266 (0.08% of net
assets) at June 30, 2001, are carried at fair value as determined in good faith
by or under the supervision of the Board of Directors. The net asset value per
share of the Fund is calculated weekly and at the end of each month.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax reporting purposes. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date or, using reasonable
diligence, when known. The collectibility of income receivable from Indian
securities is evaluated periodically, and
27
THE INDIA FUND, INC.
Notes to Financial Statements (continued) June 30, 2001
(Unaudited)
any resulting allowances for uncollectible amounts are reflected currently in
the determination of investment income.
Tax Status. No provision is made for U.S. Federal income or excise taxes as it
is the Fund's intention to continue to qualify as a regulated investment company
and to make the requisite distributions to its shareholders that will be
sufficient to relieve it from all or substantially all Federal income and excise
taxes.
At December 31, 2000, the Fund had a capital loss carryover of $44,799,638 which
is available to offset future net realized gains on securities transactions to
the extent provided for in the Internal Revenue Code. Of the aggregate capital
losses, $9,970,780 will expire in 2005 and $34,828,858 will expire in 2006.
During the year ended December 31, 2000, the Fund utilized $94,674,686 of
capital loss carried forward from prior periods.
The Fund's foreign exchange losses incurred after October 31, 2000, but before
December 31, 2000, are deemed to arise on the first business day of the
following year. The Fund incurred and elected to defer such foreign exchange
losses of approximately $62,320.
Foreign Currency Translation. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, assets and liabilities at the
prevailing rates of exchange on the valuation date; and
(ii) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Fund generally does not isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities. However, the Fund does isolate the effect of fluctuations in foreign
currency rates when determining the gain or loss upon the sale of foreign
currency denominated debt obligations pursuant to U.S. Federal income tax
regulations; such amounts are categorized as foreign currency gains or losses
for federal income tax purposes. The Fund reports certain realized foreign
exchange gains and losses as components of realized gains and losses for
financial reporting purposes, whereas such amounts are treated as ordinary
income for Federal income tax reporting purposes.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange. Foreign security and
currency transactions may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among other factors,
the level of governmental supervision and regulation of foreign securities
markets and the pos-
28
THE INDIA FUND, INC.
Notes to Financial Statements (continued) June 30, 2001
(Unaudited)
sibility of political or economic instability, and the fact that foreign
securities markets may be smaller and have less developed and less reliable
settlement and share registration procedures.
Distribution of Income and Gains. The Fund intends to distribute annually to
shareholders, substantially all of its net investment income, including foreign
currency gains, and to distribute annually any net realized gains after the
utilization of available capital loss carryovers. An additional distribution may
be made to the extent necessary to avoid payment of a 4% Federal excise tax.
Distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized capital gains. To
the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of additional paid-in capital.
During the period ended December 31, 2000, the Fund reclassified $719,536 from
accumulated net realized loss on investments to accumulated net investment loss
as a result of permanent book and tax differences relating primarily to realized
foreign currency losses and reclassified $5,805,151 from accumulated net
investment loss to paid-in capital as a result of permanent tax differences
relating to the net operating loss for the year ended December 31, 2000. Net
investment loss and net assets were not affected by the reclassifications.
NOTE B: Management, Investment Advisory, and Administrative Services
Advantage Advisers, Inc. ("Advantage"), a subsidiary of CIBC World Markets Corp.
("CIBC WM"), serves as the Fund's Investment Manager (the "Investment Manager")
under the terms of a management agreement (the "Management Agreement").
Infrastructure Leasing & Financial Services Limited ("ILFS") served until July
31, 2001 as the Fund's Country Adviser (the "Country Adviser") under the terms
of an advisory agreement (the "Country Advisory Agreement"). Pursuant to the
Management Agreement, the Investment Manager supervises the Fund's investment
program and is responsible on a day-to-day basis for investing the Fund's
portfolio in accordance with its investment objective and policies. Pursuant to
the Country Advisory Agreement, the Country Adviser furnished advice and made
recommendations to the Investment Manager regarding the purchase, sale or
holding of particular Indian securities, provided research and statistical data
to the
29
THE INDIA FUND, INC.
Notes to Financial Statements (continued) June 30, 2001
(Unaudited)
Fund and assisted in the implementation and execution of investment decisions.
For its services, the Investment Manager receives monthly fees at an annual rate
of 1.10% of the Fund's average weekly net assets and the Country Adviser
received from the Investment Manager monthly fees at an annual rate of 0.20% of
the Fund's average weekly net assets. For the six months ended June 30, 2001,
fees earned by the Investment Manager amounted to $2,421,211, of which the
Investment Manager informed the Fund it paid $440,220 to ILFS.
Because affiliations between ILFS and the Indian Government have precluded the
Fund from making certain investments, the Board of Directors at its February
2001 meeting authorized the Fund to terminate its agreement with ILFS. The Board
of Directors also approved a new subadvisory agreement between Advantage and
Advantage India, Inc., a subsidiary of CIBC WM ("Advantage India"), which was
submitted and approved by stockholders at the annual meeting held on April 20,
2001. Accordingly, beginning August 1, 2001, Advantage India will provide and
procure statistical and factual information and research regarding economic and
political factors and investing and other opportunities in India, and will
provide assistance in the implementation and coordination of execution of
investment decisions as directed by the Investment Manager. For its services,
Advantage India will receive from the Investment Manager a fee to be agreed upon
by the Investment Manager and Advantage India from time to time.
CIBC WM, an indirect wholly-owned subsidiary of Canadian Imperial Bank of
Commerce, serves as the Fund's Administrator (the "Administrator"). The
Administrator provides certain administrative services to the Fund. For its
services, the Administrator receives a monthly fee at an annual rate of 0.20% of
the Fund's average weekly net assets. For the six months ended June 30, 2001,
these fees amounted to $440,220. The Administrator subcontracts certain of these
services to PFPC, Inc. In addition, Multiconsult Ltd. (the "Mauritius
Administrator") provides certain administrative services relating to the
operation and maintenance of the Fund in Mauritius. The Mauritius Administrator
receives a monthly fee of $1,500 and is reimbursed for certain additional
expenses. For the six months ended June 30, 2001, fees and expenses of the
Mauritius Administrator amounted to $14,201. At June 30, 2001, CIBC WM owned
7,133 shares of the Fund's common stock.
The Fund pays each of its directors who is not a director, officer or employee
of the Investment Manager, the Country Adviser or the Administrator or any
affiliate thereof an annual fee of $5,000 plus up to $700 for each Board of
Directors meeting attended. In addition, the Fund reimburses all directors for
travel and out-of-pocket expenses incurred in connection with Board of Directors
meetings.
30
THE INDIA FUND, INC.
Notes to Financial Statements (continued) June 30, 2001
(Unaudited)
NOTE C: PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations, aggregated
$24,838,000 and $31,077,059 respectively, for the six months ended June 30,
2001.
At June 30, 2001, the Fund owned securities valued at approximately $93,838
which were in the process of being registered in the name of the Fund or being
dematerialized. Significant delays are common in registering the transfer of
securities in India, and such transfers can take a year or longer. Indian
securities regulations normally preclude the Fund from selling such securities
until the completion of the registration or the dematerialization process, as
applicable.
NOTE D: FOREIGN INCOME TAX
The Fund conducts its investment activities in India as a tax resident of
Mauritius and expects to obtain benefits under the double taxation treaty
between Mauritius and India. To obtain benefits under the double taxation
treaty, the Fund must meet certain tests and conditions, including the
establishment of Mauritius tax residence and related requirements. The Fund has
obtained a certificate from the Mauritian authorities that it is a resident of
Mauritius under the double taxation treaty between Mauritius and India. Under
current regulations, a fund which is a tax resident in Mauritius under the
treaty, but has no branch or permanent establishment in India, will not be
subject to capital gains tax in India on the sale of securities but was subject
to a 15% withholding tax on dividends declared, distributed or paid by an Indian
company prior to June 1, 1997. Effective June 1, 1997, dividend income from
domestic companies is exempt from Indian income tax. The Fund is subject to and
accrues Indian withholding tax on interest earned on Indian securities at the
rate of 20%.
The Fund will, in any year that it has taxable income for Mauritius tax
purposes, elect to pay tax on its net income for Mauritius tax purposes at any
rate between 0% and 35%. For the six months ended June 30, 2001, no provision
for Mauritius taxes is considered necessary as a result of the net investment
loss incurred by the Fund.
In March 2000, the Indian tax authorities issued an assessment order ("March
2000 Assessment Order") with respect to the Fund's Indian income tax return
filed for the fiscal year ended March 31, 1997 which denied the benefits of the
tax treaty between India and Mauritius. In the March 2000 Assessment Order, the
Indian tax authorities held that the Fund is not a resident of Mauritius and
assessed tax on the dividend income for the year ended March 31, 1997 at the
rate of 20%, instead of the 15% rate claimed by the Fund under the tax treaty
between India and Mauritius. Similar assessment orders were issued to several
other mutual fund companies relying on the tax treaty between India and
Mauritius. On April 13, 2000, the Central Board of Direct Taxes ("CBDT") of the
Ministry of Finance in India issued a circular ("Circular 789") "clarifying" its
position on Indian taxation under the India-Mauritius tax treaty that, wherever
a certificate of residence is issued by the
31
THE INDIA FUND, INC.
Notes to Financial Statements (concluded) June 30, 2001
(Unaudited)
Mauritian authorities, such certificate will constitute sufficient evidence for
accepting the status of residence as well as beneficial ownership for applying
the tax treaty between India and Mauritius. The Fund, relying on Circular 789
and in absence of a rectification order from the assessing officer, filed an
appeal against the March 2000 Assessment Order with the Indian income tax
authorities. A hearing on the appeal was adjourned until August 2001.
Additionally, a public interest group in India initiated litigation in the
courts challenging Circular 789 which is currently unresolved. No provision for
additional income taxes of 5% that may be payable with respect to dividends
declared, paid or distributed prior to June 1, 1997 earned by the Fund and on
net realized gains and unrealized appreciation to date is considered necessary
in view of Circular 789. To the extent that it is later determined that the Fund
would be unable to obtain the benefits of the treaty, the Fund would be subject
to tax on capital gains in India on the sale of securities, which is at the
rates of 10% on long-term and 30% on short-term capital gains, and could be
subject to the applicable tax on dividends declared, distributed or paid prior
to June 1, 1997, which was at the rate of 20%.
The foregoing is based on current interpretation and practice and is subject to
any future changes in Indian or Mauritius tax laws or in the tax treaty between
India and Mauritius.
NOTE E: CAPITAL STOCK
During the six months ended June 30, 2001, the Fund purchased 295,000 shares of
capital stock on the open market at a total cost of $3,383,911. The weighted
average discount of these purchases, comparing the purchase price to the net
asset value at the time of purchase, was 20.57%. These shares were purchased
pursuant to the Fund's Stock Repurchase Plan previously approved by the Fund's
Board of Directors authorizing the Fund to purchase up to 3,000,000 shares of
its capital stock on the open market. In addition, in February 2001, the Fund's
Board of Directors authorized the Fund to purchase an additional 1,000,000
shares of its capital stock, bringing to 4,000,000 the aggregate number of
shares authorized for repurchase.
During the year ended December 31, 2000, the Fund purchased 1,931,400 shares of
capital stock at a total cost of $26,793,808 and at a weighted average discount
of 32.02%.
NOTE F: CONCENTRATION OF RISKS
At June 30, 2001, substantially all of the Fund's net assets were invested in
Indian securities. The Indian securities markets are among other things
substantially smaller, less developed, less liquid, subject to less regulation
and more volatile than the securities markets in the United States.
Consequently, and as further discussed above, acquisitions and dispositions of
securities by the Fund involve special risks and considerations not present with
respect to U.S. securities. At June 30, 2001, the Fund has a concentration of
its investment in computer and technology-related industries. The values of such
investments may be affected by changes in such industry sectors.
32
THE INDIA FUND, INC.
Results of Annual Shareholders Meeting
The Fund held its annual shareholders meeting on April 20, 2001. At this
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors and approved a new country advisory agreement between
Advantage Advisers, Inc. and Advantage India, Inc. The following tables provide
information concerning the matters voted on at the meeting:
I. Election of Directors
Nominee Votes For Votes Abstained Total Voting Shares
------- --------- --------------- -------------------
Sir Rene Maingard 17,368,191 2,112,834 19,481,025
Bryan McKigney 16,122,607 3,358,418 19,481,025
Howard M. Singer 16,121,717 3,359,308 19,481,025
At June 30, 2001, in addition to Sir Rene Maingard, Bryan McKigney, and Howard
M. Singer the other directors of the Fund were as follows:
Charles F. Barber
Leslie H. Gelb
Luis Rubio
Jeswald W. Salacuse
Gabriel Seeyave
II. Approval of a new country advisory agreement between Advantage Advisers,
Inc. and Advantage India, Inc.
Votes For Votes Against Votes Abstained Total Voting Shares
--------- ------------- --------------- -------------------
16,062,196 3,281,367 137,462 19,481,025
33
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