UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8266
----------------------------
INDIA FUND, INC.
---------------------------------------------------------------------
(Exact name of registrant as specified in charter)
200 Park Avenue
NEW YORK, NY 10166
---------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Simpson Thacher Bartlett
425 Lexington Avenue, 23rd Floor
NEW YORK, NY 10017
---------------------------------------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: 212-667-4711
---------------
Date of fiscal year end: DECEMBER 31, 2003
------------------
Date of reporting period: DECEMBER 31, 2003
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The India Fund, Inc.
February 19, 2004
DEAR FUND SHAREHOLDER,
We are pleased to present you with the audited financial statements of The India
Fund, Inc. (the "Fund") for the twelve-month period ended December 31, 2003.
The Fund's net asset value ("NAV") closed at $23.76 on December 31, 2003,
representing an increase of 87.64% from the Fund's NAV on 12/31/02. The Fund
outperformed its benchmark, the IFC Investable Index, which gained 81.55% for
the same 12-month fiscal year.*
The Indian stock market was one of the top performers in Asia, with robust
economic growth, excess global liquidity, and relatively attractive share
valuations all contributing. In addition, India continues to benefit from the
global outsourcing trend, which is turning the country into a viable part of
multinationals' supply chain network. As reported, Indian foreign exchange
reserves passed $100 billion in 2003 for the first time.** The Indian economy's
strength was also driven by ongoing domestic structural reforms, including a
renewed commitment to deregulation, and privatization.
Looking ahead, we believe India still faces a number of challenges, including an
economy with an enormous fiscal deficit, red tape, and poor infrastructure. As
reported, national elections are scheduled for April 2004, and this will present
uncertainty.** Finally, following 2003's impressive rally, we believe valuations
are not as compelling as they were one year ago. Nevertheless, we strongly
believe that the fundamental long-term outlook for India remains positive.
1
THE INDIA FUND, INC.
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
Director, Chairman and President
*The benchmark is an unmanaged index. Investors cannot invest directly in the
index. The index does not reflect transaction costs or manager fees.
**Far Eastern Economic Review, January 29, 2004.
2
THE INDIA FUND, INC.
--------------------------------------------------------------------------------
CHANGE IN INVESTMENT POLICY
On April 30, 2002, the Board of Directors of the Fund approved a change to the
Fund's investment policies in connection with new Rule 35d-1 under the
Investment Company Act of 1940. Under normal conditions, the Fund will invest at
least 80% of the value of its assets in equity securities of Indian Companies
(as defined in the Fund's prospectus.) Previously, the Fund's investment
policies stated that the Fund would invest at least 65% of the value of its
assets in such securities. The Board also adopted a policy to provide the
stockholders of the Fund with 60 days' notice of any change to the investment
policy adopted if such notice is required by Rule 35d-1.
FUNDAMENTAL PERIODIC REPURCHASE POLICY
The Fund has adopted the following fundamental policy regarding periodic
repurchases:
a) The Fund will make offers to repurchase its shares at semi-annual
intervals pursuant to Rule 23c-3 under the Investment Company Act of 1940,
as amended from time to time ("Offers"). The Board of Directors may place
such conditions and limitations on Offers as may be permitted under Rule
23c-3.
b) 14 days prior to the last Friday of the Fund's first and third fiscal
quarters, or the next business day if such Friday is not a business day,
will be the deadline (the "Repurchase Request Deadline") by which the Fund
must receive repurchase requests submitted by stockholders in response to
the most recent Offer.
c) The date on which the repurchase price for shares is to be determined (the
"Repurchase Pricing Date") shall occur no later than the last Friday of
the Fund's first and third fiscal quarters, or the next business day if
such day is not a business day.
d) Offers may be suspended or postponed under certain circumstances, as
provided for in Rule 23c-3.
(For further details, see Note E to the Financial Statements.)
--------------------------------------------------------------------------------
3
THE INDIA FUND, INC.
Schedule of Investments DECEMBER 31, 2003
INDIA (100% OF HOLDINGS)
COMMON STOCKS (99.49% of holdings)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
CEMENT 0.30%
223,143 Associated Cement Companies Ltd .................. $ 668,994 $ 1,200,938
69,000 Gujarat Ambuja Cements Ltd ....................... 429,454 459,521
5 Panyam Cements and Mineral Industries Ltd+ ....... 46 7
------------ ------------
1,098,494 1,660,466
------------ ------------
COMPUTER HARDWARE 0.00%
100 Digital Globalsoft Ltd ........................... 1,089 1,622
------------ ------------
1,089 1,622
------------ ------------
COMPUTER SOFTWARE & PROGRAMMING 12.57%
189,436 Geodesic Information Systems Ltd ................. 762,106 1,566,766
356,852 Infosys Technologies Ltd ......................... 7,918,801 43,515,999
92,522 KPIT Cummins Infosystems Ltd ..................... 491,621 652,065
174,214 Mphasis BFL Ltd .................................. 1,253,873 2,901,976
1,799,229 Satyam Computer Services Ltd ..................... 3,516,020 14,486,505
1,300 Silverline Technologies Ltd+ ..................... 4,371 292
450,000 Tele Data Informatics Ltd ........................ 297,423 282,575
900,000 Tele Data Informatics Ltd - Rights*+ ............. 69,766 111,452
154,450 Wipro Ltd ........................................ 4,504,362 5,882,133
------------ ------------
18,818,343 69,399,763
------------ ------------
COMPUTER TRAINING 0.01%
12,425 NIIT Ltd ......................................... 44,560 74,128
------------ ------------
44,560 74,128
------------ ------------
CONSUMER NON-DURABLES 8.57%
200 Godfrey Phillips India Ltd ....................... 2,187 1,923
5,849,751 Hindustan Lever Ltd .............................. 22,964,633 26,245,348
976,951 ITC Ltd .......................................... 16,627,798 21,081,800
------------ ------------
39,594,618 47,329,071
------------ ------------
DIVERSIFIED INDUSTRIES 5.91%
743,633 Grasim Industries Ltd ............................ 5,953,127 16,363,186
1,744 Indian Rayon and Industries Ltd .................. 6,451 10,320
1,407,231 Larsen & Toubro Ltd .............................. 8,519,451 16,265,277
------------ ------------
14,479,029 32,638,783
------------ ------------
4
THE INDIA FUND, INC.
Schedule of Investments (continued) DECEMBER 31, 2003
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
ELECTRICITY 0.31%
4 CESC Ltd+ ........................................ $ 29 $ 12
246,100 Tata Power Company Ltd ........................... 999,047 1,693,168
------------ ------------
999,076 1,693,180
------------ ------------
ELECTRONICS & ELECTRICAL EQUIPMENT 5.52%
723 Alstom Projects India Ltd ........................ 1,213 2,176
206,800 Bharat Electronics Ltd ........................... 1,333,706 2,760,128
1,999,918 Bharat Heavy Electricals Ltd ..................... 6,374,240 22,265,389
614,892 Jyoti Structures Ltd+ ............................ 878,824 1,491,913
1,208,210 MIRC Electronics Ltd ............................. 689,344 1,006,290
94,849 Siemens India Ltd ................................ 1,061,014 2,231,992
23,100 Sterlite Industries (India) Ltd .................. 788,467 709,303
------------ ------------
11,126,808 30,467,191
------------ ------------
ENGINEERING 1.89%
320,886 ABB Ltd .......................................... 3,313,209 4,738,563
319,149 Praj Industries Ltd .............................. 518,837 712,096
556,050 Thermax India Ltd ................................ 1,849,526 5,002,317
------------ ------------
5,681,572 10,452,976
------------ ------------
EXTRACTIVE INDUSTRIES 3.84%
424,005 Hindalco Industries Ltd .......................... 6,754,033 13,087,698
100 National Aluminium Company Ltd ................... 180 429
462,721 Oil and Natural Gas Corporation Ltd .............. 3,847,849 8,108,393
600 Sesa Goa Ltd ..................................... 4,568 7,785
------------ ------------
10,606,630 21,204,305
------------ ------------
FERTILIZERS 0.22%
331,560 Indo Gulf Fertilisers Ltd ........................ 224,574 820,452
700 Nagarjuna Fertilizers and Chemicals Ltd+ ......... 764 144
500,000 Rashtriya Chemicals and Fertilizers Ltd+ ......... 421,508 416,986
50 Southern Petrochemical Industries Corporation Ltd+ 43 13
------------ ------------
646,889 1,237,595
------------ ------------
5
THE INDIA FUND, INC.
Schedule of Investments (continued) DECEMBER 31, 2003
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
FINANCE 18.07%
1,834,950 Andhra Bank Ltd .................................. $ 1,304,009 $ 2,163,733
100 Bank of Baroda ................................... 229 513
856,675 Corporation Bank ................................. 3,061,141 4,674,394
1,715,158 HDFC Bank Ltd .................................... 8,177,620 13,783,292
1,593,610 Housing Development Finance Corporation Ltd ...... 11,566,486 22,506,139
3,115,678 ICICI Bank Ltd ................................... 8,722,709 20,193,008
1,371,350 Industrial Development Bank of India Ltd ......... 1,298,633 1,866,539
297,946 Jammu and Kashmir Bank Ltd ....................... 1,530,168 2,494,583
657,396 Oriental Bank of Commerce ........................ 2,265,597 3,694,385
375,400 Punjab National Bank Ltd ......................... 1,415,320 1,985,815
1,866,533 State Bank of India .............................. 8,053,371 22,030,203
98,000 State Bank of India GDR .......................... 1,117,250 3,271,240
1,246,600 Vijaya Bank ...................................... 822,502 1,146,189
------------ ------------
49,335,035 99,810,033
------------ ------------
FOOD 0.00%
50 Tata Tea Ltd ..................................... 179 376
276 United Breweries Holdings Ltd+ ................... 1,110 262
184 United Breweries Ltd+ ............................ 1,118 516
------------ ------------
2,407 1,154
------------ ------------
HOTELS & LEISURE 0.16%
667,358 Hotel Leelaventure Ltd+ .......................... 519,694 909,801
21 Indian Hotels Company Ltd ........................ 343 206
------------ ------------
520,037 910,007
------------ ------------
HOUSEHOLD APPLIANCES 0.30%
400 Phil Corporation Ltd+ ............................ 1,093 64
200 Samtel Color Ltd ................................. 395 270
450 Videocon Appliances Ltd .......................... 2,629 205
194 Videocon International Ltd ....................... 174 317
522,751 Voltas Ltd ....................................... 1,335,438 1,633,275
------------ ------------
1,339,729 1,634,131
------------ ------------
6
THE INDIA FUND, INC.
Schedule of Investments (continued) DECEMBER 31, 2003
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
MEDIA 0.48%
671,200 Balaji Telefilms Ltd ............................. $ 1,338,083 $ 1,475,537
464,500 ETC Networks Ltd ................................. 475,881 625,611
599,500 Pritish Nandy Communications Ltd ................. 1,707,121 539,386
250,000 Vans Information Ltd+ ............................ 573,395 21,918
------------ ------------
4,094,480 2,662,452
------------ ------------
PETROLEUM RELATED 19.78%
835,553 Bharat Petroleum Corporation Ltd ................. 4,645,244 8,245,649
689,800 Bongaigaon Refinery & Petrochemicals Ltd ......... 730,886 1,360,701
2,700 Chennai Petroleum Corporation Ltd ................ 3,200 5,365
591,408 Finolex Industries Ltd ........................... 827,475 1,065,507
1,131,628 Hindustan Petroleum Corporation Ltd .............. 4,868,920 10,851,227
1,399,390 Indian Oil Corporation Ltd ....................... 5,493,969 14,015,370
300 Indian Petrochemicals Corporation Ltd ............ 637 1,485
80,800 Niko Resources Ltd ADR ........................... 1,314,053 1,688,801
5,732,738 Reliance Industries Ltd .......................... 30,550,430 71,996,907
------------ ------------
48,434,814 109,231,012
------------ ------------
PHARMACEUTICALS 8.38%
410,308 Dr. Reddy's Laboratories Ltd ..................... 3,813,804 12,842,528
106,805 Glaxosmithkline Pharmaceuticals Ltd .............. 673,608 1,346,153
100 IPCA Laboratories Ltd ............................ 309 1,379
67,342 Lupin Ltd ........................................ 799,300 1,030,240
138,600 Matrix Laboratories Ltd .......................... 1,580,880 4,758,878
219 Nicholas Piramal Ltd ............................. 1,927 3,911
100 Orchid Chemicals & Pharmaceuticals Ltd ........... 339 566
42,500 Pfizer Ltd ....................................... 410,990 499,660
838,683 Ranbaxy Laboratories Ltd ......................... 13,111,988 20,187,215
229,600 Sun Pharmaceutical Industries Ltd ................ 457,239 2,995,997
165,500 Wockhardt Ltd .................................... 2,024,507 2,613,177
------------ ------------
22,874,891 46,279,704
------------ ------------
7
THE INDIA FUND, INC.
Schedule of Investments (continued) DECEMBER 31, 2003
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
RETAIL STORES 0.16%
143,115 Trent Ltd ........................................ $ 481,085 $ 859,945
------------ ------------
481,085 859,945
------------ ------------
STEEL 2.40%
530,461 Monnet Ispat Ltd ................................. 1,104,981 1,267,875
1,229,316 Tata Iron and Steel Company Ltd .................. 3,704,342 11,964,444
------------ ------------
4,809,323 13,232,319
------------ ------------
TELECOMMUNICATIONS 1.27%
3,047,500 Bharti Tele-Ventures Ltd+ ........................ 5,398,527 7,020,104
300 Mahanagar Telephone Nigam Ltd .................... 763 906
------------ ------------
5,399,290 7,021,010
------------ ------------
TELECOMMUNICATIONS EQUIPMENT 0.00%
100 Himachal Futuristic Communications Ltd+ .......... 168 49
1 Shyam Telecom Ltd+ ............................... 14 1
------------ ------------
182 50
------------ ------------
TEXTILES - COTTON 0.27%
36 Arvind Mills Ltd+ ................................ 133 52
197,500 Bombay Dyeing and Manufacturing Company Ltd ...... 647,040 650,397
217,400 Mahavir Spinning Mills Ltd ....................... 823,672 818,854
------------ ------------
1,470,845 1,469,303
------------ ------------
TRANSPORTATION 1.50%
526,851 Container Corporation of India Ltd ............... 2,939,179 7,684,230
102,221 Mercator Lines Ltd ............................... 468,196 576,358
100 South East Asia Marine Engineering and
Construction Ltd+ ................................ 308 124
------------ ------------
3,407,683 8,260,712
------------ ------------
8
THE INDIA FUND, INC.
Schedule of Investments (continued) DECEMBER 31, 2003
COMMON STOCKS (continued)
NUMBER PERCENT OF
OF SHARES SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
VEHICLE COMPONENTS 0.15%
125 FAG Bearings (India) Ltd ......................... $ 335 $ 349
118,000 Swaraj Engines Ltd ............................... 1,298,970 814,814
------------ ------------
1,299,305 815,163
------------ ------------
VEHICLES 7.43%
1,354,240 Ashok Leyland Ltd ................................ 3,023,621 8,717,595
360,851 Bajaj Auto Ltd ................................... 4,069,717 8,995,373
540,187 Hero Honda Motors Ltd ............................ 2,312,648 5,314,256
116,700 Mahindra & Mahindra Ltd .......................... 904,295 995,115
334,200 Omax Autos Ltd ................................... 498,093 826,252
1,631,658 Tata Motors Ltd .................................. 4,210,436 16,175,319
27 Tata Motors Ltd - Warrants Expire 9/30/04+ ....... 0 191
------------ ------------
15,018,810 41,024,101
------------ ------------
TOTAL COMMON STOCKS .............................. 261,585,024 549,370,176
------------ ------------
PREFERRED STOCK (0.00% of holdings)
ENGINEERING 0.00%
1,248,400 Thermax India Ltd Preference Shares+ ............. 0 23,942
------------ ------------
0 23,942
------------ ------------
PHARMACEUTICALS 0.00%
800 Sun Pharmaceutical Industries Ltd
Preference Shares+ ............................ 23 21
------------ ------------
23 21
------------ ------------
TOTAL PREFERRED STOCK ............................ 23 23,963
------------ ------------
9
THE INDIA FUND, INC.
Schedule of Investments (concluded) DECEMBER 31, 2003
INDIAN BONDS (0.00% of holdings)
PAR VALUE PERCENT OF
(000) SECURITY HOLDINGS COST VALUE
-----------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES 0.00%
INR 183 Hindustan Lever Ltd NCD 9.00%, 01/01/05 .......... $ 4,116 $ 4,111
------------ ------------
4,116 4,111
------------ ------------
TOTAL INDIAN BONDS ............................... 4,116 4,111
------------ ------------
BONDS (0.51% of holdings)
CEMENT 0.19%
785 Gujarat Ambuja Cements Ltd 1.00%, 01/30/06 ....... 965,319 1,044,050
------------ ------------
965,319 1,044,050
------------ ------------
VEHICLES 0.32%
1,017 Tata Motors Ltd 1.00%, 07/31/08 .................. 1,475,118 1,753,054
------------ ------------
1,475,118 1,753,054
------------ ------------
TOTAL BONDS ...................................... 2,440,437 2,797,104
------------ ------------
TOTAL INDIA ...................................... 264,029,600 552,195,354
------------ ------------
TOTAL INVESTMENTS** .......................100.00% $264,029,600 $552,195,354
============ ============
------------
FOOTNOTES AND ABBREVIATIONS
ADR - American Depository Receipts
GDR - Global Depository Receipts
INR - Indian Rupee
NCD - Non Convertible Debenture
+ Non-income producing security.
* At fair value as determined under the supervision of the Board
of Directors.
** Aggregate cost for Federal income tax purposes is $265,434,722.
The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows:
Excess of value over tax cost $289,078,474
Excess of tax cost over value (2,317,842)
------------
$286,760,632
============
See accompanying notes to financial statements.
10
THE INDIA FUND, INC.
Statement of Assets and Liabilities DECEMBER 31, 2003
ASSETS
Investments, at value (Cost $264,029,600) .................................. $552,195,354
Cash (including Indian Rupees of $4,183,059 with a cost of $4,186,651) ...... 7,638,012
Receivables:
Dividends and reclaims net of excess taxes withheld .................... 691,576
Interest (net of withholding tax of $22) ............................... 12,221
Securities sold ........................................................ 291,716
Prepaid expenses ............................................................ 124,355
------------
TOTAL ASSETS .............................................. 560,953,234
------------
LIABILITIES
Distribution payable ........................................................ 3,046,584
Due to Investment Manager ................................................... 476,908
Accrued Custodian fees ...................................................... 321,479
Due to Administrator ........................................................ 90,491
Accrued expenses ............................................................ 206,431
------------
TOTAL LIABILITIES ......................................... 4,141,893
------------
NET ASSETS ................................................ $556,811,341
============
NET ASSET VALUE PER SHARE ($556,811,341/23,435,265
SHARES ISSUED AND OUTSTANDING) ............................ $ 23.76
============
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 10,571,868 shares repurchased ....................................... (147,308,242)
Overdistribution of net investment income ................................... (258,199)
Accumulated net realized loss on investments ................................ (44,359,297)
Net unrealized appreciation in value of investments, foreign
currency holdings and on translation of other assets and liabilities
denominated in foreign currency .......................................... 288,067,263
------------
NET ASSETS ................................................ $556,811,341
============
See accompanying notes to financial statements.
11
THE INDIA FUND, INC.
FOR THE YEAR ENDED
Statement of Operations DECEMBER 31, 2003
INVESTMENT INCOME
Dividends (net of Indian taxes withheld of $71,238) ................................. $ 9,934,643
------------
TOTAL INVESTMENT INCOME ........................................... 9,934,643
------------
EXPENSES
Management fees ......................................................... $4,395,688
Custodian fees .......................................................... 840,492
Administration fees ..................................................... 826,029
Audit and tax fees ...................................................... 239,601
Legal fees .............................................................. 216,799
Insurance ............................................................... 180,060
Transfer agent fees ..................................................... 159,702
Printing ................................................................ 55,001
Directors' fees ......................................................... 45,898
NYSE fees ............................................................... 31,500
ICI fees ................................................................ 12,334
Miscellaneous expenses .................................................. 48,531
---------
TOTAL EXPENSES .................................................... 7,051,635
------------
NET INVESTMENT INCOME ............................................. 2,883,008
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCY HOLDINGS AND
TRANSLATION OF OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY:
Net realized gain on:
Security transactions .......................................................... 39,666,526
Foreign currency related transactions .......................................... 183,331
------------
39,849,857
Netchange in unrealized appreciation in value of investments, foreign currency
holdings and translation of other assets and liabilities denominated in
foreign currency ................................................................. 237,954,482
------------
Net realized and unrealized gain on investments, foreign currency holdings and
translation of other assets and liabilities denominated in foreign currency ...... 277,804,339
------------
Net increase in net assets resulting from operations ................................ $280,687,347
============
See accompanying notes to financial statements.
12
THE INDIA FUND, INC.
Statements of Changes in Net Assets
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
--------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income .................................................... $ 2,883,008 $ 2,370,803
Net realized gain (loss) on investments and foreign currency
related transactions ................................................ 39,849,857 (12,691,975)
Net change in unrealized appreciation in value of investments,
foreign currency holdings and translation of other assets
and liabilities denominated in foreign currency ..................... 237,954,482 31,237,020
------------ ------------
Net increase in net assets resulting from operations ..................... 280,687,347 20,915,848
------------ ------------
DISTRIBUTION TO SHAREHOLDERS
Net investment income ($0.13 and $0.085 per share respectively) .......... (3,046,584) (2,343,527)
------------ ------------
Decrease in net assets resulting from distributions ...................... (3,046,584) (2,343,527)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Shares repurchased under Stock Repurchase Plan
(89,000 shares for year ended December 31, 2002) .................... -- (920,118)
Shares repurchased under Tender Offer
(3,063,433 shares for year ended December 31, 2002),
including expenses of $70,586 and $97,512 respectively .............. (70,586) (33,305,126)
Shares repurchased under Repurchase Offer
(4,135,635 shares) (net of repurchase fee of $1,459,052)
including expenses of $103,667 ...................................... (71,597,216) --
------------ ------------
Net decrease in net assets resulting from capital share transactions ..... (71,667,802) (34,225,244)
------------ ------------
Total increase (decrease) in net assets .................................. 205,972,961 (15,652,923)
NET ASSETS
Beginning of year ........................................................ 350,838,380 366,491,303
------------ ------------
End of year .............................................................. $556,811,341 $350,838,380
============ ============
See accompanying notes to financial statements.
13
THE INDIA FUND, INC.
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, 2003 DEC. 31, 2002 DEC. 31, 2001 DEC. 31, 2000 DEC. 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, BEGINNING OF YEAR .......... $ 12.72 $ 11.93 $ 16.18 $ 23.21 $ 8.85
-------- -------- -------- -------- --------
Net investment income (loss) ................ 0.11+ 0.09 0.07 (0.16) (0.10)
Net realized and unrealized gain (loss)
on investments, foreign currency
holdings, and translation of other
assets and liabilities denominated
in foreign currency ...................... 11.00+ 0.76 (4.29) (7.27) 14.36
-------- -------- -------- -------- --------
Net increase (decrease) from
investment operations .................... 11.11 0.85 (4.22) (7.43) 14.26
-------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment
income ................................. (0.13) (0.09) (0.07) -- --
-------- -------- -------- -------- --------
Total dividends and distributions ........... (0.13) (0.09) (0.07) -- --
-------- -------- -------- -------- --------
Capital share transactions
Anti-dilutive effect of Share
Repurchase Program ....................... 0.06 0.01 0.04 0.40 0.10
Anti-dilutive effect of Tender Offer ........ -- 0.02 -- -- --
-------- -------- -------- -------- --------
Total capital share transactions ............ 0.06 0.03 0.04 0.40 0.10
-------- -------- -------- -------- --------
Net asset value, end of year ................ $ 23.76 $ 12.72 $ 11.93 $ 16.18 $ 23.21
======== ======== ======== ======== ========
Per share market value, end of year ......... $25.2000 $10.5900 $ 9.5000 $12.0625 $16.7500
TOTAL INVESTMENT RETURN BASED
ON MARKET VALUE* ......................... 139.04% 12.36% (20.69)% (27.99)% 165.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) ......... $556,811 $350,838 $366,491 $504,769 $768,948
Ratios of expenses to average
net assets ............................... 1.76% 1.73% 1.70% 1.59% 1.84%
Ratios of net investment income
(loss) to average net assets ............. 0.72% 0.65% 0.57% (0.75)% (0.68)%
Portfolio turnover .......................... 33.89% 39.36% 16.06% 19.24% 18.65%
See accompanying notes to financial statements.
14
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 first day and a sale 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.
+ Based on average shares outstanding.
See accompanying notes to financial statements.
15
THE INDIA FUND, INC.
Notes to Financial Statements DECEMBER 31, 2003
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 $111,452 (0.02% of net
assets) at December 31, 2003, are carried at fair value as determined in good
faith by or under the supervision of the Board of Directors. The net asset value
per share of the Fund is calculated weekly and at the end of each month.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax reporting purposes. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date or, using reasonable
diligence, when known. The collectibility of income receivable from Indian
securities is evaluated periodically, and any resulting allowances for
uncollectible amounts are reflected currently in the determination of investment
income.
16
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
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.
Income and capital gain distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP.
The tax character of distributions paid during the year ended December 31, 2003:
Ordinary income ............................................... $ 3,046,584
=============
At December 31, 2003, the components of net assets (excluding paid in capital)
on a tax basis were as follows:
Overdistribution of Ordinary Income ............ $ (214,070)
Plus/Less: Cumulative Timing Differences ....... (44,129)
-------------
Overdistribution of net investment income ..................... $ (258,199)
-------------
Tax basis capital loss carryover ............... $ (42,954,175)
Plus/Less: Cumulative Timing Differences ....... (1,405,122)
-------------
Accumulated net realized loss on investments .................. (44,359,297)
-------------
Book unrealized foreign exchange loss ......................... (98,491)
-------------
Tax unrealized appreciation .................... $ 286,760,632
Plus/Less: Cumulative Timing Differences ....... 1,405,122
-------------
Unrealized appreciation ....................................... 288,165,754
-------------
Net assets (excluding paid in capital) ........................ $ 243,449,767
=============
The differences between book and tax basis unrealized appreciation is primarily
attributable to wash sales and a dividend overdistribution. The cumulative
timing difference for the capital loss carryover is due to Post October Losses.
Net Asset Value ............................................... $ 556,811,341
Paid in Capital ............................................... (313,361,574)
-------------
Net assets (excluding paid in capital) ........................ $ 243,449,767
=============
17
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
At December 31, 2003, the Fund had a capital loss carryover of $42,954,175 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, $11,095,634 will expire in 2006, $20,935,877 will expire in 2009 and
$10,922,664 will expire in 2010. During the year ended December 31, 2003, the
Fund utilized $33,704,004 of prior year capital loss carryforwards.
The Fund's realized foreign exchange losses incurred after October 31, 2003, but
before December 31, 2003, are deemed to arise on the first business day of the
following year. The Fund incurred and elected to defer such realized foreign
exchange losses of $44,129.
During the period ended December 31, 2003, the Fund reclassified $183,331 from
accumulated net realized loss on investments to overdistribution of net
investment income as a result of permanent book and tax differences relating
primarily to realized foreign currency gains. Net investment income and net
assets were not affected by the reclassifications.
FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, assets and liabilities at the
prevailing rates of exchange on the valuation date; and
(ii) purchases and sales of investment securities and investment income at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Fund generally does not isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities. However, the Fund does isolate the effect of fluctuations in foreign
currency rates when determining the gain or loss upon the sale of foreign
currency denominated debt obligations pursuant to U.S. Federal income tax
regulations; such amounts are categorized as foreign currency gains or losses
for federal income tax purposes. The Fund reports certain realized foreign
exchange gains and losses as components of realized gains and losses for
financial reporting purposes, whereas such amounts are treated as ordinary
income for Federal income tax reporting purposes.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange. Foreign security and
currency transactions may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among other factors,
the level of governmental supervision and regulation of foreign securities
markets and the possibility of political or economic instability, and the fact
that foreign securities markets may be smaller and have less developed and less
reliable settlement and share registration procedures.
18
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
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 accounting principles generally accepted in the United States of
America. 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.
NOTE B: MANAGEMENT, INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
Advantage Advisers, Inc. ("Advantage"), a subsidiary of Oppenheimer Asset
Management Inc. ("OAM") and an affiliate of Oppenheimer & Co. Inc.
("Oppenheimer"), serves as the Fund's Investment Manager (the "Investment
Manager") under the terms of a management agreement dated June 5, 2003 (the
"Management Agreement"). Prior to September 2003, Oppenheimer was called
Fahnestock & Co. Inc. Imperial Investment Advisors Private Limited ("Imperial"),
an Indian company and subsidiary of Oppenheimer and Advantage India, Inc.,
serves as the Fund's Country Adviser (the "Country Adviser") under the terms of
an advisory agreement dated June 5, 2003 (the "Country Advisory Agreement").
From August 1, 2001 to April 30, 2002, Advantage India, Inc. served as the
Fund's Country Adviser under similar terms. 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 provides statistical and factual
information and research regarding economic, political factors and investment
opportunities in India to the Investment Manager. For their 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 receives from the
Investment Manager a fee to be agreed upon by the Investment Manager and the
Country Adviser from time to time. For the year ended December 31, 2003, fees
earned by the Investment Manager amounted to $4,395,688.
Oppenheimer, a registered investment advisor and an indirect wholly-owned
subsidiary of Oppenheimer Holdings Inc., serves as the Fund's Administrator (the
"Administrator") pursuant to an administration agreement dated June 4, 2003.
Prior to September 2003, Oppenheimer Holdings Inc. was called Fahnestock Viner
Holdings Inc. The Administrator provides certain administrative services
19
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
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 year ended
December 31, 2003, administration fees amounted to $799,216 (Prior to June 4,
2003, administration fees were paid to CIBC World Markets Corp.). The
Administrator subcontracts certain of these services to PFPC, Inc. In addition,
Multiconsult Ltd. (the "Mauritius Administrator") provides certain
administrative services relating to the operation and maintenance of the Fund in
Mauritius. The Mauritius Administrator receives a monthly fee of $1,500 and is
reimbursed for certain additional expenses. For the year ended December 31,
2003, fees and expenses of the Mauritius Administrator amounted to $26,813.
On December 10, 2002, Canadian Imperial Bank of Commerce, CIBC World Markets
Corp. ("CIBC WM"), Fahnestock & Co. Inc. ("Fahnestock") and Fahnestock Viner
Holdings Inc. ("FVH") announced that Fahnestock and FVH had agreed to acquire
the U.S. brokerage and asset management businesses of CIBC WM, including
Advantage and Imperial. The acquisition of the U.S. brokerage business closed on
January 3, 2003. As required under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund's then-existing Management Agreement and
Country Advisory Agreement provided for their automatic termination in the event
of their "assignment" as defined in the 1940 Act. Consummation of the
acquisition by Fahnestock and FVH of the asset management business of CIBC WM
constituted an assignment of the Fund's then existing Management Agreement and
Country Advisory Agreement. At a meeting on January 17, 2003, the Board of
Directors of the Fund, including a majority of the independent Directors,
approved a new investment management agreement between the Fund and Advantage
and a new Country Advisory Agreement between Advantage and Imperial. The
acquisition by Fahnestock and FVH of CIBC WM's U.S. asset management business
was completed on June 4, 2003. In connection with the June 4, 2003 acquisition,
a new investment management agreement and country advisory agreement dated June
4, 2003 was executed, having been previously approved by the Board of Directors
of the Fund, including a majority of the independent Directors at a special
meeting held on January 17, 2003 and by the stockholders of the Fund at the
Fund's April 23, 2003 annual meeting of stockholders, as required by the 1940
Act.
In September 2003, Fahnestock & Co. Inc. changed its name to Oppenheimer & Co.
Inc. and Fahnestock Viner Holdings Inc. changed its name to Oppenheimer Holdings
Inc.
The Fund pays each of its directors who is not a director, officer or employee
of the Investment Manager, the Country Adviser or the Administrator or any
affiliate thereof an annual fee of $5,000 plus up to $700 for each Board of
Directors meeting attended. In addition, the Fund reimburses all directors for
travel and out-of-pocket expenses incurred in connection with Board of Directors
meetings.
NOTE C: PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations, aggregated
$133,147,316 and $203,446,869 respectively, for the year ended December 31,
2003.
20
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
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 (the "tax treaty" or "treaty"). 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 is subject to a 15% withholding tax on dividends declared,
distributed or paid by an Indian company prior to June 1, 1997 and after March
31, 2002. During the period June 1, 1997 through March 31, 2002, and subsequent
to March 31, 2003, dividend income from domestic companies was exempt from
Indian income tax. For the period from April 1, 2002 through March 31, 2003,
dividend income from domestic companies was subject to a 15% withholding tax.
Effective April 1, 2003, dividend income from domestic companies is exempt from
Indian tax. The Fund is subject to and accrues Indian withholding tax on
interest earned on Indian securities at the rate of 20.5% effective April 1,
2003, 21% between April 1, 2002 and April 1, 2003, and 20% prior to April 1,
2002.
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%.
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 tax treaty between India and Mauritius
that, wherever a certificate of residence is issued by the 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 tax authorities. There
have been several hearings and the Fund is awaiting an appellate judgment. On
October 7, 2003, the Indian Supreme Court upheld Circular 789 and the Fund's
right to take advantage of the tax treaty between India and Mauritius.
21
THE INDIA FUND, INC.
Notes to Financial Statements (continued) DECEMBER 31, 2003
The Fund continues to: (i) comply with the requirements of the tax treaty
between India and Mauritius; (ii) be a tax resident of Mauritius; and (iii)
maintain that its central management and control resides in Mauritius and
therefore management believes that the Fund will be able to obtain the benefits
of the tax treaty between India and Mauritius. Accordingly, no provision for
Indian income taxes has been made in accompanying financial statements of the
Fund. Although the Fund expects to obtain the benefits of the treaty for the tax
year ended March 31, 1997, the Fund has not yet received notification of a
repeal of the assessment order issued.
The foregoing is based upon current interpretation and practice and is subject
to future changes in Indian or Mauritian tax laws and in the treaty between
India and Mauritius.
NOTE E: CAPITAL STOCK
During the year ended December 31, 2002, the Fund purchased 89,000 shares of
capital stock on the open market at a total cost of $920,118. The weighted
average discount of these purchases, comparing the purchase price to the net
asset value at the time of purchase, was 17.29%. 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 4,000,000 shares of
its capital stock on the open market. At a meeting of the Fund's Board of
Directors held May 8, 2003, the Board suspended the Fund's Stock Repurchase
Plan.
At a meeting of the Board of Directors held on January 29, 2002, the Board of
Directors approved a tender offer. Pursuant to the tender offer, the Fund
offered to purchase up to 10% of the Fund's outstanding shares of common stock
for cash at a price equal to 95% of the Fund's net asset value per share as of
the closing date. The tender offer commenced on August 30, 2002 and expired on
September 27, 2002. In connection with the tender offer, the Fund purchased
3,063,433 shares of capital stock at a total cost of $33,375,712, including
expenses of $168,098.
In February 2003, the Board of Directors approved, subject to stockholder
approval, a fundamental policy whereby the Fund would adopt an "interval fund"
structure pursuant to Rule 23c-3 under the Investment Company Act of 1940.
Stockholders of the Fund were to approve the policy at the Annual Meeting of
Stockholders held on April 23, 2003, however the proposal was adjourned and
later approved on April 30, 2003. As an interval fund, the Fund makes
semi-annual repurchase offers at net asset value (less a 2% repurchase fee) to
all Fund stockholders. The percentage of outstanding shares that the Fund can
repurchase in each offer is established by the Fund's Board of Directors shortly
before the commencement of each semi-annual offer, and is between 5% and 25% of
the Fund's then-outstanding shares.
22
THE INDIA FUND, INC.
Notes to Financial Statements (concluded) DECEMBER 31, 2003
During the year ended December 31, 2003, the Fund completed one semi-annual
repurchase offer. On August 22, 2003, the Fund offered to repurchase up to 15%
of its issued and outstanding shares of common stock. The repurchase offer
expired on September 12, 2003, and the shares were repurchased at the NAV at the
close of regular trading on the New York Stock Exchange on September 26, 2003,
less a repurchase fee of 2% of the NAV per share. Prior to the expiration of the
Fund's repurchase offer, 17,530,127.5345 shares were validly tendered and not
withdrawn. The final pro-ration calculations resulted in 139,149 odd lot shares
and 3,996,486 non-odd lot shares validly tendered. Under the final pro-ration,
22.97983% of the non-odd lot shares tendered were accepted for payment. The
shares accepted for tender (4,135,635 shares representing 15%) received cash at
a repurchase offer price of $17.2872, which was equal to the Fund's net asset
value of $17.64 as of September 26, 2003, less a repurchase fee of $0.3528 per
share, for a total cost to the Fund of $71,597,216, net of repurchase fee of
$1,459,052, and including expenses of $103,667.
NOTE F: CONCENTRATION OF RISKS
At December 31, 2003, 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 December 31, 2003, the Fund has a concentration
of its investment in computer, finance, and petroleum related industries. The
values of such investments may be affected by changes in such industry sectors.
NOTE G: OTHER
On October 29, 2003, the Board of Directors elected Lawrence K. Becker to serve
as a non-interested Director and as a member of the Fund's Audit Committee and
to function as the Audit Committee's "financial expert" for purposes of the U.S.
securities laws, including the Sarbanes-Oxley Act of 2002.
23
THE INDIA FUND, INC.
Report of Independent Auditors
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE INDIA FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The India Fund, Inc. (the "Fund")
at December 31, 2003, 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 five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. 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 auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 19, 2004
24
THE INDIA FUND, INC.
INFORMATION ABOUT DIRECTORS AND OFFICERS
The business and affairs of The India Fund, Inc. (the "Fund") are managed under
the direction of the Board of Directors. Information pertaining to the Directors
and executive officers of the Fund is set forth below.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE 1 AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND 1 TIME SERVED DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Lawrence K. Becker Director, Since 2003 Treasurer of the France 11 None
Member of Growth Fund, Inc. (February
8039 Harbor View Terrace the Audit and 2004-Present); Private
Brooklyn, NY 11209 Nominating Investor, Real Estate
Committees, Investment Management
Age: 48 Class I (July 2003-Present); Vice
President - Controller/
Treasurer, National
Financial Partners
(2000-2003); Managing
Director - Controller/
Treasurer, Oppenheimer
Capital - PIMCO
(1981-2000).
------------------------------------------------------------------------------------------------------------------------------------
Leslie H. Gelb Director and Since 1994 President Emeritus, The 2 Britannica.com; Director
Member of Council on Foreign of 31 registered
The Council on Foreign the Audit and Relations (2003-Present); investment companies
Relations Nominating President, The Council on advised by Salomon
58 East 68th Street Committees, Foreign Relations Brothers Asset Management
New York, NY 10021 Class II (1993-2003); Columnist ("SBAM").
(1991-1993), Deputy
Age: 66 Editorial Page Editor
(1985-1990) and Editor,
Op-Ed Page (1988-1990),
THE NEW YORK TIMES.
------------------------------------------------------------------------------------------------------------------------------------
J. Marc Hardy Director and Since 2002 Managing Director, 1 None
Member of the Mainstream Ltd.
De Chazal De Mee Building 10 Nominating (independent financial
Frere Felix de Valois Street Committee, advisor) and Value
Port Louis, Mauritius Class III Investors Ltd. (private
investment company).
Age: 49
------------------------------------------------------------------------------------------------------------------------------------
25
THE INDIA FUND, INC.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE 1 AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND 1 TIME SERVED DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Luis F. Rubio Director and Since 1999 President, Centro de 11 None
Member of Investigacion para el
Jaime Balmes No. 11, D-2 the Audit and Desarrollo, A.C. (Center of
Los Morales Polanco Nominating Research for Development)
Mexico, D.F. 11510 Committees, (2002-Present); Director
Class II General, Centro de
Age: 48 Investigacion para el
Desarrollo, A.C. (Center of
Research for Development)
(1984-2002); frequent
contributor of op-ed pieces
to THE LOS ANGELES TIMES
and THE WALL STREET
JOURNAL.
------------------------------------------------------------------------------------------------------------------------------------
Jeswald W. Salacuse Director, Since 1993 Henry J. Braker Professor 2 Director of 31 registered
Member of of Commercial Law, The investment companies
The Fletcher School of Law & the Audit Fletcher School of Law & advised by SBAM.
Diplomacy Committee Diplomacy (1986-Present);
Packard Avenue at Tufts and Chairman Dean, The Fletcher School
University, of the of Law & Diplomacy, Tufts
Medford, MA 02155 Nominating University (1986-1994).
Committee,
Age: 66 Class I
------------------------------------------------------------------------------------------------------------------------------------
Gabriel Seeyave Director and Since 1994 Tax Advisor; formerly 1 Director, The United
Member of the Partner, De Chazal De Mee & Basalt Products Limited.
De Chazal De Mee Building 10 Nominating Co. (chartered
Frere Felix de Valois Street Committee, accountants).
Port Louis, Mauritius Class II
Age: 72
------------------------------------------------------------------------------------------------------------------------------------
26
THE INDIA FUND, INC.
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
TERM OF OVERSEEN BY OTHER
POSITION OFFICE 1 AND DIRECTOR TRUSTEESHIPS/
WITH LENGTH OF PRINCIPAL OCCUPATION(S) (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND 1 TIME SERVED DURING PAST 5 YEARS THE FUND) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Bryan McKigney President, Since 1999 Managing Director, 2 None
Director and Oppenheimer Asset
90 Broad Street Chairman of Management (June
New York, NY 10004 the Board 2003-Present); Managing
Class III Director (2000-June 2003)
Age: 45 and Executive Director
(1993-2000), CIBC World
Markets Corp.; Managing
Director, CIBC Oppenheimer
Advisers, L.L.C. and
Advantage; President of the
Asia Tigers Fund, Inc.;
President of the India
Fund, Inc.; and formerly,
Vice President and Division
Executive, Head of
Derivative Operations
(1986-1993).
------------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Alan E. Kaye Treasurer Since 1999 Senior Vice President, None None
Oppenheimer Asset
90 Broad Street Management since June 2003
New York, NY 10004 and Executive Director
(1995-June 2003), CIBC
Age: 52 World Markets Corp.;
formerly, Vice President,
Oppenheimer & Co., Inc.
(1986-1994).
------------------------------------------------------------------------------------------------------------------------------------
Deborah Kaback Secretary Since 2003 Senior Vice President and None None
Senior Counsel, Oppenheimer
200 Park Avenue Asset Management Inc. since
24th Floor June 2003; Executive
New York, NY 10166 Director, CIBC World
Markets Corp. (August
Age: 52 2001-June 2003); Vice
President and Senior
Counsel, Oppenheimer Funds
Inc. (November 1999-August
2001); Senior Vice
President and Deputy
General Counsel,
Oppenheimer Capital (April
1989-November 1999).
------------------------------------------------------------------------------------------------------------------------------------
1 The Fund's Board of Directors is divided into three classes: Class I, Class II, and Class III. The terms of office of the Class I,
Class II, and Class III Directors expire at the Annual Meeting of Stockholders in the year 2006, year 2005, and year 2004,
respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Fund's executive
officers are chosen each year at the first meeting of the Fund's Board of Directors following the Annual Meeting of Stockholders,
to hold office until the meeting of the Board following the next Annual Meeting of Stockholders and until their successors are
duly elected and qualified.
27
THE INDIA FUND, INC.
Dividends and Distributions
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially all of its
net investment income, and to distribute any net realized capital gains at least
annually. Net investment income for this purpose is income other than net
realized long and short-term capital gains net of expenses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
the Plan Agent in Fund shares pursuant to the Plan, unless such shareholders
elect to receive distributions in cash. Shareholders who elect to receive
distributions in cash will receive all distributions in cash paid by check in
dollars mailed directly to the shareholder by the dividend paying agent. In the
case of shareholders such as banks, brokers or nominees, that hold shares for
others who are beneficial owners, the Plan Agent will administer the Plan on the
basis of the number of shares certified from time to time by the shareholders as
representing the total amount registered in such shareholders' names and held
for the account of beneficial owners that have not elected to receive
distributions in cash. Investors that own shares registered in the name of a
bank, broker or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value; provided,
however, that if the net asset value is less than 95% of the market price on
valuation date, then such shares will be issued at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If net asset value exceeds the market price of Fund shares at such time, or
if the Fund should declare an income dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants, buy
Fund shares in the open market, on the New York Stock Exchange or elsewhere, for
the participants' accounts on, or shortly after, the payment date. if, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the distribution had been paid in shares
issued by the Fund on the dividend payment date.
28
THE INDIA FUND, INC.
Dividends and Distributions (continued)
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Because of the forgoing difficulty with respect to open market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and shareholders will receive the
uninvested portion of the dividend amount in newly issued shares at the close of
business on the last purchase date.
Participants have the option of making additional cash payments to the Plan
Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Fund shares in the open market on or about February 15.
Any voluntary cash payment received more than 30 days prior to this date will be
returned by the Plan Agent, and interest will not be paid on any uninvested cash
payment. To avoid unnecessary cash accumulations, and also to allow ample time
for receipt and processing by the Plan Agent, it is suggested that participants
send in voluntary cash payments to be received by the Plan Agent approximately
ten days before an applicable purchase date specified above. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commissions thus attainable.
29
THE INDIA FUND, INC.
Dividends and Distributions (concluded)
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax that may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
P.O. Box 43027, Westborough, Massachusetts 43027.
30
THE INDIA FUND, INC.
PRIVACY POLICY OF
ADVANTAGE ADVISERS, INC.
THE ASIA TIGERS FUND, INC.
THE INDIA FUND, INC.
--------------------------------------------------------------------------------
YOUR PRIVACY IS PROTECTED
An important part of our commitment to you is our respect for your right to
privacy. Protecting all the information we are either required to gather or
which accumulates in the course of doing business with you is a cornerstone of
our relationship with you. While the range of products and services we offer
continues to expand, and the technology we use continues to change, our
commitment to maintaining standards and procedures with respect to security
remains constant.
COLLECTION OF INFORMATION
The primary reason that we collect and maintain information is to more
effectively administer our customer relationship with you. It allows us to
identify, improve and develop products and services that we believe could be of
benefit. It also permits us to provide efficient, accurate and responsive
service, to help protect you from unauthorized use of your information and to
comply with regulatory and other legal requirements. These include those related
to institutional risk control and the resolution of disputes or inquiries.
Various sources are used to collect information about you, including (i)
information you provide to us at the time you establish a relationship, (ii)
information provided in applications, forms or instruction letters completed by
you, (iii) information about your transactions with us or our affiliated
companies, and/or (iv) information we receive through an outside source, such as
a bank or credit bureau. In order to maintain the integrity of client
information, we have procedures in place to update such information, as well as
to delete it when appropriate. We encourage you to communicate such changes
whenever necessary.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic, personal information (such as your name,
address or tax identification number) about our clients or former clients to
anyone, except as permitted or required by law. We maintain physical, electronic
and procedural safeguards to protect such information, and limit access to such
information to those employees who require it in order to provide products or
services to you.
The law permits us to share client information with companies that are
affiliated with us which provide financial, credit, insurance, trust, legal,
accounting and administrative services to us or our clients. This allows us to
enhance our relationship with you by providing a broader range of products to
better meet your needs and to protect the assets you may hold with us by
preserving the safety and soundness of our firm.
31
PRIVACY POLICY OF
ADVANTAGE ADVISERS, INC.
THE ASIA TIGERS FUND, INC.
THE INDIA FUND, INC.
--------------------------------------------------------------------------------
Finally, we are also permitted to disclose nonpublic, personal information to
unaffiliated outside parties who assist us with processing, marketing or
servicing a financial product, transaction or service requested by you,
administering benefits or claims relating to such a transaction, product or
service, and/or providing confirmations, statements, valuations or other records
or information produced on our behalf.
It may be necessary, under anti-money laundering or other laws, to disclose
information about you in order to accept your subscription. Information about
you may also be released if you so direct, or if we or an affiliate are
compelled to do so by law, or in connection with any government or
self-regulatory organization request or investigation.
We are committed to upholding this Privacy Policy. We will notify you on an
annual basis of our policies and practices in this regard and at any time that
there is a material change that would require your consent.
May 2003
32
(This page intentionally left blank.)
(This page intentionally left blank.)
(This page intentionally left blank.)
Advantage Advisers,Inc.
The India Fund, Inc.
Annual Report
December 31, 2003
The India Fund, Inc.
THE INDIA FUND, INC.
INVESTMENT MANAGER:
Advantage Advisers, Inc.,
a subsidiary of Oppenheimer Asset
Management Inc.
ADMINISTRATOR:
Oppenheimer & Co. Inc.
SUB-ADMINISTRATOR:
PFPC Inc.
TRANSFER AGENT:
PFPC Inc.
CUSTODIAN:
Deutsche Bank AG
The Fund has adopted the Investment Manager's proxy voting policies and
procedures to govern the voting of proxies relating to its voting securities.
You may obtain a copy of these proxy voting procedures, without charge, by
calling (800) 421-4777.
ITEM 2. CODE OF ETHICS.
(a) The registrant, on July 29, 2003, adopted a Code of Ethics that
applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party (the
"Code of Ethics").
(b) There have been no amendments, during the period covered by this
report, to any provisions of the Code of Ethics.
(c) The registrant has not granted any waivers, during the period covered
by this report, including an implicit waiver, from any provisions of
the Code of Ethics.
(d) Not Applicable.
(e) Not Applicable.
(f) A copy of the registrant's Code of Ethics is filed as an exhibit
hereto. The registrant undertakes to provide a copy of the Code of
Ethics to any person, without charge upon request to the registrant at
its address at 200 Park Avenue, New York, NY 10166.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors has determined that the registrant has at
least one audit committee financial expert serving on its audit committee, Mr.
Lawrence Becker, and that Mr. Becker is "independent." Mr. Becker was elected as
a non-interested Director of the Audit Committee at a meeting of the board of
directors held on October 23, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
----------
(a) The aggregate fees billed for professional services rendered by the
principal accountant for the audit of the registrant's annual
financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for the fiscal years ended December 31, 2002 and December
31, 2003 were $116,000 and $95,550, respectively, including
out-of-pocket expenses.
AUDIT-RELATED FEES
------------------
(b) The aggregate fees billed for assurance and related services by the
principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item for the fiscal years ended
December 31, 2002 and December 31, 2003 were $0 and $3,638
respectively. Such fees related to assistance with assessment of the
registrant's disclosure controls and procedures.
TAX FEES
--------
(c) The aggregate fees billed for professional services rendered by the
principal accountant for domestic and international tax compliance,
tax advice, and tax planning services for the fiscal years ending
December 31, 2002 and December 31, 2003 were $69,356 and $65,265,
respectively.
ALL OTHER FEES
--------------
(d) The aggregate fees billed for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item for the fiscal years ending December 31,
2002 and December 31, 2003 were $0 and $0, respectively.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The registrant's Audit Committee Charter provides that the Audit Committee
shall pre-approve, to the extent required by applicable law, all audit and
non-audit services that the registrant's independent auditors provide to
the registrant and (ii) all non-audit services that the registrant's
independent auditors provide to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
registrant's investment adviser that provides ongoing services to the
registrant, if the engagement relates directly to the operations and
financial reporting of the registrant.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X
are as follows:
(b) 0% (Service performed prior to May 6, 2003)
(c) 0% 2002 100% 2003
(d) Not applicable.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was zero percent (0%).
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the
adviser that provides ongoing services to the registrant for the
fiscal years ended December 31, 2002 and December 31, 2003 were
$472,000 and $50,050, respectively.
(h) The registrant's audit committee of the board of directors HAS
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated audit committee consisting of all the
independent directors of the registrant. The members of the audit committee are
Lawrence K. Becker, Leslie H. Gelb, Luis F. Rubio and Jeswald W. Salacuse.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
ADVANTAGE ADVISERS, INC.
PROXY VOTING MANUAL
INTRODUCTION 4
-----------------------------------------------------------------
CHAPTER 1 BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS 6
-----------------------------------------------------------------------------
CHAIRMAN & CEO ARE THE SAME PERSON 7
-----------------------------------------------------------------------------
INDEPENDENCE OF DIRECTORS 8
-----------------------------------------------------------------------------
STOCK OWNERSHIP REQUEST 9
-----------------------------------------------------------------------------
CHARITABLE CONTRIBUTIONS 10
-----------------------------------------------------------------------------
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION 11
-----------------------------------------------------------------------------
VOTE RECOMMENDATION 12
-----------------------------------------------------------------------------
SIZE OF THE BOARD 13
-----------------------------------------------------------------------------
VOTING ON DIRECTOR NOMINEES IN CONTESTED ELECTIONS 14
-----------------------------------------------------------------------------
TERM OF OFFICE 15
-----------------------------------------------------------------------------
COMPENSATION DISCLOSURE 16
CHAPTER 2 AUDITORS
------------------
17
-----------------------------------------------------------------------------
RATIFYING AUDITORS 18
-----------------------------------------------------------------------------
CHAPTER 3 TENDER OFFER DEFENSES
-------------------------------
19
-----------------------------------------------------------------------------
POISON PILLS 20
-----------------------------------------------------------------------------
GREENMAIL 21
-----------------------------------------------------------------------------
SUPERMAJORITY VOTE 22
-----------------------------------------------------------------------------
CHAPTER 4 MERGERS AND CORPORATE RESTRUCTURING
---------------------------------------------
23
-----------------------------------------------------------------------------
CHANGING CORPORATE NAME 24
-----------------------------------------------------------------------------
REINCORPORATION 25
-----------------------------------------------------------------------------
CHAPTER 5 PROXY CONTEST DEFENSES
--------------------------------
26
-----------------------------------------------------------------------------
BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS 27
-----------------------------------------------------------------------------
CUMULATIVE VOTING 28
-----------------------------------------------------------------------------
SHAREHOLDERS' ABILITY TO CALL SPECIAL MEETING 29
-----------------------------------------------------------------------------
SHAREHOLDERS' ABILITY TO ALTER SIZE OF THE BOARD 30
-----------------------------------------------------------------------------
CHAPTER 6 MISCELLANEOUS CORPORATE
---------------------------------
GOVERNANCE PROVISIONS 31
-----------------------------------------------------------------------------
CONFIDENTIAL VOTING 32
-----------------------------------------------------------------------------
SHAREHOLDER ADVISORY COMMITTEES 33
-----------------------------------------------------------------------------
FOREIGN CORPORATE MATTERS 34
-----------------------------------------------------------------------------
GOVERNMENT SERVICE LIST
-----------------------
35
-----------------------------------------------------------------------------
CHAPTER 7 SOCIAL AND ENVIRONMENTAL ISSUES 36
-----------------------------------------------------------------------------
ENERGY AND ENVIRONMENTAL ISSUES (CERES PRINCIPLES) 37
-----------------------------------------------------------------------------
2
NORTHERN IRELAND (MACBRIDE PRINCIPLES)
--------------------------------------
38
-----------------------------------------------------------------------------
MAQUILADORA STANDARDS & INTERNATIONAL OPERATIONS AND POLICIES 39
-----------------------------------------------------------------------------
EQUAL EMPLOYMENT OPPORTUNITY & DISCRIMINATION 40
-----------------------------------------------------------------------------
ANIMAL RIGHTS 41
-----------------------------------------------------------------------------
CHAPTER 8 CAPITAL STRUCTURE
---------------------------
42
-----------------------------------------------------------------------------
COMMON STOCK AUTHORIZATION
--------------------------
43
-----------------------------------------------------------------------------
BLANK CHECK PREFERRED STOCK
---------------------------
44
-----------------------------------------------------------------------------
PREEMPTIVE RIGHTS 45
-----------------------------------------------------------------------------
STOCK DISTRIBUTION: SPLITS AND DIVIDENDS 46
-----------------------------------------------------------------------------
REVERSE STOCK SPLITS
--------------------
47
-----------------------------------------------------------------------------
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK 48
-----------------------------------------------------------------------------
DEBT RESTRUCTURING 49
-----------------------------------------------------------------------------
CHAPTER 9 EXECUTIVE AND DIRECTOR COMPENSATION
---------------------------------------------
50
-----------------------------------------------------------------------------
DIRECTOR COMPENSATION 51
-----------------------------------------------------------------------------
SHAREHOLDER PROPOSAL TO LIMIT EXECUTIVE AND DIRECTOR PAY 52
-----------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
--------------------------------------
53
-----------------------------------------------------------------------------
OPTIONS EXPENSING 54
-----------------------------------------------------------------------------
GOLDEN PARACHUTES 55
-----------------------------------------------------------------------------
PROPOSAL TO BAN GOLDEN PARACHUTES 56
-----------------------------------------------------------------------------
OUTSIDE DIRECTORS' RETIREMENT COMPENSATION 57
-----------------------------------------------------------------------------
CHAPTER 10 STATE OF INCORPORATION
---------------------------------
58
-----------------------------------------------------------------------------
CONTROL SHARE ACQUISITION STATUTES 59
-----------------------------------------------------------------------------
OPT-OUT OF STATE TAKEOVER STATUTES
----------------------------------
60
-----------------------------------------------------------------------------
CORPORATE RESTRUCTURING, SPIN-OFFS, ASSET SALES, LIQUIDATIONS 61
-----------------------------------------------------------------------------
CHAPTER 11 CONFLICT OF INTEREST
-------------------------------
62
-----------------------------------------------------------------------------
CONFLICTS 63
-----------------------------------------------------------------------------
CONFLICTS CONT'D 64
-----------------------------------------------------------------------------
CHAPTER 12 CORPORATE GOVERNANCE COMMITTEE & PROXY MANAGERS
----------------------------------------------------------
65
-----------------------------------------------------------------------------
3
CORPORATE GOVERNANCE COMMITTEE 66
-----------------------------------------------------------------------------
PROXY MANAGERS 67
-----------------------------------------------------------------------------
CHAPTER 13 SPECIAL ISSUES WITH VOTING FOREIGN PROXIES
-----------------------------------------------------
68
-----------------------------------------------------------------------------
SPECIAL ISSUES 69
-----------------------------------------------------------------------------
CHAPTER 14 RECORD KEEPING 70
-----------------------------------------------------------------------------
RECORD KEEPING 71
-----------------------------------------------------------------------------
4
INTRODUCTION
------------
Rule 206(4)-6 (the "Rule") adopted under the Investment Advisers Act of 1940, as
amended (the "Advisers Act") requires all registered investment advisers that
exercise voting discretion over securities held in client portfolios to adopt
proxy voting policies and procedures.
Advantage Advisers, Inc., (the "Adviser") is a registered investment adviser
under the Advisers Act and is therefore required to adopt proxy voting policies
and procedures pursuant to the Rule.
When the Adviser has investment discretion over a client's investment portfolio,
then the Adviser votes proxies for the Account pursuant to the policies and
procedures set forth herein.
5
VOTING ON DIRECTOR NOMINEES
---------------------------
IN UNCONTESTED ELECTIONS
------------------------
-
These proposals seek shareholder votes for persons who have been nominated by a
corporation's board of directors to stand for election to serve as members of
that board. No candidates are opposing these board nominees.
In each analysis of an uncontested election of directors you should review:
a) Company performance
b) Composition of the board and key board committees
c) Attendance at board meetings
d) Corporate governance provisions and takeover activity
We may also consider:
a) Board decisions concerning executive compensation
b) Number of other board seats held by the nominee
c) Interlocking directorships
VOTE RECOMMENDATION
It is our policy to vote IN FAVOR of
the candidates proposed by the board.
We will look carefully at each candidate's background contained in the proxy
statement. In the absence of unusual circumstances suggesting a nominee is
clearly not qualified to serve as a member of the board, we will vote with
management.
6
CHAIRMAN AND CEO ARE THE SAME PERSON
------------------------------------
Shareholders may propose that different persons hold the positions of the
chairman and the CEO.
We would evaluate these proposals on a case by case basis depending on the
size of the company and performance of management.
7
INDEPENDENCE OF DIRECTORS
-------------------------
Shareholders may request that the board be comprised of a majority of
independent directors and that audit, compensation and nominating
committees of the Board consists exclusively of independent directors. We
believe that independent directors are important to corporate governance.
VOTE RECOMMENDATION
It is our policy to vote
FOR proposals requesting
that a majority of the
Board be independent and
that the audit,
compensation and nominating
committees of the board
include only independent
directors.
8
STOCK OWNERSHIP REQUIREMENTS
----------------------------
Shareholders may propose that directors be required to own a minimum
amount of company stock or that directors should be paid in company stock, not
cash. This proposal is based on the view that directors will align themselves
with the interest of shareholders if they are shareholders themselves. We
believe that directors are required to exercise their fiduciary duty to the
company and its shareholders whether or not they own shares in the company and
should be allowed to invest in company stock based on their own personal
considerations.
VOTE RECOMMENDATION
Vote AGAINST proposals that
require director stock ownership
9
CHARITABLE CONTRIBUTIONS
------------------------
Charitable contributions by companies are generally useful for
assisting worthwhile causes and for creating goodwill between the
company and its community. Moreover, there may be certain long-term
financial benefits to companies from certain charitable contributions
generated from, for example, movies spent helping educational efforts
in the firm's primary employment areas. Shareholders should not decide
what the most worthwhile charities are.
VOTE RECOMMENDATION
(Shareholders Proposals)
Vote AGAINST proposals regarding
charitable contribution.
Shareholders have differing and equally sincere views as to which
charities the company should contribute to, and the amount it should
contribute. In the absence of bad faith, self-dealing, or gross
negligence, management should determine which contributions are in the
best interest of the company.
10
DIRECTOR AND OFFICER INDEMNIFICATION
------------------------------------
AND LIABILITY PROTECTION
------------------------
These proposals typically provide for protection (or additional
protection) which is to be afforded to the directors of a corporation
in the form of indemnification by the corporation, insurance coverage
or limitations upon their liability in connection with their
responsibilities as directors.
When a corporation indemnifies its directors and officers, it means the
corporation promises to reimburse them for certain legal expenses,
damages, and judgements incurred as a result of lawsuits relating to
their corporate actions. The corporation becomes the insurer for its
officers and directors.
11
VOTE RECOMMENDATION
Vote AGAINST proposals that
eliminate entirely director and
officers' liability for monetary
damages for violating the duty
of care.
Vote AGAINST indemnification
proposals that would expand
coverage beyond just legal expenses
to acts, such as negligence, that
are more serious violations of
fiduciary obligations than mere
carelessness.
Vote FOR only those proposals
providing such expanded coverage in
cases when a director's or
officer's legal defense was
unsuccessful if: a) the director
was found to have acted in good
faith, and b) only if the
director's legal expenses would be
covered.
The following factors should be considered:
1. The present environment in which directors operate provides
substantial risk of claims or suits against against them in
their individual capacities arising out of the discharge of
their duties.
2. Attracting and retaining the most qualified directors
enhances shareholder value.
12
SIZE OF THE BOARD
-----------------
Typically there are three reasons for changing the size of the board.
The first reason may be to permit inclusion into the board of
additional individuals who, by virtue of their ability and experience,
would benefit the corporation. The second reason may be to reduce the
size of the board due to expiration of terms, resignation of sitting
directors or, thirdly, to accommodate the corporation's changing needs.
VOTE RECOMMENDATION
Vote FOR the board's recommendation
to increase or decrease the size of
the board.
The following factors should be considered:
1. These proposals may aim at reducing or increasing the influence of
certain groups of individuals.
2. This is an issue with which the board of directors is uniquely
qualified to deal, since they have the most experience in sitting
on a board and are up-to-date on the specific needs of the corporation.
13
VOTING ON DIRECTOR NOMINEES IN CONTESTED ELECTIONS
--------------------------------------------------
Votes in contested elections of directors are evaluated on a CASE-BY-CASE basis.
The following factors are considered:
1. management's track record
2. background to the proxy contest
3. qualifications of director nominees
14
TERM OF OFFICE
--------------
This is a shareholder's proposal to limit the tenure of outside directors. This
requirement may not be an appropriate one. It is an artificial imposition on the
board, and may have the result of removing knowledgeable directors from the
board.
VOTE RECOMMENDATION
Vote AGAINST shareholder
proposals to limit the tenure of
outside directors.
The following factors should be considered:
1. An experienced director should not be disqualified because he or she
has served a certain number of years.
2. The nominating committee is in the best position to judge the
directors' terms in office due to their understanding of a corporation's
needs and a director's abilities and experience.
3. If shareholders are not satisfied with the job a director is doing,
they can vote him/her off the board when the term is up.
15
COMPENSATION DISCLOSURE
-----------------------
These proposals seek shareholder approval of a request that the board of
directors disclose the amount of compensation paid to officers and employees, in
addition to the disclosure of such information in the proxy statement as
required by the SEC regulations.
VOTE RECOMMENDATION
(shareholders policy)
Vote AGAINST these proposals that
require disclosure, unless we have
reason to believe that mandated
disclosures are insufficient to
give an accurate and meaningful
account of senior management
compensation.
The following factors should be considered:
1. Federal securities laws require disclosure in corporate proxy
statements of the compensation paid to corporate directors and officers.
2. Employees other than executive officers and directors are typically
not in policy-making roles where they have the ability to determine, in a
significant way, the amount of their own compensation.
3. The disclosure of compensation of lower-level officers and employees
infringes upon their privacy and might create morale problems.
16
CHAPTER 2
AUDITORS
17
RATIFYING AUDITORS
Shareholders must make certain that auditors are responsibly examining the
financial statements of a company, that their reports adequately express any
legitimate financial concerns, and that the auditor is independent of the
company it is serving.
VOTE RECOMMENDATION
Vote FOR proposal to ratify auditors.
The following factors should be considered:
1. Although lawsuits are sometimes filed against accounting firms,
including those nationally recognized, these firms typically complete
their assignments in a lawful and professional manner.
2. Sometimes it may be appropriate for a corporation to change
accounting firms, but the board of directors is in the best position to
judge the advantages of any such change and any disagreements with
former auditors must be fully disclosed to shareholders.
3. If there is a reason to believe the independent auditor has rendered
an opinion which is neither accurate nor indicative of the company's
financial position, then in this case vote AGAINST ratification.
18
CHAPTER 3
TENDER OFFER DEFENSES
19
POISON PILLS
------------
Poison pills are corporate-sponsored financial devices that, when triggered by
potential acquirers, do one or more of the following: a) dilute the acquirer's
equity in the target company, b) dilute the acquirer's voting interests in the
target company, or c) dilute the acquirer's equity holdings in the post-merger
company. Generally, poison pills accomplish these tasks by issuing rights or
warrants to shareholders that are essentially worthless unless triggered by a
hostile acquisition attempt.
A poison pill should contain a redemption clause that would allow the board to
redeem it even after a potential acquirer has surpassed the ownership threshold.
Poison pills may be adopted by the board without shareholder approval. But
shareholders must have the opportunity to ratify or reject them at least every
two years.
VOTE RECOMMENDATION
Vote FOR shareholder proposals
asking that a company submit its
poison pill for shareholder
ratification.
Vote on a CASE-BY-CASE basis
regarding shareholder proposals to
redeem a company's poison pill.
Vote on a CASE-BY-CASE basis
regarding management proposals to
ratify a poison pill.
20
GREENMAIL
---------
Greenmail payments are targeted share repurchases by management of company stock
from individuals or groups seeking control of the company. Since only the
hostile party receives payment, usually at a substantial premium over the
market, the practice discriminates against all other shareholders.
Greenmail payments usually expose the company to negative press and may result
in lawsuits by shareholders. When a company's name is associated with such a
practice, company customers may think twice about future purchases made at the
expense of the shareholders.
VOTE RECOMMENDATION
Vote FOR proposals to adopt anti
Greenmail or bylaw amendments or
otherwise restrict a company's
ability to make Greenmail payments
Vote on a CASE-BY-CASE basis
regarding anti-Greenmail proposals
when they are bundled with other
charter or bylaw amendments.
The following factors should be considered:
1. While studies by the SEC and others show that Greenmail devalues
the company's stock price, an argument can be made that a payment can
enable the company to pursue plans that may provide long-term gains to
the shareholders.
21
SUPERMAJORITY VOTE
------------------
Supermajority provisions violate the principle that a simple majority of voting
shares should be all that is necessary to effect change regarding a company and
its corporate governance provisions. These proposals seek shareholder approval
to exceed the normal level of shareholder participation and approval from a
simple majority of the outstanding shares to a much higher percentage.
VOTE RECOMMENDATIONS
Vote AGAINST management proposals
to require a Supermajority
shareholder vote to approve mergers
and other significant business
combinations.
Vote FOR shareholder proposals to
lower Supermajority vote
requirements for mergers and other
significant business combinations.
The following factors should be considered:
1. Supermajority requirements ensure broad agreement on issues that may
have a significant impact on the future of the company.
2. Supermajority vote may make action all but impossible.
3. Supermajority requirements are counter to the principle of majority
rule.
22
CHAPTER 4
MERGERS
AND
CORPORATE
RESTRUCTURING
23
CHANGING CORPORATE NAME
-----------------------
This proposal seeks shareholder approval to change the corporation's name. It is
probably better to vote for the proposed name change before management goes back
to the drawing board and spends another small fortune attempting again to change
the name.
VOTE RECOMMENDATION
Vote FOR changing the corporate
name.
The following factors should be considered:
1. A name of a corporation symbolizes its substance.
2. There are many reasons a corporation may have for changing its name,
including an intention to change the direction of the business or to
have a contemporary corporate image.
3. The board of directors is well-positioned to determine the best name
for the corporation because, among other reasons, it usually seeks
professional advice on such matters.
24
REINCORPORATION
---------------
These proposals seek shareholder approval to change the state in which a company
is incorporated. Sometimes this is done to accommodate the company's most active
operations or headquarters. More often, however, the companies want to
reincorporate in a state with more stringent anti-takeover provisions.
Delaware's state laws, for instance, including liability and anti-takeover
provisions, are more favorable to corporations.
VOTE RECOMMENDATION
Vote on a CASE-BY-CASE basis,
carefully reviewing the new state's
laws and any significant changes
the company makes in its charter
and by-laws.
The following factors should be considered:
1. The board is in the best position to determine the company's need to
incorporate.
2. Reincorporation may have considerable implications for shareholders,
affecting a company's takeover defenses, its corporate structure or
governance features.
3. Reincorporation in a state with stronger anti-takeover laws may harm
shareholder value.
25
CHAPTER 5
PROXY
CONTEST
DEFENSES
26
BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
-----------------------------------------------
A company that has classified, or staggered, board is one in which directors are
typically divided into three classes, with each class serving three-year terms;
each class's reelection occurs in different years. In contrast, all directors of
an annually elected board serve one-year and the entire board stands for
election each year.
Classifying the board makes it more difficult to change control of a company
through a proxy contest involving election of directors. Because only a minority
of the directors are elected each year, it will be more difficult to win control
of the board in a single election.
VOTE RECOMMENDATIONS
Vote AGAINST proposals to classify
the board. Vote FOR proposals to
repeal classified boards and to
elect all directors annually.
The following factors should be considered:
1. The annual election of directors provides an extra check on
management's performance. A director who is doing a good job should
not fear an annual review of his/her directorship.
27
CUMULATIVE VOTING
-----------------
Most companies provide that shareholders are entitled to cast one vote for each
share owned, the so-called "one share, one vote" standard. This proposal seeks
to allow each shareholder to cast votes in the election of directors
proportionate to the number of directors times the number of shares owned by
each shareholder for one nominee.
VOTE RECOMMENDATION
Vote AGAINST proposals that permit
cumulative voting.
The following factors should be considered:
1. Cumulative voting would allow a minority owner to create an impact
disproportionate to his/her holdings.
2. Cumulative voting can be used to elect a director who would represent
special interests and not those of the corporation and its
shareholders.
3. Cumulative voting can allow a minority to have representation.
4. Cumulative Voting can lead to a conflict within the board which could
interfere with its ability to serve the shareholders' best interests.
28
SHAREHOLDERS' ABILITY TO CALL SPECIAL MEETING
---------------------------------------------
Most state corporation statutes allow shareholders to call a special meeting
when they want to take action on certain matters that arise between regularly
scheduled annual meetings.
VOTE RECOMMENDATION
Vote AGAINST proposals to restrict
or prohibit shareholder ability to
call special meetings.
Vote FOR proposals that remove
restrictions on the right of
shareholders to act independently
of management.
29
SHAREHOLDERS' ABILITY TO ALTER SIZE OF THE BOARD
------------------------------------------------
Proposals which would allow management to increase or decrease the size of the
board at its own discretion are often used by companies as a takeover defense.
Shareholders should support management proposals to fix the size of the board at
a specific number of directors, preventing management from increasing the size
of the board without shareholder approval. By increasing the size of the board,
management can make it more difficult for dissidents to gain control of the
board.
VOTE RECOMMENDATIONS
Vote FOR proposal which seek to fix
the size of the board.
Vote AGAINST proposals which give
management the ability to alter
the size of the board without
shareholder approval.
30
CHAPTER 6
MISCELLANEOUS
CORPORATE
GOVERNANCE
PROVISIONS
31
CONFIDENTIAL VOTING
-------------------
Confidential voting, also known as voting by secret ballot, is one of the key
structural issues in the proxy system. All proxies, ballots, and voting
tabulations that identify individual shareholders are kept confidential.
VOTE RECOMMENDATIONS
Vote FOR shareholder proposals
requesting that corporations adopt
confidential voting.
Vote FOR management proposals to
adopt confidential voting.
The following factors should be considered:
1. Some shareholders elect to have the board not know how they voted on
certain issues.
2. Should the board be aware of how a shareholder voted, the board could
attempt to influence the shareholder to change his/her vote, giving
itself an advantage over those that do not have access to this
information.
3. Confidential voting is an important element of corporate democracy
which should be available to the shareholder.
32
SHAREHOLDER ADVISORY COMMITTEES
-------------------------------
These proposals request that the corporation establish a shareholder advisory
committee to review the board's performance. In some instances, it would have a
budget funded by the corporation and would be composed of salaried committee
members with authority to hire outside experts and to include reports in the
annual proxy statement.
VOTE RECOMMENDATION
Vote AGAINST proposals to establish
a shareholder advisory committee.
The following factors should be considered:
1. Directors already have fiduciary responsibility to represent
shareholders and are accountable to them by law, thus rendering
shareholder advisory committees unnecessary.
2. Adding another layer to the current corporate governance system would
be expensive and unproductive.
33
FOREIGN CORPORATE MATTERS
-------------------------
These proposals are usually submitted by companies incorporated outside of the
United States seeking shareholder approval for actions which are considered
ordinary business and do not require shareholder approval in the United States
(i.e., declaration of dividends, approval of financial statements, etc.).
VOTE RECOMMENDATION
Vote FOR proposals that concern
foreign companies incorporated
outside of the United States.
The following factors should be considered:
1. The laws and regulations of various countries differ widely as to
those issues on which shareholder approval is needed, usually
requiring consent for actions which are considered routine in the
United States.
2. The board of directors is well-positioned to determine whether or not
these types of actions are in the best interest of the corporation's
shareholders.
34
GOVERNMENT SERVICE LIST
-----------------------
This proposal requests that the board of directors prepare a list of employees
or consultants to the company who have been employed by the government within a
specified period of time and the substance of their involvement.
Solicitation of customers and negotiation of contractual or other business
relationships is traditionally the responsibility of management. Compilation of
such a list does not seem to serve a useful purpose, primarily because existing
laws and regulations serve as a checklist on conflicts of interest.
VOTE RECOMMENDATION
Vote AGAINST these proposals which
a request a list of employees
having been employed by the
government.
The following factors should be considered:
1. For certain companies, employing individuals familiar with the
regulatory agencies and procedures is essential and, therefore, is in
the best interests of the shareholders.
2. Existing laws and regulations require enough disclosure and serve as a
check on conflicts of interest.
3. Additional disclosure would be an unreasonable invasion of such
individual's privacy.
35
CHAPTER 7
SOCIAL
AND
ENVIRONMENTAL
ISSUES
36
ENERGY AND ENVIRONMENTAL ISSUES
-------------------------------
(CERES PRINCIPLES)
------------------
CERES proposals ask management to sign or report on process toward compliance
with ten principles committing the company to environmental stewardship.
Principle 10 directs companies to fill out the CERES report. This report
requires companies to disclose information about environmental policies, toxic
emissions, hazardous waste management, workplace safety, energy use, and
environmental audits.
VOTE RECOMMENDATION
Vote AGAINST proposals requesting
that companies sign the CERES
Principles.
The following factors should be considered:
1. We do not believe a concrete business case is made for this proposal.
In our opinion, the company will be best served by continuing to carry
on its business as it did before the proposal was made.
37
NORTHERN IRELAND
----------------
(MACBRIDE PRINCIPLES)
---------------------
It is well documented that Northern Ireland's Catholic community faces much
higher unemployment figures then the Protestant community. Most proposals ask
companies to endorse or report on progress with respect to the MacBride
Principles.
In evaluating a proposal to adopt the MacBride Principles, you must decide if
the principles will cause the company to divest, and worsen unemployment
problems.
VOTE RECOMMENDATION
REFRAIN from voting on proposals
that request companies to adopt the
MacBride Principles.
The following factors should be considered:
1. We believe that human and political rights are of the utmost
importance for their own sake as well as for the enhancement of
economic potential of a nation.
2. We do not believe a concrete business case has been made for this
proposal. We will refrain from making social or political statements
by voting for these proposals. We will only vote on proposals that
maximize the value of the issuers' status without regard to (i.e., we
will not pass judgement upon) the non-economic considerations.
38
MAQUILADORA STANDARDS AND
-------------------------
INTERNATIONAL OPERATIONS AND POLICIES
-------------------------------------
Proposals in this area generally request companies to report on or to adopt
certain principles regarding their operations in foreign countries.
The Maquiladora Standards are a set of guidelines that outline how U.S.
companies should conduct operations in Maquiladora facilities just across the
U.S.-Mexican border. These standards cover such topics as community development,
environmental policies, health and safety policies, and fair employment
practices.
VOTE RECOMMENDATION
ABSTAIN from providing a vote
recommendation on proposals
regarding the Maquiladora Standards
and international operating
policies.
The following factors should be considered:
1. We believe that human rights are of the utmost importance for their
own sake as well as for the enhancement of economic potential of a
nation.
2. We do not believe that a concrete business case has been made for
these proposals. We will refrain from making social statements by
voting for these proposals. We will not only vote on proposals that
maximize the value of the issuers' securities without regard to (i.e.,
we will not pass judgement upon) the non-economic considerations.
39
EQUAL EMPLOYMENT OPPORTUNITY
----------------------------
AND DISCRIMINATION
------------------
In regards to equal employment and discrimination, companies without
comprehensive EEO programs will find it hard to recruit qualified employees and
find them at a long-term competitive disadvantage. Companies who are not
carefully watching their human resource practices could also face lawsuits.
VOTE RECOMMENDATION
REFRAIN from voting on any
proposals regarding equal
employment opportunities and
discrimination.
The following factors should be considered:
1. We feel that the hiring and promotion of employees should be free from
prohibited discriminatory practices. We also feel that many of these
issues are already subject to significant state and federal
regulations.
40
ANIMAL RIGHTS
-------------
A Corporation is requested to issue a report on its progress towards reducing
reliance on animal tests for consumer product safety.
VOTE RECOMMENDATION
REFRAIN from making vote
recommendations on proposals
regarding animal rights.
The following factors should be considered:
1. Needless cruelty to animals should never be tolerated. However, the
testing of products on animals may be very important to the health and
safety of consumers.
2. We also feel that this issue is already subject to significant state
and federal regulation.
41
CHAPTER 8
CAPITAL
STRUCTURE
42
COMMON STOCK AUTHORIZATION
--------------------------
The ability to increase the number of authorized shares could accommodate the
sale of equity, stock splits, dividends, compensation-based plans, etc. The
board can usually be trusted to use additional shares for capital-raising and
other transactions that are in the corporation's best interests.
However, excessive escalation in the number of authorized shares may allow the
board to radically change the corporation's direction without shareholder
approval. Be careful to view that the increased number of shares will not enable
the company to activate a poison pill.
VOTE RECOMMENDATION
Vote CASE-BY-CASE on proposals
increase the number of shares of
common stock authorized for issue.
Vote AGAINST proposed common share
authorization that increase
existing authorization by more then
100 percent unless a clear need for
the excess shares is presented by
the company.
The following factors should be considered:
1. Is this company going to make frequent business acquisitions over a
period of time?
2. Is the company expanding its operations?
3. Within the company, are there any debt structuring or prepackaged
bankruptcy plans?
43
BLANK CHECK PREFERRED STOCK
---------------------------
The terms of blank check preferred stock give the board of directors the power
to issue shares of preferred stock at their discretion, with voting, conversion,
distribution and other rights to be determined by the board at the time of the
issue.
Blank check preferred stock can provide corporations with the flexibility to
meet changing financial conditions. However, once the blank check preferred
stock has been authorized, the shareholders have no further power over how or
when it will be allocated.
VOTE RECOMMENDATION
Vote AGAINST proposals authorizing
the creation of new classes of
preferred stock with unspecified
voting, conversion, dividend
distribution, and other rights.
The following factors should be considered:
1. Blank check preferred stock can be used as the vehicle for a poison
pill defense against hostile suitors, or it may be placed in friendly
hands to help block a takeover bid.
44
PREEMPTIVE RIGHTS
-----------------
These proposals request that the corporation provide existing shareholders with
an opportunity to acquire additional shares in proportion to their existing
holdings whenever new shares are issued. In companies with a large shareholder
base and ease in which shareholders could preserve their relative interest
through purchases of shares on the open market, the cost of implementing
preemptive rights does not seem justifiable in relation to the benefits.
VOTE RECOMMENDATION
Vote AGAINST proposals seeking
preemptive rights.
The following factors should be considered:
1. The existence of preemptive rights can considerably slow down the
process of issuing new shares due to the logistics involved in
protecting such rights.
2. Preemptive rights are not necessary for the shareholder in today's
corporations, whose stock is held by a wide range of owners and is, in
most cases, highly liquid.
45
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
-----------------------------------------
STOCK SPLITS
------------
The corporation requests authorization for a stock split.
VOTE RECOMMENDATION
Vote FOR management proposal to
authorize stock splits unless the
split will result in an increase
of authorized but unissued shares
of more than 100% after giving
effect to the shares needed for the
split.
46
REVERSE STOCK SPLITS
--------------------
VOTE RECOMMENDATION
Vote FOR management proposal to
authorize reverse stock split
unless the reverse stock split
results in an increase of
authorized but unissued shares of
more than 100% after giving effect
to the shares needed for the
reverse split.
47
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
----------------------------------------
The purpose of par value stock is to establish the maximum responsibility of
stockholder in the event that a corporation becomes insolvent. It represents the
maximum amount that a shareholder must pay the corporation if the stock is to be
fully paid when issued.
The corporation requests permission to reduce the par value of its stock. In
most cases, adjusting par value is a routine financing decision and should be
supported.
VOTE RECOMMENDATION
Vote FOR management proposals to
reduce the par value of common
stock.
The following factors should be considered:
1. State laws sometimes prohibit issuance of new stock priced below that
of the outstanding shares.
2. A corporation may be unable to raise capital if the par value is
overstated.
48
DEBT RESTRUCTURINGS
-------------------
The corporation may propose to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan.
VOTE RECOMMENDATION
It is our policy to vote
CASE-BY-CASE on debt restructuring
The following factors should be considered:
1. Dilution - How much will ownership interest of existing shareholders
be reduced and how extreme will dilution to future earnings be?
2. Change in Control - Will the transaction result in a change of control
of the company?
3. Bankruptcy - Is the threat of bankruptcy, which would result in severe
losses in shareholder value, the main factor driving the debt
restructuring?
49
CHAPTER 9
EXECUTIVE
AND
DIRECTOR
COMPENSATION
50
DIRECTOR COMPENSATION
---------------------
Directors represent shareholders and are responsible for protecting shareholder
interests. Companies state in the proxy material that they pay directors well in
order to attract the most qualified candidates. All compensation packages for
any executive, director or employee should include a pay-for-performance
component.
VOTE RECOMMENDATION
Vote on a CASE-BY-CASE basis for
director compensation.
The following factors should be considered:
1. As directors take an increasingly active role in corporate
decision-making and governance, their compensation is becoming more
performance-based.
51
SHAREHOLDER PROPOSAL TO LIMIT EXECUTIVE AND DIRECTOR PAY
--------------------------------------------------------
Shareholder compensation proposals that set limits or reduce executive
compensation should be closely scrutinized. Many of these proposals may be
flawed in their emphasis on an absolute dollar figure in compensation.
VOTE RECOMMENDATION
Vote on a CASE-BY-CASE basis
The following factors should be considered:
1. Executive compensation is established by a committee that consists of
independent directors who have fiduciary responsibility to act in the
best interest of the shareholders and who are best placed to make
compensation decisions.
52
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
--------------------------------------
These proposals ask for stockholder endorsement of compensation plans for key
employees which involve the issuance of company shares by granting of stock
options, SARs, restricted stock, etc. These plans help attract and retain
best-qualified corporate personnel and tie their interests more closely to those
of the shareholders.
VOTE RECOMMENDATION
Vote FOR proposals to adopt
share-based compensation plans when
the following items are involved:
1. The exercise price for stock options is less than 85% of fair market
value on the date of the grant.
2. It is an omnibus stock plan which gives directors broad discretion in
deciding how much and what kind of stock to award, when and to whom.
3. The shares for issue exceed 8% of the company's outstanding shares;
or, in the case of the evergreen plans, the amount of increase exceeds
1.5% of the total number of shares outstanding.
Vote AGAINST proposals adopting
share based compensation plans when
the following items are involved:
1. Re-load options (new options issued for any exercised).
2. The plan would allow for management to pyramid their holdings by using
stock to purchase more stock, without having to lay out cash. Vote YES
if this is for directors.
53
OPTIONS EXPENSING
-----------------
Shareholder proposal to expense options.
VOTE RECOMMENDATION
It is our policy to vote FOR
proposals to expense options
54
GOLDEN PARACHUTES
-----------------
Golden parachutes are designed to protect the employees of a corporation in the
event of a change in control. The change in control agreement will specify the
exact payments to be made under the golden parachutes. The calculation for
payout is usually based on some multiple of an employee's annual or monthly
compensation. Golden parachutes are generally given to employees whose annual
compensation exceeds $112,000.
Recent experience has shown a willingness of many managements to treat severance
agreements as equal to equity investments and to reward themselves as if
substantial amounts of equity were at risk.
VOTE RECOMMENDATION
Vote FOR proposals which seek to
limit additional compensation
payments.
Vote FOR shareholder proposals to
have golden parachutes submitted
for shareholder ratification.
The following factors should be considered:
1. The stability of management may be affected by an attempted
acquisition of the corporation.
2. There is a tendency on the part of an entrenched management to
overstate the value of their continuing control of and influence on
the day-to-day functions of a corporation.
55
PROPOSAL TO BAN GOLDEN PARACHUTES
---------------------------------
Based on the foregoing information:
VOTE RECOMMENDATION
We are FOR this proposal, which
essentially bans golden parachutes,
because we feel management's
compensation should be solely based
on real-time contributions to the
corporation while they are serving
it. Deferred current compensation
is viewed differently than future,
contingent compensation for current
services.
56
OUTSIDE DIRECTORS' RETIREMENT COMPENSATION
------------------------------------------
We believe that directors should only be compensated while serving the company.
VOTE RECOMMENDATIONS
Vote AGAINST proposals establishing
outside directors' retirement
compensation. Vote FOR proposals
that revoke outside directors'
retirement compensation.
57
CHAPTER 10
STATE
OF
INCORPORATION
58
CONTROL SHARE ACQUISITION STATUTES
----------------------------------
These proposals suggest that the board of directors solicit shareholder approval
before committing acquisitions or divestiture of a business exceeding stipulated
threshold levels. Such statutes function by denying shares their voting rights
when they contribute to ownership in excess of certain thresholds.
VOTE RECOMMENDATION
Vote AGAINST proposals which
request the board to seek
shareholder approval before
committing to an acquisition.
The following factors should be considered:
1. These proposals deprive the board of directors of its ability to act
quickly in propitious circumstances.
2. Conforming to these requirements can be expensive.
3. The board of directors is uniquely qualified and positioned to be able
to make these decisions without prior shareholder approval.
4. The threshold levels usually imposed by these proposals are much more
stringent than required by law.
59
OPT-OUT OF STATE TAKEOVER STATUTES
----------------------------------
These proposals seek shareholder approval to opt-out (not be governed by)
certain provisions of the anti-takeover laws of various states. Delaware law,
for instance, dictates that a bidder has to acquire at least 85% of a company's
stock before exercising control, unless he or she has board approval. This means
that a company may thwart an otherwise successful bidder by securing 15% of its
stock in friendly hands.
VOTE RECOMMENDATION
Vote on a CASE-BY-CASE basis for
these proposals.
The following factors should be considered:
1. It is the directors' responsibility to act on behalf of the
shareholders in opposing coercive takeover attempts.
2. Creating deterrents to corporate takeovers may allow for entrenchment
of inefficient management.
3. These statutes strengthen the board's ability to deal with potential
buyers on fair and reasonable terms.
4. Shareholders should have the final say on whether the company should
be merged or acquired.
60
CORPORATE RESTRUCTURING, SPIN-OFFS ASSET SALES, LIQUIDATIONS
------------------------------------------------------------
Votes on corporate restructuring, spin-offs, asset sales and liquidations are
evaluated on a CASE BY CASE basis.
61
CHAPTER 11
CONFLICTS
OF
INTEREST
62
CONFLICTS
---------
From time to time, proxy voting proposals may raise conflicts between the
interests of the Advisers clients and the interests of the Adviser, it's
affiliates and it's employees. Conflicts of interest may arise when:
1. Proxy votes regarding non-routine matters are solicited by an issuer
that may have a separate account relationship with an affiliate of the
Adviser or an investment banking relationship with Fahnestock & Co.
Inc.
2. A proponent of a proxy proposal has a business relationship with the
Adviser or one of its affiliates or the Adviser or one of its
affiliates has a business relationship with participants in proxy
contests, corporate directors or director candidates.
3. An employee of the Adviser has a personal interest in the outcome of a
particular matter before shareholders.
If the Adviser receives a proxy that to the knowledge of the Proxy Manager
raises a conflict of interest, the Proxy Manager shall advise the Governance
Committee which shall determine whether the conflict is "material" to any
specific proposal involved in the proxy. The Governance Committee will determine
whether the proposal is material as follows:
1. Routine proxy proposals are presumed not to involve a material
conflict of interest.
2. Non-routine proxy proposals-Proxy proposals that are "non- routine"
will be presumed to involve a material conflict of interest unless the
Governance Committee determines that the conflict is unrelated to the
proposal. Non-routine proposals would include a merger, compensation
matters for management and contested elections of directors.
63
CONFLICTS CONT'D
3. The Governance Committee may determine on a case by case basis that
particular non-routine proposals do not involve a material conflict of
interest because the proposal is not directly related to the Adviser's
conflict vis-a-vis the issue. The Governance Committee will record the
basis for any such determination. With respect to any proposal that
the Governance Committee determines presents a material conflict of
interest, the Adviser may vote regarding that proposal in any of the
following ways:
a) Obtain instructions from the client on how to vote.
b) Use existing proxy guidelines if the policy with respect to the
proposal is specifically addressed and does not involve a case by
case analysis.
c) Vote the proposal that involves the conflict according to the
recommendations of an independent third party such as
Institutional Share Services Inc. or Investor Responsibility
Research Center.
64
CHAPTER 12
GOVERNANCE COMMITTEE
AND
PROXY MANAGERS
65
GOVERNANCE COMMITTEE
--------------------
The Governance Committee is responsible for the maintenance of the Proxy Voting
Policies and Procedures and will determine whether any conflict between the
interest of clients and the Advisers in voting proxies is material. The
Governance Committee includes the following: (1) Bryan McKigney, (2) Barbara
Pires, and (3) Punita Kumar-Sinha.
66
PROXY MANAGERS
--------------
The Proxy Manager for the Adviser is Punita Kumar-Sinha, Portfolio Manager. The
Proxy Manager will determine how votes will be cast on proposals that are
evaluated on a case-by case basis.
67
CHAPTER 13
SPECIAL ISSUES WITH VOTING
FOREIGN PROXIES
68
SPECIAL ISSUES WITH VOTING FOREIGN PROXIES
------------------------------------------
Voting proxies with respect to shares of foreign stock may involve
significantly greater effort and corresponding cost than voting proxies in the
U.S domestic market. Issues in voting foreign proxies include the following:
1. Each country has its own rules and practices regarding
shareholder notification, voting restrictions, registration
conditions and share blocking.
2. In some foreign countries shares may be "blocked" by custodian or
depository or bearer shares deposited with specific financial
institutions for a certain number of days before or after the
shareholders meeting. When blocked, shares typically may not be
traded until the day after the blocking period. Advantage may
refrain from voting shares of foreign stocks subject to blocking
restrictions where in the Adviser's judgment; the benefit from
voting the shares is outweighed by the interest in maintaining
client liquidity in the shares. This decision is made on a case
by case basis based on a relevant factors including the length of
the blocking period, the significance of the holding and whether
the stock is considered by a long-term holding.
3. Time frames between shareholder notification, distribution of
proxy materials, book closures and the actual meeting date may be
too short to allow timely action.
4. In certain countries, applicable regulations require that votes
must be made in person at the shareholder meeting. The Adviser
will weigh the costs and benefits of voting on proxy proposals in
countries that require in person voting on a case by case basis
and make decisions on whether voting on a given proxy proposal is
prudent. Generally, the Adviser will not vote shares in countries
that require in person voting on routine matters such as
uncontested elections of directors, ratification of auditors.
69
CHAPTER 14
RECORD KEEPING
70
RECORD KEEPING
--------------
Advantage will maintain the following records:
1. Copies of these policies
2. A copy of each proxy statement that the Adviser receives regarding
client securities. The Adviser may satisfy this requirement by relying
on a third party to keep copies of proxy statements provided that the
Adviser has an undertaking from the third party to provide a copy of
the proxy statement promptly upon request.
3. A record of each vote cast on behalf of a client. A third party may
keep these voting records provided that the Adviser has an undertaking
from the third party to provide a copy of the record promptly upon
request.
4. A copy of any document created by the Adviser that was material to
making a decision on how to vote proxies or that memorializes the
basis for that decision.
5. A copy of each written client request for information on how an
Adviser voted proxies on behalf of the client and a copy of written
response by the Adviser to any client request for information on how
the Adviser voted proxies on behalf of the client.
The above records shall be maintained for five years from the end of the fiscal
year during which the last entry was made on such record, the first two years in
an appropriate office of the Adviser.
71
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) THE INDIA FUND, INC.
------------------------------------------------------------------
By (Signature and Title)* /s/ BRYAN MCKIGNEY
-----------------------------------------------------
Bryan McKigney, Director, President & Chairman
(principal executive officer)
Date FEBRUARY 23, 2004
--------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ BRYAN MCKIGNEY
-----------------------------------------------------
Bryan McKigney, Director, President & Chairman
(principal executive officer)
Date FEBRUARY 23, 2004
--------------------------------------------------------------------------
By (Signature and Title)* /s/ ALAN KAYE
-----------------------------------------------------
Alan Kaye, Treasurer
(principal financial officer)
Date FEBRUARY 23, 2004
--------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.