THE INDIA
GROWTH
FUND INC.
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Annual Report
June 30, 1996
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THE INDIA GROWTH FUND INC.
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General Information
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THE FUND
The India Growth Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange
("NYSE"). The Fund's investment objective is long-term capital appreciation
through investment primarily in equity securities of Indian companies. The
Fund's investment adviser is Unit Trust of India Investment Advisory Services
Limited and its administrator is Mitchell Hutchins Asset Management Inc.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "IGF". Daily market prices for the Fund's
shares are published in the NYSE Composite Transactions section of major
newspapers under the designation "IndiaGrFd" or "IndiaG". Net asset value and
market price information about the Fund is published each Monday in The Wall
Street Journal, each Sunday in The New York Times and each Saturday in Barron's
as well as other newspapers in a table captioned "Publicly Traded Funds".
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and net realized capital gains,
if any. Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders may elect to have all cash distributions automatically
reinvested by PNC Bank, National Association (the "Plan Agent"), in additional
shares of Common Stock of the Fund. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by the Plan Agent.
The Plan Agent will serve as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declare an income dividend or a
capital gain distribution payable either in the Fund's Common Stock or in cash,
as shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock, to be issued by the Fund
or purchased in the open market, as provided below. If the market price on the
valuation date equals or exceeds net asset value on that date,
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THE INDIA GROWTH FUND INC.
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General Information (continued)
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the Fund will issue new shares to participants at net asset value, or if the net
asset value is less than 95% of the market price on the valuation date, then at
95% of the market price. The valuation date will be the dividend or distribution
payment date, or if that date is not a trading day on the NYSE, the next
preceding trading day. If the net asset value exceeds the market price on the
valuation date, or if the Fund should declare a dividend or capital gain
distribution payable only in cash, the Plan Agent will, as agent for the
participants, purchase shares of the Fund in the open market, on the NYSE or
elsewhere, for the participants' account on, or shortly after, the payment date.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's Common Stock. The Plan Agent will use all funds
received from participants to purchase Fund shares in the open market on or
about February 15th and August 15th of each year. Any voluntary cash payments
received more than thirty days prior to these dates will be returned by the Plan
Agent, and interest will not be paid on any uninvested cash payments. 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
prior to February 15th or August 15th, as the case may be. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than forty-eight 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 the account, including information
required by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
In the case of shareholders, such as banks, brokers or nominees, who hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares
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certified from time to time by the shareholder as representing the total amount
registered in the shareholder's name and held for the account of beneficial
owners who are participating in the Plan.
There is no charge to participants for reinvesting dividends or
distributions. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be borne by the Fund. However, each
participant's account will be charged 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 or distributions. A participant will also pay
a pro rata share of brokerage commissions incurred in purchases from voluntary
cash payments made by the participant. Brokerage charges for purchasing small
amounts of stock of individual accounts through the Plan are expected to be less
than the usual brokerage charges for such transactions, since the Plan Agent
will be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions. In addition, since the Fund expects, if eligible, to make an
election to treat the 10% Indian withholding tax (on income and capital gain
distributions from the Unit Trust of India trust fund arrangement to the Fund)
as paid by shareholders, the amount of such withholding tax will be included in
the income of the Fund's shareholders, although the number of shares received
under the Plan will be based on the cash dividend amount distributed to other
Fund shareholders not participating in the Plan. With certain limitations, Fund
shareholders who are Plan participants will be able to credit such withholding
tax against their tax liabilities on foreign source income.
Participants in the Plan may withdraw from the Plan without penalty at any
time by written notice to the Plan Agent. Any shareholder withdrawing from the
Plan will receive, without charge, stock certificates issued in their name for
all full shares owned. The Plan Agent will convert any fractional shares any
shareholder holds at the time of its withdrawal to cash at the current market
price and send a check for the proceeds. Under the rules generally applicable to
sales
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THE INDIA GROWTH FUND INC.
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General Information (continued)
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of securities, a sale of shares (including fractional shares) will be a taxable
event for U.S. federal income tax purposes and may be taxable for state, local
and foreign tax purposes.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all shareholders at least 90 days
prior to the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all shareholders. All correspondence concerning the Plan should be directed to
the Plan Agent, c/o PNC Bank, National Association, 400 Bellevue Parkway,
Wilmington, Delaware 19809.
OTHER INFORMATION
Since July 1, 1995, there have been no (i) material changes in the Fund's
investment objectives or policies, (ii) changes to the Fund's charter or
by-laws, (iii) material changes in the principal risk factors associated with
investment in the Fund, and (iv) change in the persons who are primarily
responsible for the day-to-day management of the Fund's portfolio.
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Chairman's Letter to Shareholders
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August 7, 1996
Dear Shareholders:
The process of economic liberalization and reform that was initiated in 1991
is progressively encompassing several sectors of the Indian economy and is
showing positive results. The economy is continuing to show buoyant growth with
Gross National Product during India's fiscal year ended March 31, 1996 the
rising 6.8%, compared to 5.6% in the previous year. Industrial growth
accelerated to 12.3% during 1995-96 versus 9.3% in 1994-95. Agriculture also
experienced sustained growth during the past fiscal year. With respect to
balance of payments, exports grew 14.6% in US$ terms, while imports increased
23.6% during the past fiscal year. Although the trade deficit rose to US$4.5
billion, the current account deficit has remained below 2% of Gross Domestic
Product ("GDP"). Foreign direct investment ("FDI") and portfolio investments by
foreign institutional investors ("FII") have been buoyant, each accounting for
US$2 billion. Global Depositary Receipt ("GDR") floatations, however, were lower
at US$0.561 billion compared to US$1.656 billion in the prior year. Foreign
exchange reserves declined during the year from US$20 billion to US$17 billion.
The reserves level is comfortable, however, with seven months' imports cover.
The rupee, which had remained relatively stable for four successive years up to
September 1995, depreciated 13% but has stabilized at Rs. 35.50 per US$ compared
to Rs. 31.37 last year. Money supply growth (M3) during the year decreased to
13.4% from the 22% increase registered in the previous year. This led to tight
liquidity and rising interest rates, but lowered inflation from 12.9% to 7.7%.
The corporate sector recorded robust growth of 22% in sales and 25% in after
tax profit during 1995-96 despite liquidity pressure in the financial sector.
The stock market, which remained sluggish for more than a year until September
1995, exhibited greater activity towards the end of January 1996 as the Bombay
Stock Exchange Sensitive Index ("BSESI") rose 19.8% during fiscal 1995-96. Due
to sustained growth in corporate earnings, the price/earnings ratios ("P/E") of
BSESI stocks indicate extremely low valuations. BSESI stocks had an average P/E
of 19.56x earnings at June 30, 1996 and projected average P/E's of 16.3x fiscal
1997 earnings and 13.6x fiscal 1998 earnings.
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Chairman's Letter to Shareholders (concluded)
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The United Front government, which took office in May 1996 after the general
elections, has announced a Common Minimum Program ("CMP") in order to promote
economic growth with social justice. The CMP targets annual economic growth at
7% in the next ten years in an effort to abolish poverty and unemployment. The
program is also committed to maintaining 12% annual growth in the industrial
sector and aims to raise FDI to US$10 billion a year.
During the stock market's bear cycle, it has been the strategy of the Fund's
portfolio manager to reallocate the portfolio in favor of blue chip and liquid
stocks of large-cap companies in growing sectors of the economy. The Fund
completed a rights offering to its shareholders in November 1995 in the ratio of
1:3, priced at US$11.55. Shareholders responded favorably to the rights issue
which was over-subscribed; as a result, the Fund exercised its over-subscription
allotment in order to fulfill the over-subscription.
While market fundamentals remain strong, technical positions have created
some weaknesses in the market from time to time. However, in the light of
continuing earnings growth in the corporate sector, P/Es have become attractive
and offer investment opportunities. We believe that the Indian equity market
will continue to provide long-term growth potential to investors. We thank you
for your continued interest in The India Growth Fund Inc.
Sincerely,
/s/ Capoor
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Jagdish Capoor
Chairman of the Board
and President
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Review of the Indian Economy
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THE ECONOMY
AGRICULTURE
With a favorable monsoon season for the ninth straight year, prospects for
this year's crop appear optimistic. Agricultural production is estimated to have
increased 2.4% during fiscal 1995-96 and is expected to grow 2.3% in the current
year. Foodgrains production is expected to reach 196 million tons in fiscal
1996-97, a 3% increase over the previous year. The new government has emphasized
the importance of agricultural reforms and intends to expedite measures to boost
rural incomes. The government is attempting to remove controls on the movement
and processing of agricultural products, and a special plan will be implemented
to improve rural infrastructure. In addition, a proposal to revamp the public
distribution system by supplying foodgrains to the 40% of the population below
poverty is being discussed.
INDUSTRY
Industrial production was buoyant for the third straight year. During the
period April 1995 through February 1996, industrial production increased 12.3%
compared with 9.4% during the corresponding period last year. Estimated growth
for the first eleven months of fiscal 1995-96 for mining, power generation and
consumer goods was 7.6%, 8.4% and 12.9%, respectively. Cement production
increased 10.9% during fiscal 1995-96, and data available for the first two
months of the current fiscal year report an increase of 14.2%. Steel production
during fiscal 1995-96 increased 14.5%. During the period April 1995 through
February 1996, both electrical and non-electrical machinery production rose 22%.
Production and sales of commercial vehicles increased 31.8% and 54.3%,
respectively, in fiscal 1995-96. Production of passenger cars and two-wheel
vehicles increased 24.7% and 25.5%, respectively. FDI totaled Rs. 68 billion
compared to Rs. 41 billion during fiscal 1994-95, a 66% increase, while FDI
approvals increased to Rs. 371 billion from Rs. 100 billion.
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Review of the Indian Economy (continued)
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INFRASTRUCTURE
The United Front government made significant announcements to facilitate
investment, especially in infrastructure. Investments in infrastructure have
been targeted to increase to 6% of GDP in the next few years. It is estimated
that the power, oil, telecom, railway, road and port sectors would require
investments of approximately US$200 billion during the next five years, largely
financed through private and foreign sources. Coal production of 270 million
tons during fiscal 1995-96 was 7% higher than the level achieved during fiscal
1994-95. In the first two months of the current fiscal year, coal production was
14% higher. At 35 million tons, crude oil production was 7.2% higher in fiscal
1995-96. India imported US$7.3 billion of crude and petroleum products during
fiscal 1995-96, a 24% increase over the previous year.
PUBLIC FINANCE
The fiscal deficit for India's fiscal year 1995-96 remained at 5.9% of GDP.
The United Front government has announced a fiscal deficit target of 4% of GDP,
and progress towards this goal is likely to be achieved during the current year.
Tax collections for fiscal 1995-96 totaled Rs. 1,093 billion, exceeding what had
been anticipated by Rs. 55 billion. The finance ministry has issued guidelines
to public sector companies directing their dividends be equivalent to 20-30% of
post-tax profits, a measure which is likely to double the dividend income
received by the government. Direct tax collection maintained growth of 25%
during fiscal 1995-96. The cumulative rise in indirect taxes was 19%, with
customs duties increasing 34% and excise duties 8.3%. A change in the
composition of indirect tax receipts in favor of customs is attributed to the
benefit of the "modified value added tax credit", a credit utilized on imports
of capital and intermediate goods.
MONEY SUPPLY, INTEREST RATES AND PRICES
Broad money (M3) growth steadily declined from 17% to 13.4% during fiscal
1995-96. During the early part of the year, robust industrial growth resulted in
the increased demand for credit by the commercial sector which was not matched
by a compensating increased availability of funds. The Reserve Bank of India
augmented
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the liquidity in Indian money markets through market intervention as well as by
announcing various policy measures. The Cash Reserve Requirement ("CRR") for
commercial banks was reduced in stages from 14.5% in November 1995 to 12% by
July 1996. These decreases were part of a plan towards a gradual CRR reduction
to 10% by 1998. However, tight liquidity caused interest rates to remain high as
evidenced by the 364-day T-bill rate of 13.2%. Average inflation, as measured by
wholesale price movements, was 7.7% for fiscal 1995-96, compared to 10.8% in the
previous year. Consumer prices, however, increased an average of 10.4%. The
announcement of a series of administered price increases is likely to have a
"cost-push" effect on general price levels.
BALANCE OF PAYMENTS
Exports in fiscal 1995-96 were estimated to have risen 21.0% to US$31.9
billion while imports grew an estimated 27.1% to US$36.4 billion. The trade
deficit was estimated at US$4.5 billion, compared to US$2.3 billion in fiscal
1994-95. Imports of petroleum products and machinery increased 36% and 55%,
respectively, in rupee terms in fiscal 1995-96. The current account deficit is
expected to increase from 0.7% of GDP in fiscal 1994-95 to 2.0% of GDP in fiscal
1995-96. Foreign currency reserves, excluding gold and SDRs, stood at US$17.13
billion sufficient to finance seven months of imports. Euro-issue floatations
which totaled US$1.656 billion (July 1994-June 1995) of inward flows decreased
to US$0.561 billion (July 1995-June 1996). New guidelines for GDR issues have
removed the cap on the number of issues per year by a company, and the
three-year profitability condition for core sector companies have allowed banks
and financial institutions to access the Euro-markets. The rupee, which remained
relatively stable for four successive years through September 1995, depreciated
13%, stabilizing at Rs. 35.50 per US$ compared to Rs. 31.37 in the previous
year.
OUTLOOK
In light of a favorable monsoon season and sustained industrial growth, the
economy is expected to grow 7% during fiscal 1996-97. Industrial performance is
likely to be buoyant due to strong demand,
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Review of the Indian Economy (continued)
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greater liquidity and the possibility of lower nominal interest rates. External
debt of US$98 billion is at a sustainable level of 29% of GDP and is likely to
increase substantially due to the recent easing in external commercial borrowing
guidelines. The recent budget announced some measures to boost investment in
infrastructure. Tax concessions to companies in the infrastructure sector and
the creation of the Infrastructure Development Finance Corporation to provide
long-term capital is expected to increase infrastructure investment.
CAPITAL MARKETS
PRIMARY MARKET
The bear market during fiscal 1995-96 influenced the primary market. Money
raised in the primary market during the twelve months ended June 30, 1996 of Rs.
24.7 billion was 47% lower than the Rs. 46.6 billion raised in the previous year
for the same period. In the first three months of 1996, the primary market
picked up but turned lackluster again in April 1996 due to the general elections
and stricter norms by the Securities and Exchange Board of India for companies
accessing the primary market.
Indian companies, during the year ended June 30, 1996, raised US$561 million
in the Euro-market, 66% lower than the prior year. The appeal for Indian paper
after reaching a low in 1995, picked up again in 1996. Only four companies
accessed the Euro-market in 1995, raising US$304 million. However, in the first
six months of 1996, five Indian companies raised US$481 million in the
Euro-market. Due to renewed interest in Indian paper, more Indian companies are
preparing to access the Euro-market. To afford Indian companies greater
flexibility to tap into external commercial markets, the government has relaxed
restrictions on Euro-issues.
SECONDARY MARKET
The Indian stock market, which was lackluster in fiscal 1994-95, has shown
improvement since the end of January 1996. During the year ended June 30, 1996,
the BSESI rose 19.8% from 3,182 to 3,813. The stock market suffered during 1995
primarily due to the lack of institutional buying, a liquidity crunch and
political uncertainty. However, during 1996, the stock market experienced
bullish
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conditions due to a high level of FII buying (in excess of US$2 billion during
the first six months of the year), improved liquidity, solid corporate results
for fiscal year 1995-96 and a favorable monsoon for the ninth straight year. The
stock market has been positive for the United Front, forming the government with
Congress Party support. The CMP issued by the United Front government is
pro-reform.
In July 1995, on the strength of solid corporate results for fiscal year
1994-95, a strong revival in net FII and the hope for the reintroduction of a
carry-forward system, the BSESI approached 3,600 from 3,200 at the beginning of
the month. A 5% drop in the value of the Indian rupee versus the U.S. dollar in
October 1995, high call money rates in November 1995, reports of redemptions
faced by some offshore funds, and the political uncertainty on the eve of the
election year saw the BSESI drop below the psychologically important 3,000
level, reaching a 52-week low of 2,891 at the end of November 1995. The stock
market recovered in December 1995 only to reverse its course again in January
1996. The BSESI reached its annual low of 2,820 on January 25, 1996. However,
from this point, the market recovered on heavy FII buying.
FII purchases further accelerated in February 1996 as the BSESI moved up
sharply to 3,600 by the middle of the month. The 3,600 level again proved to be
a resistance level as the market started to decline towards 3,200 by the end of
March 1996. The market later turned upwards on sustained buying by FIIs, with
the BSESI reaching 3,950 by mid-April 1996, its highest level in 16 months. In
May 1996, the market eased somewhat due to the election process and uncertainty
regarding a new government. In June 1996, the BSESI strengthened in the first
half of the month, exceeding the crucial 4,000 level for the first time in 18
months at 4,131, reaching a new 52-week high as the new United Front government
came to power with support from Congress. During the second half of June 1996,
the BSESI eased to close the month at 3,813 due to a technical correction,
uncertainty on the eve of the Union Budget and a slow down of FII buying.
Screen-based trading on the Bombay Stock Exchange ("BSE") and the National
Stock Exchange ("NSE") led to a very competitive stock market, resulting in a
narrowing of spreads between bid and offer rates.
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Review of the Indian Economy (continued)
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Screen-based trading also caused soaring turnover on the stock exchanges. In
June 1996, the average daily turnovers of Rs. 5.9 billion on the BSE and Rs.
14.9 billion on the NSE, were all-time highs for both exchanges.
CORPORATE PERFORMANCE
Corporate results for India's fiscal year 1995-96 were excellent. In spite
of commercial bank lending rates rising by nearly 3% in 1995, companies were
able to achieve increases in both sales and net profit growth. Profit margins
also increased. A study of the annual results of 40 top companies, composing
approximately 55% of the BSESI, for fiscal year 1995-96 indicates that sales
increased 22.9%, profit after tax increased 35.9% and operating profit margins
increased from 15.2% to 16.2%.
MARKET OUTLOOK
The fundamentals of the Indian economy remain strong. Favorable monsoons
during the current year and sustained growth in industrial production should
maintain the current level of GDP growth. Relaxation of tight monetary growth
should lower interest rates and help generate high corporate investment. Healthy
growth in corporate sector earnings has been a factor in strengthening the
fundamentals of the stock market. Corporate earnings are expected to grow over
20%. The P/E of BSESI stocks, currently 19.56x fiscal 1995-96 earnings, is
projected at 16.3x current year earnings and 13.6x 1997-98 earnings. The Indian
stock market, therefore, offers an attractive opportunity for investment and
growth. The continuing FII interest in blue chip and growth stocks has helped to
improve market sentiment.
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[GRAPH]
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INVESTMENT ADVISER'S REPORT
The Indian stock market entered into a new bull cycle in the second half of
fiscal 1995-96 after reeling under severe pressure during the first half of the
year. The BSESI rose 13.21% from July 5, 1995 to July 24, 1996. Similarly, the
Bombay Stock Exchange National Index ("BSENI") (comprising 100 companies) rose
10.40% during the same period from 1,491 to 1,646. The BSESI began to rise after
reaching a low of 2,826 on January 25, 1996, primarily due to large scale FII
buying, solid corporate results and improved liquidity. On June 18, 1996, the
BSESI peaked at 4,131. Since mid June 1996, however, the BSESI declined mainly
on account of a rise in oil prices and the bear cycle in the U.S. and other
emerging markets.
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Review of the Indian Economy (continued)
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FUND PERFORMANCE
The rupee net asset value per share ("NAV") from July 5, 1995 to July 24,
1996 rose 3.24%, from 629.10 to 649.49. The shortfall in the growth of the
Fund's rupee NAV in relation to the above indices is due to the Fund's increased
exposure to small and mid-cap companies during fiscal 1994-95, which did not
appreciate at the same pace as the stocks forming the BSESI and the BSENI.
However, the broader based CRISIL-500 index (base year 1994) which represents
75% of the market capitalization of the BSE, rose 3.14% during the comparable
period.
The India Growth Fund Inc. is one of the few Asian funds to trade at a
premium to its NAV in the last seven months. During the year ended June 30,
1996, the Fund's market price traded primarily at a premium to its NAV, ranging
between a high of 28.74% and low of -8.9%. On August 14, 1996 the NAV and the
market price of the Fund were US$12.20 and US$12.125, respectively.
INVESTMENT STRATEGY
The Investment Adviser continues to emphasize growth sectors and potentially
strong stocks. The investment strategy is to increase allocation to growth
sectors, blue chips and large-cap companies and divest small holdings in
declining sectors. Strength of management, a sound balance sheet and liquidity
are the crucial criteria on which the portfolio manager makes decisions.
The number of companies in the portfolio has increased to 227 during the
last year primarily due to the addition of new stocks in connection with the
Fund's second rights offering. The second rights issue, which concluded in
November 1995, was over-subscribed by 19.3% and raised proceeds of US$32.4
million. Net proceeds were invested in 57 stocks of which ten accounted for 42%.
This portfolio appreciated 20% through June 1996. The portfolio manager has
altered the Fund's investments by divesting slow moving stocks and adding growth
stocks from sectors such as automobiles, auto ancillaries, banking, hotels,
cement, aluminum and engineering. Consequently, the portfolio's composition is
in a smaller number of blue chips and large-cap companies such that in July
1996, 99% of the total market value of the portfolio was represented by 145
stocks compared to 172
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stocks at July 1995. Similarily, 75% of the total market value of the portfolio
is represented by 45 stocks in July 1996 compared to 58 stocks in July 1995.
Since the market is undergoing fluctuations at frequent intervals, the portfolio
manager is continuously monitoring the portfolio. The Fund is accumulating blue
chip stocks during each market decline and purchasing undervalued stocks in
growing sectors.
[GRAPH]
TOP TEN HOLDINGS AT JUNE 30, 1996
Tata Engineering & Locomotive Co. Ltd.
This company is part of the TATA group of companies. Road transport is
expected to register tremendous growth as the alternative mode of transportation
being that railways are not likely to make new investments in infrastructure for
another few years. During the last three years, sales of commercial vehicles
increased 113%, with heavy commercial vehicles and light commercial vehicles
reporting increases of 89% and 145%, respectively.
The company has undertaken a capacity expansion plan to increase production
of commercial vehicles from 230,000 to 350,000 by
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Review of the Indian Economy (continued)
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the year 2000. The planned funding of this venture is to be met through a US$200
million Euro equity issue, a US$75 million foreign currency loan and internal
accruals.
Equity capital in fiscal 1996 was Rs. 2,418.2 million versus Rs. 1,369.4
million in fiscal 1995 (following a 3:5 stock dividend). Earnings per share in
fiscal 1996 were Rs. 21.9 versus Rs. 14.6 in fiscal 1995. The dividend was 60%
in both of the company's fiscal years.
East India Hotels Ltd.
The hotel industry is the country's third largest foreign exchange earner.
East India Hotel manages five-star deluxe hotels. The company is the second
largest hotel chain in India both in number of hotels and in revenues. The
company's hotels are located in all the major metropolitan cities and tourist
centers in India. The company owns ten hotels in eight cities, controlling 1,619
rooms and 160 suites. The company also operates a flight catering service in
Bombay and Delhi.
Equity capital in fiscal 1996 was Rs. 338 million, unchanged from the
previous year. Earnings per share were Rs. 35.55 compared with Rs. 18.7 in
fiscal 1995. Dividends paid in fiscal 1996 were 45% versus 40% in fiscal 1995.
ITC Ltd.
The company has diverse business interests such as cigarettes, edible oils,
paper, hotels and international agri-trading. It has decided to refocus its
business activities and to concentrate on its core business--tobacco. The
company's largest shareholder, BAT, is the world leader in tobacco and owns many
well-known cigarette brands. The company's products have a presence in all
segments of the cigarette market.
Equity capital in fiscal 1996 was Rs. 2,454 million, no change from the
prior year. Earnings per share in fiscal 1996 were Rs. 10.64 versus Rs. 10.77 in
fiscal 1995. Dividends in fiscal 1996 were 25% compared to 55% in fiscal 1995.
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Mahindra and Mahindra Ltd.
India's largest manufacturer of utility vehicles (54.8% market share) and
tractors (26.2% market share), the company also manufactures light commercial
vehicles (6.8% market share). It has joined forces with Ford Motor Co. in the
manufacturing of Ford passenger cars and other vehicles in India through a
newly-formed company, Mahindra Ford India Ltd., with equity capital of Rs. 1,600
million (each partner having an equal interest). The first car is expected to
roll out by the end of 1997.
Equity capital in fiscal 1996 was Rs. 1,017.9 million (following a 2:3 stock
dividend) compared with Rs. 563.3 million in fiscal 1995. Earnings per share
were Rs. 16.98 in fiscal 1996 on increased capital versus Rs. 21.61 in fiscal
1995. Dividends for the year ended 1996 were 72% compared to 44% in the prior
year.
Bajaj Auto Ltd.
This company is the second largest scooter manufacturer and the fourth
largest two-wheeler manufacturer in the world. In the Indian two-wheeler market,
the company has an overall market share of 43.3% (68.6% in scooters, 29.5% in
motorcycles and 11.7% in mopeds). In the three-wheeler segment, the company
practically has a monopoly with an 87% market share. The company enjoys
tremendous economies of scale, and financial and marketing strengths. Although
the company has surplus cash, it has resisted the temptation of diversification
through acquisition.
Equity capital in fiscal 1996 was Rs. 795.9 million, the same as in the
previous year. Earnings per share in fiscal 1996 were Rs. 52.5 compared to Rs.
38.3 in fiscal 1995. Dividends in fiscal 1996 were 100% compared to 80% in 1995.
17
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Review of the Indian Economy (continued)
- --------------------------------------------------------------------------------
Hindustan Petroleum Corp. Ltd ("HPCL")
This company was formed in 1974 to takeover the nationalized ESSO
undertakings (now known as Exxon, USA). Until 1991, HPCL was fully owned by the
Indian government. HPCL is the second largest petroleum refining company in the
country. It has facilities for refining crude, markets petroleum products, and
is a major player in base lubes (input for lubricants) and the finished
lubricant market. The company has entered into a venture with Exxon to
manufacture and distribute the Exxon brand of lubricants. The lubricants
produced under the Exxon name will target the top end of the market, enabling
HPCL, together with its existing products, to cater to all segments of the
market.
Equity capital in fiscal 1996 was Rs. 2,069.5 million compared to Rs.
1,911.2 million in fiscal 1995. Earnings per share in fiscal 1996 were Rs. 25.33
compared to Rs. 20.43 in fiscal 1995. Dividends in 1996 were 35% versus 25% in
the previous year.
Larsen & Toubro Ltd
This company is the largest private sector engineering and turnkey
construction company in the country. The company has diverse business interests
which include cement (the second largest producer in the country), electronics,
shipping, switchgear and earthmoving equipment.
The company has developed skills in many facets of engineering and
construction activities, is professionally managed and has a highly committed
and skilled workforce--an invaluable asset. Its construction projects command a
premium in the market. Its book orders are encouraging, having already received
orders for the the next 24 months.
Equity capital in fiscal 1996 was Rs. 2,288 million, the same as in 1995.
Earnings per share for the year were Rs. 16.9 compared to Rs. 12.7 in 1995.
Dividends in fiscal 1996 were 60% compared to 50% in the prior year.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TVS Suzuki Ltd.
The company was formed in 1982 as a result of a joint venture between Suzuki
Motor Corporation of Japan and the TVS Group to manufacture 100cc motorcycles.
In 1987, the company acquired the moped division of Sundaram Clayton. Currently,
the company is the second largest two-wheeler manufacturer, with facilities
located in Hosur. The company currently produces three models of motorcycles:
ungeared and geared mopeds and scooterettes.
Plans call for the increase of installed capacity from 25,000 vehicles per
month to 40,000 vehicles per month by the end of 1996. Funding is to be met
through internal accruals and marginal debt of 10% of total cost.
Equity capital for fiscal 1996 was Rs. 2.31 million, no change from the
previous year. Earnings per share were Rs. 14.9 in fiscal 1996 compared to Rs.
14.6 in fiscal 1995. Dividends in 1996 were 25%, the same as in 1995.
Hindalco Industries Ltd.
The company promoted by the late Aditya Vikram Birla in 1962 along with
Kaiser Aluminium and Chemical Corporation USA. The Kaiser group divested itself
of its holdings in 1988.
The company is the largest private sector integrated metal producer in the
country. Its production facilities are equipped to produce primary metal,
semi-fabricated (rolled products) metals, foils and extruded products. The
company is self sufficient in its power needs, having overcome past power
shortages.
Equity capital in fiscal 1996 was Rs. 496.5 million versus Rs. 480 million
in fiscal 1995. Earnings per share in fiscal 1996 were Rs. 80.90 versus Rs.
60.80 for fiscal 1995. Dividends in both years were 55%.
19
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Review of the Indian Economy (continued)
- --------------------------------------------------------------------------------
Reliance Industries Ltd.
The company is a petrochemical and textile giant in Indian industry.
Operations are fully vertically integrated. The company processes basic naptha
into various products ranging from polymers to final-stage textiles. Recently,
the company tapped the US market with a 30-year US$100 million Yankee Bond issue
with a coupon rate of 10.5%.
Equity capital in fiscal 1996 was Rs. 4,614 million, no change from the
prior year. Earnings per share for fiscal 1996 were Rs. 27.90 compared with Rs.
23 in fiscal 1995. Dividends in fiscal 1996 were 55%, the same as in 1995.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has positions in 227 companies at June 30, 1996. The top 20
holdings (excluding short-term investments) as of this date are as follows:
<TABLE>
<CAPTION>
COMPANY PERCENTAGE OF NET ASSETS
------------------------------------------- ------------------------
<C> <S> <C>
1. Tata Engineering & Locomotive Co. Ltd...... 4.90%
2. East India Hotels Ltd. .................... 4.03
3. ITC Ltd. .................................. 3.63
4. Mahindra & Mahindra Ltd. .................. 3.61
5. Bajaj Auto Ltd. ........................... 3.54
6. Hindustan Petroleum Corp. Ltd. ............ 2.53
7. Larsen & Toubro Ltd. ...................... 2.47
8. TVS Suzuki Ltd. ........................... 2.46
9. Hindalco Industries Ltd. .................. 2.42
10. Reliance Industries Ltd. .................. 2.38
11. Tata Chemicals Ltd. ....................... 2.21
12. Asian Paints India Ltd. ................... 2.20
13. Century Textile & Industries Ltd. ......... 2.19
14. Indian Hotels Co. Ltd. .................... 2.15
15. Tata Iron & Steel Co. Ltd. ................ 2.15
16. Associated Cement Companies Ltd. .......... 2.13
17. Hindustan Lever Ltd. ...................... 1.95
18. Indian Aluminum Co. Ltd. .................. 1.76
19. Colgate Palmolive India Ltd. .............. 1.74
20. Hotel Leela Venture Ltd. .................. 1.73
------
Total...................................... 52.18%
======
</TABLE>
21
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Portfolio of Investments
June 30, 1996
- --------------------------------------------------------------------------------
INVESTMENTS IN INDIA--102.36%
- --------------------------------------------------------------------------------
COMMON STOCKS--99.98%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
ALUMINUM--4.54%
91,181 Hindalco Industries Ltd.......................... $3,248,792
399,950 Indian Aluminum Co. Ltd.......................... 2,361,328
468,700 National Aluminum Ltd............................ 485,596
-----------
6,095,716
-----------
AUTOMOBILES & AUTO ANCILLARIES--18.60%
100,000 Amtek Auto Ltd. ................................. 181,379
169,250 Bajaj Auto Ltd.*................................. 4,754,902
3,300 Clutch Auto Ltd.+................................ 2,773
50,000 Gabriel India Ltd................................ 465,512
92,000 Hero Honda Ltd. ................................. 734,459
3,300 Hindustan Motors Ltd.*+.......................... 2,880
550 Kinetic Honda Motor Ltd.......................... 2,412
284,486 LML Ltd.+........................................ 555,164
452,892 Mahindra & Mahindra Ltd. ........................ 4,634,333
20,000 Mahindra & Mahindra Ltd. GDR..................... 220,100
9,000 Motor Industries Co. Ltd......................... 1,954,045
1,425,800 Pal Peugeot Ltd.+................................ 303,534
36,050 Punjab Tractors Ltd.*+........................... 638,524
77,500 Rico Auto Industries Ltd......................... 297,527
40,700 Sona Steering Systems Ltd. ...................... 91,035
446,160 Tata Engineering & Locomotive Co. Ltd.*.......... 6,585,387
323,350 TVS Suzuki Ltd................................... 3,308,762
60,580 Ucal Fuel Systems Ltd. .......................... 247,616
-----------
24,980,344
-----------
BANKS/FINANCE--1.99%
75,000 Bank of Rajasthan Ltd.+.......................... 403,420
120,000 Credit Rating Information Services of India
Ltd.*............................................ 750,213
25,000 Federal Bank Ltd.+............................... 143,876
18,800 HDFC Bank Ltd.+.................................. 20,812
61,100 ICICI Ltd.*+..................................... 156,089
5,000 Industrial Development Bank of India Ltd.*....... 17,953
332,700 Industrial Finance Corp. of India Ltd.+.......... 427,325
36,300 Oriental Bank of Commerce Ltd. .................. 100,976
6,700 SCICI Ltd.*...................................... 8,225
20,000 State Bank of India Ltd.*........................ 170,451
55,000 Vysya Bank Ltd.+................................. 468,429
-----------
2,667,769
-----------
CEMENT--5.28%
41,748 Associated Cement Companies Ltd. ................ 2,860,917
100,000 Birla Jute & Industries Ltd. .................... 547,829
169,038 Gujarat Ambuja Cement Ltd.*...................... 1,794,499
78,000 India Cement Ltd. ............................... 368,635
144 Jaiprakash Industries Ltd. ...................... 128
4,000 Madras Cements Ltd.+ ............................ 1,396,537
42,900 Raasi Cements Ltd. .............................. 130,295
-----------
7,098,840
-----------
</TABLE>
22
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
COMMON STOCKS--(continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
CERAMICS/GRANITES--0.64%
250,000 Bell Ceramics Ltd. .............................. $ 107,721
459,850 Grapco Industries Ltd............................ 114,865
161,197 Kajaria Ceramics Ltd............................. 594,823
200,000 Pacific Granites Ltd.+........................... 39,455
-----------
856,864
-----------
CHEMICALS & DYES--5.78%
20,000 Apcotex Lattices Ltd. ........................... 98,496
238,660 Asian Paints India Ltd........................... 2,955,306
100,004 BASF India Ltd................................... 993,511
1,200 Beta Nepthol Ltd................................. 886
42,750 Carborundom Universal Ltd........................ 215,995
2,100 Cochin Minerals Rutinery Ltd.+................... 384
50,000 Femnor Mineral India Ltd.+....................... 96,154
41,300 Ganesh Benzoplast Ltd. .......................... 48,743
27,000 Garware Polyesters Ltd.+......................... 147,530
28,309 Gujarat Alkalies & Chemicals Ltd.*............... 103,071
300 Mardia Chemicals Ltd............................. 341
108,000 Punjab Alkalies & Chemicals Ltd. ................ 127,834
7,646 Shree Rayalseema Alkalies & Allied Chemicals
Ltd.............................................. 3,690
405,750 Tata Chemicals Ltd.*............................. 2,971,431
-----------
7,763,372
-----------
COMPUTERS/SOFTWARE/COMPONENTS--1.26%
600 Cauvery Software Engineering Systems Ltd.+....... 253
132,750 NIIT Ltd......................................... 1,024,922
38,836 PCS Data General India Ltd....................... 9,921
305,700 RS Software Ltd. ................................ 197,408
310,000 Square D Software Ltd............................ 413,568
150,000 Twinstar Software Exports Ltd.+.................. 42,577
-----------
1,688,649
-----------
CONSUMER PRODUCTS--9.97%
44,262 Castrol India Ltd................................ 617,193
322,195 Colgate Palmolive India Ltd...................... 2,343,527
145,000 Growell Times Ltd.+.............................. 9,796
112,123 Hindustan Lever Ltd.............................. 2,614,506
42,500 IFB Industries Ltd. ............................. 126,668
521,340 ITC Ltd.......................................... 4,613,334
25,000 ITC Ltd. GDR..................................... 259,375
64,412 Modi Xerox Ltd. ................................. 265,108
38,710 Philips India Ltd. .............................. 142,017
250,000 Polar Industries Ltd. ........................... 659,949
168,800 Polar Latex Ltd.+................................ 45,518
92,300 Solarson Industries Ltd.+........................ 14,410
173,100 Techtron Poly Ltd.+.............................. 28,006
319,700 Titan Industries Ltd. ........................... 1,179,705
63,898 Tube Investments of India Ltd. .................. 219,916
45,960 Vazir Sultan India Ltd........................... 232,213
17,600 Videocon Appliances Ltd. ........................ 15,861
3,693 Videocon International Ltd....................... 7,757
-----------
13,394,859
-----------
DIAMONDS--0.50%
319,925 Shrenuj & Co. Ltd................................ 268,799
333,450 Su-Raj Diamonds India Ltd. ...................... 403,207
-----------
672,006
-----------
</TABLE>
23
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Portfolio of Investments (continued)
June 30, 1996
- -------------------------------------------------------------------
COMMON STOCKS--(continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
DIVERSIFIED--0.29%
41,329 Raymond Ltd. .................................... $ 394,651
-----------
ELECTRONIC EQUIPMENT--1.04%
50,000 ABB Ltd. ........................................ 1,064,434
47,000 Crompton Greaves Ltd............................. 334,523
5,700 JCT Electronics Ltd.............................. 3,729
500 SPIC Electronics & Systems Ltd.+................. 62
-----------
1,402,748
-----------
ENGINEERING--6.30%
100,000 Bharat Heavy Electricals Ltd. ................... 509,509
56,400 Carrier Aircon Ltd.+............................. 405,830
107,500 Eicher Tractor Ltd.+............................. 259,367
53,070 Ion Exchange India Ltd. ......................... 214,255
404,000 Larsen & Toubro Ltd.............................. 3,319,841
42,200 Patheja Forgings Ltd. ........................... 94,630
56,800 Praj Industries Ltd.............................. 153,165
50,000 Shriram Industries Enterprises Ltd............... 45,416
129,038 Siemens India Ltd. .............................. 2,233,350
12,000 Sundram Fasteners Ltd.+.......................... 241,839
9,200 Super Forgings Ltd. ............................. 3,525
80,800 Wartsila Diesel India Ltd. ...................... 833,114
115,900 Western Paques India Ltd......................... 152,154
-----------
8,465,995
-----------
FOOD & AGRO PRODUCTS--1.27%
727,000 Agritech Hatcheries & Foods Ltd.+................ 123,815
302,100 American Dryfruits Co. Ltd. ..................... 135,486
86,900 Aqua Marine Foods Ltd.+.......................... 4,687
1,900 Balrampur Chini Mill Ltd. ....................... 6,148
58,800 Enkay Texofood Industries Ltd. .................. 65,927
90,100 ITC Agro Tech Ltd. .............................. 107,970
1,600 King International Aqua Ltd.+.................... 148
3,900 MAC Industries Ltd. ............................. 1,782
129,000 Nath Seeds Ltd................................... 120,835
97,050 Nestle India Ltd................................. 1,121,874
830 Rajshree Sugars & Chemicals Ltd. ................ 516
8,900 Rank Aqua Estates Ltd. .......................... 2,779
10,739 S & S Industries Ltd. ........................... 2,987
975 Thiru Arooran Sugar Ltd.......................... 3,598
12,484 Tristar Soya Products Ltd........................ 3,721
300 Waterbase Co. Ltd.+.............................. 38
-----------
1,702,311
-----------
HEALTHCARE--0.01%
152,000 Tamil Nadu Hospitals Ltd.+....................... 18,337
-----------
HOTELS--8.85%
150,000 Asian Hotels Ltd................................. 1,319,898
261,270 East India Hotels Ltd. .......................... 5,339,608
535,620 Hotel Leela Venture Ltd.......................... 2,199,733
123,358 Indian Hotels Co. Ltd.*.......................... 2,892,243
23,070 ITC Hotels Ltd. ................................. 130,968
-----------
11,882,450
-----------
</TABLE>
24
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
COMMON STOCKS--(continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
HOUSING & CONSTRUCTION--0.86%
333,600 Lok Housing & Construction Ltd. ................. $ 428,481
55,900 NCL Seccolour Ltd.+.............................. 3,094
261,800 Unitech Ltd. .................................... 724,539
100 VM Jog Engineering Ltd. ......................... 58
-----------
1,156,172
-----------
IRON & STEEL/STEEL PRODUCTS--3.64%
300,000 Asian Alloys Ltd.+............................... 198,410
1,695 Essar Gujarat Ltd. .............................. 1,347
33,040 Grand Foundry Ltd. .............................. 23,211
1,700 Jindal Iron & Steel Co. Ltd. .................... 3,366
421,000 Kanakdhara Steel Ltd.+........................... 29,875
132,950 Nippon Denro Ispat Ltd. ......................... 94,344
23,000 Saw Pipes Ltd. .................................. 87,972
88,000 Sesa Goa Ltd. ................................... 1,024,752
500,000 Steel Authority of India Ltd. ................... 468,351
45,600 Sunflag Iron & Steel Co. Ltd.+................... 8,931
420,060 Tata Iron & Steel Co. Ltd.*...................... 2,888,434
121,500 Uttam Steels Ltd.+............................... 68,286
-----------
4,897,279
-----------
LEATHER--0.04%
400,000 Tejoomal Industries Ltd. ........................ 56,770
-----------
MISCELLANEOUS--0.00%
100,000 Elegant Floriculture Ltd.+....................... 6,387
-----------
PACKAGING--0.95%
231,714 Essel Packaging Ltd. ............................ 1,131,275
101,100 Pearl Polymer Ltd. .............................. 74,326
160,300 Ras Extrusion Ltd.+.............................. 28,666
99,012 Sharp Industries Ltd.+........................... 39,908
-----------
1,274,175
-----------
PAINTS/DYES/RUBBER--0.67%
2,200 Berger Paints India Ltd. ........................ 4,683
200,000 Dewan Rubber India Ltd. ......................... 417,258
65,650 Goodlass Nerolac Paints Ltd.+.................... 483,104
-----------
905,045
-----------
PAPER--3.05%
127,500 Ballarpur Industries Ltd. ....................... 587,195
776,932 ITC Bhadrachalam Paper Boards Ltd. .............. 2,322,365
135,300 Orient Paper Mills & Industries Ltd. ............ 583,752
1,000,000 Rama Newsprint & Paper Ltd.+..................... 168,890
25,000 Shreyans Industries Ltd. ........................ 28,811
100,000 Tamilnadu Newsprint & Paper Ltd.+................ 405,904
-----------
4,096,917
-----------
PESTICIDES/AGROCHEMICALS--1.91%
1,200 Aimco Pesticides Ltd............................. 768
47,267 Clariant India Ltd. ............................. 603,751
67,500 Excel Industries Ltd. ........................... 505,819
150 Gujarat Narmada Valley Fertilizers Co. Ltd.*..... 165
128,280 Gujarat State Fertilizers Co. Ltd. .............. 401,262
5,485 Hindustan Ciba--Geigy Ltd. ...................... 433,327
167,700 Southern Petrochemicals Industries Corp. Ltd.*... 255,858
40,000 United Phosphorous Ltd. ......................... 364,462
-----------
2,565,412
-----------
</TABLE>
25
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Portfolio of Investments (continued)
June 30, 1996
- -------------------------------------------------------------------
COMMON STOCKS--(continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
PETROCHEMICALS--5.93%
56,500 Bharat Petrol Corp. ............................. $ 546,076
100,000 Cochin Refineries Ltd.+.......................... 510,928
305,000 Hindustan Petroleum Corp. Ltd. .................. 3,398,027
105,200 IG Petrochemical Ltd. ........................... 114,218
50,000 Indian Petrochemical Corp. Ltd.+................. 221,047
36,700 Madras Refineries Ltd.+.......................... 55,211
1,440 NOCIL Ltd. ...................................... 1,328
512,692 Reliance Industries Ltd. ........................ 3,083,472
500,000 Sree Rayalaseema Petrochemicals Ltd.+............ 35,481
-----------
7,965,788
-----------
PHARMACEUTICALS--3.80%
1,250 Astra IDL Ltd. .................................. 6,529
23,750 Cyanamid India Ltd. ............................. 259,544
49,000 Dabur India Ltd. ................................ 333,806
37,800 E. Merck India Ltd. ............................. 240,341
30,100 Knoll Pharma Ltd. ............................... 625,197
50,000 Kopran Ltd. ..................................... 469,770
2,900 Lupin Laboratories Ltd. ......................... 11,524
72,500 Lyka Laboratories Ltd. .......................... 113,699
75,000 Morepan Laboratories Ltd.+....................... 324,652
173,833 Nicholas Piramal India Ltd. ..................... 1,068,261
223,900 Orchid Chemicals & Pharmaceuticals Ltd. ......... 725,786
69,300 PAAM Pharmaceuticals Delhi Ltd. ................. 50,947
214,430 Pharmasia Ltd.+.................................. 15,226
25,000 Rhone Poulenc Ltd. .............................. 441,740
236,000 Sumitra Pharmaceuticals Ltd.+.................... 65,984
200 TTK Pharma Ltd. ................................. 199
1,100 Vimta Labs Ltd.+................................. 265
46,000 Wockhardt Ltd. .................................. 354,825
-----------
5,108,295
-----------
PLASTICS/PIPES--0.20%
219,000 Finolex Industries Ltd. ......................... 124,326
50,000 Peacock Industries Ltd.+......................... 131,990
33,800 Uniplas India Ltd.+.............................. 8,395
-----------
264,711
-----------
POWER & ENERGY--0.86%
162,698 BSES Ltd. ....................................... 900,542
131,760 Nepc Micon Ltd. ................................. 149,600
25,000 Tata Hydro Electric Ltd.+........................ 101,476
-----------
1,151,618
-----------
PUBLICATIONS--0.64%
178,500 Navneet Publications Ltd. ....................... 862,606
-----------
</TABLE>
<TABLE>
<C> <S> <C>
SHIPPING--0.01%
1,950 Chowgule Steamships Ltd. ........................ 1,406
6,315 Great Eastern Shipping Co. Ltd.*................. 9,052
1,000 Varun Shipping Co. Ltd. ......................... 500
-----------
10,958
-----------
</TABLE>
26
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
COMMON STOCKS--(continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
TEA & PLANTATION--2.43%
164,855 Brooke Bond Lipton India Ltd. ................... $1,730,205
47,010 Goodrick Group Ltd. ............................. 92,739
80,250 Harisons Malayalam Ltd. ......................... 137,812
38 McLeod Russel India Ltd. ........................ 135
147,625 Tata Tea Ltd.*................................... 1,297,952
-----------
3,258,843
-----------
TELECOMMUNICATIONS & CABLE--2.97%
255,600 Bharati Telecom Ltd. ............................ 705,566
148,350 Finolex Cables Ltd. ............................. 1,002,194
1,000 Krone Communication Ltd. ........................ 3,094
100,000 Mahanagar Telephone Nigam Ltd. .................. 720,267
99,000 Repl Engineering Ltd. ........................... 127,017
316,325 Tata Telecom Ltd.* .............................. 799,118
290,900 Usha Beltron Ltd. ............................... 630,022
-----------
3,987,278
-----------
TEXTILES--5.54%
114,469 Arvind Mills Ltd. ............................... 454,887
19,061 Century Textile & Industries Ltd. ............... 2,935,167
120,000 Coats Viyella India Ltd. ........................ 351,689
185,000 Ginni Filament Ltd. ............................. 84,019
121,104 Grasim Industries Ltd. .......................... 1,967,124
193,500 Hanil Era Textiles Ltd.+......................... 39,820
129,600 Indo Count Industries Ltd. ...................... 39,546
239,000 K.G. Denim Ltd.+................................. 83,443
20,700 Maxwell Apparel Industries Ltd. ................. 60,596
70,000 Morarjee Goculdas SPG. & WVG. Co. Ltd. .......... 240,420
493,900 Patspin India Ltd. .............................. 187,859
86,500 Shamken Multifab Ltd. ........................... 47,878
131,000 Viral Filaments Ltd. ............................ 260,289
400,000 Welspun India Ltd.+.............................. 684,644
-----------
7,437,381
-----------
TIRES & TUBES--0.16%
50,000 Goodyear India Ltd. ............................. 212,532
-----------
TRANSPORTATION--0.00%
21,800 Skyline Nepc Ltd.+............................... 5,198
-----------
TOTAL COMMON STOCKS (cost--$105,747,284)..................... 134,308,276
-----------
</TABLE>
- -------------------------------------------------------------------
RIGHTS AND WARRANTS#--0.27%
- -------------------------------------------------------------------
<TABLE>
<C> <S> <C>
HOTELS--0.15%
4,000 East India Hotels Ltd.+.......................... 72,779
48,220 Hotel Leela Venture Ltd.+........................ 125,922
IRON & STEEL/STEEL PRODUCTS--0.00%
25,875 Jindal Iron & Steel Co. Ltd.+.................... 0
PAINTS/DYES/RUBBER--0.12%
21,883 Goodlass Nerolac Paints Ltd.+.................... 157,927
TEXTILES--0.00%
50,000 Shree Krishna Poly Ltd.+......................... 0
-----------
TOTAL RIGHTS AND WARRANTS (cost--$44,017).................... 356,628
-----------
</TABLE>
27
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Portfolio of Investments (concluded)
June 30, 1996
- -------------------------------------------------------------------
CONVERTIBLE DEBENTURE--0.20%
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
- ------------ ------------
Rs. 3,750 14.0% Gabriel India of Rs. 125 each; at a
premium of Rs. 21.90 per debenture
convertible into one equity share on 2/11/97
(cost $84,034)................................. $ 275,050
<C> <S> <C>
------------
</TABLE>
- -------------------------------------------------------------------
NON-CONVERTIBLE DEBENTURES#--0.70%
- -------------------------------------------------------------------
<TABLE>
<C> <S> <C>
3,750 14.0% Gabriel India of Rs. 125 each; redeemable
starting 2/28/02............................... 91,705
302 18.5% Gujarat Ambuja Cement Ltd. of Rs. 400
each; redeemable starting 11/20/00*.......... 8,584
2 15.5% Gujarat Narmada Valley Fertilizers Co.
Ltd. of Rs. 40 each; redeemable starting
10/15/93*...................................... 53
3,617 14.0% Hotel Leela Penta Ltd. of Rs. 150 each;
redeemable
starting 4/08/01............................. 88,453
12,938 10.5% Jindal Iron & Steel Co. Ltd. of Rs. 500
each; redeemable starting 1/14/01............ 237,287
4 12.5% Nicholas Piramal India Ltd. of Rs. 50
each; redeemable
starting 4/20/00............................. 88
15,000 16.0% Rama Newsprint & Paper Ltd. of Rs. 60
each; redeemable starting 1/02/00+........... 400,728
3,800 12.5% Reliance Industries Ltd. of Rs. 95 each;
redeemable
starting 3/01/02............................. 81,181
1,500 14.0% Reliance Industries Ltd. of Rs. 150 each;
redeemable
starting 3/01/02............................. 34,630
------------
TOTAL NON-CONVERTIBLE DEBENTURES (cost--$1,347,431).......... 942,709
------------
</TABLE>
- -------------------------------------------------------------------
BANK DEPOSIT--1.21%
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
57,000 Deutsche Bank, 10.85%, due 7/01/96 (cost
$1,617,939).................................... 1,617,939
------------
- -------------------------------------------------------------------
OTHER INVESTMENTS--3.36%
- -------------------------------------------------------------------
TIME DEPOSITS
- -------------------------------------------------------------------
TOTAL INVESTMENTS IN INDIA (cost--$108,840,705).............. 137,500,602
US$ 19 Brown Brothers Harriman & Co. Grand Cayman, ------------
4.25% @........................................ 19,000
<C> <S> <C>
4,500 Canadian Imperial Bank of Commerce Grand
Cayman, 4.25% @................................ 4,500,000
------------
TOTAL TIME DEPOSITS (cost--$4,519,000)....................... 4,519,000
------------
TOTAL INVESTMENTS (cost--$113,359,705)--105.72%.............. 142,019,602
LIABILITIES IN EXCESS OF OTHER ASSETS--(5.72)%............... (7,690,289)
------------
NET ASSETS (equivalent to $13.67 per share; applicable to
9,828,506 shares outstanding)--100%......................... $134,329,313
------------
------------
</TABLE>
- ------------
<TABLE>
<S> <C>
GDR--Global Depositary Receipt
Rs--Indian Rupees
* Deemed to be an affiliated security.
+ Non-income producing security.
# Fair valued securities, aggregating $1,299,337 or 0.97% of net
assets.
@ Variable rate account--rate resets on a monthly basis; amount
available
upon 48 hours' notice.
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
- -------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1996
- -------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments in unaffiliated securities,
at value
(cost--$99,173,206).................... $ 116,722,273
Investments in affiliated securities, at
value
(cost--$14,186,499).................... 25,297,329 $142,019,602
--------------
Cash.................................... 481
Dividends and interest receivable....... 1,140,915
Receivable for investments sold......... 225,443
Prepaid expenses and other assets....... 19,302
------------
Total assets........................ 143,405,743
------------
LIABILITIES
Deferred Indian withholding taxes....... 6,256,802
Payable for investments purchased....... 2,146,580
Trust administration fee payable........ 90,000
Investment advisory fee payable......... 78,612
Administration fee payable.............. 17,963
Accrued expenses and other
liabilities................................ 486,473
------------
Total liabilities................... 9,076,430
------------
NET ASSETS
Common stock, $0.01 par value; 9,828,506
shares issued and outstanding
(50,000,000 shares authorized)......... 98,285
Additional paid-in capital.............. 117,580,798
Undistributed net investment income..... 2,364,858
Accumulated net realized loss and
distributions in excess of net realized
gain....................................... (9,541,454)
Net unrealized appreciation of
investments and other assets and
liabilities denominated in Indian
rupees (net of deferred Indian
withholding tax of $4,600,903)......... 23,826,826
------------
$134,329,313
------------
------------
NET ASSET VALUE PER SHARE.................. $13.67
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 1996
- -------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends from unaffiliated securities.... $2,068,226
Dividends from affiliated securities...... 432,482
Interest from unaffiliated securities..... 944,499
Interest from affiliated securities....... 1,657 $ 3,446,864
---------- ------------
EXPENSES
Advisory fees............................. 746,850
Custodian and accounting fees............. 606,170
Trust administration fees................. 349,035
Legal and audit fees...................... 246,524
Administration fees....................... 197,158
Reports to shareholders................... 124,374
Directors' fees and expenses.............. 102,593
Insurance................................. 91,313
Transfer agent fees....................... 30,974
New York Stock Exchange listing fee....... 16,170
Miscellaneous............................. 8,043 2,519,204
---------- ------------
Net investment income before taxes........ 927,660
Deferred Indian withholding tax........... (86,838)
------------
Net investment income..................... 840,822
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized loss on
investments--unaffiliated securities......... (6,996,353)
Net realized gain on
investments--affiliated securities........... 534,399
Deferred Indian withholding tax benefit... 618,392
----------
Net realized loss on investments.......... (5,843,562)
Net realized loss on foreign currency
transactions................................. (27,157)
Net change in unrealized appreciation/depreciation of:
Investments (net of change in deferred
Indian withholding taxes of
$921,943).................................... 769,583
Other assets and liabilities
denominated in Indian rupees......... (41,190)
------------
Net realized and unrealized loss on
investments and foreign currency
transactions................................. (5,142,326)
------------
NET DECREASE IN NET ASSETS FROM INVESTMENT
OPERATIONS................................... $ (4,301,504)
------------
------------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
- -------------------------------------------------------------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss)............ $ 840,822 $ (576,102 )
Net realized gain (loss) on investments
and
foreign currency transactions.......... (5,870,719 ) 5,575,168
Net change in unrealized
appreciation/depreciation of
investments and other assets and
liabilities denominated in Indian
ruppees................................ 728,393 (40,984,440 )
------------- -------------
Total from investment operations........ (4,301,504 ) (35,985,374 )
------------- -------------
]DISTRIBUTIONS TO SHAREHOLDERS
From net realized gain on investments... -- (6,443,513 )
In excess of net realized gain on
investments........................... (3,417,509 ) --
------------- -------------
Total distributions to shareholders..... (3,417,509 ) (6,443,513 )
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares in
rights offering........................ 31,581,117 --
Offering costs charged and adjustments
to additional paid-in capital.......... (895,843 ) 258,840
Reinvestment of distributions resulting
in the issuance of common stock........ 108,416 --
------------- -------------
Total capital share transactions........ 30,793,690 258,840
------------- -------------
Net increase (decrease) in net assets... 23,074,677 (42,170,047 )
NET ASSETS
Beginning of period..................... 111,254,636 153,424,683
------------- -------------
End of period........................... $134,329,313 $111,254,636
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The India Growth Fund Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, closed-end
management investment company. The Fund invests through an Indian unit
investment trust (the "Trust") organized through a trust fund agreement (the
"Trust Agreement") between the Fund and Unit Trust of India ("UTI").
The preparation of the financial statements in accordance with generally
accepted accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by
the Fund:
Valuation of Investments--All securities for which market quotations are
readily available are valued at the last sale price on the day of determination
or, if there was no sale on such day, at the mean between the highest current
bid and lowest current asked prices. Securities which are traded
over-the-counter, if bid and asked quotations are available, are valued at the
mean between the current bid and asked prices of two reputable dealers or, if
such quotations are not available, are valued at their fair value as determined
in good faith in accordance with guidelines established by the Fund's Board of
Directors. Short-term investments that mature in 60 days or less are valued at
amortized cost if their term to maturity from date of purchase was less than 60
days, or by amortizing their value on the 61st day prior to maturity if their
term to maturity from date of purchase was greater than 60 days. All other
securities and assets are valued at fair value as determined in good faith in
accordance with guidelines established by the Fund's Board of Directors.
Foreign Currency Translation--The books and records of the Fund are
maintained in U.S. dollars. Indian rupee amounts are translated into U.S.
dollars on the following basis: (1) market value of investments, assets and
liabilities at the closing market exchange rate;
32
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
and (2) purchases and sales of investments, income and expenses are translated
at the rate of exchange prevailing on the respective dates of such transactions.
The resulting foreign currency gains or losses are included in the Statement of
Operations.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the end of the period, the Fund does not generally
isolate the effect of fluctuations in foreign currency 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 or maturity of Indian rupee denominated debt obligations.
Such amount is categorized as foreign currency gain or loss for both financial
reporting and income tax reporting purposes.
Net foreign currency gain (loss) from valuing Indian rupee denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation of investments and other assets and liabilities
denominated in Indian rupees.
Net realized foreign currency loss of $27,157 represents foreign currency
gains and losses from sales and maturities of debt securities, transactions in
Indian rupees, currency gains and losses realized between the trade and
settlement dates on security transactions, and the difference between the
amounts of dividends, interest, expenses, application money and deferred foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid.
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from investments and foreign currency
transactions are calculated on the identified cost basis. Interest income is
recorded on an accrual basis. Dividend income and other distributions are
recorded on the ex-dividend date ("ex-date") except for certain dividends from
Indian securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividends.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-date. Dividends and distributions
33
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
from net investment income and net realized capital gain, respectively, are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gain for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income and distributions in excess of net realized gain. To
the extent they exceed net investment income and net realized capital gain for
tax purposes, they are reported as distributions of additional paid-in capital.
As a result of permanent book/tax differences $72,080 and $(27,157), have been
reclassified from accumulated net realized loss on investments and net realized
loss on foreign currency transactions, to additional paid in capital and
undistributed net investment income, respectively. Net assets were not affected
by these reclassifications.
NOTE 2 INVESTMENT ADVISORY, ADMINISTRATION AND OTHER FEES
The Fund has an Investment Advisory Agreement with Unit Trust of India
Investment Advisory Services Limited (the "Investment Adviser"), an indirect,
wholly-owned subsidiary of UTI. Under the Investment Advisory Agreement, the
Investment Adviser receives a monthly fee, computed weekly, at the annual rate
of 0.75% of the first $50 million of the value of the Fund's average weekly net
assets, 0.60% of such assets in excess of $50 million but not in excess of $100
million, and 0.45% of such assets in excess of $100 million.
Pursuant to the Trust Agreement, the Fund pays UTI a monthly fee for
administration of the Trust, including accounting and valuation services, based
on the value of the Fund's average weekly net assets held in the Trust at the
following annual rates: 0.35% of the first $50 million of the value of the
Fund's average weekly net assets, 0.30% of the next $50 million of such assets,
and 0.25% of such assets in excess of $100 million. In addition, UTI is entitled
to reimbursement for all
34
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
out-of-pocket expenses incurred by UTI directly in the performance of its duties
under the Trust Agreement other than employee costs and overhead.
Mitchell Hutchins Asset Management Inc. ("MHAM") serves as the Fund's
administrator. MHAM receives a monthly fee, computed weekly, at the annual rate
of 0.20% of the first $62.5 million of the value of the Fund's average weekly
net assets, 0.15% of such assets in excess of $62.5 million but not in excess of
$100 million, and 0.10% of such assets in excess of $100 million, with a minimum
annual fee of $125,000.
NOTE 3 INVESTMENTS IN SECURITIES
For the year ended June 30, 1996, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $34,503,068 and $11,778,153,
respectively.
For U.S. federal income tax purposes, the cost of securities owned at June
30, 1996 was substantially the same as the cost of securities for financial
statement purposes. Accordingly, net unrealized appreciation of $28,659,897 was
composed of gross appreciation of $45,684,390 for those investments having an
excess of value over cost, and gross depreciation of $17,024,493 for those
investments having an excess of cost over value.
At June 30, 1996, the Fund owned securities valued at approximately
$10,073,512 which were in the process of being registered in the name of the
Fund. Indian securities regulations normally preclude the Fund from selling such
securities until the completion of the registration process.
NOTE 4 TRANSACTIONS WITH AFFILIATES
The Fund paid or accrued approximately $136,000 for the year ended June 30,
1996 for legal services to a law firm of which the Fund's assistant secretary is
a partner.
35
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
NOTE 5 FEDERAL INCOME TAXES
The Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for U.S. federal income tax is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, the Fund intends not to be subject to U.S. federal excise tax.
In accordance with U.S. Treasury regulations, the Fund elected to defer
realized capital losses occurring after October 31, 1995 in the amount of
$5,267,320. Such losses are treated for tax purposes as arising on July 1, 1996.
At June 30, 1996, the Fund had a capital loss carryforward of $1,266,714
available as a reduction, to the extent provided in the regulations, of any
future net capital gains realized prior to the end of fiscal 2004.
The Fund's taxable net income and capital gains are different than the
Fund's net investment income and realized gains primarily due to Indian
withholding taxes as described in Note 6, which are recognized for U.S. federal
income tax purposes when they are actually paid.
NOTE 6 FOREIGN INCOME TAXES
Net investment income of the Fund derived in India and realized and
unrealized gains on assets of the Fund held in the Trust by UTI under the Trust
Agreement are not subject to taxation in India. However, remittances to the Fund
from the Trust of distributions representing net investment income and gains
realized on such assets are subject to a 10% Indian withholding tax. The Fund
accrues for such withholding taxes on the net investment income and net realized
and unrealized gains derived in India. With certain limitations, U.S.
shareholders will be able to credit such withholding taxes against their U.S.
federal income tax liabilities on foreign source income in the year when such
tax is actually paid by the Fund if so elected by the Fund. Should the Fund
require funds from UTI in excess of the net investment income or net realized
gains earned by the Trust, the Fund
36
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
would have to redeem units representing interest in the Trust. Gains, if any,
realized upon redemption of units representing the Fund's interest in the Trust
described above would be subject to withholding tax at the rate of 10%.
NOTE 7 CAPITAL STOCK
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Shares outstanding, beginning of
period................................. 7,016,021 7,016,021
------------- -------------
Shares issued in connection with rights
offering............................... 2,804,406 --
Shares issued resulting from dividend
reinvestment........................... 8,079 --
------------- -------------
Shares outstanding, end of period...... 9,828,506 7,016,021
------------- -------------
------------- -------------
</TABLE>
NOTE 8 CONCENTRATION OF RISK
Investments in India may involve certain considerations and risks not
typically associated with investments in the U.S. as a result of, among others,
the possibility of future political and economic developments and the level of
Indian governmental supervision and regulation of its securities markets.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific industry or region.
NOTE 9 RIGHTS OFFERING
During the year ended June 30, 1996, the Fund issued 2,804,406 shares in
connection with a rights offering of the Fund's shares. Shareholders of record
on October 20, 1995 were issued one-third of a non-transferable right for each
share of common stock owned, entitling shareholders the opportunity to acquire
one newly issued share for each whole right held at a subscription price of
$11.55 per share.
37
<PAGE>
THE INDIA GROWTH FUND INC.
- -------------------------------------------------------------------
Notes to Financial Statements (concluded)
- -------------------------------------------------------------------
Offering costs of $895,843 were charged to additional paid-in capital, including
$350,000 payable to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), an affiliate of the Fund, for financial advisory services and as
partial reimbursement for its expenses in connection with the rights offering.
Soliciting fees of $809,772 were netted against the proceeds of the
subscription. Merrill Lynch and PaineWebber Incorporated, an affiliate of the
Administrator, earned approximately $66,000 and $3,500, respectively, of the
aforementioned soliciting fees with respect to their participation in the rights
offering. Rogers & Wells, a law firm of which the Fund's assistant secretary is
a partner, earned $261,755 for legal services provided to the Fund in connection
with the rights offering.
38
<PAGE>
- -------------------------------------------------------------------
Financial Highlights
- -------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each period
is presented below:
<TABLE><CAPTION>
FOR THE YEAR ENDED JUNE 30,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $15.86 $21.87 $12.49 $18.57 $14.12
-------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)
before tax....................... 0.11* (0.09) (0.10)* (0.04) (0.04)
Net deferred Indian withholding
(tax)/tax benefit on net
investment income (loss)......... (0.01)* 0.01 0.01* (0.01) 0.06
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions... (1.47)* (5.59) 11.79* (4.93) 6.54
Deferred Indian withholding
(tax)/tax benefit on net
realized and unrealized gain
(loss) on investments............ 0.03* 0.54 (1.16)* 0.46 (1.18)
-------- -------- -------- ------- -------
Total from investment
operations....................... (1.34) (5.13) 10.54 (4.52) 5.38
-------- -------- -------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on
investments...................... -- (0.92) (0.25) (1.56) (0.93)
In excess of net realized gain on
investments...................... (0.35) -- -- -- --
-------- -------- -------- ------- -------
Total distributions to
shareholders..................... (0.35) (0.92) (0.25) (1.56) (0.93)
-------- -------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Dilutive effect of rights
offering......................... (0.37) -- (0.76) -- --
Offering costs charged and
adjustments
to additional paid-in capital... (0.13) 0.04 (0.15) -- --
-------- -------- -------- ------- -------
Total capital share
transactions..................... (0.50) 0.04 (0.91) -- --
-------- -------- -------- ------- -------
Net asset value, end of period... $13.67 $15.86 $21.87 $12.49 $18.57
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Market value, end of period...... $14.63 $18.38 $21.25 $15.00 $16.00
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
TOTAL INVESTMENT RETURN: (a)..... (15.88)% (9.42)% 50.02% 4.75% 44.27%
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted)......................... $134,329 $111,255 $153,425 $62,899 $93,314
Ratio of expenses, excluding
taxes, to average net assets.... 2.17% 1.99% 2.26% 2.31% 2.30%
Ratio of expenses, including
tax/tax benefit, to average net
assets........................... 2.24% 1.94% 2.22% 2.79% 2.00%
Ratio of net investment income
(loss) to average net assets.... 0.72% (0.40)% (0.51)% (0.34)% 0.11%
Portfolio turnover............... 10% 15% 19% 19% 27%
Average commission rate paid per
share of common stock
investments purchased/sold
(b).............................. $ 0.0204 -- -- -- --
</TABLE>
- -------------
<TABLE>
<S> <C>
* Based on average shares outstanding.
(a) Total investment return is calculated assuming a purchase of
common stock at the current market price on the first day, the
purchase of common stock pursuant to any rights offering
occurring in the period 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 sales charges or brokerage commissions.
(b) Disclosure effective for fiscal years beginning on or after
September 1, 1995.
</TABLE>
39
<PAGE>
THE INDIA GROWTH FUND INC.
- ---------------------------------------------------------------------
Report of Independent Accountants
- ---------------------------------------------------------------------
To the Shareholders and Board of Directors of
The India Growth Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio 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 Growth Fund Inc. (the
"Fund") at June 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1996
40
<PAGE>
- ---------------------------------------------------------------------
Tax Information
- ---------------------------------------------------------------------
The Fund is required by subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of the Fund's fiscal year
end (June 30, 1996) as to the U.S. federal tax status of distributions received
by the Fund's shareholders in respect of such fiscal year. Accordingly, we are
advising you that of the $0.35 per share distribution paid during the fiscal
year, the entire amount was derived from net long-term capital gains. There were
no dividends which would qualify for the dividend received deduction available
to corporate shareholders.
The Fund intends to make an election under Internal Revenue Code Section 853
to pass through foreign taxes paid by the Fund to its shareholders. The total
amount of foreign taxes that will be passed through to the shareholders for the
fiscal year ended June 30, 1996 is $0.006 per share and the foreign source
income for information reporting purposes is $0.095 per share. This information
is given to meet certain requirements of the Internal Revenue code. Shareholders
should refer to their Form 1099-Div to determine the amounts includable on their
respective tax returns for 1996.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1996. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their federal income tax returns, will be made in conjunction with
Form 1099-DIV and will be mailed in January 1997. Shareholders are advised to
consult their tax advisers with respect to the tax consequences of their
investment in the Fund.
Foreign shareholders will generally be subject to U.S. withholding tax on
the amount of their dividend.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income for U.S. federal income tax purposes. However,
some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need
this information for their annual information reporting.
41
<PAGE>
THE INDIA GROWTH FUND INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(800) 852-4750
INVESTMENT ADVISER INDEPENDENT ACCOUNTANTS
- ------------------ -----------------------
Unit Trust of India Investment Price Waterhouse LLP
Advisory Services Limited 1177 Avenue of the Americas
Commerce Centre 1, New York, New York 10036
World Trade Center, 8th Floor
G.D. Somani Marg LEGAL COUNSEL
Cuffe Parade, Colaba -------------
Bombay, 400-005, India Rogers & Wells
Telephone Number 9122-218-0087 200 Park Avenue
Fax Number 9122-218-0084 New York, New York 10166
ADMINISTRATOR TRUSTEE
- ------------- -------
Mitchell Hutchins Asset Unit Trust of India
Management Inc. 13, Sir V. Thackersey Marg
1285 Avenue of the Americas Bombay, 400-020, India
New York, NY 10019
Telephone Number (212) 713-2848
Fax Number (212) 713-4058
CUSTODIAN DIRECTORS
- --------- ---------
Brown Brothers Harriman Jagdish Capoor
& Company Antoine W. van Agtmael
40 Water Street Rahul Bajaj
Boston, Massachusetts 02109 S.H. Khan
A.C. Muthiah
Peter J. Pearson
INDIAN CUSTODIAN Christopher Reeves
- ---------------- Ratan N. Tata
Citibank, N.A.
Custody Services OFFICERS
81, Annie Besant Road --------
Barodawale Mansion Jagdish Capoor
Bombay, 400-018, India Chairman of the Board & President
SHAREHOLDER SERVICING AGENT Dr. S.S. Nayak
- --------------------------- Treasurer & Secretary
PNC Bank, National Association
400 Bellevue Parkway Laurence E. Cranch
Wilmington, Delaware 19809 Assistant Secretary
- --------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
<PAGE>
IGF
LISTED
NYSE
