<PAGE>
The India Growth Fund Inc.
- --------------------------------------------------------------------------------
General Information
- ---------------------------------------------------------
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 in other newspapers, in a table captioned "Publicly Traded Funds" or
"Closed-End Funds". Inquiries regarding shareholder accounts may be directed to
the Fund's transfer agent, dividend paying agent and registrar, PNC Bank,
National Association (the "Plan Agent"), at (800) 852-4750.
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 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, 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.
1
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
General Information (continued)
- ----------------------------------------------------------------------
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 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.
2
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------
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 may 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 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 June 30, 1997, 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; or (iv) change in the person primarily responsible for
the day-to-day management of the Fund's portfolio.
3
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
General Information (CONCLUDED)
- --------------------------------------------------------------------------------
YEAR 2000 PROCESSING ISSUE
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. The Year 2000 issue affects virtually all companies
and organizations.
The Investment Adviser has advised the Fund that it is implementing steps
intended to ensure that its computer systems are capable of Year 2000
processing. In addition, the Fund is inquiring with third parties to assess the
adequacy of their Year 2000 compliance efforts. The Fund intends to develop
contingency plans intended to ensure that third-party noncompliance will not
materially affect the Fund's operations. The Fund does not currently anticipate
that the Year 2000 issue will have an adverse effect on the Investment Adviser's
ability to continue to provide the services currently provided to the Fund.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
4
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Chairman's Letter to Shareholders
- ---------------------------------------------------------
August 20, 1998
Dear Shareholders:
The Indian economy is expected to grow 5.5% during fiscal year 1998-99 compared
to 5.1% last fiscal year. The Asian contagion has not spread to India as the
economy has remained relatively insulated from the Asian crisis. With favorable
rains during this year's monsoon season, agricultural growth is expected to
rebound and range between 3.5%-4.5% compared to a decline of 3.2% last fiscal
year. Industrial growth has slowed but is anticipated to approximate 6% for the
year. The service sector has been buoyant and is expected to increase
approximately 9%.
The slowdown in world trade and an economic slump in Asia have affected India's
exports during the first quarter of the current fiscal year, declining 9% from
the first quarter of the previous fiscal year. The balance of payments
situation, however, remains comfortable as the current account deficit is
expected to approximate 1.7% of gross domestic product ("GDP") this year. At
US$27 billion, the level of foreign exchange reserves provides comfortable
imports' cover of eight months. The rupee depreciated 8% in the past year but
currently appears stable. Money supply (M3) has increased at a 17% annual rate
while bank deposits are growing at an even higher annual rate of 19%. Inflation,
as measured by the Wholesale Price Index, rose to 6.7% from 4.8% during the last
fiscal year.
During the first half of 1998, the stock market experienced volatility. The
Bombay Stock Exchange Sensitive Index ("BSE Sensex") rose 16%, peaking at 4,280
in April. The BSE Sensex has since fallen and has traded in a narrow range.
Earnings growth of the Fund's top 50 companies during fiscal year 1997-98
registered 13% compared with negative growth of 1.3% during the prior year.
Recovery in industrial growth and buoyant agriculture this year are expected to
translate into improved earnings growth for the corporate sector.
The Fund's strategy of restructuring the portfolio by increasing its investment
allocation to defensive and non-cyclical sectors has strongly benefitted
performance. Increased investment in non-durable consumer products,
pharmaceuticals, selected automotive companies, and software technology stocks
have yielded very positive results. The Fund has consistently outperformed its
benchmark indices by substantial margins during the current year.
We believe the Indian stock market currently offers excellent opportunities for
acquiring stocks at very attractive valuations. On prospective earnings, the
price/earnings ratio for BSE Sensex stocks remains very attractive at 10.5 times
earnings. The India Growth Fund will continue to look for an optimal mix of both
value and growth stocks and take advantage of a rally in the market.
Sincerely,
/s/ Dr. P.J. Nayak
Dr. P.J. Nayak
Chairman of the Board
and President
5
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Review of the Indian Economy
- ---------------------------------------------------------
- The Indian economy is expected to grow 5.5% during fiscal year 1998-99.
GDP grew 5.1% during fiscal 1997-98 compared to 7.5% the previous fiscal
year.
- With the well spread out normal monsoon progressing during the current
season, agricultural production is expected to grow between 3.5%-4.5%.
Agricultural output declined 3.2% during fiscal 1997-98 compared to growth
of 9.6% in fiscal 1996-97.
- Industrial growth is expected to range between 6%-7% during fiscal 1998-99
consistent with the growth of 6.6% recorded during fiscal 1997-98.
- The service sector, which contributes 40% to GDP, is anticipated to grow
9%, a slight increase versus the 8.9% growth recorded in fiscal 1997-98.
- With increases in custom duties and excise taxes on luxury goods and
efforts to increase the collection of personal income taxes, forecasts are
for a fiscal deficit of approximately 5.6% of GDP in fiscal 1998-99,
compared to 6.1% the previous fiscal year.
- Broad money (M3) grew 17% on an annual basis during fiscal 1997-98, while
inflation, measured by the Wholesale Price Index, edged up to 6.7%
compared to 4.8% in fiscal 1996-97.
- Despite negative growth in exports during the first quarter of the current
year, the balance of payments situation remains manageable. The current
account deficit which was 1.5% of GDP during fiscal 1997-98 is expected to
increase marginally to 1.7% of GDP during fiscal 1998-99.
- The capital account of balance of payments continues to show buoyancy in
foreign investment flows and a surge in net inflows of non-resident
deposits. The surplus in the capital account is expected to exceed the
deficit in the current account during fiscal 1998-99.
- Foreign currency assets increased by $3.6 billion in fiscal 1997-98,
reaching $27 billion in June 1998 (equivalent to 8 months' imports).
- The Asian crisis had a limited contagion effect on the Indian rupee which
depreciated 8% during fiscal 1997-98. The rupee-dollar exchange rate rose
from Rs.39.5/$1U.S. to Rs.42.5/$1U.S.
- The government is continuing the economic reform process. For instance,
recent announcements include the opening up of the insurance industry to
Indian companies and the reduction of government holdings in non-strategic
public sector enterprises.
6
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Review of the Capital Markets
- ---------------------------------------------------------
- During 1997, the BSE Sensex peaked at 4,548 on August 5, 1997.
Subsequently, the market reacted to the Asian crisis and investor selling.
- On January 15, 1998, compulsory trading by institutional investors of
eight specified stocks in dematerialized form commenced. The
dematerialized segment of the market provides for trade date +5 settlement
compared to weekly settlement cycles for paper-based trading. In June
1998, 22 additional companies were added for compulsory dematerialized
trading by institutions. These companies constitute over 50% of the total
market capitalization of the Indian markets (U.S.$120 billion). The number
of depository participants currently stands at 10,164.
- In April 1998, following the swearing-in of the BJP-led 18 party coalition
government, the BSE Sensex reached its 1998 peak of 4,280.
- During May 1998, India exercised a nuclear option leading to an over 8%
decline in the market. Net foreign institutional investor ("FII") outflows
reached US$124 million during the month.
- During the first week of June 1998, the Union Budget was announced.
India's rating was revised by Moody's which contributed to the markets
remaining volatile. Net FII outflows for the month reached US$206 million
which contributed to the BSE Sensex losing 24% from its high in April
1998.
- The Securities Exchange Regulation Act was proposed to be amended to
recognize index futures contracts as securities and to enable derivative
trading in the Indian market.
- The Securities and Exchange Board of India initiated steps to improve the
capital market environment. Beginning June 1998, companies are required to
publish quarterly unaudited financial statements. In addition, FIIs are
now permitted to lend securities, and the normal lock-in period for
preferential allotments has been reduced. Companies opting for voluntary
de-listing will now be required to provide an exit route for investors by
buying back outstanding equity shares at the last six months' average
price.
- The Reserve Bank of India permitted FIIs to have forward cover facility
for their incremental equity investments over the level as of June 1998.
This facility has been extended to non-resident Indians and overseas
corporate bodies for their portfolio investments.
- The Securities Exchange Board of India permitted FIIs to invest in
unlisted debt securities. FIIs would also be allowed to tender their
securities directly to an acquirer in response to an open offer for
takeover or acquisition of shares. Permission has also been granted to
trade in derivatives without requiring delivery.
7
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Investment Adviser's Report
- ---------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BOMBAY STOCK EXCHANGE SENSITIVE INDEX
JULY 1, 1997 THROUGH JUNE 30, 1998
<S> <C>
01-Jul-97 4300.86
15-Jul-97 4221.02
29-Jul-97 4217.58
12-Aug-97 4425.03
26-Aug-97 4107.24
09-Sep-97 4031.55
23-Sep-97 3822.42
07-Oct-97 3909.46
21-Oct-97 4116.99
04-Nov-97 3805.95
18-Nov-97 3518.90
02-Dec-97 3553.48
16-Dec-97 3424.87
30-Dec-97 3637.71
13-Jan-98 3431.72
27-Jan-98 3276.21
10-Feb-98 3317.70
24-Feb-98 3484.69
10-Mar-98 3798.25
24-Mar-98 3927.67
07-Apr-98 4194.27
21-Apr-98 4280.96
05-May-98 4147.29
19-May-98 3924.42
02-Jun-98 3573.21
16-Jun-98 3161.08
30-Jun-98 3250.69
Asian Currency Crisis
Congress Party withdraws support to Government
Announcement of Mid-Term Election
Depreciation of Rupee
Formation of BJP Government
Credit Policy Announced
Nuclear Testing
Fiscal 1998-99 Budget
</TABLE>
1998 has witnessed ups and downs in the stock market. The beginning of the year
saw a rally as the BSE Sensex rose to 4,280, an increase of 17% from the end of
1997. The market remained buoyant following the election and formation of the
BJP-led 18 party coalition government. This was followed by a correction in the
stock market triggered by India's nuclear testing and subsequent sanctions
imposed by the U.S. government. The BSE Sensex declined to 3,289 at June 30,
1998. FIIs who had turned net sellers in the months of April and May, were net
buyers during June and July. However, the market continued to move in a narrow
range.
FUND PERFORMANCE
The Fund has achieved a compound annual growth rate ("CAGR") of 18.4% in rupee
terms from inception (August 19, 1988) through June 30, 1998 compared to a CAGR
of 17.6% registered by the BSE Sensex during the same period.
The performance of the Fund's rupee net asset value ("NAV") through June 30,
1998 was superior to the investment returns of both the BSE Sensex and CRISIL
500 indices on the basis of one year, nine months, six months, three months and
one month performance. For the year ended June 30, 1998, the BSE Sensex and
CRISIL 500 declined 24% and 18%, respectively, while the Fund's rupee NAV
declined 9.5%. On a nine month basis, the BSE Sensex and CRISIL 500 decreased
17% and
8
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ---------------------------------------------------------
13%, respectively, compared to a 6% fall in the Fund's rupee NAV. On a six month
basis, the Fund's rupee NAV declined 1% compared to decreases of 11% and 6% in
the BSE Sensex and CRISIL 500, respectively.
The rupee NAV fell 1% during the six months ended June 30, 1998. The dollar NAV
dropped 9% from US$10.48 at December 31, 1997 to US$9.56 at June 30, 1998. The
market price of the Fund was US$7.25 at June 30, 1998.
The beta (a measure of risk) of the Fund which was 1.04 at December 31, 1997 was
0.79 at June 30, 1998. The strategy of having a defensive beta was a conscious
decision undertaken in view of market volatility.
Following the commencement of operations of the Depository Corporation of India,
an increasing number of stocks are now dematerialized. From the Fund's portfolio
of 176 companies, 40 companies, representing approximately one-third of the
Fund's invested stock (in market value terms) were held in dematerialized form.
INVESTMENT STRATEGY
The decision to restructure the portfolio by reducing exposure to a small number
of companies and reducing exposure in declining and cyclical sectors has started
to show results. The decision to divest of stocks in small and mid-cap
companies, eliminate smaller holdings where potential for appreciation was
limited, and to also dispose of securities in sectors we identified as non-
performing, has helped to improve Fund performance. This restructuring,
undertaken in 1997, has started to show results as is evident in the Fund's
superior performance versus its benchmark indices.
The Fund held positions in 176 companies at June 30, 1998 compared to 178
positions at December 31, 1997. However, 99% of the Fund's investments are in 90
companies, 72.5% of which are in 20 companies. During the six month period ended
June 30, 1998, the BSE Sensex declined 11%. During this period, 26 of the Fund's
top 40 stocks outperformed the BSE Sensex Index. These superior performers have
a 65.4% weighting in the Fund.
In January 1997, it was decided to decrease the Fund's investment exposure in
industries such as cement, iron & steel, commercial vehicles, chemicals, and
heavy engineering. On the other hand, investment exposure was increased in
information technology, pharmaceuticals/healthcare and food and agro products.
Investment allocation was increased in the above-mentioned sectors as we were
encouraged by the potential for appreciation.
The strategy of divesting of non-core, marginal holdings and concentrating the
Fund's investments in a smaller number of stocks having solid potential for
appreciation will, we anticipate, benefit the Fund and continue to help the Fund
outperform its benchmark indices.
9
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Investment Adviser's Report (concluded)
- ----------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RUPEE NAV VS. BOMBAY STOCK EXCHANGE SENSITIVE INDEX
<S> <C> <C>
July 1, 1997 - June 30, 1998
Rupee NAV BSE Sensex
01-Jul-97 100.00 100.00
103.20 101.63
99.90 96.53
102.24 98.09
101.16 97.95
06-Aug-97 107.25 104.36
103.81 100.84
102.06 97.71
100.00 94.55
97.29 91.50
10-Sep-97 99.63 93.35
97.13 90.64
94.55 88.28
95.95 90.12
95.81 90.69
15-Oct-97 97.34 93.09
98.98 94.20
95.37 90.78
93.63 87.18
91.53 83.83
19-Nov-97 86.62 79.71
89.60 81.58
90.26 82.20
85.25 77.24
87.73 80.46
24-Dec-97 89.89 83.24
91.08 84.43
92.10 84.99
86.24 78.47
85.91 78.87
28-Jan-98 80.91 74.06
81.85 76.59
80.78 75.98
83.49 78.49
88.37 80.41
04-Mar-98 92.95 86.39
92.10 86.58
93.86 88.26
98.51 91.13
99.34 91.59
03-Apr-98 104.25 96.53
108.28 96.74
109.64 96.44
103.54 91.61
108.38 93.91
13-May-98 99.79 87.28
107.97 91.30
105.00 87.15
98.30 83.02
88.89 76.41
17-Jun-98 89.89 78.47
86.05 72.54
88.83 74.54
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RELATIVE PERFORMANCE OF NORMALIZED RUPEE NAV VS. BSE SENSEX
BSE SENSEX RUPEE NAV
01-JUL-97 100.00 100.00
<S> <C> <C>
100.00 101.54
100.00 103.50
100.00 104.23
100.00 103.28
20-Aug-97 100.00 102.77
100.00 102.95
100.00 104.45
100.00 105.76
100.00 105.33
10-Sep-97 100.00 106.73
100.00 107.16
100.00 107.11
100.00 106.48
100.00 105.65
15-Oct-97 100.00 104.57
100.00 105.08
100.00 105.05
100.00 107.40
100.00 109.18
19-Nov-97 100.00 106.67
100.00 109.83
100.00 109.80
100.00 110.38
100.00 109.04
24-Dec-97 100.00 107.99
100.00 107.88
100.00 108.37
100.00 109.91
100.00 108.92
28-Jan-98 100.00 109.25
100.00 106.88
100.00 106.31
100.00 108.37
100.00 109.91
04-Mar-98 100.00 107.60
100.00 106.38
100.00 106.34
100.00 108.10
100.00 108.46
03-Apr-98 100.00 108.00
100.00 111.93
100.00 113.69
100.00 113.02
100.00 115.41
13-May-98 100.00 114.33
100.00 118.25
100.00 120.47
100.00 118.41
100.00 116.34
17-Jun-98 100.00 114.55
100.00 118.63
100.00 119.17
100.00 122.70
100.00 122.45
22-Jul-98 100.00 123.61
100.00 125.78
</TABLE>
10
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Top Twenty Holdings -- June 30, 1998
- ---------------------------------------------------------
The Fund has positions in 176 companies at June 30, 1998. 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. ITC Ltd............................................................................. 9.88%
2. Hindustan Lever Ltd................................................................. 7.46
3. NIIT Ltd............................................................................ 5.79
4. TVS Suzuki Ltd...................................................................... 5.59
5. Bajaj Auto Ltd...................................................................... 4.71
6. Smithkline Beecham Consumer Healthcare Ltd.......................................... 4.52
7. Punjab Tractors Ltd................................................................. 3.91
8. Reliance Industries Ltd............................................................. 3.72
9. Hindustan Petroleum Corp. Ltd....................................................... 3.43
10. Hero Honda Motor Ltd................................................................ 3.32
11. Mahindra & Mahindra Ltd............................................................. 2.81
12. Mahanagar Telephone Nigam Ltd....................................................... 2.33
13. Satyam Computer Ltd................................................................. 2.30
14. Nestle India Ltd.................................................................... 2.14
15. EIH Ltd............................................................................. 2.03
16. DSQ Software Ltd.................................................................... 2.00
17. Colgate Palmolive India Ltd......................................................... 1.91
18. Hindalco Industries Ltd............................................................. 1.57
19. Credit Rating Information Services of India Ltd..................................... 1.57
20. Vashisthi Detergents Ltd............................................................ 1.50
------
Total............................................................................... 72.49%
------
------
</TABLE>
11
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Portfolio of Investments
June 30, 1998
- ----------------------------------------------------------------------------
INVESTMENTS IN INDIA--102.95%
- --------------------------------------------------------------------------------
EQUITIES & EQUITY EQUIVALENTS--101.33%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
Aluminum--3.03%
93,971 Hindalco Industries Ltd..................................... $ 1,479,378
150 Indian Aluminum Co. Ltd..................................... 266
2,752,500 National Aluminum Ltd. ..................................... 1,363,267
-----------
2,842,911
-----------
Aquaculture--0.00%
89,900 Aqua Marine Foods Ltd.*#.................................... 0
100 King International Aqua Ltd.*............................... 1
120 MAC Industries Ltd.......................................... 82
439 S & S Industries & Enterprises Ltd.......................... 65
-----------
148
-----------
Automobiles & Auto Ancillaries--21.30%
328,050 Bajaj Auto Ltd.+............................................ 4,425,580
7,050 Carborundom Universal Ltd. ................................. 11,556
56,650 Exide Industries Ltd. ...................................... 124,122
18,662 Exide Industries Ltd. (new shares)#......................... 39,261
2,250 Gabriel India Ltd........................................... 5,015
151,089 Hero Honda Motors Ltd....................................... 3,119,774
400 Hindustan Motors Ltd........................................ 92
81,886 LML Ltd..................................................... 180,767
521,211 Mahindra & Mahindra Ltd. ................................... 2,645,392
815,400 Pal Peugeot Ltd.*........................................... 20,193
193,250 Punjab Tractors Ltd.+....................................... 3,676,991
100,432 Tata Engineering & Locomotive Co. Ltd....................... 394,385
11,600 Tata Engineering & Locomotive Co. Ltd. GDR.................. 33,930
500,000 TVS Suzuki Ltd.............................................. 5,253,538
54,280 Ucal Fuel Systems Ltd. ..................................... 78,091
-----------
20,008,687
-----------
Banks/Financial Institutions--1.65%
46,700 Bank of Baroda Ltd. (new shares)+#.......................... 91,252
369,900 Bank of India Ltd.+......................................... 285,713
900 Corporation Bank Ltd.+...................................... 2,142
200 HDFC Bank Ltd. ............................................. 303
16,490 HDFC Ltd.+.................................................. 1,164,023
100 ICICI Banking Corporation Ltd............................... 77
780 ICICI Ltd.+................................................. 1,422
1,603 State Bank of India Ltd.+................................... 8,072
-----------
1,553,004
-----------
Cement--1.31%
93 Associated Cement Companies Ltd. ........................... 2,739
83,038 Gujarat Ambuja Cement Ltd.+................................. 511,545
3,800 India Cements Ltd........................................... 4,481
8,350 Madras Cements Ltd. ........................................ 704,039
1,100 Raasi Cements Ltd. ......................................... 5,785
-----------
1,228,589
-----------
Ceramics/Granites--0.22%
454,850 Grapco Industries Ltd.*..................................... 16,091
191,197 Kajaria Ceramics Ltd. ...................................... 191,648
175,000 Pacific Industries Ltd.*#................................... 0
-----------
207,739
-----------
</TABLE>
12
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
EQUITIES & EQUITY EQUIVALENTS--(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
Chemicals & Dyes--0.90%
145,666 BASF India Ltd.............................................. $ 839,297
1,000 Beta Nepthol Ltd.*.......................................... 75
17,300 Gujarat Heavy Chemicals Ltd. ............................... 6,549
646 Shree Rayalseema Alkalies & Allied Chemicals Ltd............ 102
170 Tata Chemicals Ltd. ........................................ 503
-----------
846,526
-----------
Computers/Software/Components--12.86%
45,200 BFL Software Ltd............................................ 312,669
182,800 Digital Equipment Ltd. ..................................... 574,699
306,700 DSQ Software Ltd. .......................................... 1,854,667
2,000 InfoSys Technologies Ltd.................................... 108,491
100,000 InfoTech Enterprises Ltd.................................... 188,679
55,700 Mastek Ltd. ................................................ 274,165
162,350 NIIT Ltd.................................................... 5,439,108
50 PCS Data General India Industries Ltd....................... 13
20,000 Pentafour Software Ltd. .................................... 298,467
248,700 R S Software India Ltd. .................................... 525,848
220,100 Satyam Computer Ltd......................................... 2,154,281
46,400 Software Solutions Integrated Ltd........................... 282,996
145,000 Twinstar Software Exports Ltd.*............................. 72,842
-----------
12,086,925
-----------
Consumer Durables--1.09%
231,700 Carrier Aircon Ltd. ........................................ 1,022,431
200 SPIC Electronics & Systems Ltd.*............................ 21
-----------
1,022,452
-----------
Consumer Products--13.43%
60,000 Bata India Ltd. ............................................ 192,028
319,393 Colgate Palmolive India Ltd. ............................... 1,791,313
198,586 Hindustan Lever Ltd......................................... 7,011,397
60,000 Marico Industries Ltd. ..................................... 339,623
250,000 Polar Industries Ltd........................................ 168,042
168,800 Polar Latex Ltd............................................. 25,877
11,350 Ponds (India) Limited Ltd................................... 283,750
52,457 Procter & Gambel India Ltd. ................................ 784,999
32,950 Reckitt & Coleman of India Ltd. ............................ 223,423
252,079 Titan Industries Ltd........................................ 238,999
1,314,600 Vashisthi Detergents Ltd.*.................................. 1,412,265
1,300 Videocon Appliances Ltd..................................... 558
120,900 Videocon International Ltd.................................. 145,137
-----------
12,617,411
-----------
Diamonds--0.03%
85,150 Su-Raj Diamonds India Ltd................................... 28,517
-----------
Diversified--13.83%
603,800 ITC Ltd..................................................... 9,284,849
5,947 Larsen & Toubro Ltd......................................... 32,260
23,993 Raymond Ltd................................................. 45,326
1,025,637 Reliance Industries Ltd. ................................... 3,488,133
35,000 Sterlite Industries Ltd. ................................... 145,118
-----------
12,995,686
-----------
Electricals--0.51%
109,038 Siemens India Ltd.*......................................... 474,470
92,300 Solarson Industries Ltd.*................................... 2,068
-----------
476,538
-----------
</TABLE>
13
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
June 30, 1998
- ----------------------------------------------------------------------------
EQUITIES & EQUITY EQUIVALENTS--(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
Engineering--1.27%
1,666 Asea Brown Boveri Ltd. ..................................... $ 16,709
6,200 Blue Star Ltd. ............................................. 8,510
145,000 Growel Times Ltd.*.......................................... 855
25,400 Ingersoll Rand India Ltd.................................... 219,704
370 Ion Exchange India Ltd...................................... 418
150,000 KEC International Ltd....................................... 98,880
35,400 Praj Industries Ltd......................................... 26,300
57,500 Thermax Ltd................................................. 178,603
168,600 Wartsila Diesel India Ltd................................... 639,010
1,650 Western Paques India Ltd.*#................................. 0
-----------
1,188,989
-----------
Finance & Leasing--1.57%
120,000 Credit Rating Information Services of India Ltd.+........... 1,473,113
-----------
Food & Agro Products--6.76%
727,000 Agritech Hatcheries & Foods Ltd.#*.......................... 17,146
71,200 American Dryfruits Co. Ltd.*................................ 7,137
6,960 Cadbury India Ltd. ......................................... 59,628
82,100 Nath Seeds Ltd.*............................................ 10,940
233,725 Nestle India Ltd............................................ 2,012,130
464,340 SmithKline Beecham Consumer Healthcare Ltd.................. 4,249,149
-----------
6,356,130
-----------
Hotels--3.05%
368,525 EIH Ltd..................................................... 1,906,074
48,220 Hotel Leela Venture Ltd.--Warrants expire 4/8/99*........... 12,055
93,358 Indian Hotels Co. Ltd. ..................................... 946,241
2,170 ITC Hotels Ltd. ............................................ 4,376
-----------
2,868,746
-----------
Housing & Construction--0.03%
164,900 Lok Housing & Construction Ltd.*............................ 27,224
55,900 NCL Seccolour Ltd.*#........................................ 0
-----------
27,224
-----------
Iron & Steel--0.14%
300,000 Asian Alloys Ltd.*.......................................... 28,302
100 Essar Steel Ltd............................................. 38
20,140 Grand Foundry Ltd.*......................................... 974
25,875 Jindal Iron & Steel Co. Ltd.--Warrants*#.................... 0
421,000 Kanakdhara Steel Ltd.*#..................................... 0
250 Sesa Goa Ltd................................................ 963
3,390 Tata Iron & Steel Co. Ltd................................... 10,098
1,000,000 Welspun Stahl Rohren Ltd.*.................................. 94,340
-----------
134,715
-----------
Office Equipment--0.11%
64,412 Modi Xerox Ltd.............................................. 100,340
-----------
Packaging--0.01%
160,300 Ras Extrusion Ltd.*......................................... 10,208
52,000 Sharp Industries Ltd........................................ 3,925
-----------
14,133
-----------
</TABLE>
14
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
EQUITIES & EQUITY EQUIVALENTS--(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
Paints/Dyes/Rubber--0.68%
14,850 Apcotex Lattices Ltd........................................ $ 15,813
6,610 Asian Paints India Ltd...................................... 37,883
27,850 Ciba Specialty Chemicals Ltd................................ 68,246
47,267 Clariant India Industries Ltd. ............................. 194,419
97,400 Dewan Rubber India Ltd. .................................... 13,668
65,650 Goodlass Nerolac Paints Ltd................................. 229,156
23,558 Goodlass Nerolac Paints Ltd. (new shares)#.................. 78,897
-----------
638,082
-----------
Paper--0.30%
210,000 Ballarpur Industries Ltd.................................... 145,118
97,600 Orient Paper Mills & Industries Ltd......................... 71,358
775,000 Rama Newsprint & Paper Ltd. (new shares)*#.................. 54,835
25,000 Shreyans Industries Ltd..................................... 7,193
-----------
278,504
-----------
Pesticides/Agrochemicals--0.84%
100 Aimco Pesticides Ltd. ...................................... 17
23,750 Cyanamid India Ltd.*#....................................... 21,734
87,211 Novartis India Ltd. ........................................ 771,324
-----------
793,075
-----------
Petrochemicals--1.20%
79,262 Castrol India Ltd. ......................................... 1,115,089
500 Indian Petrochemical Corp. Ltd.............................. 616
1,440 NOCIL Ltd................................................... 1,017
710 Southern Petrochemicals Industries Corp. Ltd.+*............. 502
500,000 Sree Rayalaseema Petrochemicals Ltd.*....................... 11,792
-----------
1,129,016
-----------
Petroleum--4.39%
76,700 Bharat Petroleum Corporation Ltd. .......................... 634,494
51,200 Cochin Refineries Ltd....................................... 265,540
346,000 Hindustan Petroleum Corp. Ltd............................... 3,223,349
-----------
4,123,383
-----------
Pharmaceuticals--5.08%
400 Astra IDL Ltd. ............................................. 1,555
101,000 Burroughs Wellcome India Ltd................................ 787,276
75,100 E. Merck India Ltd.......................................... 359,028
31,700 German Remedies Ltd......................................... 257,936
45,000 Glaxo India Ltd............................................. 389,770
30,100 Knoll Pharma Ltd............................................ 489,835
58,500 Lyka Laboratories Ltd.*..................................... 30,216
150,000 Morepan Laboratories Ltd. .................................. 485,024
323,900 Orchid Chemicals & Pharmaceuticals Ltd...................... 847,946
1,200 Pfizer Ltd. ................................................ 15,580
214,330 Pharmasia Ltd.*#............................................ 0
25,000 Rhone Poulenc Ltd. ......................................... 213,591
74,000 SmithKline Beecham Pharmaceuticals Ltd. .................... 618,267
23,750 Wyeth Lederle Ltd.#......................................... 272,229
-----------
4,768,253
-----------
Plastics/Pipes--0.00%
1,800 Uniplas India Ltd.*......................................... 42
-----------
Power & Energy--0.42%
77,298 BSES Ltd. .................................................. 284,398
50,000 Gas Authority of India Ltd. ................................ 110,318
360 Nepc Micon India Ltd.*...................................... 31
-----------
394,747
-----------
</TABLE>
15
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Portfolio of Investments (concluded)
June 30, 1998
- ----------------------------------------------------------------------------
EQUITIES & EQUITY EQUIVALENTS--(concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
Shipping--0.15%
157,500 Shipping Corporation of India Ltd........................... $ 144,313
-----------
Sugar--0.00%
50 Rajshree Sugars & Chemicals Ltd. ........................... 11
-----------
Tea & Plantation--1.01%
132,625 Tata Tea Ltd................................................ 948,394
-----------
Telecommunications & Cable--3.29%
255,600 Bharati Telecom Ltd......................................... 495,828
12,650 Finolex Cables Ltd.......................................... 36,070
519,700 Mahanagar Telephone Nigam Ltd............................... 2,186,662
99,000 Repl Engineering Ltd.*...................................... 4,670
313,900 Usha Beltron Ltd............................................ 365,723
-----------
3,088,953
-----------
Textiles--0.31%
19 Arvind Mills Ltd............................................ 20
29,100 Ginni Filament Ltd.......................................... 5,216
193,500 Hanil Era Textiles Ltd.*.................................... 8,443
122,606 Indo Count Industries Ltd................................... 20,820
239,000 K.G. Denim Ltd.*............................................ 39,458
20,700 Maxwell Apparel Industries Ltd. ............................ 1,011
66,500 Morarjee Goculdas Spinning & Weaving Co. Ltd. .............. 27,447
331,300 Patspin India Ltd........................................... 71,104
56,800 Shamken Multifab Ltd........................................ 11,521
446,200 Welspun India Ltd. ......................................... 105,236
-----------
290,276
-----------
Miscellaneous--0.56%
70,000 Gujarat Mineral Development Corp............................ 114,245
297,700 Hindustan Zinc Ltd.......................................... 70,563
185,400 Navneet Publications Ltd.................................... 327,948
26,800 Skyline Nepc Ltd.*.......................................... 948
152,000 Tamil Nadu Hospitals Ltd.*#................................. 0
173,100 Techtron Poly Ltd.*......................................... 16,330
400,000 Tejoomal Industries Ltd.*#.................................. 0
-----------
530,034
-----------
Total Equities & Equity Equivalents (cost--$92,305,377)................. 95,205,606
-----------
</TABLE>
16
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NON-CONVERTIBLE DEBENTURES --0.24%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
- ---------- -----------
<C> <S> <C>
Rs. 12,938 10.5% Jindal Iron & Steel Co. Ltd. of Rs. 500 each;
redeemable starting 1/14/01# ............................ $ 221,470
4 12.5% Nicholas Piramal India Ltd. of Rs. 50 each; redeemable
starting 4/20/02# ....................................... 85
15,000 16.0% Rama Newsprint & Paper Ltd. of Rs. 60 each; redeemable
starting 1/02/00*# ...................................... 0
68 12.5% Reliance Industries Ltd. of Rs. 95 each; redeemable
starting 3/1/02# ........................................ 1,428
-----------
Total Non-Convertible Debentures (cost--$893,290)....................... 222,983
-----------
- -------------------------------------------------------------------------------------
BANK DEPOSIT--1.38%
- -------------------------------------------------------------------------------------
55,100 Banque Nationale de Paris due 7/1/98 (cost--$1,299,528)..... 1,299,528
-----------
Total Investments in India (cost--$94,498,195).......................... 96,728,117
-----------
- -------------------------------------------------------------------------------------
OTHER INVESTMENTS--1.43%
- -------------------------------------------------------------------------------------
TIME DEPOSITS--1.43%
- -------------------------------------------------------------------------------------
US$ 47 Brown Brothers Harriman & Co. Grand Cayman, 4.50%@.......... 47,000
1,300 First National Bank of Chicago Grand Cayman, 4.50%@......... 1,300,000
-----------
Total Time Deposits (cost--$1,347,000).................................. 1,347,000
-----------
TOTAL INVESTMENTS (cost--$95,845,195)--104.38%.......................... 98,075,117
Liabilities in excess of other assets --(4.38)%......................... (4,118,463)
-----------
NET ASSETS (equivalent to $9.56 per share; applicable to 9,830,611
shares outstanding)--100%............................................. $93,956,654
-----------
-----------
</TABLE>
- ------------------------------
GDR--Global Depositary Receipt
Rs--Indian Rupees
+ Affiliated security. Deemed as such because a director of the Fund or an
employee of the Investment Adviser or Trustee is an officer or director of the
company.
* Non-income producing security.
# Fair valued security, aggregating $798,337 or 0.85% of net assets.
@ Variable rate account-rate resets on a monthly basis; amount available upon 48
hours' notice.
See accompanying notes to financial statements.
17
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1998
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments in unaffiliated securities, at value
(cost--$85,083,916).................................................. $86,434,762
Investments in affiliated securities, at value
(cost--$10,761,279).................................................. 11,640,355 $98,075,117
-----------
Dividends and interest receivable...................................... 754,526
Receivable for investments sold........................................ 10,257
Prepaid expenses....................................................... 12,816
-----------
Total assets....................................................... 98,852,716
-----------
LIABILITIES
Due to custodian....................................................... 43,651
Deferred Indian withholding taxes...................................... 3,548,830
Payable for investments purchased...................................... 766,021
Investment advisory fee payable........................................ 54,087
Trust administrative fee payable....................................... 26,016
Administrative fee payable............................................. 14,692
Accrued expenses and other liabilities................................. 442,765
-----------
Total liabilities.................................................. 4,896,062
-----------
NET ASSETS
Common stock, $0.01 par value; 9,830,611 shares issued
and outstanding (50,000,000 shares authorized)....................... 98,306
Additional paid-in capital............................................. 116,316,194
Undistributed net investment income.................................... 1,781,750
Accumulated net realized loss.......................................... (23,448,670)
Net unrealized depreciation of investments and other assets and
liabilities denominated in Indian rupees (net of deferred Indian
withholding tax of $2,420,796)........................................ (790,926)
-----------
$93,956,654
-----------
-----------
NET ASSET VALUE PER SHARE.................................................. $9.56
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 1998
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends from unaffiliated securities................................. $ 1,444,029
Dividends from affiliated securities................................... 228,950
Interest............................................................... 204,269 $ 1,877,248
------------ --------------
EXPENSES
Advisory fees.......................................................... 723,099
Custodian and accounting fees.......................................... 716,013
Trust administration fees.............................................. 344,984
Legal and audit fees................................................... 218,550
Administration fees.................................................... 191,939
Directors' fees and expenses........................................... 134,750
Insurance expense...................................................... 123,693
Reports to shareholders................................................ 64,810
Transfer agent fees.................................................... 27,415
Miscellaneous expenses................................................. 20,505 2,565,758
------------ --------------
Net investment loss before taxes....................................... (688,510)
Deferred Indian withholding tax benefit................................ 178,758
--------------
Net investment loss.................................................... (509,752)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments--unaffiliated securities.............. 173,891
Net realized gain on investments--affiliated securities................ 937,978
Deferred Indian withholding tax........................................ (330,131)
------------
Net realized gain on investments....................................... 781,738
Net realized loss on foreign currency transactions..................... (159,431)
Net change in unrealized appreciation/depreciation of:
Investments (net of change in deferred Indian withholding
(tax)/tax benefit of $1,847,402)................................. (29,314,191)
Other assets and liabilities denominated in Indian rupees.......... 72,570
--------------
Net realized and unrealized loss on investments
and foreign currency transactions.................................... (28,619,314)
--------------
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS...................... $ (29,129,066)
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment loss.............................................................. $ (509,752) $ (291,137)
Net realized gain (loss) on investments and
foreign currency transactions.................................................. 622,307 (14,816,703)
Net change in unrealized appreciation/depreciation of investments
and other assets and liabilities denominated in Indian rupees.................. (29,241,621) 4,623,869
-------------- --------------
Total from investment operations................................................. (29,129,066) (10,483,971)
-------------- --------------
DIVIDENDS TO SHAREHOLDERS
From net investment income....................................................... -- (786,618)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Reinvestment of dividends resulting in the issuance of common stock.............. -- 26,996
-------------- --------------
Net decrease in net assets....................................................... (29,129,066) (11,243,593)
NET ASSETS
Beginning of year................................................................ 123,085,720 134,329,313
-------------- --------------
End of year...................................................................... $ 93,956,654 $123,085,720
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
June 30, 1998
- ----------------------------------------------------------------------------
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 having a maturity of 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.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the buy or sell order 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 which
are recorded as soon after the ex-date as the Fund, using reasonable diligence,
becomes aware of such dividends.
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) the foreign currency market value of investments and other
assets and liabilities denominated in Indian rupees at the closing rate of
exchange on the valuation date; and (2) purchase and sales of investments,
income and expenses are translated at the rate of exchange prevailing on the
21
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------------------
respective dates of such transactions. The resulting net foreign currency gain
or loss is included in the Statement of Operations.
The Fund does not generally isolate that portion of the results of operations
arising as a result of changes in foreign currency exchange rates from
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, the Fund does isolate the effect
of fluctuations in foreign currency exchange rates when determining the gain or
loss upon the sale or maturity of Indian rupee denominated debt obligations
pursuant to U.S. federal income tax regulations; 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 the period end exchange rate is reflected as a component of
net unrealized depreciation of investments and other assets and liabilities
denominated in Indian rupees. Net realized foreign currency gain (loss) is
treated as ordinary income (loss) for income tax reporting purposes.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-date. Dividends and distributions 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 considered either
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
or net realized capital gains for financial reporting purposes, but not for tax
purposes, are reported as dividends in excess of net investment income or
distributions in excess of net realized gain on investments. To the extent they
exceed net investment income or 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 relating to a net operating loss for the year,
$821,192 has been reclassified from undistributed net investment income to
additional paid-in capital. Net assets were not affected by this
reclassification.
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 an 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 net assets in excess of $50 million but not in excess of
$100 million, and 0.45% of such net assets in excess of $100 million.
22
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
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 net
assets, and 0.25% of such net assets in excess of $100 million. In addition, UTI
is entitled to reimbursement for all 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 net assets in excess of $62.5 million but not in
excess of $100 million, and 0.10% of such net assets in excess of $100 million,
subject to a minimum annual fee of $125,000.
NOTE 3. INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at June 30,
1998 was $97,270,653. Accordingly, net unrealized appreciation of investments of
$804,464 was composed of gross appreciation of $28,491,984 for those investments
having an excess of value over cost and gross depreciation of $27,687,520 for
those investments having an excess of cost over value.
For the year ended June 30, 1998, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $27,033,187 and $26,220,709,
respectively.
At June 30, 1998, the Fund owned securities valued at approximately $3,580,000
which were in the process of being registered in the name of the Fund. Indian
securities regulations normally preclude the Fund from selling such securities
until the completion of the registration process.
NOTE 4. TRANSACTIONS WITH AFFILIATES
The Fund paid or accrued approximately $121,500 for the year ended June 30, 1998
for legal services to a law firm in which the Fund's assistant secretary is a
partner.
For the year ended June 30, 1998, the Fund paid approximately $2,930, $2,175,
$185, and $105 in brokerage commissions to DSP Merrill Lynch, UTI Securities,
IDBI Capital Markets, and DSP Securities, respectively, affiliates of the
Investment Adviser or the Fund's directors.
23
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
- ----------------------------------------------------------------------
NOTE 5. U.S. 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 of 1986, as amended, applicable
to regulated investment companies. Accordingly, no provision for U.S. federal
income tax is required. In addition, by distributing substantially all of its
net investment income, capital gains and certain other amounts, if any, during
each calendar year, 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
foreign currency losses occurring after October 31, 1997 in the amount of
$125,692. Such losses are treated for tax purposes as arising on July 1, 1998.
At June 30, 1998, the Fund had a capital loss carryforward of $19,566,739
($1,266,714 of which expires at the end of fiscal year 2004, $6,589,447 of which
expires at the end of fiscal year 2005 and $11,710,578 of which expires at the
end of fiscal year 2006) available as a reduction, to the extent provided in the
regulations, of any future net realized capital gains. To the extent that these
losses are used to offset future realized capital gains, such gains will not be
distributed.
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 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 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 10% withholding tax.
24
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
NOTE 7. CAPITAL STOCK
There were no transactions in shares of common stock for the year ended June 30,
1998. Transactions in shares of common stock for the year ended June 30, 1997
were as follows.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
JUNE 30, 1997
-------------
<S> <C>
Shares outstanding, beginning of year...................................... 9,828,506
Shares issued resulting from dividend reinvestment......................... 2,105
-------------
Shares outstanding, end of year............................................ 9,830,611
-------------
-------------
</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 other factors,
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.
25
<PAGE>
THE INDIA GROWTH FUND INC.
- --------------------------------------------------------------------------------
Financial Highlights
- ---------------------------------------------------------
Selected data for a share of common stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year......................................................... $12.52 $13.67 $15.86
----------- ----------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) before tax.................................................... (0.07) (0.05) 0.11*
Net deferred Indian withholding (tax)/tax benefit on net investment
income (loss)............................................................................ 0.02 0.02 (0.01)*
Net realized and unrealized gain (loss) on investments and foreign
currency transactions.................................................................... (3.06) (1.16) (1.47)*
Deferred Indian withholding (tax)/tax benefit on net realized and
unrealized gain (loss) on investments.................................................... 0.15 0.12 0.03*
----------- ----------- -----------
Total from investment operations........................................................... (2.96) (1.07) (1.34)
----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income................................................................. -- (0.08) --
From net realized gain on investments...................................................... -- -- --
In excess of net realized gain on investments.............................................. -- -- (0.35)
----------- ----------- -----------
Total dividends and distributions to shareholders.......................................... -- (0.08) (0.35)
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering......................................................... -- -- (0.37)
Offering costs charged and adjustments to
additional paid-in capital............................................................... -- -- (0.13)
----------- ----------- -----------
Total capital share transactions........................................................... -- -- (0.50)
----------- ----------- -----------
Net asset value, end of year............................................................... $9.56 $12.52 $13.67
----------- ----------- -----------
----------- ----------- -----------
Market value, end of year.................................................................. $7.25 $13.38 $14.63
----------- ----------- -----------
----------- ----------- -----------
TOTAL INVESTMENT RETURN **................................................................. (45.79)% (7.98)% (15.88)%
----------- ----------- -----------
----------- ----------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted)...................................................... $ 93,957 $ 123,086 $ 134,329
Ratio of expenses, excluding (tax)/tax benefit, to
average net assets....................................................................... 2.32% 2.37% 2.17%
Ratio of expenses, including (tax)/tax benefit, to
average net assets....................................................................... 1.87% 2.23% 2.24%
Ratio of net investment income (loss) to average net assets................................ (0.18)% (0.26)% 0.72%
Portfolio turnover......................................................................... 23% 31% 10%
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net asset value, beginning of year......................................................... $21.87 $12.49
----------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) before tax.................................................... (0.09) (0.10)*
Net deferred Indian withholding (tax)/tax benefit on net investment
income (loss)............................................................................ 0.01 0.01*
Net realized and unrealized gain (loss) on investments and foreign
currency transactions.................................................................... (5.59) 11.79*
Deferred Indian withholding (tax)/tax benefit on net realized and
unrealized gain (loss) on investments.................................................... 0.54 (1.16)*
----------- -----------
Total from investment operations........................................................... (5.13) 10.54
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income................................................................. -- --
From net realized gain on investments...................................................... (0.92) (0.25)
In excess of net realized gain on investments.............................................. -- --
----------- -----------
Total dividends and distributions to shareholders.......................................... (0.92) (0.25)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering......................................................... -- (0.76)
Offering costs charged and adjustments to
additional paid-in capital............................................................... 0.04 (0.15)
----------- -----------
Total capital share transactions........................................................... 0.04 (0.91)
----------- -----------
Net asset value, end of year............................................................... $15.86 $21.87
----------- -----------
----------- -----------
Market value, end of year.................................................................. $18.38 $21.25
----------- -----------
----------- -----------
TOTAL INVESTMENT RETURN **................................................................. (9.42)% 50.02%
----------- -----------
----------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted)...................................................... $ 111,255 $ 153,425
Ratio of expenses, excluding (tax)/tax benefit, to
average net assets....................................................................... 1.99% 2.26%
Ratio of expenses, including (tax)/tax benefit, to
average net assets....................................................................... 1.94% 2.22%
Ratio of net investment income (loss) to average net assets................................ (0.40)% (0.51)%
Portfolio turnover......................................................................... 15% 19%
</TABLE>
- ----------------------------------
* Based on average shares outstanding.
** 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 year and a sale at the
current market price on the last day of each year 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.
26
<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, 1998, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the 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, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
August 21, 1998
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Unit Trust of India Investment Advisory Services Limited
Commerce Centre 1,
World Trade Center, 8th Floor
G.D. Somani Marg
Cuffe Parade, Colaba
Mumbai, 400-005, India
Telephone Number 9122-218-0087
Fax Number 9122-218-8859
Internet [email protected]
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Telephone Number (212) 713-2848
Fax Number (212) 713-4058
CUSTODIAN
Brown Brothers Harriman & Company
40 Water Street
Boston, Massachusetts 02109
INDIAN CUSTODIAN
Citibank, N.A.
Custody Services
81, Annie Besant Road
Barodawale Mansion
Mumbai, 400-018, India
SHAREHOLDER SERVICING AGENT
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
TRUSTEE
Unit Trust of India
13, Sir V. Thackersey Marg
Mumbai, 400-020, India
DIRECTORS
Dr. P.J. Nayak
Antoine W. van Agtmael
Rahul Bajaj
G.P. Gupta
S.H. Khan
Glen Moreno
A.C. Muthiah
Peter J. Pearson
Christopher Reeves
OFFICERS
Dr. P.J. Nayak, CHAIRMAN OF THE BOARD & PRESIDENT
Dr. S.S. Nayak, TREASURER & SECRETARY
Laurence E. Cranch, 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
OF 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.
[LOGO]
THE INDIA
GROWTH
FUND INC.
- ----------------------
- ----------------------
ANNUAL REPORT
JUNE 30, 1998
