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Schroder
Asian Growth Fund, Inc.
First Quarter
Report
January 31, 1998
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SCHRODER ASIAN GROWTH FUND, INC.
FIRST QUARTER 1998
The Fund's net asset value per share was $7.95 on January 31, 1998, a
fall of 14.9% over the quarter. The closing price of the Fund's shares on the
New York Stock Exchange was $7.875, a fall of 7.4% over the quarter.
The investment objective of the Fund continues to be capital appreciation
by investment primarily in equity securities of Asian companies.
All markets in the region fell sharply over the quarter. While initially
confined to emerging countries, currency and equity market weakness spread to
developed markets. Economic growth expectations have been significantly
downgraded, both in Japan, as a result of weak consumer sentiment and a
deteriorating external environment, and elsewhere in Asia, as a result of
higher than expected interest rates and growing evidence of slowing domestic
demand.
A number of factors drove the Japanese market's fall through November and
December, notably continued weakness in consumer spending, the failure of
several financial institutions and an ineffective government response to
these problems. The rebound in January resulted from rising expectations of
further fiscal stimulus, a partial recovery in Asian markets and improved
satisfaction with the government's proposals for the financial system.
Investor concern over the currency peg in Hong Kong S.A.R. led to
volatility in short-term interest rates, with most of the impact felt by
interest rate sensitive companies. The Fund's portfolio strategy became
defensive over the quarter with a focus on the infrastructure and utility
sectors at the expense of interest rate sensitive sectors.
The market in Singapore declined as interest rates rose and real estate
prices weakened. The government has responded to the crisis proactively,
allowing the currency to depreciate in an effort to maintain export
competitiveness. After an initial market depression, Malaysian investors
responded favorably to more realistic comments from the government about a
slower economic outlook and reductions in infrastructure spending, as well as
the Central Bank's decision to restructure finance companies.
South Korea endured a volatile three-month period. By year-end, the
International Monetary Fund (IMF) and other nations had made funds available
to offset possible loan defaults. This package was viewed positively and the
market rallied in January. While economic and corporate adjustments will lead
to painful restructuring, Korean exports remain competitive and the current
account deficit is improving.
The Indonesian market suffered despite aid from the IMF. Initial
indications that the authorities would enforce IMF conditions and withdraw
banking licenses were viewed positively. However, concerns remain over the
social consequences of the slowdown in the economy. The Fund's exposure to
Indonesia has been eliminated entirely.
Returns in Thailand and the Philippines reflected the general weakness in
currencies and stock markets in the region, with high interest rates leading
to a sharp deterioration in economic growth. The government in Thailand
remains supportive of the IMF conditions for restructuring the financial
industry. In the Philippines, the currency weakened amid political concerns
over the forthcoming election. Export growth remains robust as the economy
shifts away from low value-added goods.
Taiwan's market remained supported by the strong local economy. Although
GDP growth is expected to fall to 5.5% in 1998, the decline will be far less
severe than other Asian economies. India's market was weak, reflecting trends
in the rest of Asia. Concern over the ruling party's manifesto and a
weakening rupee badly affected investor sentiment.
On February 20, 1998, the Fund announced that it is expected to convert
to an open-end mutual fund named Schroder All-Asia Fund at the close of
business on March 20, 1998. Schroder All-Asia Fund will have the same
investment objective as the Fund. In connection with the conversion, March
16, 1998 will be the last day on which shares of the Fund can be traded on
the New York Stock Exchange. In the conversion, shares of the Fund will be
automatically converted to Schroder All-Asia Fund shares on a one-for-one
basis. This letter does not constitute an offer to sell, nor is it a
solicitation of an offer to buy, shares of Schroder All-Asia Fund.
The Fund management team, consisting of Louise Croset and Heather
Crighton, work closely with the Schroder Investment Group analysts based in
ten offices throughout Asia. The focus of the Fund remains on bottom-up stock
picking which drives country allocation.
/s/ Louise Croset
Louise Croset
President
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PERFORMANCE
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[CHART OF NET ASSET VALUE VS. SHARE PRICE FROM
INCEPTION TO JANUARY 31, 1998]
COUNTRY RETURNS
IN U.S. DOLLARS (1)
Quarter (2)
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Hong Kong S.A.R. -13.9
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Japan -3.6
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Malaysia -30.9
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Singapore -17.0
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India -18.6
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Philippines -12.7
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Korea -11.8
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Indonesia -67.4
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China -40.7
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Thailand -0.1
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Taiwan -2.7
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(1) The Morgan Stanley Capital International Country Indicies captures 60% of
the country's total capitaliza- tion of the most "investable" stocks
(determined by size, long - and short-term volume, and free float)
(2) November 1, 1997 to January 31, 1998
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TEN LARGEST HOLDINGS
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As of January 31, 1998 % Net Assets
1. HSBC HOLDINGS - Hong Kong S.A.R. bank 2.7%
2. CITIC PACIFIC LTD. - Hong Kong S.A.R. 2.7%
conglomerate
3. CHEUNG KONG INFRASTRUCTURE HOLDINGS - 2.7%
Hong Kong S.A.R. construction co.
4. SINGAPORE PRESS HOLDINGS LTD. - 2.6%
Singaporean publishing company
5. HUTCHISON WHAMPOA - Hong Kong S.A.R. 2.5%
port operator and conglomerate
6. CHEUNG KONG HOLDINGS LTD. - Hong 2.4%
Kong S.A.R. real estate company
7. SWIRE PACIFIC LTD. `A' - Hong Kong 2.4%
S.A.R. aviation and property company
8. NEW WORLD INFRASTRUCTURE LTD. - Hong 2.3%
Kong S.A.R. construction co.
9. HONG KONG & CHINA GAS COMPANY 2.2%
LTD. - Hong Kong S.A.R. utility
10. HUANENG POWER INTERNATIONAL 2.1%
LTD. - Chinese power plant operator
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DIVERSIFICATION
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SECTOR BREAKDOWN
Top 5 as of January 31, 1998
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Industry % of Portfolio
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Capital Equipment 20.0%
Real Estate 14.2%
Services 13.8%
Energy 11.1%
Finance 9.5%
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GEOGRAPHIC BREAKDOWN
As of January 31, 1998
[CHART]
Hong Kong
S.A.R./China 28.3%
Japan 20.8%
Singapore 10.5%
India 6.4%
Malaysia 6.1%
Taiwan 5.0%
Philippines 3.0%
Korea 2.6%
Thailand 1.3%
Cash 16.0%
NYSE Symbol: SHF
The financial information included herein regarding the Fund is taken from
the records of the Fund without examination by independent accountants who do
not express an opinion thereon. Other information is from public sources or
estimates of Schroder Capital Management International Inc., the Fund's
investment adviser, and its affiliates. Statements and other information
herein are as dated and are subject to change.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
This report is sent to 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 the report.
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