<PAGE>
MORGAN STANLEY
INDIA INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Harold J. Schaaff, Jr.
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Joseph P. Stadler
John Chu VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Gerard la Hausse de Louviere SECRETARY
DIRECTOR James R. Rooney
Gerard E. Jones TREASURER
DIRECTOR Joanna M. Haigney
John A. Levin ASSISTANT TREASURER
DIRECTOR
Fergus Reid
DIRECTOR
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
U.S. ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------
MORGAN STANLEY
INDIA INVESTMENT
FUND, INC.
---------------------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
1995 was a dismal year for the Indian stock market, with the market declining
35% in U.S. dollar terms. India was in fact among the five worst performing
markets in 1995. For the one year ended December 31, 1995, the Fund had total
return, based on net asset value per share, of -36.31% as compared to the Bombay
Stock Exchange National Index and BSE Sensitive Index returns of -31.61% and
- -28.96%, respectively for the same period.
The Fund stayed reasonably invested during the market fall using the poor market
sentiment to optimize portfolio composition. Given our belief that the real
value in India is found in the smaller mid cap companies, we have used the
market decline to increase our holding in this category.
In 1995, the decline of the Indian market was influenced by three principal
factors: 1) liquidity cycle turnaround, 2) political uncertainty/reform slowdown
and 3) rupee weakness.
LIQUIDITY CYCLE TURNAROUND
1993 and 1994 were the years in which the economy began improving. We saw high
M3 growth in both these years and generally easy money conditions. The corporate
sector was flush with liquidity and record amounts of money were raised in the
GDR and domestic IPO markets. While money was easy (M3 growth was greater than
20%), the improvement in the real economy was gradual with the Index of
Industrial Production (IIP) growing only 4% and 5% in 1993 and 1994,
respectively. The real economy was thus unable to absorb the excess liquidity
which got diverted towards financial assets.
Large amounts of money flowed into mutual funds, stock, real estate and similar
investments, triggering a boom in all asset markets. The government could also
complete its large borrowing program without crowding out the private sector. To
further exacerbate the situation, India had opened up to overseas portfolio
flows and over $3 billion flowed in from overseas during the period. As a
consequence of all this, the market peaked in September 1994.
Towards the end of 1994 and early in 1995, the ruling Congress party lost four
key state elections. The lesson the party drew from its defeat was that
inflation had to be brought down at all costs. Almost immediately, the RBI
(Indian Central Bank) embarked on a tight monetary policy regime. Overseas flows
also declined dramatically as the Mexican debacle, combined with increased
political uncertainty, made Foreign Institutional Investors (FII's) wary of
investing in India. While liquidity was tightening, the real economy began
accelerating (IIP growth of 10% plus). The corporate sector, which had parked
temporary cash surpluses in financial assets, attempted to liquidate these
assets to finance business expansion but began being crowded out by the
government's large borrowings. The result was that all markets corrected and
interest rates rocketed up by 400 to 500 basis points.
Further compounding the problem for the stock market was the ban of forward
trading, which could have otherwise cushioned the markets from the liquidity
withdrawal.
POLITICAL UNCERTAINTY/REFORM SLOWDOWN
The only force which could have saved the markets from this liquidity trap was
large overseas flows, both direct and portfolio. However, over the last year a
clear feeling developed both overseas and locally that the reform program had
slowed and that the political risk of investing in India had increased.
Undoubtedly, the rate of change in India has slowed down.
RUPEE WEAKNESS
The rupee weakened by 12% in 1995 after two years of steadiness. This long
overdue inflation differential correction scared away investors who feared the
repeat of another Mexico. We, however, maintain that this correction was long
overdue and that the rupee will continue to compensate for the inflation
differential on an ongoing basis.
Despite all of the above, corporate performance has been strong, with profits
growth in excess of 50% for fiscal year 1995 and likely to exceed 35% for fiscal
year 1996. GDP growth was 6.2% for fiscal year 1995 and targeted at 6.5% for
fiscal year 1996. The current account deficit was less than 1% for fiscal year
1995 and should be 1.5% for fiscal year 1996. Finally, exports are growing at
25% and inflation is down by 7.5%.
2
<PAGE>
If one looks at either the real economy or the macro story the message is clear,
the story has not fallen apart but is actually even better than expected.
OUTLOOK
We are optimistic on the market for 1996.
The markets have declined by 40% (in Rs.) over the past 15 months (which is
about the historic average for previous bear markets), and have bottomed out.
The domestic liquidity cycle is turning and interest rates have peaked. The
Central Bank has begun loosening monetary policy and the impact of this will be
felt soon. M3 growth has bottomed out at 13%, the level at which historically it
has always rebounded. In our view, whichever government comes to power, it will
reflate the economy and go for growth, living with higher inflation for one to
two years, rather than be obsessive about inflation, deflate and kill growth.
The new government will also have no option but to resume the reform program.
There may be minor differences with regard to priority and timing but we
strongly believe that the basic thrust of the reform program will be maintained
irrespective of which party comes to power. We expect substantial progress in
the areas of public sector reform, labor legislation and fiscal policy. The
resumption of the reform program will materially improve sentiment towards India
both domestically and overseas.
Today, India is the cheapest market in Asia, trading at 9-10x March 1996 and 7x
March 1997 estimated earnings, with earnings growth in excess of 25%. Despite
those valuations very few investors have India anywhere near 7% in their
portfolios (India's weight in MSCI EMF Index). The FII's own only about 6% of
the market's free float and 70% of this is owned by only 3 investors.
Institutions have stayed away due to political uncertainty and the poor market
mechanisms for settlement/registration, both of which will soon be resolved.
Being underweight India has been a profitable strategy to date but any market
rise should force institutions to raise weightings. Even a small change in
weightings can have a dramatic impact on the market as with a daily turnover of
only $60 million, even small flows have a large impact. The reintroduction of
forward trading and easing of interest rates will also improve domestic flows to
the market.
To summarize, we feel that the market will perform in 1996 and given the poor
liquidity, investors have to build up positions in advance of any market rise.
From prior experience, the Indian markets rarely give institutional investors
the opportunity to meaningfully participate once they begin moving.
We feel that the Fund, being nearly fully invested, is well positioned to
participate in the rally we shortly expect.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
[SIGNATURE]
Vinod Sethi
PORTFOLIO MANAGER
February 9, 1996
3
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)**
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
<S> <C> <C> <C> <C> <C> <C>
------------------------ ------------------------ ------------------------
ONE YEAR -18.89% -18.89% -36.31% -36.31% -28.96% -28.96%
SINCE INCEPTION* -34.30 -20.35 -35.85 -21.37 -34.66 -20.58
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1994* 1995
<S> <C> <C>
Net Asset Value Per Share $13.99 $8.91
Market Value Per Share $11.25 $9.13
Premium/(Discount) -19.6% 2.5%
Capital Gains Distributions 0.17 -
Total Return (2) 0.72% -36.31%
Index Total Return (1)(3)** -8.03% -28.96%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) US dollar adjusted Bombay Stock Exchange (BSE) Sensitive Index
* The Fund commenced operations on February 25, 1994.
** Unaudited.
4
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO
DIVERSIFICATION
<S> <C>
Equity Securities 96.5%
Debt Securities 0.9%
Short-Term Investments 2.6%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 12.9%
Energy Equipment & Services 9.5%
Textiles & Apparel 6.9%
Health & Personal Care 6.9%
Financial Services 6.4%
Machinery & Engineering 4.9%
Telecommunications 5.1%
Building Materials & Components 4.9%
Banking 4.8%
Multi-Industry 4.8%
Other 32.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS
------------
<C> <S> <C>
1. Housing Development Finance 5.8%
Corp. .............................
2. Bharat Heavy Electricals........... 5.5
3. State Bank of India................ 4.2
4. Mahanagar Telephone Nigam.......... 4.0
5. Tata Engineering & Locomotive...... 3.4
<CAPTION>
PERCENT
OF NET
ASSETS
------------
<C> <S> <C>
6. Hindalco Ltd. ..................... 2.5%
7. Crompton Greaves................... 2.2
8. Ballarpur Industries Ltd. ......... 1.9
9. Motor Industries Co. Ltd. ......... 1.8
10. Tata Iron & Steel Co. Ltd. ........ 1.8
---
33.1%
---
---
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
INDIAN COMMON STOCKS (95.7%)
(Unless otherwise noted)
- -----------------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (2.2%)
Bharat Pipes & Fittings Ltd. 522,020 U.S.$ 178
Blow Plast Ltd. 227,100 969
Kelvinator 125,575 293
+Kunstoffe Industries -- New 183,600 79
Onida Savak 3,210 2
Philips India Ltd. 830,150 3,636
Premier Vinyl Floors Ltd. 150 --
Punjab Anand Lamp Industries Ltd. 227,000 290
Salora International Ltd. 233,000 318
Supreme Industries Ltd. 105,000 911
+Symphony Comfort Systems 7,700 8
+TVS Whirlpool Ltd. 200,000 159
VIP Industries 161,900 272
-------------
7,115
-------------
- -----------------------------------------------------------------
- -------------
AUTOMOBILES (12.9%)
Apollo Tyres Ltd. 359,925 1,400
***+Apollo Tyres Ltd. (Rights) 257 --
***+Apollo Tyres Ltd. (Warrants) 91,846 108
Ashok Leyland 370,620 1,139
Autolec Industries 241,045 689
Autolite Ltd. 132,670 702
Ceat Tyres Ltd. 473,599 875
Engine Values Ltd. 8,750 119
Escorts Ltd. 121,050 293
Escorts Tractors Ltd. 100 --
+Harig Crankshafts Ltd. 210,400 56
Hero Honda 169,383 1,103
Hitech Gears 94,000 164
Invel Transmissions 5,071 13
***+Invel Transmissions (Rights) 500 --
Jay Bharat Maruti 92,800 145
+LML Ltd. 186,000 442
Lumax Automatic Parts
Industries 295,300 1,029
Mahindra & Mahindra Ltd. 2,510 24
Modi Rubber 20,398 34
Motherson Sumi Systems 165,200 395
***+Motherson Sumi Systems
(Rights) 30,140 --
Motor Industries Co. Ltd. 33,915 5,719
MRF Ltd. 56,550 2,893
Nippondenso India Ltd. 648,300 1,558
O.E.N. Connectors Ltd. 177,526 318
Omax Autos Ltd. 75,900 94
+Pan Auto Ltd. 300,000 102
Premier Instruments Ltd. 245,987 1,154
+Premier Instruments Ltd.
(Rights) 17 --
Rane Madras Ltd. 86,300 736
Rico Auto Industries Ltd. 221,000 742
S.K.F. Bearings Ltd. 16,500 1,208
Sona Steering System 15,800 36
Subros Auto Ltd. 98,000 245
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
AUTOMOBILES (CONTINUED)
+Subros Auto Ltd. -- New 61,395 U.S.$ 154
Sundaram Brake Ltd. 24,700 121
***+Sundaram Brake Ltd. (Warrants) 2,470 --
Sundaram Fasteners Ltd. 217,200 3,119
+Sundaram Fasteners Ltd. -- New 194,200 2,844
Swaraj Engines Ltd. 45,000 378
Tata Engineering & Locomotive 997,056 10,753
+VST Tillers & Tractors -- New 173,000 266
-------------
41,170
-------------
- -----------------------------------------------------------------
- -------------
BANKING (4.8%)
Federal Bank Ltd. 253,000 1,266
***+Federal Bank Ltd. (Rights) 126,500 101
Oriental Bank of Commerce 301,400 480
State Bank of India 2,359,150 13,304
-------------
15,151
-------------
- -----------------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (0.6%)
ITC Ltd. 223,900 1,593
McDowell & Co. 228,000 219
United Breweries 119,300 107
-------------
1,919
-------------
- -----------------------------------------------------------------
- -------------
BROADCASTING & PUBLISHING (1.5%)
Navneet Publications 155,400 795
*+New Delhi Television 66,660 1,286
+Srishti Video Corp -- New 225,000 253
Tata Press 137,050 1,017
Zee Telefilms Ltd. 371,400 1,347
-------------
4,698
-------------
- -----------------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (4.9%)
Associated Cement Co. Ltd. 56,618 4,616
Bell Ceramics Ltd. 170,875 121
+Bell Ceramics Ltd. -- New 254,770 181
***+Bell Ceramics (Rights) 1,537 --
Dalmia Cement 124,950 966
+Gujarat Sidhee Cement Ltd. 2,500,000 746
#India Cements Ltd. GDR 85,000 680
ITW Signode India Ltd. 424,950 1,115
Madras Cements 18,965 4,646
Murudeshwar Ceramics Ltd. 346,800 1,065
***+Murudeshwar Ceramics Ltd. (Rights) 242,760 14
Mysore Cements Ltd. 700 1
Orissa Cement 86,660 621
+Priyadarshini Cement Ltd. 240,750 147
+Shree Cement 224,050 347
+Somani Cement Co. Ltd. 200,000 267
-------------
15,533
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
BUSINESS & PUBLIC SERVICES (0.2%)
Elbee Services Ltd. 182,700 U.S.$ 520
-------------
- -----------------------------------------------------------------
- -------------
CHEMICALS (4.7%)
Asian Paints Ltd. 118,040 1,084
+Asian Paints Ltd. -- New 118,040 1,084
Atul Products Ltd. 255,549 501
+Atul Products Ltd. -- New 90,000 177
Chemplast Sanmar Ltd. 'B' 100,000 378
Colour Chem Ltd. 13,645 1,234
Goodlass Nerolac Paints Ltd. 65,000 346
Gujarat Narmada Valley Fertilizers
Ltd. 477,400 597
Gujarat Narmada Valley Fertilizers
Ltd. GDR 212,000 1,299
Hindustan Organic Chemicals 250,000 231
ICI India Ltd. 265,300 1,222
Indian Dyestuff Industries Ltd. 132,745 109
***+Indian Dyestuff Industries Ltd.
(Rights) 30 --
Indian Organic Chemical Ltd. 732,500 719
Indian Petro Chemical Corp. 611,400 2,147
#Indian Petro Chemical Corp. GDR 22,000 248
+Indo Gulf Fertilizer & Chemical --
New 147,200 212
ITC Agrotech Co. 95,800 173
***+ITC Agrotech Co. (Rights) 95,800 --
Jayant Agro 122,800 454
Jaysynth Dyechem Ltd. 340,500 891
Metrochem Industries Ltd. 150,700 308
National Organic Chemical Industries 18,150 22
+National Organic Chemical Industries
--
New 18,150 22
Reliance Industries Ltd. 49,322 287
Sudarsha Chemicals 154,480 1,212
Tainwala Chemicals & Plastics 85,409 69
Tamil Nadu Petrochemicals 1,600 1
-------------
15,027
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
CONSTRUCTION & HOUSING (0.3%)
Hindustan Sanitaryware 70,000 332
Nagarjuna Construction 156,100 701
-------------
1,033
-------------
- -----------------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (1.4%)
+AKG Acoustics (India) Ltd. 81,300 76
Asian Electronics 153,000 2,088
Bajaj Electricals Ltd. 83,850 904
BPL Ltd. 670,500 1,411
+Centrum Electronics 200,000 56
-------------
4,535
-------------
- -----------------------------------------------------------------
- -------------
ELECTRONIC COMPONENTS & INSTRUMENTS (1.9%)
+Fujitsu ICIM 436,300 509
Infosys Technology Ltd. 240,200 2,787
Mastek Ltd. 126,400 805
Rolta India Ltd. 1,411,200 883
Samtel Colour 567,750 727
+Satyam Computer 125,000 147
Vikas Hybrids & Electronics Ltd. 175 --
-------------
5,858
-------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
ENERGY EQUIPMENT & SERVICES (9.5%)
Bharat Heavy Electricals 7,000,000 U.S.$ 17,517
Crompton Greaves 1,213,830 6,904
Datar Switchgear Ltd. 140,200 638
Jyoti Structure 148,250 653
KEC International Ltd. 197,900 585
Kirloskar Oil Engine 380,840 1,355
Modern Malleables Ltd. 420,000 681
Shiram Honda Power
Equipment 303,065 1,301
Uniflex Cables Ltd. 137,700 239
+Uniflex Cables Ltd. -- New 149,700 230
-------------
30,103
-------------
- -----------------------------------------------------------------
- -------------
FINANCIAL SERVICES (6.4%)
Canfin Homes 1,011,100 679
Housing Development Finance Corp. 238,778 18,368
ICICI 4,031 9
+ICICI -- New 185,233 411
Industrial Finance Corp. India 766,200 887
LKP Merchant Finance Ltd. 1,500 1
SCICI 20,500 21
+SCICI -- New 94,100 98
Sundaram Finance 150 1
-------------
20,475
-------------
- -----------------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (0.8%)
American Dry Fruits 538,500 550
***+Andhra Sugars (Rights) 20 --
Aruna Sugars & Enterprises 12,450 9
Brooke Bond Lipton 700 5
+Dhampur Sugar Mills Ltd. 100,000 292
***+Dhampur Sugar Mills (Rights) 33,334 --
Sakthi Sugar Ltd. 164,665 164
Satnan Overseas Ltd. 72,700 87
Thiru Arooran Sugars 264,500 639
+Umred Agro Complex Ltd. 124,500 23
Vadilal Industries Ltd. 250,000 247
Western Hatcheries 237,933 453
-------------
2,469
-------------
- -----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (2.7%)
Andrah Paper 19,610 1,255
Ballarpur Industries Ltd. 1,126,166 5,989
+Paper Products Ltd. -- New 170,000 485
Pudumjee 221,600 914
-------------
8,643
-------------
- -----------------------------------------------------------------
- -------------
HEALTH & PERSONAL CARE (6.9%)
Apollo Hospitals Enterprises Ltd. 500,000 512
Crossland Research Labs Ltd. 190,000 2,188
E. Merck (India) Ltd. 406,400 1,849
+Godrej Soaps -- New 606,250 1,172
Hindustan CIBA-GEIGY Ltd. 25,835 2,057
Hoechst India Ltd. 490,000 3,344
Hoechst Schering Agrevo Ltd. 192,900 2,414
+Indian Shaving 171,700 971
Lakme Ltd. 68,400 506
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
HEALTH & PERSONAL CARE (CONTINUED)
Pfizer Ltd. 66,450 U.S.$ 406
Ranbaxy Labs Ltd. 100,000 1,851
+Ranbaxy Labs Ltd. (Warrants) 40,000 588
Sandoz (India) Ltd. 25,000 295
Sol Pharma 6,100 15
Sun Pharmaceutical Industries
Ltd. 347,500 2,322
TTK Biomed Ltd. 143,700 210
Unichem Labs Ltd. 162,700 1,249
-------------
21,949
-------------
- -----------------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (2.4%)
BOC India Ltd. 331,500 914
Carborundum Universal 373,300 1,486
Chicago Pneumatic India Ltd. 232,800 1,159
Modi Xerox 788,550 3,924
-------------
7,483
-------------
- -----------------------------------------------------------------
- -------------
LEISURE & TOURISM (0.4%)
Asian Hotels Ltd. 85,350 564
Indian Hotels Co. 32,300 536
Kamata Hotels India Ltd. 300,000 223
-------------
1,323
-------------
- -----------------------------------------------------------------
- -------------
MACHINERY & ENGINEERING (4.9%)
Advani-Oerlikon Ltd. 98,500 439
Ahmednagar Forgings Ltd. 165,100 358
+Ahmednagar Forgings Ltd. -- New 1,100 2
Artson Engineering Ltd. 204,293 170
Bharat Forge Co. Ltd. 560,918 2,177
Esab India Ltd. 564,300 914
Graphite India Ltd. 272,500 666
Indian Seamless Metal Tubes 373,300 695
***+Indian Seamless Metal Tubes
(Rights) 400 --
Kabra Extrusion Technik Ltd. 153,000 439
Lakshmi Machine Works Ltd. 8,765 2,605
+Lakshmi Synthetic Machinery 152,400 321
M.M. Forgings Ltd. 9,000 16
Praj Industries Ltd. 153,200 564
Revathi-CP Equipment Ltd. 34,350 420
Thermax Ltd. 373,500 3,479
Wartsila Diesel Ltd. 441,500 2,454
-------------
15,719
-------------
- -----------------------------------------------------------------
- -------------
METALS -- NON-FERROUS (2.8%)
Hindalco Industries Ltd. 298,500 7,836
Indian Aluminum 67,600 323
+Pennar Aluminum Co 1,632,800 831
-------------
8,990
-------------
- -----------------------------------------------------------------
- -------------
METALS -- STEEL (3.3%)
+India Seamless Steel & Alloy 916,900 209
Isibars Ltd. 500,000 917
Mukand Iron & Steel Works 212,991 1,211
Panchmahal Steels Ltd. 197,700 506
Sesa Goa Ltd. 66,470 816
+Sesa Goa Ltd. -- New 29,864 367
***+Sesa Goa Ltd. (Rights) 10 --
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
METALS -- STEEL (CONTINUED)
Shri Ishar Alloy Steels 369,500 U.S.$ 273
Special Steels Ltd. 62,550 137
***+Special Steels (Rights) 12,510 --
Tata Iron & Steel Co. Ltd. 1,001,117 5,665
Uttam Galva Steels Ltd. 753,600 386
-------------
10,487
-------------
- -----------------------------------------------------------------
- -------------
MISCELLANEOUS MATERIALS & COMMODITIES (1.2%)
Alpha Geo Ltd. 100,000 70
+Control Print (India) Ltd. 25,000 10
+Control Print (India) Ltd. -- New 77,500 32
Cosmo Films Ltd. 209,900 621
Essel Packaging Ltd. 367,900 1,945
Flex Industries 5,858 27
***+Flex Industries (Rights) 26,666 --
***+Flex Industries (Warrants) 53,939 203
Garware Plastics & Polyester 377 2
+Garware Plastics & Polyester -- New 263 1
Kitply Industries Ltd. 205 --
MSL Industries Ltd. 124,000 368
***+MSL Industries Ltd. (Rights) 62,000 --
Pearl Polymers Ltd. 338,300 356
PVD Plastic Mouldings
Industries 152,400 79
Sharp Industries 42,000 16
Shrenujur Co. Diamond 1,400 2
Su-Raj Diamonds 10,000 15
***+Su-Raj Diamonds (Rights) 450 --
***+Su-Raj Diamonds (Warrants) 31,900 --
Uniworth International Ltd. 1,000 1
+Vesuvius (India) Ltd. 20,000 29
Vippy Solvex Products Ltd. 250,000 117
-------------
3,894
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
MULTI-INDUSTRY (4.8%)
E.I.D. Parry Ltd. GDR 94,320 283
Grasim Industries Ltd. 284,905 4,383
IFB Industries Ltd. 60,400 246
Indian Rayon & Industries Ltd. 2,095 25
#Indian Rayon & Industries Ltd. GDS 50,000 613
Indian Rayon & Industries Ltd. GDS 8,900 108
Kothari Sugars & Chemicals 191,700 179
Larsen & Toubro 5,892 44
Ramco 113,800 2,557
S&S Industries & Enterprises
Ltd. 597,340 297
+S&S Power Switchgear Ltd. 263,105 1,160
SKS Ltd. 100,000 96
***+Shriram Industrial Enterprises
Ltd. GDR
(Warrants) 34,000 3
Standard Industries Ltd. 121,366 85
Straw Products Ltd. 382,498 1,346
Tube Investments of India Ltd. 266,667 698
+Tube Investments of India Ltd. -- New 16,666 44
Tube Investments of India Ltd. GDR 198,133 446
+UTI Mastergain 4,349,100 1,224
UTI Mastershares Ltd. 1,619,800 621
+UTI Mastershares Ltd. -- New 323,200 125
VXL Ltd. 712,710 658
-------------
15,241
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
TELECOMMUNICATIONS (5.1%)
+Indian Telephone Industries 832,700 U.S.$ 639
Mahanagar Telephone Nigam 3,006,300 12,567
Punjab Wire 138,700 667
Surana Telecom Ltd. 146,000 77
Videsh Sanchar Nigam Ltd. 95,000 2,242
-------------
16,192
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
TEXTILES & APPAREL (6.9%)
A.P. Rayon Ltd. 470,600 1,010
Arun Processors 177,000 35
Arvind Mills Ltd. 2,048 7
Baroda Rayon Corp. 15 --
***+Baroda Rayon Corp. (Rights) 15 --
Bata India Ltd. 154,100 294
Century Textiles & Industries GDR 6,500 877
Coates Viyella Ltd. 138,760 434
***+Coates Viyella Ltd. (Rights) 30 --
Coates of India Ltd. 248,000 1,516
Cosmos Leather Exports Ltd. 325,000 163
DCL Polyesters Ltd. 704,650 401
Deepak Spinners Ltd. 1,900 2
Delta Industries Ltd. 380,000 781
G.T.N. Textiles 257,500 785
Indo Rama Synthetics 686,939 686
+Indo Rama Synthetics -- New 347,699 347
+J.K. Synthetics Ltd. 2,094,461 1,459
Mahavir Spinning Mills Ltd. 441,000 1,405
Maral Overseas Ltd. 650,800 564
+Modi Threads Ltd. 662,300 101
+Precot Mills Ltd. -- New 66,777 209
Priyadarshini Spinning 167,150 125
Raymond Ltd. 418,100 3,189
#Raymond Ltd. GDR 177,000 3,009
Raymond Ltd. GDR 25,000 425
+Sanotgen 304,200 104
+Shree Rajasthan Syntex 266,550 290
SIV Industries Ltd. (1 Unit =
3 GDR + 1 Warrant) 104,500 836
SRF Ltd. 470,124 785
Super Spinning Mills Ltd. 200,357 655
Vardhaman Polytech 283,600 331
***+Vardhaman Polytech (Rights) 200 --
Vardhaman Spinning & General
Mills Ltd. 34,500 128
Viral Synte 250,000 355
Woolworth (India) 478,320 653
***+Woolworth (India) (Rights) 430 --
-------------
21,961
-------------
- -----------------------------------------------------------------
- -------------
TRANSPORTATION -- ROAD & RAIL (1.6%)
*+Container Corp. of India 2,274,600 5,078
-------------
- -----------------------------------------------------------------
- -------------
TRANSPORTATION -- SHIPPING (0.6%)
+Chowgule Steamships Ltd. -- New 225 --
Great Eastern Shipping Ltd. 1,204,500 1,653
#Great Eastern Shipping Ltd. GDR 20,000 173
Mercator Lines Ltd. 200,000 122
-------------
1,948
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
UTILITIES -- ELECTRICAL & GAS (0.0%)
Andhra Valley Power Supply Co. 1,200 U.S.$ 3
***+CESC Ltd. (Preferred Warrants) 353,000 4
Tata Hydro Electric Power Supply Co.
Ltd. 600 2
-------------
9
-------------
- -----------------------------------------------------------------
- -------------
TOTAL INDIAN COMMON STOCKS
(Cost U.S.$454,369) 304,523
-------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FIXED INCOME SECURITIES (0.9%)
- ---------------------------------------------------------
- ------------
AUTOMOBILES (0.0%)
**++Sundaram Brake Ltd PCD 13.00%,
10/26/00 INR 2 32
-------------
- -----------------------------------------------------------------
- -------------
BROADCASTING & PUBLISHING (0.1%)
**Srishti Video Corp. (Convertible)
12.00%, 11/12/96 225 243
-------------
- -----------------------------------------------------------------
- -------------
CONSTRUCTION & HOUSING (0.2%)
*Hindustan Construction Co. 16.50%,
12/31/99 350 616
-------------
- -----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (0.0%)
**++Paper Products PCD 14.00%, 8/28/03 43 189
-------------
- -----------------------------------------------------------------
- -------------
MACHINERY & ENGINEERING (0.1%)
**Indian Seamless Metal Tubes
(Convertible) 10.00%, 7/13/96 140 231
-------------
- -----------------------------------------------------------------
- -------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.3%)
**Garware Plastics & Polyester 16.00%,
5/1/05 277 789
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
WHOLESALE & INTERNATIONAL TRADE (0.2%)
**Chemox Chemical Industries Ltd.
(Convertible) 14.00%, 12/31/00 250 377
**Chemox Chemical Industries Ltd. --
New
(Convertible) 14.00%, 7/1/96 250 377
-------------
754
-------------
- -----------------------------------------------------------------
- -------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S.$3,869) 2,854
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT (0.4%)
Chase Manhattan N.A., 5.35%, dated
12/29/95, due 1/2/96, to be
repurchased at U.S.$1,377,
collateralized by U.S.$1,050 United
States Treasury Bonds 10.75%, due
2/15/03, valued at U.S.$1,407
(Cost U.S.$1,376) U.S.$1,376 1,376
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.2%)
(Interest Bearing Demand Account)
Indian Rupee
(Cost U.S.$6,955) INR 239,545 U.S.$ 6,812
-------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (99.2%)
(Cost U.S.$466,569) 315,565
-------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (3.3%)
Cash U.S.$ 239
Receivable for Investments Sold 4,113
Share Application Money 3,150
Dividends Receivable 1,727
Foreign Withholding Tax
Reclaim Receivable 1,233
Deferred Organization Costs 41
Interest Receivable 33
Other Assets 50 10,586
------------- -------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-2.5%)
Payable for:
Investments Purchased (6,857)
Custodian Fees (672)
Investment Advisory Fees (284)
Professional Fees (98)
Shareholder Reporting Expenses (80)
Administrative Fees (33)
Directors' Fees and Expenses (17)
Other Liabilities (65) (8,106)
------------- -------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 35,707,092 issued and
outstanding U.S.$0.01 par value
shares (100,000,000 shares
authorized) U.S.$ 318,045
-------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 8.91
-------------
</TABLE>
- -----------------------------------------------------------------
- -------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
Common Stock U.S.$ 357
Capital Surplus 496,097
Accumulated Net Investment Loss (758)
Accumulated Net Realized Loss (26,450)
Unrealized Depreciation on Investments and Foreign
Currency Translations (151,201)
</TABLE>
- -----------------------------------------------------------------
<TABLE>
<S> <C> <C>
TOTAL NET ASSETS U.S.$ 318,045
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
+ -- Non-income producing.
++ -- Non-income producing -- in default.
# -- 144A security--certain conditions for public sale may exist.
* -- Security valued at cost -- see note A-1 to financial statements.
** -- Security valued at fair value -- see note A-1 to financial statements.
*** -- Security valued at fair value as determined based on the market value of
the underlying security less subscription costs.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Share.
PCD -- Partially Convertible Debentures.
December 31, 1995 exchange rate -- Indian Rupee (INR) 35.165=U.S.$1.00.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................................. U.S.$ 7,051
Interest.................................................. 652
Less: Foreign Taxes Withheld.............................. (1,092)
- ------------------------------------------------------------------------------
Total Income............................................ 6,611
- ------------------------------------------------------------------------------
EXPENSES
Custodian Fees............................................ (6,873)
Investment Advisory Fees.................................. (4,334)
Administrative Fees....................................... (428)
Professional Fees......................................... (250)
Shareholder Reporting Expenses............................ (191)
Directors' Fees and Expenses.............................. (63)
Sub-Administrative Fees................................... (26)
Transfer Agent Fees....................................... (19)
Other Expenses............................................ (243)
- ------------------------------------------------------------------------------
Total Expenses.......................................... (12,427)
- ------------------------------------------------------------------------------
Net Investment Loss................................... (5,816)
- ------------------------------------------------------------------------------
NET REALIZED LOSS
Investment Securities Sold................................ (24,757)
Foreign Currency Transactions............................. (1,242)
- ------------------------------------------------------------------------------
Net Realized Loss..................................... (25,999)
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED DEPRECIATION
Investments............................................... (149,281)
Foreign Currency Translations............................. (340)
- ------------------------------------------------------------------------------
Change in Unrealized Depreciation..................... (149,621)
- ------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized
Depreciation............................................... (175,620)
- ------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... U.S.$(181,436)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
FEBRUARY 25, 1994* TO DECEMBER 31,
DECEMBER 31, 1994 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss).............................. U.S.$ 1,478 U.S.$ (5,816)
Net Realized Gain (Loss).................................. 3,222 (25,999)
Change in Unrealized Depreciation......................... (1,580) (149,621)
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... 3,120 (181,436)
- ------------------------------------------------------------------------------------------------------
Distributions:
Net Realized Gain......................................... (3,222) --
In Excess of Net Realized Gain............................ (2,723) --
- ------------------------------------------------------------------------------------------------------
Total Distributions....................................... (5,945) --
- ------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Initial Public Offering of Shares (35,699,999 shares)..... 503,370 --
Offering Costs............................................ (1,164) --
- ------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions............................................. 502,206 --
- ------------------------------------------------------------------------------------------------------
Total Increase (Decrease)................................. 499,381 (181,436)
Net Assets:
Beginning of Period....................................... 100 499,481
- ------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss
of U.S. $814 and U.S. $758).............................. U.S.$499,481 U.S.$ 318,045
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 25, 1994* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS: TO DECEMBER 31, 1994 DECEMBER 31, 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................................ U.S.$ 14.10 U.S.$ 13.99
- ----------------------------------------------------------------------------------------------------------------------------
Offering Costs.................................................................. (0.03) --
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss).................................................... 0.04 (0.16)
Net Realized and Unrealized Gain (Loss) on Investments.......................... 0.05 (4.92)
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............................................ 0.09 (5.08)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Realized Gain............................................................. (0.09) --
In Excess of Net Realized Gain................................................ (0.08) --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions......................................................... (0.17) --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................................................. U.S.$ 13.99 U.S.$ 8.91
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD........................................... U.S.$ 11.25 U.S.$ 9.13
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.................................................................. (19.01)% (18.89)%
Net Asset Value (1)........................................................... 0.72% (36.31)%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)........................................... U.S.$499,481 U.S.$318,045
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets......................................... 1.61%** 3.16%
Ratio of Net Investment Income (Loss) to Average Net Assets..................... 0.33%** (1.48)%
Portfolio Turnover Rate......................................................... 19% 28%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
the period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund.
Note: Current period permanent book-tax differences, if any, are not
included in the calculation of net investment income (loss) per share.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
The Morgan Stanley India Investment Fund, Inc. (the "Fund") was incorporated
in Maryland on December 22, 1993, and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund commenced operations on February 25, 1994 pursuant to
the initial public offering of 35,699,999 shares of Common Stock. Prior to
February 25, 1994 the Fund had no operations other than the issuance of 7,093
shares of Common Stock on February 15, 1994 to Morgan Stanley Asset Management
Inc. (the "Adviser"). The Fund's investment objective is long-term capital
appreciation through investments primarily in equity securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed equity
securities for which market quotations are readily available are valued at
the last sales price on the valuation date, or if there was no sale on such
date, at the mean between the current bid and asked prices. Securities which
are traded over-the-counter are valued at the average of the mean of current
bid and asked prices obtained from brokers. All non-equity securities for
which market quotations are readily available are valued at their market
values. Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by the Board of Directors (the "Board"), although the actual
calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
The Fund invests in India through a registered branch office established in
Mauritius and expects to obtain benefits under the double taxation treaty
between Mauritius and India. To obtain benefits under the double taxation
treaty the Fund must meet certain tests and conditions, including the
establishment of Mauritius tax residence and related requirements. The Fund
has obtained a tax residence certification from the Mauritian authorities
and believes such certification is determinative of its resident status for
treaty purposes. A fund which is a tax resident in Mauritius under the
treaty but has no branch or permanent establishment in India, will not be
subject to capital gains tax in India on the sale of securities but is
subject to a 15% withholding tax on dividends which has been provided for in
the accounts. The Fund is subject to and accrues Indian withholding tax on
interest earned on Indian securities at the rate of 20%. A portion of
Foreign Withholding Tax Reclaim Receivable at December 31, 1995 shown on the
Statement of Net Assets relates to taxes that will be refunded to the Fund
upon the filing of the Fund's India tax return for the fiscal year ended
March 31, 1996.
In Mauritius, the Fund is liable to income tax under the current Mauritian
legislation at the rate of 0%. However, the Fund may, in any year, elect to
pay tax on its net investment income at any rate between 0% and 35%. For the
year ended December 31, 1995, no provision for Mauritius taxes is considered
necessary as a result of net investment losses incurred by the Fund.
The foregoing is based on current interpretation and practice and is subject
to any future changes in Indian or Mauritan tax laws and in the tax treaty
between India and Mauritius.
Capital surplus, accumulated net investment loss and accumulated net
realized loss have been adjusted for current and prior period permanent
book-tax differences. Current period adjustments arose principally from
differing book-tax treatments for foreign currency transactions, net
operating losses and gains on certain securities of corporations designated
as "passive foreign investment companies".
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which equals or exceeds the principal
amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation.
13
<PAGE>
To the extent that proceeds from the sale of the underlying securities are
less than the repurchase price under the agreement, the Fund may incur a
loss. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in Indian rupees are
translated into U.S. dollars at the mean of the bid and asked prices of such
currency against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the
prevailing rate of exchange on the valuation date;
- investment transactions and investment
income at the prevailing rate of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rate and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in
the foreign exchange rate from the fluctuations arising from changes in the
market prices of the securities held at period end. Similarly, the Fund does
not isolate the effect of changes in the foreign exchange rate from the
fluctuations arising from changes in the market prices of securities sold
during the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency contracts, disposition of foreign currency, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) in the Statement of Net Assets. The change in
unrealized currency gains (losses) for the period is reflected in the
Statement of Operations.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign
currency contracts to protect securities and related receivables and
payables against changes in future foreign exchange rates. A forward foreign
currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Fund as unrealized gain or loss. The Fund records realized gains or losses
when the contract is closed equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and is
generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Investments in new Indian securities are made by
making applications in the public offerings. The issue price, or a portion
thereof, is paid at the time of application and reflected as share
application money on the Statement of Net Assets. Upon allotment of the
securities, this amount plus any remaining amount of issue price is recorded
as cost of investments. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date (except certain dividends which may be recorded as soon
as the Fund is informed of such dividend) net of applicable withholding
taxes. Distributions to shareholders are recorded on the ex-date. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of losses on securities and due to permanent
differences described in note A-2.
B. The Adviser provides investment advisory services to the Fund under the
terms of an Investment Advisory and Management Agreement (the "Agreement").
Under the Agreement, the Adviser is paid a fee computed weekly and payable
monthly at an annual rate of 1.10% of the Fund's average weekly net assets.
C. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator") (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative services to the Fund under
an Administration Agreement. Under the Administration Agreement,
14
<PAGE>
the Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .09% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out of pocket expenses by the
Administrator. Effective September 1, 1995, The Chase Manhattan Bank, N.A., acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and the United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
Multiconsult, Ltd., whose registered office is in Mauritius, provides
sub-administrative services to the Fund, including maintaining certain Fund
records and preparing certain periodic filings, under an agreement whereby
Multiconsult is paid a fee of $22,000 per annum.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. International Custodian fees are
payable monthly based on Fund assets under custody plus an amount for each
transaction effected. For the year ended December 31, 1995, the Fund incurred
international custodian fees of $6,866,000, of which $672,000 was payable to the
International Custodian at December 31, 1995. In addition, for the year ended
December 31, 1995, the Fund has earned interest income of $20,000 and incurred
interest expense of $6,000, on balances with the International Custodian.
E. During the year ended December 31, 1995, the Fund made purchases and sales
totaling $106,064,000 and $116,945,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases and sales of long-term U.S. Government securities. At
December 31, 1995, the U.S. Federal income tax cost basis of securities was
$460,137,000, and, accordingly, net unrealized depreciation for U.S. Federal
income tax purposes was $151,384,000, of which $4,045,000 related to appreciated
securities and $155,429,000 related to depreciated securities. At December 31,
1995, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $19,397,000 available to offset future capital gains
which will expire on December 31, 2003. To the extent that capital gains are
offset, such gains will not be distributed to shareholders. For the year ended
December 31, 1995, the Fund expects to defer, to January 1, 1996 for U.S.
Federal income tax purposes post-October capital losses of $6,770,000 and
post-October currency losses of $517,000.
F. The Fund entered into an Agreement with a number of underwriters (the
"Underwriters") including Morgan Stanley & Co. Incorporated for the initial
public offering of its shares and issued 35,699,999 shares in February 1994. The
Fund has been advised that the total of underwriting discounts and placement
commissions paid to the Underwriters relating to the initial public offering was
$24,320,000.
G. In connection with its organization and initial public offering of shares,
the Fund incurred $65,000 and $1,164,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning February 25, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
H. At December 31, 1995, a significant portion of the Fund's net assets consist
of Indian securities which involve certain considerations and risks not
typically associated with investments in the United States. In addition to its
smaller size, lesser liquidity and greater volatility, the Indian securities
market is less developed than the U.S. securities market and there is often
substantially less publicly available information about Indian issuers than
there is about U.S. issuers. Settlement mechanisms are also less developed and
are accomplished only through physical delivery, which may cause the Fund to
experience delays or other difficulties in effecting transactions. At December
31, 1995, the Fund owned an aggregate of approximately $24,318,000 in securities
which were either out for transfer in the name of the Fund, were under objection
for transfer in the name of the Fund, or were due from companies and/ or brokers
for various capital changes. Such securities are valued in accordance with the
Fund's security valuation policy as described in Note A-1, but may not be
saleable at the value shown in the Statement of Net Assets at December 31, 1995.
The Fund has no intention of selling such securities until they are transferred
in the name of the Fund.
Future economic and political developments in India could adversely affect the
liquidity or value, or both, of securities in which the Fund is invested. In
addition, the Fund's ability to hedge its currency risk is limited and
accordingly, the Fund may be exposed to currency devaluation and other exchange
rate fluctuations.
I. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at December 31, 1995 totaled
$6,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
15
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
U.S.$ AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
---------------- ---------------- ---------------- ----------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 273 $ 0.01 $ 1,391 $ 0.04 $ 3,655 $ 0.10 $ 1,292 $ 0.04
Net Investment Income (Loss)............ $ (1,522) $(0.05) $ (1,590) $(0.04) $ 955 $ 0.03 $ (3,659) $(0.10)
Net Realized Gain (Loss) and Change in
Unrealized Depreciation................ $(77,103) $(2.22) $(26,496) $(0.68) $(24,475) $(0.75) $(47,546) $(1.27)
Net Decrease in Net Assets Resulting
from Operations........................ $(78,625) $(2.27) $(28,086) $(0.72) $(23,520) $(0.72) $(51,205) $(1.37)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
FEBRUARY 25, ----------------------------------------------------
1994*
TO MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
---------------- ---------------- ---------------- ----------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 1,541 $ 0.04 $ 3,531 $0.10 $ 1,733 $ 0.05 $ 1,878 $ 0.05
Net Investment Income (Loss)............ $ 937 $ 0.02 $ 1,681 $0.05 $ (301 ) $(0.01) $ (839) $(0.02)
Net Realized Gain (Loss) and Change in
Unrealized Appreciation
(Depreciation)......................... $(1,995 ) $(0.05) $24,585 $0.68 $ 7,079 $ 0.20 $(28,027) $(0.78)
Net Increase (Decrease) in Net Assets
Resulting from Operations.............. $(1,058 ) $(0.03) $26,266 $0.73 $ 6,778 $ 0.19 $(28,866) $(0.80)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
Morgan Stanley India Investment Fund, Inc.
In our opinion, the accompanying statement of net assets 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
Morgan Stanley India Investment Fund, Inc. (the "Fund") at December 31, 1995,
the results of its operations for the year then ended, and the changes in its
net assets and the financial highlights for the year then ended and for the
period February 25, 1994 (commencement of operations) through December 31, 1994,
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 December 31, 1995 by
correspondence with the custodians 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 10036
February 9, 1996
17
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends and distributions.
In the case of shareholders, such as banks, brokers or nominees, which 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.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
Morgan Stanley India Investment Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
18
