<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 Michael F. Klein
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
John Chu VICE PRESIDENT
DIRECTOR Joseph P. Stadler
Gerard la Hausse de Louviere VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Gerard E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Belinda A. Brady
Fergus Reid ASSISTANT TREASURER
DIRECTOR
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1996, the total return of the Morgan Stanley
India Investment Fund, Inc., based on net asset value per share, was -1.12%
compared to -2.66% for the U.S. dollar adjusted Bombay Stock Exchange (BSE)
Sensitive Index ("the BSE Sensitive Index") and -6.45% for the U.S. dollar
adjusted BSE National Index. For the period since the Fund's inception on
February 25, 1994 through December 31, 1996, the Fund's total return, based on
net asset value per share, is -36.57% compared with -36.39% for the BSE
Sensitive Index and -37.10% for the BSE National Index. Going forward, the
Fund's performance will be compared with the BSE National Index. This index is
comprised of 100 stocks from across the major exchanges and is more
representative of the performance of the broader market. On December 31, 1996,
the closing price of the Fund's shares on the New York Stock Exchange was $9.50,
representing a 7.8% premium to the net asset value per share.
At the start of 1996 the BSE Sensitive Index stood at 3120. Investor sentiment
was subdued and fears of an economic slowdown were being aired; albeit
hesitantly. In this environment of general pessimism, the small investor
abandoned the stock markets after a year and a half of sustained losses. The
market continued to trade cheaply at twelve times prospective earnings
accompanied by low investor confidence and relatively thin trading volumes.
Global liquidity was on an upswing and equity markets around the world were
beneficiaries of large fund inflows towards the start of the year. India
captured its fair share of these flows and in the month of January alone 300
million dollars of Foreign Institutional Investor (FII) money was invested. In a
thinly traded market these flows had pronounced price impact and a select group
of FII favorites surged ahead. This explosive rally caught most institutional
investors by complete surprise as they, being flush with funds, joined the
scramble for stocks. Yet the retail investor remained unconvinced and the broad
deep market showed no signs of reviving. Buoyed by the inflows, the market
gained strength and the BSE Sensitive Index reached 4100 in June 1996, though
broader indices lagged the BSE Sensitive Index substantially.
Prior to the national elections the ruling Congress party was rocked by
allegations of corruption and prominent leaders left the party to form various
splinter groups. In the ensuing elections (April-May) the public returned a
fragmented mandate with no clear majority. Finally, a coalition of thirteen
disparate parties was cobbled together after much political intrigue under the
banner of "United Front". Public confidence was waning since the coalition
clearly lacked the mandate to take the bold policy initiatives required to
revive a slowing economy.
The Union budget was presented in July and failed to address important issues
like rupee convertibility on capital account, insurance sector reforms, foreign
direct investment liberalization and infrastructure development. Instead it
imposed a minimum corporate tax, which was criticized acutely in all sectors of
business and industry, and it allowed companies to issue non voting shares. The
budget came to symbolize the United Front's fragmented mandate and weak
governance and proved to be the turning point in the market.
FII inflows could have only a temporary impact on the market which is
capitalized at US $130 billion in contrast to a total cumulative FII investment
of US $7 billion. Against this backdrop of mild slowdown, a fragmented mandate
and total apathy from the small investor, the market crumbled slowly and
gradually to close the year at 3080.
LAST QUARTER
The quarter just ended saw the market decline to a new low of 2724 (BSE
Sensitive Index) before rebounding to end the year at 3080. The decline can be
traced to three factors; poor earnings, poor governance, and poor reforms.
1) POOR EARNINGS:
After three years of spectacular earnings growth, the first half of fiscal
year 1996 (corporations generally have a March 31 fiscal year-end) was very
difficult for Corporate India. On an aggregate basis earnings growth was -1%.
After earnings growth of 70% for fiscal year 1995 and 30% for fiscal year 1996,
this came as a shock to most investors and clearly had not been discounted by
the market. A fresh wave of selling was thus triggered off as both foreign
institutional investors
2
<PAGE>
and domestic investors began to worry about an impending recession afflicting
the Indian economy. The market began to price in the poor earnings and parallels
were drawn between 1996-98 and 1991-93 (the previous recession).
2) GOVERNANCE UNCERTAINTY:
In our view, the market has, over the last quarter, given up hope on the
United Front coalition government and begun to doubt its ability. Constant
bickering, differences on basic policy issues being aired publicly and very
mixed signals being sent to international investors have all combined to cause a
crisis of confidence in the government. Most investors were lulled into
complacency by the common minimum program and believed that the coalition had
the mandate to implement this program. Unfortunately, as subsequent events have
shown, the so called consensus or mandate for the common minimum program was
largely illusory.
3) REFORM UNCERTAINTY:
The market has also clearly come to the view that the reforms program has
been put in cold storage. No movement has been seen in the area of the public
sector undertaking ("PSU") disinvestment, insurance reform and cutting of the
fiscal deficit. Thus, the general disenchantment and lack of confidence in the
economy/country began to permeate most investors' thinking and has depressed
sentiment. Despite the great improvement in liquidity, the poor sentiment served
to keep markets depressed.
MARKET OUTLOOK
We expect the markets to rally in 1997. We believe this will mainly result from
FII's investing new allocations into the markets. The government's easing of
monetary policy throughout 1996 should have a positive impact on the market and
we expect the government will make promises designed to boost sentiment and the
markets. Also, the fact remains that the negative sentiment has been overdone
and some correction upwards is required. (While we agree that the government has
disappointed investors, we feel it is incorrect to say that the government is
totally inactive). Significant progress has been made in attracting foreign
direct investment, in policy reforms in the areas of power, telecom and roads,
and in new legislation on takeovers and changes to the Companies Act.
We are not convinced yet that the economy is entering a 2-3 year prolonged
recessionary phase. Corporate earnings for 3/97 are expected to be
disappointing, but we are not yet agreeable to the view that corporate earnings
will decline further in 3/98 and 3/99. The basic point being made is that while
things are bad and there is widespread disappointment, the sentiment and markets
have turned overly negative and an upward movement to correct for this is due.
The real question however is whether this upward correction will translate into
a multi-year (12/31/96 level was 3080) bull market, carrying the market upwards
from its mid-January 3600 level or whether any correction will be short-lived
with the market sliding back down. The answer to this question really depends on
the government's actions on the policy front and the budget for 1997-98.
If the government can demonstrate its commitment to the reform agenda and
convince investors (both institutional and retail) that the country is on the
move again, then this rally can be converted into a full fledged bull market, as
opposed to being a short corrective rise. Therefore, critical signposts that
investors should look for going forward are the capital markets package to be
announced towards the end of February and the budget of February 1997. If one
sees decisions being taken in the areas of share buybacks, stocklending, lending
against shares, PSU disinvestment, fiscal deficit correction, and Insurance and
Provident Fund reform, then the stage will be set for a sustained market rise.
Our one caveat is the outlook for 3/98 earnings. At present we expect to see
earnings growth of at least 18% for 3/98, however, if the industrial slowdown is
prolonged, earnings growth may be much weaker. This will have to be tracked
closely as the conventional wisdom is that 3/98 earnings will be substantially
better than 3/97. If this assumption is wrong, one may see a short sharp
correction as investors and the market adjust their expectations. Regardless, we
feel the market will still perform if sentiment improves.
3
<PAGE>
Ultimately, we feel it all boils down to what action the government is likely to
take over the next three months. The liquidity is available in the system and
what it needs is a change in sentiment. We feel the only way sentiment will
improve is if the government can clearly convey to all investors (domestic and
foreign) that India is once again on the move and that decisions are begin taken
in the long term interest of the country and not to cater to short term
populism.
The Portfolio is being trimmed and our focus is to reduce the number of holdings
and concentrate the Portfolio further. Despite the poor earnings performance of
corporate India for the first half of the year ended December 31, 1996, the top
ten stocks in the Fund had a weighted average earnings growth of 62.05%. This
performance vindicates our long held view that stock selection is critical in
India and strong focus on individual companies through extensive visiting is the
route to long term outperformance. The Fund remains nearly fully invested and we
continue to look for good opportunities to insulate the Fund from any earnings
slowdown.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Vinod Sethi
PORTFOLIO MANAGER
January 1997
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC., THE DIRECT PARENT COMPANY OF THE FUND'S INVESTMENT
ADVISER, MORGAN STANLEY ASSET MANAGEMENT INC., RECENTLY ANNOUNCED ITS INTENTION
TO MERGE WITH DEAN WITTER, DISCOVER & CO. TO FORM MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO. IT CURRENTLY IS ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN
MID-1997. THEREAFTER, MORGAN STANLEY ASSET MANAGEMENT INC. WILL BE A SUBSIDIARY
OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
4
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Investment Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 4.11% 4.11% -1.12% -1.12% -2.66% -2.66%
SINCE INCEPTION* -31.60 -12.48 -36.57 -14.77 -36.39 -14.68
</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 1996
<S> <C> <C> <C>
Net Asset Value Per Share $13.99 $8.91 $8.81
Market Value Per Share $11.25 $9.13 $9.50
Premium/(Discount) -19.6% 2.5% 7.8%
Capital Gains Distributions $0.17 - -
Fund Total Return (2) 0.72% -36.31% -1.12%
Index Total Return (1)(3)** -8.03% -28.96% -2.66%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share 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) The Bombay Stock Exchange (BSE) Sensitive Index is an index composed of 30
companies traded on the exchange which are weighted with respect to market
capitalization. The Index returns presented have been adjusted to include
the effect of translation to U.S. Dollars.
* The Fund commenced operations on February 25, 1994.
5
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Portfolio Summary as of December 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Fixed Income Securities 0.3%
Equity Securities 98.3%
Short-Term Investments 1.4%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 16.7%
Banking 5.3%
Chemicals 5.2%
Energy Equipment & Services 15.0%
Financial Services 5.3%
Health & Personal Care 10.6%
Machinery & Engineering 5.6%
Telecommunications 5.1%
Textiles & Apparel 4.0%
Transportation - Road and Rail 6.3%
Other 20.9%
100.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Bharat Heavy Electricals Ltd. 12.7%
2. Container Corp. of India Ltd. 6.3
3. Mahanagar Telephone Nigam Ltd. 4.8
4. State Bank of India Ltd. 4.7
5. Housing Development Finance Corp. Ltd. 4.5
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Sundaram Fasteners Ltd. 2.6%
7. Tata Engineering & Locomotive Ltd. 2.5
8. Infosys Technology Ltd. 1.9
9. MRF Ltd. 1.8
10. Hoechst Schering Agrevo Ltd. 1.7
---------------
43.5%
---------------
---------------
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
INDIAN COMMON STOCKS (97.0%)
(Unless otherwise noted)
- ---------------------------------------------------------
- ------------
APPLIANCES & HOUSEHOLD DURABLES (1.3%)
+Bharat Pipes & Fittings Ltd. 512,020 U.S.$ 50
Blow Plast Ltd. 454,200 751
IFB Industries Ltd. 175 --
Kelvinator Ltd. 25 --
+Kunstoffe Industries Ltd. 166,400 9
Phillips India Ltd. 662,950 1,411
Punjab Anand Lamp Industries Ltd. 227,000 164
Supreme Industries Ltd. 220,950 1,418
Symphony Comfort Systems Ltd. 7,700 2
VIP Industries Ltd. 161,900 177
+Whirlpool of India 13,350 18
--------------
4,000
--------------
- ---------------------------------------------------------
- ------------
AUTOMOBILES (16.7%)
Apollo Tyres Ltd. 511,225 1,671
**+Apollo Tyres Ltd. (Rights) 245 --
**+Apollo Tyres Ltd. (Warrants) 141,771 87
Ashok Leyland Ltd. 370,580 1,044
Autolec Industries Ltd. 241,093 416
Autolite Ltd. 132,670 373
**+Bajaj Tempo Ltd. (Rights) 48,766 299
Castrol (India) Ltd. 187,200 2,164
Ceat Tyres Ltd. 833,547 1,488
Denso India Ltd. 648,000 1,717
Elgi Tyres & Tread Ltd. 180,500 1,581
Engine Values Ltd. 174,750 970
Escorts Ltd. 150 --
GKN Invel Transmissions Ltd. 200 --
+Harig Crankshafts Ltd. 189,400 18
Hero Honda Ltd. 268,352 1,811
Hitech Gears Ltd. 94,000 115
Jay Bharat Maruti Ltd. 92,800 70
+LML Ltd. 260,900 306
Lumax Automatic Parts Industries Ltd. 373,600 919
Modi Rubber Ltd. 300 1
Motherson Sumi Systems Ltd. 223,938 627
**+Motherson Sumi Systems Ltd.
(Rights) 40 --
Motor Industries Co. Ltd. 500 79
MRF Ltd. 73,250 5,774
O.E.N. Connectors Ltd. 177,526 225
+Pan Auto Ltd. 300,000 38
Patheja Forgings and Auto Ltd. 325,000 334
Premier Instruments Ltd. 245,987 944
Punjab Tractors Ltd. 368,670 4,237
Rane Madras Ltd. 211,600 1,963
Rico Auto Industries Ltd. 221,000 462
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
AUTOMOBILES (CONTINUED)
S.K.F. Bearings Ltd. 47,170 U.S.$ 3,388
Sona Steering System Ltd. 100 --
Subros Auto Ltd. 159,395 695
Sundaram Brake Ltd. 27,550 142
+Sundaram Brake Ltd. (Warrants) 2,850 13
Sundaram Fasteners Ltd. 481,100 8,119
Tata Engineering & Locomotive Ltd. 812,013 7,701
TVS Suzuki Ltd. 283,550 2,496
VST Tillers & Tractors Ltd. 173,000 242
--------------
52,529
--------------
- ---------------------------------------------------------
- ------------
BANKING (5.3%)
Federal Bank Ltd. 200 1
**Federal Bank Ltd. -- New 139,100 374
+HDFC Bank Ltd. 1,381,200 1,505
Oriental Bank of Commerce Ltd. 103,700 225
State Bank of India Ltd. 2,239,370 14,632
--------------
16,737
--------------
- ---------------------------------------------------------
- ------------
BEVERAGES & TOBACCO (0.8%)
ITC Ltd. 264,642 2,440
+McDowell & Co. Ltd. 300 --
--------------
2,440
--------------
- ---------------------------------------------------------
- ------------
BROADCASTING & PUBLISHING (1.4%)
+Control Print (India) Ltd. 75,000 18
+Control Print (India) Ltd. -- New 27,500 7
Cosmo Films Ltd. 209,900 228
Navneet Publications Ltd. 233,100 858
**+New Delhi Television Ltd. 333,300 753
+Srishti Video Corp. Ltd. 225,000 53
Tata Donnelley Ltd. 195,500 1,862
Zee Telefilms Ltd. 250,800 602
--------------
4,381
--------------
- ---------------------------------------------------------
- ------------
BUILDING MATERIALS & COMPONENTS (2.8%)
Associated Cement Co. Ltd. 31,235 1,068
Bell Ceramics Ltd. 524,750 213
**+Bell Ceramics Ltd. (Rights) 1,455 --
Dalmia Cement Ltd. 124,850 853
+Gujarat Sidhee Cement Ltd. 2,500,000 464
Hindustan Sanitaryware and Industries
Ltd. 70,000 385
ITW Signode India Ltd. 574,950 1,195
Madras Cements Ltd. 17,665 3,942
Murudeshwar Ceramics Ltd. 346,300 270
OCL India Ltd. 160 1
**+OCL India Ltd. (Rights) 28,886 --
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
BUILDING MATERIALS & COMPONENTS (CONTINUED)
Priyadarshini Cement Ltd. 190,750 U.S.$ 140
Shree Cements Ltd. 224,050 143
+Shree Cements Ltd. (Rights) 44,810 1
Somani Cement Co. Ltd. 200,000 44
--------------
8,719
--------------
- ---------------------------------------------------------
- ------------
CHEMICALS (5.2%)
Asian Paints Ltd. 133,480 1,072
Atul Ltd. 221,921 206
**Chemox Chemicals Ltd. 186,050 92
Chemplast Sanmar Ltd. 41,666 57
Colour Chem Ltd. 23,557 1,781
E.I.D. Parry Ltd. GDR 94,320 130
Gujarat Narmada Valley Fertilizers
Ltd. 250 --
Gujarat Narmada Valley Fertilizers
Ltd. GDR 212,000 821
Hindustan Organic Chemicals Ltd. 554,600 499
Hoechst Schering Agrevo Ltd. 314,100 5,178
ICI India Ltd. 484,400 1,851
+Indian Organic Chemical Ltd. 679,050 229
Indian Petro Chemical Corp. Ltd. 611,100 2,003
#Indian Petro Chemical Corp. Ltd. GDR
(144A) 22,000 220
Indo Gulf Fertilizer & Chemical Ltd.
-- New 100 --
+ITC Agrotech Co. Ltd. 100 --
**+ITC Agrotech Co. Ltd. (Rights) 95,800 --
Jayant Agro-Organics Ltd. 100 --
Jaysynth Dyechem Ltd. 340,500 285
MSL Industries Ltd. 208,300 369
**MSL Industries Ltd. -- New 62,000 104
Metrochem Industries Ltd. 150,700 141
National Organic Chemical Industries
Ltd. 10 --
Reliance Industries Ltd. 32,692 188
Sandoz India Ltd. 67,600 362
Sudarshan Chemicals Ltd. 258,907 614
Tainwala Chemicals & Plastics Ltd. 52,109 17
Tamil Nadu Petrochemicals Ltd. 100 --
--------------
16,219
--------------
- ---------------------------------------------------------
- ------------
CONSTRUCTION & HOUSING (0.2%)
Hindustan Construction Ltd. 350,000 302
Nagarjuna Construction Ltd. 156,100 225
**Nagarjuna Construction Ltd. -- New 97,500 133
--------------
660
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
ELECTRICAL & ELECTRONICS (0.9%)
+AKG Acoustics (India) Ltd. 81,300 U.S.$ 30
Asian Electronics Ltd. 306,000 915
Bajaj Tempo Ltd. 146,300 1,334
BPL Ltd. 670,600 541
+Centum Electronics Ltd. 273,300 23
--------------
2,843
--------------
- ---------------------------------------------------------
- ------------
ELECTRONIC COMPONENTS & INSTRUMENTS (3.6%)
Datar Switchgear Ltd. 280,400 610
+Fujitsu ICIM Ltd. 655,340 247
Infosys Technology Ltd. 279,800 6,010
Mastek Ltd. 171,400 643
Modi Xerox Ltd. 778,550 2,954
Rolta India Ltd. 329,600 110
Samtel Colour Ltd. 758,950 297
S&S Power Switchgear Ltd. 226,055 539
VHEL Industries Ltd. 175 --
--------------
11,410
--------------
- ---------------------------------------------------------
- ------------
ENERGY EQUIPMENT & SERVICES (15.0%)
Bharat Heavy Electricals Ltd. 6,620,000 40,071
Crompton Greaves Ltd. 1,000,330 3,348
Jyoti Structure Ltd. 148,450 611
KEC International Ltd. 536,857 833
Kirloskar Oil Engine Ltd. 380,940 744
Modern Malleables Ltd. -- New 420,000 118
Shiram Honda Power Equipment Ltd. 302,065 1,197
Uniflex Cables Ltd. 287,400 224
--------------
47,146
--------------
- ---------------------------------------------------------
- ------------
ENERGY SOURCES (0.1%)
*RES Photovoltics Ltd. 200,000 270
--------------
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (5.3%)
Canfin Homes Ltd. 1,011,050 415
Housing Development Finance Corp. Ltd. 229,642 14,169
ICICI Ltd. -- New 11,513 20
Industrial Finance Corp (India) Ltd. 1,266,300 1,141
SCICI Ltd. 1,100 1
UTI Master Gain 1,095,000 293
UTI MasterShares 1,940,560 671
--------------
16,710
--------------
- ---------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (0.5%)
+American Dry Fruits Ltd. 538,500 185
+Aruna Sugars & Enterprises Ltd. 3,100 2
Brooke Bond Lipton Ltd. 650 6
Dhampur Sugar Mills Ltd. 100,000 146
Sakthi Sugar Ltd. 164,665 121
Thiru Arooran Sugars Ltd. 264,500 627
**+Thiru Arooran Sugars Ltd. (Rights) 66,125 --
+Umred Agro Complex Ltd. 124,500 13
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FOOD & HOUSEHOLD PRODUCTS (CONTINUED)
Vadilal Industries Ltd. 250,000 U.S.$ 59
Western Hatcheries Ltd. 237,933 248
--------------
1,407
--------------
- ---------------------------------------------------------
- ------------
FOREST PRODUCTS & PAPER (1.1%)
Ballarpur Industries Ltd. 603,042 1,026
**ITC Bhadrachalam Paperboards Ltd. --
New 200,000 338
Paper Products Ltd. -- New 218,900 721
Pudumjee Ltd. 221,600 334
Tamilnadu Newsprint and Papers Ltd. 500,000 908
--------------
3,327
--------------
- ---------------------------------------------------------
- ------------
HEALTH & PERSONAL CARE (10.6%)
Apollo Hospitals Enterprises Ltd. 500,000 432
Cipla Ltd. 268,500 3,632
Clariant (India) Ltd. 67,000 348
Crossland Research Labs Ltd. 371,000 1,811
E. Merck (India) Ltd. 406,400 1,760
Godrej Soaps Ltd. -- New 586,550 623
Hindustan Ciba-Geigy Ltd. 11,175 884
Hoechst Marion Roussel India Ltd. 560,200 4,719
Indian Shaving Products Ltd. 196,706 2,140
Lakme Ltd. 541,449 3,715
Marico Industries Ltd. 285,400 1,768
Nicholas Piramal India Ltd. 280,240 1,251
Pfizer Ltd. 404,800 2,370
**+Ranbaxy Labs Ltd. -- New 40,000 656
Rhone-Poulenc (India) Ltd. 72,250 1,242
Searle (India) Ltd. 300,000 678
Smithkline Beecham Pharmaceutical Ltd. 217,950 1,705
Sun Pharmaceutical Industries Ltd. 444,000 2,910
TTK Biomed Ltd. 143,700 132
Unichem Labs Ltd. 162,700 663
--------------
33,439
--------------
- ---------------------------------------------------------
- ------------
INDUSTRIAL COMPONENTS (1.3%)
BOC India Ltd. 331,500 490
Carborondum Universal Ltd. 493,300 1,845
Chicago Pneumatic India Ltd. 276,990 1,634
--------------
3,969
--------------
- ---------------------------------------------------------
- ------------
LEISURE & TOURISM (0.4%)
ITC Hotels Ltd. 317,100 1,198
Indian Hotels Co. Ltd. 50 1
Kamat Hotels India Ltd. 300,000 174
--------------
1,373
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MACHINERY & ENGINEERING (5.6%)
Advani-Oerlikon Ltd. 450,177 U.S.$ 615
Ahmednagar Forgings Ltd. 166,100 212
Artson Engineering Ltd. 204,293 80
Bharat Forge Co. Ltd. 633,418 1,634
Esab India Ltd. 564,050 1,377
Graphite India Ltd. 272,500 380
+Indian Seamless Metal Tubes Ltd. 284,980 266
**+Indian Seamless Metal Tubes Ltd. --
New 139,500 115
Ingersoll Rand (India) Ltd. 6,650 57
Kabra Extrusion Technik Ltd. 152,600 247
Kirloskar Cummins Ltd. 118,750 1,325
+Lakshmi Synthetic Machinery Ltd. 152,400 157
M.M. Forgings Ltd. 35,800 43
Praj Industries Ltd. 221,600 519
Revathi-CP Equipment Ltd. 138,400 1,930
Siemens Ltd. 137,650 1,634
Thermax Ltd. 472,000 4,409
Wartsila Diesel Ltd. 391,500 2,684
--------------
17,684
--------------
- ---------------------------------------------------------
- ------------
METALS -- NON-FERROUS (0.1%)
Pennar Aluminum Co. Ltd. 1,632,800 360
--------------
- ---------------------------------------------------------
- ------------
METALS -- STEEL (0.4%)
+India Seamless Steel & Alloy Ltd. 905,800 104
Isibars Ltd. 500,000 446
Mukand Iron & Steel Works Ltd. 1,466 3
Panchmahal Steels Ltd. 197,700 277
**Sesa Goa Ltd. 2,084 14
**+Sesa Goa Ltd. (Rights) 10 --
Shri Ishar Alloy Steels Ltd. 369,500 78
Tata Iron & Steel Co. Ltd. 769 4
Tata SSL Ltd. 62,550 85
**Tata SSL Ltd. -- New 13,800 18
Uttam Galva Steels Ltd. 653,550 223
--------------
1,252
--------------
- ---------------------------------------------------------
- ------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.9%)
+Alpha Geo Ltd. 68,700 13
Essel Packaging Ltd. 368,100 1,020
+Flex Industries Ltd. 328 1
**+Flex Industries Ltd. (Rights) 9,342 --
**+Flex Industries Ltd. (Warrants) 53,939 78
Garware Plastics & Polyester Ltd. 397,789 1,010
Pearl Polymers Ltd. 338,300 107
+PVD Plastic Mouldings Industries Ltd. 147,400 24
+Sharp Industries Ltd. 400 --
Su-Raj Diamonds Ltd. 100 --
Titan Industries Ltd. 169,800 418
Uniworth International Ltd. 500 --
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MISCELLANEOUS MATERIALS & COMMODITIES (CONTINUED)
Vesuvius (India) Ltd. 20,000 U.S.$ 29
**+Vesuvius (India) Ltd. (Rights) 8,000 3
Vippy Industries Ltd. 250,000 31
--------------
2,734
--------------
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY (0.9%)
Birla VXL Ltd. 712,710 500
Indian Rayon & Industries Ltd. 50 --
#Indian Rayon & Industries Ltd. GDR
(144A) 50,000 424
Indian Rayon & Industries Ltd. GDR 8,900 64
JK Corp. Ltd. 357,483 543
Larsen & Toubro Ltd. 2,100 13
Ramco Ltd. 42,800 1,022
S&S Industries & Enterprises Ltd. 580,820 130
SKS Ltd. 100,000 21
Standard Industries Ltd. 121,366 30
Widia (India) Ltd. 500 38
--------------
2,785
--------------
- ---------------------------------------------------------
- ------------
RECREATION, OTHER CONSUMER GOODS (0.8%)
Tube Investments of India Ltd. 283,316 498
Tube Investments of India Ltd. GDR 198,133 347
**+Vashishti Detergents Ltd. 1,957,567 1,720
--------------
2,565
--------------
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (5.1%)
+Indian Telephone Industries Ltd. 932,700 157
Mahanagar Telephone Nigam Ltd. 2,327,700 14,934
Punjab Wire Ltd. 138,700 292
Videsh Sanchar Nigam Ltd. 28,000 742
--------------
16,125
--------------
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (4.0%)
A.P. Rayon Ltd. 231,575 234
+Arun Processors Ltd. 176,000 13
Bata India Ltd. 120,150 147
**+Bata India Ltd. (Rights) 120,150 47
Century Textiles & Industries Ltd. GDR 6,500 331
Coates of India Ltd. 238,150 864
+Cosmos Leather Exports Ltd. 325,000 27
+DCL Polyesters Ltd. 899,650 276
+Delta Industries Ltd. 380,000 223
G.T.N. Textiles Ltd. 257,500 359
Indo Rama Synthetics Ltd. 1,114,922 734
**Indo Rama Synthetics Ltd. -- New 309,423 184
**+Indo Rama Synthetics Ltd. (Rights) 302 --
+J.K. Synthetics Ltd. 2,092,036 715
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (CONTINUED)
Mahavir Spinning Mills Ltd. 491,000 U.S.$ 909
Maral Overseas Ltd. 650,600 485
Modi Tele Fibres Ltd. 662,300 25
Precot Mills Ltd. 66,777 196
PSM Spg Mills Ltd. 150 --
Raymond Ltd. 387,550 1,232
**+Raymond Ltd. -- New 52,500 167
#Raymond Ltd. -- New (144A) 88,500 531
+Raymond Ltd. Bonus 220,025 669
+Raymond Ltd. GDR 25,000 150
#+Raymond Ltd. GDR (144A) 177,000 1,062
+Raymond Ltd. GDR -- New 12,500 75
SIV Industries Ltd. GDR 313,500 627
SRF Ltd. 665,119 570
+Sanotgen Exports Ltd. 272,800 23
Shree Rajasthan Syntex Ltd. 266,550 147
Super Spinning Mills Ltd. 200,357 509
Vardhaman Polytex Ltd. 282,600 280
Vardhaman Spinning & General Mills
Ltd. 373,500 736
Viral Syntex Ltd. 250,000 101
Woolworth India Ltd. 1,100 1
--------------
12,649
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- ROAD & RAIL (6.3%)
Container Corp. of India Ltd. 2,061,600 19,840
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- SHIPPING (0.4%)
Great Eastern Shipping Ltd. 1,204,500 1,176
Great Eastern Shipping Ltd. GDR 20,000 110
Mercator Lines Ltd. 188,200 41
--------------
1,327
--------------
- ---------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS (0.0%)
Andhra Valley Power Supply Co. Ltd. 200 1
Tata Hydro Electric Power Supply Co.
Ltd. 450 1
--------------
2
--------------
- ---------------------------------------------------------
- ------------
TOTAL INDIAN COMMON STOCKS
(Cost U.S. $426,318) 304,902
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FIXED INCOME SECURITIES (0.3%)
- ---------------------------------------------------------
- ------------
BROADCASTING & PUBLISHING (0.0%)
**Srishti Video Corp. Ltd. 12.00%,
11/12/00 INR 225 35
--------------
- ---------------------------------------------------------
- ------------
CHEMICALS (0.0%)
**Chemox Chemicals Ltd. (Convertible)
14.00% 12/31/00 250 123
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
CONSTRUCTION & HOUSING (0.1%)
**Nagarjuna Construction Ltd. 14.00%,
3/1/97 INR 98 U.S.$ 131
--------------
- ---------------------------------------------------------
- ------------
METALS -- STEEL (0.0%)
**MSL Industries Ltd. 16.00%, 7/31/00 62 112
**Tata SSL Ltd. 14.00%, 12/6/02 14 15
--------------
127
--------------
- ---------------------------------------------------------
- ------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.2%)
**Garware Plastics & Polyester Ltd.
16.00%, 5/1/05 277 660
--------------
- ---------------------------------------------------------
- ------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S. $1,329) 1,076
--------------
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT (0.2%)
Chase Securities, Inc. 5.95%, dated
12/31/96, due 1/2/97, to be
repurchased at U.S. $609,
collateralized by U.S. $585 United
States Treasury Bonds, 7.25%, due
5/15/16, valued at U.S. $609 (Cost
U.S. $609) U.S.$ 609 609
--------------
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.2%)
Indian Rupee (Cost U.S. $3,745) INR 134,396 3,749
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (98.7%)
(Cost U.S. $432,001) 310,336
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (2.4%)
Receivable for Investments Sold U.S.$ 3,762
Share Application Money 2,063
Dividends Receivable 895
Foreign Withholding Tax Reclaim
Receivable 644
Deferred Organization Costs 28
Other Assets 37 7,429
--------------- --------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT AMOUNT
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
LIABILITIES (-1.1%)
Payable for:
Investments Purchased U.S.$ (2,117)
Custodian Fees (519)
Investment Advisory Fees (277)
Professional Fees (112)
Shareholder Reporting Expenses (100)
Administrative Fees (32)
Directors' Fees and Expenses (27)
Other Liabilities (158) U.S.$ (3,342)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 35,707,092, issued and outstanding U.S.
$0.01 par value shares (100,000,000 shares
authorized) U.S.$ 314,423
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 8.81
--------------
--------------
- ---------------------------------------------------------
- ------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 357
Capital Surplus 492,574
Accumulated Net Investment Loss (47)
Accumulated Net Realized Loss (56,392)
Unrealized Depreciation on Investments and Foreign
Currency Translations (122,069)
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 314,423
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
* -- Security fair valued at cost -- see note A-1 to financial statements.
** -- Security valued at fair value -- see note A-1 to financial statements.
# -- 144A Security -- certain conditions for public sale may exist.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Shares.
December 31, 1996 exchange rate-
Indian Rupee (INR) 35.850=U.S.$1.00
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 4,992
Interest................................................................................ 272
Less: Foreign Taxes Withheld............................................................ (959)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 4,305
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 3,812
Custodian Fees.......................................................................... 2,506
Administrative Fees..................................................................... 389
Professional Fees....................................................................... 199
Shareholder Reporting Expenses.......................................................... 123
Directors' Fees and Expenses............................................................ 59
Sub-Administrative Fees................................................................. 22
Transfer Agent Fees..................................................................... 16
Other Expenses.......................................................................... 137
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 7,263
- ---------------------------------------------------------------------------------------------------------------
Net Investment Loss............................................................... (2,958)
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED LOSS
Investment Securities Sold.............................................................. (29,688)
Foreign Currency Transactions........................................................... (108)
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss................................................................. (29,796)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................................................. 29,192
Depreciation on Foreign Currency Translations........................................... (60)
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 29,132
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. (664)
- ---------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ (3,622)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss................................................. U.S.$ (2,958) U.S.$ (5,816)
Net Realized Loss................................................... (29,796) (25,999)
Change in Unrealized Appreciation/Depreciation...................... 29,132 (149,621)
- ---------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations................ (3,622) (181,436)
- ---------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Year................................................... 318,045 499,481
- ---------------------------------------------------------------------------------------------------------------
End of Year (including accumulated net investment loss of U.S. $47
and U.S. $758, respectively)....................................... U.S.$314,423 U.S.$318,045
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 25,
YEARS ENDED DECEMBER 31, 1994*
--------------------------------- TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....................................... U.S.$ 8.91 U.S.$ 13.99 U.S.$ 14.10
- --------------------------------------------------------------------------------------------------------------------------------
Offering Costs............................................................. -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss)............................................... (0.08) (0.16) 0.04
Net Realized and Unrealized Gain (Loss) on Investments..................... (0.02) (4.92) 0.05
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations....................................... (0.10) (5.08) 0.09
- --------------------------------------------------------------------------------------------------------------------------------
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.$ 8.81 U.S.$ 8.91 U.S.$ 13.99
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD...................................... U.S.$ 9.50 U.S.$ 9.13 U.S.$ 11.25
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value........................................................... 4.11% (18.89)% (19.01)%
Net Asset Value (1).................................................... (1.12)% (36.31)% 0.72%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)...................................... U.S.$314,423 U.S.$318,045 U.S.$499,481
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.................................... 2.10% 3.16% 1.61%**
Ratio of Net Investment Income (Loss) to Average Net Assets................ (0.85)% (1.48)% 0.33%**
Portfolio Turnover Rate.................................................... 28% 28% 19%
Average Commission Rate (2)................................................ $0.0476 N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
*Commencement of operations.
**Annualized.
(1)Total investment return based on net asset value per share 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.
(2)For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average commission rate per
share it paid for portfolio trades on which commission were charged during the period. For the year ended December 31, 1996,
the average commission rate paid on trades where commissions were charged was 0.82% of the trade amount.
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ------------
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'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 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. 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. Due to the Indian
securities markets' smaller size, degree of liquidity and volatility, the
price which the Fund may realize upon sale of securities may not be equal to
the value presented in the financial statements.
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 these 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, 1996, shown on
the statement of net assets, relates to taxes that will be refunded to the
Fund upon the filing of the Fund's Indian tax return for the fiscal year
ended March 31, 1997.
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, 1996, 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.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and 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. In the event of default or
bankruptcy by the counter-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.
14
<PAGE>
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 exchange 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 EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables against changes in future foreign
exchange rates. A forward foreign currency exchange 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.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, net operating losses, gains on certain securities of
corporations designated as "passive foreign investment companies" and the
timing of the recognition of losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purposes of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (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. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, 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-
15
<PAGE>
pocket expenses by the Administrator. The Chase Manhattan Bank acts as custodian
for the Fund's assets held in the United States.
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, 1996, the Fund incurred
International Custodian fees of $2,499,000, of which $518,000 was payable to the
International Custodian at December 31, 1996.
E. During the year ended December 31, 1996, the Fund made purchases and sales
totaling $92,007,000 and $92,478,000, 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, 1996, the U.S. Federal income tax cost basis of securities was
$428,508,000, and, accordingly, net unrealized depreciation for U.S. Federal
income tax purposes was $121,921,000, of which $43,377,000 related to
appreciated securities and $165,298,000 related to depreciated securities. At
December 31, 1996, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $50,993,000 available to offset future
capital gains of which $19,397,000 and $31,596,000 will expire on December 31,
2003 and 2004, respectively. To the extent that capital gains are offset, such
gains will not be distributed to shareholders. For the year ended December 31,
1996, the Fund expects to defer, to January 1, 1997 for U.S. Federal income tax
purposes, post-October capital losses of $5,150,000 and post-October currency
losses of $45,000.
F. 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.
G. 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, 1996, the Fund owned an
aggregate of approximately $20,167,000 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, 1996. 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.
H. 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, 1996 totaled
$13,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
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REPORT OF INDEPENDENT ACCOUNTANTS
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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, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the two years in the period 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, 1996 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
January 29, 1997
17
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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
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