<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
INDIA INVESTMENT
FUND, INC.
- --------------------------------------------------------------------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY
INDIA INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
John S.Y. Chu
DIRECTOR
Gerard La Hausse de Louviere
DIRECTOR
Gerard E. Jones
DIRECTOR
John A. Levin
DIRECTOR
Fergus Reid
DIRECTOR
Samuel T. Reeves
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the nine months ended September 30, 1998, the Morgan Stanley India
Investment Fund, Inc. (the "Fund") had a total return, based on net asset value
per share, of 5.66% compared to -19.69% for the U.S. dollar adjusted Bombay
Stock Exchange (BSE) National Index ("the Index"). For the one year ended
September 30, 1998, and for the period since the Fund's commencement of
operations on February 25, 1994 through September 30, 1998, the Fund's total
return, based on net asset value per share, was -12.31% and -32.83%,
respectively, compared to -30.57% and -49.59%, respectively, for the Index. On
September 30, 1998, the closing price of the Fund's shares on the New York Stock
Exchange was $6 11/16, representing a 28.3% discount to the Fund's net asset
value per share.
The market was in a trading zone for the quarter ended September 30, 1998, and
our view on the market remains defensive.
On the positive side, the Indian economy is still growing and is expected to
register gross domestic product growth in excess of 5%, one of the highest in
the world. The Indian rupee also seems relatively stable and the government was
able to raise U.S. $4.2 billion through the Resurgent India Bond Scheme.
Selective sectors of the economy such as software, pharmaceuticals and consumer
goods continue to perform well, with companies in these sectors posting double
digit earnings growth.
On the negative side, there seems to be a clear lack of momentum on the reform
front, with no clear policy movement. The intentions of the government are not
in doubt, but there seem to be delays in implementation. Also with South East
Asia seeming to have bottomed out, the safe haven argument used by investors to
put money into India is now also losing its validity. The business transacted in
the next session of Parliament is critical in order to see which pieces of
legislation actually get passed, and become law.
Passage of certain bills like Urban Land Ceiling Act (ULCRA) into law will
change the current perception of poor policy implementation dogging this
government. Progress on the disinvestment of government's equity stake in public
sector firms could also boost market sentiment.
The Fund remains nearly fully invested and in keeping with our defensive view of
the markets, we are increasing the concentration of the Fund in defensive
sectors like pharmaceuticals and consumer goods.
On August 10, 1998, the Fund commenced a share repurchase program for purposes
of enhancing shareholder value and reducing the discount at which the Fund's
shares trade from their net asset value. From that date through September 30,
1998, the Fund repurchased 671,100 shares of its Common Stock at an average
price per share of $6.21 and an average discount of 28.29% from the net asset
value per share. The Fund will continue to repurchase its outstanding shares at
such time and in such amounts as it believes will further the accomplishment of
the foregoing objectives, subject to review by the Board of Directors. We will
update you on the progress of the repurchase program in future shareholder
reports.
The information contained in this overview regarding specific securities is for
informational purposes only and should not be construed as a recommendation to
purchase or sell the securities mentioned.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
October 1998
2
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Investment Summary as of September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
------------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3)
---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year to Date -20.15% -- 5.66% -- -19.69% --
One Year -40.88 -40.88% -12.31 -12.31% -30.57 -30.57%
Since Inception* -51.85 -14.70 -32.83 -8.29 -49.59 -13.85
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- -------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
ENDED
SEPTEMBER 30,
1994* 1995 1996 1997 1998
------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share. . . $ 13.99 $ 8.91 $ 8.81 $ 8.83 $ 9.33
Market Value Per Share . . . . $ 11.25 $ 9.13 $ 9.50 $ 8.38 $ 6.69
Premium/(Discount) . . . . . . -19.6% 2.5% 7.8% - 5.1% -28.3%
Capital Gains Distributions. . $ 0.17 -- -- -- --
Fund Total Return (2). . . . . 0.72% -36.31% -1.12% 0.23% 5.66%
Index Total Return (3) . . . . -7.88% -31.53% -6.49% 6.43% -19.69%
</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) National Index is a market capitalization
weighted index including the equity shares of 100 companies from the
"Specified" and the "Non-specified" list of the 5 major stock exchanges,
namely, Bombay, Calcutta, Delhi, Ahmedabad and Madras.
* The Fund commenced operations on February 25, 1994.
3
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Portfolio Summary as of September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (99.1%)
Short-Term Investments (0.8%)
Fixed Income Securities (0.1%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Other (17.4%)
Transportation - Road & Rail (5.6%)
Multi-Industry (3.5%)
Health & Personal Care (10.1%)
Financial Services (4.4%)
Energy Equipment & Services (14.2%)
Automobiles (15.2%)
Beverages & Tobacco (3.7%)
Broadcasting & Publishing (7.8%)
Chemicals (5.1%)
Electronic Components & Instruments (13.0%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C> <C>
1. Bharat Heavy Electricals Ltd. 13.7%
2. Infosys Technology Ltd. 11.8
3. Zee Telefilms Ltd. 7.2
4. Container Corp. of India Ltd. 5.6
5. Hero Honda Ltd. 4.2
6. Housing Development Finance Corp., Ltd. 4.1
7. ITC Ltd. 3.7
8. Punjab Tractors Ltd. 3.3
9. Novartis India Ltd. 3.2
10. Agrevo India Ltd. 2.4
----
59.2%
----
----
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ------------
STATEMENT OF NET ASSETS (UNAUDITED)
- ------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.9%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (2.3%)
Bharat Pipes & Fittings Ltd. 50 U.S.$ --
Blow Plast Ltd. 434,600 259
Phillips India Ltd. 799,550 3,055
Supreme Industries Ltd. 832,900 4,091
-------------
7,405
-------------
- ------------------------------------------------------------------------------
AUTOMOBILES (15.2%)
Apollo Tyres Ltd. 12,400 20
Autolite Ltd. 300 -- @
Bajaj Tempo Ltd. 3,750 12
Bajaj Tempo Ltd. (Rights) 851 1
Castrol (India) Ltd. 1,684 24
Ceat Ltd. 6,445 3
Denso India Ltd. 737,100 572
Elgi Tyres & Tread Ltd. 273,400 1,724
Engine Valves Ltd. 195,700 623
Hero Honda Ltd. 902,128 13,586
LML Ltd. 144 -- @
Lumax Industries Ltd. 441,200 435
Motherson Sumi Systems Ltd. 335,857 211
Motor Industries Co., Ltd. 39,942 3,235
MRF Ltd. 109,280 4,126
Patheja Bros Forgings & Stamp Ltd. 450,000 159
Premier Instruments Ltd. 245,987 371
Punjab Tractors Ltd. 560,670 10,796
Rane Brakes & Lining Ltd. 7,200 18
Rane Madras Ltd. 213,100 301
S.K.F. Bearings Ltd. 55,256 845
Subros Auto Ltd. 159,395 196
Sundaram Brake Linings Ltd. 2,850 5
Sundaram Fasteners Ltd. 404,550 3,108
Tata Engineering & Locomotive Ltd. 526,723 1,713
TVS Suzuki Ltd. 596,350 7,709
VST Tillers & Tractors Ltd. 173,000 110
-------------
49,903
-------------
- ------------------------------------------------------------------------------
BANKING (3.0%)
HDFC Bank Ltd. 1,558,700 2,377
State Bank of India Ltd. 1,548,920 7,308
-------------
9,685
-------------
- ------------------------------------------------------------------------------
BEVERAGES & TOBACCO (3.7%)
ITC Ltd. 740,141 12,058
McDowell & Co., Ltd. 100 -- @
------------
12,058
------------
- ------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (7.8%)
Navneet Publications Ltd. 233,100 445
New Delhi Television Ltd. 333,300 377
Tata Donnelley Ltd. 293,250 1,106
Zee Telefilms Ltd. 1,572,700 23,676
-------------
25,604
-------------
- ------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (0.6%)
Associated Cement Co., Ltd. 3 -- @
Bell Ceramics Ltd. 1,600 -- @
Gujarat Sidhee Cement Ltd. 200 -- @
ITW Signode India Ltd. 1,077,500 1,951
-------------
1,951
-------------
- ------------------------------------------------------------------------------
CHEMICALS (5.1%)
Agrevo India Ltd. 749,760 7,925
Ciba Specialty Chemicals (India) Ltd. 165,485 588
Colour-Chem Ltd. 64,602 3,243
ICI India Ltd. 411,678 2,212
Indian Organic Chemicals Ltd. 60 -- @
Jaysynth Dyechem Ltd. 500 -- @
Monsanto Chemicals of India 99,800 2,383
Reliance Industries Ltd. 3,000 9
Sudarshan Chemicals Ltd. 258,852 287
-------------
16,647
-------------
- ------------------------------------------------------------------------------
CONSTRUCTION & HOUSING (0.0%)
Hindustan Construction Ltd. 350 -- @
-------------
- ------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION (1.6%)
NIIT Ltd. 104,900 3,380
Tata Infotech Ltd. 54,550 1,841
-------------
5,221
-------------
- --------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS (0.0%)
Asian Electronics Ltd. 8,050 16
-------------
- ------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS (13.0%)
Datar Switchgear Ltd. 215,900 122
Fujitsu ICIM Ltd. 584,865 1,399
Infosys Technology Ltd. 649,600 38,420
Mastek Ltd. 1,800 11
Modi Xerox Ltd. 1,077,500 2,376
Rolta India Ltd. 5,000 8
S&S Power Switchgear Ltd. 50 -- @
Samtel Colour Ltd. 756,950 218
VHEL Industries Ltd. 100 -- @
-------------
42,554
-------------
- ------------------------------------------------------------------------------
5
<PAGE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
ENERGY EQUIPMENT & SERVICES (14.2%)
Bharat Heavy Electricals Ltd. 6,768,500 U.S.$ 44,857
Crompton Greaves Ltd. 1,500 1
Jyoti Structures Ltd. 167,750 238
KEC International Ltd. 875 1
Kirloskar Oil Engine Ltd. 581 -- @
Shriram Honda Power Equipment Ltd. 318,330 1,216
-------------
46,313
-------------
- ------------------------------------------------------------------------------
ENERGY SOURCES (0.0%)
Renewable Energy Ltd. 247,800 15
-------------
- ------------------------------------------------------------------------------
FINANCIAL SERVICES (4.4%)
Canfin Homes Ltd. 922,050 326
Housing Development Finance Corp., Ltd. 236,132 13,460
ICICI Ltd. - New 30 -- @
Industrial Finance Corp., (India) Ltd. 900 -- @
Sundaram Finance Ltd. 119,800 453
UTI-Mastergain 350,600 75
UTI-MasterShares Ltd. 6,200 2
-------------
14,316
-------------
- ------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (0.7%)
Smithkline Beecham Consumer Health Care Ltd. 208,420 2,358
Western Hatcheries Ltd. 1,550 1
-------------
2,359
-------------
- ------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (0.1%)
Ballarpur Industries Ltd. 100 -- @
Paper Products Ltd. - New 299,900 382
Pudumjee Pulp & Paper Mills Ltd. 200 -- @
Tamilnadu Newsprint & Paper Ltd. 400 -- @
-------------
382
-------------
- ------------------------------------------------------------------------------
HEALTH & PERSONAL CARE (10.1%)
Cheminor Drugs Ltd. 243,650 913
Cipla Ltd. 318,050 6,465
Clariant (India) Ltd. 67,000 370
Dr. Reddy's Laboratories Ltd. 299,600 3,486
E. Merck (India) Ltd. 406,275 2,866
Godrej Soaps Ltd. 150 -- @
Hindustan Lever Ltd. 292 12
Hoechst Marion Roussel India Ltd. 585,200 5,713
Indian Shaving Products Ltd. 100 2
Lakme Ltd. 675 1
Marico Industries Ltd. 283,200 2,037
Pfizer Ltd. 100 2
Smithkline Beecham Pharmaceuticals (India) Ltd. 574,690 5,221
Sun Pharmaceutical Industries Ltd. 435,700 3,625
TTK Biomed Ltd. 143,700 20
Unichem Labs Ltd. 162,700 882
Wyeth Lederle Ltd. 97,450 1,371
-------------
32,986
-------------
- ------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS (0.5%)
Carborundum Universal Ltd. 493,300 867
Chicago Pneumatic India Ltd. 324,940 670
-------------
1,537
-------------
- ------------------------------------------------------------------------------
LEISURE & TOURISM (0.2%)
EIH Ltd. 62,000 338
EIH Ltd. GDR 50,000 250
Indian Hotels Co., Ltd. 50 -- @
ITC Hotels Ltd. 700 2
-------------
590
-------------
- ------------------------------------------------------------------------------
MACHINERY & ENGINEERING (2.6%)
Advani-Oerlikon Ltd. 227 -- @
Ahmednagar Forgings Ltd. 100 -- @
Baharat Earth Movers Ltd. 1,000 1
Cummins India Ltd. 398,440 3,611
Elgi Equipments Ltd. 107,850 402
Esab India Ltd. 564,850 1,241
Kabra Extrusion Technik Ltd. 152,600 65
Lakshmi Machine Works Ltd. 19,268 522
Lakshmi Synthetic Machinery Ltd. 152,400 50
Larsen & Toubro Ltd. 1,135 5
M.M. Forgings Ltd. 200 -- @
Praj Industries Ltd. 221,600 151
Revathi-CP Equipment Ltd. 298,600 2,400
Thermax Ltd. 400 2
-------------
8,450
-------------
- ------------------------------------------------------------------------------
MANUFACTURING (0.2%)
Asahi India Safety Glass Ltd. 152,300 715
-------------
- ------------------------------------------------------------------------------
METALS -- NON-FERROUS (0.0%)
Pennar Aluminum Co., Ltd. 200 -- @
-------------
- ------------------------------------------------------------------------------
METALS -- STEEL (0.0%)
India Seamless Steel & Alloy Ltd. 10,500 -- @
Isibars Ltd. 352,200 72
Tata Iron & Steel Co., Ltd. 350 1
Uttam Galva Steels Ltd. 100 -- @
-------------
73
-------------
- ------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.8%)
Essel Packaging Ltd. 368,075 1,764
Flex Industries Ltd. 50 -- @
Titan Industries Ltd. 651,775 831
-------------
2,595
-------------
- ------------------------------------------------------------------------------
6
<PAGE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
MULTI-INDUSTRY (3.5%)
Birla VXL Ltd. 100 U.S.$ -- @
Delta International 570,000 56
Novartis India Ltd. 722,550 10,456
Rajapalayam Mills 17,100 947
-------------
11,459
-------------
- ------------------------------------------------------------------------------
RECREATION -- OTHER CONSUMER GOODS (0.0%)
Tube Investments of India Ltd. 725 1
Tube Investments of India Ltd. GDR 135,133 74
-------------
75
-------------
- ------------------------------------------------------------------------------
RETAIL -- GENERAL (0.0%)
Timex Watches Ltd. 3,900 1
-------------
- ------------------------------------------------------------------------------
TEXTILES & APPAREL (2.7%)
Bata India Ltd. 1,073,252 6,086
Coates of India Ltd. 238,150 472
G.T.N. Textiles Ltd. 700 1
Indo Rama Synthetics Ltd. 500 -- @
J.K. Synthetics Ltd. 358,546 14
Madura Coates Ltd. 379,550 439
Madura Coates Ltd. (Rights) 30 -- @
Mahavir Spinning Mills Ltd. 491,000 660
Maral Overseas Ltd. 650,500 465
Raymond Ltd. 150 -- @
Shree Rajasthan Syntex Ltd. 50 -- @
SRF Ltd. 665,119 165
Vardhaman Polytex Ltd. 2,400 2
Vardhaman Spinning & General Mills Ltd. 373,500 481
Viral Syntex Ltd. 209,200 4
Woolworth India Ltd. 100 -- @
-------------
8,789
-------------
- ------------------------------------------------------------------------------
TRANSPORTATION -- ROAD & RAIL (5.6%)
Container Corp. of India Ltd. 2,216,500 18,284
-------------
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$295,074) 319,983
-------------
- ------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.1%)
- ------------------------------------------------------------------------------
METALS -- STEEL (0.0%)
Tata SSL Ltd. - New 14.00% 12/6/02 INR 14 U.S.$ 13
-------------
- ------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.1%)
Garware Plastics & Polyester Ltd. 16.00% 5/1/05 277 375
-------------
- ------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S.$661) 388
-------------
- ------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.8%)
Indian Rupee (Cost U.S.$2,616) INR 111,289 2,623
-------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.8%)
(Cost U.S.$298,351) 322,994
-------------
- ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets U.S.$ 8,449
Liabilities (4,452) 3,997
----------- -------------
- ------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 35,034,992 issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 326,991
-------------
-------------
- ------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 9.33
-------------
-------------
- ------------------------------------------------------------------------------
</TABLE>
@ -- Value is less than U.S.$500.
GDR -- Global Depositary Receipt
- ------------------------------------------------------------------------------
7
