<PAGE>
---------------------------------
MORGAN STANLEY
INDIA INVESTMENT
FUND, INC.
---------------------------------
SEMI-ANNUAL REPORT
JUNE 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 six months ended June 30, 1998, the Morgan Stanley India Investment
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of -4.42% compared to -16.85% for the U.S. dollar adjusted Bombay Stock Exchange
(BSE) National Index (the "BSE National Index"). For the one year ended June 30,
1998, and for the period since the Fund's commencement of operations on February
25, 1994 through June 30, 1998, the Fund's total return, based on net asset
value per share, was -25.57% and -39.24%, respectively, compared with -34.07%
and -47.81%, respectively, for the BSE National Index. On June 30, 1998, the
closing price of the Fund's shares on the New York Stock Exchange was $6 7/16
representing a 23.7% discount to the Fund's net asset value per share.
The immediate outlook for the market is uncertain. On the positive side India
remains by and large insulated from the carnage hitting Asia and should deliver
at a minimum, 5% gross domestic product growth (highest in Asia except maybe
China). The market remains very cheap at 10 times March 1999 estimated earnings,
and is now in the 4th year of a bear market.
On a micro basis, India continues to offer the widest selection of companies
available in any market in Asia, with many being truly "world class". The Indian
market continues to offer the highest return on earnings in the region and
Economic Valued Added ("EVA") as a concept is gaining root in corporate India.
Even on pure macro numbers the situation is not too bad. The rupee has
stabilized at 42.40 INR = 1 U.S. dollar and should end the year at 44.00 INR = 1
U.S. dollar. Interest rates have moved up about 50-75 basis points, but should
stabilize at levels 50 basis points higher. The foreign exchange reserves
situation is also stable with an expected inflow of $3-4 billion in the
Resurgent India Bond issue.
The market's inability to move higher stems from the political uncertainty
facing the country as well as a strong feeling that reforms as a concept are
dead. There is also a strong sense of fatigue among investors. The uncertainty
caused by the nuclear explosions and imposition of sanctions by the developed
countries has on the margin reduced portfolio flows as well.
The Union Budget presented on June 1, 1998, was also a big disappointment. Most
investors had felt that after the imposition of sanctions, the government, would
deliver a "Big Bang Budget" full of reform to avoid international isolation and
create incentive for Foreign Direct Investment ("FDI"). Unfortunately, the
Budget failed to live up to these expectations and the poor international
sentiment towards India subsequent to the nuclear blasts was only reinforced.
Given the political outlook and the poor visibility on the economy we remain
defensive on the market and our Fund is being structured on these lines. We
remain positive on software, media, pharmaceuticals and the FMCG sectors and we
are holding on to our large weightings in these sectors. Concurrently, certain
well managed cyclicals and capital goods stocks have declined to very attractive
valuations and we are looking to add these to our Fund.
On July 28, 1998, the Fund announced that its Board of Directors had authorized
a share repurchase program for the Fund for purposes of enhancing shareholder
value and reducing the discount at which the Fund's shares traded from their net
asset value. The Fund commenced the repurchase program on August 10th and will
continue to repurchase the Fund's 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.
Beginning with this report, we are discontinuing our practice of designating an
individual portfolio manager to sign our reports to shareholders in order to
better reflect the "Team" investment approach of the Fund's investment adviser,
Morgan Stanley Asset Management ("MSAM"). The global emerging markets team at
MSAM has general oversight of the investment management of the Fund. Vinod Sethi
continues to have primary responsibility for the day-to-day management of the
Fund's assets.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
July 1998
2
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Investment Summary as of June 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 -23.13% -- -4.42% -- -16.85% --
One Year -50.24 -50.24% -25.57 -25.57% -34.07 -34.07%
Since Inception* -53.65 -16.22 -39.24 -10.83 -47.81 -13.91
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 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 $ 8.44
Market Value Per Share .............. $ 11.25 $ 9.13 $ 9.50 $ 8.38 $ 6.44
Premium/(Discount) .................. -19.6% 2.5% 7.8% -5.1% -23.7%
Capital Gains Distributions ......... $ 0.17 -- -- -- --
Fund Total Return (2) ............... 0.72% -36.31% -1.12% 0.23% -4.42%
Index Total Return (3) .............. -7.88% -31.53% -6.49% 6.43% -16.85%
</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 June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
[CHART]
<S> <C>
Equity Securities (98.8%)
Short-Term Investments (1.1%)
Fixed Income Securities (0.1%)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTORS
<TABLE>
<CAPTION>
[CHART]
<S> <C>
Automobiles (15.0%)
Banking (3.3%)
Broadcasting & Publishing (5.7%)
Chemicals (5.0%)
Electronic Components & Instruments (12.3%)
Energy Equipment & Services (14.0%)
Financial Services (7.1%)
Health & Personal Care (9.6%)
Machinery & Engineering (3.0%)
Transportation--Road & Rail (7.9%)
Other (17.1%)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C> <C>
1. Bharat Heavy Electricals Ltd. 13.4%
2. Infosys Technology Ltd. 11.3
3. Container Corp. of India Ltd. 7.9
4. Housing Development Finance Corp., Ltd. 6.8
5. Zee Telefilms Ltd. 5.1
6. Punjab Tractors Ltd. 3.5
7. Smithkline Beecham Pharmaceuticals (India) Ltd. 3.2
8. Hero Honda Ltd. 3.1
9. State Bank of India Ltd. 2.6
10. Hoechst Schering Agrevo Ltd. 2.2
-----
59.1%
-----
-----
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- -------------
STATEMENT OF NET ASSETS (UNAUDITED)
- -------------
June 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.7%)
(Unless otherwise noted)
- ----------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (1.7%)
(a,b)Bharat Pipes & Fittings Ltd. 150 U.S.$ -- @
Blow Plast Ltd. 434,600 311
Phillips India Ltd. 225,950 474
Supreme Industries Ltd. 832,900 4,394
-------------
5,179
-------------
- ----------------------------------------------------------------------------
AUTOMOBILES (15.0%)
Apollo Tyres Ltd. 256,750 533
Autolite Ltd. 300 -- @
Bajaj Tempo Ltd. 4,031 15
(a,b)Bajaj Tempo Ltd. (Rights) 851 1
Castrol (India) Ltd. 3,296 46
Ceat Ltd. 65,133 33
Denso India Ltd. 737,900 435
Elgi Tyres & Tread Ltd. 273,400 1,902
Engine Valves Ltd. 195,700 609
Hero Honda Ltd. 451,064 9,314
LML Ltd. 900 2
(a)Lumax Industries Ltd. 441,200 386
(a)Modi Rubber Ltd. 100 -- @
Motherson Sumi Systems Ltd. 335,857 275
Motor Industries Co., Ltd. 31,657 2,863
MRF Ltd. 109,280 4,976
(a,b)Patheja Bros Forgings
& Stamp Ltd. 450,000 115
Premier Instruments Ltd. 245,987 381
(a)Punjab Tractors Ltd. 560,670 10,668
(a,b)Rane Brakes & Lining Ltd. 7,200 25
Rane Madras Ltd. 213,100 342
Rico Auto Industries Ltd. 221,000 469
S.K.F. Bearings Ltd. 52,356 969
Subros Auto Ltd. 159,395 215
(a,b)Sundaram Brake Linings Ltd. 2,850 6
Sundaram Fasteners Ltd. 488,050 3,799
Tata Engineering & Locomotive Ltd. 56,402 221
TVS Suzuki Ltd. 612,500 6,436
VST Tillers & Tractors Ltd. 173,000 122
-------------
45,158
-------------
- ----------------------------------------------------------------------------
BANKING (3.3%)
Federal Bank Ltd. 100 -- @
HDFC Bank Ltd. 1,558,700 2,362
State Bank of India Ltd. 1,549,870 7,724
-------------
10,086
-------------
- ----------------------------------------------------------------------------
BEVERAGES & TOBACCO (2.0%)
ITC Ltd. 396,641 6,099
(a)McDowell & Co., Ltd. 300 -- @
-------------
6,099
-------------
- ----------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
BROADCASTING & PUBLISHING (5.7%)
Navneet Publications Ltd. 233,100 U.S.$ 413
(a,b)New Delhi Television Ltd. 333,300 377
Tata Donnelley Ltd. 293,250 1,072
Zee Telefilms Ltd. 1,409,600 15,293
-------------
17,155
-------------
- ----------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (0.9%)
Associated Cement Co., Ltd. 36 1
(a)Bell Ceramics Ltd. 1,600 -- @
(a)Gujarat Sidhee Cement Ltd. 200 -- @
ITW Signode India Ltd. 1,077,500 1,423
Madras Cements Ltd. 16,975 1,432
-------------
2,856
-------------
- ----------------------------------------------------------------------------
CHEMICALS (5.0%)
(a,b)Ciba Specialty Chemicals
(India) Ltd. 165,485 406
Colour-Chem Ltd. 64,602 3,123
Hoechst Shering Agrevo Ltd. 374,880 6,543
ICI India Ltd. 619,600 2,908
(a)Indian Organic Chemicals Ltd. 60 -- @
(a)ITC Agrotech Co., Ltd. 100 -- @
Jaysynth Dyechem Ltd. 179,300 51
(a)Monsanto Chemicals of India 99,800 1,619
Reliance Industries Ltd. 48,152 163
Sudarshan Chemicals Ltd. 258,877 286
-------------
15,099
-------------
- ----------------------------------------------------------------------------
CONSTRUCTION & HOUSING (0.0%)
Hindustan Construction Ltd. 350 -- @
-------------
- ----------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION (1.7%)
NIIT Ltd. 128,000 4,288
Tata Infotech Ltd. 30,100 939
-------------
5,227
-------------
- ----------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS (0.2%)
Asian Electronics Ltd. 211,600 521
-------------
- ----------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS (12.3%)
Datar Switchgear Ltd. 215,900 144
(a)Fujitsu ICIM Ltd. 655,215 834
Infosys Technology Ltd. 649,600 34,054
Mastek Ltd. 16,900 80
Modi Xerox Ltd. 1,077,500 1,678
Rolta India Ltd. 5,000 5
S&S Power Switchgear Ltd. 100 -- @
Samtel Colour Ltd. 756,950 133
(a,b)VHEL Industries Ltd. 100 -- @
-------------
36,928
-------------
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
ENERGY EQUIPMENT & SERVICES (14.0%)
Bharat Heavy Electricals Ltd. 6,965,600 U.S.$ 40,405
Crompton Greaves Ltd. 118,130 95
(a)Jyoti Structures Ltd. 167,750 249
KEC International Ltd. 175,557 116
Kirloskar Oil Engine Ltd. 84,238 73
Shiram Honda Power Equipment Ltd. 353,630 1,168
-------------
42,106
-------------
- ----------------------------------------------------------------------------
ENERGY SOURCES (0.2%)
(a)Bharat Petroleum Corp., Ltd. 78,000 645
(a,b)Renewable Energy Ltd. 247,800 15
-------------
660
-------------
- ----------------------------------------------------------------------------
FINANCIAL SERVICES (7.1%)
Canfin Homes Ltd. 922,050 324
Housing Development Finance Corp., Ltd. 289,382 20,427
ICICI Ltd. - New 980 2
Industrial Finance Corp., (India) Ltd. 1,400 1
(a)Sundaram Finance Ltd. 119,800 664
(a)UTI-MasterPlus 91 359,400 86
UTI-MasterShares Ltd. 7,400 2
-------------
21,506
-------------
- ----------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (0.6%)
Smithkline Beecham Consumer Health Care Ltd. 208,420 1,907
Western Hatcheries Ltd. 1,733 1
-------------
1,908
-------------
- ----------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (0.2%)
Ballarpur Industries Ltd. 500 -- @
(a)Paper Products Ltd. - New 299,900 354
Pudumjee Ltd. 97,450 68
Tamilnadu Newsprint & Paper Ltd. 385,000 158
-------------
580
-------------
- ----------------------------------------------------------------------------
HEALTH & PERSONAL CARE (9.6%)
Cheminor Drugs Ltd. 243,650 715
(b)Cipla Ltd. 318,050 5,183
Clariant (India) Ltd. 67,000 276
E. Merck (India) Ltd. 406,275 1,942
Godrej Soaps Ltd. 32,850 27
Hindustan Lever Ltd. 292 10
Hoechst Marion Roussel India Ltd. 585,200 5,466
Indian Shaving Products Ltd. 100 2
Lakme Ltd. 64,730 137
Marico Industries Ltd. 283,200 1,603
Pfizer Ltd. 100 1
Smithkline Beecham
Pharmaceuticals (India) Ltd. 1,144,390 9,561
- ----------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
HEALTH & PERSONAL CARE (CONTINUED)
Sun Pharmaceutical Industries Ltd. 532,500 U.S.$ 3,573
(a)TTK Biomed Ltd. 143,700 34
Unichem Labs Ltd. 162,700 468
-------------
28,998
-------------
- ----------------------------------------------------------------------------
INDUSTRIAL COMPONENTS (0.5%)
Carborundum Universal Ltd. 493,300 867
Chicago Pneumatic India Ltd. 324,940 575
-------------
1,442
-------------
- ----------------------------------------------------------------------------
LEISURE & TOURISM (0.0%)
(a)Indian Hotels Co., Ltd. 50 -- @
(a)ITC Hotels Ltd. 800 2
-------------
2
-------------
- ----------------------------------------------------------------------------
MACHINERY & ENGINEERING (3.0%)
Advani-Oerlikon Ltd. 14,865 7
Ahmednagar Forgings Ltd. 800 -- @
Baharat Earth Movers Ltd. 1,100 1
Elgi Equipments Ltd. 107,850 432
(a)Esab India Ltd. 564,850 1,017
Graphite India Ltd. 255,100 192
Indian Seamless Metal Tubes Ltd. 30 -- @
(a,b)Indian Seamless Metal Tubes Ltd. - New 106,120 39
Kabra Extrusion Technik Ltd. 152,600 66
Kirloskar Cummins Ltd. 398,440 3,315
Lakshmi Machine Works Ltd. 18,778 547
(a)Lakshmi Synthetic Machinery Ltd. 152,400 65
M.M. Forgings Ltd. 200 -- @
Praj Industries Ltd. 221,600 165
Revathi-CP Equipment Ltd. 298,600 2,570
Thermax Ltd. 129,100 401
Wartsila Diesel Ltd. 64,400 244
-------------
9,061
-------------
- ----------------------------------------------------------------------------
MANUFACTURING (0.5%)
Asahi India Safety Glass Ltd. 152,300 1,580
-------------
- ----------------------------------------------------------------------------
METALS -- NON-FERROUS (0.0%)
(a)Pennar Aluminum Co., Ltd. 102,100 11
-------------
- ----------------------------------------------------------------------------
METALS -- STEEL (0.2%)
(a)India Seamless Steel & Alloy Ltd. 79,100 3
Isibars Ltd. 442,100 113
(a)Steel Authority of India Ltd. 400 -- @
Steel Authority of India Ltd. GDR 150,000 367
Tata Iron & Steel Co., Ltd. 350 1
Uttam Galva Steels Ltd. 100 -- @
-------------
484
-------------
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS MATERIALS & COMMODITIES (0.7%)
Essel Packaging Ltd. 368,100 U.S.$ 1,380
Flex Industries Ltd. 50 -- @
Su-Raj Diamonds Ltd. 100 -- @
Titan Industries Ltd. 651,775 618
-------------
1,998
-------------
- ----------------------------------------------------------------------------
MULTI-INDUSTRY (2.8%)
Birla VXL Ltd. 100 -- @
(a,b)Delta International 570,000 57
(a)J.K. Corp., Ltd. 30 -- @
Larsen & Toubro Ltd. 1,295 7
(a)Novartis India Ltd. 732,550 6,479
(a,b)Rajapalayam Mills 17,100 948
(a)Ramco Industries Ltd. 84,700 971
-------------
8,462
-------------
- ----------------------------------------------------------------------------
RECREATION -- OTHER CONSUMER GOODS (0.1%)
Tube Investments of India Ltd. 52,916 43
Tube Investments of India Ltd. GDR 198,133 119
(a)Vashishti Detergents Ltd. 400 -- @
-------------
162
-------------
- ----------------------------------------------------------------------------
RETAIL -- GENERAL (0.0%)
(a)Timex Watches Ltd. 67,000 27
-------------
- ----------------------------------------------------------------------------
TEXTILES & APPAREL (1.5%)
(a)Bata India Ltd. 545,602 1,746
Coates of India Ltd. 238,150 413
Coates of Viyella India Ltd. 79,550 72
(a,b)Coates of Viyella India Ltd. - New 300,000 269
(a,b)Coates of Viyella India Ltd. (Rights) 30 -- @
(a)G.T.N. Textiles Ltd. 10,700 8
Indo Rama Synthetics Ltd. 1,325 -- @
(a)J.K. Synthetics Ltd. 1,208,658 57
Mahavir Spinning Mills Ltd. 491,000 623
Maral Overseas Ltd. 650,600 292
Raymond Ltd. 250 -- @
(a)Sanotgen Exports Ltd. 100 -- @
Shree Rajasthan Syntex Ltd. 50 -- @
(a)SIV Industries Ltd. GDR 313,500 125
SRF Ltd. 665,119 235
Vardhaman Polytex Ltd. 2,800 3
Vardhaman Spinning & General Mills Ltd. 373,500 529
(a)Viral Syntex Ltd. 209,200 9
Woolworth India Ltd. 1,100 -- @
-------------
4,381
-------------
- ----------------------------------------------------------------------------
TRANSPORTATION -- ROAD & RAIL (7.9%)
Container Corp. of India Ltd. 2,195,500 23,664
-------------
- ----------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- ELECTRICAL & GAS (0.0%)
Tata Hydro Electric Power Supply Co., Ltd. 50 U.S.$ -- @
-------------
- ----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$309,943) 291,340
-------------
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES (0.1%)
- ----------------------------------------------------------------------------
METALS -- STEEL (0.0%)
(b)Tata SSL Ltd. - New
14.00%, 12/6/02 INR 14 12
-------------
- ----------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.1%)
(b)Garware Plastics & Polyester Ltd.
16.00%, 5/1/05 277 376
-------------
- ----------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S.$662) 388
-------------
- ----------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.1%)
Indian Rupee (Cost U.S.$3,182) 134,447 3,171
-------------
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (97.9%)
(Cost U.S.$313,787) 294,899
-------------
- ----------------------------------------------------------------------------
OTHER ASSETS (4.8%)
Cash U.S.$ 140
Receivable for Investments Sold 9,957
Dividends Receivable 2,489
Foreign Withholding Tax Reclaim Receivable 1,966
Share Application Money 25
Deferred Organization Costs 8
Other Assets 50 14,635
---------------- -------------
- ----------------------------------------------------------------------------
LIABILITIES (-2.7%)
Payable For:
Investments Purchased (6,040)
Custodian Fees (1,580)
Investment Advisory Fees (278)
Professional Fees (76)
Shareholder Reporting Expenses (70)
Directors' Fees and Expenses (60)
Administrative Fees (31)
Other Liabilities (96) (8,231)
---------------- -------------
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- ----------------------------------------------------------------------------
<S> <C>
NET ASSETS (100%)
Applicable to 35,707,092, issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 301,303
---------------
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.44
---------------
- ----------------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Common Stock 357
Capital Surplus 489,541
Undistributed Net Investment Income 530
Accumulated Net Realized Loss (170,117)
Unrealized Depreciation on Investments
and Foreign Currency Translations (19,008)
- ----------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 301,303
---------------
- ----------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
(b) -- Security valued at fair value -- see note A-1 to financial statements.
@ -- Value is less than U.S.$500.
GDR -- Global Depositary Receipt
June 30, 1998, exchange rate --
Indian Rupee (INR) 42.400= U.S.$1.00
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 4,034
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
- ---------------------------------------------------------------------------------------------------------------------
Total Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,125
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,778
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,164
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Sub-Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
- ---------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,381
- ---------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,303)
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (361)
- ---------------------------------------------------------------------------------------------------------------------
Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,664)
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,797
Depreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . . . . (20)
- ---------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 49,777
- ---------------------------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . (14,887)
- ---------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . U.S.$ (14,143)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 744 U.S.$ (2,577)
Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,664) (49,684)
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . . . 49,777 53,284
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations. . . . . . . . . . . . . . (14,143) 1,023
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,446 314,423
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income (accumulated net investment
loss) of U.S.$530 and U.S.$(214), respectively). . . . . . . . . . . . . . . . . . . . . U.S.$ 301,303 U.S.$ 315,446
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, PERIOD FROM
SELECTED PER SHARE DATA AND JUNE 30, 1998 ----------------------------------------- FEBRUARY 25, 1994* TO
RATIOS: (UNAUDITED) 1997 1996 1995 DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . U.S.$ 8.83 U.S.$ 8.81 U.S.$ 8.91 U.S.$ 13.99 U.S.$ 14.10
- -----------------------------------------------------------------------------------------------------------------------------------
Offering Costs . . . . . . . . . . . . . . . -- -- -- -- (0.03)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) . . . . . . . . 0.02 (0.07) (0.08) (0.16) 0.04
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (0.41) 0.09 (0.02) (4.92) 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations . . . . (0.39) 0.02 (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.$ 8.44 U.S.$ 8.83 U.S.$ 8.81 U.S.$ 8.91 U.S.$ 13.99
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD. . . . U.S.$ 6.44 U.S.$ 8.38 U.S.$ 9.50 U.S.$ 9.13 U.S.$ 11.25
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value . . . . . . . . . . . . . . . (23.13)% (11.84)% 4.11% (18.89)% (19.01)%
Net Asset Value (1). . . . . . . . . . . . (4.42)% 0.23% (1.12)% (36.31)% 0.72%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS). . . . U.S.$301,303 U.S.$315,446 U.S.$314,423 U.S.$318,045 U.S.$499,481
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets. . . 2.09%** 2.06% 2.10% 3.16% 1.61%**
Ratio of Net Investment Income
to Average Net Assets. . . . . . . . . . . 0.46%** (0.70)% (0.85)% (1.48)% 0.33%**
Portfolio Turnover Rate. . . . . . . . . . . 13% 25% 28% 28% 19%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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
each 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
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- -----------
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 market's 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 was
subject to a 15% withholding tax on dividends up to May 31, 1997.
Subsequent to that date, the Indian Government has withdrawn the
withholding tax on dividends. 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,
1997 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, 1998.
In Mauritius, the Fund is liable for 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%. As of
the date of these financial statements, 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 Mauritian 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.
11
<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 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) on
investments and foreign currency translations in the Statement of Net
Assets. The change in unrealized currency gains (losses) for the period is
reflected in the Statement of Operations.
The Fund intends to use derivatives more actively than it has in the past. The
Fund intends to engage in transactions in futures contracts on foreign
currencies, stock indices, as well as in options, swaps and structured notes.
Consistent with the Fund's investment objectives and policies, the Fund intends
to use derivatives for non-hedging as well as hedging purposes.
Following is a description of derivative instruments and their associated risks
that the Fund intends to utilize:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps
12
<PAGE>
are marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
8. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the issuer of the structured security. Structured
Securities are typically sold in private placement transactions with no
active trading market. Investments in structured securities may be more
volatile than their underlying instruments, however, any loss is limited to
the amount of the original investment.
9. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
10. 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 an 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 corporate 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 0.09% 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. The Chase Manhattan Bank acts as custodian for the Fund's
assets held in the United States.
13
<PAGE>
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 six months ended June 30, 1998, the Fund incurred
international custodian fees of $1,160,000, of which $1,160,000 was payable to
the International Custodian at June 30, 1998.
E. During the six months ended June 30, 1998, the Fund made purchases and
sales totaling $41,447,000 and $43,428,000 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. For the six months ended June 30, 1998, the Fund incurred $47,000 of
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of
the Adviser. At June 30, 1998, the U.S. Federal income tax cost basis of
securities was $310,605,000, and, accordingly, net unrealized depreciation for
U.S. Federal income tax purposes was $18,877,000, of which $85,190,000 related
to appreciated securities and $104,067,000 related to depreciated securities. At
December 31, 1997, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $96,874,000 available to offset future
capital gains of which $19,397,000 will expire on December 31, 2003, $31,596,000
will expire on December 31, 2004 and $45,881,000 will expire on December 31,
2005. To the extent that capital gains are offset, such gains will not be
distributed to shareholders.
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, less
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 June 30, 1998, the Fund owned an
aggregate of approximately $62,254,000 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 June 30, 1998. 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 June 30,
1998 totaled $46,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
I. In June, the Board of Directors amended your Fund's by-laws to require
advance notice of any proposals to be made at stockholders' meetings. For
annual meetings the notice must be given to the Fund's secretary at least 60
days before the anniversary date of the previous year's annual meeting. This
year's annual meeting of stockholders was held on June 25. This provision was
adopted to permit the Fund's stockholders and Directors to consider every
stockholder proposal on an informed basis and in an organized fashion, taking
into account the interests of all affected constituencies.
14
<PAGE>
J. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley India Investment
Fund, Inc. was held on June 25, 1998. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES AUTHORITY VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- --------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1. To elect the following Directors: Michael F. Klein . . . . . . .20,722,202 -- 265,703 --
John S.Y. Chu. . . . . . . . .20,735,890 -- 252,020 --
Fergus Reid. . . . . . . . . .20,735,884 -- 252,026 --
2. To ratify the selection of PricewaterhouseCoopers LLP
as independent accountants of the Fund . . . . . . . . . . . . . .20,787,706 141,462 -- 58,739
</TABLE>
15
<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 or 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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