<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
INDIA INVESTMENT
FUND, INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1998
MORGAN STANLEY DEAN WITTER INVESTMENT
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 Lahausse de la 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 Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
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 year ended December 31, 1998, the Morgan Stanley India Investment Fund,
Inc. (the "Fund") had a total return, based on net asset value per share, of
4.08% compared to -20.98% for the U.S. dollar adjusted Bombay Stock Exchange
(BSE) National Index (the "Index"). For the period since the Fund's inception
on February 25, 1994 through December 31, 1998, the Fund's total return, based
on net asset value per share, was -33.84% compared to -50.39% for the Index. On
December 31, 1998, the closing price of the Fund's shares on the New York Stock
Exchange was $6.75, representing a 26.6% discount to the Fund's net asset value
per share.
1998 is likely to go down in history as one of the most difficult years for the
Indian stock markets. While the economy remained resilient to the Asian
contagion, the market faced, for the first time, negative flows from foreign
portfolio investors. A fluid political environment and a weakening economy
slowed the pace of economic reforms. Lack of business confidence reduced private
investment further fueling the negative story. During the year, retail investors
turned more risk averse and preferred to save through bank deposits and
government sponsored investment schemes. All these factors contributed to the
Indian market registering the worst performance in the Asian region.
The silver lining to 1998 was provided by the stock picking opportunities
available to the discerning investor. High quality companies, particularly in
consumer, pharmaceutical and information technology sectors, have performed
remarkably well. Clearly, the market is getting polarized with quality
attracting great premiums. The Fund's portfolio benefited significantly on this
market development contributing to the current year's outperformance against the
benchmark.
We feel that both the Indian economy and the stock markets will bottom out in
1999. Whether the stock markets will precede the real economy and its recovery
to a large extent depends on the speed and decisiveness of governmental policy.
The markets and the country as a whole lack confidence and resurgence in the
markets is contingent upon the return of confidence.
The investor base both local and international is looking to this government to
kick-start the reform process, which should serve as a pointer to the direction
where the policy framework of the government is headed. If the current
government can establish its reformist credentials, then the markets will
improve quickly. If, for any reason, this government falls short and fails to
deliver on the reforms agenda or on issues such as reforms in insurance
industry, legislation on patents or accelerating investment in infrastructure,
then India as a country runs the risk of having wasted another year.
We base our view on the markets bottoming out in 1999 on the conviction that
this government will deliver on the reform agenda. The consequences for the
country so far have been severe due to the government not delivering on the
reform agenda and we believe that the government is fully aware of this.
The portfolio restructuring strategy initiated two years ago has had a
significant impact and we feel that the current portfolio of the Fund
reflects stocks that have the competitive edge to be successful. With regard
to portfolio strategy for 1999, during the first quarter, the Fund will stay
invested in defensive sectors like information technology, fast moving
consumer goods (FMCG) and then gradually move on the margin towards economy
sensitive sectors like automobiles and capital goods.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
JANUARY 1999
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.
2
<PAGE>
Morgan Stanley India Investment Fund, Inc.
Investment Summary as of December 31, 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>
One Year -19.40% -19.40% 4.08% 4.08% -20.98% -20.98%
Since Inception* -51.40 -13.83 -33.84 -8.17 -50.39 -13.47
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994* 1995 1996 1997 1998
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . . . . $13.99 $8.91 $8.81 $8.83 $9.19
Market Value Per Share . . . . . . . . . $11.25 $9.13 $9.50 $8.38 $6.75
Premium/(Discount) . . . . . . . . . . . -19.6% 2.5% 7.8% -5.1% -26.6%
Capital Gains Distributions. . . . . . . $ 0.17 -- -- -- --
Fund Total Return (2). . . . . . . . . . 0.72% -36.31% -1.12% 0.23% 4.08%
Index Total Return (3) . . . . . . . . . -7.88% -31.53% -6.49% 6.43% -20.98%
</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 December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (98.4%)
Short-Term Investments (1.5%)
Fixed Income Securities (0.1%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Automobiles (17.5%)
Beverages & Tobacco (4.1%)
Broadcasting & Publishing (5.6%)
Chemicals (5.1%)
Consumer Products (Cyclical) (4.2%)
Electronic Components -- Misc. (13.9%)
Energy Equipment & Services (13.7%)
Financial Services (4.1%)
Health & Personal Care (10.7%)
Transportation -- Rail (4.0%)
Other (17.1%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Bharat Heavy Electricals Ltd. 13.3%
2. Infosys Technology Ltd. 12.7
3. Zee Telefilms Ltd. 5.0
4. Novartis India Ltd. 4.2
5. ITC Ltd. 4.2
6. Container Corp. of India Ltd. 4.0
7. Housing Development Finance Corp., Ltd. 3.8
8. Hero Honda Ltd. 3.7
9. Punjab Tractors Ltd. 3.3
10. Agrevo India Ltd. 2.8
----
57.0%
----
----
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ------
STATEMENT OF NET ASSETS
- ------
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.6%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (1.9%)
Blow Plast Ltd. 434,600 U.S.$ 266
Phillips India Ltd. 799,550 2,376
Supreme Industries Ltd. 832,900 3,450
-------------
6,092
-------------
- --------------------------------------------------------------------------------
AUTOMOBILES (17.5%)
Apollo Tyres Ltd. 3,475 5
Bajaj Tempo Ltd. 2,119 6
Castrol (India) Ltd. 1,234 22
Ceat Ltd. 335 --@
Denso India Ltd. 737,000 391
Elgi Tyres & Tread Ltd. 410,100 2,173
Hero Honda Ltd. 902,042 11,549
Lumax Industries Ltd. 441,200 312
Motherson Sumi Systems Ltd. 335,857 245
Motor Industries Co., Ltd. 39,942 3,416
MRF Ltd. 109,280 3,680
(a,b)Patheja Bros Forgings & Stamp Ltd. 450,000 172
Premier Instruments Ltd. 245,987 381
Punjab Tractors Ltd. 560,670 10,482
Rane Brakes & Lining Ltd. 7,200 21
Rane Madras Ltd. 213,100 288
S.K.F. Bearings Ltd. 55,256 1,138
Subros Auto Ltd. 159,395 154
(a)Sundaram Brake Linings Ltd. 2,850 5
Sundaram Fasteners Ltd. 394,550 3,437
Tata Engineering & Locomotive Ltd. 2,258,723 8,669
TVS Suzuki Ltd. 671,350 8,323
VST Tillers & Tractors Ltd. 259,500 98
-------------
54,967
-------------
- --------------------------------------------------------------------------------
BANKING (1.6%)
HDFC Bank Ltd. 1,558,700 2,010
State Bank of India Ltd. 848,920 3,140
-------------
5,150
-------------
- --------------------------------------------------------------------------------
BEVERAGES & TOBACCO (4.1%)
ITC Ltd. 740,067 13,069
-------------
- --------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (5.6%)
Navneet Publications Ltd. 100,500 230
(a,b)New Delhi Television Ltd. 333,300 377
Tata Donnelley Ltd. 293,250 1,132
Zee Telefilms Ltd. 1,047,700 15,788
-------------
17,527
-------------
- --------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (0.8%)
Associated Cement Co., Ltd. 3 U.S.$ --@
ITW Signode India Ltd. 1,077,500 2,443
-------------
2,443
-------------
- --------------------------------------------------------------------------------
CHEMICALS (5.1%)
Agrevo India Ltd. 749,760 8,880
Ciba Specialty Chemicals (India) Ltd. 45 --@
Colour-Chem Ltd. 64,602 2,837
ICI India Ltd. 411,678 1,859
Monsanto Chemicals of India 99,800 2,121
Reliance Industries Ltd. 1,230 3
Sudarshan Chemicals Ltd. 258,852 268
-------------
15,968
-------------
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS (CYCLICAL)(4.2%)
Novartis India Ltd. 697,550 13,349
-------------
- --------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION (2.1%)
NIIT Ltd. 103,000 3,938
Tata Infotech Ltd. 77,050 2,549
-------------
6,487
-------------
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- MISC (13.9%)
Datar Switchgear Ltd. 215,900 94
(a)Fujitsu ICIM Ltd. 584,865 1,270
Infosys Technology Ltd. 574,600 40,027
Mastek Ltd. 100 1
Modi Xerox Ltd. 1,077,400 2,180
(a)Samtel Colour Ltd. 756,950 223
-------------
43,795
-------------
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (13.7%)
Bharat Heavy Electricals Ltd. 6,768,500 41,851
Jyoti Structures Ltd. 167,750 219
Shriram Honda Power Equipment Ltd. 318,330 982
-------------
43,052
-------------
- --------------------------------------------------------------------------------
ENERGY SOURCES (0.0%)
(a,b)Renewable Energy Ltd. 247,800 15
-------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (4.1%)
Canfin Homes Ltd. 922,050 313
Housing Development Finance Corp., Ltd. 236,132 12,112
ICICI Ltd. - New 20 --@
(a)Sundaram Finance Ltd. 119,800 409
(a)UTI Mastergain 209,100 44
UTI-MasterShares Ltd. 5,400 1
-------------
12,879
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FOOD & HOUSEHOLD PRODUCTS (0.8%)
Smithkline Beecham Consumer Health Care Ltd. 208,420 U.S.$ 2,579
-------------
- --------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (0.1%)
Paper Products Ltd. - New 299,900 374
-------------
- --------------------------------------------------------------------------------
HEALTH & PERSONAL CARE (10.7%)
Cheminor Drugs Ltd. 243,650 823
Cipla Ltd. 318,050 6,431
Clariant (India) Ltd. 67,000 434
(a)Dr. Reddy's Laboratories Ltd. 299,600 3,425
E. Merck (India) Ltd. 406,275 3,542
Hoechst Marion Roussel India Ltd. 585,200 5,660
Lakme Ltd. 675 1
Marico Industries Ltd. 283,200 2,354
Pfizer Ltd. 100 2
Smithkline Beecham Pharmaceuticals (India) Ltd. 574,690 5,981
Sun Pharmaceutical Industries Ltd. 435,700 2,797
(a)TTK Biomed Ltd. 143,700 25
Unichem Labs Ltd. 162,700 728
Wyeth Lederle Ltd. 97,450 1,412
-------------
33,615
-------------
- --------------------------------------------------------------------------------
HEALTHCARE SERVICE (0.8%)
Glaxo India Ltd. 177,950 2,577
-------------
- --------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS (0.6%)
Carborundum Universal Ltd. 493,300 837
Chicago Pneumatic India Ltd. 324,940 538
(a,b)Rane Madras Ltd. 195,700 622
-------------
1,997
-------------
- --------------------------------------------------------------------------------
LEISURE & TOURISM (0.5%)
EIH Ltd. 235,400 1,302
ITC Hotels Ltd. 400 1
TVS Suzuki Ltd. 10,000 124
-------------
1,427
-------------
- --------------------------------------------------------------------------------
MACHINERY & ENGINEERING (2.5%)
Advani-Oerlikon Ltd. 27 --@
Cummins India Ltd. 398,440 2,885
Elgi Equipments Ltd. 107,850 483
Esab India Ltd. 564,850 1,005
Kabra Extrusion Technik Ltd. 152,600 54
Lakshmi Machine Works Ltd. 19,268 817
(a)Lakshmi Synthetic Machinery Ltd. 152,400 43
Praj Industries Ltd. 221,600 81
Revathi-CP Equipment Ltd. 298,600 2,392
Thermax Ltd. 100 --@
-------------
7,760
-------------
- --------------------------------------------------------------------------------
MANUFACTURING (0.2%)
Asahi India Safety Glass Ltd. 152,300 U.S.$ 699
-------------
- --------------------------------------------------------------------------------
METALS -- STEEL (0.0%)
Isibars Ltd. 349,600 68
-------------
- --------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES(1.2%)
Essel Packaging Ltd. 368,075 2,174
Titan Industries Ltd. 651,775 1,458
-------------
3,632
-------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (0.2%)
(a,b)Delta International 570,000 13
Larsen & Toubro Ltd. 60 --@
Rajapalayam Mills 17,100 644
-------------
657
-------------
- --------------------------------------------------------------------------------
RETAIL -- GENERAL (0.0%)
(a)Timex Watches Ltd. 600 --@
-------------
- --------------------------------------------------------------------------------
TEXTILES & APPAREL (2.4%)
(a)Bata India Ltd. 1,073,252 4,933
Coates of India Ltd. 238,150 409
(a)J.K. Synthetics Ltd. 5,873 --@
Madura Coats Ltd. 379,550 327
Mahavir Spinning Mills Ltd. 491,000 590
Maral Overseas Ltd. 650,500 578
(a)SRF Ltd. 665,119 157
Vardhaman Spinning & General Mills Ltd. 373,500 563
(a)Viral Syntex Ltd. 209,200 5
-------------
7,562
-------------
- --------------------------------------------------------------------------------
TRANSPORTATION -- RAIL (4.0%)
(b)Container Corp. of India Ltd. 2,216,500 12,484
-------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$295,537) 310,224
-------------
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES (0.1%)
- --------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.1%)
(b)Garware Plastics & Polyester Ltd.
16.00%, 5/1/05 (Cost U.S.$636) INR 277 375
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.5%)
Indian Rupee
(Cost U.S.$4,590) INR 195,301 U.S.$ 4,598
--------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost U.S.$300,763) 315,197
--------------
- -------------------------------------------------------------------------------
OTHER ASSETS (1.0%)
Receivable for Investments Sold U.S.$ 2,099
Foreign Withholding Tax Reclaim
Receivable 485
Dividends Receivable 481
Deferred Organization Cost 2
Other Assets 33 3,100
-------------- --------------
- --------------------------------------------------------------------------------
LIABILITIES (-1.2%)
Payable For:
Investments Purchased (1,619)
Bank Overdraft (756)
Investment Advisory Fees (246)
Custodian Fees (227)
Professional Fees (100)
Shareholder Reporting Expenses (76)
Directors' Fees and Expenses (31)
Administrative Fees (27)
Other Liabilities (514) (3,596)
-------------- --------------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 34,236,792, issued and
outstanding U.S.$0.01 par value
shares (100,000,000 shares authorized) U.S.$ 314,701
--------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 9.19
--------------
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 343
Capital Surplus 477,750
Accumulated Net Investment Loss (28)
Accumulated Net Realized Loss (177,771)
Unrealized Appreciation on Investments
and Foreign Currency Translations 14,407
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 314,701
--------------
- --------------------------------------------------------------------------------
</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.
December 31, 1998 exchange rate -- Indian Rupee (INR) 42.470 = U.S. $1.00.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 4,679
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
- ---------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,858
- ---------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,431
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980
Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sub-Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Transfer Agent Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
- ---------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,239
- ---------------------------------------------------------------------------------------------------------
Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,381)
- ---------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,318)
Foreign Currency Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . (545)
- ---------------------------------------------------------------------------------------------------------
Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,863)
- ---------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,786
Appreciation on Foreign Currency Translations. . . . . . . . . . . . . . . . . . . 1,406
- ---------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . 83,192
- ---------------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation . . . . . . . . . 10,329
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . U.S.$ 8,948
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss. . . . . . . . . . . . . . . . . . . . . . . . U.S.$ (1,381) U.S.$ (2,577)
Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . (72,863) (49,684)
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . 83,192 53,284
- ---------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . . 8,948 1,023
- ---------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (1,470,300 and 0 shares, respectively). . . . (9,693) --
- ---------------------------------------------------------------------------------------------------------
Total Increase (Decrease). . . . . . . . . . . . . . . . . . . . . (745) 1,023
Net Assets:
Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . 315,446 314,423
- ---------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss
of U.S.$28 and U.S.$214, respectively) . . . . . . . . . . . . . . U.S.$ 314,701 U.S.$ 315,446
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
SELECTED PER SHARE DATA AND ------------------------------------------------------------- FEBRUARY 25, 1994* to
RATIOS: 1998 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) . . . . . . . . . . (0.04) (0.07) (0.08) (0.16) 0.04
Net Realized and Unrealized Gain (Loss) on
Investments. . . . . . . . . . . . . . . . . . 0.31 0.09 (0.02) (4.92) 0.05
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations . . . . . . 0.27 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)
- ------------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Shares Repurchased . . . 0.09 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . U.S.$ 9.19 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.$ 6.75 U.S.$ 8.38 U.S.$ 9.50 U.S.$ 9.13 U.S.$ 11.25
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value . . . . . . . . . . . . . . . . . (19.40)% (11.84)% 4.11% (18.89)% (19.01)%
Net Asset Value (1). . . . . . . . . . . . . . 4.08% 0.23% (1.12)% (36.31)% 0.72%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS). . . . . . U.S.$ 314,701 U.S.$ 315,446 U.S.$ 314,423 U.S.$ 318,045 U.S.$ 499,481
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets. . . . . 1.97% 2.06% 2.10% 3.16% 1.61%**
Ratio of Net Investment Income (Loss) to
Average Net Assets . . . . . . . . . . . . . . (0.44)% (0.70)% (0.85)% (1.48)% 0.33%**
Portfolio Turnover Rate. . . . . . . . . . . . . 24% 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 prices 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,
1998 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, 1999.
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.
10
<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 may use derivatives to achieve its investment objectives. The Fund may
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 may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments and their associated risks
that the Fund may 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
11
<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-dividend 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 Dean Witter Investment 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.
Multiconsult, Ltd., whose registered office is in Mauritius, provides
sub-administrative services to the Fund, in-
12
<PAGE>
cluding maintaining certain Fund records and preparing certain periodic
filings, under an agreement whereby Multiconsult is paid a fee of $22,000 per
annum.
D. The Chase Manhattan Bank and its affiliates serve as custodian for the
Fund. The Fund's assets held outside the United States have been held by Morgan
Stanley Trust Company ("MSTC"), which was an affiliate of the Adviser prior to
October 1, 1998. On October 1, 1998, MSTC was acquired by the Chase Manhattan
Bank. Custody fees are payable monthly based on assets held in custody,
investment purchase and sales activity and account maintenance fees, plus
reimbursement for certain out-of-pocket expenses. Through September 30,1998,
the Fund paid MSTC fees of approximately $1,584,000
E. During the year ended December 31, 1998, the Fund made purchases and sales
totaling $74,624,000 and $83,191,000 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, 1998, the U.S. Federal income tax cost basis of securities was
$297,848,000, and, accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $12,751,000, of which $101,856,000 related to
appreciated securities and $89,105,000 related to depreciated securities.
At December 31, 1998, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $176,096,000 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, $45,881,000 will expire on December 31, 2005
and $79,222,000 will expire on December 31, 2006. To the extent that capital
gains are offset, such gains will not be distributed to shareholders. For the
year ended December 31, 1998, the Fund intends to elect to defer to January 1,
1999, post-October currency losses of $19,000.
F. For the year ended December 31, 1998, the Fund incurred $69,000 of
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of
the Adviser.
G. In connection with its organization and initial public offering of shares,
the Fund incurred $65,000 and $1,164,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning February 25, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
H. 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 December 31, 1998, the Fund owned an
aggregate of approximately $3,535,000 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. The Fund has no intention of selling such
securities until they are transferred in the name of the Fund.
Future economic and political developments in India could adversely affect the
liquidity or value, or both, of securities in which the Fund is invested. In
addition, the Fund's ability to hedge its currency risk is limited and
accordingly, the Fund may be exposed to currency devaluation and other exchange
rate fluctuations.
I. Each Director of the Fund who is not an officer of the Fund or an
affiliated person as defined under the Investment Company Act of 1940, as
amended, may elect to participate in the Directors' Deferred Compensation Plan
(the "Plan"). Under the Plan, such Directors may elect to defer payment of a
percentage of their total fees earned as a Director of the Fund. These deferred
portions are treated, based on an election by the Director, as if they were
either invested in the Fund's shares or invested in U.S. Treasury Bills, as
defined under the Plan. The deferred fees payable, under the Plan, at December
31, 1998 totaled $30,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
J. In June, the Board amended the 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. In 1998, the 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.
K. On September 15, 1998, the Fund commenced a share repurchase program for
purposes of enhancing shareholder value and reducing the discount at which the
Fund's shares traded from their net asset value. From that date through December
31, 1998, the Fund repurchased 1,470,300 shares or 4.12% of its Common Stock at
an average price per share of $6.54 and an average discount of 25.53% from net
asset value per share. The Fund expects to 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.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------
To the Shareholders and Board of Directors of
Morgan Stanley India Investment Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley India Investment Fund, Inc. (the "Fund") at December 31, 1998,
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 four 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 8, 1999
14
<PAGE>
YEAR 2000 DISCLOSURE (UNAUDITED):
The investment advisory services provided to the Fund by the Adviser depend on
the smooth operation of its computer systems. Many computer and software systems
in use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser has been actively working on necessary changes to
its own computer systems to deal with the year 2000 problem and expects that its
systems will be adapted before that date. There can be no assurance, however,
that the Adviser will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. The Adviser is monitoring their
remedial efforts, but, there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
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
16
