SEMI-ANNUAL REPORT
JUNE 30,2002
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
DIRECTORS AND OFFICERS
BARTON M. BIGGS MARIE JOSEPH RAYMOND
CHAIRMAN OF THE LAMUSSE
BOARD OF DIRECTORS DIRECTOR
RONALD E. ROBISON FERGUS REID
PRESIDENT AND DIRECTOR DIRECTOR
GAETAN BOUIC II STEFANIE V. CHANG
DIRECTOR VICE PRESIDENT
JOHN S.Y. CHU LORRAINE TRUTEN
DIRECTOR VICE PRESIDENT
CLIFFORD D'SOUZA JAMES W. GARRETT [MORGAN STANLEY LOGO]
DIRECTOR TREASURER
GERARD E. JONES MARY E. MULLIN
DIRECTOR SECRETARY
NILESH JOSHI BELINDA A. BRADY MORGAN STANLEY INDIA INVESTMENT
DIRECTOR ASSISTANT TREASURER FUND, INC.
INVESTMENT ADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
ADMINISTRATOR
JPMORGAN CHASE BANK
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
CUSTODIAN
JPMORGAN CHASE BANK
3 CHASE METROTECH CENTER
BROOKLYN, NEW YORK 11245
STOCKHOLDER SERVICING AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
59 MAIDEN LANE
NEW YORK, NEW YORK 10030
(800) 278-4353
LEGAL COUNSEL
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
INDEPENDENT AUDITOR
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
FOR ADDITIONAL FUND INFORMATION, INCLUDING
THE FUND'S NET ASSET VALUE PER SHARE AND
INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE FUND'S PORTFOLIO, PLEASE MORGAN STANLEY
CALL 1-800-221-6726 OR VISIT OUR WEBSITE INVESTMENT MANAGEMENT INC.
AT www.morganstanley.com/im. INVESTMENT ADVISER
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
OVERVIEW
LETTER TO STOCKHOLDERS
For the six months ended June 30, 2002, the Morgan Stanley India Investment
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of 11.64% compared to 4.59% for the U.S. dollar adjusted Bombay Stock Exchange
(BSE) National Index (the "Index"). On June 30, 2002, the closing price of the
Fund's shares on the New York Stock Exchange was $9.24, representing a 21.3%
discount to the Fund's net asset value per share.
MARKET REVIEW
The past few months were once again a reminder of what a potent negative mix an
unfavorable global environment for equities and adverse local developments can
be for the Indian stock market. The market was left to alternate between
concerns of a possible military conflict and the growing international
disenchantment with equities. Yet there were the first signs that the trend of
systematic underperformance of the Indian equity market was beginning to exhaust
itself. Since the start of the global bear market in equities, dating back to
March 2000, the Indian market has consistently underperformed its emerging
market peers. The poor relative performance was primarily due to excessive
speculative mania being washed out, a series of negative events (ranging from
political to financial) constantly playing out and the slowdown in the economy.
The pattern of an adverse headline grabbing news event out of India every other
month has left the investor worried about event risks in the country.
Indeed, there is no obvious sign of a change in trend regarding event risks and
the threat of a war further raised the India risk premium. However, trends don't
last forever and there is a limit to the de-rating process. There just might be
a message from the market given the very recent resilience. For example, the
tensions in the sub-continent in May were cited as one of the main reasons for
weakness in the global financial markets. In these circumstances, the Indian
market would have ordinarily been expected to underperform. Instead, the market
just moved in line with other emerging markets that in turn were negatively
impacted by troubles in the U.S. Then by the end of the quarter, when global
equity investors were truly capitulating, the Indian market fell as well but by
a far less margin.
Although it has been a very difficult past twelve months for equity investing,
the Fund has managed to generate meaningful absolute returns. The Fund stayed
clear of the speculative craze and stuck to a disciplined task of identifying
sectors and stocks with growth potential. At times this required being early, as
in our overweight in commodities, but eventually such positions paid off.
Similarly, we are now orienting the Fund towards companies that might benefit
from a cyclical rebound in the economy while sticking to our basic model of
seeking to buy high management quality, underowned and mid to large cap stocks.
MARKET OUTLOOK
Of course, these are still early days and maybe this is a lull before another
(event risk related) storm. But it's hard to not take encouragement from such
few signs. To be sure, the bigger test will come if and when global equities
begin a recovery process. It's one thing to hold up on the downside and quite
another to outperform on the upside. Also, the Indian investor, with little
freedom to invest overseas is interested in generating absolute returns and
would want to see India participate in any revival. For this, India needs to
further accelerate the reform program rather than just wait to rise and fall
with the global tide. The conditions are falling into place for potential
absolute returns to be generated in Indian equities, but India needs to be
pro-active on the policy front to fully capitalize on that situation.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
President and Director
July 2002
2
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30,2002
INVESTMENT SUMMARY
Historical Information (Unaudited)
TOTAL RETURN (%)
----------------------------------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3)
----------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
--------------------------------------------------------------------------------------------------------------------------
Year to Date 6.97% -- 11.64% -- 4.59% --
One Year 13.18 13.18% 14.79 14.79% (2.53) (2.53)%
Five Year (7.81) (1.61) 33.63 5.97 (33.83) (7.93)
Since Inception* (14.13) (1.81) 9.10 1.05 (47.67) (7.47)
Past performance is not predictive of future performance
[CHART]
MORGAN STANLEY INDIA BOMBAY STOCK EXCHANGE
INVESTMENT FUND, INC.(2) (BSE) NATIONAL INDEX(3)
1994 0.72% -7.88%
1995 -36.31% -31.53%
1996 -1.12% -6.49%
1997 0.23% 6.43%
1998 4.08% -20.98%
1999 145.81% 88.41%
2000 -29.68% -27.73%
2001 -14.52% -25.82%
Six Months Ended
June 30, 2002 11.64% 4.59%
Returns and Per Share Information
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-----------------------------------------------------------------------------------------------
1994* 1995 1996 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $ 13.99 $ 8.91 $ 8.81 $ 8.83 $ 9.19 $ 22.59 $ 13.92 $ 10.53 $ 11.74
-----------------------------------------------------------------------------------------------------------------------------
Market Value Per Share $ 11.25 $ 9.13 $ 9.50 $ 8.38 $ 6.75 $ 16.50 $ 11.06 $ 8.65 $ 9.24
-----------------------------------------------------------------------------------------------------------------------------
Premium/(Discount) (19.6)% 2.5% 7.8% (5.1)% (26.6)% (27.0)% (20.5)% (17.9)% (21.3)%
-----------------------------------------------------------------------------------------------------------------------------
Income Dividends -- -- -- -- -- -- -- $ 0.23 $ 0.01
-----------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ 0.17 -- -- -- -- -- $ 1.60 $ 0.84 --
-----------------------------------------------------------------------------------------------------------------------------
Fund Total Return(2) 0.72% (36.31)% (1.12)% 0.23% 4.08% 145.81% (29.68)% (14.52)% 11.64%
-----------------------------------------------------------------------------------------------------------------------------
Index Total Return(3) (7.88)% (31.53)% (6.49)% 6.43% (20.98)% 88.41% (27.73)% (25.82)% 4.59%
-----------------------------------------------------------------------------------------------------------------------------
(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
stockholder'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 of 100 companies expressed in U.S. dollar terms.
* The Fund commenced operations on February 25, 1994.
FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS
AND CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL
SUPERVISION AND REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET
VOLATILITY AND POLITICAL INSTABILITY.
3
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30,2002 (UNAUDITED)
PORTFOLIO SUMMARY
Allocation of Total Investments
[CHART]
---------------------------------
Equity Securities 95.9%
Short-Term Investments 4.1
---------------------------------
Industries
[CHART]
----------------------------------------
IT Consulting & Services 12.4%
Banks 9.9
Automobiles 9.9
Pharmaceuticals 8.6
Metals & Mining 7.6
Oil & Gas 5.9
Road & Rail 5.7
Household Products 5.1
Chemicals 4.2
Diversified Telecommunication
Services 3.7
Other 27.0
----------------------------------------
Ten Largest Holdings*
PERCENT OF
NET ASSETS
---------------------------------------------------
1. Hero Honda Motors Ltd. 7.9%
2. State Bank of India Ltd. 6.7
3. Infosys Technologies Ltd. 5.9
4. Container Corporation of India Ltd. 5.7
5. Wipro Ltd. 4.9
6. Housing Development Finance Corp., Ltd. 3.4
7. HDFC Bank Ltd. 3.3
8. Manhanager Telephone Nigam Ltd. 3.2
9. ITC Ltd. 3.1
10. Gujarat Ambuja Cements Ltd. 3.1
----
47.2%
====
* Excludes Short-Term Investments
4
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
------------------------------------------------------------------------
COMMON STOCKS (96.0%)
(UNLESS OTHERWISE NOTED)
========================================================================
AUTO COMPONENTS (0.0%)
Apollo Tyres Ltd. 2,075 $ 5
========================================================================
AUTOMOBILES (9.9%)
Hero Honda Motors Ltd. 2,386,324 15,062
Patheja Forgings & Auto Parts Ltd. 450,000 (a) --@
Tata Engineering & Locomotive Co., Ltd. 1,184,725 (b) 3,765
------------------------------------------------------------------------
18,827
========================================================================
BANKS (9.9%)
HDFC Bank Ltd. 1,043,124 4,304
HDFC Bank Ltd. ADR 146,700 (b) 1,892
State Bank of India Ltd. 2,513,516 12,661
------------------------------------------------------------------------
18,857
========================================================================
BIOTECHNOLOGY (0.3%)
Shantha Biotechnics Pvt. Ltd. 500,000 (a) 563
========================================================================
CHEMICALS (4.2%)
Asian Paints (India) Ltd. 338,584 2,247
Aventis Cropscience India Ltd. 44,751 163
ICI (India) Ltd. 25,000 48
Indo Gulf Corp., Ltd. 1,577,190 1,856
Reliance Industries Ltd. 663,000 3,657
------------------------------------------------------------------------
7,971
========================================================================
COMMERCIAL SERVICES & SUPPLIES (0.4%)
Xerox Modicorp Ltd. 718,225 (a,b) 735
========================================================================
CONSTRUCTION MATERIALS (3.1%)
Gujarat Ambuja Cements Ltd. 1,116,467 4,664
Gujarat Ambuja Cements Ltd. GDR 305,000 1,235
------------------------------------------------------------------------
5,899
========================================================================
DIVERSIFIED FINANCIALS (3.4%)
Housing Development Finance Corp., Ltd. 484,876 6,463
========================================================================
DIVERSIFIED TELECOMMUNICATION SERVICES (3.7%)
Bharti Tele-Ventures Ltd. 1,330,000 (b) 924
Mahanagar Telephone Nigam Ltd. 1,912,831 5,573
Mahanagar Telephone Nigam Ltd. ADR 90,000 (b) 529
------------------------------------------------------------------------
7,026
========================================================================
ELECTRIC UTILITIES (1.6%)
Tata Power Co., Ltd. 1,173,040 3,126
========================================================================
ELECTRICAL EQUIPMENT (3.7%)
Asea Brown Boveri, Ltd. 398,026 2,189
Bharat Heavy Electricals Ltd. 1,310,184 4,763
------------------------------------------------------------------------
6,952
========================================================================
ENERGY EQUIPMENT & SERVICES (1.0%)
Oil and Natural Gas Corp., Ltd. 279,050 1,859
========================================================================
FOOD PRODUCTS (3.4%)
Britannia Industries Ltd. 185,838 1,955
Nestle India Ltd. 148,517 1,565
SmithKline Beecham Consumer
Healthcare Ltd. 378,427 2,867
------------------------------------------------------------------------
6,387
========================================================================
HOUSEHOLD DURABLES (0.3%)
Samtel Colour Ltd. 559,300 526
========================================================================
HOUSEHOLD PRODUCTS (5.1%)
Colgate-Palmolive (India) Ltd. 975,743 2,814
Hindustan Lever Ltd. 1,308,847 5,179
Reckitt Benckiser (India) Ltd. 346,971 1,665
------------------------------------------------------------------------
9,658
========================================================================
INTERNET SOFTWARE & SERVICES (0.0%)
India Info.com pcl 532,875 (a) --@
========================================================================
IT CONSULTING & SERVICES (12.4%)
HCL Technologies Ltd. 666,494 3,056
Infosys Technologies Ltd. 166,180 11,172
Wipro Ltd. 181,697 5,512
Wipro Ltd. ADR 125,710 3,768
------------------------------------------------------------------------
23,508
========================================================================
MACHINERY (1.5%)
Cummins India Ltd. 1,478,725 1,749
Lakshmi Synthetic
Machinery Manufacturers Ltd. 137,700 (a,b) 17
Punjab Tractors Ltd. 225,619 753
Revathi-CP Equipment Ltd. 107,915 (b) 418
------------------------------------------------------------------------
2,937
========================================================================
MEDIA (0.4%)
New Delhi Television Ltd. 333,300 (a) 691
========================================================================
METALS & MINING (7.6%)
Hindalco Industries Ltd. 281,506 4,094
National Aluminum Co., Ltd. 1,325,876 2,640
Steel Authority of India Ltd. 17,007,984 (b) 4,282
Tata Iron & Steel Co., Ltd. 1,206,400 3,469
------------------------------------------------------------------------
14,485
========================================================================
The accompanying notes are an integral part of the financial statements.
5
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
------------------------------------------------------------------------
OIL & GAS (5.9%)
Bharat Petroleum Corp., Ltd. 593,788 $ 3,245
Hindustan Petroleum Corp., Ltd. 779,211 4,229
Reliance Petroleum Ltd. 7,551,654 3,717
------------------------------------------------------------------------
11,191
========================================================================
PHARMACEUTICALS (8.6%)
Cipla Ltd. 165,656 3,190
Dabur India Ltd. 2,256,164 2,362
Dr. Reddy's Laboratories Ltd. 218,000 4,219
Dr. Reddy's Laboratories Ltd. ADR 28,800 559
Ranbaxy Laboratories Ltd. 333,500 6,021
------------------------------------------------------------------------
16,351
========================================================================
ROAD & RAIL (5.7%)
Container Corporation of India Ltd. 1,771,112 10,809
========================================================================
SPECIALTY RETAIL (0.8%)
Titan Industries Ltd. 954,074 1,526
========================================================================
TOBACCO (3.1%)
ITC Ltd. 452,356 5,924
========================================================================
TOTAL COMMON STOCKS
(Cost $187,254) 182,276
========================================================================
FACE
AMOUNT
(000)
------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.0%)
========================================================================
REPURCHASE AGREEMENT (4.0%)
J.P. Morgan Securities Inc., 1.95%,
dated 6/28/02, due 7/01/02
(Cost $7,584) $ 7,584 (c) 7,584
========================================================================
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (0.1%)
========================================================================
Indian Rupee
(Cost $255) INR 12,477 255
========================================================================
VALUE
(000)
------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Cost $195,093) $ 190,115
========================================================================
VALUE
(000)
------------------------------------------------------------------------
OTHER ASSETS (0.4%)
Tax Reclaim Receivable $ 336
Dividends Receivable 321
Interest Receivable 1
Other 43 701
========================================================================
LIABILITIES (-0.5%)
Payable For:
Dividends Declared (214)
Investment Advisory Fees (172)
Custodian Fees (168)
Directors' Fees and Expenses (84)
Professional Fees (77)
Administrative Fees (39)
Stockholder Reporting Expenses (18)
Other Liabilities (104) (876)
========================================================================
NET ASSETS (100%)
Applicable to 16,182,983, issued and
outstanding $0.01 par value shares
(100,000,000 shares authorized) 189,940
========================================================================
NET ASSET VALUE PER SHARE $ 11.74
========================================================================
AT JUNE 30, 2002, NET ASSETS CONSISTED OF:
Common Stock $ 161
Paid-in Capital 277,581
Undistributed Net Investment Income
(Loss) (4,022)
Accumulated Net Realized Gain (Loss) (78,394)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations (5,386)
========================================================================
TOTAL NET ASSETS $ 189,940
========================================================================
(a) -- Securities valued at fair value - see note A-1 to financial statements.
At June 30, 2002, the Portfolio held $2,006,000 of fair-valued
securities, representing 1.1% of net assets.
(b) -- Non-income producing
(c) -- The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of this
statement of net assets. The investment in the repurchase agreement is
through participation in a joint account with affiliated funds.
@ -- Value is less than $500.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
INR -- Indian Rupee
The accompanying notes are an integral part of the financial statements.
6
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
FINANCIAL STATEMENTS
SIX MONTHS ENDED
JUNE 30, 2002
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
-------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 886
Interest 99
=============================================================================================================
TOTAL INCOME 985
=============================================================================================================
EXPENSES
Investment Advisory Fees 1,179
Custodian Fees 206
Administrative Fees 142
Professional Fees 84
Transfer Agent Fees 21
Directors' Fees and Expenses 23
Stockholder Reporting Expenses 10
Other Expenses 62
=============================================================================================================
TOTAL EXPENSES 1,727
=============================================================================================================
NET INVESTMENT INCOME (LOSS) (742)
=============================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments 120
Foreign Currency Transactions (152)
=============================================================================================================
NET REALIZED GAIN (LOSS) (32)
=============================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 21,397
Foreign Currency Translations 11
=============================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 21,408
=============================================================================================================
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 21,376
=============================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 20,634
=============================================================================================================
SIX MONTHS ENDED
JUNE 30, 2002 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2001
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss) $ (742) $ 1,513
Net Realized Gain (Loss) (32) (76,770)
Change in Unrealized Appreciation (Depreciation) 21,408 7,247
=============================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 20,634 (68,010)
=============================================================================================================
Distributions from and/or in excess of:
Net Investment Income (214) (4,399)
Net Realized Gain -- (16,427)
=============================================================================================================
TOTAL DISTRIBUTIONS (214) (20,826)
=============================================================================================================
Capital Share Transactions:
Repurchase of Shares (3,282,021 shares and 8,559,288 shares,
respectively) (35,499) (96,335)
=============================================================================================================
TOTAL INCREASE (DECREASE) (15,079) (185,171)
=============================================================================================================
Net Assets:
Beginning of Period 205,019 390,190
-------------------------------------------------------------------------------------------------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
OF $(4,022) AND $(3,066), RESPECTIVELY) $ 189,940 $ 205,019
=============================================================================================================
The accompanying notes are an integral part of the financial statements.
7
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2002 ---------------------------------------------------------------------
(UNAUDITED) 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 13.92 $ 22.59 $ 9.19 $ 8.83 $ 8.81
------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (0.08) 0.10 0.02 (0.08) (0.04) (0.07)
Net Realized and Unrealized Gain (Loss)
on Investments 1.27 (2.43) (7.93) 13.33 0.31 0.09
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.19 (2.33) (7.91) 13.25 0.27 0.02
------------------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in excess of:
Net Investment Income (0.01) (0.23) -- -- -- --
Net Realized Gain -- (0.84) (1.60) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.01) (1.07) (1.60) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Anti--Dilutive Effect of Shares Repurchased 0.03 0.01 0.84 0.15 0.09
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.74 $ 10.53 $ 13.92 $ 22.59 $ 9.19 $ 8.83
====================================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD $ 9.24 $ 8.65 $ 11.06 $ 16.50 $ 6.75 $ 8.38
====================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 6.97%+ (11.68)% (23.49)% 144.44% (19.40)% (11.84)%
Net Asset Value (1) 11.64%+ (14.52)% (29.68)% 145.81% 4.08% 0.23%
====================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) $ 189,940 $ 205,019 $ 390,190 $ 736,343 $ 314,701 $ 315,446
------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.61%* 1.77% 1.48% 1.59% 1.97% 2.06%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.69)%* 0.60% 0.12% (0.55)% (0.44)% (0.70)%
Portfolio Turnover Rate 11%+ 56% 44% 34% 24% 25%
------------------------------------------------------------------------------------------------------------------------------------
+ Not annualized
* 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
stockholder'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.
8
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
The Morgan Stanley India Investment Fund, Inc. (the "Fund") was
incorporated in Maryland on December 22,1993, and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is long-term
capital appreciation through investments primarily in equity securities.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles. 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 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, if any), and those securities
for which it is inappropriate to determine prices in accordance with the
aforementioned procedures, are valued at fair value as determined in good
faith under procedures approved by the Board of Directors. 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 rate of capital gains tax in India is 10% for long-term investments and
30% for short-term investments. 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. The Fund is subject to and
accrues Indian withholding tax on interest earned on Indian securities at
the rate of 20%.
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%. The
Fund has elected to pay tax at the rate of 1% on its net investment income.
For the six months ended June 30, 2002, no provision for Mauritius taxes is
considered necessary as a result of cumulative 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: The Fund may enter into repurchase agreements
under which the Fund lends excess cash and takes possession of securities
with an agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
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 counterparty to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
The Fund, along with other affiliated investment companies, may utilize a
joint trading account for the purpose of entering into one or more
repurchase agreements.
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.
9
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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) due to securities
transactions 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) on foreign
currency translations for the period is reflected in the Statement of
Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision an regulation of
foreign securities markets and the possibility of political or economic
instability.
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 structure 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 that the Fund may utilize
and their associated risks:
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 counter-parties 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 assets
as segregated on the Fund's records. 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
10
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers
an 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 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 organize 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.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
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 Structured Security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in Structure 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: Securities and other derivative instruments that
may be purchased or sold by the Fund may 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.
During the six months ended June 30, 2002, the Fund's investments in derivative
instruments described above included foreign currency exchange contracts only.
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, if any. Distributions to stockholders are
recorded on the ex-dividend date.
The amount and character of income and capital gain distributions to be
paid by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
11
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid-in capital.
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. ADVISER: Morgan Stanley 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. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate
J.P. Morgan Investor 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, 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. CUSTODIAN: JPMorgan Chase Bank serves as custodian for the Fund. 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.
E. OTHER: During the six months ended June 30, 2002, the Fund made purchases
and sales totaling $21,765,000 and $58,376,000, respectively, of investment
securities other than long-term U.S. Government securities and short-term
investments. There were no purchases or sales of long-term U.S. Government
securities. At June 30, 2002, the U.S. Federal income tax cost basis of
investments (excluding foreign currency) was $194,838,000 and, accordingly, net
unrealized depreciation for U.S. Federal income tax purposes was $4,978,000 of
which $28,967,000 related to appreciated securities and $33,945,000 related to
depreciated securities. At December 31, 2001, the Fund had a capital loss
carryforward for U.S. Federal income tax purposes of approximately $56,001,000
available to offset future capital gains, all of which will expire on December
31, 2009. To the extent that capital gains are offset, such gains will not be
distributed to the stockholders. Net capital and currency losses incurred after
October 31, and within the taxable year are deemed to arise on the first
business day of the Fund's next taxable year. For year ended December 31, 2001,
the Fund deferred to January 1, 2002, for U.S. Federal income tax purposes,
post-October passive foreign investment company losses of $586,000, post-October
currency losses of $15,000 and post-October capital losses of $17,629,000.
For the six months ended June 30, 2002, the Fund incurred $35,000 of brokerage
commissions with Morgan Stanley & Co., an affiliate of the Adviser.
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, in certain
cases, only through physical delivery, which may cause the Fund to experience
delays or other difficulties in effecting transactions. At June 30, 2002,
approximately $1,431,000 of Fund securities were either out for transfer in the
name of the Fund, were under objection for transfer in the name of the Fund,
were out for dematerialization, 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.
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. At June 30, 2002, the deferred fees payable under the Plan totaled $67,000
and are included in Payable for Directors' Fees and Expenses on the Statement of
Net Assets.
On August 10, 1998, the Fund commenced a share repurchase program for purposes
of enhancing stockholder value and reducing the
12
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
discount at which the Fund's shares traded from their net asset value. During
the six months ended June 30, 2002, the Fund repurchased 426,200 of its shares
at an average discount of 16.61% from net asset value per share. From the
inception of the program through June 30, 2002, the Fund has repurchased
8,261,000 of its shares at an average discount of 30.26% 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 of Directors.
On December 13, 2001, with the aim of enhancing stockholder value and reducing
the discount at which the Fund's shares have been trading, the Board of
Directors of the Fund authorized the Fund to conduct a tender offer during the
second quarter of 2002 for up to 15% of the Fund's outstanding shares, at a
price equal to 95% of the Fund's net asset value per share ("NAV") on the last
day of the tender period, or such later date if the offer was extended.
On May 17, 2002, the Fund completed the tender offer. The Fund accepted
2,855,821 shares for payment which represented 15% of the Fund's then
outstanding shares. Final payment was made on May 28, 2002 at $11.02 per share,
representing 95% of the NAV per share on May 17, 2002.
On June 7, 2002, the Board of Directors declared a distribution of $0.0132 per
share, derived from net investment income, payable on July 9, 2002, to
stockholders of record on June 28, 2002.
F. SUPPLEMENTAL PROXY INFORMATION:
The Annual Meeting of the Stockholders of the Fund was held on June 6, 2002. The
following is a summary of the proposal presented and the total number of shares
voted:
PROPOSAL:
1. To elect the following Directors:
VOTES IN VOTES
FAVOR OF AGAINST
-----------------------------------------------------------
Ronald E. Robison 12,752,235 149,302
Michael Nugent 12,752,235 149,302
Joseph J. Kearns 12,752,235 149,302
Fergus Reid 12,752,235 149,302
13
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each
stockholder will be deemed to have elected, unless American Stock Transfer &
Trust Company (the "Plan Agent") is otherwise instructed by the stockholder 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. 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
stockholders 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 stockholders, 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
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Stockholders 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 stockholders 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
59 Maiden Lane
New York, NY 10030
1-800-278-4353
14