THIRD QUARTER REPORT
[MORGAN STANLEY LOGO]
Morgan Stanley India Investment Fund, Inc.
SEPTEMBER 30, 2001
MORGAN STANLEY
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
DIRECTORS AND OFFICERS
Barton M. Biggs Fergus Reid
CHAIRMAN OF THE BOARD OF DIRECTORS DIRECTOR
Ronald E. Robison Stefanie V. Chang
PRESIDENT AND DIRECTOR VICE PRESIDENT
Gaetan Bouic II Lorraine Truten
DIRECTOR VICE PRESIDENT
John S.Y. Chu Joseph P. Stadler
DIRECTOR VICE PRESIDENT AND TREASURER
Clifford D'Souza Mary E. Mullin
DIRECTOR SECRETARY
Gerard E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
Nilesh Joshi
DIRECTOR
Marie Joseph Raymond Lamussee
DIRECTOR
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
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
LEGAL COUNSEL
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
INDEPENDENT AUDITORS
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 call 1-800-221-6726 or visit our website at www.morganstanley.com/im.
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
OVERVIEW
LETTER TO SHAREHOLDERS
For the nine months ended September 30, 2001, the Morgan Stanley India
Investment Fund, Inc. (the "Fund") had a total return, based on net asset
value per share, of -26.67% compared to -36.99% for the U.S. dollar adjusted
Bombay Stock Exchange (BSE) National Index (the "Index"). For the period from
the Fund's commencement of operations on February 25, 1994 through September
30, 2001, the Fund's cumulative total return, based on net asset value per
share, was -16.13% compared to -57.46% for the Index. On September 30, 2001,
the closing price of the Fund's shares on the New York Stock Exchange was
$7.40, representing a 19.8% discount to the Fund's net asset value per share.
MARKET OVERVIEW
For the three months ended September 30, 2001, the Fund had a total return of
-11.76% compared to -20.85% for the Index. Capital preservation has been the
winning investment theme over the past year, and the events of the third quarter
once again re-emphasized the need for preserving capital as the global bear
market in equities intensified. The Indian market continued to key off global
(declining) trends. Given the severity of the falls, negative return for any
equity fund has generally been the norm over the past eighteen months. In such
an environment, our focus has generally been on outperforming the market, as
represented by the benchmarks, and thereby preserving some capital. In this
regard, the third quarter was significant given the degree of outperformance for
the Fund relative to its benchmark.
The outperformance was largely generated by a disciplined stock selection
strategy that assigns a major weight to management quality and sector dynamics.
Bear markets are about a flight to quality and in emerging markets quality often
means companies with high standards of corporate governance. Our investment
framework involves taking an active sector view and then restricting our sector
bets to companies that fit the strict quality criteria. The sector view in turn
is derived from both frequent company visits and global or country-specific
macroeconomic insights.
As we were less sanguine than the consensus on global economic growth prospects,
the Fund remained underweight sectors more dependent on global growth (e.g.
information technology and commodities). Financials have been one of our largest
sector over-weights, as interest rates continued to decline and, on a more
structural basis, we think the representation of financials in the Indian market
is too low in comparison with other emerging markets and so only set to grow.
MARKET OUTLOOK
In early 2000, extreme bullish sentiment towards equities in general, and
sectors like technology in particular, provided us a good warning of too much
optimism being built into stock prices. Similarly, we are now on the lookout for
signs that sentiment towards equities may be reaching a point of excessive
pessimism. While news-flow shows little signs of turning for the better, it is
important to remember that the equity market typically begins to rally well
before the economic and the earnings cycle turns. We are accordingly prepared to
look at opportunities keeping in mind this historical perspective.
OTHER DEVELOPMENTS
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. For the nine months ended
September 30, 2001, there were no repurchases of Fund shares. From the inception
of the program through September 30, 2001, the Fund has repurchased 7,682,800 of
its shares at an average discount of 31.03% 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.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
PRESIDENT AND DIRECTOR
October 2001
------------
ON OCTOBER 18, 2001, THE FUND'S BY-LAWS WERE AMENDED TO CHANGE THE RETIREMENT
AGE FOR DIRECTORS TO 72 FROM 73. THE FUND ALSO ADOPTED A NON-FUNDAMENTAL POLICY
THAT, UNDER NORMAL CIRCUMSTANCES, AT LEAST 80% OF ITS ASSETS WILL BE INVESTED IN
EQUITY SECURITIES OF INDIAN ISSUERS.
2
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
SEPTEMBER 30, 2001 (UNAUDITED)
INVESTMENT SUMMARY
HISTORICAL INFORMATION
TOTAL RETURN(%)
----------------------------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3)
----------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- -------
Year to Date -26.02% -- -26.67% -- -36.99% --
One Year -9.98 -9.98% -24.01 -24.01% -39.16 -39.16%
Five Year 6.74 1.31 30.89 5.53 -32.33 -7.51
Since Inception* -32.76 -5.09 -16.13 -2.29 -57.46 -10.64
Past performance is not predictive of future performance.
[CHART]
RETURNS AND PER SHARE INFORMATION
YEAR ENDED DECEMBER 31, NINE MONTHS
-------------------------------------------------------------------------------- ENDED
SEPTEMBER 30,
1994* 1995 1996 1997 1998 1999 2000 2001
------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $13.99 $8.91 $8.81 $8.83 $9.19 $22.59 $13.92 $ 9.23
------------------------------------------------------------------------------------------------------------------------------
Market Value Per Share $11.25 $9.13 $9.50 $8.38 $6.75 $16.50 $11.06 $ 7.40
------------------------------------------------------------------------------------------------------------------------------
Premium/(Discount) -19.6% 2.5% 7.8% -5.1% -26.6% -27.0% -20.5% -19.8%
------------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $0.17 -- -- -- -- -- $ 1.60 $ 0.87
------------------------------------------------------------------------------------------------------------------------------
Fund Total Return(2) 0.72% -36.31% -1.12% 0.23% 4.08% 145.81% -29.68% -26.67%
------------------------------------------------------------------------------------------------------------------------------
Index Total Return(3) -7.88% -31.53% -6.49% 6.43% -20.98% 88.41% -27.73% -36.99%
------------------------------------------------------------------------------------------------------------------------------
(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, 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
PORTFOLIO SUMMARY
[CHART]
ALLOCATION OF TOTAL INVESTMENTS
Equity Securities 90.7%
Short-Term Investments 9.3
[CHART]
INDUSTRIES
Pharmaceuticals 10.9%
Automobiles 10.0
IT Consulting & Services 9.4
Banks 9.2
Diversified Financials 5.5
Food Products 4.7
Household Products 4.6
Road & Rail 4.3
Oil & Gas 4.0
Chemicals 3.6
Other 33.8
TEN LARGEST HOLDINGS*
PERCENT OF
NET ASSETS
---------------------------------------------------------------
1. Hero Honda Motors Ltd. 7.9%
2. Housing Development Finance Corp., Ltd. 5.5
3. HDFC Bank Ltd. 5.0
4. Infosys Technologies Ltd. 4.8
5. Container Corp. of India Ltd. 4.3
6. State Bank of India Ltd. 4.2
7. Wipro Ltd. 3.9
8. Cipla Ltd. 3.6
9. Mahanagar Telephone Nigam Ltd. 3.5
10. Gujarat Ambuja Cements Ltd. 2.9
----
45.6%
====
* Excludes short-term investments.
4
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
STATEMENT OF NET ASSETS
SEPTEMBER 30, 2001 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (91.6%)
(Unless otherwise noted)
==============================================================================
AUTO COMPONENTS(2.0%)
Apollo Tyres Ltd. 2,075 $ 2
Motor Industries Co., Ltd. 24,204 834
MRF Ltd. 138,230 1,387
Rane (Madras) Ltd. 95,700 44
Sundaram Fasteners Ltd. 421,280 1,409
------------------------------------------------------------------------------
3,676
==============================================================================
AUTOMOBILES (10.0%)
Hero Honda Motors Ltd. 3,691,740 14,369
Patheja Forgings & Auto Parts Ltd. 450,000 --@
Tata Engineering & Locomotive
Co., Ltd. 2,597,772 3,749
Tata Engineering & Locomotive
Co., Ltd. 1,621,464 --@
------------------------------------------------------------------------------
18,118
==============================================================================
BANKS (9.2%)
HDFC Bank Ltd. 1,497,624 6,814
HDFC Bank Ltd. ADR 168,700 2,328
State Bank of India Ltd. 2,198,603 7,593
------------------------------------------------------------------------------
16,735
==============================================================================
CHEMICALS (3.6%)
Asian Paints (India) Ltd. 463,584 2,625
Aventis Cropscience India Ltd. 441,867 788
ICI (India) Ltd. 25,000 30
Indo Gulf Corp., Ltd. 1,829,545 1,153
Reliance Industries Ltd. 340,000 1,889
------------------------------------------------------------------------------
6,485
==============================================================================
COMMERCIAL SERVICES & SUPPLIES (0.4%)
Modi Xerox Ltd. 718,225 751
------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (0.0%)
MRO-TEK Ltd. 179,625 46
------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (2.9%)
Gujarat Ambuja Cements Ltd. 1,313,062 4,094
Gujarat Ambuja Cements Ltd. GDR 355,000 1,074
------------------------------------------------------------------------------
5,168
==============================================================================
DIVERSIFIED FINANCIALS (5.5%)
Housing Development Finance
Corp., Ltd. 760,476 9,933
UTI Mastergain 1,600 --@
------------------------------------------------------------------------------
9,933
==============================================================================
DIVERSIFIED TELECOMMUNICATION SERVICES (3.5%)
Mahanagar Telephone Nigam Ltd. 2,132,831 5,730
Mahanagar Telephone Nigam Ltd.,
GDR 105,000 577
------------------------------------------------------------------------------
6,307
==============================================================================
ELECTRIC UTILITIES (2.8%)
BSES Ltd. 556,203 2,183
Tata Power Co., Ltd. 1,408,040 2,952
------------------------------------------------------------------------------
5,135
==============================================================================
ELECTRICAL EQUIPMENT (3.0%)
Asea Brown Boveri, Ltd. 197,735 816
Bharat Heavy Electricals Ltd. 1,682,226 4,203
Siemens India Ltd. 80,996 338
------------------------------------------------------------------------------
5,357
==============================================================================
FOOD PRODUCTS (4.7%)
Britannia Industries Ltd. 207,236 2,204
Nestle India Ltd. 141,824 1,585
SmithKline Beecham Consumer
Healthcare Ltd. 465,292 3,831
Tata Tea Ltd. 323,290 879
------------------------------------------------------------------------------
8,499
==============================================================================
HEALTH CARE (0.9%)
Shantha Biotechnics Pvt. Ltd. 500,000 1,567
------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE (0.4%)
Indian Hotels Co., Ltd. 271,487 720
------------------------------------------------------------------------------
HOUSEHOLD DURABLES (0.1%)
Samtel Colour Ltd. 559,300 184
------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (4.6%)
Colgate-Palmolive (India) Ltd. 1,016,386 3,339
Hindustan Lever Ltd. 724,842 3,151
Reckitt Benckiser (India) Ltd. 446,971 1,823
------------------------------------------------------------------------------
8,313
==============================================================================
INTERNET SOFTWARE & SERVICES (0.1%)
India-Info.com PCL 532,875 125
------------------------------------------------------------------------------
IT CONSULTING & SERVICES (9.4%)
Aztec Software and Technology
Services Ltd. 218,794 156
HCL Technologies Ltd. 406,554 1,103
Infosys Technologies Ltd. 173,645 8,631
Subex Systems Ltd. 297,732 166
Wipro Ltd. 188,197 4,150
Wipro Ltd. ADR 137,310 2,911
------------------------------------------------------------------------------
17,117
==============================================================================
5
VALUE
SHARES (000)
------------------------------------------------------------------------------
MACHINERY (2.6%)
Cummins India Ltd. 2,841,773 $ 2,970
Lakshmi Synthetic Machinery
Manufacturers Ltd. 137,700 14
Punjab Tractors Ltd. 264,862 744
Revathi-CP Equipment Ltd. 272,850 912
------------------------------------------------------------------------------
4,640
==============================================================================
MEDIA (1.3%)
New Dehli Television Ltd. 333,300 705
Zee Telefilms Ltd. 938,419 1,713
------------------------------------------------------------------------------
2,418
==============================================================================
METALS & MINING (2.3%)
Hindalco Industries Ltd. 134,135 1,428
National Aluminum Co., Ltd. 460,310 440
Steel Authority of India Ltd. 10,044,058 871
Tata Iron & Steel Co., Ltd. 996,000 1,448
------------------------------------------------------------------------------
4,187
==============================================================================
OIL & GAS (4.0%)
Bharat Petroleum Corp., Ltd. 581,286 1,947
Castrol (India) Ltd. 444,434 2,376
Hindustan Petroleum Corp., Ltd. 1,159,211 3,013
------------------------------------------------------------------------------
7,336
==============================================================================
PHARMACEUTICALS (10.9%)
Cipla Ltd. 274,058 6,436
Dabur (India) Ltd. 3,035,101 3,679
Dr. Reddy's Laboratories Ltd. 93,400 3,485
Dr. Reddy's Laboratories Ltd. ADR 41,100 914
E. Merck (India) Ltd. 182,599 1,008
Glenmark Pharmaceutical Ltd. 19,780 46
Hoechst Marion Roussel Ltd. 150,425 1,260
Lupin Ltd. 299,449 403
Novartis India Ltd. 206,068 868
Parke Davis (India) Ltd. 14,887 40
Ranbaxy Laboratories Ltd. 66,000 897
Strides Arcolab Ltd. 585,000 685
------------------------------------------------------------------------------
19,721
==============================================================================
ROAD & RAIL (4.3%)
Container Corp. of India Ltd. 2,860,978 7,773
------------------------------------------------------------------------------
SPECIALTY RETAIL (0.6%)
Titan Industries Ltd. 1,702,296 1,046
==============================================================================
TOBACCO (2.5%)
ITC Ltd. 345,741 $ 4,172
ITC Ltd. GDR 27,500 363
4,535
==============================================================================
TOTAL COMMON STOCKS
(Cost $242,750) 165,892
FACE
AMOUNT
(000)
------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (9.0%)
==============================================================================
REPURCHASE AGREEMENT (9.0%)
J.P. Morgan Chase Securities Inc.,
2.50%, dated 9/28/01, due
10/1/01
(Cost $16,322) 16,322(a) 16,322
==============================================================================
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (0.3%)
==============================================================================
Indian Rupee
(Cost $614) INR 29,380 614
==============================================================================
TOTAL INVESTMENTS (100.9%)
(Cost $259 ,686) 182,828
==============================================================================
AMOUNT
(000)
------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES (-0.9%)
Other Assets 1,205
Liabilities (2,917) (1,712)
==============================================================================
NET ASSETS (100%)
Applicable to 19,617,004, issued
and outstanding $ 0.01 par value
shares (100,000,000 shares
authorized) $ 181,116
==============================================================================
NET ASSET VALUE PER SHARE $ 9.23
==============================================================================
(a)-- 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.
ADR-- American Depositary Receipt
GDR - Global Depositary Receipt.
INR - Indian Rupee
@ - Value is less than $500.
==============================================================================
SEPTEMBER 30, 2001 EXCHANGE RATE:
------------------------------------------------------------------------------
INR Indian Rupee 47.850 = $1.00
6