[ANNOTATED FORM N-CSR FOR ANNUAL REPORTS]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file
number: 811-08238
-------------------------------------------------
Morgan Stanley India Investment Fund, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the America's 22nd Floor New York, NY 10020
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, 33rd Floor New York, New York 10020
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area
code: 1-800-221-6726
-----------------------------------
Date of fiscal year
end: 12/31
--------------------------------------------------------------
Date of reporting
period: 12/31
--------------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
The Fund's as annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows: [Provide annual report.]
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
DIRECTORS
Gaetan Bouic
Joseph J. Kearns
Hazareesing Ravindranath
Santosh Kumar
Marie Joseph Raymond
Lamusse
Fergus Reid
Ronald E. Robison
PRESIDENT AND DIRECTOR
OFFICERS
Stefanie V. Chang
VICE PRESIDENT
James W. Garrett
TREASURER
Michael J. Leary
ASSISTANT TREASURER
Mary E. Mullin
SECRETARY
INVESTMENT ADVISER
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
ADMINISTRATOR
JPMorgan Investor Services Company
73 Tremont Street
Boston, Massachusetts 02108
CUSTODIAN
JPMorgan Chase Bank
270 Park Avenue
New York, New York 10017
STOCKHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10030
1-(800) 278-4353
LEGAL COUNSEL
Clifford Chance US 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.
(C) 2004 Morgan Stanley
ANNUAL REPORT
DECEMBER 31, 2003
[MORGAN STANLEY LOGO]
MORGAN STANLEY
INDIA INVESTMENT FUND, INC.
MORGAN STANLEY
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
OVERVIEW
LETTER TO STOCKHOLDERS
PERFORMANCE
For the year ended December 31, 2003, the Morgan Stanley India Investment Fund,
Inc. (the "Fund") had a total return, based on net asset value per share of
93.15%, compared to 94.13% for the U.S. dollar adjusted Bombay Stock Exchange
(BSE) National Index (the "Index"). On December 31, 2003, the closing price of
the Fund's shares on the New York Stock Exchange was $26.55, representing a
15.7% premium to the Fund's net asset value per share.
FACTORS AFFECTING PERFORMANCE
- In 2003, Indian equity markets were among the best performing emerging
markets. Foreign institutional investor net inflows for 2003 at U.S.$6.6
billion were at a historic high.
- Compared to the Index, the Fund has its largest overweight in the power
sector, which reflects our positive bias towards reforms in this sector.
The overweight contributed positively to performance.
- The underweight in the energy sector, compared to the Index, detracted
from performance, as some of the upstream and downstream oil companies
closed out on their historical undervaluation gap, despite negative news
for the sector on privatization and subsidies.
- In terms of sector allocations, our underweight in the technology sector
and overweight in the financial sector also contributed positively to
performance.
MANAGEMENT STRATEGIES
- We continued in our effort to remain focused on buying companies with
sound business models that might benefit from an upturn in the underlying
economic sentiment.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
President and Director
January 2004
2
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
STATEMENT OF NET ASSETS
December 31, 2003
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------------
COMMON STOCKS (98.1%)
(UNLESS OTHERWISE NOTED)
AUTO COMPONENTS (0.0%)
Apollo Tyres Ltd. 2,075 $ 12
--------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT (1.1%)
Amtek Auto Ltd. 356,075 3,381
Motor Industries Co., Ltd. 1,976 700
Patheja Forgings & Auto Ltd. 450,000 (a)(b) --@
--------------------------------------------------------------------------------------
4,081
======================================================================================
AUTOMOBILES (7.5%)
Hero Honda Motors Ltd. 1,591,332 15,655
Tata Motors Ltd. 1,180,125 11,699
--------------------------------------------------------------------------------------
27,354
======================================================================================
BIOTECHNOLOGY (0.1%)
Shantha Biotechnics PCL 500,000 (b) 438
======================================================================================
CHEMICALS (1.5%)
Asian Paints (India) Ltd. 726,876 5,355
ICI (India) Ltd. 25,000 106
--------------------------------------------------------------------------------------
5,461
======================================================================================
COMMERCIAL BANKS (14.0%)
HDFC Bank Ltd. 257,279 2,067
HDFC Bank Ltd. ADR 135,300 4,132
Industrial Development Bank of India Ltd. 6,405,000 8,718
Punjab National Bank Ltd. 941,000 4,978
State Bank of India Ltd. 2,111,016 (b) 28,238
Union Bank of India Ltd. 2,755,000 3,095
--------------------------------------------------------------------------------------
51,228
======================================================================================
COMMERCIAL SERVICES & SUPPLIES (0.2%)
Xerox Modicorp Ltd. 718,225 (a)(b) 551
======================================================================================
CONSTRUCTION MATERIALS (3.2%)
Associated Cement Co., Ltd. 578,000 3,111
Grasim Industries Ltd. 337,000 7,415
Grasim Industries Ltd. GDR 58,000 1,279
--------------------------------------------------------------------------------------
11,805
======================================================================================
CONSUMER STAPLES (3.7%)
Colgate-Palmolive (India) Ltd. 913,388 3,196
Hindustan Lever Ltd. 2,296,445 10,303
--------------------------------------------------------------------------------------
13,499
======================================================================================
ELECTRIC UTILITIES (1.5%)
Neyveli Lignite Corp., Ltd. 3,733,481 5,335
======================================================================================
ELECTRICAL EQUIPMENT (9.7%)
ABB Ltd. 456,126 $ 6,736
Bharat Heavy Electricals Ltd. 1,976,848 22,008
Siemens (India) Ltd. 289,000 6,801
--------------------------------------------------------------------------------------
35,545
======================================================================================
ENERGY (3.2%)
Reliance Industries Ltd. 954,514 11,988
======================================================================================
FOOD PRODUCTS (2.0%)
GlaxoSmithKline Consumer Healthcare Ltd. 428,496 3,040
Nestle (India) Ltd. 286,254 4,326
--------------------------------------------------------------------------------------
7,366
======================================================================================
INTERNET SOFTWARE & SERVICES (0.0%)
IndiaInfo.com PCL 532,875 (b)(c) --@
======================================================================================
IT CONSULTING & SERVICES (8.1%)
Infosys Technologies Ltd. 153,475 18,715
Mphasis BFL Ltd. 160,055 2,666
Wipro Ltd. 140,197 5,339
Wipro Ltd. ADR 61,710 2,975
--------------------------------------------------------------------------------------
29,695
======================================================================================
MACHINERY (1.3%)
Cummins (India) Ltd. 1,752,174 4,916
Lakshmi Synthetic Machinery Manufacturers Ltd. 137,700 (a)(b) 10
--------------------------------------------------------------------------------------
4,926
======================================================================================
MEDIA (0.2%)
New Delhi Television Ltd. 333,300 (b) 740
======================================================================================
METALS & MINING (10.2%)
Hindalco Industries Ltd. 318,938 9,845
Steel Authority of India Ltd. 12,193,286 (a) 13,656
Tata Iron & Steel Co., Ltd. 1,422,400 13,844
--------------------------------------------------------------------------------------
37,345
======================================================================================
OIL & GAS (8.2%)
Bharat Petroleum Corp., Ltd. 397,000 3,918
Chennai Petroleum Corp., Ltd. 1,888,000 3,751
Hindustan Petroleum Corp., Ltd. 384,000 3,682
Kochi Refineries Ltd. 963,000 3,784
Oil & Natural Gas Corp., Ltd. 858,231 15,039
--------------------------------------------------------------------------------------
30,174
======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
STATEMENT OF NET ASSETS
December 31, 2003
STATEMENT OF NET ASSETS (CONT'D)
VALUE
SHARES (000)
--------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (1.0%)
Ballarpur Industries Ltd. 1,812,000 (a) $ 3,268
Ballarpur Industries Ltd. GDR (Registered) 43,000 487
--------------------------------------------------------------------------------------
3,755
======================================================================================
PHARMACEUTICALS (10.1%)
Cipla Ltd. 213,062 6,151
Dabur (India) Ltd. 1,767,946 3,423
Dr. Reddy's Laboratories Ltd. 270,000 8,451
GlaxoSmithkline Pharmaceuticals Ltd. 531,954 6,705
Matrix Laboratories Ltd. 110,000 3,777
Ranbaxy Laboratories Ltd. 358,600 8,632
--------------------------------------------------------------------------------------
37,139
======================================================================================
ROAD & RAIL (4.6%)
Container Corp. of India Ltd. 1,152,251 16,806
======================================================================================
SHIPPING (1.5%)
Great Eastern Shipping Co., Ltd. 1,083,000 3,646
Shipping Corp. of India Ltd. 466,000 1,845
--------------------------------------------------------------------------------------
5,491
======================================================================================
TEXTILES (0.5%)
Alok Industries Ltd. 1,374,000 1,765
======================================================================================
THRIFTS & MORTGAGE FINANCE (2.0%)
Housing Development Finance Corp., Ltd. 520,355 7,349
======================================================================================
TOBACCO (2.7%)
ITC Ltd. 458,707 9,898
======================================================================================
TOTAL COMMON STOCKS
(Cost $204,748) 359,746
======================================================================================
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------------
CORPORATE BOND (0.1%)
CONSUMER STAPLES (0.1%)
Hindustan Lever Ltd. 9.00%, 1/1/05
(Cost $--@) INR 2,296 323
======================================================================================
SHORT-TERM INVESTMENTS (2.3%)
REPURCHASE AGREEMENT (0.2%)
J.P. Morgan Securities, Inc., 0.75%,
dated 12/31/03,
due 1/02/04, repurchase
price $867 $ 867 (d) 867
======================================================================================
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------------
SOVEREIGN (2.1%)
Indian Government
Treasury Bill, Zero Coupon, 1/23/04 INR 200,000 $ 4,370
Indian Government
Treasury Bill, Zero Coupon, 3/12/04 150,000 3,262
--------------------------------------------------------------------------------------
7,632
======================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Cost $8,539) 8,499
======================================================================================
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.3%)
Indian Rupee
(Cost $1,199) INR 54,723 1,199
======================================================================================
TOTAL INVESTMENTS (100.8%)
(Cost $214,486) 369,767
======================================================================================
AMOUNT
(000)
--------------------------------------------------------------------------------------
OTHER ASSETS (0.3%)
Tax Reclaim Receivable $ 473
Receivable for Investments Sold 302
Dividends Receivable 216
Interest Receivable 2
Other 10 1,003
======================================================================================
LIABILITIES (-1.1%)
Payable For:
Distribution Declared (2,868)
Investment Advisory Fees (320)
Investments Purchased (312)
Directors' Fees and Expenses (116)
Custodian Fees (83)
Administrative Fees (16)
Other Liabilities (71) (3,786)
======================================================================================
NET ASSETS (100.0%)
Applicable to 15,993,303, issued and
outstanding $ 0.01 par value shares
(100,000,000 shares authorized) $ 366,984
======================================================================================
NET ASSET VALUE PER SHARE $ 22.95
======================================================================================
AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF:
Common Stock $ 160
Paid-in Capital 275,809
Undistributed (Distributions in Excess of) Net
Investment Income (844)
Accumulated Net Realized Gain (Loss) (63,022)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations 154,881
======================================================================================
TOTAL NET ASSETS $ 366,984
======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
STATEMENT OF NET ASSETS
December 31, 2003
STATEMENT OF NET ASSETS (CONT'D)
(a) -- Non-income producing
(b) -- Securities valued at fair value - see note A-1 to financial statements.
At December 31, 2003, the Fund held $29,977,000 of fair-valued
securities, representing 8.2% of net assets.
(c) -- Restricted security valued at fair value and not registered under the
Securities Act of 1933. IndiaInfo.com PCL was acquired 3/00 at a cost of
$2,347,000. At December 31, 2003, this security had an aggregate market
value of $0, representing 0.0% of net assets.
(d) -- 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 Depository Receipt
GDR -- Global Depository Receipt
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
Financial Statements
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2003
(000)
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 5,870
Interest 489
===================================================================================================================================
TOTAL INCOME 6,359
===================================================================================================================================
EXPENSES
Investment Advisory Fees 2,635
Custodian Fees 446
Professional Fees 180
Administrative Fees 124
Directors' Fees and Expenses 110
Country Tax Expense 51
Stockholder Reporting Expenses 36
Stockholder Servicing Agent 19
Other Expenses 118
===================================================================================================================================
TOTAL EXPENSES 3,719
===================================================================================================================================
NET INVESTMENT INCOME (LOSS) 2,640
===================================================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments 16,314
Foreign Currency Transactions 513
===================================================================================================================================
NET REALIZED GAIN (LOSS) 16,827
===================================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 158,973
Foreign Currency Translations 8
===================================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 158,981
===================================================================================================================================
NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 175,808
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 178,448
===================================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
(000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss) $ 2,640 $ 556
Net Realized Gain (Loss) 16,827 922
Change in Unrealized Appreciation (Depreciation) 158,981 22,694
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 178,448 24,172
===================================================================================================================================
Distributions from and/or in excess of:
Net Investment Income (3,169) (214)
===================================================================================================================================
Capital Share Transactions:
Repurchase of Shares (57,869 and 3,413,832 shares, respectively) (604) (36,668)
===================================================================================================================================
TOTAL INCREASE (DECREASE) 174,675 (12,710)
===================================================================================================================================
Net Assets:
Beginning of Period 192,309 205,019
===================================================================================================================================
END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT
INCOME OF $(844) AND $(2,210), RESPECTIVELY) $ 366,984 $ 192,309
===================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.98 $ 10.53 $ 13.92 $ 22.59 $ 9.19
----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.16+ 0.03+ 0.10 0.02 (0.08)
Net Realized and Unrealized Gain (Loss) on Investments 11.01 1.39 (2.43) (7.93) 13.33
----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 11.17 1.42 (2.33) (7.91) 13.25
----------------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in excess of:
Net Investment Income (0.20) (0.01) (0.23) -- --
Net Realized Gain -- -- (0.84) (1.60) --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.01) (1.07) (1.60) --
----------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Share Repurchase Program 0.00# 0.04 0.01 0.84 0.15
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.95 $ 11.98 $ 10.53 $ 13.92 $ 22.59
==================================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD $ 26.55 $ 9.94 $ 8.65 $ 11.06 $ 16.50
==================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 169.33% 15.07% (11.68)% (23.49)% 144.44%
Net Asset Value (1) 93.15% 13.94% (14.52)% (29.68)% 145.81%
==================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) $ 366,984 192,309 $ 205,019 $ 390,190 $ 736,343
----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.56% 1.56% 1.77% 1.48% 1.59%
Ratio of Net Investment Income (Loss) to Average Net Assets 1.10% 0.28% 0.60% 0.12% (0.55)%
Portfolio Turnover Rate 36% 23% 56% 44% 34%
----------------------------------------------------------------------------------------------------------------------------------
(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.
+ Per share amounts are based on average shares outstanding.
# Amount is less than $0.005 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
December 31, 2003
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 accounting principles generally accepted in the United States.
Such policies are consistently followed by the Fund in the preparation of its
financial statements. Accounting principles generally accepted in the United
States 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: Equity securities listed on a U.S. exchange are valued
at the latest quoted sales price on the valuation date. Equity securities
listed or traded on NAS-DAQ, for which market quotations are available, are
valued at the NASDAQ Official Closing Price. Securities listed on a foreign
exchange are valued at their closing price. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued at the mean between the current bid and asked
prices obtained from reputable brokers. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, if it
approximates value.
All other securities and investments for which market values are not
readily available, including restricted securities, 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 adopted by the Board of Directors, although the
actual calculations may be done by others. Factors considered in making
this determination may include, but are not limited to, information
obtained by contacting the issuer, analysts, or the appropriate stock
exchange (for exchange-traded securities), analysis of the issuer's
financial statements or other available documents and, if necessary,
available information concerning other securities in similar circumstances.
Most foreign markets close before the New York Stock Exchange (NYSE).
Occasionally, developments that could affect the closing prices of
securities and other assets may occur between the times at which valuations
of such securities are determined (that is, close of the foreign market on
which the securities trade) and the close of business on the NYSE. If these
developments are expected to materially affect the value of the securities,
the valuations may be adjusted to reflect the estimated fair value as of
the close of the NYSE, as determined in good faith under procedures
established by the Board of Directors.
2. 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.
3. 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.
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
8
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
December 31, 2003
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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.
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.
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 that the Fund has utilized
and their associated risks:
4. 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.
5. 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 dividends) net of
applicable withholding taxes, if any. Distributions to stockholders are
recorded on the ex-dividend date.
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.
9
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
DECEMBER 31, 2003
NOTES TO FINANCIAL STATEMENTS (CONT'D)
C. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P.
Morgan Investor Services Co. (the "Administrator"), provides administrative
services to the Fund under an Administration Agreement. The Administrator is
paid a fee computed weekly and payable monthly at an annual rate of 0.02435% of
the Fund's average weekly net assets, plus $24,000 per annum. In addition, the
Fund is charged for certain out-of-pocket expenses incurred by the Administrator
on its behalf. An employee of the Administrator is an Officer of the Fund.
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 purchases
and sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. DIRECTOR'S: The Fund pays each of its Mauritian Independent Directors an
annual fee of $7,500 and all other Independent Directors an annual fee of
$5,000. Additionally, each Mauritian Independent Director is paid a fee of $750
for each Board Meeting attended.
F. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as
a regulated investment company and distribute all its taxable income.
Accordingly, no provision for Federal income taxes is required in the financial
statements. Dividend income and distributions to stockholders are recorded on
the ex-dividend date.
The rate of capital gains tax in India is 10.25% for long-term investments and
30.75% for short-term investments (the capital gains rates were 10.5% for
long-term investments and 31.5% for short-term investments for the financial
year ended March 31, 2003). The Fund invests in India through a registered
branch office established in Mauritius and, as a result, obtains the benefits
under the double taxation treaty between Mauritius and India ("Treaty"). 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
is subject to a 15% withholding tax on dividends declared, distributed or paid
by an Indian company prior to June 1, 1997 and for the period from April 1, 2002
through March 31, 2003. During the period June 1, 1997 through March 31, 2002
and after April 1, 2003, dividend income from domestic companies was exempt from
Indian income tax. The Fund currently is subject to and accrues Indian
withholding tax on interest earned on Indian securities at 20.5% (21% for the
financial year ended March 31, 2003).
The Treaty benefits accorded to foreign investors were challenged by a
nongovernmental organization and the matter was litigated before India's Supreme
Court (the highest court in India ). In October 2003, India's Supreme Court
upheld the validity of treaty benefits accorded to foreign investors on the
basis of a certificate of residence issued by Mauritian authorities (such as the
one obtained by the Fund).
The tax character of distributions paid may differ from the character of
distributions shown on the Statements of Changes in Net Assets due to short-term
capital gains being treated as ordinary income for tax purposes. The tax
character of distributions paid during 2003 and 2002 were as follows:
2003 DISTRIBUTIONS 2002 DISTRIBUTIONS
PAID FROM: PAID FROM:
(000) (000)
---------------------------------- -----------------------------
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
INCOME GAIN INCOME GAIN
-----------------------------------------------------------------------
$ 3,169 $ -- $ 214 $ --
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 accounting principles generally accepted in the United States.
The book/tax differences are considered either 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.
Permanent book and tax basis differences may result in reclassifications among
undistributed (distributions in excess of) net investment income (or accumulated
net investment loss), accumulated net realized gain (loss) and paid-in capital.
10
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
December 31, 2003
NOTES TO FINANCIAL STATEMENTS (CONT'D)
At December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAIN
(000) (000)
--------------------------------------------------------------------------------
$ 321 $ --
================================================================================
At December 31, 2003, the U.S. Federal income tax cost basis of investments
(excluding foreign currency) was $216,266,000 and, accordingly, net unrealized
appreciation for U.S. Federal income tax purposes was $152,302,000 of which
$169,734,000 related to appreciated securities and $17,432,000 related to
depreciated securities.
At December 31, 2003, the Fund had a capital loss carryforwards for U.S. Federal
income tax purposes of approximately $61,101,000 available to offset future
capital gains, of which $43,303,000 will expire on December 31, 2009 and
$17,798,000 will expire on December 31, 2010.
During the year ended December 31, 2001 the Fund utilized capital loss
carryforwards for U.S. Federal income tax purposes of approximately $12,698,000.
To the extent that capital loss carryforwards are used to offset any future
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Fund for gains realized and not distributed. 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 the year ended December 31, 2003, the Fund did not defer any
capital losses to January 1, 2004, for U.S. Federal income tax purposes.
G. OTHER: During the year ended December 31, 2003, the Fund made purchases
and sales totaling $88,295,000 and $82,282,000 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.
For the year ended December 31, 2003, the Fund incurred $8,300 of brokerage
commissions with Morgan Stanley & Co., an affiliate of the Adviser.
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.
On August 10, 1998, the Fund commenced a share repurchase program for purposes
of enhancing stockholder value and reducing the discount at which the Fund's
shares trade from their net asset value. During the year ended December 31,
2003, the Fund repurchased 57,869 of its shares at an average discount of 17.24%
from net asset value per share. Since the inception of the program, the Fund has
repurchased 8,450,680 of its shares at an average discount of 30.06% 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 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 December 15, 2003 the Officers of the Fund, pursuant to authority granted by
the Board of Directors declared a distribution of $0.1793 per share, derived
from net investment income, payable on January 9, 2004, to stockholders of
record on December 24, 2003.
FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended December 31, 2003, qualified dividend income totaled
$3,653,000.
11
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
December 31, 2003
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
We have audited the accompanying statement of net assets of Morgan Stanley India
Investment Fund, Inc. (the "Fund") as of December 31, 2003, and the related
statement of operations for the year then ended, the statement of changes in 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. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1999 were audited by other auditors
whose report, dated February 18, 2000, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2003 by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley India Investment Fund, Inc. at December 31, 2003, 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, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 11, 2004
12
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
Overview
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
Independent Directors:
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX
POSITION(S) LENGTH OF OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING BY OTHER DIRECTORSHIPS
DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR
----------------------------- ----------- ---------- --------------------------------- -------------- --------------------
Gaetan Bouic (69) Director Finance Manager of United Basalt 1 The India Magnum
De Chazal de Mee Building since Products Ltd; Chairman of Fund Ltd.,
10 Frere Felix de Valois 2001 Mauritius Venture Capital Fund Mauritius Venture
Street Ltd; Capital Fund Ltd.,
Port Louis, Mauritius Swiss Technology
Venture Capital
Fund (Private)
Ltd., CDC Financial
Services
(Mauritius) Ltd.,
Standard Bank Trust
Company (Mauritius)
Ltd., Harel Mallac
& Co., Ltd., Harel
Freres Ltd.
Joseph J. Kearns (61) Director Director Deputy Chairman of the Audit 209 Director of Electro
Kearns & Associates LLC since 1994 Committee and Director or Trustee Rent Corporation
PMB754 of the Retail Funds and the (equipment
23852 Pacific Coast Hwy. Institutional Funds; previously leasing), The Ford
Malibu, CA 90265 Chairman of the Audit Committee Family Foundation
of the Institutional Funds; and the UCLA
President, Kearns & Associates Foundation.
LLC (investment consulting);
formerly CFO of The J. Paul Getty
Trust.
Hazareesing Ravindranath Director Director Self-employed Management 1 Finance Director-
Santosh Kumar (54) since 2003 Consultant Manager- Mauritius Illovo Ltd.
Morcellement St. Andrews- Development and Investment Trust
Rose Hill, Mauritius (MDIT).
Marie Joseph Raymond Director Director Director of The India, Media, 1
Lamusse (71) since Internet and Communications Fund
De Chazal de Mee Building 2001 Ltd., Southern Cross Hotel Ltd.,
10 Frere Felix de Valois Jean Vaulbert de Chantily Ltd.
Street (consumer goods) and Grandville
Port Louis, Mauritius Ltee. (property holding company);
formerly, Partner of Lamusse Sek
Sum (accounting)
Fergus Reid (71) Director Director Chairman of the Governance 209 Trustee and
Lumelite Plastics since 2001 Committee and Director or Trustee Director of certain
85 Charles Coleman Blvd. of the Retail Funds and the investment
Pawling, NY 12564 Institutional Funds; Chairman of companies in the
Lumelite Plastics Corporation. JPMorgan Funds
complex managed by
JP Morgan
Investment
Management Inc.
13
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
Overview
DIRECTOR AND OFFICER INFORMATION (CONT'D)
Interested Directors:
TERM OF NUMBER OF
OFFICE AND PORTFOLIOS IN
POSITION(S) LENGTH OF FUND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS
DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR
----------------------------- ----------- ---------- --------------------------------- ------------- -------------------
Ronald E. Robison (64) President President President and Trustee; Chief 1
Morgan Stanley Investment and and Global Operations Officer and
Management Inc. Director Director Managing Director of Morgan
1221 Avenue of the Americas since 2001 Stanley Investment Management
33rd Floor Inc.; Managing Director of Morgan
New York, NY 10020 Stanley & Co. Incorporated;
Managing Director of Morgan
Stanley; Managing Director, Chief
Administrative Officer and
Director of Morgan Stanley
Investment Advisors Inc. and
Morgan Stanley Services Company
Inc.; Chief Executive Officer and
Director of Morgan Stanley Trust;
Executive Vice President and
Principal Executive Officer of
the Institutional Funds and the
Retail Funds; previously
President and Director of the
Institutional Funds.
* Each Director serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all funds advised by Morgan Stanley Investment
Management Inc. and any funds that have an investment adviser that is an
affiliated entity of Morgan Stanley Investment Management Inc. (including,
but not limited to, Morgan Stanley Investment Advisors Inc. and Van Kampen
Asset Management Inc.).
*** Additionally, a description of the Fund's proxy voting policies and
procedures is available without charge at our website at
www.morganstanley.com/im/legal, at the SEC's website at www.sec.gov or by
calling 1(800) 281-2715.
14
MORGAN STANLEY INDIA INVESTMENT FUND, INC.
Overview
DIRECTOR AND OFFICER INFORMATION (CONT'D)
Officers:
POSITION(S) TERM OF OFFICE AND
NAME, AGE AND ADDRESS OF EXECUTIVE HELD WITH LENGTH OF TIME
OFFICER REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
--------------------------------------- ------------- ------------------ -------------------------------------------------------
Ronald E. Robison (64) President and President and Chief Global Operations Officer and Managing Director
Morgan Stanley Investment Management Director Director since of Morgan Stanley Investment Management Inc.; Managing
Inc. 2001 Director of Morgan Stanley & Co. Incorporated;
1221 Avenue of the Americas 33rd Floor Managing Director of Morgan Stanley; Managing
New York, NY 10020 Director, Chief Administrative Officer and Director of
Morgan Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc.; Chief Executive Officer
and Director of Morgan Stanley Trust; Executive Vice
President and Principal Executive Officer of the
Institutional Funds and the Retail Funds; previously
President and Director of the Institutional Funds.
Stefanie V. Chang (36) Vice President Vice President Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management since 1997 Incorporated and Morgan Stanley Investment Management
Inc. Inc.; Vice President of the Institutional Funds and
1221 Avenue of the Americas 22nd Floor the Retail Funds; formerly practiced law with the New
New York, NY 10020 York law firm of Rogers & Wells (now Clifford Chance
US LLP).
James W. Garrett (34) Treasurer and Treasurer Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Chief since 2002 Incorporated and Morgan Stanley Investment Management
Inc. Financial CFO since 2003 Inc.; Treasurer and Chief Financial Officer of the
1221 Avenue of the Americas 33rd Floor Officer Institutional Funds; previously with Price Waterhouse
New York, NY 10020 LLP (now PricewaterhouseCoopers LLP).
Michael J. Leary (37) Assistant Assistant Assistant Director and Vice President of Fund
J.P. Morgan Investor Services Co. Treasurer Treasurer Administration, J.P. Morgan Investor Services Co.
73 Tremont Street since (formerly Chase Global Funds Company); formerly Audit
Boston, MA 02108 2003 Manager at Ernst & Young LLP.
Mary E. Mullin (36) Secretary Secretary Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management since Incorporated and Morgan Stanley Investment Management
Inc. 1999 Inc.; Secretary of the Institutional Funds and the
1221 Avenue of the Americas 22nd Floor Retail Funds; formerly practiced law with the New York
New York, NY 10020 law firms of McDermott, Will & Emery and Skadden,
Arps, Slate, Meagher & Flom LLP.
----------
* Each Officer serves an indefinite term, until his or her successor is
elected.
15
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 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
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, that 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, New York 10030
1-800-278-4353
16
ITEM 2. CODE OF ETHICS.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has not amended its Code of Ethics during the period covered by
the shareholder report presented in Item 1 hereto.
(d) The Fund has not granted a waiver or an implicit waiver from a provision of
its Code of Ethics.
(e) Not applicable.
(f)
(1) The Fund Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
For Retail and Institutional Funds
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a
1
member of the audit committee and Board of Directors in the absence of such
designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2003
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 99,395 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 0 $ 93,000(2)
TAX FEES $ 2,575(3) $ 163,414(4)
ALL OTHER FEES $ 0 $ 341,775(5)
TOTAL NON-AUDIT FEES $ 2,575 $ 598,189
TOTAL $ 101,970 $ 598,189
2002
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 96,500 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 0 $ 179,000(2)
TAX FEES $ 2,500(3) $ 0
ALL OTHER FEES $ 0 $ 595,150(6)
TOTAL NON-AUDIT FEES $ 2,500 $ 774,150
TOTAL $ 99,000 $ 774,150
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors)
and any entity controlling, controlled by or under common
control with the Adviser that provides ongoing services to
the Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of
the audit of the financial statements of the Covered
Entities' and funds advised by the Adviser or its affiliates,
specifically attestation services provided in connection with
a SAS 70 Report.
(3) Tax Fees represent tax advice and compliance services
provided in connection with the review of the Registrant's
tax return.
(4) Tax Fees represent tax advice services provided to Covered
Entities, including research and identification of Passive
Foreign Investment Company entities.
2
(5) All Other Fees represent attestation services provided in
connection with performance presentation standards.
(6) All Other Fees represent attestation services provided in
connection with performance presentation standards, general
industry education seminars provided, and a regulatory review
project performed.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy
and Procedures (the "POLICY"), adopted as of the date above, supercedes
and replaces all prior versions that may have been adopted from time to
time.
3
For both types of pre-approval, the Audit Committee will consider
whether such services are consistent with the SEC's rules on auditor
independence. The Audit Committee will also consider whether the Independent
Auditors are best positioned to provide the most effective and efficient
services, for reasons such as its familiarity with the Fund's business, people,
culture, accounting systems, risk profile and other factors, and whether the
service might enhance the Fund's ability to manage or control risk or improve
audit quality. All such factors will be considered as a whole, and no one factor
should necessarily be determinative.
The Audit Committee is also mindful of the relationship between fees for
audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
4
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant general pre-approval to other
Audit services, which are those services that only the Independent Auditors
reasonably can provide. Other Audit services may include statutory audits and
services associated with SEC registration statements (on Forms N-1A, N-2, N-3,
N-4, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the following Audit services. All
other Audit services not listed below must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated):
- Statutory audits or financial audits for the Fund
- Services associated with SEC registration statements (including new
funds), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort
letters for closed-end fund offerings, consents), and assistance in
responding to SEC comment letters
- Consultations by the Fund's management as to the accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB, or other regulatory or standard
setting bodies (Note: Under SEC rules, some consultations may be "audit
related" services rather than "audit" services)
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and
5
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the following Audit-related
services. All other Audit-related services not listed below must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated):
- Attest procedures not required by statute or regulation (including
agreed upon procedures related to the Closed-End Fund asset coverage
tests required by the rating agencies and/or lenders and agreed upon
procedures related to fund profitability analysis in connection with 15c
management contract renewal process
- Services associated with registration statement with Japanese regulatory
authorities, including issuance of consent and opinion for Morgan
Stanley Asia-Pacific Fund
- Due diligence services pertaining to potential fund mergers
- Issuance of SAS-70 reports on internal controls of a service provider
- Consultations by the Fund's management as to the accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB, or other regulatory or
standard-setting bodies (Note: Under SEC rules, some consultations may
be "audit" services rather than "audit-related" services)
- Information systems reviews not performed in connection with the audit
(e.g., application data center and technical reviews)
- General assistance with implementation of the requirements of SEC rules
or listing standards promulgated pursuant to the Sarbanes-Oxley Act
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services. Hence, the Audit Committee
believes it may grant general pre-approval to those Tax services that have
historically been provided by the Independent Auditors, that the Audit Committee
has reviewed and believes would not impair the independence of the Independent
Auditors, and that are consistent with the SEC's rules on auditor independence.
The Audit Committee will not permit the retention of the Independent Auditors in
connection with a transaction initially recommended by the Independent Auditors,
the sole business purpose of which may be tax avoidance and the tax treatment
6
of which may not be supported in the Internal Revenue Code and related
regulations. The Audit Committee will consult with Director of Tax or outside
counsel to determine that the tax planning and reporting positions are
consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the following Tax Services. All Tax services involving large and
complex transactions not listed below must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated), including tax services proposed to be provided by the
Independent Auditors to any executive officer or trustee/director/managing
general partner of the Fund, in his or her individual capacity, where such
services are paid for by the Fund (generally applicable only to internally
managed investment companies):
- U.S. federal, state and local tax planning and advice
- U.S. federal, state and local tax compliance
- International tax planning and advice
- International tax compliance
- Review/preparation of federal, state, local and international income,
franchise, and other tax returns
- Identification of Passive Foreign Investment Companies
- Preparation of local Indian Tax Returns
- Domestic and foreign tax planning, compliance, and advice
- Assistance with tax audits and appeals before the IRS and similar state,
local and foreign agencies
- Tax advice and assistance regarding statutory, regulatory or
administrative developments (e.g., excise tax reviews, evaluation of
Fund's tax compliance function)
- Review the calculations of taxable income from corporate actions
including reorganizations related to bankruptcy filings and provide
guidance related to the foregoing
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the following All Other services.
Permissible All Other services not listed below must be specifically
pre-approved by the
7
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated):
- Risk management advisory services, e.g., assessment and testing of
security infrastructure controls
The following is a list of the SEC's prohibited non-audit services. The
SEC's rules and relevant guidance should be consulted to determine the precise
definitions of these services and the applicability of exceptions to certain of
the prohibitions:
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions
- Human resources
- Broker-dealer, investment adviser or investment banking services
- Legal services
- Expert services unrelated to the audit
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the
8
Fund's Chief Financial Officer, and must include a joint statement as to
whether, in their view, the request or application is consistent with the SEC's
rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
The Audit Committee will also review the internal auditor's annual
internal audit plan to determine that the plan provides for the monitoring of
the Independent Auditors' services.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
9
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
10
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED.]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Fund and its investment advisor's Proxy Voting Policies and Procedures are
as follows:
I. POLICY STATEMENT
INTRODUCTION - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
11
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
PROXY RESEARCH SERVICES - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.
VOTING PROXIES FOR CERTAIN NON-US COMPANIES - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
12
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
- Selection or ratification of auditors.
- Approval of financial statements, director and auditor reports.
- Election of Directors.
- Limiting Directors' liability and broadening indemnification of
Directors.
- Requirement that a certain percentage (up to 66 2/3%) of its
Board's members be comprised of independent and unaffiliated
Directors.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated Directors.
- Recommendations to set retirement ages or require specific levels
of stock ownership by Directors.
- General updating/corrective amendments to the charter.
- Elimination of cumulative voting.
- Elimination of preemptive rights.
- Provisions for confidential voting and independent tabulation of
voting results.
13
- Proposals related to the conduct of the annual meeting except
those proposals that relate to the "transaction of such other
business which may come before the meeting."
2. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a shareholder, are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
CAPITALIZATION CHANGES
- Capitalization changes that eliminate other classes of stock and
voting rights.
- Proposals to increase the authorization of existing classes of
common stock (or securities convertible into common stock) if:
(i) a clear and legitimate business purpose is stated; (ii) the
number of shares requested is reasonable in relation to the
purpose for which authorization is requested; and (iii) the
authorization does not exceed 100% of shares currently authorized
and at least 30% of the new authorization will be outstanding.
- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals for share repurchase plans.
- Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth in
the corporate charter. Reverse stock splits that do not adjust
proportionately to the authorized share amount will generally be
approved if the resulting increase in authorized shares coincides
with the proxy guidelines set forth above for common stock
increases.
COMPENSATION
- Director fees, provided the amounts are not excessive relative to
other companies in the country or industry.
14
- Employee stock purchase plans that permit discounts up to 15%,
but only for grants that are part of a broad based employee plan,
including all non-executive employees.
- Establishment of Employee Stock Option Plans and other employee
ownership plans.
ANTI-TAKEOVER MATTERS
- Modify or rescind existing supermajority vote requirements to
amend the charters or bylaws.
- Adoption of anti-greenmail provisions provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large
block holders not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights of
shareholders.
3. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on the shareholder, are
generally voted AGAINST (notwithstanding management support), subject
to the review and approval of the Proxy Review Committee, as
appropriate.
- Capitalization changes that add classes of stock which
substantially dilute the voting interests of existing
shareholders.
- Proposals to increase the authorized number of shares of existing
classes of stock that carry preemptive rights or supervoting
rights.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted stock options
that have not been offered to employees in general.
- Amendments to bylaws that would require a supermajority
shareholder vote to pass or repeal certain provisions.
- Proposals to indemnify auditors.
4. The following types of non-routine proposals, which potentially may
have a potential financial or best interest impact on an issuer, are
voted as determined by the Proxy Review Committee.
15
CORPORATE TRANSACTIONS
- Mergers, acquisitions and other special corporate transactions
(i.e., takeovers, spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined on a
case-by-case basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates' research and
analysis, based on, among other things, MSIM internal
company-specific knowledge.
- Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements that benefit
management and would be costly to shareholders if triggered.
- Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions
that prevent legitimate offers from proceeding.
- Executive/Director stock option plans. Generally, stock option
plans should meet the following criteria:
(i) Whether the stock option plan is incentive based;
(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;
(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
- Proposals requiring shareholder ratification of poison pills.
- Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or
effectively deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported, subject
to the review and approval of the Proxy Review Committee, as
appropriate:
- Requiring auditors to attend the annual meeting of shareholders.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated Directors.
16
- Requirement that a certain percentage of its Board's members be
comprised of independent and unaffiliated Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote requirements.
2. The following shareholder proposals will be voted as determined by the
Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
- Proposals requiring directors to own large amounts of stock to be
eligible for election.
- Restoring cumulative voting in the election of directors.
- Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations.
- Proposals that limit retirement benefits or executive
compensation.
- Requiring shareholder approval for bylaw or charter amendments.
- Requiring shareholder approval for shareholder rights plan or
poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related provisions.
- Prohibit payment of greenmail.
3. The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as appropriate.
- Requirements that the issuer prepare reports that are costly to
provide or that would require duplicative efforts or expenditures
that are of a non-business nature or would provide no pertinent
information from the perspective of institutional shareholders.
17
- Restrictions related to social, political or special interest
issues that impact the ability of the company to do business or
be competitive and that have a significant financial or best
interest impact to the shareholders.
- Proposals that require inappropriate endorsements or corporate
actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing MSIM's Proxy Voting Policy and Procedures
and, in this regard, has expressly adopted them. Following are some of
the functions and responsibilities of the Committee.
(a) The Committee, which will consist of members designated by MSIM's
Chief Investment Officer, is responsible for establishing MSIM's
proxy voting policies and guidelines and determining how MSIM
will vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority to
amend as necessary MSIM's proxy voting policies and guidelines
(as expressed in these Proxy Voting Policy and Procedures) and
establish and direct voting positions consistent with the Client
Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to MSIM's
Proxy Voting Policy and Procedures; and (2) generally review
proposals at upcoming shareholder meetings of MSIM portfolio
companies in accordance with this Policy and Procedures
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar proposal
was presented to shareholders. The Committee, or its designee,
will timely communicate to ISS MSIM's Proxy Voting Policy and
Procedures (and any amendments to them and/or any additional
guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing certain
shares of the same issuer that are the subject of the same proxy
solicitation and held by one or more MSIM portfolios to be voted
differently than other shares) and/or "override voting" (i.e.,
voting all MSIM portfolio shares in a manner contrary to the
Procedures); (2) review and approve upcoming votes, as
appropriate, for matters
18
for which specific direction has been provided in Sections I, II,
and III above; and (3) determine how to vote matters for which
specific direction has not been provided in Sections I, II and
III above. Split votes will generally not be approved within a
single Global Investor Group team. The Committee may take into
account ISS recommendations and the research provided by IRRC as
well as any other relevant information they may request or
receive.
(e) In addition to the procedures discussed above, if the Committee
determines that an issue raises a potential material conflict of
interest, or gives rise to the appearance of a potential material
conflict of interest, the Committee will designate a special
committee to review, and recommend a course of action with
respect to, the conflict(s) in question ("Special Committee").
The Special Committee may request the assistance of the Law and
Compliance Departments and will have sole discretion to cast a
vote. In addition to the research provided by ISS and IRRC, the
Special Committee may request analysis from MSIM Affiliate
investment professionals and outside sources to the extent it
deems appropriate.
(f) The Committee and the Special Committee, or their designee(s),
will document in writing all of their decisions and actions,
which documentation will be maintained by the Committee and the
Special Committee, or their designee(s) for a period of at least
6 years. To the extent these decisions relate to a security held
by a MSIM U.S. registered investment company, the Committee and
Special Committee, or their designee(s), will report their
decisions to each applicable Board of Trustees/Directors of those
investment companies at each Board's next regularly Scheduled
Board meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during the
most recently ended calendar quarter immediately preceding the
Board meeting.
The Committee and Special Committee, or their designee(s), will timely
communicate to applicable PMs, the Compliance Departments and, as necessary to
ISS, decisions of the Committee and Special Committee so that, among other
things, ISS will vote proxies consistent with their decisions.
ITEM 8. [RESERVED.]
ITEM 9. CONTROLS AND PROCEDURES.
19
(a) The Fund's chief executive officer and chief financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient
to ensure that information required to be disclosed by the Fund in this
Form N-CSR was recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and procedures
as of a date within 90 days of the filing date of the report.
(b) There were no changes in the Fund's internal control over financial
reporting that occurred during the registrant's most recent second fiscal
half-year that has materially affected, or is reasonably likely to materially
affect, the Fund's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) [Attach the Code of Ethics]
(b)(1) [Attach the 302 Certification of Chief Executive Officer]
(b)(2) [Attach the 302 Certification of Chief Financial Officer]
[Note: the 906 Certifications are not exhibits to the Form but are filed with
the Form.]
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Morgan Stanley India Investment Fund, Inc.
--------------------------------------------------------------------
By: /s/ Ronald E. Robison
-----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: 2/18/2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
-----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: 2/18/2004
By: /s/ James W. Garrett
-----------------------------------------------------------------------------
Name: James W. Garrett
Title: Chief Financial Officer
Date: 2/18/2004