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
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811-08238
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Morgan Stanley India Investment Fund, Inc.
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(Exact name of registrant as
specified in charter)
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522 Fifth Avenue New York, NY
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10036
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(Address of principal executive
offices)
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(Zip code)
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Randy Takian
522 Fifth Avenue New York, New York 10036
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(Name and address of agent for
service)
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Registrants telephone number, including
area code:
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1-800-221-6726
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Date of fiscal year end:
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12/31
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Date of reporting period:
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12/31/08
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Form N-CSR is
to be used by management investment companies to file reports with the
Commission not later than 10 days after the transmission to stockholders of any
report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure
review, inspection, and policymaking roles.
A registrant
is required to disclose the information specified by Form N-CSR, and the
Commission will make this information public. A registrant is not required to
respond to the collection of information contained in Form N-CSR unless the
Form displays a currently valid Office of Management and Budget (OMB) control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Funds annual report
transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company
Act of 1940 is as follows:
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2008 Annual Report
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December 31,
2008
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Morgan Stanley
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India Investment Fund, Inc.
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(IIF)
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Morgan
Stanley
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Investment
Management Inc.
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Investment
Adviser
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Morgan Stanley India Investment Fund, Inc.
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Overview
(unaudited)
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Letter to Stockholders
Performance
For
the year ended December 31, 2008, the Morgan Stanley India Investment Fund, Inc.
(the Fund) had total returns of -64.33%, based on net asset value, and
-64.72% based on market value per share (including reinvestment of
distributions), compared to its benchmark, the U.S. dollar adjusted Bombay
Stock Exchange (BSE) National Index (the Index), which returned -63.82%. On December 31,
2008, the closing price of the Funds shares on the New York Stock Exchange was
$12.50, representing a 4.4% discount to the Funds net asset value per share.
Past performance is no guarantee of future results.
Factors Affecting Performance
·
The year 2008 saw one of the sharpest ever
declines in Indian equity markets. The Index ended the year down 64% (in U.S.
dollar terms). Volatile markets coupled with the global liquidity crisis led to
an increase in risk aversion. Growth rates that had accelerated from easy
liquidity are showing signs of stress.
·
A regime shift from hyper-growth to extreme
risk aversion led the overweights in the consumer staples and
telecommunications sectors to contribute positively to performance. As the
Reserve Bank of India started easing interest rates, we moved to an overweight
position in the financials sector, which too contributed to performance. In
contrast, our overweight in the consumer discretionary sector and stock
selection in energy and materials detracted from performance.
Management Strategies
·
The liquidity-fueled growth mirage of
2003-2007 is clearly behind us now. We believe India should now settle to the
trend growth rate of 5.5%-6.0% that we observed from 1980 to 2002. Although
this is a sharp step down from the average of about 8.9% in the post-2002
period, we feel this is still attractive from a relative investment opportunity
standpoint.
·
The overall strategy going into next year is
two-pronged. First, we seek to position the Portfolio for the unprecedented
monetary easing by overweighting the interest rate sensitive sectors. Our
preference for implementing this strategy is through exposure to banks.
·
We are also looking for outright value
opportunities that seem to be emerging after the steep correction, particularly
as the growth rates normalize.
·
Our long-standing investment philosophy of not
compromising on management quality and corporate governance has left us
relatively unscathed after the recent corporate fraud episode in Satyam
Computers.
·
We continue to underweight global cyclicals
and remain extremely wary of companies that make elevated growth promises in
the current environment.
Sincerely,
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Randy
Takian
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Director,
President and Principal Executive Officer
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January 2009
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2
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Morgan Stanley India Investment Fund, Inc.
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December 31,
2008
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Portfolio of Investments
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Shares
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Value
(000)
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COMMON STOCKS (93.9%)
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(Unless Otherwise Noted)
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Auto Components (0.0%)
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Apollo Tyres Ltd.
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18,750
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$
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8
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Automobiles (3.7%)
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Hero Honda Motors Ltd.
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326,385
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5,449
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Maruti Suzuki India Ltd.
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370,200
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4,009
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Patheja Forgings & Auto Parts
Manufacturers Ltd. (a)(b)(c)
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450,000
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9,458
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Chemicals (2.4%)
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ICI India Ltd.
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25,000
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198
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United Phosphorus Ltd.
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2,586,132
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5,873
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6,071
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Commercial Banks (24.3%)
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Axis Bank Ltd.
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375,900
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3,959
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Bank of Baroda (b)
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676,993
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3,999
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Bank of India
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1,093,100
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6,558
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HDFC Bank Ltd.
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1,070,469
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22,241
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ICICI Bank Ltd.
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970,300
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9,064
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State Bank of India Ltd. (b)
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604,364
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16,363
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62,184
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Construction & Engineering (3.9%)
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Larsen & Toubro Ltd.
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527,900
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8,442
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Madhucon Projects Ltd.
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804,045
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1,463
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9,905
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Construction Materials (1.5%)
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Ambuja Cements, Ltd.
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965,500
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1,397
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India Cements Ltd.
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1,237,184
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2,496
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3,893
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Electrical Equipment (8.4%)
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Bharat Heavy Electricals Ltd.
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643,828
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18,240
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Jyoti Structures Ltd.
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2,070,488
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3,284
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21,524
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Energy Equipment & Services (0.5%)
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Aban Offshore Ltd.
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89,780
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1,259
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Food Products (5.2%)
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Bajaj Hindusthan Ltd.
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830,900
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1,254
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Balrampur Chini Mills (c)
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2,655,100
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2,743
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Nestle India Ltd.
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313,784
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9,418
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13,415
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Household Products (6.7%)
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Hindustan Unilever Ltd.
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3,314,600
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17,112
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Information Technology Services (9.0%)
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Infosys Technologies Ltd.
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998,500
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23,123
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Machinery (0.4%)
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Praj Industries Ltd.
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801,700
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1,064
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Media (2.6%)
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Deccan Chronicle Holdings Ltd.
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3,888,224
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3,495
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New Delhi Television Ltd.
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464,937
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1,244
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Television Eighteen India Ltd. (b)
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946,936
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1,825
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6,564
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Metals & Mining (2.3%)
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Ess Dee Aluminum Ltd.
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895,519
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2,389
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Welspun-Gujarat Stahl Ltd.
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1,577,000
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3,604
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5,993
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Oil, Gas & Consumable Fuels (6.5%)
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Reliance Industries Ltd.
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657,600
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16,753
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Pharmaceuticals (1.8%)
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Glenmark Pharmaceuticals Ltd. (c)
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739,173
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4,549
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Real Estate Management & Development
(0.7%)
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Phoenix Mills Ltd.
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1,112,831
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1,786
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Software (1.8%)
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Geodesic Ltd.
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3,236,932
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4,665
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Thrifts & Mortgage Finance (2.8%)
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Housing Development Finance Corp.
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232,000
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7,234
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Tobacco (1.7%)
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ITC Ltd.
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1,190,000
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4,228
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Wireless Telecommunication Services (7.7%)
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Bharti Airtel Ltd. (c)
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1,336,200
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19,739
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TOTAL COMMON STOCKS
(Cost $343,618)
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240,527
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SHORT-TERM INVESTMENT (14.0%)
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Investment Company (14.0%)
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Morgan Stanley Institutional Liquidity
Money Market Portfolio Institutional Class
(Cost $35,812) (d)
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35,812,201
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35,812
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TOTAL INVESTMENTS
(107.9%)
(Cost
$379,430) (e)
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276,339
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LIABILITIES IN EXCESS OF OTHER ASSETS
(-7.9%)
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(20,318
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)
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NET ASSETS
(100%)
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$
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256,021
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(a)
Security has been deemed illiquid at December 31,
2008
(b)
At December 31, 2008, the Fund held
approximately $22,187,000 of fair valued securities, representing 8.7% of net
assets. These securities have been fair valued as determined in good faith
under procedures established by and under the general supervision of the Funds
Directors.
(c)
Non-income producing security.
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The accompanying notes are
an integral part of the financial statements.
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3
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Morgan Stanley India Investment Fund, Inc.
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December 31,
2008
|
Portfolio of Investments
(contd)
(d)
See Note G within the Notes to Financial
Statements regarding investment in Morgan Stanley Institutional Liquidity Money
Market Portfolio Institutional Class.
(e)
The approximate market value and percentage of
total investments, $240,527,000 and 87.0%, respectively, represent the
securities that have been fair valued under the fair valuation policy for
international investments as described in Note A within the Notes to Financial
Statements.
Portfolio Composition
Classification
|
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Percentage of
Total Investments
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Commercial Banks
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22.5
|
%
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Information Technology Services
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8.4
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Electrical Equipment
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7.8
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|
Wireless Telecommunication Services
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7.1
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Household Products
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6.2
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Oil, Gas & Consumable Fuels
|
|
6.1
|
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Other*
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|
28.9
|
|
Short-Term Investments
|
|
|
13.0
|
|
Total Investments
|
|
|
100.0
|
%
|
*
Industries which do not appear in the above
table, as well as those which represent less than 5% of total investments, if
applicable, are included in the category labeled Other.
4
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The accompanying notes are
an integral part of the financial statements.
|
|
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Morgan Stanley India Investment Fund, Inc.
|
|
|
|
Financial
Statements
|
Statement of Assets and Liabilities
|
|
December 31, 2008
(000)
|
|
Assets:
|
|
|
|
Investments in Securities of Unaffiliated
Issuers, at Value (Cost $343,618)
|
|
$
|
240,527
|
|
Investment in Security of Affiliated
Issuer, at Value (Cost $35,812)
|
|
35,812
|
|
Total Investments in Securities, at Value
(Cost $379,430)
|
|
276,339
|
|
Foreign Currency, at Value (Cost $14,304)
|
|
14,544
|
|
Tax Reclaim Receivable
|
|
235
|
|
Dividends Receivable
|
|
176
|
|
Receivable for Investments Sold
|
|
140
|
|
Receivable from Affiliate
|
|
1
|
|
Other Assets
|
|
10
|
|
Total Assets
|
|
291,445
|
|
Liabilities:
|
|
|
|
Payable For:
|
|
|
|
Dividends Declared
|
|
34,742
|
|
Custodian Fees
|
|
252
|
|
Investment Advisory Fees
|
|
224
|
|
Directors Fees and Expenses
|
|
96
|
|
Administration Fees
|
|
8
|
|
Other Liabilities
|
|
102
|
|
Total Liabilities
|
|
35,424
|
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Net Assets
|
|
|
|
Applicable to 19,566,112 Issued and
Outstanding $0.01 Par Value Shares (100,000,000 Shares Authorized)
|
|
$
|
256,021
|
|
Net Asset Value Per Share
|
|
$
|
13.08
|
|
Net Assets Consist of:
|
|
|
|
Common Stock
|
|
$
|
196
|
|
Paid-in Capital
|
|
403,788
|
|
Distributions in Excess of Net Investment
Income
|
|
(166
|
)
|
Accumulated Net Realized Loss
|
|
(44,511
|
)
|
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations
|
|
(103,286
|
)
|
Net Assets
|
|
$
|
256,021
|
|
|
The accompanying notes are
an integral part of the financial statements.
|
5
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Morgan Stanley India Investment Fund, Inc.
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Financial
Statements
|
Statement of Operations
|
|
Year Ended
December 31, 2008
(000)
|
|
Investment Income:
|
|
|
|
Dividends from Securities of Unaffiliated
Issuers
|
|
$
|
5,529
|
|
Dividends from Security of Affiliated
Issuer
|
|
300
|
|
Total Investment Income
|
|
5,829
|
|
Expenses:
|
|
|
|
Investment Advisory Fees (Note B)
|
|
6,746
|
|
Custodian Fees (Note D)
|
|
1,162
|
|
Administration Fees (Note C)
|
|
515
|
|
Professional Fees
|
|
229
|
|
Stockholder Reporting Expenses
|
|
80
|
|
Stockholder Servicing Agent Fees
|
|
10
|
|
Other Expenses
|
|
535
|
|
Total Expenses
|
|
9,277
|
|
Waiver of Administration Fees (Note C)
|
|
(317
|
)
|
Rebate from Morgan Stanley Affiliated Cash
Sweep (Note G)
|
|
(11
|
)
|
Expense Offset (Note D)
|
|
(22
|
)
|
Net Expenses
|
|
8,927
|
|
Net Investment Loss
|
|
(3,098
|
)
|
Net Realized Gain (Loss) on:
|
|
|
|
Investments
|
|
(6,353
|
)
|
Foreign Currency Transactions
|
|
(4,669
|
)
|
Net Realized Loss
|
|
(11,022
|
)
|
Change in Unrealized Appreciation
(Depreciation) on:
|
|
|
|
Investments
|
|
(636,752
|
)
|
Foreign Currency Translations
|
|
36
|
|
Change in Unrealized Appreciation
(Depreciation)
|
|
(636,716
|
)
|
Net Realized Gain (Loss) and Change in
Unrealized Appreciation (Depreciation)
|
|
(647,738
|
)
|
Net Decrease in Net Assets Resulting from
Operations
|
|
$
|
(650,836
|
)
|
6
|
The accompanying notes are
an integral part of the financial statements.
|
|
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
Financial
Statements
|
Statements of Changes in Net Assets
|
|
Year Ended
December 31, 2008
(000)
|
|
Year Ended
December 31, 2007
(000)
|
|
Increase (Decrease) in Net Assets
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
Net Investment Loss
|
|
$
|
(3,098
|
)
|
$
|
(3,504
|
)
|
Net Realized Gain (Loss)
|
|
(11,022
|
)
|
398,870
|
|
Net Change in Unrealized Appreciation
(Depreciation)
|
|
(636,716
|
)
|
139,859
|
|
Net Increase (Decrease) in Net Assets
Resulting from Operations
|
|
(650,836
|
)
|
535,225
|
|
Distributions from and/or in Excess of:
|
|
|
|
|
|
Net Investment Income
|
|
(3,988
|
)
|
(3,206
|
)
|
Net Realized Gain
|
|
(198,905
|
)
|
(326,633
|
)
|
Total Distributions
|
|
(202,893
|
)
|
(329,839
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
Reinvestment of Distributions (56,548 and
104,859 shares, respectively)
|
|
1,420
|
|
4,942
|
|
Repurchase of Shares (2,000 and 489,201
shares, respectively)
|
|
(89
|
)
|
(22,835
|
)
|
Net Increase (Decrease) in Net Assets
Resulting from Capital Share Transactions
|
|
1,331
|
|
(17,893
|
)
|
Total Increase (Decrease)
|
|
(852,398
|
)
|
187,493
|
|
Net Assets:
|
|
|
|
|
|
Beginning of Period
|
|
1,108,419
|
|
920,926
|
|
End of Period (Including Distributions in
Excess of Net Investment Income of $(166) and $(1,661), respectively)
|
|
$
|
256,021
|
|
$
|
1,108,419
|
|
|
The accompanying notes are
an integral part of the financial statements.
|
7
|
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
Financial
Highlights
|
Selected Per Share Data
and Ratios
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Net Asset Value, Beginning of Period
|
|
$
|
56.81
|
|
$ 46.29
|
|
$
|
37.33
|
|
$
|
29.09
|
|
$
|
22.95
|
|
Net Investment Income (Loss)
|
|
(0.16
|
)
|
(0.18
|
)
|
(0.06
|
)
|
0.06
|
|
0.11
|
|
Net Realized and Unrealized Gain (Loss) on
Investments
|
|
(33.18
|
)
|
27.38
|
|
14.32
|
|
12.18
|
|
6.12
|
|
Total from Investment Operations
|
|
(33.34
|
)
|
27.20
|
|
14.26
|
|
12.24
|
|
6.23
|
|
Distributions from and/or in Excess of:
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
(0.20
|
)
|
(0.16
|
)
|
|
|
(0.28
|
)
|
(0.09
|
)
|
Net Realized Gain
|
|
(10.19
|
)
|
(16.64
|
)
|
(5.30
|
)
|
(3.60
|
)
|
|
|
Total Distributions
|
|
(10.39
|
)
|
(16.80
|
)
|
(5.30
|
)
|
(3.88
|
)
|
(0.09
|
)
|
Dilutive Effect of Shares Issued through
Rights Offering and Offering Costs
|
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
Anti-Dilutive Effect of Share Repurchase
Program
|
|
0.00
|
|
0.12
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
13.08
|
|
$ 56.81
|
|
$
|
46.29
|
|
$
|
37.33
|
|
$
|
29.09
|
|
Per Share Market Value, End of Period
|
|
$
|
12.50
|
|
$ 54.89
|
|
$
|
50.82
|
|
$
|
37.35
|
|
$
|
30.96
|
|
TOTAL INVESTMENT RETURN:
|
|
|
|
|
|
|
|
|
|
|
|
Market Value
|
|
(64.72
|
)%
|
45.29
|
%
|
51.73
|
%
|
32.57
|
%
|
17.03
|
%
|
Net Asset Value(1)
|
|
(64.33
|
)%
|
65.09
|
%
|
38.28
|
%
|
41.02
|
%
|
27.21
|
%
|
RATIOS, SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets, End of Period (Thousands)
|
|
$
|
256,021
|
|
$1,108,419
|
|
$
|
920,926
|
|
$
|
740,050
|
|
$
|
465,448
|
|
Ratio of Expenses to Average Net Assets(2)
|
|
1.46
|
%+
|
1.33
|
%+
|
1.35
|
%
|
1.38
|
%
|
1.40
|
%
|
Ratio of Net Investment Income (Loss) to
Average Net Assets(2)
|
|
(0.51
|
)%+
|
(0.33
|
)%+
|
(0.13
|
)%
|
0.17
|
%
|
0.57
|
%
|
Portfolio Turnover Rate
|
|
60
|
%
|
60
|
%
|
34
|
%
|
32
|
%
|
52
|
%
|
(2) Supplemental Information on the
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Ratios Before Expenses Waived by
Administrator:
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Expenses to Average Net Assets
|
|
1.51
|
%+
|
1.39
|
%+
|
1.40
|
%
|
1.43
|
%
|
1.41
|
%
|
Ratio of Net Investment Income (Loss) to
Average Net Assets
|
|
(0.56
|
)%+
|
(0.39
|
)%+
|
(0.18
|
)%
|
0.12
|
%
|
0.56
|
%
|
(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 stockholders 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 amount is based on average shares
outstanding.
Amount is less than $0.005 per share.
+
Reflects rebate of certain Fund expenses in
connection with the investments in Morgan Stanley Institutional Liquidity Money
Market Portfolio Institutional Class during the period. As a result of
such rebate, the expenses as a percentage of its net assets were effected by
less than 0.005%.
8
|
The accompanying notes are
an integral part of the financial statements.
|
|
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
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 1940 Act). The Funds investment objective is long-term
capital appreciation through investments primarily in equity securities of
Indian Issuers. To the extent that the Fund invests in derivative instruments
that the Adviser believes have economic characteristics similar to equity
securities of Indian Issuers, such investments will be counted for purposes of
the Funds policy in the previous sentence. To the extent the Fund makes such
investments, the Fund will be subject to the risks of such derivative
instruments as described herein.
A.
Accounting Policies:
The following significant accounting policies
are in conformity with U.S. generally accepted accounting principles. Such
policies are consistently followed by the Fund in the preparation of its
financial statements. U.S. generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1.
Security Valuation:
Securities listed on a foreign exchange are valued at their closing
price except as noted below. 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. 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 NASDAQ, for which market quotations are available, are valued at
the NASDAQ Official Closing Price. Debt securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market 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 (the 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
issuers 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 Directors.
2.
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 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) on investments in securities 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
9
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
transactions, and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Funds 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 Assets and
Liabilities. 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
Funds 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.
3.
Derivatives:
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 products. Consistent
with the Funds 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:
Currency
Transactions:
The Fund
will invest in currency spot, forward and non-deliverable forward transactions.
A currency spot transaction is a cash-settled contract to buy or sell
immediately a specified quantity of currency for physical settlement in no more
than two days. A currency forward transaction is a contract to buy or sell a
specified quantity of currency at a specified date in the future at a specified
price. Currency forwards generally may be used to increase or reduce exposure
to currency price movements. A non-deliverable currency forward transaction is
a synthetic short-term forward contract on a thinly traded or non-convertible foreign
currency, where the profit or loss is the difference between a specified
exchange rate and the spot rate at the time of settlement. Non-deliverable
forwards (NDFs) allow investors to hedge or gain exposure to local currency
movements of markets without actually dealing in the underlying markets. The
demand for NDFs arises principally out of regulatory and liquidity issues in
the underlying currency. NDFs, in particular, are used to gain exposure to
foreign currencies which are not internationally traded and do not have a
forward market for foreign investors. All currency transactions will be
cash-settled in U.S. dollars. In certain less developed countries, NDFs may be
relatively illiquid. The Fund will utilize NDFs only to the extent consistent with
its overall restrictions on investments in illiquid securities in excess of 15%
of the Funds net assets.
Foreign
Currency Exchange Contracts:
The Fund may enter into foreign currency exchange contracts
generally to attempt to protect securities and related receivables and payables
against changes in future foreign exchange rates and, in certain situations, to
gain exposure to a foreign currency. A foreign currency exchange contract is an
agreement between two parties to buy or sell currency at a set price on a
future date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is marked-to-market daily and the change
in market value is recorded by the Fund as unrealized gain or loss. The Fund
records realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risk may arise upon entering into these
contracts from the potential inability of counter-parties to meet the terms of
their contracts and is generally limited to the amount of unrealized gain on
the contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. At December 31, 2008, the Fund did not have any outstanding
foreign currency exchange contracts.
Futures:
The Fund may purchase and sell futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specified security, index, instrument
or basket of instruments. Futures contracts (secured by cash, government or
other liquid securities deposited with brokers or custodians as initial margin)
are valued based upon their quoted daily settlement prices; changes in initial
settlement value (represented by cash paid to or received from brokers
10
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
as variation margin) are
accounted for as unrealized appreciation (depreciation). When futures contracts
are closed, the difference between the opening value at the date of purchase
and the value at closing is recorded as realized gains or losses in the
Statement of Operations.
The Fund may use futures
contracts in order to manage its exposure to the stock and bond markets, to
hedge against unfavorable changes in the value of securities or to remain fully
invested and to reduce transaction costs. Futures contracts involve market risk
in excess of the amounts recognized in the Statement of Assets and Liabilities.
Risks arise from the possible movements in security values underlying these
instruments. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with
the change in value of the hedged investments. In addition, there is the risk
that the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. At December 31, 2008, the Fund did not have any
outstanding futures contracts.
Purchased &
Written Options:
The
Fund may write covered call and put options on portfolio securities and other
financial instruments. Premiums are received and are recorded as liabilities.
The liabilities are subsequently adjusted to reflect the current value of the
options written. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or are closed are added to or offset against the proceeds or amount
paid on the transaction to determine the net realized gain or loss. By writing
a covered call option, the Fund, in exchange for the premium, foregoes the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase. By writing a put option, the Fund, in
exchange for the premium, accepts the risk of having to purchase a security at
an exercise price that is above the current market price.
The Fund may purchase call
and put options on its securities or other financial instruments. The Fund may
purchase call options to protect against an increase in the price of the
security or financial instrument it anticipates purchasing. The Fund may
purchase put options on securities which it holds or other financial
instruments to protect against a decline in the value of the security or
financial instrument or to close out covered written put positions. Risks may arise
from an imperfect correlation between the change in market value of the
securities purchased or sold by the Fund and from the possible lack of a liquid
secondary market for an option. The maximum exposure to loss for any purchased
option is limited to the premium initially paid for the option.
At December 31, 2008,
the Fund did not have any outstanding purchased or written options.
Structured
Notes:
Structured
notes are derivatives on which the amount of principal repayment and/or
interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors
may increase or decrease through the use of multipliers or deflators. The use
of structured notes allows a Fund to tailor its investments to the specific
risks and returns the Adviser wishes to accept while avoiding or reducing
certain other risks.
Over-the-Counter
Trading:
Securities and other derivative instruments that may be purchased or sold
by the Fund are expected to regularly consist of instruments not traded on an
exchange. The risk of non-performance by the obligor on such an instrument may
be greater, and the ease with which the Fund can dispose of or enter into
closing transactions with respect to such an instrument may be less than in the
case of an exchange-traded instrument. In addition, significant disparities may
exist between bid and ask prices for derivative instruments that are not traded
on an exchange. Derivative instruments not traded on exchanges are also not
subject to the same type of government regulation as exchange traded
instruments, and many of the protections afforded to participants in a
regulated environment may not be available in connection with such
transactions.
4.
Restricted Securities:
The Fund may invest in unregistered or
otherwise restricted securities. The term restricted securities refers to
securities that are unregistered or are held by control persons of the issuer
and securities that are subject to contractual restrictions on their resale. As
a result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security
11
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
to be registered. A
considerable period may elapse between the time the decision is made to sell
the security and the time the security is registered so that the Fund could
sell it. Contractual restrictions on the resale of securities vary in length
and scope and are generally the result of a negotiation between the issuer and
acquiror of the securities. The Fund would, in either case, bear market risks
during that period.
5.
New Accounting Pronouncement:
On March 19, 2008, Financial Accounting
Standards Board (FASB) released Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS 161).
SFAS 161 requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. The application of SFAS 161 is
required for fiscal years and interim periods beginning after November 15,
2008. At this time, management is evaluating the implications of SFAS 161 and
its impact on the financial statements has not yet been determined.
6.
Fair Value Measurement:
The Fund adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), effective January 1, 2008. In accordance
with SFAS 157, fair value is defined as the price that the Fund would receive
to sell an investment or pay to transfer a liability in a timely transaction
with an independent buyer in the principal market, or in the absence of a
principal market the most advantageous market for the investment or liability.
SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs
that reflect the assumptions market participants would use in valuing an asset
or liability developed based on market data obtained from sources independent
of the reporting entity (observable inputs) and (2) inputs that reflect
the reporting entitys own assumptions about the assumptions market
participants would use in valuing an asset or liability developed based on the
best information available in the circumstances (unobservable inputs) and to
establish classification of fair value measurements for disclosure purposes.
Various inputs are used in determining the value of the Funds investments.
The
inputs are summarized in the three broad levels listed below.
Level
1 quoted prices in active markets for identical securities
Level
2 other significant observable inputs (including quoted prices for similar
investments, interest rates, pre- payment speeds, credit risk, etc.)
Level
3 significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments)
The
inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The
following is a summary of the inputs used as of December 31, 2008 in
valuing the Funds investments carried at value:
Valuation Inputs
|
|
Investments
in Securities
(000)
|
|
Level 1 - Quoted Prices
|
|
$
|
35,812
|
|
Level 2 - Other Significant Observable
Inputs
|
|
240,527
|
|
Level 3 - Significant Unobservable Inputs
|
|
|
*
|
Total
|
|
$
|
276,339
|
|
Following
is a reconciliation of investments in which significant unobservable inputs
(Level 3) were used in determining value:
|
|
Investments
in Securities
(000)
|
|
Balance as of 12/31/07
|
|
$
|
*
|
Accrued discounts/premiums
|
|
|
|
Realized gain (loss)
|
|
|
|
Change in unrealized appreciation
(depreciation)
|
|
|
|
Net purchases (sales)
|
|
|
|
Net transfers in and/or out of Level 3
|
|
|
|
Balance as of 12/31/08
|
|
$
|
*
|
The amount of total gains (losses) for the
period included in earnings attributable to the change in unrealized gains
(losses) relating to assets and liabilities still held at 12/31/08.
|
|
$
|
|
*Includes
a security which is valued at zero.
12
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
7.
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 Assets and Liabilities. Upon
allotment of the securities, this amount plus any remaining amount of issue
price is recorded as cost of investments. Realized gains (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 and
distributions are 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.
B.
Investment Advisory Fees:
Morgan Stanley Investment Management Inc.
(the Adviser or MS Investment Management) 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 Funds
average weekly net assets.
C.
Administration Fees:
MS Investment Management also serves as Administrator to the Fund
pursuant to an Administration Agreement. Under the Administration Agreement,
the administration fee is 0.08% of the Funds average weekly net assets. MS
Investment Management has agreed to limit the administration fee through a
waiver so that it will be no greater than the previous administration fee of
0.02435% of the Funds average weekly net assets plus $24,000 per annum. This
waiver is voluntary and may be terminated at any time. For the year ended December 31,
2008, approximately $317,000 of administration fees were waived pursuant to
this arrangement. Under a sub-administration agreement between the
Administrator and JPMorgan Investor Services Co. (JPMIS), a corporate
affiliate of JPMorgan Chase Bank, N.A., JPMIS provides certain administrative
services to the Fund. For such services, the Administrator pays JPMIS a portion
of the fee the Administrator receives from the Fund. Administration costs
(including out-of-pocket expenses) incurred in the ordinary course of providing
services under the administration agreement, except pricing services and
extraordinary expenses, are covered under the administration fee.
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 Fees:
JPMorgan Chase Bank, N.A. (the Custodian) serves as Custodian for the
Fund. The Custodian holds cash, securities, and other assets of the Fund as
required by the 1940 Act. 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.
The
Fund has entered into an arrangement with its Custodian whereby credits
realized on uninvested cash balances were used to offset a portion of the Funds
expenses. These custodian credits are shown as Expense Offset on the
Statement of Operations.
E.
Directors Fees and Expenses:
Prior to April 1, 2008, the Fund paid
each of its Mauritian Independent Directors an annual fee of $10,000 and all
other Independent Directors an annual fee of $7,500. Additionally, each
Mauritian Independent Director was paid a fee of $750 for each Board Meeting
attended. Effective April 1, 2008, the Directors of the Fund will receive
an annual fee of $15,000. There will no longer be a per meeting fee.
E.
Federal Income Taxes:
It is the Funds intention to continue
to qualify as a regulated investment company and distribute all of 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.
Effective
October 1, 2004 there is no capital gains tax in India for long-term
investments and the rate of capital gains tax for short-term investments is
10.455% for transactions conducted through a recognized stock exchange (the
capital gains rates were 10.455% for long-term investments and 31.365% for
short-term investments for the financial year April 1, 2004 to March 31,
2005). 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
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
13
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
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% (under Article 10
of the India-Mauritius tax treaty) 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 Indian 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 20.91%. The Treaty benefits accorded to foreign investors were
challenged by a non-governmental organization and the matter was litigated
before Indias Supreme Court (the highest court in India). In October 2003,
Indias 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).
Financial
Accounting Standards Board Interpretation No. 48
Accounting for Uncertainty in Income Taxes (FIN 48)
sets
forth a minimum threshold for financial statement recognition of the benefit of
a tax position taken or expected to be taken in a tax return. Management has
concluded there are no significant uncertain tax positions that would require
recognition in the financial statements. If applicable, the Fund recognizes
interest accrued related to unrecognized tax benefits in Interest Expense and
penalties in Other expenses on the Statement of Operations. The Fund files
tax returns with the U.S. Internal Revenue Service, New York and various
states. Generally, each of the tax years in the four year period ended December 31,
2008, remains subject to examination by taxing authorities.
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 fiscal 2008 and 2007 was as follows:
2008 Distributions
Paid From:
(000)
|
|
2007 Distributions
Paid From:
(000)
|
|
Ordinary
Income
|
|
Long-term
Capital
Gain
|
|
Ordinary
Income
|
|
Long-term
Capital
Gain
|
|
$21,864
|
|
$181,029
|
|
$12,411
|
|
$317,428
|
|
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 U.S. generally accepted accounting principles. The book/tax
differences are considered either temporary or permanent in nature.
Temporary
differences are generally due to differing book and tax treatments for the
timing of the recognition of gains (losses) on certain investment transactions
and the timing of the deductibility of certain expenses.
Permanent
differences, primarily due to differing treatments of gains (losses) related to
foreign currency transactions, net operating loss, basis adjustments on certain
equity securities designated as issued by passive foreign investment companies
and distribution redesignations, resulted in the following reclassifications
among the components of net assets at December 31, 2008:
Increase (Decrease)
|
|
Undistributed
(Distributions in
Excess of) Net
Investment
Income (Loss)
(000)
|
|
Accumulated
Net Realized
Gain (Loss)
(000)
|
|
Paid-in
Capital
(000)
|
|
$8,581
|
|
$1,605
|
|
$(10,186
|
)
|
At
December 31, 2008, the Fund had no distributable earnings on a tax basis.
At
December 31, 2008, the U.S. Federal income tax cost basis of investments
was approximately $390,473,000 and, accordingly, net unrealized depreciation
for U.S. Federal income tax purposes was $114,134,000 of which $19,516,000
related to appreciated securities and $133,650,000 related to depreciated
securities.
Net
capital, currency and passive foreign investment company (PFIC) losses
incurred after October 31, and within the taxable year are deemed to arise
on the first day of the Funds next taxable year. For the year ended December 31,
2008, the Fund deferred to January 2, 2009, for U.S. Federal income tax
purposes, capital and currency losses of approximately $33,468,000 and $77,000,
respectively.
F.
Contractual Obligations:
The Fund enters into contracts that contain a
variety of indemnifications. The Funds maximum exposure under these
arrangements is unknown. However, the
14
|
Morgan Stanley India Investment Fund, Inc.
|
|
|
|
December 31,
2008
|
Notes to Financial
Statements (contd)
Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
G.
Security Transactions and Transactions with Affiliates:
The Fund invests in the
Institutional Class of the Morgan Stanley Institutional Liquidity Money
Market Portfolio, an open-end management investment company managed by the
Adviser. Investment Advisory fees paid by the Fund are reduced by an amount
equal to its pro-rata share of advisory and administration fees paid by the
Morgan Stanley Institutional Liquidity Money Market Portfolio. For the year
ended December 31, 2008, advisory fees paid were reduced by approximately
$11,000 relating to the Funds investment in the Morgan Stanley Institutional
Liquidity Money Market Portfolio.
A
summary of the Funds transactions in shares of the affiliated issuer during
the year ended December 31, 2008 is as follows:
Market
Value
December 31,
2007
(000)
|
|
Purchases
at Cost
(000)
|
|
Sales
Proceeds
(000)
|
|
Dividend
Income
(000)
|
|
Market Value
December 31,
2008
(000)
|
|
$179,495
|
|
$275,923
|
|
$419,606
|
|
$300
|
|
$35,812
|
|
During
the year ended December 31, 2008, the Fund made purchases and sales
totaling approximately $363,978,000 and $584,297,000, 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.
During
the year ended December 31, 2008, the Fund incurred approximately $83,000
of brokerage commissions with Morgan Stanley & Co. Incorporated, an
affiliated broker/dealer.
H.
Other:
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 Funds 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
Funds shares trade from their net asset value. During the year ended December 31,
2008, the Fund repurchased 2,000 of its shares at an average discount of 2.31%
from net asset value per share. Since the inception of the program, the Fund
has repurchased 8,941,882 of its shares at an average discount of 26.84% 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
Directors.
On
December 12, 2008, the Officers of the Fund, pursuant to authority granted
by the Directors, declared a distribution of $1.7756 per share, derived from
capital gains, payable on January 7, 2009, to stockholders of record on December 19,
2008.
I.
Supplemental Proxy
Information (unaudited):
On
June 19, 2008, an annual meeting of the Funds stockholders was held for
the purpose of voting on the following matter, the results of which were as
follows:
Election of Directors by all stockholders:
|
|
For
|
|
Withhold
|
|
Gaetan Bouic
|
|
14,325,479
|
|
420,458
|
|
Ravindranath Santosh Kumar Hazareesing
|
|
14,330,470
|
|
415,468
|
|
15
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Notes to Financial
Statements (contd)
Federal Income Tax Information (unaudited)
For
Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended December 31,
2008.
The
Fund designated and paid approximately $181,029,000 as long-term capital gain
distribution.
For
Federal income tax purposes, the following information is furnished with
respect to the Funds earnings for its taxable year ended December 31,
2008.
When
distributed, certain earnings may be subject to a maximum tax rate of 15% as
provided for the Jobs and Growth Tax Relief Reconciliation Act of 2004. The
Fund designated up to a maximum of approximately $2,000 as taxable at this
lower rate.
For
non-U.S. residents, the Fund may designate up to a maximum of approximately
$231,000 as qualifying as interest-related dividends. Additionally, the Fund
may designate up to a maximum of approximately $17,879,000 as qualifying as
short-term capital gain dividends.
In
January, the Fund provides tax information to stockholders for the preceding
calendar year.
For More Information About Portfolio Holdings (unaudited)
The
Fund provides a complete schedule of portfolio holdings in its semi-annual and
annual reports within 60 days of the end of the Funds second and fourth fiscal
quarters. The semi-annual reports and the annual reports are filed
electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS
and Form N-CSR, respectively. Morgan Stanley also delivers the semi-annual
and annual reports to Fund stockholders and makes these reports available on
its public website, www.morganstanley.com/msim. Each Morgan Stanley fund also
files a complete schedule of portfolio holdings with the SEC for the Funds
first and third fiscal quarters on Form N-Q. Morgan Stanley does not
deliver the reports for the first and third fiscal quarters to stockholders,
nor are the reports posted to the Morgan Stanley public website. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SECs website, www.sec.gov. You may also
review and copy them at the SECs public reference room in Washington, DC. Information
on the operation of the SECs Public Reference Room may be obtained by
calling the SEC at 1(800) SEC-0330. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SECs
e-mail address (publicinfo@sec.gov) or by writing the public reference section
of the SEC, Washington, DC 20549-0102.
In
addition to filing a complete schedule of portfolio holdings with the SEC each
fiscal quarter, the Fund makes portfolio holdings information available by periodically
providing the information on its public website, www.morganstanley.com/ msim.
The
Fund provides a complete schedule of portfolio holdings on the public website
on a calendar-quarter basis approximately 31 calendar days after the close of
the calendar quarter. The Fund also provides Top 10 holdings information on the
public website approximately 15 business days following the end of each month.
You may obtain copies of the Funds monthly or calendar-quarter website
postings, by calling 1(800) 231-2608.
16
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Notes to Financial
Statements (contd)
Proxy Voting Policy and Procedures and Proxy Voting Record
(unaudited)
A
copy of (1) the Funds policies and procedures with respect to the voting
of proxies relating to the Funds portfolio securities; and (2) how the
Fund voted proxies relating to portfolio securities during the most recent
twelve-month period ended June 30, is available without charge, upon
request, by calling 1 (800) 548-7786 or by visiting our website at
www.morganstanley.com/msim. This information is also available on the SECs
website at www.sec.gov.
17
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Portfolio Management
(unaudited)
The
Fund is managed by members of the Emerging Markets Equity team. The team
consists of portfolio managers and analysts. The current members of the team
jointly and primarily responsible for the day-to-day management of the Funds
portfolio are James Cheng and Ruchir Sharma. Mr. Cheng is a Managing
Director of the Sub-Adviser and Mr. Sharma is a Managing Director of the
Adviser. Mr. Cheng has been associated with the Sub-Adviser in an
investment management capacity since July 2006 and joined the team
managing the Fund in February 2009. Prior to July 2006, Mr. Cheng
worked in an investment management capacity at Invesco Asia Limited, Asia
Strategic Investment Management Limited and Munich Re Asia Capital Management. Mr. Sharma
has been associated with the Sub-Adviser in an investment management capacity
since 1996 and joined the team managing the Fund in January 2001.
18
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Report of Independent
Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Morgan Stanley India Investment Fund, Inc.
We
have audited the accompanying statement of assets and liabilities of Morgan
Stanley India Investment Fund, Inc. (the Fund), including the portfolio
of investments, as of December 31, 2008, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an audit of the Funds internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2008, by
correspondence with the custodian. 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, 2008, 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 five years in the period then ended, in conformity with
U.S. generally accepted accounting principles.
Boston,
Massachusetts
February 25, 2009
19
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Dividend Reinvestment and
Cash Purchase Plan (unaudited)
Pursuant to the Dividend Reinvestment and Cash
Purchase Plan (the Plan), each stockholder will be deemed to have elected,
unless Computershare Trust Company, N.A. (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 or, 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 Agents fees for the reinvestment of
dividends and distributions will be paid by the Fund. However, each participants
account will be charged a pro rata share of brokerage commissions incurred on
any open market purchases effected on such participants 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 stockholders 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.
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, Rhode Island 02940-3078
1(800) 231-2608
20
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Morgan Stanley Institutional
Closed End Funds
An Important Notice Concerning Our
U.S. Privacy Policy (unaudited)
We
are required by federal law to provide you with a copy of our Privacy Policy
annually.
The
following Policy applies to current and former individual investors in Morgan
Stanley Institutional closed end funds. This Policy is not applicable to
partnerships, corporations, trusts or other non-individual clients or account
holders. Please note that we may amend this Policy at any time, and will inform
you of any changes to this Policy as required by law.
We Respect Your Privacy
We
appreciate that you have provided us with your personal financial information.
We strive to maintain the privacy of such information while we help you achieve
your financial objectives. This Policy describes what non-public personal
information we collect about you, why we collect it, and when we may share it
with others. We hope this Policy will help you understand how we collect and
share non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you
or your accounts as personal information.
1. What Personal Information Do We Collect About You?
To
serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For
example:
·
We may collect information such as your name,
address, e-mail address, telephone/fax numbers, assets, income and investment
objectives through applications and other forms you submit to us.
·
We may obtain information about account
balances, your use of account(s) and the types of products and services
you prefer to receive from us through your dealings and transactions with us
and other sources.
·
We may obtain information about your
creditworthiness and credit history from consumer reporting agencies.
·
We may collect background information from and
through third-party vendors to verify representations you have made and to
comply with various regulatory requirements.
·
If you interact with us through our public and
private Web sites, we may collect information that you provide directly through
online communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name, your
computers operating system and Web browser, your use of our Web sites and your
product and service preferences, through the use of cookies. Cookies
recognize your computer each time you return to one of our sites, and help to
improve our sites content and personalize your experience on our sites by, for
example, suggesting offerings that may interest you. Please consult the Terms
of Use of these sites for more details on our use of cookies.
2. When Do We Disclose Personal Information We Collect About
You?
To
provide you with the products and services you request, to serve you better and
to manage our business, we may disclose personal information we collect about
you to our affiliated companies and to non-affiliated third parties as required
or permitted by law.
A.
Information We Disclose to Our Affiliated Companies.
We do not disclose personal information that
we collect about you to our affiliated companies except to enable them to
provide services on our behalf or as otherwise required or permitted by law.
21
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Morgan Stanley
Institutional Closed End Funds
An Important Notice Concerning Our
U.S. Privacy Policy (contd)
B.
Information We Disclose to Third Parties.
We do not disclose personal information that
we collect about you to non-affiliated third parties except to enable them to
provide services on our behalf, to perform joint marketing agreements with
other financial institutions, or as otherwise required or permitted by law. For
example, some instances where we may disclose information about you to
nonaffiliated third parties include: for servicing and processing transactions,
to offer our own products and services, to protect against fraud, for
institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these
companies, they are required to limit their use of personal information to the
particular purpose for which it was shared and they are not allowed to share
personal information with others except to fulfill that limited purpose.
3. How Do We Protect the Security and Confidentiality of
Personal Information We Collect About You?
We
maintain physical, electronic and procedural security measures to help safeguard
the personal information we collect about you. We have internal policies
governing the proper handling of client information. Third parties that provide
support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
22
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Director and Officer
Information (unaudited)
Independent
Directors:
Name, Age and Address of
Independent Director
|
|
Position(s)
Held with
Registrant
|
|
Length of
Time
Served*
|
|
Principal
Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in
Fund
Complex
Overseen
by
Independent
Director**
|
|
Other Directorships Held
by
Directors
|
Gaetan Bouic (74)
Les Jamalacs Building
2nd Floor
Vieux Conseil Street
Port Louis, Mauritius
|
|
Chairman of the Board
and Director
|
|
Since 2001
|
|
Finance Manager of
United Basalt Products Ltd. (manufacturing company) (retired
December 2002).
|
|
1
|
|
Director of Swiss
Technology Venture Capital Fund (Private) Ltd.; CDC Financial Services
(Mauritius) Ltd.; Cim Foreign Equity Fund Ltd. (commercial property fund);
Aureos Capital Ltd. (private equity fund); CDC-PTL Holdings Ltd (investment
firm).
|
|
|
|
|
|
|
|
|
|
|
|
M.J. Marcel Vivian
Descroizilles (60)
Les Jamalacs Building
2nd Floor
Vieux Conseil Street
Port Louis, Mauritius
|
|
Director
|
|
Since 2006
|
|
Managing Director of
Société du Port [Rogers Group] (June to November 2006) Consultant,
Total Outre Mer SA Paris (January to May 2006); formerly Managing
Director and General Manager of ESSO Mauritius Ltd., affiliate of ExxonMobil
Corp. (1996 to 2005); Finance Manager, Marketing Manager and Senior Internal
Auditor for the Royal Dutch Shell Group of Companies (oil company) (1976 to
1996).
|
|
1
|
|
Independent director on
a number of companies, including publicly quoted Roger & Co. Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
Joseph J. Kearns (66)
c/o Kearns & Associates LLC
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265
|
|
Director
|
|
Since August 1994
|
|
President,
Kearns & Associates LLC (investment consulting); Chairperson of the
Audit Committee (since October 2006) and Director or Trustee of the
Retail Funds (since July 2003) and Institutional Funds (since
August 1994); formerly Deputy Chairperson of the Audit Committee
(July 2003-September 2006) and Chairperson of the Audit Committee
of the Institutional Funds (October 2001-July 2003); formerly, CFO
of the J. Paul Getty Trust.
|
|
164
|
|
Director of Electro Rent
Corporation (equipment leasing) and The Ford Family Foundation.
|
|
|
|
|
|
|
|
|
|
|
|
Ravindranath Santosh
Kumar
Hazareesing (58) Morcellement St. Andrews-
Rose Hill, Mauritius
|
|
Director
|
|
Since 2003
|
|
Self-employed Management
Consultant.
|
|
1
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
Fergus Reid (76)
c/o Lumelite Plastics
Corporation
85 Charles Coleman Blvd.
Pawling, NY 12564
|
|
Director
|
|
Since June 1992
|
|
Chairman, Lumelite
Plastics Corporation; Chairperson of the Governance Committee and Director or
Trustee of the Retail Funds (since July 2003) and Institutional Funds
(since June 1992).
|
|
164
|
|
Trustee and Director of
certain investment companies in the JPMorgan Funds complex managed by JP Morgan
Investment Management Inc.
|
23
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Director and Officer
Information (contd)
Interested
Directors:
Name, Age and Address of
Interested Director
|
|
Position(s)
Held with
Registrant
|
|
Term of
Office and
Length of
Time
Served*
|
|
Principal
Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in
Fund
Complex
Overseen
by
Interested
Director**
|
|
Other Directorships Held
by
Interested Director
|
Randy Takian (34)
Morgan Stanley Investment
Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Director, President and
Principal Executive Officer
|
|
Since
September 2008
|
|
President and Principal
Executive Officer (since September 2008) of funds in the Fund Complex;
President and Chief Executive Officer of Morgan Stanley Services Company Inc.
(since September 2008). President of Morgan Stanley Investment Advisors
Inc. (since July 2008). Head of the Retail and Intermediary business
within Morgan Stanley Investment Management (since July 2008). Head of
Liquidity and Bank Trust business (since July 2008) and the Latin
American franchise (since July 2008) at Morgan Stanley Investment
Management. Managing Director, Director and/or Officer of the Adviser and
various entities affiliated with the Adviser. Formerly, Head of Strategy and
Product Development for the Alternatives Group and Senior Loan Investment
Management. Formerly with Bank of America
(July 1996-March 2006),most recently as Head of the Strategy,
Mergers and Acquisitions team for Global Wealth and Investment Management.
|
|
1
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
*
This is the earliest date the Director began serving
the Retail Funds or 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. (MSIM) that have an investment advisor
that is an affiliated entity of MSIM (including but not limited to, Morgan
Stanley Investment Advisors Inc. (MSIA) and Morgan Stanley AIP GP LP). The
Retail Funds are those funds advised by MSIA. The Institutional Funds are
certain U.S. registered funds advised by MSIM and Morgan Stanley AIP GP LP.
24
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Director and Officer
Information (contd)
Executive Officers:
Name, Age and Address of
Executive Officer
|
|
Position(s) Held
with Registrant
|
|
Term of Office
and Length of
Time Served*
|
|
Principal
Occupation(s) During Past 5 Years
|
Randy Takian (34)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
President and Principal
Executive Officer
|
|
Since
September 2008
|
|
President and Principal
Executive Officer (since September 2008) of funds in the Fund Complex;
President and Chief Executive Officer of Morgan Stanley Services Company Inc.
(since September 2008). President of Morgan Stanley Investment Advisors
Inc. (since July 2008). Head of the Retail and Intermediary business
within Morgan Stanley Investment Management (since July 2008). Head of
Liquidity and Bank Trust business (since July 2008) and the Latin
American franchise (since July 2008) at Morgan Stanley Investment
Management. Managing Director, Director and/or Officer of the Adviser and
various entities affiliated with the Adviser. Formerly, Head of Strategy and
Product Development for the Alternatives Group and Senior Loan Investment
Management. Formerly with Bank of America (July 1996-March 2006),
most recently as Head of the Strategy, Mergers and Acquisitions team for
Global Wealth and Investment Management.
|
|
|
|
|
|
|
|
Kevin Klingert (46)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice President
|
|
Since
June 2008
|
|
Global Head, Chief
Operating Officer and acting Chief Investment Officer of the Global Fixed
Income Group of the Adviser and Morgan Stanley Investment Advisors Inc.
(since April 2008). Head of Global Liquidity Portfolio Management and
co-Head of Liquidity Credit Research of Morgan Stanley Investment Management
(since December 2007). Managing Director of the Adviser and Morgan
Stanley Investment Advisors Inc. (since December 2007). Previously,
Managing Director on the Management Committee and head of Municipal Portfolio
Management and Liquidity at BlackRock (October 1991 to
January 2007).
|
|
|
|
|
|
|
|
Amy R. Doberman (46)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice President
|
|
Since
July 2004
|
|
Managing Director of
Morgan Stanley Investment Management (since July 2004); Vice President
of the Retail Funds and Institutional Funds (since July 2004); Vice
President of the Van Kampen Funds (since August 2004); Secretary (since
February 2006) and Managing Director (since July 2004) of the
Adviser and various entities affiliated with the Adviser. Formerly, Managing
Director and General Counsel Americas, UBS Global Asset Management
(July 2000-July 2004).
|
|
|
|
|
|
|
|
Carsten Otto (45)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Chief Compliance Officer
|
|
Since
October 2004
|
|
Managing Director and
Global Head of Compliance for Morgan Stanley Investment Management (since
April 2007) and Chief Compliance Officer of the Retail Funds and
Institutional Funds (since October 2004). Formerly, U.S. Director of
Compliance (October 2004-April 2007) and Assistant Secretary and
Assistant General Counsel of the Retail Funds.
|
|
|
|
|
|
|
|
Stefanie V. Chang Yu
(42)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice President
|
|
Since
December 1997
|
|
Managing Director of the
Adviser and various entities affiliated with the Adviser; Vice President of
the Retail Funds (since July 2002) and Institutional Funds (since
December 1997). Formerly, Secretary of various entities affiliated with
the Adviser.
|
|
|
|
|
|
|
|
Mary E. Mullin (41)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Secretary
|
|
Since
June 1999
|
|
Executive Director of
the Adviser and various entities affiliated with the Adviser; Secretary of
the Retail Funds (since July 2003) and Institutional Funds (since
June 1999).
|
25
|
Morgan Stanley India Investment
Fund, Inc.
|
|
|
|
December 31, 2008
|
Director and Officer
Information (contd)
Executive Officers
(contd):
Name, Age and Address of
Executive Officer
|
|
Position(s) Held
with Registrant
|
|
Term of Office
and Length of
Time Served*
|
|
Principal
Occupation(s) During Past 5 Years
|
James W. Garrett (40)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Treasurer and Chief
Financial Officer
|
|
Treasurer since
February 2002 and Chief Financial Officer since July 2003
|
|
Head of Global Fund
Administration; Managing Director of the Adviser and various entities
affiliated with the Adviser; Treasurer and Chief Financial Officer of the
Institutional Funds.
|
|
|
|
|
|
|
|
*
This is the earliest date the Officer began serving the
Retail Funds or Institutional Funds. Each Officer serves an indefinite term,
until his or her successor is elected.
In accordance with Section 303A.
12(a) of the New York Stock Exchange Listed Company Manual, the Funds
Annual CEO Certification certifying as to compliance with NYSEs Corporate
Governance Listing Standards was submitted to the Exchange on October 3,
2008.
The Funds Principal
Executive Officer and Principal Financial Officer Certifications required by Section 302
of the Sarbanes-Oxley Act of 2002 were filed with the Funds N-CSR and are
available on the Securities and Exchange Commissions Website at
http://www.sec.gov.
26
Morgan
Stanley India Investment Fund, Inc.
Directors
|
Officers
|
Gaetan
Bouic
|
Kevin
Klingert
|
Chairman of the Board
|
Vice President
|
|
|
M.J.
Marcel Vivian
|
Amy
R. Doberman
|
Descroizilles
|
Vice President
|
|
|
Joseph
J. Kearns
|
Stefanie
V. Chang Yu
|
|
Vice President
|
Ravindranath
Santosh
|
|
Kumar
Hazareesing
|
James
W. Garrett
|
|
Treasurer and Chief
|
Fergus
Reid
|
Financial Officer
|
|
|
Randy
Takian
|
Carsten
Otto
|
Director, President and
|
Chief Compliance Officer
|
Principal Executive Officer
|
|
|
Mary
E. Mullin
|
|
Secretary
|
Investment Adviser and Administrator
Morgan
Stanley Investment Management Inc.
522
Fifth Avenue
New
York, New York 10036
Custodian
JPMorgan
Chase Bank, N.A.
270
Park Avenue
New
York, New York 10017
Stockholder Servicing Agent
Computershare
Trust Company, N.A.
250
Royall Street
Canton,
Massachusetts 02021
Legal Counsel
Clifford
Chance US LLP
31
West 52nd Street
New
York, New York 10019-6131
Independent Registered Public Accounting Firm
Ernst &
Young LLP
200
Clarendon Street
Boston,
Massachusetts 02116
For
additional Fund information, including the Funds net asset value per share and
information regarding the investments comprising the Funds portfolio, please
call 1(800) 231-2608 or visit our website at www.morganstanley.com/msim. All
investments involve risks, including the possible loss of principal.
©
2009 Morgan Stanley
CEIIFANN IU09-006301-Y12/08
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)
Not
applicable.
(d)
Not
applicable.
(e)
Not
applicable.
(f)
(1)
The
Funds Code of Ethics is attached hereto as Exhibit 12 A.
(2)
Not
applicable.
(3)
Not
applicable.
Item 3.
Audit Committee Financial Expert.
The Funds Board of Trustees has determined that Joseph J. Kearns, an independent Trustee, is an audit committee financial expert serving on its audit committee. 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 member of the audit committee and Board of Trustees 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:
2008
|
|
Registrant
|
|
Covered Entities(1)
|
|
Audit
Fees
|
|
$
|
106,900
|
|
N/A
|
|
|
|
|
|
|
|
Non-Audit
Fees
|
|
|
|
|
|
Audit-Related
Fees
|
|
$
|
|
|
$
|
742,276
|
(2)
|
Tax Fees
|
|
$
|
3,380
|
(3)
|
$
|
99,522
|
(4)
|
All
Other Fees
|
|
$
|
|
|
$
|
246,887
|
(5)
|
Total
Non-Audit Fees
|
|
$
|
3,380
|
|
$
|
1,088,685
|
|
|
|
|
|
|
|
Total
|
|
$
|
110,280
|
|
$
|
1,088,685
|
|
2007
|
|
Registrant
|
|
Covered Entities(1)
|
|
Audit
Fees
|
|
$
|
116,400
|
|
N/A
|
|
|
|
|
|
|
|
Non-Audit
Fees
|
|
|
|
|
|
Audit-Related
Fees
|
|
$
|
|
|
$
|
731,800
|
(2)
|
Tax Fees
|
|
$
|
3,100
|
(3)
|
$
|
104,020
|
(4)
|
All
Other Fees
|
|
$
|
|
|
$
|
166,270
|
(5)
|
Total
Non-Audit Fees
|
|
$
|
3,100
|
|
$
|
1,002,090
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,500
|
|
$
|
1,002,090
|
|
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
and advisory consulting work.
|
|
|
(3)
|
Tax Fees
represent tax advice and compliance services provided in connection with the
review of the Registrants tax returns.
|
|
|
(4)
|
Tax Fees
represent tax advice services provided to Covered Entities, including
research and identification of PFIC entities.
|
|
|
(5)
|
All Other
Fees represent attestation services provided in connection with performance
presentation standards and a compliance review project performed
|
1
(e)(1) The audit
committees pre-approval policies and procedures are as follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(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
auditors 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 committees administration of the engagement of
the independent auditor. The SECs 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.
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.
(1)
This Audit Committee
Audit and Non-Audit Services Pre-Approval Policy and Procedures (the
Policy
),
adopted as of the date above, supersedes and replaces all prior versions that
may have been adopted from time to time.
2
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 Committees responsibilities to pre-approve services performed by the
Independent Auditors to management.
The Funds 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 SECs 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
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 Funds 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 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
Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
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 Funds 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 SECs 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
3
not classified as Audit services;
assistance with understanding and 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
Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
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 auditors independence, and the
SEC has stated that the Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the
Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6.
All Other Services
The Audit Committee believes, based on the
SECs 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 SECs rules on auditor independence.
The Audit Committee has pre-approved the All
Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
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.
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 Funds Chief Financial Officer
and must include a detailed description of the services to be
4
rendered.
The Funds 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 Funds Chief Financial Officer, and must
include a joint statement as to whether, in their view, the request or
application is consistent with the SECs rules on auditor independence.
The Audit Committee has designated the Funds
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 Funds
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both
the Funds 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 Funds Chief Financial Officer or any member of management.
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 auditors 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 Funds
investment adviser(s) and any entity controlling, controlled by or under
common control with the Funds 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 Funds
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 Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co.,
Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
5
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co.,
Limited
Morgan Stanley Investment Management Company
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 Committees
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.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act whose members are: Frank Joseph Kearns, Michael Nugent and Allen Reed.
(b) Not applicable.
Item 6. Schedule of Investments
(a) Refer to Item 1.
(b) Not used.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies.
6
APPROVED FEBRUARY 28, 2008
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I.
POLICY
STATEMENT
Introduction
- Morgan Stanley Investment
Managements (MSIM) policy and procedures for voting proxies (Policy) with
respect to securities held in the accounts of clients applies to those MSIM
entities that provide discretionary investment management services and for
which an MSIM entity has authority to vote proxies. This Policy is reviewed and updated as
necessary to address new and evolving proxy voting issues and standards.
The MSIM entities covered by this Policy currently include the
following: Morgan Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP,
Morgan Stanley Investment Management 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, Van Kampen Asset Management, and Van Kampen Advisors Inc.
(each an MSIM Affiliate and collectively referred to as the MSIM Affiliates
or as we below).
Each MSIM Affiliate will use its best efforts to 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 Fundscollectively referred to herein as the MSIM
Funds), each MSIM Affiliate will vote proxies under this Policy pursuant to
authority granted under its applicable investment advisory agreement or, in the
absence of such authority, as authorized by the Board of Directors/Trustees of
the MSIM Funds. An 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 or investment
advisory agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will vote proxies in a
prudent and diligent manner and in the best interests of clients, including
beneficiaries of and participants in a clients benefit plan(s) for which the
MSIM Affiliates 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 an MSIM Affiliate with a proxy voting policy. In these situations, the MSIM Affiliate will
comply with the clients policy.
Proxy Research Services
- RiskMetrics Group
ISS Governance Services (ISS) and Glass Lewis (together with other proxy
research providers as we may retain from time to time, the Research Providers)
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 include in-depth
research, global issuer analysis, and voting recommendations. While we may
review and utilize the recommendations of the Research Providers in
7
making proxy voting decisions, we are in no way obligated to follow
such recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping.
Voting Proxies
for Certain Non-U.S. Companies
- Voting proxies of
companies located in some jurisdictions, particularly emerging markets, may
involve several problems that can restrict or prevent the ability to vote such
proxies or entail significant costs.
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 issuers 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 our voting instructions. As a
result, we vote clients non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent with the
Client Proxy Standard. ISS has been
retained to provide assistance in connection with voting non-U.S. proxies.
II.
GENERAL
PROXY VOTING GUIDELINES
To promote
consistency in voting proxies on behalf of its clients, we follow this Policy
(subject to any exception set forth herein), including the guidelines set forth
below. These guidelines address a broad
range of issues, and provide general voting parameters on proposals that arise
most frequently. However, details of
specific proposals vary, and those details affect particular voting decisions,
as do factors specific to a given company. Pursuant to the procedures set forth
herein, we may vote in a manner that is not in accordance with the following
general guidelines, provided the vote is approved by the Proxy Review Committee
(see Section III for description) and is consistent with the Client Proxy
Standard. Morgan Stanley AIP GP LP will
follow the procedures as described in Appendix A.
We endeavor to
integrate governance and proxy voting policy with investment goals and to
follow the Client Proxy Standard for each client. At times, this may result in
split votes, for example when different clients have varying economic interests
in the outcome of a particular voting matter (such as a case in which varied
ownership interests in two companies involved in a merger result in different
stakes in the outcome). We also may
split votes at times based on differing views of portfolio managers, but such a
split vote must be approved by the Proxy Review Committee.
We may abstain
on matters for which disclosure is inadequate.
A.
Routine
Matters.
We generally support routine
management proposals. The following are
examples of routine management proposals:
·
Approval of
financial statements and auditor reports.
8
·
General
updating/corrective amendments to the charter, articles of association or
bylaws.
·
Most proposals
related to the conduct of the annual meeting, with the following
exceptions. We generally oppose
proposals that relate to the transaction of such other business which may come
before the meeting, and open-ended
requests for adjournment. However, where management specifically states
the reason for requesting an adjournment and the requested adjournment would
facilitate passage of a proposal that would otherwise be supported under this
Policy (i.e. an uncontested corporate transaction), the adjournment request
will be supported.
We generally support shareholder proposals
advocating confidential voting procedures and independent tabulation of voting
results.
B.
Board
of Directors
1.
Election of
directors
: In the absence of a proxy contest, we generally support the
boards nominees for director except as follows:
a.
We consider
withholding support from or voting against interested directors if the companys
board does not meet market standards for director independence, or if otherwise
we believe board independence is insufficient.
We refer to prevalent market standards as promulgated by a stock
exchange or other authority within a given market (e.g., New York Stock
Exchange or Nasdaq rules for most U.S. companies, and The Combined Code on
Corporate Governance in the United Kingdom). Thus, for an NYSE company with no
controlling shareholder, we would expect that at a minimum a majority of
directors should be independent as defined by NYSE. Where we view market standards as inadequate,
we may withhold votes based on stronger independence standards. Market
standards notwithstanding, we generally do not view long board tenure alone as
a basis to classify a director as non-independent, although lack of board
turnover and fresh perspective can be a negative factor in voting on directors.
i.
At
a company with a shareholder or group that controls the company by virtue of a
majority economic interest in the company, we have a reduced expectation for
board independence, although we believe the presence of independent directors
can be helpful, particularly in staffing the audit committee, and at times we
may withhold support from or vote against a nominee on the view the board or
its committees are not sufficiently independent.
ii.
We
consider withholding support from or voting against a nominee if he or she is
affiliated with a major shareholder that has representation on a board
disproportionate to its economic interest.
9
b.
Depending on market
standards, we consider withholding support from or voting against a nominee who
is interested and who is standing for election as a member of the companys
compensation, nominating or audit committee.
c.
We consider
withholding support from or voting against a nominee if we believe a direct
conflict exists between the interests of the nominee and the public
shareholders, including failure to meet fiduciary standards of care and/or
loyalty. We may oppose directors where
we conclude that actions of directors are unlawful, unethical or
negligent. We consider opposing
individual board members or an entire slate if we believe the board is
entrenched and/or dealing inadequately with performance problems, and/or acting
with insufficient independence between the board and management.
d.
We consider
withholding support from or voting against a nominee standing for election if
the board has not taken action to implement generally accepted governance
practices for which there is a bright line test. For example, in the context of the U.S.
market, failure to eliminate a dead hand or slow hand poison pills would be
seen as a basis for opposing one or more incumbent nominees.
e.
In markets that
encourage designated audit committee financial experts, we consider voting
against members of an audit committee if no members are designated as such.
f.
We consider
withholding support from or voting against a nominee who has failed to attend
at least 75% of board meetings within a given year without a reasonable excuse.
g.
We consider
withholding support from or voting against a nominee who serves on the board of
directors of more than six companies (excluding investment companies). We also consider voting against a director
who otherwise appears to have too many commitments to serve adequately on the
board of the company.
2.
Board
independence:
We generally support
U.S. shareholder proposals requiring that a certain percentage (up to 66
2
/
3
%) of the companys board members be
independent directors, and promoting all-independent audit, compensation and
nominating/governance committees.
3.
Board
diversity:
We consider on a
case-by-case basis shareholder proposals urging diversity of board membership
with respect to social, religious or ethnic group.
10
4.
Majority
voting:
We generally support
proposals requesting or requiring majority voting policies in election of
directors, so long as there is a carve-out for plurality voting in the case of
contested elections.
5.
Proxy access:
We consider on a case-by-case basis
shareholder proposals to provide procedures for inclusion of shareholder
nominees in company proxy statements.
6.
Proposals to
elect all directors annually:
We
generally support proposals to elect all directors annually at public companies
(to declassify the Board of Directors) where such action is supported by the
board, and otherwise consider the issue on a case-by-case basis based in part
on overall takeover defenses at a company.
7.
Cumulative
voting:
We generally support
proposals to eliminate cumulative voting in the U.S. market context.
(Cumulative voting provides that shareholders may concentrate their votes for
one or a handful of candidates, a system that can enable a minority bloc to
place representation on a board). U.S.
proposals to establish cumulative voting in the election of directors generally
will not be supported.
8.
Separation
of Chairman and CEO positions:
We
vote on shareholder proposals to separate the Chairman and CEO positions and/or
to appoint a non-executive Chairman based in part on prevailing practice in
particular markets, since the context for such a practice varies. In many non-U.S. markets, we view separation
of the roles as a market standard practice, and support division of the roles
in that context.
9.
Director
retirement age and term limits:
Proposals recommending set director retirement ages or director term
limits are voted on a case-by-case basis.
10.
Proposals to limit
directors liability and/or broaden indemnification of directors.
Generally, we will support such proposals
provided that the officers and directors are eligible for indemnification and
liability protection if they have acted in good faith on company business and
were found innocent of any civil or criminal charges for duties performed on
behalf of the company.
C.
Corporate
transactions and proxy fights.
We
examine proposals relating to mergers, acquisitions and other special corporate
transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) on a case-by-case basis. However, proposals for mergers or other
significant transactions that are friendly and approved by the Research Providers
generally will be supported and in those instances will not need to be reviewed
by the Proxy Review Committee, where there is no portfolio manager objection
and where there is no material conflict of interest. We also analyze proxy contests on a
case-by-case basis.
11
D.
Changes
in capital structure.
1.
We generally support
the following:
·
Management
and shareholder proposals aimed at eliminating unequal voting rights, assuming
fair economic treatment of classes of shares we hold.
·
Management proposals to increase the
authorization of existing classes of common stock (or securities convertible
into common stock) if: (i) a clear business purpose is stated that we can
support and the number of shares requested is reasonable in relation to the
purpose for which authorization is requested; and/or (ii) the authorization
does not exceed 100% of shares currently authorized and at least 30% of the
total new authorization will be outstanding.
·
Management proposals to create a new
class of preferred stock or for issuances of preferred stock up to 50% of
issued capital, unless we have concerns about use of the authority for
anti-takeover purposes.
·
Management proposals to authorize
share repurchase plans, except in some cases in which we believe there are
insufficient protections against use of an authorization for anti-takeover
purposes.
·
Management
proposals to reduce the number of authorized shares of common or preferred
stock, or to eliminate classes of preferred stock.
·
Management
proposals to effect stock splits.
·
Management
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 generally will be approved if
the resulting increase in authorized shares coincides with the proxy guidelines
set forth above for common stock increases.
·
Management
proposals for higher dividend payouts.
2.
We generally oppose
the following (notwithstanding management support):
·
Proposals to add
classes of stock that would substantially dilute the voting interests of
existing shareholders.
·
Proposals to
increase the authorized or issued number of shares of existing classes of stock
that are unreasonably dilutive, particularly if there are no preemptive rights
for existing shareholders.
12
·
Proposals that
authorize share issuance at a discount to market rates, except where authority
for such issuance is de minimis, or if there is a special situation that we
believe justifies such authorization (as may be the case, for example, at a
company under severe stress and risk of bankruptcy).
·
Proposals
relating to changes in capitalization by 100% or more.
We consider on a case-by-case basis shareholder proposals to increase
dividend payout ratios, in light of market practice and perceived market
weaknesses, as well as individual company payout history and current
circumstances. For example, currently we
perceive low payouts to shareholders as a concern at some Japanese companies,
but may deem a low payout ratio as appropriate for a growth company making good
use of its cash, notwithstanding the broader market concern.
E.
Takeover
Defenses and Shareholder Rights
1.
Shareholder
rights plans:
We generally support
proposals to require shareholder approval or ratification of shareholder rights
plans (poison pills). In voting on
rights plans or similar takeover defenses, we consider on a case-by-case basis
whether the company has demonstrated a need for the defense in the context of
promoting long-term share value; whether provisions of the defense are in line
with generally accepted governance principles; and the specific context if the
proposal is made in the midst of a takeover bid or contest for control.
2.
Supermajority
voting requirements:
We generally oppose requirements for supermajority
votes to amend the charter or bylaws, unless the provisions protect minority
shareholders where there is a large shareholder. In line with this view, in the absence of a
large shareholder we support reasonable shareholder proposals to limit such
supermajority voting requirements.
3.
Shareholder
rights to call meetings:
We consider
proposals to enhance shareholder rights to call meetings on a case-by-case
basis.
4.
Reincorporation:
We consider management and shareholder proposals to reincorporate to a
different jurisdiction on a case-by-case basis.
We oppose such proposals if we believe the main purpose is to take
advantage of laws or judicial precedents that reduce shareholder rights.
5.
Anti-greenmail
provisions:
Proposals relating to the adoption of anti-greenmail provisions
will be supported, provided that the proposal: (i) defines greenmail; (ii) prohibits
buyback offers to large block holders (holders of at least 1% of the
outstanding shares and in certain cases, a greater amount, as determined by the
Proxy Review Committee) 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.
13
6.
Bundled
proposals:
We may consider opposing
or abstaining on proposals if disparate issues are bundled and presented for
a single vote.
F.
Auditors.
We generally support management
proposals for selection or ratification of independent auditors. However, we may consider opposing such proposals
with reference to incumbent audit firms if the company has suffered from
serious accounting irregularities and we believe rotation of the audit firm is
appropriate, or if fees paid to the auditor for non-audit-related services are
excessive. Generally, to determine if
non-audit fees are excessive, a 50% test will be applied (i.e.,
non-audit-related fees should be less than 50% of the total fees paid to the
auditor). We generally vote against proposals to indemnify auditors.
G.
Executive
and Director Remuneration.
1.
We generally support
the following proposals:
·
Proposals
for employee equity compensation plans and other employee ownership plans,
provided that our research does not indicate that approval of the plan would be
against shareholder interest. Such
approval may be against shareholder interest if it authorizes excessive
dilution and shareholder cost, particularly in the context of high usage (run
rate) of equity compensation in the recent past; or if there are objectionable
plan design and provisions.
·
Proposals
relating to fees to outside directors, provided the amounts are not excessive
relative to other companies in the country or industry, and provided that the
structure is appropriate within the market context. While stock-based compensation to outside
directors is positive if moderate and appropriately structured, we are wary of
significant stock option awards or other performance-based awards for outside
directors, as well as provisions that could result in significant forfeiture of
value on a directors decision to resign from a board (such forfeiture can
undercut director independence).
·
Proposals
for 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.
·
Proposals
for the establishment of employee retirement and severance plans, provided that
our research does not indicate that approval of the plan would be against
shareholder interest.
14
2.
Shareholder proposals
requiring shareholder approval of all severance agreements will not be
supported, but proposals that require shareholder approval for agreements in
excess of three times the annual compensation (salary and bonus) generally will
be supported. We generally oppose shareholder proposals that would establish
arbitrary caps on pay. We consider on a
case-by-case basis shareholder proposals that seek to limit Supplemental
Executive Retirement Plans (SERPs), but support such proposals where we
consider SERPs to be excessive.
3.
Shareholder proposals
advocating stronger and/or particular pay-for-performance models will be
evaluated on a case-by-case basis, with consideration of the merits of the
individual proposal within the context of the particular company and its labor
markets, and the companys current and past practices. While we generally support emphasis on
long-term components of senior executive pay and strong linkage of pay to
performance, we consider whether a proposal may be overly prescriptive, and the
impact of the proposal, if implemented as written, on recruitment and
retention.
4.
We consider shareholder
proposals for U.K.-style advisory votes on pay on a case-by-case basis.
5.
We generally support
proposals advocating reasonable senior executive and director stock ownership
guidelines and holding requirements for shares gained in option exercises.
6.
Management proposals
effectively to re-price stock options are considered on a case-by-case
basis. Considerations include the
companys reasons and justifications for a re-pricing, the companys
competitive position, whether senior executives and outside directors are
excluded, potential cost to shareholders, whether the re-pricing or share
exchange is on a value-for-value basis, and whether vesting requirements are
extended.
H.
Social,
Political and Environmental Issues.
We
consider proposals relating to social, political and environmental issues on a
case-by-case basis to determine whether they will have a financial impact on
shareholder value. However, we generally vote against proposals requesting
reports that are duplicative, related to matters not material to the business,
or that would impose unnecessary or excessive costs. We may abstain from voting
on proposals that do not have a readily determinable financial impact on
shareholder value. We generally oppose proposals requiring adherence to
workplace standards that are not required or customary in market(s) to which
the proposals relate.
15
I.
Fund
of Funds
.
Certain
Funds advised by an MSIM Affiliate invest only in other MSIM Funds. If an underlying fund has a shareholder
meeting, in order to avoid any potential conflict of interest, such proposals
will be voted in the same proportion as the votes of the other shareholders of
the underlying fund, unless otherwise determined by the Proxy Review Committee.
III.
ADMINISTRATION
OF POLICY
The MSIM Proxy
Review Committee (the Committee) has overall responsibility for creating and
implementing the Policy, working with an MSIM staff group (the Corporate Governance
Team). The Committee, which is
appointed by MSIMs Chief Investment Officer of Global Equities (CIO),
consists of senior investment professionals who represent the different
investment disciplines and geographic locations of the firm. Because proxy voting is an investment
responsibility and impacts shareholder value, and because of their knowledge of
companies and markets, portfolio managers and other members of investment staff
play a key role in proxy voting, although the Committee has final authority
over proxy votes.
The Committee
Chairperson is the head of the Corporate Governance Team, and is responsible
for identifying issues that require Committee deliberation or ratification. The
Corporate Governance Team, working with advice of investment teams and the
Committee, is responsible for voting on routine items and on matters that can
be addressed in line with these Policy guidelines. The Corporate Governance Team has
responsibility for voting case-by-case where guidelines and precedent provide
adequate guidance, and to refer other case-by-case decisions to the Proxy
Review Committee.
The Committee
will periodically review and have the authority to amend, as necessary, the
Policy and establish and direct voting positions consistent with the Client
Proxy Standard.
A.
Committee
Procedures
The Committee will meet at least monthly to (among other matters)
address any outstanding issues relating to the Policy or its implementation.
The Corporate Governance Team will timely communicate to ISS MSIMs Policy (and
any amendments and/or any additional guidelines or procedures the Committee may
adopt).
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 Policy); (2)
review and approve upcoming votes, as appropriate, for matters for which
specific direction has been provided in this Policy; and (3) determine how to vote matters for which
specific direction has not been provided in this Policy.
16
Members of the Committee may take into account Research Providers
recommendations and research as well as any other relevant information they may
request or receive, including portfolio manager and/or analyst research, as
applicable. Generally, proxies related
to securities held in accounts that are managed pursuant to quantitative, index
or index-like strategies (Index Strategies) will be voted in the same manner
as those held in actively managed accounts, unless economic interests of the
accounts differ. Because accounts
managed using Index Strategies are passively managed accounts, research from
portfolio managers and/or analysts related to securities held in these accounts
may not be available. If the affected
securities are held only in accounts that are managed pursuant to Index
Strategies, and the proxy relates to a matter that is not described in this
Policy, the Committee will consider all available information from the Research
Providers, and to the extent that the holdings are significant, from the
portfolio managers and/or analysts.
B.
Material
Conflicts of Interest
In addition to the procedures discussed above, if the Committee
determines that an issue raises a material conflict of interest, the Committee
will request a special committee to review, and recommend a course of action
with respect to, the conflict(s) in question (Special Committee).
The Special Committee shall be comprised of the Chairperson of the
Proxy Review Committee, the Chief Compliance Officer or his/her designee, a
senior portfolio manager (if practicable, one who is a member of the Proxy
Review Committee) designated by the Proxy Review Committee, and MSIMs relevant
Chief Investment Officer or his/her designee, and any other persons deemed
necessary by the Chairperson. The Special Committee may request the assistance
of MSIMs General Counsel or his/her designee who will have sole discretion to
cast a vote. In addition to the research
provided by Research Providers, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside sources to the extent it
deems appropriate.
C.
Identification
of Material Conflicts of Interest
A potential
material conflict of interest could exist in the following situations, among
others:
1.
The issuer soliciting the vote is a
client of MSIM or an affiliate of MSIM and the vote is on a material matter
affecting the issuer.
2.
The proxy relates to Morgan Stanley
common stock or any other security issued by Morgan Stanley or its affiliates
except if echo voting is used, as with MSIM Funds, as described herein.
3.
Morgan Stanley has a material pecuniary
interest in the matter submitted for a vote (e.g., acting as a financial
advisor to a party to a merger or acquisition for which Morgan Stanley will be
paid a success fee if completed).
17
If the Chairperson of the Committee determines that an issue raises a
potential material conflict of interest, depending on the facts and
circumstances, the Chairperson will address the issue as follows:
1.
If
the matter relates to a topic that is discussed in this Policy, the proposal
will be voted as per the Policy.
2.
If
the matter is not discussed in this Policy or the Policy indicates that the
issue is to be decided case-by-case, the proposal will be voted in a manner
consistent with the Research Providers, provided that all the Research
Providers have the same recommendation, no portfolio manager objects to that
vote, and the vote is consistent with MSIMs Client Proxy Standard.
3.
If
the Research Providers recommendations differ, the Chairperson will refer the
matter to the Committee to vote on the proposal. If the Committee determines that an issue
raises a material conflict of interest, the Committee will request a Special
Committee to review and recommend a course of action, as described above. Notwithstanding the above, the Chairperson of
the Committee may request a Special Committee to review a matter at any time as
he/she deems necessary to resolve a conflict.
D.
Proxy
Voting Reporting
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 an MSIM Fund,
the Committee and Special Committee, or their designee(s), will report their
decisions to each applicable Board of Trustees/Directors of those Funds at each
Boards 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 Corporate Governance Team will timely communicate to applicable
portfolio managers and to ISS, decisions of the Committee and Special Committee
so that, among other things, ISS will vote proxies consistent with their
decisions.
MSIM will
promptly provide a copy of this Policy to any client requesting it. MSIM will
also, upon client request, promptly provide a report indicating how each proxy
was voted with respect to securities held in that clients account.
MSIMs Legal
Department is responsible for filing an annual Form N-PX on behalf of each
MSIM Fund for which such filing is required, indicating how all proxies were
voted with respect to such Funds holdings.
18
APPENDIX A
The following procedures apply to accounts managed by Morgan Stanley
AIP GP LP (AIP).
Generally, AIP will follow the guidelines set forth in Section II
of MSIMs Proxy Voting Policy and Procedures.
To the extent that such guidelines do not provide specific direction, or
AIP determines that consistent with the Client Proxy Standard, the guidelines
should not be followed, the Proxy Review Committee has delegated the voting
authority to vote securities held by accounts managed by AIP to the Liquid
Markets investment team and the Private Markets investment team of AIP. A summary of decisions made by the investment
teams will be made available to the Proxy Review Committee for its information
at the next scheduled meeting of the Proxy Review Committee.
In certain cases, AIP may determine to abstain from determining (or
recommending) how a proxy should be voted (and therefore abstain from voting
such proxy or recommending how such proxy should be voted), such as where the
expected cost of giving due consideration to the proxy does not justify the
potential benefits to the affected account(s) that might result from adopting
or rejecting (as the case may be) the measure in question.
Waiver of Voting Rights
For regulatory reasons, AIP may either 1) invest in a class of
securities of an underlying fund (the Fund) that does not provide for voting
rights; or 2) waive 100% of its voting rights with respect to the following:
1.
Any rights with respect to the removal
or replacement of a director, general partner, managing member or other person
acting in a similar capacity for or on behalf of the Fund (each individually a Designated
Person, and collectively, the Designated Persons), which may include, but
are not limited to, voting on the election or removal of a Designated Person in
the event of such Designated Persons death, disability, insolvency,
bankruptcy, incapacity, or other event requiring a vote of interest holders of
the Fund to remove or replace a Designated Person; and
2.
Any rights in connection with a
determination to renew, dissolve, liquidate, or otherwise terminate or continue
the Fund, which may include, but are not limited to, voting on the renewal,
dissolution, liquidation, termination or continuance of the Fund upon the
occurrence of an event described in the Funds organizational documents;
provided
,
however
, that, if the Funds organizational documents require the
consent of the Funds general partner or manager, as the case may be, for any
such termination or continuation of the Fund to be effective,
then AIP may exercise
its voting rights with respect to such matter.
19
APPENDIX B
The following procedures apply to the portion of the Van Kampen Dynamic
Credit Opportunities Fund (VK Fund) sub advised by Avenue Europe
International Management, L.P. (Avenue).
(
The
portion of the VK Fund managed solely by Van Kampen Asset Management will
continue to be subject to MSIMs Policy.)
1.
Generally
: With respect to Avenues portion of the VK
Fund, the Board of Trustees of the VK Fund will retain sole authority and
responsibility for proxy voting. The Advisers involvement in the
voting process of Avenues portion of the VK Fund is a purely administrative
function, and serves to execute and deliver the proxy voting decisions made by
the VK Fund Board in connection with the Avenue portion of the VK Fund, which
may, from time to time, include related administrative tasks such as receiving
proxies, following up on missing proxies, and collecting data related to
proxies. As such, the Adviser shall not
be deemed to have voting power or shared voting power with Avenue with respect
to Avenues portion of the Fund.
2.
Voting Guidelines
:
All proxies, with respect to Avenues portion of the VK Fund, will be
considered by the VK Fund Board or such subcommittee as the VK Fund Board may
designate from time to time for determination and voting approval. The VK Board or its subcommittee will timely
communicate to MSIMs Corporate Governance Group its proxy voting decisions, so
that among other things the votes will be effected consistent with the VK Boards
authority.
3.
Administration
:
The VK Board or its subcommittee will meet on an adhoc basis as may be
required from time to time to review proxies that require its review and
determination. The VK Board or its
subcommittee will document in writing all of its decisions and actions which
will be maintained by the VK Fund, or its designee(s), for a period of at least
6 years. If a subcommittee is
designated, a summary of decisions made by such subcommittee will be made available
to the full VK Board for its information at its next scheduled respective
meetings.
20
Item 8. Portfolio Managers of Closed-End Management Investment
Companies
FUND MANAGEMENT
The Fund is managed by members of the Emerging Markets Equity team. The team consists of portfolio managers and analysts. The current members of the team primarily responsible for the day-to-day management of the Funds portfolio are James Cheng and Ruchir Sharma. Mr. Cheng is a Managing Director of the Sub-Adviser and Mr. Sharma is a Managing Director of the Adviser. Mr. Cheng has been associated with the Sub-Adviser in an investment management capacity since July 2006 and joined the team managing the Fund in February 2009. Prior to July 2006, Mr. Cheng worked in an investment management capacity at Invesco Asia Limited, Asia Strategic Investment Management Limited and Munich Re Asia Capital Management. Mr. Sharma has been associated with the Adviser in an investment management capacity since 1996 and joined the team managing the Fund in January 2001.
The composition of the team may change without notice from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following information is as of December 31, 2008.
Mr. Cheng managed eight registered investment companies with a total of approximately $3 billion in assets; one pooled investment vehicle other than registered investment companies; and five other accounts with a total of approximately $3.9 billion in assets. Of these other accounts, one account with a total of approximately $302.8 million in assets had performance based fees.
Mr. Sharma managed 14 registered investment companies with a total of approximately $4.1 billion in assets; five pooled investment vehicles other than registered investment companies with a total of approximately $1.7 billion in assets; and 23 other accounts with a total of approximately $7.3 billion in assets. Of these other accounts, four accounts with a total of approximately $1.1 billion in assets, had performance based fees.
Because the portfolio managers manage assets for other investment
companies, pooled investment vehicles, and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals),
there may be an incentive to favor one client over another resulting in
conflicts of interest. For instance, the Adviser and/or Sub-Adviser may receive
fees from certain accounts that are higher than the fee it receives from the
Fund, or it may receive a performance-based fee on certain accounts. In those
instances, the portfolio managers may have an incentive to favor the higher
and/or performance-based fee accounts over the Fund. In addition, a conflict of interest could
exist to the extent the Adviser and/or Sub-Adviser have proprietary investments
in certain accounts, where portfolio managers have personal investments in
certain accounts or when certain accounts are investment options in the Advisers
and/or Sub-Advisers employee benefits and/or deferred compensation plans. The portfolio manager may have an incentive
to favor these accounts over others. If
the Adviser and/or Sub-Adviser manage accounts
21
that engage in short sales of securities of the type in which the Fund
invests, the Adviser and/or Sub-Adviser could be seen as harming the
performance of the Fund for the benefit of the accounts engaged in short sales
if the short sales cause the market value of the securities to fall. The Adviser and/or Sub-Adviser have adopted
trade allocation and other policies and procedures that it believes are
reasonably designed to address these and other conflicts of interest.
PORTFOLIO MANAGER
COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all accounts managed by the portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base
salary compensation based on the level of their position with the Adviser
and/or Sub-Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio
managers may receive discretionary compensation.
Discretionary compensation can include:
·
Cash Bonus;
·
Morgan Stanleys
Long-Term Incentive Compensation Program awards a mandatory program that
defers a portion of discretionary year-end compensation into restricted stock
units or other awards or other investments based on Morgan Stanley common stock
that are subject to vesting and other conditions;
·
Investment
Management Alignment Plan (IMAP) awards a mandatory program that defers a
portion of discretionary year-end compensation and notionally invests it in
designated funds advised by the Adviser and/or Sub-Adviser or its affiliates.
The award is subject to vesting and other conditions. Portfolio managers must
notionally invest a minimum of 25% to a maximum of 100% of their IMAP deferral
account into a combination of the designated open-end funds they manage that
are included in the IMAP Fund menu;
·
Voluntary Deferred
Compensation Plans voluntary programs that permit certain employees to elect
to defer a portion of their discretionary year-end compensation and directly or
notionally invest the deferred amount across a range of designated investment
funds, including funds advised by the Adviser and/or Sub-Adviser or its
affiliates.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
22
·
Investment
performance. A portfolio managers compensation is linked to the pre-tax
investment performance of the funds/accounts managed by the portfolio manager.
Investment performance is calculated for one-, three- and five-year periods
measured against an appropriate securities market index (or indices) for the
funds/accounts managed by the portfolio manager. The assets managed by the
portfolio managers in funds, pooled investment vehicles and other accounts are
described in Other Accounts Managed by the Portfolio Managers above.
Generally, the greatest weight is placed on the three- and five-year periods.
·
Revenues generated
by the investment companies, pooled investment vehicles and other accounts
managed by the portfolio manager.
·
Contribution to
the business objectives of the Adviser and/or Sub-Adviser.
·
The dollar amount
of assets managed by the portfolio manager.
·
Market
compensation survey research by independent third parties.
·
Other qualitative
factors, such as contributions to client objectives.
·
Performance of
Morgan Stanley and Morgan Stanley Investment Management Inc., and the overall
performance of the investment team(s) of which the portfolio is a member.
SECURITIES OWNERSHIP
OF PORTFOLIO MANAGERA
As of December 31, 2008,
the portfolio managers did not own any shares of the Fund.
23
Item 9. Closed-End Fund Repurchases
None.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Funds principal executive officer and principal financial
officer have concluded that the Funds 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 Commissions 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 registrants internal control
over financial reporting that
occurred during the second fiscal quarter of the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior
Financial Officers is attached hereto.
(b) A separate certification for each principal executive officer
and principal financial officer of the registrant are attached hereto as part
of EX-99.CERT.
24
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/ Randy
Takian
|
|
Name:
|
Randy Takian
|
Title:
|
Principal
Executive Officer
|
Date:
|
February 19,
2009
|
|
|
|
|
|
|
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/ Randy
Takian
|
|
Name:
|
Randy Takian
|
Title:
|
Principal
Executive Officer
|
Date:
|
February 19,
2009
|
|
|
|
|
By:
|
/s/ James W.
Garrett
|
|
Name:
|
James W.
Garrett
|
Title:
|
Principal Financial
Officer
|
Date:
|
February 19,
2009
|
|
|
|
|
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