<PAGE>
THE TURKISH INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs Frederick B. Whittemore
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR James R. Rooney
Graham E. Jones TREASURER
DIRECTOR Joanna M. Haigney
John A. Levin ASSISTANT TREASURER
DIRECTOR
William G. Morton, Jr.
DIRECTOR
</TABLE>
---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Morgan Stanley Asset Management Limited
25 Cabot Square
Canary Wharf
London EI4 4QA
England
--------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Investors Bank and Trust Company
89 South Street
Boston, Massachusetts 02111
(800) 342-8756
--------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
--------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------------------------------------
THE
TURKISH
INVESTMENT
FUND, INC.
------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- -------
For the fiscal year ended October 31, 1995, the total return, based on net asset
value per share, of the Fund is 21.27% compared to 26.48% for the Morgan Stanley
Capital International (MSCI) Turkey Index. For the three months ended October
31, 1995, the Fund's net asset value per share decreased 17.06% compared with
- -19.20% return for the MSCI Turkey Index. The Istanbul Stock Exchange (ISE)
remains volatile as investors -- both local and foreign -- assess an
increasingly fluid political situation. On a year-on-year basis, the Fund
underperformed the Index due to the sharp rise in public sector banks in which
the Fund was underweight. Improved performance over the past two quarters has
closed the gap as blue chips such as Netas, Migros, Ege Bira and Trakya Cam
outperformed the broader Index.
The past year has indeed been a turbulent one for the ISE -- even by the
notorious Turkish standards for market volatility. From the end of October 1994
to mid-April 1995, the market was up 100% in dollar terms, buoyed by the
impending Customs Union and the sharp recovery in the domestic economy. After
having suffered through its biggest recession in 1994 since the Second World
War, it became clear quite early on that the recovery in 1995 would exceed
expectations. GDP growth of 8% through the third quarter of 1995 attests to the
strong resilience of both the economy and companies in Turkey. Albeit off a very
low base, dollar earnings growth this year was exceptional at 50%.
As is often the case in Turkey, however, the euphoria proved to be overdone and
the market corrected downward by 36% by the end of this October. A number of
factors contributed to the market's downfall -- namely political instability and
renewed doubts over Customs Union with the EU. During the summer and fall
months, a leadership crisis ensued in Turkey as the government of Tansu Ciller
was forced to resign after losing a vote of confidence. Although Ciller's
coalition was able to subsequently resume power, significant doubts over the
government's stability were raised -- forcing Ciller to call for an early
election to be held on December 24, 1995.
Until recently, it was not clear whether elections would be held on that early
date; in fact, many of the old guard politicians, both within Ciller's party and
outside it, favored a vote next year. The main parties however -- Ciller's DYP,
the center-right opposition ANAP and the party of the religious right, Refah --
all felt confident enough to enter early elections. Now that the die has been
cast, parties are scrambling to make their case before an ever-skeptical
electorate. Prime Minister Ciller will run on an aggressive platform of closer
ties with Europe via Customs Union, privatization, continued economic reform and
the strength of the rapidly recovering Turkish economy. ANAP will run on a
similar platform but instead make the case that it is more capable of extending
the economic reform process. And finally, Refah will argue that both of the
above parties have had their stab at governing over the past 10 years with no
improvement in the chief affliction of Turkish economic and social life:
chronically high inflation.
In fact, it seems almost certain that Refah will secure a significant portion of
the vote -- probably somewhere between 20 and 24%. At the same time, DYP and
ANAP are also expected to register tallies in this range -- resulting in some
form of coalition government. This of course begs the larger question as to
whether a Refah government -- either alone or as a part of a coalition -- would
threaten the considerable if not yet incomplete macroeconomic reforms of the
past 10 years.
First of all, the point not commonly taken into account is the fact that Turkey
- -- unlike other secular governments in Tunisia, Algeria and Egypt -- has allowed
full electoral participation for religious parties ever since the first
multi-party elections in 1950. Thus,
2
<PAGE>
while the Refah party may attract up to 24% of the vote, it is doing so well
within the defined parameters of the Turkish constitutional and secular system.
Plus, it should also be remembered that the Refah party shared power in
coalition governments during the mid-70s and currently holds the mayorships in
Turkey's two largest cities, Istanbul and Ankara. As there has been no attempt
to roll back secularization on the local level (where they have full control),
it would be unlikely for such changes to occur on a national level -- especially
with the arch-secularist military standing by watchfully. Additionally, both the
IMF-sponsored reform program and the Customs Union application have enough
institutional support -- both at home and abroad to easily weather a Refah
challenge.
Thus, while the political uncertainty of the past months has depressed the
market, we feel that, as a result, current valuations (8x 1995 estimated
earnings; 4.4x 1996 estimated earnings) make stocks look extremely attractive.
In line with the Index's 20% fall in the fourth quarter, the Fund has begun to
reinvest the cash which it had built up last quarter. New additions include
Sabah, the leading daily newspaper in the country which is one of the few
industrial companies in high-inflation Turkey to be trading below its book
value. We have also added to our positions in Trakya Cam and Garanti Bank -- two
blue chip firms which have fallen sharply with the market. Other new
acquisitions include Turk Tuborg a brewer trading at more than an 80% discount
to its Efes Pilsen competitors on a price-to-capacity basis, and Demirbank a
grossly undervalued trade finance bank trading at around 2x this year's expected
earnings.
In sum, despite the volatility of this year and the uncertain political
prospects, we remain on the whole positive -- in fact more so than we have been
all year. We do not pretend to be able to foresee political outcomes, but feel
that whatever the resolution is, it will surprise the market on the upside.
Amidst all the political uncertainty it should not be forgotten that the Turkish
economy is growing at the rapid pace of a South East Asian tiger and that
corporate fundamentals are as good as they have ever been in the past three
years. At these levels, we feel that stock prices have effectively discounted
present and future political risk and that post-election, investors will once
again focus on the considerable value to be found currently in the market.
Sincerely,
[SIG]
Warren J. Olsen
PRESIDENT
[SIG]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIG]
Landon Thomas
PORTFOLIO MANAGER
December 7, 1995
3
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)**
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
<S> <C> <C> <C> <C> <C> <C>
-------------------------- -------------------------- --------------------------
ONE YEAR -14.55% -- 21.27% -- 26.48% --
FIVE YEAR -33.76 -7.91% -50.95 -13.28 % -50.47 -13.11 %
SINCE INCEPTION* -44.22 -9.41 -43.70 -9.27 -4.33 -0.75
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION (2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31:
1990* 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $12.78 $5.16 $4.69 $9.41 $4.89 $5.93
Income Dividends 0.03 __ 0.07 0.04 0.12 __(4)
Capital Gains Distributions __ 0.07 0.17 __ __ __
Fund Total Return (2) 14.80% -59.27% -6.36% 102.39% -47.61% 21.27%
Index Total Return (1)(3)** 93.17% -64.65% -21.03% 156.26% -45.26% 26.48%
</TABLE>
(1)Assumes dividends and distributions, if any, were reinvested.
(2)Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to differences
between the market price of the stock and the net asset value per share of
the Fund.
(3)MSCI Turkey Index
(4)Dividend distributions related to fiscal year 1995, if any, will be declared
during December 1995.
*The Fund commenced operations on December 5, 1989.
** Unaudited.
4
<PAGE>
The Turkish Investment Fund, Inc.
Portfolio Summary as of October 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 93.6%
Short-Term Investments 6.4%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Building Materials & Components 18.1%
Food & Household Products 15.4%
Beverages & Tobacco 13.1%
Telecommunications 7.9%
Textiles & Apparel 7.1%
Broadcasting & Publishing 6.2%
Financial Services 5.6%
Metals - Non-Ferrous 5.0%
Multi-Industry 4.7%
Insurance 4.1%
Appliances & Household Durables 3.3%
Transportation 3.3%
Automobles 2.3%
Other 3.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<C> <S>
1. Migros
2. Netas
3. Sabah
4. Ege Biracilik
5. Guney Biracilik Ve Malt Sanayii
6. Eregli Demir Ve Celik
7. Alarko Holding AS
8. Trakya Cam Sanayii
9. Aksa
10. Garanti Bankasi
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
OCTOBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TURKISH COMMON STOCKS (96.1%)
- --------------------------------------------------
- ----------
APPLIANCES & HOUSEHOLD DURABLES (3.3%)
Arcelik 8,382,472 U.S. $ 1,388
-------------
- ---------------------------------------------------------
- ------------
AUTOMOBILES (2.3%)
Tofas Turk Otomobil
Fabrikasi 7,476,000 961
-------------
- ---------------------------------------------------------
- ------------
BEVERAGES & TOBACCO (13.1%)
Ege Biracilik 6,900,000 2,453
Guney Biracilik Ve Malt
Sanayii 10,083,040 2,112
+Turk Tuborg 1,200,000 912
-------------
5,477
-------------
- ---------------------------------------------------------
- ------------
BROADCASTING & PUBLISHING (6.2%)
Sabah 97,501,000 2,565
-------------
- ---------------------------------------------------------
- ------------
BUILDING MATERIALS & COMPONENTS (18.1%)
CBS Boya Sanayii 9,000,000 1,438
GoltasYeni (New) 6,000,000 1,578
Marshall Boya 13,890,000 1,515
Trakya Cam Sanayii 12,800,000 1,845
Turk Demir Dokum
Fabrikalari 8,286,996 1,195
-------------
7,571
-------------
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (5.6%)
Garanti Bankasi 16,909,000 1,598
Global Securities
Services 6,105,000 761
Global Securities, Inc. (New) 1,072 --
-------------
2,359
-------------
- ---------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (15.4%)
Kerevitas Gida 11,785,725 1,309
Migros 3,117,000 3,583
Tat Konserve Sanayii 2,275,000 1,529
-------------
6,421
-------------
- ---------------------------------------------------------
- ------------
INSURANCE (4.1%)
Anadolu Sigorta 13,600,000 1,100
Gunes Sigorta 6,476,000 618
-------------
1,718
-------------
- ---------------------------------------------------------
- ------------
METALS -- NON-FERROUS (5.0%)
Eregli Demir Ve Celik 17,700,000 2,104
+Rabak Elektrolitik Bakir 3,272,280 0**
-------------
2,104
-------------
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY (4.7%)
Alarko Holding AS 5,057,600 1,971
-------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (7.9%)
Netas 9,475,000 U.S. $ 3,277
-------------
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (7.1%)
Aksa 5,724,991 1,785
Bossa 12,500,000 1,169
+Mensucat Santral 3,606,400 0**
-------------
2,954
-------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION (3.3%)
Usas Ucak Servisi 260,000 1,368
-------------
- ---------------------------------------------------------
- ------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S. $40,837) 40,134
-------------
<CAPTION>
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (4.1%)
(Interest Bearing Demand Account)
Turkish Lira (Cost U.S.
$1,751) TRL 88,492,200 1,724
-------------
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (2.4%)
REPURCHASE AGREEMENT (2.4%)
Chase Manhattan Bank,
N.A., 5.60%, dated
10/31/95, due 11/1/95,
to be repurchased at
$1,017, collateralized
by $880 United States
Treasury Bonds, 7.625%,
due 11/15/22, valued at
$1,042 (Cost U.S.
$1,017) U.S. $ 1,017 1,017
-------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (102.6%)
(Cost U.S. $43,605) 42,875
-------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (0.0%)
Other Assets 4
-------------
- ---------------------------------------------------------
- ------------
LIABILITIES (-2.6%)
Payable for:
Investments Purchased (983)
Professional Fees (51)
Investment Advisory
Fees (34)
Custodian Fees (22)
Shareholder Reporting
Expenses (19)
Administrative Fees (10)
Directors' Fees and
Expenses (2)
Other Liabilities (1) (1,122)
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
- ---------------------------------------------------------
- ------------
Applicable to 7,039,767 issued and
outstanding U.S. $0.01 par value shares
(30,000,000 shares authorized) U.S. $ 41,757
-------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S. $ 5.93
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
AT OCTOBER 31, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
- ------------
Common Stock U.S. $ 70
Capital Surplus 78,743
Accumulated Net Investment Income 845
Accumulated Net Realized Loss (37,197)
Unrealized Depreciation on Investments and
Foreign Currency (704)
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S. $ 41,757
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
+ Non-income producing
** Security carried at fair value of zero. The security has ceased trading on
the Istanbul Stock Exchange and has been delisted.
October 31, 1995 exchange rate -- Turkish Lira (TRL) 51,325=U.S.$1.00
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends........................................................................................... U.S.$ 1,577
Interest............................................................................................ 92
- ----------------------------------------------------------------------------------------------------------------------
Total Income...................................................................................... 1,669
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees............................................................................ 387
Administrative Fees................................................................................. 106
Custodian Fees...................................................................................... 64
Shareholder Reporting Expenses...................................................................... 48
Annual Meeting and Proxy Expenses................................................................... 39
Audit Fees.......................................................................................... 39
Legal Fees.......................................................................................... 29
Directors' Fees and Expenses........................................................................ 26
Transfer Agent Fees................................................................................. 11
Amortization of Organization Costs.................................................................. 9
Other Expenses...................................................................................... 22
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses.................................................................................... 780
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income........................................................................... 889
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.......................................................................... 1,363
Foreign Currency Transactions....................................................................... (163)
- ----------------------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................................. 1,200
- ----------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS AND FOREIGN CURRENCY
Beginning of Year................................................................................... (5,925)
End of Year......................................................................................... (704)
- ----------------------------------------------------------------------------------------------------------------------
Change in Unrealized Depreciation................................................................. 5,221
- ----------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation (Depreciation)............................ 6,421
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ U.S.$ 7,310
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1994 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income................................................................... U.S.$ 493 U.S.$ 889
Net Realized Gain (Loss)................................................................ (2,274) 1,200
Change in Unrealized Depreciation....................................................... (29,217) 5,221
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations......................... (30,998) 7,310
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................................................... (813) --
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)............................................................... (31,811) 7,310
Net Assets:
Beginning of Year....................................................................... 66,258 34,447
- ----------------------------------------------------------------------------------------------------------------------
End of Year (including accumulated undistributed net investment income (loss) of U.S.
$(314) and U.S. $845, respectively).................................................... U.S.$ 34,447 U.S.$41,757
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..................... U.S.$ 12.78 U.S.$ 5.16 U.S.$ 4.69 U.S.$ 9.41 U.S.$ 4.89
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income.................................... 0.28 0.18 0.22 0.07 0.13
Net Realized and Unrealized Gain (Loss) on Investments... (7.83) (0.41) 4.54 (4.47) 0.91
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations..................... (7.55) (0.23) 4.76 (4.40) 1.04
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.................................. -- (0.07) (0.04) (0.12) --
Net Realized Gains..................................... (0.07) (0.17) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.07) (0.24) (0.04) (0.12) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................... U.S.$ 5.16 U.S.$ 4.69 U.S.$ 9.41 U.S.$ 4.89 U.S.$ 5.93
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Per Share Market Value, End of Period.................... U.S.$ 7.00 U.S.$ 6.00 U.S.$ 10.38 U.S.$ 6.88 U.S.$ 5.88
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value........................................... (24.56)% (11.69)% 74.34% (33.19)% (14.55)%
Net Asset Value (1).................................... (59.27)% (6.36)% 102.39% (47.61)% 21.27%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS).................... U.S.$36,255 U.S.$32,957 U.S.$66,258 U.S.$34,447 U.S.$41,757
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.................. 2.42% 2.55% 2.04% 2.16% 1.91%
Ratio of Net Investment Income to Average Net Assets..... 3.28% 3.00% 3.20% 1.03% 2.18%
Portfolio Turnover Rate.................................. 45% 28% 46% 68% 48%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ------------
The Turkish Investment Fund, Inc. (the "Fund") was incorporated on September
27, 1988 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements.
1. SECURITY VALUATION: In valuing the Fund's assets, all securities listed on
the Istanbul Stock Exchange are valued at the last quoted sales price.
Unlisted securities and listed securities not traded on valuation date for
which market quotations are not readily available are valued at the average
of the mean of current bid and asked prices obtained from reputable brokers.
Securities purchased with remaining maturities of sixty days or less are
valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale) are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for U.S. Federal income taxes is required in the
financial statements.
Capital surplus, accumulated net investment income and accumulated net
realized loss have been adjusted for permanent book-tax differences.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which equals or exceeds the principal
amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. To the extent that proceeds from the sale of
the underlying securities are less than the repurchase price under the
agreement, the Fund may incur a loss. In the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in Turkish lira 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 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) 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 forward foreign
currency contracts, disposition of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation).
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign
currency contracts to protect securities and related receivables and
payables against changes in future foreign exchange rates. A forward foreign
currency 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
9
<PAGE>
these contracts from the potential inability of counterparties to meet the
terms of their contracts and is generally limited to the amount of
unrealized gain on the contracts, if any, at the date of default. Risks may
also arise from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income and distributions
to shareholders are recorded on the ex-date. Income distributions and
capital gain distributions are determined in accordance with U.S. Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatment for
foreign currency transactions and securities designated as "passive foreign
investment companies" for tax purposes.
B. Morgan Stanley Asset Management Inc. and Morgan Stanley Asset Management
Limited (collectively the "Advisers") provide investment advisory services to
the Fund under the terms of an Investment Advisory Agreement (the "Agreement").
Under the Agreement, the Advisers are paid a total fee computed weekly and
payable monthly at an annual rate of .95% of the Fund's first $50 million of
average weekly net assets, .75% of the next $50 million of average weekly net
assets and .55% of average weekly net assets in excess of $100 million.
C. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative services to the Fund under
an Administration Agreement. Under the Administration Agreement, Chase Global
Funds Services Company is paid a fee computed weekly and payable monthly at an
annual rate of .08% of the Fund's average weekly net assets, plus $65,000 per
annum. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts as
custodian for the Fund's assets held in the United States. Prior to September 1,
1995, Mutual Funds Service Company and United States Trust Company of New York
provided administrative and custodian services, respectively, to the Fund under
the same terms, conditions and fees as stated above.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Advisers, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. International Custodian fees are
payable monthly based on assets under custody, investment purchase and sales
activity, an account maintenance fee, plus reimbursement for certain
out-of-pocket expenses. For the year ended October 31, 1995, the Fund incurred
International Custodian fees of $56,400 of which $21,100 was payable to the
International Custodian at October 31, 1995.
E. During the year ended October 31, 1995, the Fund made purchases and sales
totaling $18,755,000, and $18,508,000, respectively, of investment securities
other than short term investments. At October 31, 1995, the U.S. Federal income
tax cost basis of securities was $41,854,000 and accordingly, net unrealized
depreciation for U.S. Federal income tax purposes was $703,000 of which
$10,269,000 related to appreciated securities and $10,972,000 related to
depreciated securities. At October 31, 1995, the Fund had capital loss
carryforwards totaling approximately $37,198,000 available to offset future
capital gains of which $16,949,000, $17,765,000 and $2,484,000 will expire on
October 31, 2000, 2001 and 2002, respectively. During the year ended October 31,
1995, the Fund utilized approximately $837,000 of capital loss carryforwards.
F. Organization costs incurred by the Fund totaling $469,000 were amortized on
a straight-line basis over the five-year period beginning December 5, 1989, the
date the Fund commenced operations, and ending on December 5, 1994.
G. At October 31, 1995, approximately 100% of the Fund's net assets consist of
equity securities and currency denominated in Turkish lira which may subject the
Fund to investment risks not normally associated with investing in securities of
U.S. corporations, including volatility and illiquidity of the Turkish
securities markets and fluctuation in the value of the Turkish lira against the
U.S. dollar which are influenced in part by the high inflation rate in Turkey.
H. Effective January 1, 1995, each Director of the Fund who is not an officer
of the Fund or an affiliated person as defined under the Investment Company Act
of 1940, as amended, may elect to participate in the Directors' Deferred
Compensation Plan (the "Plan"). Under the Plan, such Directors may elect to
defer payment of a percentage of their total fees earned as a Director of the
Fund. These deferred portions will be treated, based on an election by the
Director, as if they were either invested in the Fund's shares or invested in
U.S. Treasury Bills, as defined under the Plan. At October 31, 1995, none of the
Directors elected to participate in the Plan.
10
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
U.S. AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS
THREE MONTHS ENDED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1995 1995 1995 1995
---------------------- ---------------------- ---------------------- ----------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 12 $ 0.00 $ 319 $ 0.05 $ 931 $ 0.13 $ 407 $ 0.06
Net Investment Income
(Loss)....................... $ (177) $ (0.03) $ 126 $ 0.02 $ 699 $ 0.10 $ 241 $ 0.04
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation
(Depreciation)............... $ (5,064) $ (0.71) $ 15,131 $ 2.15 $ 5,153 $ 0.73 $ (8,799) $ (1.26)
Net Increase (Decrease) in Net
Assets Resulting from
Operations................... $ (5,241) $ (0.74) $ 15,257 $ 2.17 $ 5,852 $ 0.83 $ (8,558) $ (1.22)
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1994 1994 1994 1994
---------------------- ---------------------- ---------------------- ----------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 260 $ 0.04 $ 486 $ 0.07 $ 351 $ 0.05 $ 429 $ 0.06
Net Investment Income
(Loss)....................... $ (66) $ (0.01) $ 264 $ 0.04 $ 136 $ 0.02 $ 159 $ 0.02
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation
(Depreciation)............... $ 3,080 $ 0.44 $ (41,484) $ (5.89) $ 9,635 $ 1.37 $ (2,722) $ (0.39)
Net Increase (Decrease) in Net
Assets Resulting from
Operations................... $ 3,014 $ 0.43 $ (41,220) $ (5.85) $ 9,771 $ 1.39 $ (2,563) $ (0.37)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
The Turkish Investment Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Turkish Investment Fund, Inc. (the "Fund") at October 31, 1995, 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 generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 29, 1995
12
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of The Turkish Investment Fund , Inc.
was held on June 26, 1995. The following is a summary of each proposal presented
and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- ------------------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1. To elect the following
Directors: Barton M. Biggs 3,800,184 -- 79,888 --
Peter J. Chase 3,800,274 -- 79,798 --
John W. Croghan 3,798,574 -- 81,498 --
David B. Gill 3,800,174 -- 79,898 --
Graham E. Jones 3,800,400 -- 79,672 --
John A. Levin 3,797,474 -- 82,598 --
William G. Morton, Jr. 3,798,674 -- 81,398 --
Warren J. Olsen 3,801,384 -- 78,688 --
Frederick B.
Whittemore 3,798,690 -- 81,382 --
2. To ratify the selection of Price Waterhouse LLP as
independent accountants of the Fund. 3,810,149 41,114 -- 28,809
</TABLE>
13
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless Investors Bank and Trust
Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred by purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
The Turkish Investment Fund, Inc.
Investors Bank and Trust Company
Dividend Reinvestment and Cash Purchase Plan
P.O. Box 1537
Boston, MA 02205
1-800-342-8756
14
