<PAGE>
THE TURKISH INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Frederick B. Whittemore VICE PRESIDENT
VICE-CHAIRMAN OF THE BOARD Michael F. Klein
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
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
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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.
------------------------------------------------------
FIRST QUARTER REPORT
JANUARY 31, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended January 31, 1997, The Turkish Investment Fund, Inc.
(the "Fund") had a total return of 38.87% based on net asset value compared to
59.46% for the MSCI Turkey Index (the "Index"). On January 31, 1997, the closing
price of the Fund's shares on the New York Stock Exchange was $6 7/8,
representing an 8.9% discount to the Fund's net asset value per share.
While all of our top holdings performed well over the period, our underweight
position within the state-owned banking sector, as well as the utilities sector,
resulted in relative underperformance for the period.
The strong rally of the past quarter, if anything, has sent a very clear message
to both local and foreign investors. Very simply the message is that a dramatic
rerating for the Turkish market lies in store if and when governments in Turkey
prove themselves capable of making the tough decisions on structural reform. As
long term followers of the Turkish market will surely note, past rallies dating
all the way back to 1989 have been, for the most part, expectations-based. In
1989, 1993, 1994 and once again now, the Turkish market has shown dollar gains
of as much as 250% over 6 to 9 month periods. Meanwhile, investors have bet on
governments privatizing, cutting the budget deficit, bringing down inflation and
interest rates. Inevitably, expectations have not been met and the market
rallies fizzled accordingly.
If one looks back, the trend has been consistent: strong market moves off very
low bases and a gradual return to these low levels; classic examples of markets
overshooting on both the downside and the upside. Looking at the current market
rally, we see the same trend being played out. The market in late 1996 had
reached a low of .65 cents for the Istanbul Stock Exchange Index in U.S. dollar
terms as investors doubted the reform intentions of the new Refah government.
Talk was even rife of another currency collapse and valuations reached a low of
4 times estimated 1996 earnings. As it turned out, such concerns proved to be
premature. Unlike 1993/1994, the market was not experiencing a speculative boom,
valuations were already at rock bottom levels and the country's reserve position
was strong. When it became clear that the Refah government was willing to put
privatization at the top of its reform agenda, while also concentrating on other
avenues of revenue collection, the market reacted with a vengeance. Over the
past 4 months interest rates have declined by 30% due to increased local
confidence in Refah and the market has shot up in response.
It must be said that at this point, market euphoria has been driven, for the
most part, by positive expectations, not actual reform accomplishments. There
have been some minor privatizations netting the government close to $800 million
and the decrease in rates itself is no small feat given the huge burden that
interest payments assume within the budget. Nevertheless, a budget deficit of
close to 10% of GDP remains a reality and until that figure begins to decrease,
progress on inflation and interest rates will be limited.
While it is still too early to pronounce judgment on the government's capacity
to follow through on -- or even come close to -- realizing its goal of achieving
a balanced budget for 1997, the very fact that it has set itself such an
admittedly high target suggests an above-average commitment to achieving it.
Realistically, no one expects them to reach the target but a deviation of 5%
would be a huge plus -- bringing the deficit down from the current level of 10%
to 5%. Reduced interest payments will help, but some large scale privatizations
will be needed as well. That is why the great impetus behind the strong market
of late was the Supreme Court decision to allow for the future sell off of PTT,
the Turkish telecommunications monopoly. Various governments have been trying
for years to secure legal approval for PTT's privatization, so the court
decision came as quite a surprise. As the crown jewel of the government's
portfolio, PTT could raise as much as $3 to $4 billion and more important
perhaps give a boost to the government's privatization program.
In summary, the question comes back to whether or not this government will be
able to satisfy the high level of expectations currently in the market with
2
<PAGE>
concrete results. There are a number of reasons to respond positively to this
question. First of all, having attached its credibility to reform
(privatization, balanced budget, etc.) and having already reaped the short term
benefits of decreasing rates, the government is sure to want to move ahead to
the next level. Second, the historically high deficit levels do not leave the
government any choice in the matter; Turkey's ability to borrow from abroad is
closely linked to whatever progress it makes on the internal reform front.
Finally, it may be worth pointing out that globally the trend towards lower
budget deficits and inflation is an extremely strong one. Latin America, eastern
Europe and Russia have led the way in this regard and even such laggards as
Greece are showing progress in this respect. Given the increasing openness of
the Turkish economy as well as its continuing reliance on international capital
markets (especially for privatization), this factor should not be
underestimated.
In terms of the portfolio, a number of changes have been made. In light of the
increasing downtrend in interest rates we have increased our holdings in Garanti
and Yapi Kredi Bank -- the two banks best placed to benefit from the expected
increase in loan demand. We have also increased our position in Pinar Sut a
leading dairy-products company in the midst of a turnaround. Mindful of the
success of Migros, we have also taken a fresh stake in Carsi a fast-growing
department store chain that is taking advantage of continued strong consumer
demand in Turkey.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
February 1997
MORGAN STANLEY GROUP INC., THE PARENT COMPANY OF THE FUND'S INVESTMENT ADVISERS,
MORGAN STANLEY ASSET MANAGEMENT INC. AND MORGAN STANLEY ASSET MANAGEMENT
LIMITED, RECENTLY ANNOUNCED ITS INTENTION TO MERGE WITH DEAN WITTER, DISCOVER &
CO. TO FORM MORGAN STANLEY, DEAN WITTER, DISCOVER & CO. IT CURRENTLY IS
ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN MID-1997. THEREAFTER, MORGAN
STANLEY ASSET MANAGEMENT INC. AND MORGAN STANLEY ASSET MANAGEMENT LIMITED WILL
EACH BE A SUBSIDIARY OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
3
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of January 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
-------------------------- -------------------------- ----------------------------
FISCAL YEAR TO DATE 31.04% -- 38.87% -- 59.46% --
ONE YEAR 12.70% 12.70% 48.47% 48.47% 70.88% 70.88%
FIVE YEAR -4.08% -0.83% 0.28% 0.06% 37.83% 6.63%
SINCE INCEPTION* -31.71% -5.19% -25.01% -3.94% 46.12% 5.44%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR GRAPH PRESENTING FUND TOTAL RETURN AND INDEX TOTAL RETURN, AS LISTED
BELOW, IS REFLECTED HERE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31:
THREE MONTHS
ENDED
JANUARY 31,
1990* 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $12.78 $5.16 $4.69 $9.41 $4.89 $5.93 $5.57 $7.55
Market Value Per Share $9.38 $7.00 $6.00 $10.38 $6.88 $5.88 $5.38 $6.88
Premium/(Discount) -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -8.9%
Income Dividends $0.03 - $0.07 $0.04 $0.12 - $0.12 $0.14
Capital Gains Distributions - $0.07 $0.17 - - - - -
Fund Total Return (2) 14.80% -59.27% -6.36% 102.39% -47.61% 21.27% -4.09% 38.87%
Index Total Return (1)(3) 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 59.46%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The MSCI Turkey Index is an unmanaged index of common stocks.
* The Fund commenced operations on December 5, 1989.
4
<PAGE>
The Turkish Investment Fund, Inc.
Portfolio Summary as of January 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENTS
DIVERSIFICATION
<S> <C>
Common Stocks 98.9%
Short-Term Investments 1.1%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SECTORS
<S> <C>
Appliances & Household Durables 6.9%
Banking 6.5%
Beverages & Tobacco 12.9%
Broadcasting & Publishing 3.5%
Building Materials & Components 8.9%
Financial Services 10.4%
Food & Household Products 9.5%
Merchandising 10.6%
Metals - Non-Ferrous 12.3%
Transportation - Airlines 4.3%
Other 14.2%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
------------
<C> <S> <C>
1. Eregli Demir Ve Celik 12.3%
2. Turkiye Garanti Bankasi 8.5
3. Migros (Registered) 7.1
4. Arcelik 6.9
5. Yapi Kredi Bankasi 6.5
<CAPTION>
PERCENT OF
NET ASSETS
------------
<C> <S> <C>
6. Pinar Sut 5.8%
7. Turk Sise Ve Cam Fabrikalari 5.0
8. Usas Ucak Servisi 4.3
9. Ege Biracilik 4.1
10. Goltas Cimento 3.9
-----
64.4%
-----
-----
</TABLE>
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
JANUARY 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
------------
<S> <C> <C>
TURKISH COMMON STOCKS (99.2%)
(Unless otherwise noted)
- ---------------------------------------------------------
- ------------
APPLIANCES & HOUSEHOLD DURABLES (6.9%)
Arcelik 18,580,000 U.S.$ 3,678
------------
- --------------------------------------------------------
- ------------
BANKING (6.5%)
Yapi Kredi Bankasi 80,250,000 3,453
------------
- --------------------------------------------------------
- ------------
BEVERAGES & TOBACCO (12.9%)
Ege Biracilik 6,913,350 2,201
Erciyas Biracilik 7,012,000 890
Guney Biracilik Ve Malt
Sanayii 20,195,000 1,825
Turk Tuborg 34,377,000 1,953
------------
6,869
------------
- --------------------------------------------------------
- ------------
BROADCASTING & PUBLISHING (3.5%)
Sabah 96,600,000 1,850
------------
- --------------------------------------------------------
- ------------
BUILDING MATERIALS & COMPONENTS (8.9%)
Goltas Cimento 7,915,000 2,078
Turk Sise Ve Cam
Fabrikalari 16,165,000 2,643
------------
4,721
------------
- --------------------------------------------------------
- ------------
ELECTRICAL & ELECTRONICS (2.3%)
Beko Elektronik 8,230,000 1,240
------------
- --------------------------------------------------------
- ------------
FINANCIAL SERVICES (10.4%)
Global Menkul Degerler
S.A. 16,850,000 370
Global Securities
Services, Inc. Ltd. 30,529,000 670
@Global Securities
Services, Inc. Ltd.
(New) 1,360 --
Turkiye Garanti Bankasi 52,625,000 4,257
Turkiye Garanti Bankasi GDS 30,000 243
------------
5,540
------------
- --------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (9.5%)
Kerevitas Gida 16,964,725 1,095
Konfrut Gida 5,978,000 862
Pinar Sut 51,793,500 3,076
------------
5,033
------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
------------
<S> <C> <C>
FOREST PRODUCTS & PAPER (1.8%)
Kartonsan 7,540,000 U.S.$ 957
------------
- --------------------------------------------------------
- ------------
INSURANCE (2.3%)
Gunes Sigorta 16,694,000 1,221
------------
- --------------------------------------------------------
- ------------
MERCHANDISING (10.6%)
Carsi Buyuk Magazacilik 4,140,000 1,853
Migros (Registered) 2,880,000 3,780
------------
5,633
------------
- --------------------------------------------------------
- ------------
METALS -- NON-FERROUS (12.3%)
Eregli Demir Ve Celik 35,325,000 6,537
@Rabak Elektrolitik Bakir 3,272,280 --
------------
6,537
------------
- --------------------------------------------------------
- ------------
MULTI-INDUSTRY (1.7%)
Alarko Holding 4,537,200 898
------------
- --------------------------------------------------------
- ------------
TELECOMMUNICATIONS (2.5%)
Netas Telekomunik 4,650,000 1,341
------------
- --------------------------------------------------------
- ------------
TEXTILES & APPAREL (2.8%)
Bossa 15,147,000 1,499
@Mensucat Santral 3,606,400 --
------------
1,499
------------
- --------------------------------------------------------
- ------------
TRANSPORTATION -- AIRLINES (4.3%)
Usas Ucak Servisi 825,000 2,272
------------
- ---------------------------------------------------------
- ------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S. $40,463) 52,742
------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT
(000)
- ---------------------------------------------------------
------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (0.3%)
(Interest Bearing Demand Account)
Turkish Lira (Cost U.S.
$148) TRL 17,092,287 147
------------
- ---------------------------------------------------------
- ------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
------------
SHORT-TERM INVESTMENT (0.8%)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (0.8%)
Chase Securities, Inc.
5.33%, dated 1/31/97, due
2/3/97, to be repurchased
at U.S. $435,
collateralized by U.S.
$420 United States
Treasury Bonds, 7.125%,
due 2/15/23, valued at
U.S. $435 (Cost U.S.
$435) U.S.$ 435 U.S.$ 435
------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (100.3%)
(Cost U.S. $41,046) 53,324
------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS AND LIABILITIES (-0.3%)
Other Assets 593
Liabilities (740) (147)
-------------- ------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 7,046,430 issued and
outstanding U.S. $0.01 par value shares
(30,000,000 shares authorized) U.S.$ 53,177
-----------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 7.55
-----------
- ---------------------------------------------------------
- ------------
</TABLE>
@ -- Value is less than U.S.$500.
GDS -- Global Depositary Shares.
January 31, 1997 exchange rate -- Turkish Lira (TRL) 116,190 = U.S.$1.00
7
