<PAGE>
THE TURKISH INVESTMENT FUND, INC.
---------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Michael F. Klein 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 Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
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.
------------------------------------------------------
THIRD QUARTER REPORT
JULY 31, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the nine months ended July 31, 1997, The Turkish Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 30.41%
compared to 48.33% for the U.S. dollar adjusted MSCI Turkey Index (the "Index").
For the one year ended July 31, 1997, the Fund had a total return, based on net
asset value per share, of 40.23% compared with 66.81% for the Index. For the
period from the Fund's commencement of operations on December 5, 1989 through
July 31, 1997, the Fund's total return, based on net asset value per share, was
- -29.58% compared to 35.90% for the Index. On July 31, 1997, the closing price of
the Fund's shares on the New York Stock Exchange was $6.75, representing a 4.8%
discount to the net asset value per share.
For the three month period ended July 31, 1997, the Fund had a total return,
based on net asset value per share, of 21.20% compared with 14.61% for the
Index. Relative outperformance for the quarter can be attributed to strong gains
registered by portfolio heavyweights such as Eregli Demir Ve Celik, Yapi Kredi
Bank, Arcelik and Turk Garanti Bank. Some of our smaller cap holdings such as
cement producer Goltas Cimento and the dairy products manufacturer Pinar Sut
also did well.
For the market as a whole the past quarter was indeed a volatile one. Of
paramount importance was the surprisingly strong bid for political power by the
newly resurgent pro-secularist front led by the center-right ANAP party and
supported by the left of center CHP and DSP parties. Effectively capitalizing on
the growing split between pro and anti-Tansu Ciller supporters within rival DYP,
ANAP was able to attract a large number of disaffected MPs to its side, thus
giving it the necessary numbers for the July vote of confidence that it secured.
Two factors spurred the collapse of the Refah-DYP coalition government. One was
the hubris of Refah. The other was the inherent weakness of DYP. Having been so
long in opposition, Refah party members found sudden incumbency to be too
intoxicating for their own good. As a result, they made the grave mistake of
challenging the secularist bureaucratic, military and political elites. The
secularist elites, egged on by the military, responded quickly -- especially on
the issue of education. Refah, while out of the game for the short term, will
benefit in the long run as its anti-establishment credentials have only been
strengthened. The always pro-establishment DYP will not be so lucky. Ciller's
Faustian pact with Erbakan, while an astute move at the time, has very likely
ended her career in Turkish politics while at the same time devastating the near
to medium term prospects for her party.
The next question will be the extent to which this anti-Islamist front can
actually govern. Traditionally it has been the lack of a strong enough political
platform capable of pulling together disparate political tendencies that has
doomed previous attempts at coalition governments in Turkey. What makes this
coalition different is not its make-up as the uneven mix between left and right
that has figured in past governments; continues now, instead, it is the avidly
pro-secularist views put forth by the government that make it unique. Secularism
in Turkey has always been more of a social and constitutional concept. The
recent actions of Refah however have politicized secularism and it is this
politicization which could very well keep this government together long enough
for it to make some headway on the economic reform front.
Ironically, the outgoing party has left the economy in pretty good shape. Growth
at 7% is strong, reserves at $16.5 billion are at historically high levels, the
maturity structure of domestic debt has been lengthened, thus bringing down
rates and the current account deficit of 2.5% of GDP is easily manageable in the
face of strong inflows forecast for this year.
Nevertheless, the reform challenges facing the new government are formidable.
The budget deficit remains too high at 8% of GDP, inflation is pushing up beyond
the 80% level and the long dormant privatization process needs to be revived.
What is encouraging however is the makeup of those in the new government
responsible for the economy. Gunes Taner and Isin Celebi both cut their policy
teeth during the early days of Turgut Ozal in the mid 1980s. As the
2
<PAGE>
intellectual fathers of privatization in Turkey, Taner and Celebi are well aware
of the importance of a successful privatization effort for the broader economy.
Procedures have already been set in place to facilitate sell offs in the
telecommunications, oil and gas and iron and steel sectors. If successful, such
sell-offs can raise upwards of $5 billion.
Again, for any such reform program to work, the political support of the
left-of-center political parties will be essential. As long as Refah remains a
threat to the current government, it is likely that the secularist front will
continue, thus allowing for consensus-based decisions on economic reform to be
implemented. It is a historic opportunity for this government which has promised
to call for early elections in late 1998. As long as the spirit of consensus
lasts, ANAP and its supporters have an opportunity to put forward a genuine
program of structural reform. If and when this happens the stock market is
expected to surge as a result.
With regard to the portfolio, we retain our overweight positions in the liquid
large cap stocks such as the banks (Yapi Kredi and Garanti), Eregli Demir Ve
Celik (iron and steel) and Arcelik, the white goods manufacturer. All of these
companies continue to benefit from the strong economy and will stand to gain
even more if and when interest rates start to decrease. We have also increased
our exposure to the cement sector through Akcansa, Baticim and Goltas. Cement
prices have been on the rise as the sector continues to restructure.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
August 1997
- --------------------------
Robert L. Meyer has assumed portfolio management responsibilities for the Fund
from Marianne L. Hay, effective April 1, 1997. Mr. Meyer is a Managing Director
of Morgan Stanley Asset Management Inc. and co-manager of MSAM's global emerging
markets equity portfolios.
Madhav Dhar has also assumed portfolio management responsibilities for the Fund
effective April 1, 1997. Mr. Dhar is a Managing Director of Morgan Stanley Asset
Management Inc. and chief portfolio manager of MSAM's global emerging market
equity portfolios.
3
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of July 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
-------------------------- -------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
<S> <C> <C> <C> <C> <C> <C>
-------------------------- -------------------------- ----------------------------
FISCAL YEAR TO DATE 28.66% -- 30.41% -- 48.33% --
ONE YEAR 38.31 38.31% 40.23 40.23% 66.81 66.81%
FIVE YEAR 4.45 0.87 25.92 4.72 98.42 14.69
SINCE INCEPTION* -32.95 -5.09 -29.58 -4.48 35.90 4.09
</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>
TOTAL RETURN
YEARS ENDED OCTOBER 31:
NINE MONTHS
ENDED
1990* 1991 1992 1993 1994 1995 1996 JULY 31, 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 $7.09
Market Value Per Share $9.38 $7.00 $6.00 $10.38 $6.88 $5.88 $5.38 $6.75
Premium/(Discount) -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -4.8%
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% 30.41%
Index Total Return (3) 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 48.33%
</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 July 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 94.3%
Short-Term Investments 5.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 6.5%
Banking 21.5%
Beverages & Tobacco 6.6%
Building Materials & Components 14.7%
Financial Services 1.4%
Food & Household Products 6.5%
Merchandising 8.2%
Metals -- Steel 8.6%
Multi-Industry 3.2%
Transportation -- Airlines 3.8%
Other 19.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Turkiye Garanti Bankasi 10.3%
2. Yapi Kredi Bankasi 9.3
3. Eregli Demir Ve Celik 8.7
4. Goltas Cimento 8.0
5. Arcelik 6.6
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Pinar Sut 5.7%
7. Carsi Buyuk Magazacilik 4.3
8. Migros 4.0
9. Usas Ucak Servisi 3.9
10. Turk Sise Ve Cam Fabrikalari 3.0
-----
63.8%
-----
-----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
JULY 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ----------------------------------------------------------------
- -------------
TURKISH COMMON STOCKS (92.8%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
APPLIANCES & HOUSEHOLD DURABLES (6.5%)
Arcelik 29,539,500 U.S.$ 3,233
-------------
- ----------------------------------------------------------------
- -------------
AUTOMOBILES (2.5%)
Otosan Otomobil 2,140,000 1,258
-------------
- ----------------------------------------------------------------
- -------------
BANKING (21.5%)
Turkiye Garanti Bankasi 130,055,547 4,881
Turkiye Garanti Bankasi GDS 38,802 157
Turkiye Garanti Bankasi GDS (Rights) 7,864 21
Turkiye Is Bankasi 3,375,000 1,119
Yapi Kredi Bankasi 195,594,500 4,588
-------------
10,766
-------------
- ----------------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (6.6%)
Ege Biracilik 4,091,000 908
Erciyas Biracilik 7,012,000 1,009
Guney Biracilik Ve Malt Sanayii 14,280,000 866
Turk Tuborg 15,785,000 484
-------------
3,267
-------------
- ----------------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (14.7%)
Akcansa Cimento 7,730,000 1,197
Baticim Bati Anadolu Cimento Sanayii 7,175,000 752
Goltas Cimento 9,835,000 3,937
Turk Sise Ve Cam Fabrikalari 23,540,000 1,458
-------------
7,344
-------------
- ----------------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (2.4%)
Vestel Elektronik Sanayi Ve Ticaret 18,645,000 1,213
-------------
- ----------------------------------------------------------------
- -------------
FINANCIAL SERVICES (1.4%)
Global Securities Degerler SA 27,794,000 649
Global Securities Private Placement 4,585,000 39
Global Securities Services, Inc. Ltd.
(New) 1,360 --@
-------------
688
-------------
- ----------------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (6.5%)
Konfrut Gida 14,945,000 435
Pinar Sut 51,693,500 2,781
-------------
3,216
-------------
- ----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (2.2%)
Kartonsan 15,520,000 1,116
-------------
- ----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
INSURANCE (2.0%)
Gunes Sigorta 38,500,000 U.S.$ 1,011
-------------
- ----------------------------------------------------------------
- -------------
MERCHANDISING (8.2%)
Carsi Buyuk Magazacilik 4,252,000 2,128
Migros 3,084,000 1,977
-------------
4,105
-------------
- ----------------------------------------------------------------
- -------------
METALS -- STEEL (8.6%)
Eregli Demir Ve Celik 25,600,000 4,283
-------------
- ----------------------------------------------------------------
- -------------
MULTI-INDUSTRY (3.2%)
Alarko Holding 2,695,000 409
Koc Holding 4,820,000 1,176
-------------
1,585
-------------
- ----------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (2.7%)
Netas Telekomunik 4,650,000 1,367
-------------
- ----------------------------------------------------------------
- -------------
TEXTILES & APPAREL (0.0%)
Bossa 657,000 12
-------------
- ----------------------------------------------------------------
- -------------
TRANSPORTATION -- AIRLINES (3.8%)
Usas Ucak Servisi 660,000 1,899
-------------
- ----------------------------------------------------------------
- -------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S. $38,948) 46,363
-------------
- ----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.3%)
(Interest Bearing Demand Account)
Turkish Lira (Cost U.S. $130) TRL 19,992,286 125
-------------
- ----------------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (5.3%)
REPURCHASE AGREEMENT (5.3%)
Chase Securities, Inc., 5.57%, dated
7/31/97, due 8/1/97, to be
repurchased at U.S. $2,666,
collateralized by U.S. $2,480 U.S.
Treasury Bond, 6.875%, due 8/15/25,
valued at U.S. $2,727 (Cost U.S.
$2,666) U.S.$ 2,666 2,666
-------------
- ----------------------------------------------------------------
- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
TOTAL INVESTMENTS (98.4%)
(Cost U.S. $41,744) U.S.$ 49,154
-------------
- ----------------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (1.6%)
Other Assets U.S.$ 3,699
Liabilities (2,890) 809
---------------- -------------
- ----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 7,046,430 issued and outstanding
$0.01 par value shares (30,000,000 shares
authorized) U.S.$ 49,963
-------------
-------------
- ----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 7.09
-------------
-------------
- ----------------------------------------------------------------
- -------------
</TABLE>
@ -- Value is less than U.S. $500.
GDS -- Global Depositary Shares.
July 31, 1997 exchange rate -- Turkish Lira (TRL)
159,880 = U.S.$1.00
7
