<PAGE>
THE TURKISH INVESTMENT FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS
Stefanie V. Chang
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
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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
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ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
(800) 342-8756
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LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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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, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the three month period ended January 31, 1998, The Turkish Investment Fund,
Inc. (the "Fund") had a total return, based on net asset value per share, of
- -2.28% compared to 12.20% for the U.S. dollar adjusted MSCI Turkey Index (the
"Index"). For the period since the Fund's commencement of operations on December
5, 1989 through January 31, 1998, the Fund's total return, based on net asset
value per share, was -15.17% compared to 74.62% for the Index. On January 31,
1998, the closing price of the Fund's shares on the New York Stock Exchange was
$7 1/8 , representing a 14.9% discount to the Fund's net asset value per share.
The underperformance of the Fund for the period was again due to our underweight
position in Is Bank (now 35% of the Index) which reached a speculative peak at
the end of fiscal year 1997. We believe quite strongly that the bank at 17 times
forward earnings and 4.5 times book value is fundamentally overvalued and riding
the crest of a no doubt long standing speculative bubble. With the stock finally
starting to weaken in January, we outperformed for the month, but not enough to
compensate for the company's strong performance in 1997. We will remain
underweight the stock going forward as we think that it will underperform
dramatically in the months ahead due to the inevitable problems that the
government will have when it attempts to sell its 12% stake in the bank in an
upcoming secondary offering.
For the three month period ended January 31, volatility even by Turkey's
exceptional standards has been unusually high. Following the speculative peak
reached at the end of the year, the market began to weaken considerably in
January as concerns about the government's reform program began to materialize.
Having ended fiscal year 1997 as the second best performing emerging market
after Russia, Turkey enters 1998 burdened by some high expectations. A 50%
inflation target (current level is 100%), a series of high profile
privatizations and some sort of agreement with the IMF have all been factors
underlying the market's strong performance last year.
While there is certainly no sign yet that the government intends to willfully
back track on any of these key issues, it remains possible that some of the
targets will be hard to reach. The most difficult could be inflation. While
earlier in the year, government promises of a sharp reduction in inflation
seemed credible to the market, continued strong industrial and GDP growth (10%
and 6%, respectively, for 1997) suggest that overall demand remains too robust
to support a material easing of price inflation.
Without substantial support from the IMF, a dramatic curtailment in public
sector investment, higher real interest rates and some sort of pegged currency
regime, substantial progress on inflation will remain elusive. It should be
remembered as well that the current government is after all a coalition which
relies on support from left of center parties. Additionally, the closure of the
pro-Islamist Refah party has increased the possibility of early elections. With
the largest party in opposition now out of the way and with GDP growth humming
along nicely at 6%, the Yilmaz led government is surely weighing its electoral
options and is, accordingly, reluctant to embark on a harsh program of
austerity.
For the time being then it looks as if we are in for a period of relative policy
drift. While there may be the odd privatization or two, that would not be enough
to sustain the market's buoyant sentiment of last year. It is also true that
liquidity, both foreign and domestic, was fundamental to the market's strong
performance last year. On the domestic front it seems certain that higher real
rates and a slowdown in loan growth will put a cap on liquidity for the time
being. From the foreign side, Turkey benefited from strong inflows last year as
it was correctly perceived to be a safe haven from the carnage in Asia. A lack
of primary and secondary stock supply was also favorable for the market. This
year, with more money moving back into Asia and with over $ 1 billion in new
offerings expected to come into the market, the liquidity dynamics do not seem
as auspicious.
Despite the above-mentioned reservations, it remains true that at the very least
Turkey is grappling with the key reform issues that in the past have been
conspicuously avoided. Whether it be next week or next year, Turkey has no
choice but to address its chronic problem with inflation. It is certain as well
that the current government understands the necessity of this better than any of
its predecessors. In the end it will come down to political will above all else.
2
<PAGE>
In light of the current uncertainties we have reduced our weighting in the
banking sector from 25% (the maximum weight allowed) to 20%. Banks had a
terrific year last year and we feel that earnings growth going forward will not
be as strong. We nevertheless retain our strong overweight position in Yapi
Kredi Bank (13% vs 7%) as we see the bank still being materially undervalued
relative to its peers despite its 100% plus outperformance of last year. We have
increased weightings in defensive sectors as well - beverages, food and retail
to be specific. In a volatile market these sectors have historically proven to
be strong outperformers.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Robert L. Meyer
Robert L. Meyer
PORTFOLIO MANAGER
/s/ Landon Thomas
Landon Thomas
PORTFOLIO MANAGER
February 1998
3
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
HISTORICAL Total Return (%)
INFORMATION -----------------------------------------------------------------------------------
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 -4.76% - -2.28% - 12.20% -
One Year 5.63 5.63% 13.13 13.13% 32.06 32.06%
Five Year 27.65 5.00 88.91 13.57 246.36 28.21
Since Inception* -27.87 -3.92 -15.17 -1.99 74.62 7.07
Past performance is not predictive of future performance.
- ----------------------------------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<CAPTION>
Years ended October 31:
Three Months
Ended
1990* 1991 1992 1993 1994 1995 1996 1997 January 31, 1998
------- -------- -------- -------- -------- -------- ------- ------- ----------------
<S> <C> <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 $ 8.74 $ 8.38
Market Value Per Share $ 9.38 $ 7.00 $ 6.00 $ 10.38 $ 6.88 $ 5.88 $ 5.38 $ 7.63 $ 7.13
Premium/(Discount) . . . . -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -12.7% -14.9%
Income Dividends . . . . . $ 0.03 - $ 0.07 $ 0.04 $ 0.12 - $ 0.12 $ 0.14 $ 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% 60.76% -2.28%
Index Total Return (3) . . 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 87.70% 12.20%
</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, 1998 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
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SECTORS
[CHART]
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TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
1. Yapi Ve Kredi Bankasi 13.3% 6. Migros Turk TAS 4.7%
2. Eregli Demir Ve Celik Fabrikalari TAS 10.7 7. Goltas Cimento 4.1
3. Carsi Buyuk Magazacilik 8.7 8. Arcelik 4.0
4. Turkiye Garanti Bankasi 6.4 9. Guney Biracilik Ve Malt Sanayii 4.0
5. Pinar Sut 5.5 10. Vestel Elektronik Sanayi Ve Ticaret AS 3.9
----
65.3%
----
----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
INVESTMENTS (Unaudited)
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JANUARY 31,1998
<TABLE>
<CAPTION>
Value
Shares (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
TURKISH COMMON STOCKS (96.9%)
(Unless otherwise noted)
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APPLIANCES & HOUSEHOLD DURABLES (4.0%)
Arcelik 27,363,000 U.S. $2,377
-----------
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AUTOMOBILES (4.6%)
Otosan Otomobil Sanayii AS 1,845,000 1,329
Uzel Makina Sanayii AS 8,715,000 1,414
-----------
2,743
-----------
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BANKING (19.7%)
Turkiye Garanti Bankasi 78,470,000 3,588
Turkiye Garanti Bankasi GDS 38,801 178
Yapi Ve Kredi Bankasi 217,635,000 7,861
-----------
11,627
-----------
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BEVERAGES & TOBACCO (8.5%)
Ege Biracilik Ve Malt Sanayii 12,177,000 1,406
Erciyas Biracilik 7,012,000 1,282
Guney Biracilik Ve Malt
Sanayii 21,542,000 2,339
-----------
5,027
-----------
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BUILDING MATERIALS & COMPONENTS (8.1%)
Adana Cimento 8,000,000 640
Goltas Cimento 13,905,000 2,416
Turk Sise Ve Cam Fabrikalari 38,841,000 1,740
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4,796
-----------
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ELECTRICAL & ELECTRONICS (3.9%)
Vestel Elektronik Sanayi Ve
Ticaret AS 29,755,000 2,313
-----------
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FINANCIAL SERVICES (1.1%)
Global Menkul Degerler S.A. 27,794,000 553
Global Securities Services,
Inc. Ltd. 4,585,000 91
Global Securities Services,
Inc. Ltd. - New 1,360 --@
-----------
644
-----------
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FOOD & HOUSEHOLD PRODUCTS (5.5%)
Pinar Sut 56,193,500 3,276
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FOREST PRODUCTS & PAPER (2.7%)
Kartonsan 28,870,000 1,584
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INSURANCE (1.7%)
Gunes Sigorta 33,502,000 980
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MERCHANDISING (13.4%)
Carsi Buyuk Magazacilik 9,170,000 U.S. $5,136
Migros Turk TAS 3,084,000 2,785
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7,921
-----------
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METALS - NON-FERROUS (0.0%)
Rabak Elektrolitik Bakir Ve
Mamulleri 3,272,280 --
-----------
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METALS - STEEL (10.7%)
Eregli Demir Ve Celik
Fabrikalari TAS 43,335,000 6,340
-----------
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MULTI-INDUSTRY (2.4%)
Koc Holding AS 6,600,000 1,418
-----------
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TELECOMMUNICATIONS (3.1%)
Netas Telekomunik 5,350,000 1,859
-----------
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TEXTILES & APPAREL (1.7%)
Aksa Akrilik Kimya Sanayii
AS-New 16,405,000 975
Mensucat Santral 3,606,400 --
-----------
975
-----------
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TRANSPORTATION - AIRLINES (3.3%)
Usas Ucak Servisi 660,000 1,931
-----------
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UTILITIES - ELECTRIC & GAS (2.5%)
Turcas Petroculuk AS 55,532,000 1,447
-----------
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TOTAL TURKISH COMMON STOCKS
(Cost U.S.$43,978) 57,258
-----------
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Face
Amount
(000)
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SHORT-TERM INVESTMENT (3.1%)
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REPURCHASE AGREEMENT (3.1%)
Chase Securities, Inc.,
5.38%, dated 1/30/98, due
2/2/98 to be repurchased
at U.S.$1,826, collateralized
by U.S.$1,800 U.S. Treasury
Note 6.25%, due 6/30/02,
valued at U.S.$1,869
(Cost U.S. $1,825) U.S.$ 1,825 1,825
-----------
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Amount Amount
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.0%)
(Cost U.S. $45,803) U.S.$ 59,083
-------------
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OTHER ASSETS AND LIABILITIES (0.0%)
Other Assets U.S.$ 2009
Liabilities (2,020) (11)
----------- -------------
- -------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 7,046,430 issued and
outstanding U.S.$0.01 par value shares
(30,000,000 shares authorized) U.S.$ 59,072
-------------
-------------
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NET ASSET VALUE PER SHARE U.S.$ 8.38
-------------
-------------
- -------------------------------------------------------------------------------
</TABLE>
@ -- Value is less than U.S.$500.
GDS -- Global Depositary Shares.
January 31, 1998 exchange rate - Turkish Lira (TRL)
218,725 = U.S.$1.00.
7
