<PAGE>
- --------------------------------------------------------------------------------
THE
TURKISH
INVESTMENT
FUND, INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
For the year ended October 31, 1997, The Turkish Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 60.76%
compared to 87.70% 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 October 31, 1997, the Fund's total return, based on
net asset value per share, was -13.19% compared to 55.64% for the Index. On
October 31, 1997, the closing price of the Fund's shares on the New York
Stock Exchange was $7 5/8 , representing a 12.7% discount to the Funds net
asset value per share.
For the quarter ended October 31, 1997, the Fund had a total return, based on
net asset value per share, of 23.27% compared with 15.96% for the Index.
Relative outperformance for the quarter can be attributed to strong gains
registered by 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.
The sharp year-on-year underperformance of the Fund compared to the Index is
attributable to several factors. First, is the 20% Index weighting allocated
to Is Bank -- a strong outperformer this year, along with the sector as a
whole. As opposed to Is Bank we have chosen to overweight Garanti and Yapi
Kredi banks both of which have outperformed substantially this year. While Is
Bank's continued asset disposal strategy will remain popular with local
investors, we prefer the stronger banking franchises of Garanti and Yapi
Kredi. We are constrained as well by the sector limit of 25% which we have
run up against this last quarter. We have also been underweight in the
utilities sector, another strong outperformer this year. Doubts regarding the
management of these companies as well as their highly speculative nature has
kept us from investing in this sector.
For the Turkish market, 1997 seems to be turning out to be a watershed year.
For the first time since the mid 1980s one is seeing a strongly evolving
consensus over the need for macroeconomic reform and more importantly, the
political stability needed to carry it out. Actually, the consensus on reform
is nothing new; Turkish politicians have paid lip service to such issues as
inflation reduction, privatization and fiscal reform for years -- there has
just been a lack of political will to do anything about it. With the new
ANAP-led coalition now firmly in power that has changed. Interestingly, we
have the much maligned Refah party to thank for this new era of political
stability. Refah, like its predecessors, preached the virtues of lower
inflation and privatization. Their mistake, however, was to threaten Turkey's
all-powerful secular establishment -- the "deep state" as it is called in
Turkish -- an amorphous grouping of the press, big business, senior
technocrats and the military. In so doing, Refah has given Turkish
politicians a precious commodity which they have lacked previously: namely,
an ideological reason to stick together -- with the common cause in this case
being secularism.
Given the unimpeachable philosophical underpinnings of this administration,
it is now in a historic position to effect radical and much needed economic
reform upon Turkey's macroeconomy. So far that is exactly what it has
promised to do and the always-forward looking equity market has surged as a
result. At the core of the government's game plan is inflation. To a large
degree chronic inflation in Turkey has been the result of massive public
sector deficits in the range of 9% to 14% of GDP. Interest rates as a result
have consistently been high in real terms as the government struggles to
finance itself and inflationary expectations take over from there. Headlined
by Economy Minister Gunes Taner, the government's strategy has been to attack
the expectations part of the equation first by promising to bring down
inflation from its current levels of 90% to 50% by the end of 1998. In so
doing, bond yields have declined dramatically this quarter to levels in the
high 90s as investors take the government at its word with regard to
inflation.
As interest costs are one of the higher components of overall budgetary
expenditures, this decrease will have a positive impact on the budget
deficit. Nevertheless, it will be necessary to cut back on other expenditures
as well as to boost the revenue side in order to make the kind of progress
that is needed. Given the degree to which government credibility is linked to
the lower inflation target, it is indeed likely that budgetary progress will
be made next year. Just as important will be two other factors; one is
growth. While 7% GDP growth is great for corporate earnings -- as we have
indeed seen this year -- it does not contribute to lower inflationary
expectations. In order for the government's target to be met, growth will
have to be at least halved next year. The second is privatization. The
government has promised to raise $10 billion in privatization revenues next
year. Having raised an impressive $1.5 billion
2
<PAGE>
this year, anything close to $10 billion will further bolster market confidence
and contribute to lower inflationary expectations.
1998 will in many respects be a make or break year for the Turkish reform
process. The degree to which the government is able to actually deliver on
its inflation and privatization promises (the two of which are linked in many
respects) will to a large extent solidify the nascent political stability
that we have seen of late. One has only to look at the example of Brazil
whereby a little known sociologist, Fernando Cardoso, with no compelling
ideology to speak of became a historic political figure due to his ability to
quell inflation. While there is much talk of Turkey's ability to live with
inflation, in a global deflationary environment Turkey's high rate of
inflation stands out as an exception and hinders the country's attempts to
further integrate itself into the global economy -- especially via the
European Union.
Within this exciting albeit uncertain environment the Turkish stock market
looks set to continue to outperform global emerging markets. Following the
debacle of Southeast Asia, fixed exchange rate regimes from Hong Kong to
Brazil to Greece are now under threat as in most cases strong currencies have
not been supported by strong macro fundamentals. Strange as it may seem for
long time observers of Turkey, the country's free floating exchange rate
regime may now be its biggest blessing. With no peg, the currency is free to
move in line with the country's progress on reform; i.e., the higher the
inflation rate, the more the currency depreciates -- and vice versa.
Anomalies between strong currencies and growing twin deficits do not exist in
Turkey.
We are thus encouraged about 1998. At 8 times 1998 earnings the market does
not look expensive by global emerging market standards. While we have raised
the cash portion of the portfolio of late to the current 5% level due to an
especially rapid run up in equity prices this October, we expect to find
opportunities for redeployment in the coming months. Portfolio-wise we retain
our core overweight positions in key banking stocks such as Yapi Kredi and
Garanti, consumer durables such as Arcelik and steel manufacturer Eregli
Demir Celik to which we have been adding due to its continued strong
operating performance.
Sincerely,
/s/ Michael F. Klein
- ----------------------
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Landon Thomas
- ----------------------
Landon Thomas
PORTFOLIO MANAGER
/s/ Madhav Dhar
- ----------------------
Madhav Dhar
PORTFOLIO MANAGER
/s/ Robert L. Meyer
- ----------------------
Robert L. Meyer
PORTFOLIO MANAGER
November 1997
3
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
HISTORICAL TOTAL RETURN (%)
INFORMATION ----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)**
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- -------
ONE YEAR 45.34% 45.34% 60.76% 60.76% 87.70% 87.70%
FIVE YEAR 35.20 6.22 98.25 14.67 219.01 26.11
SINCE INCEPTION* -24.26 -3.45 -13.19 -1.77 55.64 5.76
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[CHART]
<CAPTION>
YEARS ENDED OCTOBER 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 $ 8.74
Market Value Per Share . . . . . . . . . $ 9.38 $ 7.00 $ 6.00 $ 10.38 $ 6.88 $ 5.88 $ 5.38 $ 7.63
Premium/(Discount) . . . . . . . . . . . -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -12.7%
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% 60.76%
Index Total Return (3) ** . . . . . . . . 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 87.70%
</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.
** Unaudited.
4
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
Equity Securities (94.7%)
Short-Term Investments (5.3%)
- --------------------------------------------------------------------------------
SECTORS
[CHART]
Appliances & Household Durables (5.0%)
Automobiles (5.9%)
Banking (23.5%)
Beverages & Tobacco (5.8%)
Building Materials & Components (10.9%)
Food & Household Products (6.5%)
Insurance (2.9%)
Merchandising (11.6%)
Metals-Steel (7.5%)
Multi-Industry (3.8%)
Other (16.6%)
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
PERCENT OF
NET ASSETS
----------
1. Yapi Ve Kredi Bankasi 11.4%
2. Turkiye Garanti Bankasi 9.5
3. Eregli Demir Ve Celik Fabrikalari TAS 7.5
4. Pinar Sut 6.5
5. Carsi Buyuk Magazacilik 6.3
6. Migros Turk TAS 5.2
7. Goltas Cimento 5.0
8. Arcelik 5.0
9. Koc Holdings AS 3.8
10. Uzel Makina Sanayii AS 3.3
----
63.5%
----
----
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- ------------------------------------------------------------------------------
OCTOBER 31, 1997
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
TURKISH COMMON STOCKS (94.9%)
(Unless otherwise noted)
- ------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (5.0%)
Arcelik 27,363,000 U.S.$ 3,055
-------------
- ------------------------------------------------------------------------------
AUTOMOBILES (5.9%)
Otosan Otomobil Sanayii AS 1,845,000 1,607
Uzel Makina Sanayii AS 11,775,000 2,052
-------------
3,659
-------------
- ------------------------------------------------------------------------------
BANKING (23.5%)
Turkiye Garanti Bankasi 109,165,000 5,647
Turkiye Garanti Bankasi GDS 38,801 194
Turkiye Is Bankasi 16,875,000 1,631
Yapi Ve Kredi Bankasi 229,730,000 7,005
-------------
14,477
-------------
- ------------------------------------------------------------------------------
BEVERAGES & TOBACCO (5.8%)
Ege Biracilik Ve Malt Sanayii 12,177,000 1,193
Erciyas Biracilik 7,012,000 993
Guney Biracilik Ve Malt Sanayii 18,564,000 1,365
-------------
3,551
-------------
- ------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (10.9%)
Baticim Bati Anadolu Cimento Sanayii AS 11,665,000 1,651
Goltas Cimento 13,905,000 3,067
Turk Sise Ve Cam Fabrikalari 23,540,000 2,019
-------------
6,737
-------------
- ------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS (2.3%)
Vestel Elektronik Sanayi Ve Ticaret AS 18,645,000 1,447
-------------
- ------------------------------------------------------------------------------
FINANCIAL SERVICES (1.2%)
+Global Menkul Degerler S.A. 27,794,000 643
+*Global Securities Services, Inc. Ltd. 4,585,000 106
+Global Securities Services, Inc. Ltd. - New 1,360 --@
-------------
749
-------------
- ------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (6.5%)
Pinar Sut 56,193,500 3,978
-------------
- ------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (2.7%)
Kartonsan 27,370,000 1,677
-------------
- ------------------------------------------------------------------------------
INSURANCE (2.9%)
Gunes Sigorta 44,222,000 1,758
-------------
- ------------------------------------------------------------------------------
MERCHANDISING (11.6%)
Carsi Buyuk Magazacilik 9,170,000 3,895
Migros Turk TAS 3,084,000 3,233
-------------
7,128
-------------
- ------------------------------------------------------------------------------
METALS - NON-FERROUS (0.0%)
+*Rabak Elektrolitik Bakir Ve Mamulleri 3,272,280 --
-------------
- ------------------------------------------------------------------------------
METALS - STEEL (7.5%)
Eregli Demir Ve Celik Fabrikalari TAS 28,185,000 4,604
-------------
- ------------------------------------------------------------------------------
MULTI-INDUSTRY (3.8%)
Koc Holding AS 6,250,000 2,348
-------------
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (2.6%)
+Netas Telekomunik 5,350,000 1,602
-------------
- ------------------------------------------------------------------------------
TEXTILES & APPAREL (0.0%)
+*Mensucat Santral 3,606,400 --
-------------
- ------------------------------------------------------------------------------
TRANSPORTATION - AIRLINES (2.7%)
Usas Ucak Servisi 660,000 1,671
-------------
- ------------------------------------------------------------------------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S.$41,356) 58,441
-------------
- ------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.8%)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT (4.8%)
Chase Securities, Inc., 5.48%,
dated 10/31/97, due 11/3/97
to be repurchased at
U.S.$2,977, collateralized by
U.S.$2,695 U.S. Treasury
Bond 7.125%, due 2/15/23,
valued at U.S.$3,035
(Cost U.S.$2,976) U.S.$ 2,976 2,976
-------------
- ------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.5%)
(Interest Bearing Demand Account)
Turkish Lira (Cost U.S.$305) TRL 55,628,499 303
-------------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
AMOUNT AMOUNT
(000) (000)
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost U.S.$44,637) U.S.$ 61,720
-------------
- ------------------------------------------------------------------------------
OTHER ASSETS (0.9%)
Receivable for Investments Sold U.S.$ 534
Interest Receivable 1
Other Assets 5 540
------------- -------------
- ------------------------------------------------------------------------------
LIABILITIES (-1.1%)
Payable for:
Investments Purchased (415)
Professional Fees (56)
Investment Advisory Fees (52)
Shareholder Reporting Expenses (48)
Directors, Fees and Expenses (35)
Custodian Fees (24)
Administrative Fees (11)
Other Liabilities (3) (644)
------------- -------------
- ------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 7,046,430 issued and
outstanding U.S.$0.01 par value shares
(30,000,000 shares authorized) U.S.$ 61,616
-------------
-------------
- ------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.74
-------------
-------------
- ------------------------------------------------------------------------------
AT OCTOBER 31, 1997, NET ASSETS CONSISTED OF:
Common Stock U.S.$ 71
Capital Surplus 78,780
Undistributed Net Investment Income 955
Accumulated Net Realized Loss (35,273)
Unrealized Appreciation on Investments and
Foreign Currency Translations 17,083
-------------
- ------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 61,616
-------------
-------------
- ------------------------------------------------------------------------------
+ - Non-income producing
@ - Value is less than U.S.$500.
* - Security valued at fair value - see note A-1 to financial statements.
GDS - Global Depositary Shares.
October 31, 1997 exchange rate -- Turkish lira (TRL) 183,645 = U.S.$1.00.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
STATEMENT OF OPERATIONS (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 2,047
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
- ------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,167
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Annual Meeting and Proxy Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,242
- ------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,630
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286)
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,344
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,721
Depreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . (5)
- ------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . 19,716
- ------------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . 22,060
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . U.S.$ 23,302
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 1,242 U.S.$ 1,217
Net Realized Gain (Loss). . . . . . . . . . . . . . . . . . . . . . . 2,344 (965)
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . 19,716 (1,929)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . 23,302 (1,677)
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . (959) (845)
- ------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (3,346 and 3,318 shares, respectively). 19 19
- ------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . . . 22,362 (2,503)
Net Assets:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . 39,254 41,757
- ------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income of
U.S.$955 and U.S.$958, respectively). . . . . . . . . . . . . . . . U.S.$ 61,616 U.S.$ 39,254
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . U.S.$ 5.57 U.S.$ 5.93 U.S.$ 4.89 U.S.$ 9.41 U.S.$ 4.69
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . 0.18 0.17 0.13 0.07 0.22
Net Realized and Unrealized Gain (Loss) on Investments . . . 3.13 (0.41) 0.91 (4.47) 4.54
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations. . . . . . . . . . . . . 3.31 (0.24) 1.04 (4.40) 4.76
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income. . . . . . . . . . . . . . . . . . . (0.14) (0.12) -- (0.12) (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . U.S.$ 8.74 U.S.$ 5.57 U.S.$ 5.93 U.S.$ 4.89 U.S.$ 9.41
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD . . . . . . . . . . . U.S.$ 7.63 U.S.$ 5.38 U.S.$ 5.88 U.S.$ 6.88 U.S.$ 10.38
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value . . . . . . . . . . . . . . . . . . . . . . . 45.34% (6.58)% (14.55)% (33.19)% 74.34%
Net Asset Value (1). . . . . . . . . . . . . . . . . . . . 60.76% (4.09)% 21.27% (47.61)% 102.39%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) . . . . . . . . . . . U.S.$61,616 U.S.$39,254 U.S.$41,757 U.S.$34,447 U.S.$66,258
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets. . . . . . . . . . . 1.91% 2.07% 1.91% 2.16% 2.04%
Ratio of Net Investment Income to Average Net Assets . . . . 2.57% 3.23% 2.18% 1.03% 3.20%
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . 51% 60% 48% 68% 46%
Average Commission Rate (2). . . . . . . . . . . . . . . . . U.S.$0.0002 U.S.$0.0003 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. 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
of the Fund.
(2) Beginning with fiscal year 1996, the Fund is required to disclose the
average commission rate per share it paid for portfolio trades on which
commissions were charged. For the years ended October 31, 1997 and 1996,
the average commission rates paid on trades on which commissions were
charged were 0.33% and 0.31%, respectively, of the trade amounts.
The accompanying notes are an integral part of the financial statments.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
The Turkish Investment Fund, Inc. (the "Fund") was incorporated in
Maryland 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. The Fund's investment objective is long-term capital
appreciation through investments primarily in equity securities of Turkish
corporations.
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. Generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1. SECURITY VALUATION: 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 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 the 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. 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. Currently, the Fund is not subject to any Turkish taxes.
3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. 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 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 exchange contracts, disposition of foreign currency, 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, if any, 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) in the Statement of Net Assets. The
change in net unrealized currency gains (losses) for the period is reflected
in the Statement of Operations.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A forward foreign cur-
10
<PAGE>
rency exchange contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Fund as unrealized gain or loss. The Fund records realized gains or losses
when the contract is closed equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed. Risk may arise upon entering into these contracts from the
potential inability of 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.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassification among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital.
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. The Chase Manhattan Bank, through its affiliate Chase Global Funds
Services Company (the "Administrator"), provides administrative services to
the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator 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. In addition, the Fund is charged certain
out-of-pocket expenses by the Administrator.
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 Custody 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, 1997, the Fund incurred custodian fees of $93,424 with the International
Custodian, of which $20,624 was payable to the International Custodian at
October 31, 1997. The Chase Manhattan Bank serves as custodian for the Fund's
assets held in the United States.
E. During the year ended October 31, 1997, the Fund made purchases and
sales totaling $23,181,000 and $24,718,000, respectively, of investment
securities other than long-term U.S. Government securities and short-term
investments. There were no purchases or sales of long-term U.S. Government
securities. At October 31, 1997, the U.S. Federal income tax cost basis of
securities was $44,332,000 and accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $17,085,000, of which $23,517,000
related to appreciated securities and $6,432,000 related to depreciated
securities. At October 31, 1997, the Fund had capital loss carryforwards
totaling approximately $35,273,000 available to offset future capital gains
of which $14,319,000, $17,765,000, $2,484,000 and $705,000 will expire on
October 31, 2000, 2001, 2002, and 2004, respectively. To the extent that
capital gains are so offset, such gains will not be distributed to
shareholders. During the year ended October 31, 1997, the Fund utilized
capital loss carryforwards for U.S. Federal income tax purposes of
approximately $2,630,000.
F. A substantial portion of the Fund's net assets consists 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.
G. 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. The deferred fees payable, under
the Plan, at October 31, 1997 totaled $32,000 and are included in Payable for
Directors' Fees and Expenses on the Statement of Net Assets.
H. During the year ended October 31, 1997 the Fund incurred $15,127 of
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
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, 1997, 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, 1997 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 5, 1997
12
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of The Turkish Investment Fund, Inc., was
held on April 30, 1997. 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>
1. To elect the following Directors: John W. Croghan 4,150,179 -- 125,793 --
Graham E. Jones 4,151,874 -- 124,098 --
2. To ratify the selection of Price Waterhouse LLP as independent
accountants. 4,166,067 94,789 -- 15,116
3. To approve the Investment Advisory and Management Agreement
among The Turkish Investment Fund, Inc., Morgan Stanley Asset
Management Inc. and Morgan Stanley Asset Management Limited. 4,147,387 118,544 -- 10,041
</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 on 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
1-800-730-6001
14
<PAGE>
THE TURKISH INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS
Michael F. Klein James W. Grisham
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones Joanna M. Haigney
DIRECTOR TREASURER
John A. Levin Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
- --------------------------------------------------------------------------------
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
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
(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 Funds net asset value per share
and information regarding the investments comprising the Funds portfolio,
please call 1-800-221-6726.
