<PAGE>
THE TURKISH INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISERS
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Morgan Stanley Dean Witter Investment Management Limited
25 Cabot Square
Canary Wharf
London EI4 4QA
England
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
- --------------------------------------------------------------------------------
THE
TURKISH
INVESTMENT
FUND, INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1998
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended October 31, 1998, The Turkish Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of -42.39%
compared to -50.28% for the U.S. dollar adjusted Morgan Stanley Capital
International (MSCI) Turkey Index (the "Index"). For the period since the Fund's
commencement of operations on December 5, 1989 through October 31, 1998, the
Fund's total return, based on net asset value per share, was -49.99% compared to
- -22.61% for the Index. On October 31, 1998, the closing price of the Fund's
shares on the New York Stock Exchange was $4 5/16, representing a 12.8%
discount to the Fund's net asset value per share.
Adverse developments in international markets weighed heavily on the Turkish
market during fiscal 1998. Turmoil in the emerging markets, particularly the
fallout of the Russian crisis, depressed investor sentiment and the market fell
in sympathy with its emerging market peers. Ultimately, however, domestic
political events and the reform process continue to drive the Turkish market.
While Turkey has made significant progress on several fronts during 1998, the
basic issues confronting Turkey remain the same: fragile politics, high
inflation and a large fiscal deficit. A combination of external shocks, growing
political uncertainty and Turkey's debt burden led to a 50.28% fall this year.
For the year ended October 31, 1998, the Fund outperformed the Index by
maintaining an underweight position in the financial sector, being overweight in
merchandising and increasing the cash position during periods of uncertainty.
The current ruling coalition, headed by Prime Minister Yilmaz of the
conservative ANAP party, began its term in government last year with high hopes,
preaching low inflation and deficit reduction. On many fronts, the government
has made significant progress. After years of delay, the privatization process
was rejuvenated. The government sold a large stake in Isbank in April and the
state-owned oil refiner Petrol Ofisi was sold to a consortium of private
domestic investors. Possible subsequent privatizations include monopoly
telecommunications provider Turk Telecom, TurkCell and a stake in Erdemir, the
steel company. The new government also passed a long-awaited tax reform bill in
July. The new legislation widens the tax base and increases overall tax
collection. Under the new law, unrealized gains from government bonds will be
subject to a capital gains tax on a quarterly basis. Turkish banks successfully
lobbied against these measures which would increase the banks' taxable base and
lead to lower earnings prospects and the government pushed off implementation
until next year.
The battle against inflation remains the linchpin of the government's reform
program, with an aggressive target for calendar year-end WPI (Wholesale Price
Index) of 50%. The government was successful at keeping public sector utility
prices under control, allowing WPI to decline every month this year. WPI, which
was 91% in December 1997, reached 66% by September 1998, but will likely fall
short of the government's year-end target. The progress on inflation helped
yields on government paper drop sharply during the first half of 1998. After
spending most of 1997 above 100%, yields dropped to approximately 70% in July.
But as a result of the possible introduction of the new tax legislation and the
external crisis, yields spiked up to their current levels above 130%. The
government's fiscal discipline since the beginning of the year has allowed
increases in revenue to outpace that of non-interest expenditures and led to an
increase in the primary surplus (the budget surplus excluding interest payments
on debt). But higher yields will pressure the overall budget deficit to edge up
above the previously forecasted 7% of gross domestic product (GDP).
Politics, however, became a heavy drag on the market as Prime Minister Yilmaz
faced obstacles both within his ruling coalition and from the parliamentary
opposition. The coalition--a three-party minority group--nearly collapsed over
disagreement on pay increases for public sector employees. A smaller coalition
partner objected to a proposed pay increase, but after 3 weeks of intense
negotiations, coalition leaders agreed on a formula for a 30% wage increase.
Yilmaz is operating under a pact struck with the leader of the center-left
opposition CHP party whose support in the Parliament has been necessary to pass
any legislation. The terms of the agreement call for the Prime Minister to
hand over power to a caretaker administration at the end of the year and call
early elections in April 1999. In exchange, the CHP party would not block the
government's reform bills. The agreement confirms that the support of the
opposition was absolutely necessary if Turkey is to have any hope of passing
structural reforms.
Towards the end of the year, a political crisis developed as the coalition
partner CHP party insisted that the Prime Minister step down earlier than
originally agreed due to allegations linking the Prime Minister to
2
<PAGE>
the Mafia. The crisis has brought the privatization program to a halt and led
to the resignation of an ANAP member of parliament. Financial markets focused
on the timing of the next elections and the interim government that would be put
in place. It is unlikely that any temporary government would be able to make
progress on reform. If the current government falls, new elections would not be
held for at least two months and Turkey would be without leadership during a
time when the government faced significant refinancing requirements. The
government must roll over a large amount of debt in the next six months. While
it will not be difficult to attract domestic investors with high yields, the
Treasury also has to refinance foreign debt. In addition, after years of strong
economic growth, Turkey is experiencing a slowdown due in part to high real
interest rates. GDP growth in 1997 reached 8.3% but decelerated to 4% growth
during the second quarter of 1998. GDP is being hit by a slowdown in domestic
consumption, such as construction, and international demand for Turkish exports.
We actively monitor the ever changing political and macroeconomic environment
within Turkey and continue to proactively adjust for these changes within the
Fund's portfolio.
Finally, please be advised that effective December 1, 1998, Morgan Stanley Asset
Management Inc. and Morgan Stanley Asset Management Limited, the Fund's
investment advisers, have changed their names to Morgan Stanley Dean Witter
Investment Management Inc. and Morgan Stanley Dean Witter Investment Management
Limited, respectively.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
December 1998
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
3
<PAGE>
<TABLE>
<CAPTION>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1998
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
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>
One Year -42.36% -42.36% -42.39% -42.39% -50.28% -50.28%
Five Year -55.32 -14.88 -43.57 -10.81 -38.12 -9.15
Since Inception* -56.34 -8.88 -49.99 -7.48 -22.61 -2.84
Past performance is not predictive of future performance.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND PER SHARE INFORMATION
[GRAPH]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
Years ended October 31:
1990* 1991 1992 1993 1994 1995 1996 1997 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 $4.94
Market Value Per Share. . . . $9.38 $7.00 $6.00 $10.38 $6.88 $5.88 $5.38 $7.63 $4.31
Premium/(Discount). . . . . . -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -12.7% -12.8%
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% -42.39%
Index Total Return (3). . . . 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 87.70% -50.28%
</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.
Investment Summary as of October 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
Equity Securities (96.6%)
Short-Term Investments (3.4%)
- -------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<CAPTION>
<S> <C>
Other (9.9%)
Utilities--Electrical and Gas (3.0%)
Transportation--Airlines (2.6%)
Telecommunications (1.1%)
Merchandising (20.6%)
Insurance (8.6%)
Food & Household Products (3.8%)
Banking (26.9%)
Beverages & Tobacco (13.7%)
Building Materials & Components (7.4%)
Electrical & Electronics (2.4%)
</TABLE>
- -------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Migros Turk TAS 15.3%
2. Turkiye Is Bankasi 13.4
3. Yapi Ve Kredi Bankasi 10.7
4. Aksigorta AS 8.2
5. Erciyas Biracilik Ve Malt 5.7
6. Carsi Buyuk Magazacilik 5.3%
7. Ege Biracilik Ve Malt Sanayii 5.2
8. Turcas Petroculuk AS 3.0
9. Goltas Cimento 2.9
10. Guney Biracilik Ve Malt Sanayii 2.8
-----
72.5%
-----
-----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
- -------
STATEMENT OF NET ASSETS
- -------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
TURKISH COMMON STOCKS(92.6%)
(Unless otherwise noted)
- ------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOBILES(0.0%)
(a)Tofas Turk Otomobil Fabrikasi AS 97,200 U.S.$ 2
--------------
- ------------------------------------------------------------------------------
BANKING(26.9%)
Akbank TAS 63,435,000 936
(a)Turkiye Garanti Bankasi GDS 38,801 63
Turkiye Is Bankasi 168,250,000 4,615
Yapi Ve Kredi Bankasi 326,153,075 3,681
--------------
9,295
--------------
- ------------------------------------------------------------------------------
BEVERAGES & TOBACCO(13.7%)
Ege Biracilik Ve Malt Sanayii 27,471,000 1,789
Erciyas Biracilik Ve Malt 31,783,000 1,959
Guney Biracilik Ve Malt Sanayii 21,542,000 972
--------------
4,720
--------------
- ------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS(7.4%)
Adana Cimento 17,200,000 328
Akcansa Cimento AS 61,634,000 803
Goltas Cimento 72,510,000 1,007
Turk Sise Ve Cam Fabrikalari AS 38,841,000 418
--------------
2,556
--------------
- ------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS(0.9%)
Koc Holding AS 3,250,000 299
--------------
- ------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS(2.4%)
(a)Vestel Elektronik Sanayi Ve 10,034,032 819
Ticaret AS --------------
- ------------------------------------------------------------------------------
FINANCIAL SERVICES(0.0%)
(a)Global Menkul Degerler AS 4,242,500 17
(a)Global Menkul Degerler AS - New 1,065 -- @
--------------
17
--------------
- ------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS(3.8%)
Pinar Sut 29,352,500 622
Tat Konserve Sanayii AS 27,202,000 699
--------------
1,321
--------------
- ------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER(0.8%)
Karton Sanayi Ve Ticaret AS 8,928,000 263
--------------
- ------------------------------------------------------------------------------
INSURANCE(8.6%)
Aksigorta AS 131,294,000 2,826
Gunes Sigorta 34,738,000 145
--------------
2,971
--------------
- ------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
MERCHANDISING(20.6%)
Carsi Buyuk Magazacilik 48,156,000 U.S.$ 1,839
Migros Turk TAS 6,208,000 5,281
--------------
7,120
--------------
- ------------------------------------------------------------------------------
METALS -- NON-FERROUS(0.0%)
(a)(b)Rabak Elektrolitik Bakir Ve Mamulleri 3,272,280 --
--------------
- ------------------------------------------------------------------------------
METALS -- STEEL(0.8%)
(a)Eregli Demir Ve Celik Fabrikalari TAS 5,037,200 284
--------------
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS(1.1%)
(a)Netas Telekomunik 17,118,400 380
--------------
- ------------------------------------------------------------------------------
TEXTILES & APPAREL(0.0%)
(a)(b)Mensucat Santral TAS 3,606,400 --
--------------
- ------------------------------------------------------------------------------
TRANSPORTATION -- AIRLINES(2.6%)
Usas Ucak Servisi AS 660,000 882
--------------
- ------------------------------------------------------------------------------
UTILITIES -- ELECTRICAL & GAS(3.0%)
Turcas Petroculuk AS 70,022,000 1,045
--------------
- ------------------------------------------------------------------------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S.$47,228) 31,974
--------------
- ------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENT(3.2%)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT(3.2%)
Chase Securities, Inc., 5.20%,
dated 10/30/98, due
11/2/98, to be
repurchased at U.S.$1,119,
collateralized by
U.S.$1,055 U.S. Treasury
Note 5.75%, due 4/30/03,
valued at U.S.$1,145
(Cost U.S.$1,119) U.S.$ 1,119 1,119
--------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS(95.8%)
(Cost U.S.$48,347) 33,093
--------------
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS (5.1%)
Receivable for Investments Sold U.S.$ 1,601
Dividends and Interest Receivable 154
Other Assets 8 U.S.$ 1,763
--------------- --------------
- ------------------------------------------------------------------------------
LIABILITIES (-0.9%)
Payable for:
Investments Purchased (67)
Professional Fees (59)
Shareholder Reporting Expenses (51)
Investment Advisory Fees (27)
Custodian Fees (24)
Bank Overdraft (23)
Directors' Fees and Expenses (22)
Administrative Fees (12)
Other Liabilities (20) (305)
--------------- --------------
- ------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 6,989,130 issued and
outstanding U.S.$0.01 par value shares
(30,000,000 shares authorized) U.S.$ 34,551
--------------
- ------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 4.94
--------------
- ------------------------------------------------------------------------------
AT OCTOBER 31, 1998, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------
Common Stock U.S.$ 70
Capital Surplus 78,519
Undistributed Net Investment Income 868
Accumulated Net Realized Loss (29,620)
Unrealized Depreciation on Investments and
Foreign Currency Translations (15,286)
- ------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 34,551
--------------
- ------------------------------------------------------------------------------
</TABLE>
@ -- Value is less than U.S.$500.
(a)-- Non-income producing.
(b)-- Security valued at fair value. See Note A-1 to financial
statements.
GDS -- Global Depositary Shares.
October 31, 1998 exchange rate -- Turkish Lira (TRL)
288,005 = U.S.$1.00.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1998
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 1,674
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,961
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
Custodian Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Shareholder Reporting Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Annual Meeting and Proxy Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Directors' Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,697
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156)
- -------------------------------------------------------------------------------------------------------------------
Net Realized Gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,541
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,339)
Depreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . . (30)
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . . (32,369)
- -------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . (26,828)
- -------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . U.S.$(25,831)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$997 U.S.$1,242
Net Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,541 2,344
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . . . . . . (32,369) 19,716
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . (25,831) 23,302
- -------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (972) (959)
- -------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (3,346 shares). . . . . . . . . . . . . . . . . . -- 19
Repurchase of Shares (57,300 shares). . . . . . . . . . . . . . . . . . . . . . (262) --
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (262) 19
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,065) 22,362
Net Assets:
Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,616 39,254
- -------------------------------------------------------------------------------------------------------------------
End of Year (including undistributed net investment income of U.S.$868 and
U.S.$955, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$34,551 U.S.$61,616
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA YEAR ENDED OCTOBER 31,
AND RATIOS: -------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ....................... U.S.$ 8.74 U.S.$ 5.57 U.S.$ 5.93 U.S.$ 4.89 U.S.$ 9.41
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income .................................... 0.14 0.18 0.17 0.13 0.07
Net Realized and Unrealized Gain (Loss) on Investments ... (3.80) 3.13 (0.41) 0.91 (4.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ..................... (3.66) 3.31 (0.24) 1.04 (4.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .................................. (0.14) (0.14) (0.12) -- (0.12)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ............................. U.S.$ 4.94 U.S.$ 8.74 U.S.$ 5.57 U.S.$ 5.93 U.S.$ 4.89
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF YEAR ...................... U.S.$ 4.31 U.S.$ 7.63 U.S.$ 5.38 U.S.$ 5.88 U.S.$ 6.88
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value ........................................... (42.36)% 45.34% (6.58)% (14.55)% (33.19)%
Net Asset Value (1) .................................... (42.39)% 60.76% (4.09)% 21.27% (47.61)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (THOUSANDS) ...................... U.S.$ 34,551 U.S.$ 61,616 U.S.$ 39,254 U.S.$ 41,757 U.S.$ 34,447
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets .................. 1.71% 1.91% 2.07% 1.91% 2.16%
Ratio of Net Investment Income to Average Net Assets ..... 1.76% 2.57% 3.23% 2.18% 1.03%
Portfolio Turnover Rate .................................. 68% 51% 60% 48% 68%
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- ------------
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 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: 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 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 currency 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
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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 reclassifications among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital.
B. Morgan Stanley Dean Witter Investment Management Inc. (formerly Morgan
Stanley Asset Management Inc.) and Morgan Stanley Dean Witter Investment
Management Limited (formerly Morgan Stanley Asset Management Limited) provide
investment advisory services to the Fund under the terms of an Investment
Advisory Agreement (the "Agreement"). Under the Agreement, advisory fees are
computed weekly and payable monthly at an annual rate of 0.95% of the Fund's
first $50 million of average weekly net assets, 0.75% of the next $50 million of
average weekly net assets and 0.55% of average weekly net assets in excess of
$100 million.
C. The Chase Manhattan Bank, through its corporate 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 0.08% 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. The Chase Manhattan Bank and its affiliates serve as custodian for the
Fund. Prior to October 1, 1998, the Fund's assets held outside the United States
were held by Morgan Stanley Trust Company ("MSTC"), an affiliate of the
advisers. Custody fees are payable monthly based on assets held in custody,
investment purchase and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses. Through September 30, 1998,
the Fund paid MSTC fees of $104,195. On October 1, 1998, the Chase Manhattan
Bank purchased MSTC.
E. During the year ended October 31, 1998, the Fund made purchases and sales
totaling $36,184,833 and $35,893,816, 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, 1998, the U.S. Federal income tax cost basis of securities was
approximately $48,602,000 and accordingly, net unrealized depreciation for U.S.
Federal income tax purposes was $15,509,000, of which $1,531,000 related to
appreciated securities and $17,040,000 related to depreciated securities. At
October 31, 1998, the Fund had capital loss carryforwards totaling approximately
$29,321,000 available to offset future capital gains of which $8,367,000,
$17,764,000, $2,484,000 and $706,000 will expire on October 31, 2000, 2001,
2002, and 2004, respectively. To the extent that future capital gains are offset
by these loss carryforwards, such gains will not be distributed to shareholders.
F. A substantial portion of the Fund's net assets consists of equity
securities of Turkish companies 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, 1998 totaled $21,500 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
H. During the year ended October 31, 1998, the Fund incurred $14,331 of
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
I. On September 15, 1998, the Fund commenced a share repurchase program for
purposes of enhancing shareholder value and reducing the discount at which the
Fund's shares traded from their net asset value. From that date through October
31, 1998, the Fund repurchased
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57,300 shares of its Common Stock at an average price per share of $4.54 and an
average discount of 11.37% from net asset value per share. The Fund expects to
continue to repurchase its outstanding shares at such time and in such amounts
as it believes will further the accomplishment of the foregoing objectives,
subject to review by the Board of Directors.
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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, 1998, 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, 1998 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 4, 1998
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SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of The Turkish Investment Fund, Inc., was
held on June 24, 1998. The following is a summary of each proposal presented and
the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1. To elect the following Directors: Michael F. Klein 3,888,532 -- 983,998 --
Barton M. Biggs 3,897,077 -- 975,454 --
John A. Levin 3,893,989 -- 978,542 --
William G. Morton, Jr. 3,895,489 -- 977,042 --
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent accountants. 4,335,033 517,697 -- 19,801
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 DISCLOSURE:
The investment advisory services provided to the Fund by the Advisers depend on
the smooth operation of their computer systems. Many computer and software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the handling of securities trades,
pricing and account services. The Advisers have been actively working on
necessary changes to their own computer systems to deal with the year 2000
problem and expect that their systems will be adapted before that date. There
can be no assurance, however, that they will be successful. In addition, other
unaffiliated service providers may be faced with similar problems. The Advisers
are monitoring their remedial efforts, but, there can be no assurance that they
and the services they provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
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<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
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