<PAGE>
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THE
TURKISH
INVESTMENT
FUND, INC.
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FIRST QUARTER REPORT
JANUARY 31, 1999
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
INVESTMENT ADVISER
The Turkish Investment Fund, Inc.
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DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS
Stefanie V. Chang
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR
Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR
Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR
Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR
Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR
Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
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INVESTMENT 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
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ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
(800) 342-8756
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LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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For additional Fund information, including the Fund's net asset value
per share and information regarding the investments comprising the
Fund's portfolio, please call 1-800-221-6726.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the three months ended January 31, 1999, The Turkish Investment Fund, Inc.
(the "Fund") had a total return, based on net asset value per share, of 12.52%
compared to 3.58% 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 January 31, 1999, the
Fund's total return, based on net asset value per share, was -43.73% compared to
- -19.84% for the Index. On January 31, 1999, the closing price of the Fund's
shares on the New York Stock Exchange was $4 9/16, representing a 16.0% discount
to the Fund's net asset value per share.
The Fund's outperformance compared to the Index, for the three months ended
January 31, 1999, was driven by favorable stock selection across the market. The
Fund's overweight positions in the insurance, beverage and merchandising sectors
and underweight positions in the appliances and banking sectors added
significantly to the overall performance of the Fund during the first quarter.
The Fund's focus on the more economically defensive and conservatively valued
stocks paid off.
Turkish politics proved particularly volatile during the last months of 1998.
After 18 months in power, the coalition government led by Mesut Yilmaz of the
center-right Motherland party (ANAP) was forced out. In November, a center-left
party, which had previously supported the government, passed a censure motion,
alleging corruption during the privatization process. After several unsuccessful
attempts, a new caretaker government was formed under Bulent Ecevit, the leader
of the center-right DSP party and a deputy premier in the previous government.
In the near-term, the market will focus on the politics in the upcoming
election. The latest data shows DSP and Yilmaz's ANAP leading in the polls, but
a large percentage of voters remain undecided. From the market's perspective,
the best-case scenario would be a coalition involving ANAP and DSP parties,
given their economic policy record.
The outgoing government can point to several achievements. In line with IMF
recommendations, the Yilmaz administration imposed fiscal discipline during the
year, increasing the primary surplus to over 4% of GDP in 1998, a significant
improvement over the 0.3% surplus recorded in 1997. A 26% increase in revenue
from higher tax collection and a 2% contraction in non-interest expenditures
boosted the budget. Yet, due to high real interest rates, interest expenditure
remains a heavy fiscal burden. There was also considerable progress made on
reducing inflation. Public sector restraint combined with low commodity prices
brought down wholesale price inflation to 50% by the end of January versus 90%
levels last year. Currently, the government is targeting an aggressive 1999
year-end level of 35% on inflation.
Thus far, the interim government has managed to roll over the outstanding
Turkish government debt. Despite the general negative sentiment in emerging
markets and political uncertainty at home, debt rollover has been managed
without major difficulties. The government has even tapped the international
debt markets twice in the past few months.
After the Russian crisis, Turkey's external balances were expected, by some, to
deteriorate. While exports to Russia had fallen, exports to EU countries, which
are about 50% of total exports, continued to grow. Due to a slow down in
economic activity, imports have slowed substantially and the trade deficit
improved toward the end of the year.
The failure of several small banks focused investor attention on potential
weakness in the Turkish banking system. In January, Turkey's Central Bank seized
the assets of Interbank, a medium-sized commercial bank. The deposit insurance
fund injected $100 million into the bank, which was put under "rehabilitation".
The direct exposure of the large banks to the small banks is not significant,
but there is a concern about the current deposit insurance scheme that provides
100% protection for all deposits. The government has prepared legislation
intended to improve supervision of the banks through the creation of a Bank
Supervisory Board, formed by the Central Bank and the Turkish Treasury. The
legislation attempts to deal with related party loans and offshore loans
transactions. If passed in the aftermath of the elections, the legislation would
reduce risks in the sector.
Following the April elections, the incoming government will be faced with a
slowing economy. A combination of factors have led GDP to slow from a growth
rate of around 8% during the first quarter of 1998 to less than 2% by the end of
the year. Industrial production slumped from 8% growth to 1% by the third
quarter of 1998 and turned negative in November. Weak demand for consumer
durables and automobiles led to a slump
2
<PAGE>
in manufacturing and capacity utilization has fallen to around 71%.
Despite the economic slowdown, we remain optimistic on Turkey's prospects in the
medium-term. Although political uncertainty will continue until elections in
April, the probability of the return to government of a center-right coalition
appears significant. This would signal political stability and a continuation of
economic reform process. A center-right government, such as a return of the
previous ANAP-DSP government, would be more likely to strike a stand-by
agreement with the IMF, which has stated that it would provide some financial
support for Turkey's disinflation program following the April 18th elections. In
addition, the World Bank pledged its assistance to Turkey once a coherent and
plausible economic program is implemented. Also, banking reform would clearly be
on the legislative agenda.
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 trade from their net asset value. From that date through January
31, 1999, the Fund repurchased 104,400 shares or 1.48% of its common stock at an
average price per share of $4.57 and an average discount of 14.19% 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.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
March 1999
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>
The Turkish Investment Fund, Inc.
Investment Summary as of January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
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HISTORICAL TOTAL RETURN (%)
INFORMATION -----------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
----------------------- ---------------------- ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE 8.30% -- 12.52% -- 3.58% --
ONE YEAR -34.45 -34.45% -33.67 -33.67% -54.10 -54.10%
FIVE YEAR -56.82 -15.46 38.53 6.74 -32.71 -7.62
SINCE INCEPTION* -52.72 -7.85 -43.73 -6.08 -19.84 -2.39
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
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</TABLE>
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31: THREE MONTHS
ENDED
JANUARY 31,
1990* 1991 1992 1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- ------- ------- ------- -----------
<S> <C> <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 $ 5.43
Market Value Per Share..... $ 9.38 $ 7.00 $ 6.00 $ 10.38 $ 6.88 $ 5.88 $ 5.38 $ 7.63 $ 4.31 $ 4.56
Premium/(Discount)......... -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -12.7% -12.8% -16.0%
Income Dividends........... $ 0.03 -- $ 0.07 $ 0.04 $ 0.12 -- $ 0.12 $ 0.14 $ 0.14 $ 0.12
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% 12.52%
Index Total Return (3)..... 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 87.70% -50.28% 3.58%
</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. As of
January 31, 1999, the Index was 50.4% weighted in the banking sector.
* The Fund commenced operations on December 5, 1989.
4
<PAGE>
The Turkish Investment Fund, Inc.
Portfolio Summary as of January 31, 1999 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
Equity Securities (100.0%)
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SECTORS
[CHART]
<TABLE>
<S> <C>
Other (8.0%)
Utilities -- Electrical & Gas (7.7%)
Transportation -- Airlines (2.3%)
Merchandising (21.0%)
Insurance (9.4%)
Food & Household Products (5.1%)
Banking (15.1%)
Beverages & Tobacco (14.9%)
Building Materials & Components (9.0%)
Electrical & Electronics (4.3%)
Energy (3.2%)
</TABLE>
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TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Migros Turk TAS 21.0%
2. Yapi Ve Kredi Bankasi 10.3
3. Aksigorta AS 9.4
4. Turcas Petroculuk AS 7.7
5. Akcansa Cimento AS 7.3
6. Erciyas Biracilik Ve Malt 6.2
7. Ege Biracilik Ve Malt Sanayii 4.7
8. Turkiye Is Bankasi 4.7
9. Vestel Elektronik Sanayi Ve Ticaret AS 4.3
10. Guney Biracilik Ve Malt Sanayii 4.0
-----
79.6%
-----
-----
</TABLE>
5
<PAGE>
INVESTMENTS (Unaudited)
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JANUARY 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
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<S> <C> <C>
TURKISH COMMON STOCKS (95.8%)
(Unless otherwise noted)
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BANKING (15.1%)
Turkiye Garanti Bankasi GDS 17,946 U.S.$ 48
Turkiye Is Bankasi 74,350,000 1,760
Yapi Ve Kredi Bankasi 333,652,813 3,899
--------------
5,707
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BEVERAGES & TOBACCO (14.9%)
Ege Biracilik Ve Malt Sanayii 25,102,322 1,768
Erciyas Biracilik Ve Malt 28,971,917 2,344
Guney Biracilik Ve Malt
Sanayii 20,739,000 1,491
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5,603
--------------
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BUILDING MATERIALS & COMPONENTS (9.0%)
Adana Cimento 16,044,000 274
Akcansa Cimento AS 161,355,571 2,756
Turk Sise Ve Cam Fabrikalari AS 35,766,000 354
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3,384
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DIVERSIFIED OPERATIONS (1.7%)
Dogan Yayin Holding 159,000,000 643
--------------
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ELECTRICAL & ELECTRONICS (4.3%)
Vestel Elektronik Sanayi Ve
Ticaret AS 22,187,032 1,629
--------------
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ENERGY (3.2%)
Tupras-Turkiye Petrol
Rafinerileri AS 27,490,000 1,195
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FINANCIAL SERVICES (0.0%)
Global Menkul Degerler AS 10,608,912 14
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FOOD & HOUSEHOLD PRODUCTS (5.1%)
Pinar Sut 27,304,500 687
Tat Konserve Sanayii AS 36,574,000 1,233
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1,920
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INSURANCE (9.4%)
Aksigorta AS 121,155,000 3,558
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MERCHANDISING (21.0%)
Migros Turk TAS 8,013,000 7,924
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METALS -- NON-FERROUS (0.0%)
Rabak Elektrolitik Bakir Ve
Mamulleri 3,272,280 --
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OIL & GAS (1.5%)
Aygaz AS 8,892,000 566
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TELECOMMUNICATIONS (0.6%)
Netas Telekomunik 15,962,400 U.S.$ 237
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TEXTILES & APPAREL (0.0%)
Mensucat Santral TAS 3,606,400 --
--------------
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TRANSPORTATION -- AIRLINES (2.3%)
Usas Ucak Servisi AS 565,000 855
--------------
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UTILITIES -- ELECTRICAL & GAS (7.7%)
Turcas Petroculuk AS 185,642,000 2,893
--------------
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TOTAL TURKISH COMMON STOCKS
(Cost U.S.$41,536) 36,128
--------------
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<CAPTION>
AMOUNT AMOUNT
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (4.2%)
Other Assets U.S.$ 2,873
Liabilities (1,271) 1,602
---------------- --------------
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NET ASSETS (100%)
Applicable to 6,942,530 issued and outstanding
U.S.$0.01 par value shares (30,000,000 shares
authorized) U.S.$ 37,730
--------------
--------------
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NET ASSET VALUE PER SHARE U.S.$ 5.43
--------------
--------------
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GDS -- Global Depositary Shares
January 31, 1999 exchange rate -- Turkish Lira (TRL)
333,700 = U.S.$1.00
</TABLE>
6
