<PAGE>
-------------------------------------------------------
THE
TURKISH
INVESTMENT
FUND, INC.
-------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
THE TURKISH INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the year ended October 31, 1999, The Turkish Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 97.06%
compared to 78.92% 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, 1999, the
Fund's total return, based on net asset value per share, was -1.45% compared to
38.46% for the Index. On October 31, 1999, the closing price of the Fund's
shares on the New York Stock Exchange was $8 3/16, representing a 14.0% discount
to the Fund's net asset value per share.
The Fund's strong performance, both in absolute terms and relative to the Index,
was driven by several key holdings. The largest single performance contributor
was the Fund's significant position in Aksigorta, Turkey's largest insurance
company. Although it was initially feared that the August earthquake would
depress earnings and the stock price fell in the immediate aftermath, the
company had almost fully re-insured its exposure and underwriting profits were
not significantly impacted. In the aftermath of the earthquake, demand for
insurance increased, boosting the company's business. In addition, Aksigorta
sold a portion of its large holding in Akbank, focusing investors on the
insurance company's sizeable equity holdings and providing a source of cash for
reinvestment. The stock has rallied approximately 180% in U.S. dollar terms
during the fiscal year. Another important holding for the Fund is Yapi Ve Kredi
Bankasi. In addition to the company's strong position in the banking sector, the
stock price has benefited from its underlying equity holdings. The bank has a
significant position in Turkcell, Turkey's leading wireless telecommunications
provider, which currently has over 5 million subscribers. The bank also owns one
of Turkey's leading internet service providers. Plans to publicly list both
Turkcell and the internet service provider sometime next year will allow the
significant underlying value of the businesses to be realized, boosting Yapi's
value. Through October 31, 1999, the stock has rallied 170% from October 1998
lows.
Despite a newly elected government in April and a devastating earthquake in
August, Turkey has demonstrated remarkable progress during 1999, ushering in
critical structural reforms and laying the groundwork for a landmark
stabilization program with the IMF. Through a Parliamentary majority, the ruling
three party coalition of social democrats (DSP), nationalists (MHP) and liberals
are directly addressing Turkey's perennial problems of economic instability,
characterized by run-away budget deficits and high inflation, and problematic
relations with the West, particularly relations with the European Union. On the
economic front, the government, led by Prime Minister Ecevit, has passed key
reform bills, including new social security and international arbitration, that
were prerequisites for an eventual IMF stabilization program. Based on the
concrete steps taken thus far by the government, a deal with the IMF before the
end of the year appears likely. On the political front, the earthquake has acted
as a catalyst for Europe to revisit its relationship with Turkey; Turkish entry
into the European Union is now on the negotiating table and although unlikely in
the short-term, Turkey will be included in the next round of expansion
candidates.
The short-term impact of the August earthquake on Turkey was severe. Nearly
fifteen thousand people were killed and thousands of commercial and residential
buildings were destroyed. The Istanbul Stock Exchange was closed for several
days as companies assessed the damage. August industrial production fell by 13%
for the month year-on-year, dragging production for the first 8 months down
5.8%. Overall, the economy is likely to contract this year, but grow by over 5%
next year. In the medium-term, however, the effects of the earthquake will be
minimal and temporary. Damage to infrastructure other than housing appears to be
limited, and construction will likely boom and lead to a rapid recovery in
output. Due to the transitory nature of the crisis and the significant progress
that the country has made towards reform, the impact of the earthquake on the
stock market was short-lived. After a short sell-off, the stock market took a
little over a week to regain pre-earthquake levels and moved higher from there.
The progress made by the government towards a three year stand-by arrangement
with the IMF is the main driver of the market's rapid recovery and continued
strong performance. The agreement, which would likely start in the year 2000,
will be of momentous importance for Turkey--it could possibly be the means by
which the country's chronic inflation is cured and the economy's potential
fulfilled. The prospective IMF deal differs from previous packages in one major
aspect--almost all of the major difficult issues are being effectively dealt
with ahead of time and, as of this writing, most major hurdles have been passed.
The central goal of the program is to bring down inflation (i.e. breaking
inflation expectations that have become built
2
<PAGE>
in after decades of high inflation). The program would be based on strict fiscal
austerity, the use of the exchange rate as an anchor (perhaps implementing a
crawling peg regime), easing monetary policy through interest rate cuts and
capital inflows from international investors.
The draft 2000 budget that was presented to Parliament in October clearly
indicates the government's commitment to stabilizing Turkey's macroeconomic
conditions and should meet IMF requirements. The budget sets aggressive targets
for inflation and a primary surplus. If successful, inflation, as measured by
the wholesale price index (WPI), is targeted to hit between 25% and 35% compared
to WPI of 55.2% in September. On the growth front, the draft budget forecasts
growth of 5.5% next year. Perhaps the most important benchmark set by the budget
is the primary surplus because fiscal austerity is the key to the sustainability
of reform but often the most difficult element to implement. The draft 2000
budget is currently targeting a primary surplus of 5.5%, including significant
revenue from privatization receipts. Revenues from privatization are budgeted to
reach over $5 billion in 2000, which would be the highest level since the
creation of the privatization program in 1985. Companies scheduled to be sold by
the government include the country's largest refinery, the national airline and
most importantly Turk Telekom, the sole fixed line telecommunications operator
in Turkey. The sale of Turk Telecom has been held up for years due to legal
roadblocks, but critical legislation that would allow for foreign ownership has
already been submitted to parliament and is expected to pass. In all, the 2000
budget represents an ambitious but achievable program. To some observers, the
budget may appear to be too ambitious, particularly the aggressive revenue
collection targets in comparison to what was achieved in 1999. But the 2000
budget is similar to the targets reached in the 1998 budget and is achievable
once again.
In addition to fiscal targets, a key element of reducing inflation will be the
central bank's currency regime. The current policy of devaluing the Turkish lira
in line with the country's inflation differential with a basket of foreign
currencies is likely to be changed to a crawling peg regime. During the last few
months of 1999, the central bank devalued the currency by as much as 5% on a
monthly basis. Starting in 2000, the exchange rate would act as an anchor and a
reduced level of monthly devaluation, perhaps falling to below 2%, would help
slow the rate of inflation. Instead of the devaluation rate following inflation,
the rate would be set beforehand and thus inflation expectations could be
effectively managed. If successful, such a program would allow real interest
rates to collapse, furthering the disinflation process.
The critical elements for the successful transformation of the Turkish economy
are in place. First and foremost, there is the political will, both in Ankara
and in the population in general, to do what is necessary to ensure the
program's success, including accepting short-term austerity measures. The
government has realized that there are major costs of high levels of inflation,
including a skewed income distribution. It also realizes that a sustained
reduction in inflation and economic stability would be a major boost to its
popularity. But there is a short window of opportunity for the government to use
its majority in parliament to push through reforms that have been held up for
years. If successful, the economy could enter into a virtuous cycle of lower
levels of inflation, lower interest rates and higher levels of sustained growth.
Since October, the Turkish equity market has staged a major rally which was
triggered by two key developments--the final rounds of negotiations with the IMF
for a stand-by loan and improved relations with the European Union. After more
than two years of negotiations, the Turkish government and the IMF appear to
have reached full agreement on all critical topics, including fiscal and
monetary targets. The program is a three year stand-by agreement that needs
final approval from the IMF Board during year-end meetings. The government
demonstrated its continued commitment to successfully carrying out the program
by introducing a retroactive withholding tax on domestic debt which caught the
market by surprise. After a short-lived rise in yields and a market correction,
both debt and equity securities quickly recovered. In addition, the Central Bank
of Turkey announced next year's monetary targets. The key target is a sharp
reduction in the devaluation of the currency which will bring down inflation.
Also, during a European Union (EU) summit in Helsinki, Turkey was invited to
start negotiations for membership in the Union. Prime Minister Ecevit flew to
the summit to accept the invitation. Candidate status in the EU will provide
Turkey with a long-term anchor for political and economic developments, enhance
the business environment and augment foreign direct investment. If Turkey
continues to successfully implement structural reforms while growing closer to
the European Union, the equity market will
3
<PAGE>
hopefully fundamentally re-rate, driving equity prices to yet higher levels. The
market has rallied 80% from the end of October to mid-December.
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. For the year ended October 31,
1999, the Fund repurchased 424,450 shares of its Common Stock at an average
price per share of $5.93 and an average discount of 15.33% 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
December 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.
- --------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
www.msdw.com/institutional/investmentmanagement.
4
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURN (%)
INFORMATION -------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
--------------------- ------------------------ --------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR 94.34% 94.34% 97.06% 97.06% 78.92% 78.92%
FIVE YEAR 29.98 5.38 112.26 16.24 102.25 15.13
SINCE INCEPTION* -15.15 -1.64 -1.45 -0.15 38.46 3.34
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 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 $9.52
Market Value Per Share ....... $9.38 $7.00 $6.00 $10.38 $6.88 $5.88 $5.38 $7.63 $4.31 $8.19
Premium/(Discount) ........... -26.6% 35.7% 27.9% 10.3% 40.7% -0.8% -3.5% -12.7% -12.8% -14.0%
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% 97.06%
Index Total Return (3) ....... 93.17% -64.65% -21.03% 156.26% -45.26% 26.48% -4.24% 87.70% -50.28% 78.92%
</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 Morgan Stanley Capital International (MSCI) Turkey Index is an
unmanaged index of common stocks.
* The Fund commenced operations on December 5, 1989.
5
<PAGE>
The Turkish Investment Fund, Inc.
Investment Summary as of October 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[PIE CHART]
<TABLE>
<S> <C>
Equity Securities (96.7%)
Short-Term Investment (3.3%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[PIE CHART]
<TABLE>
<S> <C>
Appliances & Household Durables (5.4%)
Banking (26.0%)
Beverages & Tobacco (10.1%)
Building Materials & Components (6.4%)
Business & Public Services (7.7%)
Financial Services (5.7%)
Insurance (8.9%)
Merchandising (5.4%)
Metals -- Steel (6.9%)
Utilities -- Electrical & Gas (4.2%)
Other (13.3%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Turkiye Garanti Bankasi 9.9%
2. Yapi Ve Kredi Bankasi 9.4
3. Aksigorta AS 8.9
4. Dogan Sirketler Grubu Holding AS 7.7
5. Eregli Demir Ve Celik Fabrikalari TAS 6.9
6. Turkiye Is Bankasi 6.6
7. Migros Turk TAS 5.4
8. Akcansa Cimento AS 5.4
9. Ege Biracilik Ve Malt Sanayii 5.0
10. Vestel Elektronik Sanayi Ve Ticaret AS 4.0
----
69.2%
----
----
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- -------
STATEMENT OF NET ASSETS
- -------
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
(000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TURKISH COMMON STOCKS (99.8%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (5.4%)
Arcelik AS 23,916,800 U.S.$ 883
(a)Vestel Elektronik Sanayi Ve Ticaret AS 20,292,032 2,490
--------------
3,373
--------------
- --------------------------------------------------------------------------------
AUTOMOBILES (2.4%)
(a)Ford Otomotiv Sanayi AS 97,380,000 1,479
--------------
- --------------------------------------------------------------------------------
BANKING (26.0%)
(a)Turkiye Garanti Bankasi 727,648,000 6,206
Turkiye Is Bankasi 209,682,000 4,143
Yapi Ve Kredi Bankasi 404,663,656 5,892
--------------
16,241
--------------
- --------------------------------------------------------------------------------
BEVERAGES & TOBACCO (10.1%)
Ege Biracilik Ve Malt Sanayii 91,950,000 3,108
(a)Erciyas Biracilik Ve Malt 93,947,668 1,954
Guney Biracilik Ve Malt Sanayii 36,293,250 1,264
--------------
6,326
--------------
- --------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (0.9%)
Hurriyet Gazetecilik Ve Matbaacilik AS 78,250,000 594
--------------
- --------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (6.4%)
Adana Cimento 28,879,200 601
Akcansa Cimento AS 250,917,000 3,392
--------------
3,993
--------------
- --------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES (7.7%)
Dogan Sirketler Grubu Holding AS 429,648,800 4,826
--------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (5.7%)
(a)Alarko Holding 90,890,000 2,268
Haci Omer Sabanci
Holdings AS 42,808,000 1,269
--------------
3,537
--------------
- --------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (1.8%)
(a)Tat Konserve Sanayii AS 65,353,130 625
Usas Ucak Servisi AS 614,000 505
--------------
1,130
--------------
- --------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS (0.4%)
Brisa Bridgestone Sabanci
Lastik San. Ve Tic AS 10,200,000 255
--------------
- --------------------------------------------------------------------------------
INSURANCE (8.9%)
Aksigorta AS 180,584,000 5,540
--------------
- --------------------------------------------------------------------------------
MERCHANDISING (5.4%)
Migros Turk TAS 7,892,000 U.S.$ 3,406
--------------
- --------------------------------------------------------------------------------
METALS -- NON-FERROUS (2.5%)
(a)Izmir Demir Celik Sanayii AS 523,060,000 1,550
--------------
- --------------------------------------------------------------------------------
METALS -- STEEL (6.9%)
(a)Eregli Demir Ve Celik Fabrikalari TAS 171,900,000 4,291
--------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (3.1%)
(a)Dogan Yayin Holding 457,000,000 1,925
--------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (2.0%)
Netas Telekomunik 33,307,000 1,247
--------------
- --------------------------------------------------------------------------------
UTILITIES -- ELECTRICAL & GAS (4.2%)
Aygaz AS 16,306,000 1,560
Cukurova Elektrik AS 2,414,000 1,067
--------------
2,627
--------------
- --------------------------------------------------------------------------------
TOTAL TURKISH COMMON STOCKS
(Cost U.S.$54,363) 62,340
--------------
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.4%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.4%)
Chase Securities, Inc., 5.05%,
dated 10/29/99, due
11/1/99, to be repurchased
at U.S.$2,122, collateralized
by U.S.$2,265 U.S. Treasury
Bond 4.25%, due 11/15/03,
valued at U.S.$2,171
(Cost U.S.$2,122) U.S.$ 2,122 2,122
--------------
- --------------------------------------------------------------------------------
(a) -- Non-income producing.
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (103.2%)
(Cost U.S.$56,485) U.S.$ 64,462
--------------
- --------------------------------------------------------------------------------
OTHER ASSETS (1.9%)
Receivable for Investments
Sold U.S.$ 1,200
Other Assets 7 1,207
----------- --------------
- --------------------------------------------------------------------------------
LIABILITIES (-5.1%)
Payable For:
Bank Overdraft (1,696)
Investments Purchased (1,209)
Custodian Fees (64)
Professional Fees (53)
Directors' Fees and Expenses (53)
Investment Advisory Fees (49)
Shareholder Reporting Expenses (39)
Administrative Fees (12)
Other Liabilities (18) (3,193)
----------- --------------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 6,564,680, issued and
outstanding U.S.$ 0.01 par value shares
(30,000,000 shares authorized) U.S.$ 62,476
--------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 9.52
--------------
- --------------------------------------------------------------------------------
AT OCTOBER 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 66
Capital Surplus 75,981
Undistributed Net Investment Income 169
Accumulated Net Realized Loss (21,745)
Unrealized Appreciation on Investments and
Foreign Currency Translations 8,005
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 62,476
--------------
- --------------------------------------------------------------------------------
</TABLE>
October 31, 1999 exchange rate -- Turkish Lira (TRL) 480,770 = U.S.$1.00.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1999
STATEMENT OF OPERATIONS (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends .................................................................... U.S.$ 1,306
Interest ..................................................................... 33
- -----------------------------------------------------------------------------------------------------------------------------
Total Income .............................................................. 1,339
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees...................................................... 481
Custodian Fees ............................................................... 136
Administrative Fees ...................................................... 117
Shareholder Reporting Expenses................................................ 79
Professional Fees............................................................. 76
Directors' Fees and Expenses.................................................. 51
Annual Meeting and Proxy Expenses............................................. 29
Transfer Agent Fees........................................................... 10
Other Expenses................................................................ 23
- -----------------------------------------------------------------------------------------------------------------------------
Total Expenses ............................................................ 1,002
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................................................... 337
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ................................................... 7,831
Foreign Currency Transactions ................................................ (173)
- -----------------------------------------------------------------------------------------------------------------------------
Net Realized Gain ......................................................... 7,658
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments .................................................. 23,230
Appreciation on Foreign Currency Translations ................................ 61
- -----------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ............................ 23,291
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation ...... 30,949
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... U.S.$ 31,286
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income......................................................... U.S.$ 337 U.S.$ 997
Net Realized Gain............................................................. 7,658 5,541
Change in Unrealized Appreciation/Depreciation................................ 23,291 (32,369)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations............... 31,286 (25,831)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income......................................................... (821) (972)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (424,450 and 57,300 shares, respectively)................ (2,540) (262)
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)..................................................... 27,925 (27,065)
Net Assets:
Beginning of Year............................................................. 34,551 61,616
- ---------------------------------------------------------------------------------------------------------------------------
End of Year (including undistributed net investment income of U.S.$169 and
U.S.$868, respectively)...................................................... U.S.$62,476 U.S.$ 34,551
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SELECTED PER SHARE DATA ----------------------------------------------------------------------
AND RATIOS: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... U.S. $4.94 U.S. $8.74 U.S. $5.57 U.S. $5.93 U.S. $4.89
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................ 0.05 0.14 0.18 0.17 0.13
Net Realized and Unrealized Gain (Loss) on
Investments.................................... 4.58 (3.80) 3.13 (0.41) 0.91
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............. 4.63 (3.66) 3.31 (0.24) 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......................... (0.12) (0.14) (0.14) (0.12) --
- ---------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Shares Repurchased....... 0.07 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... U.S. $9.52 U.S. $4.94 U.S. $8.74 U.S. $5.57 U.S. $5.93
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF YEAR.............. U.S. $8.19 U.S. $4.31 U.S. $7.63 U.S. $5.38 U.S. $5.88
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value................................... 94.34% (42.36)% 45.34% (6.58)% (14.55)%
Net Asset Value (1)............................ 97.06% (42.39)% 60.76% (4.09)% 21.27%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (THOUSANDS).............. U.S.$62,476 U.S.$34,551 U.S.$61,616 U.S.$39,254 U.S.$41,757
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......... 1.96% 1.71% 1.91% 2.07% 1.91%
Ratio of Net Investment Income to Average Net
Assets......................................... 0.66% 1.76% 2.57% 3.23% 2.18%
Portfolio Turnover Rate.......................... 175% 68% 51% 60% 48%
- ---------------------------------------------------------------------------------------------------------------------------
</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.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- ----------
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, plus 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
11
<PAGE>
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. Investment income 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. and Morgan Stanley
Dean Witter Investment 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 for certain out-of-pocket expenses
incurred by the Administrator on its behalf.
D. The Chase Manhattan Bank and its affiliates serve as custodian for the
Fund. 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.
E. During the year ended October 31, 1999, the Fund made purchases and sales
totaling $87,257,408 and $88,637,382, 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, 1999, the U.S. Federal income tax cost basis of securities was
approximately $56,485,000 and accordingly, net unrealized appreciation for U.S.
Federal income tax purposes was $7,977,000, of which $10,399,000 related to
appreciated securities and $2,422,000 related to depreciated securities. At
October 31, 1999, the Fund had capital loss carryforwards totaling approximately
$20,925,000 available to offset future capital gains of which $17,735,000,
$2,484,000 and $706,000 will expire on October 31, 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. During the
year ended October 31, 1999, the Fund utilized capital loss carryforwards for
U.S. Federal income tax purposes of approximately $8,389,000.
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.
Additionally, at October 31, 1999, approximately 26% of the Fund's net assets
are invested in the banking industry. This concentration subjects the Fund to
market and credit risks within the industry
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, 1999 totaled $50,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
H. During the year ended October 31, 1999, the Fund incurred $209,398 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
12
<PAGE>
Fund's shares trade from their net asset value. From that date through October
31, 1998, the Fund repurchased 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. For the year ended October 31, 1999, the Fund repurchased 424,450
shares of its Common Stock at an average price per share of $5.93 and an average
discount of 15.33% 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.
13
<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, 1999, 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 accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 29, 1999
14
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of The Turkish Investment Fund, Inc., was
held on June 21, 1999. 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: Peter J. Chase .................. 4,238,939 -- 227,222 --
David B. Gill ................... 4,237,869 -- 228,292 --
Michael F. Klein ................ 4,238,606 -- 227,555 --
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Fund............................................ 4,349,618 61,724 -- 54,819
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 DISCLOSURE (UNAUDITED):
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 accounting 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.
15
<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, that 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
1-800-342-8756
16
