<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05921
---------------------------------------------
THE TURKISH INVESTMENT FUND, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 AVENUE OF THE AMERICAS 22ND FLOOR NEW YORK, NY 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
RONALD E. ROBISON
1221 AVENUE OF THE AMERICAS 33RD FLOOR NEW YORK, NY 10020
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-888 378-1630
----------------------------
Date of fiscal year end: 4/30/05
--------------------------
Date of reporting period: 10/31/04
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
The Fund's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
<Page>
2004 ANNUAL REPORT
THE TURKISH INVESTMENT FUND, INC.
OCTOBER 31, 2004
DIRECTORS JOSEPH J. McALINDEN
CHARLES A. FIUMEFREDDO VICE PRESIDENT
MICHAEL BOZIC
EDWIN J. GARN BARRY FINK
WAYNE E. HEDIEN VICE PRESIDENT
JAMES F. HIGGINS
DR. MANUEL H. JOHNSON AMY R. DOBERMAN
JOSEPH J. KEARNS VICE PRESIDENT
MICHAEL NUGENT
FERGUS REID STEFANIE V. CHANG
VICE PRESIDENT
OFFICERS
CHARLES A. FIUMEFREDDO JAMES W. GARRETT
CHAIRMAN OF THE BOARD TREASURER AND CHIEF
FINANCIAL OFFICER
MITCHELL M. MERIN
PRESIDENT CARSTEN OTTO [MORGAN STANLEY LOGO]
CHIEF COMPLIANCE
OFFICER
RONALD E. ROBISON THE TURKISH INVESTMENT FUND, INC.
EXECUTIVE VICE PRESIDENT MICHAEL J. LEARY
AND PRINCIPAL EXECUTIVE ASSISTANT TREASURER
OFFICER
MARY E. MULLIN
SECRETARY
INVESTMENT ADVISERS
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
MORGAN STANLEY INVESTMENT MANAGEMENT LIMITED
25 CABOT SQUARE
CANARY WHARF
LONDON EI4 4QA
ENGLAND
ADMINISTRATOR
JPMORGAN INVESTOR SERVICES COMPANY
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
CUSTODIAN
JPMORGAN CHASE BANK
270 PARK AVENUE
NEW YORK, NEW YORK 10017
STOCKHOLDER SERVICING AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
59 MAIDEN LANE
NEW YORK, NEW YORK 10030
(800) 278-4353
LEGAL COUNSEL
CLIFFORD CHANCE US LLP
31 WEST 52ND STREET
NEW YORK, NY 10019
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
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 OR VISIT OUR WEBSITE AT
www.morganstanley.com/im. MORGAN STANLEY
INVESTMENT MANAGEMENT INC.
(C) 2004 MORGAN STANLEY INVESTMENT ADVISER
<Page>
THE TURKISH INVESTMENT FUND, INC.
LETTER TO STOCKHOLDERS Overview
PERFORMANCE
For the year ended October 31, 2004, The Turkish Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 57.99%
compared to 41.18% for the U.S. dollar adjusted Morgan Stanley Capital
International (MSCI) Turkey Index (the "Index"). On October 31, 2004, the
closing price of the Fund's shares on the New York Stock Exchange was $11.68,
representing a 3.7% on premium to the Fund's net asset value per share.
FACTORS AFFECTING PERFORMANCE
- Outperformance relative to the Index was largely attributable to our
overweight in the telecommunications sector as well as to our underweight
in financials and consumer staples.
- Turkey's equity market appreciated during the twelve months ending
October 31, 2004, though not without volatility.
- Externally, fears of future U.S. interest rate hikes and slowing growth
in China dampened global equity markets, including Turkey's. Internally,
domestic sentiment weakened in April, given the disappointment over the
failed Cyprus reunification plan.
- Contributing to Turkey's stock market rally was a continued decline in
interest rates, which helped to alleviate the domestic debt burden and
fueled a resumption in credit growth, investment and consumption.
- The Turkish government has undertaken significant European Union
(EU)-related reforms in a bid to begin accession talks with the EU. We
remain optimistic that the country can begin the long-term process of
convergence which would significantly benefit Turkey's cost of capital.
Turkey's negotiations moved a step closer in October after the European
Commission recommended that accession talks be held with the country.
- The Turkish economy grew by more than 13% in the second quarter of 2004.
We believe that by the end of the year, economic growth for 2004 will
exceed virtually all forecasts.
MANAGEMENT STRATEGIES
- The Fund continues to integrate top-down sector allocation and bottom-up
stock selection with a growth bias utilizing a rigorous and fundamental
research approach that considers dynamics, valuations and sentiment.
- Despite strong performance of the Turkish equity market, earnings growth
continues to outpace the rise in asset prices. We continue to focus on
various sectors that will benefit from improving domestic demand,
including financials, consumer discretionary and industrials.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
Executive Vice President--
Principal Executive Officer November 2004
2
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THE TURKISH INVESTMENT FUND, INC.
PORTFOLIO OF INVESTMENTS October 31, 2004
<Table>
<Caption>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------------
TURKISH COMMON STOCKS (100.6%)
(UNLESS OTHERWISE NOTED)
AIRLINES (3.4%)
Turk Hava Yollari Anonim Ortakligi (a)318,559,000 $ 2,143
============================================================================================
AUTO COMPONENTS (5.5%)
Uzel Makina Sanayii AS (a)2,355,022,500 3,489
============================================================================================
BUILDING PRODUCTS (6.3%)
Trakya Cam Sanayii AS 1,590,134,692 3,977
============================================================================================
COMMERCIAL BANKS (15.7%)
Akbank TAS 584,566,500 2,642
Turkiye Garanti Bankasi AS (a)771,739,701 2,066
Yapi ve Kredi Bankasi AS (a)2,311,766,000 5,216
- --------------------------------------------------------------------------------------------
9,924
============================================================================================
CONSTRUCTION MATERIALS (12.2%)
Adana Cimento Sanayii Turk Anonim Sirketi (a)794,234,185 3,562
Akcansa Cimento AS 1,314,402,500 3,895
Baticim Bati Anadolu Cimento Sanayii AS 161,717,000 288
- --------------------------------------------------------------------------------------------
7,745
============================================================================================
CONTAINERS & PACKAGING (4.2%)
Anadolu Cam Sanayii AS 943,088,388 2,679
============================================================================================
FOOD PRODUCTS (0.9%)
Tat Konserve Sanayii AS (a)328,852,000 574
============================================================================================
HEALTH CARE PROVIDERS & SERVICES (5.9%)
Acibadem Saglik Hizmetleri ve Ticaret AS (a)1,199,578,500 3,701
============================================================================================
HOUSEHOLD DURABLES (4.5%)
Arcelik AS (a)472,313,200 2,873
============================================================================================
INDUSTRIAL CONGLOMERATES (4.5%)
Enka Insaat ve Sanayi AS 112,861,112 2,838
============================================================================================
INSURANCE (1.3%)
Aksigorta AS 250,241,700 803
============================================================================================
MEDIA (15.2%)
AFM Uluslararasi Film Produksiyon
Ticaret ve Sanayi AS (a)261,000,000 2,093
Dogan Burda Rizzoli Dergi Yayincilik
ve Pazarlama AS 474,461,580 1,515
Galatasaray Sportif Sinai ve Ticari
Yatirimlar AS (a)33,183,000 2,097
Hurriyet Gazetecilik ve Matbaacilik AS 1,971,653,885 3,913
- --------------------------------------------------------------------------------------------
9,618
============================================================================================
MULTILINE RETAIL (4.2%)
Carsi Buyuk Magazacilik AS (a)2,132,338,500 2,666
============================================================================================
WIRELESS TELECOMMUNICATION SERVICES (16.8%)
Turkcell Iletisim Hizmetleri AS 1,256,787,250 $ 7,729
Turkcell Iletisim Hizmetleri AS ADR 191,408 2,929
- --------------------------------------------------------------------------------------------
10,658
============================================================================================
TOTAL TURKISH COMMON STOCKS
(Cost $47,031) 63,688
============================================================================================
<Caption>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT (0.4%)
J.P. Morgan Securities, Inc., 1.82%,
dated 10/29/04, due 11/01/04,
repurchase price $225
(Cost $225) $ (b)225 225
============================================================================================
TOTAL INVESTMENTS (101.0%)
(Cost $47,256) 63,913
LIABILITIES LESS OTHER ASSETS (-1.0%) (612)
============================================================================================
NET ASSETS (100%) $ 63,301
============================================================================================
</Table>
(a) Non-income producing.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of this portfolio of
investments. The investment in the repurchase agreement is through
participation in a joint account with affiliated funds.
ADR American Depositary Receipt
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Fund's holdings by industry, as a percentage of
total investments.
[CHART]
<Table>
Short-Term Investment 0.4%
Wireless Telecommunication Services 16.7%
Commercial Banks 15.5%
Media 15.0%
Construction Materials 12.1%
Building Products 6.2%
Healthcare Providers & Services 5.8%
Auto Components 5.5%
Household Durables 4.5%
Industrial Conglomerates 4.4%
Containers & Packaging 4.2%
Other* 9.7%
</Table>
* Industries which do not appear in the top 10 industries and industries
which represent less than 3% of total investments, if applicable, are
included in the category labeled "Other".
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<Page>
THE TURKISH INVESTMENT FUND, INC.
Financial Statements
<Table>
<Caption>
OCTOBER 31, 2004
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost: $ 47,256
- --------------------------------------------------------------------------------------------------------------
Investments, at value: 63,913
Receivable for Investments Sold 272
Other 5
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 64,190
==============================================================================================================
LIABILITIES:
Payable For:
Investments Purchased (669)
Investment Advisory Fees (47)
Directors' Fees and Expenses (28)
Custodian Fees (25)
Administrative Fees (6)
Other Liabilities (114)
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES (889)
==============================================================================================================
NET ASSETS
Applicable to 5,619,406, issued and outstanding $0.01
par value shares (30,000,000 shares authorized) $ 63,301
==============================================================================================================
NET ASSET VALUE PER SHARE $ 11.26
==============================================================================================================
NET ASSETS CONSISTED OF:
Common Stock $ 56
Paid-in Capital 65,384
Undistributed (Distributions in Excess of) Net Investment Income (19)
Accumulated Net Realized Gain (Loss) (18,774)
Unrealized Appreciation (Depreciation) on Investments and Foreign Currency Translations 16,654
- --------------------------------------------------------------------------------------------------------------
NET ASSETS $ 63,301
==============================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<Page>
THE TURKISH INVESTMENT FUND, INC.
Financial Statements
<Table>
<Caption>
YEAR ENDED
OCTOBER 31, 2004
STATEMENT OF OPERATIONS (000)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 946
Interest 2
==============================================================================================================================
TOTAL INVESTMENT INCOME 948
==============================================================================================================================
EXPENSES
Investment Advisory Fees 486
Custodian Fees 101
Professional Fees 69
Administrative Fees 44
Stockholder Reporting Expenses 38
Stockholder Servicing Fees 15
Directors' Fees and Expenses 15
Other Expenses 52
==============================================================================================================================
TOTAL EXPENSES 820
==============================================================================================================================
NET INVESTMENT INCOME (LOSS) 128
==============================================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments 15,712
Foreign Currency Transactions (194)
==============================================================================================================================
NET REALIZED GAIN (LOSS) 15,518
==============================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 7,593
Foreign Currency Translations (3)
==============================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 7,590
==============================================================================================================================
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 23,108
==============================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 23,236
==============================================================================================================================
</Table>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss) $ 128 $ 124
Net Realized Gain (Loss) 15,518 6,596
Change in Unrealized Appreciation (Depreciation) 7,590 8,787
==============================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 23,236 15,507
==============================================================================================================================
Distributions from and/or in excess of:
Net Investment Income (111) --
==============================================================================================================================
Capital Share Transactions:
Reinvestment of Distributions (245 shares in 2004) 3 --
Repurchase of Shares (30,685 shares in 2003) -- (142)
==============================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL SHARE TRANSACTIONS 3 (142)
==============================================================================================================================
TOTAL INCREASE (DECREASE) 23,128 15,365
==============================================================================================================================
Net Assets:
Beginning of Period 40,173 24,808
==============================================================================================================================
END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT
INCOME OF $(19) AND $91, RESPECTIVELY) $ 63,301 $ 40,173
==============================================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<Page>
THE TURKISH INVESTMENT FUND, INC.
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.15 $ 4.39 $ 4.23 $ 17.69 $ 9.52
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.02+ 0.02+ (0.03) 0.06 (0.12)
Net Realized and Unrealized Gain (Loss) on Investments 4.11 2.74 0.18 (10.30) 8.03
- ------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.13 2.76 0.15 (10.24) 7.91
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in excess of:
Net Investment Income (0.02) -- (0.00)# -- (0.03)
Net Realized Gain -- -- -- (3.23) --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.02) -- (0.00)# (3.23) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Share Repurchase Program -- 0.00# 0.01 0.01 0.29
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.26 $ 7.15 $ 4.39 $ 4.23 $ 17.69
==============================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD $ 11.68 $ 7.36 $ 4.07 $ 4.41 $ 13.38
==============================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 58.99% 80.84% (7.64)% (55.14)% 63.60%
Net Asset Value (1) 57.99% 62.64% 3.86% (67.47)% 86.09%
==============================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 63,301 $ 40,173 $ 24,808 $ 25,718 $ 108,138
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.58% 1.85% 1.86%@ 1.94% 1.26%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.25% 0.41% (0.49)% 0.83% (0.57)%
Portfolio Turnover Rate 109% 173% 164% 163% 155%
- ------------------------------------------------------------------------------------------------------------------------------
</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. This percentage is not an indication of the performance of a
stockholder'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.
@ The effect of the reversal of the deferred directors' fees in fiscal year
2002 was to decrease the expense ratio by 0.23%.
+ Per share amount is based on average shares outstanding.
# Amount is less than $0.005 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
NOTES TO FINANCIAL STATEMENTS
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 (the "1940 Act"), as
amended. The Fund's investment objective is long-term capital appreciation
through investments primarily in equity securities of Turkish corporations.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with U.S. generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. U.S. 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: Equity securities listed on a U.S. exchange are valued
at the latest quoted sales price on the valuation date. Equity securities
listed or traded on NASDAQ, for which market quotations are available, are
valued at the NASDAQ Official Closing Price. Securities listed on a foreign
exchange are valued at their closing price. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued at the mean between the current bid and asked
prices obtained from reputable brokers. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, if it
approximates value.
All other securities and investments for which market values are not
readily available, including restricted securities, and those securities
for which it is inappropriate to determine prices in accordance with the
aforementioned procedures, are valued at fair value as determined in good
faith under procedures adopted by the Board of Directors, although the
actual calculations may be done by others. Factors considered in making
this determination may include, but are not limited to, information
obtained by contacting the issuer, analysts, or the appropriate stock
exchange (for exchange-traded securities), analysis of the issuer's
financial statements or other available documents and, if necessary,
available information concerning other securities in similar circumstances.
Most foreign markets close before the New York Stock Exchange (NYSE).
Occasionally, developments that could affect the closing prices of
securities and other assets may occur between the times at which valuations
of such securities are determined (that is, close of the foreign market on
which the securities trade) and the close of business on the NYSE. If these
developments are expected to materially affect the value of the securities,
the valuations may be adjusted to reflect the estimated fair value as of
the close of the NYSE, as determined in good faith under procedures
established by the Board of Directors.
2. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
with a market value at least equal to the amount of the repurchase
transaction, including principal and 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. In the event of default or bankruptcy by
the counterparty to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
The Fund, along with other affiliated investment companies, may utilize a
joint trading account for the purpose of entering into one or more
repurchase agreements.
3. 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 last quoted by a major bank as follows:
--investments, other assets and liabilities at the prevailing rate of
exchange on the 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
7
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) due to
securities transactions 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, 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) on
investments and foreign currency translations in the Statement of Assets
and Liabilities. The change in net unrealized currency gains (losses) on
foreign currency translations for the period is reflected in the Statement
of Operations.
A significant portion of the Fund's net assets consists of equity
securities denominated in Turkish lira. Changes in currency exchange rates
will affect the value of and investment income from securities. Turkish
securities are often subject to greater price volatility, limited
capitalization and liquidity, and higher rates of inflation than securities
of companies based in the United States. In addition, Turkish securities
may be subject to substantial governmental involvement in the economy and
greater social, economic and political uncertainty.
The Fund may use derivatives to achieve its investment objectives. The Fund
may engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with
the objectives and policies, the Fund may use derivatives for non-hedging as
well as hedging purposes.
Following is a description of derivative instruments that the Fund has
utilized and their associated risks:
4. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
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 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.
5. 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 is recorded on
the ex-dividend date (except certain dividends which may be recorded as
soon as the Fund is informed of such dividends) net of applicable
withholding taxes.
B. INVESTMENT ADVISORY FEES: Morgan Stanley Investment Management Inc. and
Morgan Stanley Investment Management Limited (the "Advisers") 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. ADMINISTRATIVE FEES: Until November 1, 2004, JPMorgan Chase Bank, through its
corporate affiliate, J.P. Morgan Investor Services Co. ("JPMIS"), provided
administrative services to the Fund under an Administration Agreement. JPMIS was
paid a fee computed weekly and payable monthly at an annual rate of 0.02435% of
the Fund's average weekly net assets, plus $24,000 per annum. In addition, the
Fund was charged for certain out-of-pocket expenses incurred by JPMIS on its
behalf.
Effective November 1, 2004, Morgan Stanley Investment Management Inc. (MSIM)
serves as Administrator to the Fund pursuant to a New Administration Agreement.
Under the New Administration Agreement, the new administration fee will be 0.08%
of the Fund's average weekly net assets. MSIM has agreed to cap the new
administration fee so that it will be no greater than the old administration fee
of 0.02435% of the Fund's average
8
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
weekly net assets plus $24,000 per annum. Expenses covered by the new
administration fee will change. Administration costs (including out-of-pocket
expenses incurred in the ordinary course of providing services under the
Agreement, which were previously borne by the Fund), except pricing services and
extraordinary expenses, will now be covered under the new administration fee.
JPMIS will continue to provide fund accounting and other services pursuant to a
sub-administration agreement with MSIM and receives compensation for these
services.
D. CUSTODIAN FEES: JPMorgan Chase Bank serves as custodian for the Fund. The
Custodian holds cash, securities, and other assets of the Fund as required by
the 1940 Act. Custody fees are payable monthly based on assets held in custody,
investment purchase and sales activity and account maintenance fees, plus
reimbursement for certain out-of-pocket expenses.
E. FEDERAL INCOME 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 Federal income taxes is required in the financial
statements. Dividend income and distributions to stockholders are recorded on
the ex-dividend date.
The tax character of distributions paid may differ from the character of
distributions shown on the Statements of Changes in Net Assets due to short-term
capital gains being treated as ordinary income for tax purposes. The tax
character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 DISTRIBUTIONS 2003 DISTRIBUTIONS
PAID FROM: PAID FROM:
(000) (000)
- ------------------------------------ ----------------------------------------
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
INCOME GAIN INCOME GAIN
- -------------------------------------------------------------------------------
$ 111 $ -- $ -- $ --
</Table>
The amount and character of income and capital gain distributions to be paid by
the Fund are determined in accordance with Federal income tax regulations, which
may differ from U.S. generally accepted accounting principles. The book/tax
differences are considered either temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for
the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent differences are primarily due to treatment of foreign currency
gains/losses and net investment losses. Permanent book and tax basis differences
may result in reclassifications among undistributed (distributions in excess of)
net investment income (or accumulated net investment loss), accumulated net
realized gain (loss) and paid-in capital.
At October 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAIN
(000) (000)
- -------------------------------------------------------------------------------
$ -- $ --
</Table>
At October 31, 2004, the U.S. Federal income tax cost basis of investments
(excluding foreign currency if applicable) was $47,346,000 and, accordingly, net
unrealized appreciation for U.S. Federal income tax purposes was $16,567,000, of
which $17,064,000 related to appreciated securities and $497,000 related to
depreciated securities.
At October 31, 2004, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $18,683,000 available to offset future
capital gains which will expire on October 31, 2010.
During the year ended October 31, 2004, the Fund utilized capital loss
carryforwards for U.S. Federal income tax purposes of approximately $15,675,000.
To the extent that capital loss carryovers are used to offset any future capital
gains realized during the carryover period as provided by U.S. Federal income
tax regulations, no capital gains tax liability will be incurred by a portfolio
for gains realized and not distributed. To the extent that capital gains are
offset, such gains will not be distributed to the stockholders.
Effective April 24, 2003, Turkish withholding tax is no longer assessed on
dividend payments made to foreign institutional investors with local tax
representation and that hold greater than 25% of their portfolio in Turkish
equity securities. On October 31, 2004, the Fund met both of these requirements
thus there will be no accrual for withholding expense.
F. CONTRACTUAL OBLIGATIONS: The Fund enters into contracts that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
G. OTHER: During the year ended October 31, 2004, the Fund made purchases and
sales totaling $56,413,000 and $56,098,000, respectively, of investment
securities other than long-term U.S.
9
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
Government securities and short-term investments. There were no purchases or
sales of long-term U.S. Government securities.
During the year ended October 31, 2004, the Fund incurred $2,100 of brokerage
commissions with Morgan Stanley & Co., Incorporated, an affiliate of the
Advisers.
On September 15, 1998, the Fund commenced a share repurchase program for
purposes of enhancing stockholder value and reducing the discount at which the
Fund's shares trade from their net asset value. For the year ended October 31,
2004, the Fund did not repurchase shares. From the inception of the program
through October 31, 2004, the Fund has repurchased 1,427,394 of its shares at an
average discount of 17.25% 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.
On December 15, 2003 the Officers of the Fund, pursuant to authority granted by
the Board of Directors declared a distribution of $0.0197 per share, derived
from net investment income, payable on January 9, 2004, to stockholders of
record on December 24, 2003.
FEDERAL TAX INFORMATION (UNAUDITED)
The Turkish Investment Fund, Inc. designates the maximum amount of qualified
dividend income for the tax year ended October 31, 2004.
REPORTING TO STOCKHOLDERS
The Fund provides a complete schedule of portfolio holdings in its semi-annual
and annual reports within 60 days of the end of the Fund's second and fourth
fiscal quarters by filing the schedule electronically with the Securities and
Exchange Commission (SEC). The semi-annual reports are filed on Form N-CSRS and
the annual reports are filed on Form N-CSR. Morgan Stanley also delivers the
semi-annual and annual reports to fund stockholders and makes these reports
available on its public website, www.morganstanley.com. The Fund also files a
complete schedule of portfolio holdings with the SEC for the fund's first and
third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports
for the first and third fiscal quarters to stockholders, nor are the reports
posted to the Morgan Stanley public website. You may, however, obtain the Form
N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the
SEC's website, www.sec.gov. You may also review and copy them at the SEC's
Public Reference Room in Washington, DC. Information on the operation of the
SEC's Public Reference Room may be obtained by calling the SEC at 1(800)
SEC-0330. You can also request copies of these materials, upon payment of a
duplicating fee, by electronic request at the SEC's email address
(publicinfo@sec.gov) or by writing the Public Reference section of the SEC,
Washington, DC 20549-0102.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A copy of (1) the Fund's policies and procedures with respect to the voting of
proxies relating to the Fund's portfolio securities; and (2) how the Fund voted
proxies relating to portfolio securities during the most recent twelve-month
period ended June 30, 2004 is available without charge, upon request, by calling
1-800-548-7786 or by visiting our website at www.morganstanley.com/im. This
information is also available on the Securities and Exchange Commission's
website at www.sec.gov.
10
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
THE TURKISH INVESTMENT FUND, INC.
We have audited the accompanying statement of assets and liabilities of The
Turkish Investment Fund, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statement of changes in 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. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2004, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Turkish Investment Fund, Inc. at October 31, 2004, 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 U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 10, 2004
11
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
Independent Directors:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX
POSITION(S) LENGTH OF OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING PAST BY OTHER DIRECTORSHIPS HELD BY
DIRECTOR REGISTRANT SERVED* 5 YEARS DIRECTOR** DIRECTOR
- -------------------------- ----------- ---------- -------------------------------------- ------------- -----------------------------
Michael Bozic (63) Director Director Private Investor; Director or Trustee 208 Director of Weirton Steel
c/o Kramer Levin Naftalis since of the Retail Funds (since April 1994) Corporation.
& Frankel LLP 2003 and the Institutional Funds (since
Counsel to the Independent July 2003); formerly Vice Chairman of
Directors Kmart Corporation (December
919 Third Avenue 1998-October 2000), Chairman and Chief
New York, NY 10022 Executive Officer of Levitz Furniture
Corporation (November 1995-November
1998) and President and Chief
Executive Officer of Hills Department
Stores (May 1991-July 1995); formerly
variously Chairman, Chief Executive
Officer, President and Chief Operating
Officer (1987-1991) of the Sears
Merchandise Group of Sears Roebuck &
Co.
Edwin J. Garn (72) Director Director Managing Director of Summit Ventures 208 Director of Franklin Covey
c/o Summit Ventures LLC since LLC; Director or Trustee of the Retail (time management systems),
One Utah Center 2003 Funds (since January 1993) and the BMW Bank of North America,
201 South Main Street Institutional Funds (since July 2003); Inc. (industrial loan
Salt Lake City, member of the Utah Regional Advisory corporation), United Space
UT 84111-2215 Board of Pacific Corp.; formerly Alliance (joint venture
United States Senator (R- Utah) between Lockheed Martin and
(1974-1992) and Chairman, Senate The Boeing Company) and
Banking Committee (1980-1986), Mayor Nuskin Asia Pacific
of Salt Lake City, Utah (1971-1974), (multilevel marketing);
Astronaut, Space Shuttle Discovery member of the board of
(April 12-19, 1985), and Vice various civic and charitable
Chairman, Huntsman Corporation organizations.
(chemical company).
Wayne E. Hedien (70) Director Director Retired; Director or Trustee of the 208 Director of the PMI Group
c/o Kramer Levin Naftalis since Retail Funds (since September 1997) Inc. (private mortgage
& Frankel LLP 2003 and the Institutional Funds (since insurance); Trustee and Vice
Counsel to the Independent July 2003); formerly associated with Chairman of The Field Museum
Directors the Allstate Companies (1966-1994), of Natural History; director
919 Third Avenue most recently as Chairman of The of various other business
New York, NY 10022 Allstate Corporation (March and charitable
1993-December 1994) and Chairman and organizations.
Chief Executive Officer of its
wholly-owned subsidiary, Allstate
Insurance Company (July 1989- December
1994).
Dr. Manuel H. Johnson (55) Director Director Senior Partner, Johnson Smick 208 Director of NVR, Inc. (home
c/o Johnson Smick since International, Inc., a consulting construction); Chairman and
International, Inc. 2003 firm; Chairman of the Audit Committee Trustee of the Financial
2099 Pennsylvania Avenue, and Director or Trustee of the Retail Accounting Foundation
NW Suite 950 Funds (since July 1991) and the (oversight organization of
Washington, D.C. 20006 Institutional Funds (since July 2003); the Financial Accounting
Co-Chairman and a founder of the Standards Board); Director
Group of Seven Council (G7C), an of RBS Greenwich Capital
international economic commission; Holdings (financial holdings
formerly Vice Chairman of the Board of company).
Governors of the Federal Reserve
System and Assistant Secretary of the
U.S. Treasury.
Joseph J. Kearns (62) Director Director President, Kearns & Associates LLC 209 Director of Electro Rent
c/o Kearns & Associates since (investment consulting); Deputy Corporation (equipment
LLC 1994 Chairman of the Audit Committee and leasing), The Ford Family
PMB754 Director or Trustee of the Retail Foundation and the UCLA
23852 Pacific Coast Hwy. Funds (since July 2003) and the Foundation.
Malibu, CA 90265 Institutional Funds (since August
1994); previously Chairman of the
Audit Committee of the Institutional
Funds (October 2001- July 2003);
formerly CFO of the J. Paul Getty
Trust.
Michael Nugent (68) Director Director General Partner of Triumph Capital, 208 Director of various business
c/o Triumph Capital, L.P. since L.P., a private investment organizations.
445 Park Avenue, 10th 2001 partnership; Chairman of the Insurance
Floor Committee and Director or Trustee of
New York, NY 10022 the Retail Funds (since July 1991) and
the Institutional Funds (since July
2001); formerly Vice President,
Bankers Trust Company and BT Capital
Corporation (1984-1988).
Fergus Reid (72) Director Director Chairman of Lumelite Plastics 209 Trustee and Director of
c/o Lumelite Plastics since Corporation; Chairman of the certain investment companies
Corporation 2001 Governance Committee and Director or in the J.P. Morgan Funds
85 Charles Coleman Blvd. Trustee of the Retail Funds (since complex managed by J.P.
Pawling, NY 12564 July 2003) and the Institutional Funds Morgan Investment Management
(since June 1992). Inc.
</Table>
12
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
DIRECTOR AND OFFICER INFORMATION (CONT'D)
Interested Directors:
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE AND PORTFOLIOS IN
LENGTH OF FUND COMPLEX
NAME, AGE AND ADDRESS OF POSITION(S) HELD TIME OVERSEEN BY OTHER DIRECTORSHIPS
DIRECTOR WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR
- -------------------------- ---------------- ---------- ------------------------------------------- ------------- -------------------
Charles A. Fiumefreddo Chairman of the Chairman Chairman and Director or Trustee of 208 None
(71) Board and and the Retail Funds (since July 1991) and
c/o Morgan Stanley Funds Director Director the Institutional Funds (since July
Harborside Financial since 2003); formerly Chief Executive
Center 2003 Officer of the Retail Funds (until
Plaza Two 3rd Floor September 2002).
Jersey City, NJ 07311
James F. Higgins (56) Director Director Director or Trustee of the Retail 208 Director of AXA
c/o Morgan Stanley Funds since Funds (since June 2000) and the Financial, Inc.
Harborside Financial 2003 Institutional Funds (since July 2003); and The Equitable
Center Senior Advisor of Morgan Stanley Life Assurance
Plaza Two 2nd Floor (since August 2000); Director of Society of the
Jersey City, NJ 07311 Morgan Stanley Distributors Inc. and United States
Dean Witter Realty Inc.; previously (financial
President and Chief Operating Officer services).
of the Private Client Group of Morgan
Stanley (May 1999-August 2000), and
President and Chief Operating Officer
of Individual Securities of Morgan
Stanley (February 1997-May 1999).
</Table>
* Each Director serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all funds advised by Morgan Stanley Investment
Management Inc. and funds that have an investment advisor that is an
affiliated entity of Morgan Stanley Investment Management Inc. (including,
but not limited to, Morgan Stanley Investments LP and Morgan Stanley
Investment Advisors Inc.).
Officers:
<Table>
<Caption>
TERM OF OFFICE AND
POSITION(S) HELD LENGTH OF TIME
NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------------------------------ ---------------- ------------------ ---------------------------------------------------
Mitchell M. Merin (51) President President President and Chief Operating Officer of Morgan
Morgan Stanley Investment Management Inc. since 2003 Stanley Investment Management Inc.; President,
1221 Avenue of the Americas 33rd Floor Director and Chief Executive Officer of Morgan
New York, NY 10020 Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc.; Chairman and Director of
Morgan Stanley Distributors Inc.; Chairman and
Director of Morgan Stanley Trust; Director of
various Morgan Stanley subsidiaries; President of
the Institutional Funds (since July 2003) and
President of the Retail Funds (since May 1999);
Trustee (since July 2003) and President (since
December 2002) of the Van Kampen Closed-End Funds;
Trustee (since May 1999) and President (since
October 2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (65) Executive Vice Executive Vice Principal Executive Officer--Office of the Funds
Morgan Stanley Investment Management Inc. President and President and (since November 2003); Managing Director of Morgan
1221 Avenue of the Americas 34th Floor Principal Principal Stanley & Co. Incorporated, Managing Director of
New York, NY 10020 Executive Executive Morgan Stanley; Managing Director, Chief
Officer Officer since Administrative Officer and Director of Morgan
2003 Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc.; Chief Executive Officer and
Director of Morgan Stanley Trust; Managing Director
and Director of Morgan Stanley Distributors Inc.;
Executive Vice President and Principal Executive
Officer of the Retail Funds (since April 2003) and
the Institutional Funds (since July 2003);
previously President and Director of the
Institutional Funds (March 2001 - July 2003) and
Chief Global Operations Officer and Managing
Director of Morgan Stanley Investment Management
Inc.
Joseph J. McAlinden (61) Vice President Vice President Managing Director and Chief Investment Officer of
Morgan Stanley Investment Management Inc. since 2003 Morgan Stanley Investment Advisors Inc. and Morgan
1221 Avenue of the Americas 33rd Floor Stanley Investment Management Inc.; Director of
New York, NY 10020 Morgan Stanley Trust; Chief Investment Officer of
the Van Kampen Funds; Vice President of the
Institutional Funds (since July 2003) and the
Retail Funds (since July 1995).
</Table>
13
<Page>
THE TURKISH INVESTMENT FUND, INC.
October 31, 2004
DIRECTOR AND OFFICER INFORMATION (CONT'D)
Officers: (cont'd)
<Table>
<Caption>
TERM OF OFFICE AND
POSITION(S) HELD LENGTH OF TIME
NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------------------------------ ---------------- ------------------ ---------------------------------------------------
Barry Fink (49) Vice President Vice President General Counsel (since May 2000) and Managing
Morgan Stanley Investment Management Inc. since 2003 Director (since December 2000) of Morgan Stanley
1221 Avenue of the Americas 22nd Floor Investment Management; Managing Director (since
New York, NY 10020 December 2000), Secretary (since February 1997) and
Director (since July 1998) of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley
Services Company Inc.; Vice President and General
Counsel of the Retail Funds; Assistant Secretary of
Morgan Stanley DW Inc.; Vice President of the
Institutional Funds (since July 2003); Managing
Director, Secretary and Director of Morgan Stanley
Distributors Inc.; previously Secretary of the
Retail Funds (February 1997- July 2003) and Vice
President and Assistant General Counsel of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. (February 1997- December
2001).
Amy R. Doberman (42) Vice President Vice President Managing Director and General Counsel - U.S.
Morgan Stanley Investment Management Inc. since July 2004 Investment Management; Managing Director of the
1221 Avenue of the Americas 22nd Floor Investment Manager and Morgan Stanley Investment
New York, NY 10020 Advisor Inc.; Vice President of the Institutional
and Retail Funds (since July 2004); previously,
Managing Director and General Counsel - Americas,
UBS Global Asset Management (July 2000-July 2004)
and General Counsel, Aeltus Investment Management,
Inc. (January 1997-July 2000).
Carsten Otto (41) Chief Compliance Chief Compliance Executive Director and U.S. Director of Compliance
Morgan Stanley Investment Management Inc. Officer Officer since for Morgan Stanley Investment Management (since
1221 Avenue of the Americas 22nd Floor 2004 October 2004); Executive Director of Morgan Stanley
New York, NY 10020 Investment Advisors Inc. and Morgan Stanley
Investment Management Inc.; formerly Assistant
Secretary and Assistant General Counsel of the
Morgan Stanley Retail Funds.
Stefanie V. Chang (38) Vice President Vice President Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. since 2001 Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 22nd Floor Inc. and Morgan Stanley Investment Advisors Inc.;
New York, NY 10020 Vice President of the Institutional Funds and the
Retail Funds; formerly practiced law with the New
York law firm of Rogers & Wells (now Clifford
Chance US LLP).
James W. Garrett (35) Treasurer and Treasurer since Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. Chief 2002 CFO since Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 34th Floor Financial 2003 Inc.; Treasurer and Chief Financial Officer of the
New York, NY 10020 Officer Institutional Funds; Previously with
PriceWaterhouse LLP (now PriceWaterhouseCoopers
LLP).
Michael J. Leary (38) Assistant Assistant Assistant Director and Vice President of Fund
J.P. Morgan Investor Services Co. Treasurer Treasurer since Administration, J.P. Morgan Investor Services Co.
73 Tremont Street 2003 (formerly Chase Global Funds Company); formerly
Boston, MA 02108 Audit Manager at Ernst & Young LLP.
Mary E. Mullin (37) Secretary Secretary since Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. 2001 Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 22nd Floor Inc. and Morgan Stanley Investment Advisors Inc.;
New York, NY 10020 Secretary of the Institutional Funds (since June
1999) and the Retail Funds (since July 2003);
formerly practiced law with the New York law firms
of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
* Each Officer serves an indefinite term, until his or her successor is
elected.
14
<Page>
THE TURKISH INVESTMENT FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each stockholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the stockholder 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
stockholders 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 stockholders, 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
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Stockholders 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 stockholders 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.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
59 Maiden Lane
New York, New York 10030
1-800-278-4353
15
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Directors
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
<Table>
<Caption>
2004 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 41,640 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 115,000(2)
TAX FEES $ 2,700(3) $ 42,141(4)
ALL OTHER FEES $ $ 140,435(5)
TOTAL NON-AUDIT FEES $ 2,700 $ 297,576
TOTAL $ 44,340 $ 297,576
<Caption>
2003 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 39,655 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 93,000(2)
TAX FEES $ 2,575(3) $ 70,314(4)
ALL OTHER FEES $ $ 262,325(6)
TOTAL NON-AUDIT FEES $ $ 425,639
TOTAL $ 42,230 $ 425,639
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity
controlling, controlled by or under common control with the Adviser that
provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically attestation services provided in connection with a SAS
70 Report.
(3) Tax Fees represent tax advice and compliance services provided in connection
with the review of the Registrant's tax returns.
(4) Tax Fees represent tax advice services provided to Covered Entities,
including research and identification of PFIC entities.
<Page>
(5) All Other Fees represent attestation services provided in connection with
performance presentation standards.
(6) All Other Fees represent attestation services provided in connection with
performance presentation standards, general industry education seminars
provided, and a regulatory review project performed.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
- - Statement of Principles
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit
Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
- - Delegation
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
- - Audit Services
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- - Audit-related Services
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
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not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- - Tax Services
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
- - All Other Services
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- - Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
- - Procedures
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
<Page>
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
- - Additional Requirements
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
- - Covered Entities
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Directors has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
<Page>
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
INTRODUCTION - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
PROXY RESEARCH SERVICES - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
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addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.
VOTING PROXIES FOR CERTAIN NON-US COMPANIES - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are
<Page>
meant to be general voting parameters on issues that arise most frequently. The
MSIM Affiliates, however, may vote in a manner that is contrary to the following
general guidelines, pursuant to the procedures set forth in Section IV. below,
provided the vote is consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
Selection or ratification of auditors.
Approval of financial statements, director and auditor reports.
Election of Directors.
Limiting Directors' liability and broadening indemnification of
Directors.
- Requirement that a certain percentage (up to 66 2/3%) of its
Board's members be comprised of independent and unaffiliated
Directors.
- Requirement that members of the company's compensation, nominating
and audit committees be comprised of independent or unaffiliated
Directors.
Recommendations to set retirement ages or require specific levels of
stock ownership by Directors.
General updating/corrective amendments to the charter.
Elimination of cumulative voting.
Elimination of preemptive rights.
Provisions for confidential voting and independent tabulation of
voting results.
<Page>
Proposals related to the conduct of the annual meeting except those
proposals that relate to the "transaction of such other business
which may come before the meeting."
2. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a shareholder, are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
CAPITALIZATION CHANGES
Capitalization changes that eliminate other classes of stock and
voting rights.
Proposals to increase the authorization of existing classes of common
stock (or securities convertible into common stock) if: (i) a clear
and legitimate business purpose is stated; (ii) the number of
shares requested is reasonable in relation to the purpose for which
authorization is requested; and (iii) the authorization does not
exceed 100% of shares currently authorized and at least 30% of the
new authorization will be outstanding.
Proposals to create a new class of preferred stock or for issuances of
preferred stock up to 50% of issued capital.
Proposals for share repurchase plans.
Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.
Proposals to effect stock splits.
Proposals to effect reverse stock splits if management proportionately
reduces the authorized share amount set forth in the corporate
charter. Reverse stock splits that do not adjust proportionately to
the authorized share amount will generally be approved if the
resulting increase in authorized shares coincides with the proxy
guidelines set forth above for common stock increases.
COMPENSATION
Director fees, provided the amounts are not excessive relative to
other companies in the country or industry.
<Page>
Employee stock purchase plans that permit discounts up to 15%, but
only for grants that are part of a broad based employee plan,
including all non-executive employees.
Establishment of Employee Stock Option Plans and other employee
ownership plans.
ANTI-TAKEOVER MATTERS
- Modify or rescind existing supermajority vote requirements to amend
the charters or bylaws.
- Adoption of anti-greenmail provisions provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights of
shareholders.
3. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on the shareholder, are
generally voted AGAINST (notwithstanding management support), subject
to the review and approval of the Proxy Review Committee, as
appropriate.
- Capitalization changes that add classes of stock which
substantially dilute the voting interests of existing shareholders.
- Proposals to increase the authorized number of shares of existing
classes of stock that carry preemptive rights or supervoting
rights.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted stock options that
have not been offered to employees in general.
- Amendments to bylaws that would require a supermajority shareholder
vote to pass or repeal certain provisions.
- Proposals to indemnify auditors.
<Page>
4. The following types of non-routine proposals, which potentially may
have a potential financial or best interest impact on an issuer, are
voted as determined by the Proxy Review Committee.
CORPORATE TRANSACTIONS
- Mergers, acquisitions and other special corporate transactions
(i.e., takeovers, spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined on a
case-by-case basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates' research and
analysis, based on, among other things, MSIM internal
company-specific knowledge.
- Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements that benefit
management and would be costly to shareholders if triggered.
- Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions that
prevent legitimate offers from proceeding.
Executive/Director stock option plans. Generally, stock option plans
should meet the following criteria:
(i) Whether the stock option plan is incentive based;
(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;
(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
Proposals requiring shareholder ratification of poison pills.
Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or
effectively deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported, subject
to the review and approval of the Proxy Review Committee, as
appropriate:
- Requiring auditors to attend the annual meeting of shareholders.
<Page>
- Requirement that members of the company's compensation, nominating
and audit committees be comprised of independent or unaffiliated
Directors.
- Requirement that a certain percentage of its Board's members be
comprised of independent and unaffiliated Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote requirements.
2. The following shareholder proposals will be voted as determined by the
Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
- Proposals requiring directors to own large amounts of stock to be
eligible for election.
- Restoring cumulative voting in the election of directors.
- Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations.
- Proposals that limit retirement benefits or executive compensation.
- Requiring shareholder approval for bylaw or charter amendments.
- Requiring shareholder approval for shareholder rights plan or
poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related provisions.
- Prohibit payment of greenmail.
3. The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as appropriate.
- Requirements that the issuer prepare reports that are costly to
provide or that would require duplicative efforts or expenditures
that are of a
<Page>
non-business nature or would provide no pertinent information from
the perspective of institutional shareholders.
- Restrictions related to social, political or special interest
issues that impact the ability of the company to do business or be
competitive and that have a significant financial or best interest
impact to the shareholders.
- Proposals that require inappropriate endorsements or corporate
actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing MSIM's Proxy Voting Policy and Procedures
and, in this regard, has expressly adopted them. Following are some of
the functions and responsibilities of the Committee.
(a) The Committee, which will consist of members designated by MSIM's
Chief Investment Officer, is responsible for establishing MSIM's
proxy voting policies and guidelines and determining how MSIM
will vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority to
amend as necessary MSIM's proxy voting policies and guidelines
(as expressed in these Proxy Voting Policy and Procedures) and
establish and direct voting positions consistent with the Client
Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to MSIM's
Proxy Voting Policy and Procedures; and (2) generally review
proposals at upcoming shareholder meetings of MSIM portfolio
companies in accordance with this Policy and Procedures
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar proposal
was presented to shareholders. The Committee, or its designee,
will timely communicate to ISS MSIM's Proxy Voting Policy and
Procedures (and any amendments to them and/or any additional
guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing certain
shares of the same issuer that are the subject of the same proxy
solicitation and held by one or more MSIM portfolios to be voted
differently than other shares) and/or "override voting" (i.e.,
voting all MSIM portfolio shares in a manner contrary to the
Procedures); (2) review and approve upcoming votes, as
appropriate, for matters
<Page>
for which specific direction has been provided in Sections I, II,
and III above; and (3) determine how to vote matters for which
specific direction has not been provided in Sections I, II and
III above. Split votes will generally not be approved within a
single Global Investor Group team. The Committee may take into
account ISS recommendations and the research provided by IRRC as
well as any other relevant information they may request or
receive.
(e) In addition to the procedures discussed above, if the Committee
determines that an issue raises a potential material conflict of
interest, or gives rise to the appearance of a potential material
conflict of interest, the Committee will designate a special
committee to review, and recommend a course of action with
respect to, the conflict(s) in question ("Special Committee").
The Special Committee may request the assistance of the Law and
Compliance Departments and will have sole discretion to cast a
vote. In addition to the research provided by ISS and IRRC, the
Special Committee may request analysis from MSIM Affiliate
investment professionals and outside sources to the extent it
deems appropriate.
(f) The Committee and the Special Committee, or their designee(s),
will document in writing all of their decisions and actions,
which documentation will be maintained by the Committee and the
Special Committee, or their designee(s) for a period of at least
6 years. To the extent these decisions relate to a security held
by a MSIM U.S. registered investment company, the Committee and
Special Committee, or their designee(s), will report their
decisions to each applicable Board of Trustees/Directors of those
investment companies at each Board's next regularly Scheduled
Board meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during the
most recently ended calendar quarter immediately preceding the
Board meeting.
(g) The Committee and Special Committee, or their designee(s), will
timely communicate to applicable PMs, the Compliance Departments
and, as necessary to ISS, decisions of the Committee and Special
Committee so that, among other things, ISS will vote proxies
consistent with their decisions.
Item 8. Closed-End Fund Repurchases
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Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.