<PAGE>
THE THAI FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Snoh Unakul
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD James W. Grisham
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Michael F. Klein
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones James R. Rooney
DIRECTOR TREASURER
Sukri Kaocharern Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
DIRECTOR
</TABLE>
- ---------------------------------------------
U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ----------------------------------------------------------------
THAI INVESTMENT ADVISER
The Mutual Fund Public Company Limited
30th-32nd Floor, Lake Rajada Building
193-195 Ratchadaphisek Road
Khlong-Toey, Bangkok 10110 Thailand
- ----------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- ----------------------------------------------------------------
CUSTODIANS
The Thai Farmers Bank Limited
400 Phahon Yothin Road
Bangkok, Thailand
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
- ----------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(617) 575-3120
- ----------------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
- ----------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- ----------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
----------------------------------------------------------------
THE
THAI FUND,
INC.
----------------------------
ANNUAL REPORT
DECEMBER 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1996, The Thai Fund, Inc. (the "Fund") had a
total return, based on net asset value per share of -35.93%, compared to -36.25%
for the U.S. dollar adjusted Securities Exchange of Thailand Index (the
"Index"). For the period from the Fund's commencement of operations on February
16, 1988 through December 31, 1996, the Fund's total return, based on net asset
value per share, was 197.17%, compared to 144.52% for the Index. On December 31,
1996, the closing price of the Fund's shares on the New York Stock Exchange was
$16 3/8, representing a 4.8% premium to the NAV per share.
The Thai market had started the year on a strong note, led by a liquidity-driven
rally, and rose in line with regional markets as foreign and local investors
bought stocks aggressively. Falling domestic interest rates fueled bullish
sentiment further. The rally subsided by the end of the first quarter, however,
in part due to somewhat disappointing corporate earnings. The market traded
sideways for the most part of the second quarter as banks were negatively
affected by a rise in reserve requirements and rising bond yields in the U.S.
Signs of an economic slowdown began to creep in and rumors about property
companies being unable to service their high debt burdens began to circulate.
The asset quality of bank and finance companies was also called into question.
The descent of the Thai market accelerated in the third quarter and talk
surfaced of a Baht devaluation as selling reached almost climactic proportions.
Cellular operators were hit as the exclusivity of their concessions were called
into question. Finance and banking stocks were sold relentlessly and speculation
about further bankruptcies erupted into a near frenzy.
Political uncertainty heightened as a no-confidence debate in September against
the ruling party brought about the dissolution of the parliament and a general
election was set for November 17. The resignation of the then Prime Minister had
brought a sense of relief to the market as investors expected the political
environment to improve. The popular Democrats were favored to win and the market
attempted to recover from the lows as the election date neared.
Economic data led by exports continued to signal a rapidly slowing economy.
Reported corporate earnings continued to come in below analysts' expectations.
As the Baht weakened, the absence of room for interest rate cuts meant the
monetary policy could not be used to stimulate the ailing economy. The market
was hoping for a Democrat win but sold off sharply when the New Aspiration Party
won the elections and formed the ruling coalition. Selling towards the end of
the year was exaggerated by the fact that trading volume in the stock market was
very low.
The Fund's performance against the Index for the year was influenced by its
sector strategy as well as its stock selection. We were overweighted in the
communications (-47.8%) and finance (-56.4%) sectors. The Fund was underweighted
in the energy sector (+13.4%) for most of the year. The Fund also overweighted
the banking sector (-30.2%); however, it had little or no exposure to the
property sector (-45.0%) throughout the course of the year.
In terms of stock selection, some of our larger holdings underperformed the
Index. These included Advanced Info Services (-51.1%), Shinawatra Computer
(-50.0%) and Siam Cement (-39.5%). Better performers in the Fund's portfolio, on
a relative basis, included Thai Investment Securities Co. (-1.6%), Serm Suk
(-4.6%) and Bangkok Bank (-11.6%).
For 1997, the situation in Thailand does not look like it will improve in the
near term. The direction of the Thai stock market will be largely determined by
interest rates, corporate earnings and economic growth. Interest rates cannot
come down much in Thailand because that would leave the Thai Baht vulnerable.
With global interest rates likely to trend up in 1997, led by the U.S., there
appears to be little or no room for domestic interest rates to fall. Earnings
are unlikely to recover either. As the asset quality of banks and finance
companies deteriorate with a slowing economy, provisions for doubtful debts will
likely rise. This will cap any sharp rise in earnings for the financial sector.
As lenders turn conservative, loan growth will also slow. The economic outlook,
however, looks less pessimistic. Despite a likely slowdown, economic growth
should be about 6.5% to 7.0% for 1996. Consensus economic forecasts suggest that
1997 will be better than 1996. This slight rebound may provide a boost to the
market.
2
<PAGE>
In valuation terms, the Thai market currently is cheap in relation to the region
and on a historical basis. The pessimism towards the market is borne out by the
fact that many issues are trading at or below their reported book value.
However, at a price earnings ratio of close to 12 times 1997 estimated earnings,
the market should be well supported, and although the earnings outlook is
uncertain, as long as economic growth remains fairly strong, there should be
room for fairly decent earnings growth.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Richard Toh
PORTFOLIO MANAGER
January 1997
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC., THE DIRECT PARENT COMPANY OF THE FUND'S INVESTMENT
ADVISER, MORGAN STANLEY ASSET MANAGEMENT INC., RECENTLY ANNOUNCED ITS INTENTION
TO MERGE WITH DEAN WITTER, DISCOVER & CO. TO FORM MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO. IT CURRENTLY IS ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN
MID-1997. THEREAFTER, MORGAN STANLEY ASSET MANAGEMENT INC. WILL BE A SUBSIDIARY
OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
3
<PAGE>
The Thai Fund, Inc.
Investment Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
--------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)
------------------------ ---------------------- ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR -25.33% -25.33% -35.93% -35.93% -36.25% -36.25%
FIVE YEAR 53.36+ 8.93+ 53.18+ 8.90+ 15.61 2.94
SINCE INCEPTION* 211.33+ 13.64+ 197.17+ 13.05+ 144.52 10.59
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1988* 1989 1990 1991 1992 1993 1994 1995 1996
NET ASSET VALUE PER SHARE $10.24 $18.88 $13.08 $15.41 $20.69 $39.42 $28.30 $24.89 $15.63
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Value Per Share $11.75 $32.25 $16.00 $16.25 $18.75 $36.88 $22.38 $22.38 $16.38
Premium/(Discount) 14.70% 70.80% 22.30% 5.50% -9.40% -6.40% -20.90% -10.10% 4.80%
Income Dividends $0.29 $0.36 $0.21 $0.21 - $0.36 $0.35 $0.11 $0.32
Capital Gains Distributions - $2.09 $1.68 $0.47 - $0.51 $4.62 $3.38 $0.08
Fund Total Return (2) -5.60% 109.87% -20.44% 23.08% 34.26% 98.89% -10.43%+ -0.05% -35.93%
Index Total Return (1)(3) 3.90% 120.97% -28.60% 15.80% 24.71% 88.40% -17.76% -6.11% -36.25%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The U.S. dollar adjusted Securities Exchange of Thailand (SET) Index is a
capitalization weighted index of all stocks traded on the Stock Exchange of
Thailand.
* The Fund commenced operations on February 16, 1988.
+ This return does not include the effect of dilution in connection with the
Rights Offering.
4
<PAGE>
The Thai Fund, Inc.
Portfolio Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 94.4%
Short-Term Investments 5.6%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 5.1%
Banking 31.1%
Beverages 7.9%
Broadcasting & Publishing 5.2%
Building Materials & Components 6.2%
Electrical & Electronics 4.3%
Financial Services 9.3%
Insurance 3.3%
Miscellaneous Materials & Commodities 2.8%
Telecommunications 15.3%
Others 9.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C> <S> <C>
1. Bangkok Bank Ltd. 13.1%
2. Thai Farmers Bank, Ltd. 9.3
3. The Serm Suk Co., Ltd. 7.9
4. Siam Commercial Bank Co. Ltd. 7.4
5. Advanced Information Services
Co. Ltd. 6.2
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C> <S> <C>
6. Thai Investment & Securities
Co., Ltd. 5.2%
7. BEC World plc 5.2
8. TelecomAsia Corp., Ltd. 5.1
9. Shinawatra Computer Co. Ltd. 4.3
10. Siam Cement Co., Ltd. 4.1
---
67.8%
---
---
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
THAI INVESTMENT PLAN (104.3%)
- --------------------------------------------------
- ----------
THAI COMMON STOCKS (98.8%)
(Unless otherwise noted)
APPLIANCES & HOUSEHOLD DURABLES (1.0%)
Singer Thailand Ltd. (Local) 500,300 U.S.$ 2,146
------------------
AUTOMOBILES (5.1%)
Swedish Motor Corp., Ltd. (Local) 1,500,000 2,237
Thai Rung Union Car plc 1,660,000 8,091
------------------
10,328
------------------
BANKING (31.1%)
Bangkok Bank Ltd. (Local) 3,600,000 26,811
Industrial Finance Corp. of Thailand
(Local) 950,000 2,537
Siam Commercial Bank Co., Ltd. (Local) 2,300,000 15,067
Thai Farmers Bank, Ltd. (Local) 3,900,000 19,009
------------------
63,424
------------------
BEVERAGES (7.9%)
The Serm Suk Co., Ltd. (Local) 1,117,800 16,214
------------------
BROADCASTING & PUBLISHING (5.2%)
+BEC World plc 1,014,000 9,726
*+BEC World plc (foreign) 86,000 825
------------------
10,551
------------------
BUILDING MATERIALS & COMPONENTS (6.2%)
American Standard Sanitaryware
Thailand, Ltd. (Local) 75,150 1,114
Siam Cement Co., Ltd. (Local) 264,000 8,318
Siam City Cement Co., Ltd. (Local) 620,000 3,240
------------------
12,672
------------------
CHEMICALS (2.2%)
National Petrochemical plc 5,793,300 4,461
------------------
ELECTRICAL & ELECTRONICS (4.3%)
Shinawatra Computer Co. Ltd. (Local) 720,000 8,703
------------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (9.3%)
Finance One Co., Ltd. (Local) 1,500,000 U.S.$ 2,851
Phatra Thanakit Co., Ltd. (Local) 2,000,000 5,615
Thai Investment & Securities Co., Ltd.
(Local) 2,152,100 10,573
------------------
19,039
------------------
INSURANCE (3.3%)
Bangkok Insurance Co., Ltd. (Local) 261,800 3,675
Dhipaya Insurance PCL 890,100 3,089
------------------
6,764
------------------
MISCELLANEOUS MATERIALS & COMMODITIES (2.8%)
Charoen Pokphand Feedmill Co., Ltd.
(Local) 1,848,800 5,767
------------------
REAL ESTATE (2.4%)
Land & House Co., Ltd. (Local) 715,600 4,855
------------------
TELECOMMUNICATIONS (15.3%)
Advanced Information Services Co.,
Ltd. (Local) 1,368,900 11,636
Advanced Information Services Co.,
Ltd. (Foreign) 115,000 1,076
+TelecomAsia Corp., Ltd. (Local) 5,000,000 10,431
United Communications Industry (Local) 1,200,000 8,142
------------------
31,285
------------------
TEXTILES & APPAREL (0.7%)
Thai Wacoal PCL 347,013 1,461
*+Thai Rung Textile 3,832 0
------------------
1,461
------------------
WHOLESALE & INTERNATIONAL TRADE (2.0%)
International Cosmetics PCL (Local) 875,000 3,992
------------------
- -----------------------------------------------------------------
- -------------
TOTAL THAI COMMON STOCKS
(Cost U.S. $179,202) 201,662
------------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (5.5%)
(Interest Bearing Demand Account)
Thai Baht
(Cost U.S. $11,296) THB 288,293 U.S.$ 11,241
------------
- -----------------------------------------------------------------
- -------------
TOTAL THAI INVESTMENT PLAN
(Cost U.S. $190,498) 212,903
------------
- -----------------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.95%, dated
12/31/96, due 1/2/97, to be
repurchased at U.S. $833,
collateralized by U.S. $800 United
States Treasury Bonds, 7.25%, due
5/15/16, valued at U.S. $853 (Cost
U.S. $833) U.S.$ 833 833
------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (104.7%)
(Cost U.S. $191,331) 213,736
------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (0.0%)
Receivable for Investments Sold 44
Interest Receivable 13
Other Assets 26 83
-------- ------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-4.7%)
Deferred Thai Taxes (2,246)
Payable for:
Thai Taxes (4,720)
Dividends Declared (2,186)
Thai Investment Advisory Fees (124)
U.S. Investment Advisory Fees (119)
Professional Fees (65)
Shareholder Reporting Expenses (63)
Directors' Fees and Expenses (39)
Custodian Fees (28)
Administrative Fees (18)
Other Liabilities (2) (7,364)
--------------- ------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 13,065,189 issued and outstanding U.S.
$0.01 par value shares (30,000,000 shares authorized) U.S.$204,209
-------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 15.63
-------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------
Common Stock U.S.$ 131
Capital Surplus 189,044
Distributions in Excess of Net
Investment Income (6,647)
Accumulated Net Realized Gain 1,522
Unrealized Appreciation on Investments
and Foreign Currency Translations
(net of accrued Thai tax of
U.S.$2,246 on unrealized
appreciation) 20,159
- -----------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$204,209
- -----------------------------------------------------------------------
</TABLE>
+ -- Non-income producing.
* -- Security valued at fair value -- see Note A-1 to financial statements.
December 31, 1996 exchange rate -- Thai Baht (THB) 25.646 = U.S. $1.00
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 7,967
Interest................................................ 613
- -------------------------------------------------------------------------------
Total Income.......................................... 8,580
- -------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................... 1,812
Thai Investment Advisory Fees........................... 805
Custodian Fees.......................................... 340
Administrative Fees..................................... 261
Professional Fees....................................... 104
Shareholder Reporting Expenses.......................... 97
Directors' Fees and Expenses............................ 62
Transfer Agent Fees..................................... 18
Other Expenses.......................................... 87
- -------------------------------------------------------------------------------
Total Expenses........................................ 3,586
- -------------------------------------------------------------------------------
Net Investment Income Before Thai Tax................... 4,994
Less: Thai Tax on Investment Income..................... 731
- -------------------------------------------------------------------------------
Net Investment Income............................... 4,263
- -------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold (Net of Thai tax of U.S.
$2,685 on net realized gains).......................... 1,927
Foreign Currency Transactions........................... (201)
- -------------------------------------------------------------------------------
Net Realized Gain 1,726
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................. (122,761)
Appreciation on Foreign Currency Translations........... 278
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation...... (122,483)
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. (120,757)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS..... U.S.$(116,494)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income................................... U.S.$ 4,263 U.S.$ 4,583
Net Realized Gain....................................... 1,726 31,791
Change in Unrealized Appreciation/Depreciation.......... (122,483) (33,048)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................. (116,494) 3,326
- ---------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................... -- (736)
In Excess of Net Investment Income...................... (4,207) (638)
Net Realized Gain....................................... (1,001) (40,523)
In Excess of Net Realized Gain.......................... -- (1,855)
- ---------------------------------------------------------------------------------------------------
Total Distributions..................................... (5,208) (43,752)
- ---------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (492,835 and 420,438
shares, respectively).................................. 12,946 9,551
- ---------------------------------------------------------------------------------------------------
Total Decrease.......................................... (108,756) (30,875)
Net Assets:
Beginning of Year....................................... 312,965 343,840
- ---------------------------------------------------------------------------------------------------
End of Year (including distributions in excess of net
investment income of U.S.$6,647 and U.S.$4,052,
respectively.)......................................... U.S.$ 204,209 U.S.$ 312,965
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA AND RATIOS: 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR......... U.S.$24.89 U.S.$28.30 U.S.$39.42 U.S.$20.69 U.S.$15.41
- ------------------------------------------------------------------------------------------------------------
Offering Costs............................. -- -- (0.05) -- --
- ------------------------------------------------------------------------------------------------------------
Net Investment Income...................... 0.31 0.38 0.32 0.35 0.31
Net Realized and Unrealized Gain (Loss) on
Investments............................... (9.15) (0.19) (5.08) 19.27 4.96
- ------------------------------------------------------------------------------------------------------------
Total from Investment Operations....... (8.84) 0.19 (4.76) 19.62 5.27
- ------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.................. -- (0.06) (0.35) (0.31) --
In Excess of Net Investment Income..... (0.32) (0.05) -- (0.05) --
Net Realized Gain...................... (0.08) (3.23) (4.62) (0.45) --
In Excess of Net Realized Gain......... -- (0.15) -- (0.06) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................... (0.40) (3.49) (4.97) (0.87) --
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Asset Value due
to Capital Share Transactions............. (0.02)+ (0.11)+ (1.34)++ (0.02)+ 0.01+
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............... U.S.$15.63 U.S.$24.89 U.S.$28.30 U.S.$39.42 U.S.$20.69
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF YEAR........ U.S.$16.38 U.S.$22.38 U.S.$22.38 U.S.$36.88 U.S.$18.75
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value........................... (25.33)% 13.7% (24.3) +++ 104.9% 15.4%
Net Asset Value (1).................... (35.93)% (0.1)% (10.4) +++ 98.9% 34.3%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (THOUSANDS)........ U.S.$204,209 U.S.$312,965 U.S.$343,840 U.S.$400,967 U.S.$209,061
- ------------------------------------------------------------------------------------------------------------
Ratio of Expenses Before Thai Tax to
Average Net Assets........................ 1.19% 1.17% 1.13% 1.22% 1.37%
Ratio of Expenses After Thai Tax to Average
Net Assets................................ 1.43% 1.30% 1.22% 1.38% 1.70%
Ratio of Net Investment Income to Average
Net Assets................................ 1.42% 1.35% 1.01% 1.42% 1.83%
Portfolio Turnover Rate.................... 24% 26% 22% 22% 24%
Average Commission Rate (2)................ U.S.$0.0135 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>
+ Increase (Decrease) due to shares issued on reinvestment of distributions.
++ Consists of U.S.$0.09 per share decrease from reinvestment of distributions
and U.S.$1.25 per share decrease due to common stock issued through Rights
Offering during the year.
+++ This return does not include the effect of dilution in connection with the
Rights Offering.
(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 capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance
of a shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
of the Fund.
(2) For fiscal years beginning on or after September 1, 1995, the fund is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged. For the year ended
December 31, 1996, the average commission rate paid on trades on which
commissions were charged was .30% of the trade amount.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ------------
The Thai Fund, Inc. (the "Fund") was incorporated on June 10, 1987 and is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is long-term capital appreciation through investments primarily in equity
securities. The Fund makes its investments in Thailand through the Thai
Investment Plan (the "Plan") established in conformity with Thai law. The Fund
is the sole unitholder of the Plan. The accompanying financial statements are
prepared on a consolidated basis and present the financial position and results
of operations of the Plan and the Fund.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of current bid and
asked prices obtained from reputable brokers. Short-term securities which
mature in 60 days or less are valued at amortized cost. All other securities
and assets for which market values are not readily available (including
investments which are subject to limitations as to their sale) are valued at
fair value as determined in good faith by the Board of Directors (the
"Board"), although the actual calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
Distributions of income from the Plan to the Fund are subject to Thai income
tax which is withheld at a rate of 10% of the local currency gross
distribution amount. All distributions from the Plan to the Fund must be
approved by The Bank of Thailand ("BOT") pursuant to the laws of The Kingdom
of Thailand. For financial statement purposes, the Fund allocates the Thai
income tax to net investment income, net realized gains and net unrealized
appreciation on the basis of their relative amounts. The Statement of
Operations for the year ended December 31, 1996 includes a provision of
$2,685,000 for Thai income tax on net realized gains of which $2,222,000
relates to prior years. For U.S. Federal income tax purposes, the Thai
income tax is deducted, when paid, from net investment income.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, 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.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in Thai baht 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 changes in the market prices of securities sold
during the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses)
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from sales and maturities of forward foreign currency exchange contracts,
dispositions 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 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) in the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period
is reflected in the Statement of Operations.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into forward
foreign currency exchange contracts to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency exchange contract is an agreement between
two parties to buy or sell currency at a set price on a future date. The
market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as unrealized gain or loss. The Fund
records realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. Risk may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms
of their contracts and is generally limited to the amount of unrealized gain
on the contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date (except certain dividends which may be recorded as soon
as the Fund is informed of such dividend) net of applicable withholding
taxes where recovery of such taxes is not reasonably assured. Distributions
to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, foreign taxes on net realized gains and gains on certain
securities of corporations designated as "passive foreign investment
companies". These differences are also primarily due to differing book and
tax treatments of the timing of the recognition of losses on securities and
the timing of the deductibility of certain foreign taxes.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "U.S. Adviser") provides
investment advisory services to the Fund under the terms of an Investment
Advisory Agreement (the "Agreement"). Under the Agreement, the U.S. Adviser is
paid a fee computed weekly and payable monthly at an annual rate of .90% of the
Fund's first $50 million of average weekly net assets, .70% of the Fund's next
$50 million of average weekly net assets and .50% of the Fund's average weekly
net assets in excess of $100 million.
C. The Mutual Fund Public Company Limited (the "Thai Adviser") provides
investment advisory services to the Fund under the terms of a contract. Under
the contract, the Thai Adviser is paid a fee computed weekly and payable monthly
at an annual rate of .40% of the Fund's first $50 million of average weekly net
assets, .25% of the Fund's next $50 million of average weekly net assets and
.20% of the Fund's average weekly net assets in excess of $100 million.
D. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .05% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank, acts as custodian for the Fund's assets
held in the United States.
E. During the year ended December 31, 1996, the Fund made purchases and sales
totaling $74,372,000 and $99,510,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases or sales of
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long-term U.S. Government securities. At December 31, 1996, the U.S. Federal
income tax cost basis of securities was $182,721,000 and accordingly, net
unrealized appreciation for U.S. Federal income tax purposes was $19,774,000, of
which $61,201,000 related to appreciated securities and $41,427,000 related to
depreciated securities. For the year ended December 31, 1996, the Fund expects
to defer to January 1, 1997 for U.S. Federal income tax purposes, post-October
currency losses of $151,000.
F. A significant portion of the Fund's net assets consist of investments in the
Thai Investment Plan, including Thai equity securities, which may be subject to
greater price volatility, lower liquidity and less diversity than equity
securities of companies based in the United States. In addition, Thai equity
securities may be subject to substantial governmental involvement in the economy
and greater social, economic and political uncertainty.
G. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at December 31, 1996 totaled
$22,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
H. During December 1996, the Board declared a distribution of $0.11 per share,
derived from net investment income and $0.06 per share, derived from net
realized gains, payable on January 28, 1997, to shareholders of record on
December 31, 1996.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1996, the Fund designates $904,000 as
long-term capital gain and expects to pass through to shareholders foreign tax
credits of approximately $2,758,000. In addition, for the year ended December
31, 1996, gross income derived from sources within foreign countries amounted to
$8,478,000.
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REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
The Thai Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Thai Fund, Inc. (the "Fund") at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 10, 1997
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless Boston Equiserve (the
"Plan Agent") is otherwise instructed by the shareholder in writing, to have all
distributions automatically reinvested in Fund shares. Participants in the Plan
have the option of making additional voluntary cash payments to the Plan Agent,
semiannually, in any amount from $100 to $3,000, for investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
The Thai Fund, Inc.
Boston Equiserve
Dividend Reinvestment and Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105-1681
1-800-442-2001
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