<PAGE>
THE
THAI FUND,
INC.
FIRST QUARTER REPORT
MARCH 31, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
THE THAI FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Snoh Unakul
Michael F. Klein DIRECTOR
PRESIDENT AND DIRECTOR Stefanie V. Chang
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR Joanna M. Haigney
Sukri Kaocharern TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
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U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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THAI INVESTMENT ADVISER
The Mutual Fund Public Company Limited
30th-32nd Floor, Lake Rajada Building
193-195 Ratchadaphisek Road
Khlong-Toey, Bangkok 10110 Thailand
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ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
The Thai Farmers Bank Public Company Limited
1 Soi Thai Farmers
Ratburana Road, Ratburana
Bangkok, Thailand
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 730-6001
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LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the three months ended March 31, 1998, The Thai Fund, Inc. (the "Fund") had
a total return, based on net asset value per share, of 49.61% compared to 49.41%
for the U.S. dollar adjusted Securities Exchange of Thailand Index (the
"Index"). For the one year ended March 31, 1998, and for the period since the
Fund's commencement of operations on February 16, 1988 through March 31, 1998,
the Fund's total return, based on net asset value per share, was -57.99% and
10.38%, respectively, compared to -56.38% and -10.63%, respectively, for the
Index. On March 31, 1998, the closing price of the Fund's shares on the New
York Stock Exchange was $9.00, representing a 57.9% premium to the Fund's net
asset value per share.
The abolishment of the two-tier currency rates towards the end of January
triggered a resurgence of confidence in the Thai market as foreign investors
rushed in to snap up oversold stocks. The resulting panic buying caused the
Index to spike up by as much as 70% with foreign tranches of bank stocks trading
to as much as 100% premiums to the local shares. However, a subsequent cascade
of massive and pervasive cash calls and rights issues by corporates seeking to
shore up weakened balance sheets dampened investors' enthusiasm for the market.
Corporate results generally reflected the carnage caused by massive amounts of
unhedged foreign debts and overgeared balance sheets. In addition to two large
cash calls of about $800 million each by Thai Farmers Bank and Bangkok Bank, the
government announced plans to divest more of its stakes in PTT Exploration &
Production Public Company, Electricity Generating Company and Thai Airways. The
Fund's outperformance relative to its benchmark for the quarter was mainly
attributable to its overweight position in stocks with robust balance sheets and
strong cash flows such as Serm Suk, BEC World and Eastern Water. The Fund also
avoided companies with potential equity dilutions such as the companies
mentioned above.
After dismal GDP growth of -0.3% for 1997, the Thai economy continued to
contract in the first quarter of 1998. With the exception of the agriculture
sector, all the major sectors are forecast to register declines in the first
quarter. As domestic consumption and investment continue to slow, the economy
is expected to record declining GDP growth rates in the second and third
quarters before bottoming out in the fourth quarter. For the year, the economy
is expected to record a decline of -4.5% in GDP growth. The only positive note
appears to be the export sector which is benefiting from the more competitive
Thai Baht after its 37% devaluation since July 2, 1997. As a consequence of
falling imports and steady exports, the trade accounts have recorded seven
consecutive months of trade surpluses through March 31, 1998. The current
account is projected to record a surplus of 8.0% of GDP in 1998 compared with a
smaller deficit of -1.9% in 1997.
The continued large funding needs of the FIDF to support the liquidity needs of
the troubled state banks have exerted strong upward pressure on interest rates
with interbank rates currently standing at between 21% and 22%. Reflecting the
effects of higher imported inflation as a consequence of the Baht's devaluation,
the Consumer Price Index surged 9.0% in the first quarter of this year.
Following the large capital raising exercises of Thai Farmers Bank and Bangkok
Bank noted above, liquidity is expected to gradually improve, thus raising the
possibility of a slight easing in interest rates by the fourth quarter of this
year. The trend in the CPI is expected to remain strongly upwards with the
average CPI expected to be around 10% for the year. We expect the Thai market
to be bound by a tight trading range in the absence of fresh factors. Upside to
the market will be capped by the impending large amount of liquidity drain while
the downside risk appears to be limited by gradual macro-economic improvements.
With the market trading at 44 times prospective 1998 earnings and a price to
book ratio of 2.8 times, we believe the Thai stock market does not appear to
offer compelling valuations at present.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Joseph Tern
Joseph Tern
PORTFOLIO MANAGER
April 1998
2
<PAGE>
The Thai Fund, Inc.
Investment Summary as of March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Historical Total Return (%)
Information -------------------------------------------------------------------------------------------
Market Value (1) Net Asset Value (2) Index (3)
----------------------- ------------------------- -----------------------
Average Average Average
Cumulative Annual Cumulative Annual Cumulative Annual
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year to Date 71.43 % - 49.61 % - 49.41 % -
One Year (43.59) (43.59)% (57.99) (57.99)% (56.38) (56.38)%
Five Year (28.80)+ (6.57)+ (58.28)+ (16.04)+ (65.20) (19.03)
Ten Year 15.26 + 1.43 + 10.38 + 0.99 + (23.32) (2.62)
Since Inception* 74.28 + 5.64 + 10.38 + 0.98 + (10.63) (1.10)
</TABLE>
Past performance is not predictive of future performance.
- -------------------------------------------------------------------------------
Returns and Per Share Information
[GRAPH]
<TABLE>
<CAPTION>
Years ended December 31: Three Months
Ended
March 31,
1988* 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per
Share. . . . . . . . .$10.24 $ 18.88 $ 13.08 $15.41 $20.69 $39.42 $ 28.30 $24.89 $ 15.63 $ 3.81 $ 5.70
Market Value Per Share $11.75 $ 32.25 $ 16.00 $16.25 $18.75 $36.88 $ 22.38 $22.38 $ 16.38 $ 5.25 $ 9.00
Premium/(Discount) . . . 14.7% 70.8% 22.3% 5.5% (9.4)% (6.4)% (20.9)% (10.1)% 4.8% 37.8% 57.9%
Income Dividends . . . .$ 0.29 $ 0.36 $ 0.21 $ 0.21 - $ 0.36 $ 0.35 $0.11 $ 0.32 $ 0.11 -
Capital Gains
Distributions. . . . . - $ 2.09 $ 1.68 $ 0.47 - $ 0.51 $ 4.62 $ 3.38 $ 0.08 $ 0.12 -
Fund Total Return (2). . (5.60)% 109.87% (20.44)% 23.08% 34.26% 98.90% (10.40)%+ (0.10)% (35.93)% (75.17)% 49.61%
Index Total Return (3) . 3.90% 120.97% (28.60)% 15.80% 24.71% 88.40% (17.76)% (6.11)% (36.25)% (75.54)% 49.41%
</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, including dividends.
* The Fund commenced operations on February 16, 1988.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
3
<PAGE>
The Thai Fund, Inc.
Portfolio Summary as of March 31, 1998 (Unaudited)
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[CHART]
DIVERSIFICATION OF TOTAL INVESTMENTS
Equity Securities 93.5%
Short-Term Investments 6.5%
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[CHART]
SECTORS
Automobiles 3.6%
Banking 16.5%
Beverages & Tobacco 16.3%
Broadcasting & Publishing 8.1%
Building Materials & Components 5.1%
Chemicals 6.7%
Financial Services 5.8%
Insurance 4.0%
Telecommunications 8.6%
Utilities -- Electrical & Gas 4.8%
Other 20.5%
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TEN LARGEST HOLDINGS*
PERCENT OF
NET ASSETS
----------
1. The Serm Suk Co., Ltd. 16.3%
2. Thai Farmers Bank Co., Ltd. 7.3
3. BEC World Co., Ltd. 6.9
4. National Petrochemical Co., Ltd. 6.7
5. Advanced Information Services Co., Ltd. 5.3
6. Bangkok Bank Co., Ltd. 5.2
7. Eastern Water Resources Development Co., Ltd. 4.8
8. Charoen Pokphand Feedmill Co., Ltd. 3.3
9. Siam Commercial Bank Co., Ltd. 2.8
10. Shinawatra Computer Co., Ltd. 2.4
----
61.0%
----
----
* Excludes short-term investments.
4
<PAGE>
INVESTMENTS (Unaudited)
MARCH 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
THAI INVESTMENT PLAN (99.4%)
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THAI COMMON STOCKS (94.2%)
(Unless otherwise noted)
- ----------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES (1.1%)
Singer Thailand Public Co. Ltd. 165,800 U.S.$ 131
Thai Glass Industries Co., Ltd. 205,200 313
Thai Glass Industries Co., Ltd.
(Foreign) 229,800 350
------------
794
------------
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AUTOMOBILES (3.6%)
Swedish Motor Co., Ltd. 1,371,100 244
Thai Engine Manufacturing
Public Co. Ltd. 651,900 1,491
Thai Rung Union Car Co., Ltd. 219,400 166
Thai Stanley Electric Co., Ltd. 715,000 768
------------
2,669
------------
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BANKING (16.5%)
Bangkok Bank Co., Ltd. 1,898,000 3,931
Bank of Ayudhya Public Co. Ltd. 1,500,000 915
Siam Commercial Bank Co., Ltd. 1,555,000 2,094
Thai Farmers Bank Co., Ltd. 2,840,000 5,449
------------
12,389
------------
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BEVERAGES & TOBACCO (16.3%)
The Serm Suk Co., Ltd. 1,295,000 12,242
------------
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BROADCASTING & PUBLISHING (8.1%)
BEC World Co., Ltd. 1,000,000 5,184
Nation Multimedia Group Co., Ltd. 1,175,100 485
Nation Multimedia Group Co., Ltd.
(Foreign) 824,900 388
------------
6,057
------------
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BUILDING MATERIALS & COMPONENTS (5.1%)
American Standard Sanitaryware
Thailand Co., Ltd. 75,150 363
Siam Cement Co., Ltd. 139,000 1,604
Siam City Cement Co., Ltd. 693,147 1,753
Tipco Asphalt Co. Ltd. 72,800 103
------------
3,823
------------
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CHEMICALS (6.7%)
National Petrochemical Co., Ltd. 5,704,900 5,038
------------
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CONSTRUCTION & HOUSING (0.1%)
Ch. Karnchang Public Co., Ltd. 100,000 103
------------
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ELECTRICAL & ELECTRONICS (3.0%)
K.R. Precision Public Co., Ltd. 164,100 413
Shinawatra Computer Co., Ltd. 300,000 1,830
------------
2,243
------------
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ELECTRONIC COMPONENTS & INSTRUMENTS (0.8%)
KCE Electronics Public Co. Ltd. 100,000 635
------------
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</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.7%)
Thai Storage Battery Co., Ltd. 400,000 U.S.$ 513
------------
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ENERGY SOURCES (2.2%)
Lanna Lignite Co. Ltd. 250,000 1,118
PTT Exploration & Production Public
Co., Ltd. (Foreign) 49,900 505
------------
1,623
------------
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FINANCIAL SERVICES (5.8%)
National Finance & Securities
Public Co. Ltd. (Foreign) 2,241,000 1,239
Phatra Thanakit Co., Ltd. 1,605,600 1,591
Thai Investment & Securities
Public Co. Ltd. 1,808,200 1,551
------------
4,381
------------
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INSURANCE (4.0%)
Bangkok Insurance Co., Ltd. 248,100 1,829
Dhipaya Insurance Co., Ltd. 1,011,400 1,208
------------
3,037
------------
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MISCELLANEOUS MATERIALS & COMMODITIES (3.3%)
Charoen Pokphand Feedmill
Co., Ltd. 1,717,900 2,488
------------
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REAL ESTATE (1.1%)
Land & House Co., Ltd. 1,082,978 502
Quality House Co., Ltd. 1,683,400 300
------------
802
------------
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TELECOMMUNICATIONS (8.6%)
Advanced Information Services
Co., Ltd. 510,800 3,972
Shinawatra Satellite Public Co. Ltd. 1,700,000 735
TelecomAsia Co., Ltd. 2,860,000 1,090
United Communication Industry
Co., Ltd. 772,000 647
------------
6,444
------------
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TEXTILES & APPAREL (2.4%)
Saha-Union Co., Ltd. 1,483,600 980
Thai Rung Textile Co., Ltd. 3,832 - @
Thai Wacoal Co., Ltd. 347,013 794
------------
1,774
------------
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UTILITIES - ELECTRICAL & GAS (4.8%)
Eastern Water Resources
Development Co., Ltd. 2,573,000 3,564
------------
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TOTAL THAI COMMON STOCKS
(Cost U.S.$133,236) 70,619
------------
- ----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (5.2%)
(Interest Bearing Demand Account)
Thai Baht (Cost U.S.$3,973) THB 155,245 U.S.$ 3,945
------------
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TOTAL THAI INVESTMENT PLAN
(Cost U.S.$137,209) 74,564
------------
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SHORT-TERM INVESTMENT (1.3%)
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.3%)
Chase Securities, Inc., 5.60%,
dated 3/31/98, due 4/1/98, to
be repurchased at U.S.$980,
collateralized by U.S.$960,
United States Treasury Notes,
6.25%, due 4/30/01, valued at
U.S.$1,002 (Cost U.S.$980) U.S.$ 980 980
------------
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TOTAL INVESTMENTS (100.7%)
(Cost U.S.$138,189) 75,544
------------
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.7%)
Other Assets 1,095
Liabilities (1,641) (546)
------------- ------------
- ----------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 13,160,950 issued and
outstanding U.S.$0.01 par value shares
(30,000,000 shares authorized) U.S.$74,998
------------
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NET ASSET VALUE PER SHARE U.S.$ 5.70
------------
- ----------------------------------------------------------------------------
</TABLE>
@ - Value is less than U.S.$500.
NOTE: Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging markets, and foreign ownership
limitations may also be imposed by the charters of individual companies in
emerging markets. As a result, an additional class of shares designated
as "foreign" may be created and offered for investment. The "local" and
"foreign" shares' market values may vary.
6
