<PAGE>
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THE
THAI FUND,
INC.
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THIRD QUARTER REPORT
SEPTEMBER 30, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
THE THAI FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
Sukri Kaocharern
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Snoh Unakul
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
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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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the nine months ended September 30, 1998, The Thai Fund, Inc. (the "Fund")
had a total return, based on net asset value per share, of -26.63% compared to
- -18.57% for the U.S. dollar adjusted Securities Exchange of Thailand (SET) Index
(the "Index"). For the one year ended September 30, 1998, and for the period
since the Fund's commencement of operations on February 16, 1988 through
September 30, 1998, the Fund's total return, based on net asset value per share,
was -63.95% and -45.87%, respectively, compared to -57.11% and -51.29%,
respectively, for the Index. On September 30, 1998, the closing price of the
Fund's shares on the New York Stock Exchange was $4.50, representing a 66.1%
premium to the Fund's net asset value per share.
Thailand is in the middle of its steepest economic contraction in post-war
history yet signs of improvement began to emerge in the third quarter. As
mentioned in the semi-annual letter, Thailand now suffers from a banking crisis
which can only be resolved by corporate debt restructuring and bank
recapitalization. However, domestic liquidity has improved in Thailand due to
the successful implementation of the IMF program, the shift from a current
account deficit into surplus and the easing of offshore financial conditions.
Due to these improvements short-term baht interest rates fell 700 basis points
during the quarter even as the currency stabilized and then strengthened. The
fall in short term interest rates is not sufficient to solve the problems of the
corporate and banking sectors but it certainly reduces the costs of the
solution.
There are numerous statistical and anecdotal signs indicating that the Thai
economy may have bottomed during the third quarter. These signs include flat
month-on-month industrial production numbers for several months during the
quarter, improving month-on-month auto sales and company reports of improving
demand for goods and services like new telephone lines, increased minutes of
telephone traffic or new cellular phone subscriptions. However, the resumption
of strong economic growth will depend on continued growth in the tourism sector,
which has been a bright spot this year, improved export performance, which has
been a disappointment, and subsequent domestic consumption. Given the
over-capacity in most sectors in Thailand, investment is the last economic
segment expected to recover.
During the third quarter we began to increase the Fund's exposure to the banking
sector through increased positions in Bangkok Bank and Thai Farmers Bank and to
the corporate restructuring area through increased positions in Siam Cement and
Siam City Cement. Corporate restructuring is expected to be a significant future
opportunity as corporations which design and implement strong restructuring
programs will attract foreign and domestic capital and should outperform the
market. The fall in interest rates during the third quarter has reduced real
interest rates to negative real levels on bank deposits. This decline has
encouraged a return to the stock market of some retail investors, which has been
positive for daily turnover and market performance.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
October 1998
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
2
<PAGE>
The Thai Fund, Inc.
Investment Summary as of September 30, 1998 (Unaudited)
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<TABLE>
<CAPTION>
HISTORICAL
INFORMATION TOTAL RETURN (%)
------------------------------------------------------------------------
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 -11.59% -- -26.63% -- -18.57% --
One Year -58.03 -58.03% -63.95 -63.95% -57.11 -57.11%
Five Year -70.58+ -21.71+ -81.51+ -28.65+ -83.20 -30.00
Ten Year -22.84+ -2.56+ -47.88+ -6.31+ -62.89 -9.44
Since Inception* -10.12+ -1.00+ -45.87+ -5.61+ -51.29 -6.55
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
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RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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 $ 2.71
Market Value Per Share . . $11.75 $32.25 $16.00 $16.25 $18.75 $36.88 $22.38 $22.38 $16.38 $ 5.25 $ 4.50
Premium/(Discount). . . . . 14.7% 70.8% 22.3% 5.5% -9.4% -6.4% -20.9% -10.1% 4.8% 37.8% 66.1%
Income Dividends. . . . . . $ 0.29 $ 0.36 $ 0.21 $ 0.21 -- $ 0.36 $ 0.35 $ 0.11 $ 0.32 $ 0.11 $ 0.19
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% -26.63%
Index Total Return (3). . . 3.90% 120.97% -28.60% 15.80% 24.71% 88.40% -17.76% -6.11% -36.25% -75.54% -18.57%
</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 September 30, 1998 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (92.2%)
Short-Term Investments (7.8%)
</TABLE>
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SECTORS
[CHART]
<TABLE>
<S> <C>
Banking (8.0%)
Beverages & Tobacco (11.8%)
Broadcasting & Publishing (12.2%)
Building Materials & Components (3.6%)
Chemicals (3.6%)
Electrical & Electronics (4.9%)
Electronic Components & Instruments (4.1%)
Energy Sources (11.5%)
Telecommunications (12.4%)
Utilities -- Electrical & Gas (7.5%)
Other (20.4%)
</TABLE>
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TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. The Serm Suk Co., Ltd. 11.8%
2. PTT Exploration & Production Public Co., Ltd. 11.5
3. Advanced Information Services Co., Ltd. 10.7
4. BEC World Co., Ltd. 10.0
5. Eastern Water Resources Development Co., Ltd. 7.5
6. Bangkok Bank Co., Ltd. 5.5
7. Compass East Industry Public Co., Ltd. 3.9
8. Siam City Cement Co., Ltd. 3.6
9. National Petrochemical Co., Ltd. 3.6
10. Chareon Pokphand Feedmill Co., Ltd. 2.5
----
70.6%
----
----
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
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STATEMENT OF NET ASSETS (UNAUDITED)
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SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
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<S> <C> <C>
THAI INVESTMENT PLAN (95.2%)
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THAI COMMON STOCKS (87.8%)
(Unless otherwise noted)
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APPLIANCES & HOUSEHOLD DURABLES (0.2%)
Singer Thailand Public Co. Ltd. 138,300 U.S.$ 70
------------
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AUTOMOBILES (1.4%)
Thai Stanley Electric Co., Ltd. 715,000 157
Thai Storage Battery Co., Ltd. 390,600 348
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505
------------
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BANKING (8.0%)
Bangkok Bank Co., Ltd. 3,363,500 1,977
Thai Farmers Bank Co., Ltd. 1,606,400 894
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2,871
------------
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BEVERAGES & TOBACCO (11.8%)
The Serm Suk Co., Ltd. 1,123,500 4,261
------------
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BROADCASTING & PUBLISHING (12.2%)
BEC World Co., Ltd. 730,700 3,584
Grammy Entertainment Public Co. Ltd. 179,500 745
Nation Multimedia Group Co., Ltd. 381,600 76
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4,405
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BUILDING MATERIALS & COMPONENTS (3.6%)
Siam City Cement Co., Ltd. 1,153,947 1,298
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CHEMICALS (3.6%)
National Petrochemical Co., Ltd. 3,458,700 1,290
------------
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CONSTRUCTION & HOUSING (0.2%)
Ch. Karnchang Public Co., Ltd. 100,000 83
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ELECTRICAL & ELECTRONICS (4.9%)
Delta Electronics Public Co., Ltd. 152,800 881
Shinawatra Computer Co., Ltd. 330,000 876
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1,757
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ELECTRONIC COMPONENTS & INSTRUMENTS (4.1%)
Compass East Industry Public Co., Ltd. 286,400 1,412
KCE Electronics Public Co., Ltd. 120,000 74
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1,486
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ENERGY SOURCES (11.5%)
PTT Exploration & Production Public Co., Ltd. 153,800 1,369
PTT Exploration & Production Public Co., Ltd.
(Foreign) 313,500 2,758
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4,127
------------
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INSURANCE (1.8%)
Bangkok Insurance Co., Ltd. 248,100 U.S.$ 640
------------
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MISCELLANEOUS MATERIALS & COMMODITIES (2.5%)
Charoen Pokphand Feedmill Co., Ltd. 1,317,900 900
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TELECOMMUNICATIONS (12.4%)
Advanced Information Services Co., Ltd. 668,200 3,852
Shinawatra Satellite Public Co., Ltd. 1,700,000 602
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4,454
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TEXTILES & APPAREL (2.1%)
Saha-Union Co., Ltd. 1,483,600 450
Thai Rung Textile Co., Ltd. 3,832 --
Thai Wacoal Co., Ltd. 347,013 299
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749
------------
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UTILITIES -- ELECTRICAL & GAS (7.5%)
Eastern Water Resources Development Co., Ltd. 2,359,800 2,685
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TOTAL THAI COMMON STOCKS
(Cost U.S.$75,694) 31,581
------------
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<CAPTION>
FACE
AMOUNT
(000)
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<S> <S> <S>
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (7.4%)
(Interest Bearing Demand Account)
Thai Baht (Cost U.S.$2,625) THB 106,085 2,682
------------
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TOTAL INVESTMENTS (95.2%)
(Cost U.S.$78,319) 34,263
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OTHER ASSETS (4.8%)
Other Assets U.S.$ 2,116
Liabilities (392) 1,724
----------- ------------
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NET ASSETS (100%)
Applicable to 13,267,713 issued and outstanding
U.S.$0.01 par value shares (30,000,000 shares authorized) U.S.$ 35,987
------------
------------
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NET ASSET VALUE PER SHARE U.S.$ 2.71
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------------
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</TABLE>
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.
5
