<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
THE FUND
The Thai Capital Fund, Inc. (the "Fund") is a non-diversified, closed-end
management investment company. The Fund seeks long-term capital appreciation
through investment primarily in equity securities of Thai companies. The Fund's
investments in Thailand are made through a wholly-owned Investment Plan
established under an agreement between The Mutual Fund Public Company Limited
(the "Manager") and the Fund. The Fund's investments through the Investment Plan
are managed by the Manager. Daiwa International Capital Management (H.K.)
Limited provides the Manager with advice regarding investments by the Investment
Plan and manages the Fund's assets held outside the Investment Plan.
SHAREHOLDER INFORMATION
The Fund's shares are listed on the New York Stock Exchange ("NYSE") and the
Osaka Securities Exchange ("OSE"). The Fund understands that its shares may
trade periodically on certain exchanges other than the NYSE or the OSE, but the
Fund has not listed its shares on those other exchanges and does not encourage
trading on those exchanges.
The Fund's NYSE trading symbol is "TC". Weekly comparative net asset value
(NAV) and market price information about the Fund is published each Monday in
THE WALL STREET JOURNAL, each Sunday in THE NEW YORK TIMES, and each Saturday in
BARRON'S, and also in many other newspapers.
INQUIRIES
All general inquiries and requests for information should be directed to
Daiwa Securities Trust Company, the Fund's administrator, at (800) 933-3440 or
(201) 915-3020. All written inquiries should be directed to the Fund at the
following address:
The Thai Capital Fund, Inc.
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, New Jersey 07302
For specific information about your share account, please contact State
Street Bank and Trust Company (the "Plan Agent") at the address shown below.
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan (the "Plan") is available to provide
Shareholders with automatic reinvestment of dividends and capital gain
distributions in additional Fund shares. A brochure fully describing the Plan's
terms and conditions is available from the Plan Agent at the following address:
State Street Bank and Trust Company
c/o The Thai Capital Fund, Inc.
P.O. Box 8200
Boston, MA 02266-8200
Telephone: (800) 426-5523
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
GENERAL INFORMATION (CONCLUDED)
- --------------------------------------------------------------------------------
A brief summary of the material aspects of the Plan follows:
WHO CAN PARTICIPATE IN THE PLAN? If you wish to participate and your shares
are held in your name, no action is required on your part, as you are
automatically enrolled by the Plan Agent. However, if your shares are held in
the name of a brokerage firm, bank or nominee, you should instruct your nominee
to participate in the Plan on your behalf. If your nominee is unable to
participate in the Plan for you, you should request that your shares be
registered in your name, so that you may participate directly in the Plan.
Please contact the Plan Agent if you would like more information about how to
change your registration so that you may participate in the Plan.
MAY I WITHDRAW FROM THE PLAN? If your shares are held in your own name and
you wish to receive all dividends and capital gain distributions in cash rather
than in shares, you may withdraw from the Plan without penalty at any time by
contacting the Plan Agent. If your shares are held in nominee name, you should
be able to withdraw from the Plan without penalty at any time by sending written
notice to your nominee. If you withdraw, you will receive a share certificate
for all full shares or, if you wish, the Plan Agent will sell your shares and
send you the proceeds, after the deduction of brokerage commissions. The Plan
Agent will convert any fractional shares to cash at the then-current market
price and send to you a check for the proceeds.
HOW ARE THE DIVIDENDS AND DISTRIBUTIONS REINVESTED? If the market price of
the Fund's shares on the payment date should equal or exceed their net asset
value per share, the Fund will issue new shares to you at the higher of net
asset value or 95% of the then-current market price. If the market price is
lower than net asset value per share, the Fund will issue new shares to you at
the market price. If the dividends or distributions are declared and payable as
cash only, you will receive shares purchased for you by the Plan Agent on the
NYSE or otherwise on the open market to the extent available.
IS THERE A COST TO PARTICIPATE? There are no Plan charges or brokerage
charges for shares issued directly by the Fund. However, each participant will
pay a pro rata portion of brokerage commissions for shares purchased on the NYSE
or otherwise on the open market by the Plan Agent.
WHAT ARE THE TAX IMPLICATIONS? The automatic reinvestment of dividends and
distributions does not relieve you of any income tax which may be payable (or
required to be withheld) on such dividends and distributions. In addition, the
Plan Agent will reinvest dividends for foreign participants and for any
participants subject to federal backup withholding after the deduction of the
amounts required to be withheld.
PLEASE NOTE THAT, IF YOU PARTICIPATE IN THE PLAN THROUGH A BROKERAGE
ACCOUNT, YOU MAY NOT BE ABLE TO CONTINUE AS A PARTICIPANT IF YOU TRANSFER THOSE
SHARES TO ANOTHER BROKER. CONTACT YOUR BROKER OR NOMINEE OR THE PLAN AGENT TO
ASCERTAIN WHAT IS THE BEST ARRANGEMENT FOR YOU TO PARTICIPATE IN THE PLAN.
2
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
January 31, 1997
DEAR SHAREHOLDERS:
The Management of the Thai Capital Fund, Inc. (the "Fund") would like to
take this opportunity to inform its shareholders about the Thai economy, the
activities of the Stock Exchange of Thailand ("SET"), and the Fund's performance
for the year ended December 31, 1996.
REVIEW OF THE THAI ECONOMY IN 1996
The Thai economy is expected to show an expansion of 6.7% for 1996, which is
a slowdown from 1995 when it grew by 8.6%. The decline was due primarily to
tight monetary policies and a decrease in exports.
In the first ten months of 1996, exports totaled 1,140.7 billion baht, while
imports were 1,516.1 billion baht, resulting in a trade deficit of 371.8 billion
baht. It was forecasted that in 1996 imports and exports would grow by 3.3% and
- -0.1%, respectively, which resulted in the current account showing a deficit of
8.2% of Gross Domestic Product ("GDP").
Flooding in Thailand at the end of 1995 and increases in agricultural prices
contributed to high inflation. The average consumer price index increased in the
first eleven months of 1996 to 5.9%, up from 5.0% in the same period of 1995. It
is forecasted that the inflation rate for the full year 1996 will be about 5.8%.
THE THAI ECONOMIC OUTLOOK IN 1997
In 1997, it is expected that economic growth will improve as a result of a
recovery of the overall global economy and international trade, a higher demand
from major trading countries, and an anticipated decrease in world oil prices.
The Bank of Thailand ("BOT") has predicted that in 1997 economic growth will be
around 7.1%.
With an improvement anticipated in the Thai economy, the Fund's management
forecasts that 1997 investment levels will pick up and grow by 9.0%, as compared
to 8.4% in 1996. The external sector is also expected to improve, and it is
forecast that exports and imports will rise to 7.0% and 9.0%, respectively.
This, in turn, is expected to bring the current account deficit to 418.4 billion
baht or 8.0% of GDP.
Owing to the recovery of the Thai economy, domestic prices have shown signs
of returning to normal and the inflation rate is forecasted to be around 4.8%.
In the financial sector, the strict monetary policy could be relaxed, leading to
a downward adjustment of interest rates. It is expected that average interest
rates could be reduced from 13.3% in 1996 to 12.5% in 1997.
1996 STOCK MARKET OVERVIEW
In 1996, the Thai stock market was volatile and mainly on a downtrend.
Events that negatively affected the market performance included both external
and internal factors.
External factors were: (1) the surge in oil prices; (2) a slowdown of
exports from Asian countries; and (3) a continued weakness in the global demand
for electronics, which is Thailand's number one export. The downgrading of
Thailand's short-term debt rating, from Prime1 to Prime2, by Moody's was yet
another negative external factor that dampened the sentiment and induced heavy
foreign selling in the market.
Internal factors were: (1) poor corporate earnings results, which led to a
series of downward adjustments of earnings forecasts; (2) concerns over the
economic performance such as the very low export growth, a widening
3
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
current account deficit and heavy dependence on short-term foreign borrowing;
(3) anxiety over the probability of a property market slump which might lead to
the bankruptcy of several property companies; (4) worries over problems
associated with the high level of non-performing loans faced by financial
institutions; and (5) political instability and a lack of confidence in the
Banharn administration.
In the political arena, after the general election of November 17, 1996,
Thailand now has its 22nd Prime Minister, General Chavalit Youngchaiyuth, the
leader of the New Aspiration Party, which has won the largest numbers of seats
in the Parliament, 125 out of 393. As happened in the past, the new
administration is another coalition government consisting of six parties holding
an aggregate majority of 221 votes. In this administration, there are three
Ministers that are non-members of parliament but are well
respected-professionals: namely, Dr. Amnuay Virawan as Finance Minister, Dr.
Narongchai Akarasenee as Commerce Minister, and Mr. Sompob Amartayakul as Deputy
Industry Minister.
At the end of 1996, the SET closed at 831 points, a decline of 449 points or
35% from year end 1995. During the period, the average daily turnover was 5.4
billion baht, a decline of 800 million baht from the previous year. For the
entire period, portfolio brokers, mutual funds, and retail investors were net
buyers of 934.2 billion baht, 2,772.4 billion baht, and 4,049.3 billion baht,
respectively. Meanwhile, foreign investors were net sellers of 7,755.9 billion
baht.
1997 STOCK MARKET OUTLOOK
With the expected recovery of the world economy and international trade come
expectations for higher demand from major trading countries. Thai exports and,
in turn, economic growth are therefore also expected to improve. The cutting of
government expenditures on a gradual basis showed that the government is
committed to adopt more prudent fiscal constraints. The lower expenditure
announced on direct import items, such as army weapons, aircraft carriers, and
submarines, is expected to help reduce Thailand's current account deficit by at
least 0.5%, to 1.0% in 1997 and 1998. Furthermore, the recent cut in lending
rates by commercial banks may indicate the BOT's commitment to ease liquidity in
the system. The Fund's Management believes that the economic determinants
indicate that the Thai stock market will improve in 1997.
THE FUND'S PERFORMANCE AND STATEGY
As of December 31, 1996, the net asset value of the Fund was US$9.61 per
share, compared to US$17.52 on December 31, 1995. However, a substantial portion
of that decrease was attributable to dividends of US$2.78 per share which was
paid on January 19, 1996 and US$0.57 per share which was paid on January 17,
1997. Assuming reinvestment of these dividends, the total investment return for
the year 1996 was a negative 31.78%. During the same period, the SET Index
decreased by 36.14%, in US$ terms. Therefore, the Fund outpaced the SET Index by
4.36%.
For 1997, the Fund currently intends to overweigh its position in selective
stocks in the energy and entertainment sectors and take a neutral position in
the banking, communications, and construction sectors. The Fund currently
intends to underweigh its position in the building and furnishing, finance and
securities, and property sectors.
The Fund has not invested, and presently does not intend to invest, in
derivative securities. Although foreign currency hedging is permitted by the
Fund's policies, the Fund has not engaged in any such hedging.
4
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Mrs. Charintorn Vongspootorn has been the Fund's portfolio manager since its
inception in June 1990. She has been employed by The Mutual Fund Public Company
Limited for 22 years and her current position is Executive Vice President and
head of the Fund Management Department.
The Board of Directors formally and reluctantly accepted on January 31, 1997
the resignation of Mr. Udom Vichayabhai, the Fund's President and a Director.
Mr. Udom has also retired from The Mutual Fund Public Company Limited. The Board
has elected Mr. Shuichi Komori, the Fund's Chairman of the Board, as the Fund's
Acting President until a President is duly elected by the Board.
Finally, the Fund's management would like to thank all shareholders for your
continued participation and interest in The Thai Capital Fund, Inc.
<TABLE>
<S> <C>
Sincerely yours,
[SIG]
SHUICHI KOMORI
CHAIRMAN OF THE BOARD
</TABLE>
5
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- -------------------------------------------
THAI COMMON STOCKS AND WARRANTS-- 93.37%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C>
SHARES VALUE
- ---------- ------------
BANKS--28.45%
777,000 Bangkok Bank Ltd................... $ 5,800,547
1,176,100 Krung Thai Bank Ltd................ 2,298,417
356,500 The Siam Commercial Bank Ltd....... 2,340,903
880,000 The Thai Farmers Bank Ltd.......... 4,299,394
189,800 The Thai Farmers Bank Ltd.
Warrants, 1999* (1)............... 150,223
97,500 The Thai Farmers Bank Ltd.
Warrants, 1999* (2)............... 92,413
1,079,000 The Thai Military Bank Ltd......... 2,129,744
------------
17,111,641
------------
BUILDING MATERIALS--7.67%
1,015,625 Nakornthai Strip Mill Plc.*........ 301,690
69,500 Thai Wire Products Company Ltd..... 54,329
57,100 The Siam Cement Company Ltd........ 1,803,275
56,100 The Siam City Cement Company
Ltd............................... 293,821
353,800 Tipco Asphalt Company Ltd.......... 2,157,233
------------
4,610,348
------------
CHEMICALS--0.65%
188,500 Aromatics Thailand Company Ltd.*... 145,510
319,200 National Petrochemical Company
Ltd............................... 246,402
------------
391,912
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMERCE--1.20%
195,900 Berli Jucker Company Ltd........... $ 719,742
------------
COMMUNICATION--8.14%
146,050 Advanced Information Service
Company Ltd....................... 1,244,436
212,000 Jasmine International Company
Ltd............................... 325,230
103,200 Shinawatra Computer Company Ltd.... 1,250,420
960,000 Shinawatra International Company
Ltd.+............................. 786,461
195,900 Shinawatra Satellite Company
Ltd............................... 222,048
510,400 Telecom Asia Corporation Ltd.*..... 1,067,282
------------
4,895,877
------------
ELECTRICAL PRODUCTS & COMPUTERS--0.15%
15,000 K. R. Precision Company Ltd........ 89,701
------------
ELECTRONIC COMPONENTS--1.31%
274,200 CVD Entertainment Company Ltd...... 584,088
35,500 KCE Electronics Company Ltd........ 105,452
100,000 Thai Precision Manufacturing
Company Ltd.+..................... 95,759
------------
785,299
------------
ENERGY--16.30%
109,350 Ban-Pu Coal Company Ltd............ 2,030,145
</TABLE>
6
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
THAI COMMON STOCKS AND WARRANTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
ENERGY (CONCLUDED)
230,500 Cogeneration Company Ltd.*......... $ 860,377
835,000 Electricity Generating Company
Ltd............................... 2,284,542
92,100 Lanna Lignite Company Ltd.......... 820,746
263,300 PTT Exploration and Production
Company Ltd....................... 3,807,739
------------
9,803,549
------------
ENTERTAINMENT--5.53%
177,000 BEC World Company Ltd.*............ 1,701,857
65,000 Grammy Entertainment Company
Ltd............................... 731,679
119,000 Media of Medias Company Ltd........ 893,023
------------
3,326,559
------------
FINANCE & SECURITIES--6.34%
88,400 Asia Credit Ltd.................... 343,787
331,192 Dhana Siam Finance & Securities
Company Ltd....................... 776,686
180,000 Krungthai Thanakit Plc............. 460,817
375,000 Nava Finance & Securities Company
Ltd............................... 516,660
296,325 Phatra Thanakit Company Ltd........ 833,903
139,699 Securities One Company Ltd......... 655,223
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
39,349 Securities One Company Ltd.
Warrants, 2000* (3)............... $ 74,592
30,600 Thai Investment & Securities
Company Ltd....................... 150,698
------------
3,812,366
------------
FOOD, BEVERAGE, TOBACCO--1.76%
180,900 The Pizza Company Ltd.............. 1,060,582
------------
PROPERTY DEVELOPMENT--4.60%
36,500 Central Pattana Company Ltd........ 126,969
327,650 Ch. Karnchang Company Ltd.......... 1,664,823
100,000 PAE (Thailand) Company Ltd......... 527,653
20,020 Quality House Company Ltd.
Warrants, 1999* (4)............... 13,302
330,000 Srivaraonot Real Estate Company
Ltd.*............................. 432,089
------------
2,764,836
------------
PUBLISHING--2.44%
584,900 Amarin Printing and Publishing
Company Ltd....................... 782,991
233,000 Nation Publishing Group Company
Ltd............................... 683,017
------------
1,466,008
------------
</TABLE>
7
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
THAI COMMON STOCKS AND WARRANTS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PULP & PAPER--0.76%
192,600 Advance Agro Company Ltd.*......... $ 457,317
------------
TEXTILE--1.04%
730,000 Saha Union Corporation Ltd......... 627,712
------------
TRANSPORTATION--5.88%
2,949,300 Bangkok Expressway Company Ltd.*... 3,314,144
13,200 Regional Container Lines Company
Ltd............................... 127,950
178,000 Thoresen Thai Agencies Company
Ltd............................... 88,704
35,600 Thoresen Thai Agencies Company Ltd.
Warrants, 1999*+ (5).............. 3,451
------------
3,534,249
------------
VEHICLES & PARTS--1.15%
74,000 Thai Rung Union Car Company Ltd.... 361,540
112,000 Thai Storage Battery Company
Ltd............................... 328,317
------------
689,857
------------
Total Thai Common Stocks and Warrants
(Cost--$62,642,238).......................... 56,147,555
------------
</TABLE>
- -------------------------------------------
SHORT-TERM
INVESTMENTS--14.70%
- -------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C>
PRINCIPAL
AMOUNT
(000) VALUE
- ---------- ------------
THAI BAHT SAVINGS ACCOUNT--14.43%
222,023 Bangkok Bank Ltd. 5.00% (Payable on
Demand)........................... $ 8,677,864
------------
U.S. DOLLAR TIME DEPOSIT--0.27%
160 Bank of New York, 3.40% due
1/2/97............................ 160,066
------------
Total Short-Term Investments
(Cost--$8,880,289)........................... 8,837,930
------------
Total Investments--108.07%
(Cost $71,522,527)........................... 64,985,485
Liabilities in excess of other assets--
(8.07)%...................................... (4,850,335)
------------
NET ASSETS (Applicable to 6,259,609 shares of
capital stock outstanding; equivalent to
$9.61 per share)--100.00%.................... $$60,135,150
------------
------------
</TABLE>
- ------------------------
* Non-income producing security.
+ Unlisted security. All unlisted securities have been valued in good faith
in such a manner as prescribed by the Board of Directors.
(1) Each warrant entitles holders to buy one share of Common Stock for THB
182.
(2) Each warrant entitles holders to buy one share of Common Stock for THB
200.
(3) Each warrant entitles holders to buy one share of Common Stock for THB
305.
(4) Each warrant entitles holders to buy one share of Common Stock for THB 41.
(5) Each warrant entitles holders to buy one share of Common Stock for THB 30.
See accompanying notes to financial statements.
8
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
TEN LARGEST COMMON STOCK CLASSIFICATIONS HELD
DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- ----------------------------------- ----------
<S> <C>
Banks*............................. 28.45%
Energy............................. 16.30
Communication...................... 8.14
Building Materials................. 7.67
Finance & Securities*.............. 6.34
Transportation*.................... 5.88
Entertainment...................... 5.53
Property Development*.............. 4.60
Publishing......................... 2.44
Food, Beverage, Tobacco............ 1.76
</TABLE>
TEN LARGEST COMMON STOCK POSITIONS HELD
DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----------------------------------- ----------
<S> <C>
Bangkok Bank Ltd................... 9.65%
The Thai Farmers Bank Ltd.......... 7.15
PTT Exploration and Production
Company Ltd....................... 6.33
Bangkok Expressway Company Ltd..... 5.51
The Siam Commercial Bank Ltd....... 3.89
Krung Thai Bank Ltd................ 3.82
Electricity Generating Company
Ltd................................ 3.80
Tipco Asphalt Company Ltd.......... 3.59
The Thai Military Bank Ltd......... 3.54
Ban-Pu Coal Company Ltd............ 3.38
</TABLE>
- ------------------------
* Includes the value of warrants.
9
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost--$71,522,527)....................... $ 64,985,485
Interest receivable........................ 5,097
Prepaid expenses........................... 22,157
------------
Total assets............................. 65,012,739
------------
LIABILITIES
Dividend payable........................... 3,567,965
Payable for securities purchased........... 878,531
Accrued Thai tax provision................. 218,157
Accrued expenses and other liabilities..... 212,936
------------
Total liabilities........................ 4,877,589
------------
NET ASSETS
Capital stock, $0.01 par value per share;
total 100,000,000 shares authorized;
6,259,609 shares issued and outstanding... 62,596
Paid-in capital in excess of par value..... 67,310,991
Accumulated net investment loss............ (269,775)
Distributions in excess of net realized
gains on investments...................... (1,102,761)
Net unrealized depreciation on investments
and other assets and liabilities
denominated in foreign currency........... (5,865,901)
------------
Net assets applicable to shares
outstanding............................. $ 60,135,150
------------
------------
NET ASSET VALUE PER SHARE............ $ 9.61
------------
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.................................. $ 1,761,755
Interest................................... 321,745
-------------
Total investment income.................. 2,083,500
-------------
EXPENSES:
Investment management fee and expenses..... 540,955
Investment advisory fee and expenses....... 518,924
Administration fee......................... 172,974
Custodian fees and expenses................ 113,295
Legal fees and expenses.................... 98,567
Osaka Securities Exchange fees and
expenses.................................. 93,331
Audit and tax services..................... 59,450
Reports and notices to shareholders........ 51,818
Directors' fees and expenses............... 48,552
Insurance expense.......................... 47,200
Rights offering expense.................... 30,429
Transfer agency fee and expenses........... 16,670
Other...................................... 30,915
-------------
Total expenses........................... 1,823,080
-------------
NET INVESTMENT INCOME BEFORE TAX............. 260,420
Provision for Thai tax applicable to net
investment income......................... (133,195)
-------------
NET INVESTMENT INCOME........................ 127,225
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains on investments, net of
$363,632 Thai tax provision............... 3,037,162
Net realized foreign currency transaction
losses.................................... (133,277)
Net change in unrealized appreciation
(depreciation) on equity investments, net
of $3,486,929 Thai tax credit............. (31,613,274)
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. (27,991)
-------------
Net realized and unrealized losses from
investment activities and foreign currency
transactions................................ (28,737,380)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ (28,610,155)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)+.............. $ 127,225 $ (364,407)
Net realized gain (loss) on:
Investments+............................. 3,037,162 16,797,452
Foreign currency transactions............ (133,277) (18,963)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities+........ (31,613,274) (19,915,533)
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... (27,991) (1,856)
------------- -------------
Net decrease in net assets resulting from
operations................................ (28,610,155) (3,503,307)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net realized gains from investments and
foreign currency transactions............. (20,838,173) (12,360,353)
------------- -------------
FROM CAPITAL STOCK TRANSACTIONS:
Sale of capital stock resulting from
reinvestment of dividends................. 745,024 557,094
------------- -------------
Net decrease in net assets................. (48,703,304) (15,306,566)
NET ASSETS:
Beginning of year.......................... 108,838,454 124,145,020
------------- -------------
End of year (including accumulated net
investment loss of $269,775 and $130,748,
respectively)............................. $ 60,135,150 $ 108,838,454
------------- -------------
------------- -------------
</TABLE>
- ------------------------
+ After provision for Thai taxes.
See accompanying notes to financial statements.
12
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Thai Capital Fund, Inc. (the "Fund") was incorporated in Maryland on
March 14, 1990 and commenced operations on May 30, 1990. It is registered with
the U.S. Securities and Exchange Commission as a non-diversified, closed-end
management investment company.
The Fund makes its investments in Thailand through a wholly-owned Investment
Plan pursuant to a contract with The Mutual Fund Public Company Limited (the
"Manager"). The accompanying financial statements are prepared on a consolidated
basis and present the financial position and results of operations of the
Investment Plan and the Fund.
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 financial
statements. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts and disclosures in the financial statements.
Actual reported results could differ from those estimates.
VALUATION OF INVESTMENTS--Securities listed on the Securities Exchange of
Thailand for which market quotations are readily available are valued at the
last sales price prior to the time of determination, or, if there were no sales
on such date, at the mean between the last current bid and ask prices.
Securities that are traded over-the-counter, if bid and asked quotations are
available, are valued at the mean between the current bid and asked prices. In
instances where quotations are not readily available or where the price
determined is deemed not to represent fair market value, fair value is
determined in good faith in such manner as the Board of Directors (the "Board")
may prescribe. Short-term investments having a maturity of sixty days or less
are valued at amortized cost, which approximates market value.
TAX STATUS--It is the Fund's intention to continue to qualify as a regulated
investment company and distribute substantially all of its taxable income.
Accordingly, no provision for U.S. Federal income or excise taxes is required in
the financial statements.
Remittances from the Investment Plan to the Fund are subject to a Thai
withholding tax of 10% and such remittances are required by Thai law to be
derived only from the Investment Plan's net income and net realized gains on the
sale of securities. The Fund records a provision for such taxes based upon the
Investment Plan's overall net increase in net assets resulting from operations
determined by reference to the Baht.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends and
distributions payable to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net
13
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
investment income and net realized gains. To the extent they exceed net
investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in capital. The temporary book/tax differences
are primarily related to the accrual for Thai withholding taxes.
FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in foreign
currency are translated at the exchange rate prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions. The
resulting exchange gains and losses are included in the Statement of Operations.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market price of
securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Securities transactions are
accounted for on the trade date (the date upon which the order to buy or sell is
executed). Costs used in determining realized gains and losses on the sale of
investments are those of specific securities sold. Dividend income and corporate
actions are recorded generally on the ex-date, except for certain dividends and
corporate actions involving foreign securities which may be recorded after the
ex-date, but recorded as soon as the Fund acquires information regarding such
dividends or corporate actions. Interest income is recorded on an accrual basis.
INVESTMENT MANAGER AND INVESTMENT ADVISER
The Manager acts as the investment manager of the Investment Plan pursuant
to the Investment Contract. The Manager makes the investment management
decisions relating to the Fund's assets held through the Investment Plan. For
its management services, the Manager receives a fee, which accrues weekly and is
payable monthly in Baht, at an annual rate of 0.60% of the Investment Plan's net
assets. At December 31, 1996, the Fund owed the Manager $34,191. In addition, as
permitted by the Investment Contract, the Fund reimburses the Manager for its
out-of-pocket expenses related to the Fund. During the year ended December 31,
1996, expenses of $5,760 were paid to the Manager, representing reimbursement to
the Manager of costs relating to the attendance by its employees at meetings of
the Fund's Board.
Under the International Investment Advisory Agreement, Daiwa International
Capital Management (H.K.) Ltd. (the "Adviser") provides general and specific
investment advice to the Manager with respect to the Fund's assets held through
the Investment Plan, but the Manager makes the ultimate decisions regarding
investments. In addition, the Adviser manages the Fund's assets held outside the
Investment Plan. The Fund pays to the Adviser a fee,which accrues weekly and is
payable monthly in U.S. Dollars, at an annual rate equal to 0.60% of the Fund's
average net assets. At December 31, 1996, the Fund owed the Adviser $32,763.
During the year ended December 31, 1996, a director and officer of the Fund
was also an officer of the Manager.
14
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
ADMINISTRATOR AND CUSTODIAN AND OTHER RELATED PARTIES
Daiwa Securities Trust Company ("DSTC"), an affiliate of the Adviser,
provides certain administrative services to the Fund. For such services, the
Fund pays DSTC a monthly fee at an annual rate of 0.20% of the Fund's average
weekly net assets, with a minimum annual fee of $150,000.
DSTC also acts as custodian for the Fund's U.S. assets. As compensation for
its services as custodian, DSTC receives a monthly fee and reimbursement of
out-of-pocket expenses. During the year ended December 31, 1996 DSTC earned
$10,877, as compensation for its custodial services to the Fund.
At December 31, 1996, the Fund owed $10,921 and $889 to DSTC for
administration and custodian fees, respectively.
The Fund paid or accrued $97,006 during the year ended December 31, 1996 for
legal services in conjunction with the Fund's ongoing operations to a law firm
of which the Fund's Assistant Secretary is a partner.
INVESTMENTS IN SECURITIES AND FEDERAL INCOME TAX MATTERS
During the year ended December 31, 1996, the Fund made purchases of
$27,863,551 and sales of $45,831,610 of investment securities, excluding
short-term securities. The aggregate cost of investments at December 31, 1996
for Federal income tax purposes was $62,979,411, excluding $8,880,289 of
short-term investments. At December 31, 1996, net unrealized depreciation for
Federal income tax purposes aggregated $6,831,856 of which $6,907,534 related to
appreciated securities and $13,739,390 related to depreciated securities.
At December 31, 1996, the Fund had $103,516 and $8,369 of post-October
capital and foreign currency losses, respectively, which the Fund has elected to
defer until January 1, 1997.
At December 31, 1996, the Fund made capital account reclassifications due to
permanent book/tax differences, which resulted in an increase to accumulated net
investment loss of $266,252, a decrease to distributions in excess of net
realized gains on investments of $2,118,868 and a decrease to paid-in-capital in
excess of par value of $1,852,616.
CONCENTRATION OF RISK
The Fund's investments in Thailand involve certain considerations and risks
not typically associated with domestic investments as a result of, among others,
the possibility of future economic and political developments and the level of
government supervision and regulation of securities markets.
At December 31, 1996, the Fund had 24.08% of its net assets either deposited
in a savings account at, or invested in common stock of, Bangkok Bank Ltd. The
Fund deposits monies with institutions which the Manager believes to be of high
credit worthiness, with low risk of loss of principal or interest.
15
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
The currency transactions of the Fund and the Investment Plan are subject to
Thai foreign exchange control regulations. Remittances from the Plan require the
approval of the Exchange Control Officer of the Bank of Thailand. There can be
no assurance that approval of remittances from the Plan will be granted in a
timely fashion or at all.
CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized.
During the years ended December 31, 1996 and 1995, 47,272 and 40,230 shares,
respectively, were issued as a result of the reinvestment of dividends paid to
those shareholders electing to reinvest dividends.
Of the 6,259,609 shares outstanding at December 31, 1996, Daiwa Securities
America Inc., a lead underwriter of the Fund and an affliate of both the Adviser
and DSTC, owned 13,678 shares.
SUBSEQUENT EVENT
On December 4, 1996, a distribution was declared by the Board. This
distribution of $0.570 per share was paid on January 17, 1997, to shareholders
of record at December 31, 1996. The New York Stock Exchange has determined that
the ex-dividend date was December 27, 1996.
16
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................ $ 17.52 $ 20.11 $ 23.81 $ 12.02 $ 9.09
---------- ---------- ---------- ---------- ----------
Net investment income (loss)*................................. 0.02 (0.06) (0.02) 0.06 0.10
Net realized and unrealized gains (losses) on investments and
foreign currency transactions*............................... (4.58) (0.51) (3.03) 12.03 3.08
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value resulting from
operations................................................... (4.56) (0.57) (3.05) 12.09 3.18
---------- ---------- ---------- ---------- ----------
Less: dividends and distributions to shareholders
Net investment income....................................... -- -- -- (0.06) (0.13)
Amounts in excess of net investment income.................. -- -- (0.07) (0.07) --
Net realized gains on investments and foreign currency
transactions............................................... (3.35) (2.00) (0.50) (0.01) (0.12)
Amounts in excess of net realized gains..................... -- -- (0.08) (0.16) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to shareholders............. (3.35) (2.00) (0.65) (0.30) (0.25)
---------- ---------- ---------- ---------- ----------
Dilutive effect of dividend reinvestment...................... -- (0.02) -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year.................................. $ 9.61 $ 17.52 $ 20.11 $ 23.81 $ 12.02
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share market value, end of year........................... $ 10.000 $ 15.750 $ 16.625 $ 22.750 $ 11.125
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return:
Based on market price at beginning and end of year, assuming
reinvestment of dividends.................................. (21.03)% 8.53% (24.44)% 109.50% 25.32%
Based on net asset value at beginning and end of year,
assuming reinvestment of dividends......................... (31.78)% (0.19)% (12.66)% 102.94% 35.86%
Ratios and supplemental data:
Net assets, end of year (in millions)....................... $ 60.1 $108.8 $124.1 $146.8 $ 74.1
Ratios to average net assets of:
Expenses, excluding Thai taxes applicable to net
investment income........................................ 2.11%+ 2.17%+ 1.99% 2.15% 2.31%
Expenses, including Thai taxes applicable to net
investment income........................................ 2.26%+ 2.29%+ 2.12% 2.35% 2.58%
Net investment income (loss)*............................. 0.15% (0.33)% (0.08)% 0.41% 1.03%
Portfolio turnover.......................................... 33.36% 29.90% 44.47% 58.42% 87.95%
Average commission rate per share........................... $ 0.0123++ N/A N/A N/A N/A
</TABLE>
- --------------------------
* After provision for Thai taxes.
+ Ratios for the years ended December 31, 1996 and 1995 include certain
costs incurred in connection with a proposed rights offering which
have been expensed by the Fund. If such expenses had not been
included, the ratios would have been 2.07% and 2.22% for the year
ended December 31, 1996, and 2.03% and 2.14%, for the year ended
December 31, 1995.
++ For the year ended December 31, 1996, the average commission rate paid
on trades where commissions were charged was 0.3% of the trade amount.
17
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Directors of
The Thai Capital Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, 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 Capital 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, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 20, 1997
18
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise you within 60 days of the Fund's fiscal year end (December
31, 1996) as to the federal tax status of distributions totaling $0.570 per
share received by the Fund's shareholders in respect of such fiscal year.
Accordingly, the Fund is hereby advising you that on December 4, 1996 the
Board of Directors of the Fund declared a total distribution of $0.570 per
share, all of which resulted from realized long-term capital gains. The dividend
was paid on January 17, 1997 to shares of record at the close of business on
December 31, 1996. The entire amount of this distribution is reportable as 1996
income.
There is no foreign tax deduction or credit available to shareholders for
the calendar year 1996.
Form 1099 DIV was mailed in January 1997.
SHAREHOLDERS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES OF THEIR INVESTMENT IN THE FUND.
19
<PAGE>
- ----------------------------------------
BOARD OF DIRECTORS
Shuichi Komori, CHAIRMAN
Austin C. Dowling
Robert F. Gurnee
Alfred C. Morley
Virabongsa Ramangkura
Suvit Yodmani
- --------------------------------------------
OFFICERS
Shuichi Komori
ACTING PRESIDENT
Daniel F. Barry
VICE PRESIDENT
Lawrence Jacob
SECRETARY
Edward J. Grace
TREASURER
John J. O'Keefe
ASSISTANT TREASURER
Laurence E. Cranch
ASSISTANT SECRETARY
- --------------------------------------------
ADDRESS OF THE FUND
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, New Jersey 07302
- --------------------------------------------
INVESTMENT MANAGER
The Mutual Fund Public Company Limited
INVESTMENT ADVISER
Daiwa International Capital Management
(H.K.) Ltd.
ADMINISTRATOR
Daiwa Securities Trust Company
CUSTODIANS
Bangkok Bank Public Company, Ltd.
(Thai Custodian)
Daiwa Securities Trust Company
(U.S. Custodian)
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
LEGAL COUNSEL
Rogers & Wells
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
- --------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at prevailing market prices.
This report is sent to shareholders of the Fund for their information. It is not
a prospectus, circular or representation intended for use in the purchase or
sale of shares of the Fund or of any securities mentioned in the report.
ANNUAL REPORT
DECEMBER 31, 1996
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[LOGO]
THE THAI CAPITAL
FUND, INC.
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