<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.) Ltd.
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. The Fund's weekly NAV is also
available by calling (800) 933-3440 or (201) 915-3020.
INQUIRIES
All general inquiries and requests for information should be directed to the
Fund at (800) 426-5523 or (781) 575-2000. 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:
The Thai Capital Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Telephone: (800) 426-5523 or
(781) 575-2000
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
August 3, 1998
DEAR SHAREHOLDERS:
The Management of The Thai Capital Fund, Inc. (the "Fund") would like to
take this opportunity to inform its shareholders about the recent state of the
Thai economy, the activities of the Stock Exchange of Thailand ("SET") and the
Fund's performance for the six months ended June 30, 1998.
A REVIEW OF THE THAI ECONOMY
In the first half of 1998, the Thai economy continued to contract from 1997
levels. Production dropped in almost all major industries, while investment in
both the private and public sectors declined further. The trade balance and
current account remained in surplus, although exports in US dollar terms
declined marginally and imports in terms of US dollars continued to drop
drastically. The balance of payments did not show a significant upward trend of
surplus. Nonetheless, in May 1998, it turned, resulting in a deficit of US$1.87
billion. International reserves stood at US$26.1 billion on June 15, 1998, which
were in line with the IMF's target of US$26-28 billion. After the cancellation
of the two-tier currency exchange market by the Bank of Thailand, the baht has
strengthened significantly from 58 baht per US dollar on January 12, 1998 to 37
baht per US dollar on March 30, 1998. However, the baht closed at 42.06 per US
dollar on June 30, 1998, as a result of the effects of the weakening Japanese
yen and other regional currencies.
Domestically, tight liquidity in the money market still remained throughout
the first half of 1998. However, it has improved slightly since the Bank of
Thailand lowered the one-day repurchase rate, leading to a decline in the
interbank rate from a peak of 24% to 18% by the end of June. In order to tackle
the economic crisis, the Thai government implemented additional measures by
establishing a special committee to operate the debt restructuring and implement
tax exemptions in order to accelerate and encourage debtors and creditors in the
debt negotiation process. It is estimated that this debt restructuring process
should alleviate the situation and aid economic recovery. However, the debt
negotiation process may require a longer period due to the number of parties
involved and the foreclosure law amendment that is expected to be finalized by
October 1998.
For the entire year 1998, the Thai economy is expected to contract by six
percent, with a decrease in consumption and investment. Exports in terms of US
dollars are estimated to drop marginally due to high competition and the
regional crises, while imports in terms of US dollars are anticipated to decline
sharply. Thus, the trade balance and current account are expected to be in
surplus.
THE FIRST HALF OF 1998 STOCK MARKET OVERVIEW
During the first quarter of 1998, the Thai stock market sentiment was more
positive due to the improvement of the trade account and current account
surpluses for eight consecutive months and foreign capital inflow, as well as
the Thai government's strict adherence to the IMF's austerity program. To
prevent a "run" on deposits, the Bank of Thailand took over four commercial
banks and implemented new strict loan provisioning regulations in line with the
international BIS standard. After the Bank of Thailand announced the
cancellation of the two-tier currency exchange market for the baht, the SET
Index rebounded dramatically, from 339 points on January 12, 1998 to its peak of
564 points on February 13, 1998, an increase of 66.37%.
However, in the second quarter of 1998, the Thai stock market sentiment
turned negative. There was concern regarding the spread of the economic
recession, particularly in Japan and Hong Kong, caused by the weakness of the
Japanese yen which fell below 140 yen per US dollar. This, in turn, affected
other regional
2
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
currencies and depressed the sentiment of the regional stock markets. The
falling yen has created speculative pressure of devaluation on the Chinese yuan.
Moreover, domestically, Standard and Poor's and Moody's Investors Service
downgraded several large Thai commercial banks. This was followed by the Bank of
Thailand's order that seven insolvent finance companies merge with Krung Thai
Thanakit Finance and Securities. The increase in the unemployment rate and
bankruptcies cases, combined with the severe liquidity crunch, also had a
negative impact on the stock market.
At the end of June 1998, the SET Index closed at 267.33 points, a decrease
of 105.36 points or 28.27 percent from December 31, 1997. During the six-month
period, the average daily turnover was about 3.04 billion baht, a decline of 722
million baht from the average of 1997.
Concern about economic recession, particularly in Japan and Hong Kong,
compounded by the weakening yen and regional currencies, could cause a negative
impact on stocks around the ASEAN region. Japanese economic policies and
measures to solve its economic problems could substantially affect the baht and
the Thai stock market. In addition, announcements of listed companies' results
are likely to cause further volatility on the Thai stock market. On the other
hand, the success of privatization and the sale by the Thai government of US$2.0
billion in Global Bonds should not only be seen as a sign of investors'
confidence in Thai economic fundamentals, but should also improve liquidity in
the system.
THE FUND'S PERFORMANCE AND STRATEGY
As of June 30, 1998, the net asset value of the Fund was US$2.31 per share,
as compared to US$2.88 on December 31, 1997. The total investment return for the
six months ended June 30, 1998 was a negative 19.79%. During the same period,
the SET Index decreased by 19.54% in US dollar terms. The Fund through June
30,1998 under-performed the SET Index by 0.25% during the six month period due
to the market volatility. For the year to date through July 31, 1998, the
performance of the Fund has outpaced the SET by 2.33%. Since inception through
July 31, 1998, the Fund has outperformed the SET Index by 19.58%.
During the remainder of 1998, the Fund intends to be overweight in the
energy, food and beverage, and utilities sectors, and take a neutral position in
building and furnishings, communications and the entertainment sectors. The Fund
currently intends to be underweight in the banking, finance, and transportation
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.
YEAR 2000 ISSUE
In a separate matter, the Fund has reviewed the current status of its
exposure to the Year 2000 computer issue. Like other investment companies and
financial and business organizations, the Fund could be adversely affected if
the computer systems used by the Fund's service providers do not properly
address this problem prior to January 1, 2000. After analysis of these issues,
management of the Fund does not anticipate that the transition to the 21st
Century will have any material impact on the Fund's operations. In addition, the
management of the Fund has sought assurances from the Fund's service providers
that they are taking all necessary steps to ensure that their computer systems
will accurately reflect the Year 2000, and the management of the Fund will
continue to monitor the situation. However, at this time, no assurance can be
given that the Fund's service providers have anticipated every step necessary to
avoid any adverse effect on the Fund attributable to the Year 2000 problem.
3
<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, the Fund's investment manager, for 22 years and her current position is
Senior Executive Vice President and head of the Fund Management Department.
During the period, the Fund reluctantly accepted the resignations of Mr.
Damrongsuk Amatyakul and Dr. Suvit Yodmani, two members of the Board of
Directors. Mr. Damrongsuk also resigned his position as the Fund's President.
Mr. Daniel F. Barry has been appointed by the Fund's Board of Directors as the
Fund's Acting President until such time that a permanent President is appointed.
It is anticipated that a new President and Directors will be nominated and
elected at the quarterly meeting of the Fund's Board to be held in early
September 1998.
The Board of Directors of the Fund has decided to review the Fund's current
investment management arrangement and, in that connection, is considering
various alternatives.
Finally, the Fund's management would like to thank all shareholders for your
continued participation and interest in The Thai Capital Fund, Inc. We hope to
continue to receive support from you, so that the Fund can move forward into the
next period of operations with stability.
Sincerely yours,
<TABLE>
<S> <C>
/s/ SHUICHI KOMORI /s/ DANIEL F. BARRY
SHUICHI KOMORI DANIEL F. BARRY
CHAIRMAN OF THE BOARD ACTING PRESIDENT
</TABLE>
4
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
- -------------------------------------------
THAI COMMON STOCKS AND WARRANTS--81.47%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
BANKS & FINANCIAL SERVICES--10.03%
845,000 Bangkok Bank Ltd................... $ 876,243
784,500 The Thai Farmers Bank Ltd.......... 570,389
147,500 The Thai Farmers Bank Ltd.
Warrants, 1999*(1)................ 8,790
------------
1,455,422
------------
BUILDING MATERIALS--4.68%
325,000 Nakornthai Strip Mill Company
Ltd.*............................. 57,332
87,300 The Siam Cement Company Ltd........ 374,598
113,900 The Siam City Cement Company
Ltd............................... 81,456
69,500 Thai Wire Products Company Ltd..... 3,976
247,700 Tipco Asphalt Company Ltd.......... 160,905
------------
678,267
------------
CHEMICALS--0.78%
1,255,000 Aromatics*......................... 80,777
37,000 National Fertilizer Co., Ltd.*..... 2,557
104,300 National Petrochemical Company
Ltd............................... 29,215
------------
112,549
------------
COMMERCE--1.21%
195,900 Berli Jucker Company Ltd........... 175,123
------------
COMMUNICATION--11.00%
211,850 Advanced Information Service
Company Ltd....................... 848,430
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
115,100 Jasmine International Company
Ltd............................... $ 37,041
131,900 Shinawatra Computer Company Ltd.... 374,171
981,600 Shinawatra Satellite Company
Ltd............................... 304,198
144,000 Telecom Asia Corporation Ltd.*..... 32,268
------------
1,596,108
------------
ELECTRICAL PRODUCTS & COMPUTERS--0.21%
38,000 K. R. Precision Company Ltd........ 24,005
76,600 Onpa International Ltd............. 6,939
------------
30,944
------------
ELECTRONIC COMPONENTS--2.50%
295,200 CVD Entertainment Company.......... 49,260
59,600 Hana Microelectronic Company
Ltd............................... 152,023
43,200 KCE Electronics Company Ltd........ 160,652
100,000 Thai Precision Manufacturing
Company Ltd.*+.................... 24
------------
361,959
------------
ENERGY--19.38%
92,350 Ban-Pu Coal Company Ltd............ 90,261
320,300 Banchak Petroleum Co., Ltd......... 45,049
539,000 Cogeneration Company Ltd.*......... 218,432
</TABLE>
5
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
THAI COMMON STOCKS AND WARRANTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
ENERGY (CONCLUDED)
730,000 Electricity Generating Company
Ltd............................... $ 939,712
214,300 Lanna Lignite Company Ltd.......... 148,149
179,600 PTT Exploration and Production
Company Ltd....................... 1,370,045
------------
2,811,648
------------
ENTERTAINMENT--5.57%
187,000 BEC World Company Ltd.............. 726,620
33,000 Grammy Entertainment Company
Ltd............................... 77,094
6,477 International Broadcasting Co.,
Ltd.*............................. 4,323
------------
808,037
------------
FINANCE & SECURITIES--1.98%
953,860 SG Asia Credit Co., Ltd.*.......... 191,004
44,800 ABN Amro Asia Securities Trading
Co................................ 26,165
185,000 Capital Nomura Securities.......... 70,562
------------
287,731
------------
HEALTH CARE SERVICES--0.12%
63,100 Nonthavej Hospital Company Ltd..... 18,051
------------
MACHINERY--0.27%
113,000 Thai Engine Manufacturing Company
Ltd.*............................. 39,733
------------
MISCELLANEOUS--2.19%
230,100 Eastern Water Resources
Devolpment........................ 318,143
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PROPERTY DEVELOPMENT--3.47%
290,000 Central Pattana Company Ltd........ $ 61,527
389,450 Ch. Karnchang Company Ltd.......... 378,319
300,000 Land and House Co. Ltd............. 53,637
98,800 PAE (Thailand) Company Ltd.*....... 9,185
------------
502,668
------------
PUBLISHING--1.39%
327,900 Amarin Printing and Publishing
Company Ltd....................... 152,424
229,800 Nation Publishing Group Company
Ltd............................... 49,303
------------
201,727
------------
PULP & PAPER--0.74%
124,146 Advance Agro Company Ltd.*......... 108,020
------------
RETAIL FOOD--4.00%
61,400 Thai Union Frozen Products Co.,
Ltd............................... 190,279
140,900 The Pizza Company Ltd.............. 389,625
------------
579,904
------------
TEXTILE--3.74%
939,500 Saha Union Corporation Ltd......... 543,109
------------
TRANSPORTATION--5.77%
1,839,300 Bangkok Expressway Company Ltd.*... 745,384
39,600 Regional Container Lines Company
Ltd............................... 31,152
</TABLE>
6
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
THAI COMMON STOCKS AND WARRANTS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
TRANSPORTATION (CONCLUDED)
178,000 Thoresen Thai Agencies Company
Ltd............................... $ 60,466
------------
837,002
------------
VEHICLES & PARTS--2.44%
19,900 Inoue Rubber Co., Ltd.............. 3,084
98,000 Thai Rung Union Car Company Ltd.... 30,954
312,000 Thai Storage Battery Company
Ltd............................... 319,817
------------
353,855
------------
Total Thai Common Stocks and Warrants
(Cost--$40,384,767).......................... 11,820,000
------------
</TABLE>
- -------------------------------------------
SHORT-TERM
INVESTMENTS--19.53%
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- ----------
<C> <S> <C>
THAI BAHT BILLS OF EXCHANGE--3.28%
10,000 Deutsche Bank, 14.5% due 7/3/98.... 238,385
10,000 Hong Kong and Shanghai Bank, 16%
due 7/2/98........................ 237,552
------------
Total Thai Baht Bills of Exchange.............. 475,937
------------
THAI BAHT PROMISSORY NOTES--4.60%
22,000 ABN-AMRO Bank, 7.0% (Payable on
Demand)........................... 524,446
6,000 Citibank N.A. Bangkok, 14% (Payable
on Demand)........................ 143,031
------------
Total Thai Baht Promissory Notes............... 667,477
------------
</TABLE>
SHORT-TERM INVESTMENTS
(CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
- ---------- ------------
<C> <S> <C>
THAI BAHT SAVINGS ACCOUNTS--4.39%
1,416 Bangkok Bank Ltd., 5.00% (Payable
on Demand)........................ $ 33,761
16,000 Citibank N.A. Gold, 13.5% (Payable
on Demand)........................ 381,416
9,283 Thai Farmers Bank Ltd., 5.00%
(Payable on Demand)............... 221,300
------------
Total Thai Baht Savings Accounts............... 636,477
------------
U.S. DOLLAR TIME DEPOSIT--2.42%
351 Bank of New York, 3.60% due
7/1/98............................ 351,493
------------
U.S. TREASURY BILL--4.84%
710 U.S. Treasury Bill, 4.55% due
9/17/98........................... 701,735
------------
Total Short-Term Investments
(Cost--$2,859,442)........................... 2,833,119
------------
Total Investments--101.00%
(Cost--$43,244,209).......................... 14,653,119
Liabilities in excess of other
assets--(1.00)%.............................. (145,760)
------------
NET ASSETS (Applicable to 6,278,588 shares of
capital stock outstanding; equivalent to
$2.31 per share)--100.00%.................... $ 14,507,359
------------
------------
</TABLE>
- ------------------------
* Non-income producing securities.
+ Unlisted security. This unlisted security has 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
200.
See accompanying notes to financial statements.
7
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
JUNE 30, 1998 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- ----------------------------------- ----------
<S> <C>
Energy............................. 19.38%
Communication...................... 11.00
Banks & Financial Services*........ 10.03
Transportation..................... 5.77
Entertainment...................... 5.57
Building Materials................. 4.68
Retail Food........................ 4.00
Textile............................ 3.74
Property Development............... 3.47
Electronic Components.............. 2.50
</TABLE>
TEN LARGEST COMMON STOCK
POSITIONS HELD
JUNE 30, 1998 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----------------------------------- ----------
<S> <C>
PTT Exploration and Production
Company Ltd....................... 9.44%
Electricity Generating Company
Ltd................................ 6.48
Bangkok Bank Ltd................... 6.04
Advanced Information Service
Company Ltd....................... 5.85
Bangkok Expressway Company Ltd..... 5.14
BEC World Company Ltd.............. 5.01
The Thai Farmers Bank Ltd.......... 3.93
Saha Union Corporation Ltd......... 3.74
The Pizza Company Ltd.............. 2.69
Ch. Karnchang Company Ltd.......... 2.61
</TABLE>
- ------------------------
* Includes the value of warrants.
8
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost--$43,244,209)....................... $ 14,653,119
Interest receivable........................ 20,947
Prepaid expenses........................... 8,679
-------------
Total assets............................. 14,682,745
-------------
LIABILITIES
Payable for securities purchased........... 3,810
Accrued Thai tax provision................. 17,845
Accrued expenses and other liabilities..... 153,731
-------------
Total liabilities........................ 175,386
-------------
NET ASSETS
Capital stock, $0.01 par value per share;
total 100,000,000 shares authorized;
6,278,588 shares issued and outstanding... 62,786
Paid-in capital in excess of par value..... 64,407,735
Accumulated net investment loss............ (106,018)
Accumulated net realized loss on
investments and foreign currency
transactions.............................. (21,185,274)
Net unrealized depreciation on investments
and other assets and liabilities
denominated in foreign currency........... (28,671,870)
-------------
Net assets applicable to shares
outstanding............................. $ 14,507,359
-------------
-------------
NET ASSET VALUE PER SHARE............ $ 2.31
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.................................. $ 110,980
Interest................................... 183,707
------------
Total investment income.................. 294,687
------------
EXPENSES:
Investment advisory fee.................... 63,207
Investment management fee.................. 59,982
Administration fee......................... 51,530
Osaka Securities Exchange fees and
expenses.................................. 34,520
Legal fees and expenses.................... 33,534
Reports and notices to shareholders........ 31,657
Audit and tax services..................... 23,672
Directors' fees and expenses............... 21,748
Insurance expense.......................... 19,819
Custodian fees and expenses................ 19,058
Transfer agency fee and expenses........... 9,862
Other...................................... 14,271
------------
Total expenses........................... 382,860
------------
NET INVESTMENT LOSS BEFORE TAX............... (88,173)
Provision for applicable Thai tax.......... (17,845)
------------
NET INVESTMENT LOSS.......................... (106,018)
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments......... (2,605,823)
Net realized foreign currency transaction
losses.................................... (793,456)
Net change in unrealized appreciation
(depreciation) on equity investments...... (5,484,420)
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. 5,395,900
------------
Net realized and unrealized losses from
investment activities and foreign currency
transactions................................ (3,487,799)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ (3,593,817)
------------
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED FOR THE YEAR
JUNE 30, ENDED
1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)+.............. $ (106,018) $ 465,884
Net realized loss on:
Investments.............................. (2,605,823) (17,571,593)
Foreign currency transactions............ (793,456) (3,062,501)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... (5,484,420) (21,178,455)
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... 5,395,900 (876,631)
------------ -------------
Net decrease in net assets resulting from
operations................................ (3,593,817) (42,223,296)
------------ -------------
FROM CAPITAL STOCK TRANSACTIONS:
Sale of capital stock resulting from
reinvestment of dividends................. -- 189,322
------------ -------------
Net decrease in net assets................. (3,593,817) (42,033,974)
NET ASSETS:
Beginning of period........................ 18,101,176 60,135,150
------------ -------------
End of period.............................. $ 14,507,359 $ 18,101,176
------------ -------------
------------ -------------
</TABLE>
- ------------------------
+ After provision for Thai taxes.
See accompanying notes to financial statements.
11
<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. Its operations through May 21, 1990 were limited to its
organization and registration as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940 and the sale and
issuance of 8,961 shares to Daiwa Securities America Inc. ("DSA"), a lead
underwriter of the Fund and an affiliate of Daiwa International Capital
Management (H.K.) Limited (the "Adviser"), the Fund's investment adviser, and of
Daiwa Securities Trust Company ("DSTC"), the Fund's administrator and U.S.
custodian.
The Fund makes its investments in Thailand through an 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 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 net income and net realized capital gains, and unrealized
appreciation on investments determined by reference to the Baht.
DIVIDENDS--Dividends and distributions to shareholders are recorded 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
12
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 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 receive 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 June 30, 1998, the Fund owed the Manager $7,503. In addition, as
permitted by the Investment Contract, the Fund reimburses the Manager for its
out-of-pocket expenses related to the Fund.
Under the International Investment Advisory Agreement, 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 .60% of the Fund's average net assets. At June 30, 1998, the Fund
owed the Adviser $7,684.
A director and officer of the Fund is also an officer of the Manager.
13
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
ADMINISTRATOR AND CUSTODIAN AND OTHER RELATED PARTIES
DSTC 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
has voluntarily decreased its minimum annual administration fee to $100,000 for
the year 1998. In addition, as permitted by the Administration Agreement, the
Fund reimburses DSTC for its out-of-pocket expenses related to the Fund.
However, for the six months ended June 30, 1998, there were no out-of-pocket
expenses incurred by the Administrator.
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 six months ended June 30, 1998, DSTC earned
$5,432, as compensation for its custodial services to the Fund.
At June 30, 1998, the Fund owed $9,863 and $636 to DSTC for administration
and custodian fees, respectively.
The Fund paid or accrued $33,534 for the six months ended June 30, 1998 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
During the six months ended June 30, 1998, the Fund made purchases of
$10,839,528 and sales of $5,669,476 of investment securities, excluding
temporary cash investments. The aggregate cost of investments at June 30, 1998
for Federal income tax purposes was $40,384,767, excluding $2,859,442 of
short-term investments. At June 30, 1998, net unrealized depreciation for
Federal income tax purposes aggregated $28,651,568 of which $110,240 related to
appreciated securities and $28,761,808 related to depreciated securities.
CONCENTRATION OF RISK
The Fund's investments in Thailand involve certain consideration 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 June 30, 1998, the Fund had approximately 12% of its net assets invested
in short-term cash instruments of financial institutions located in Thailand.
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.
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.
14
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized.
During the year ended December 31, 1997, 18,979 shares were issued as a result
of the reinvestment of dividends paid to those shareholders electing to reinvest
dividends.
Of the 6,278,588 shares outstanding at June 30, 1998, Daiwa Securities
America Inc., a lead underwriter of the Fund and an affiliate of both the
Advisor and DSTC, owned 14,460 shares.
15
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each period is
presented below:
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
1998 --------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 2.88 $ 9.61 $ 17.52 $20.11 $23.81 $12.02
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss)*..................... (0.02) 0.07 0.02 (0.06) (0.02) 0.06
Net realized and unrealized gains (losses) on
investments and foreign currency transactions*... (0.55) (6.80) (4.58) (0.51) (3.03) 12.03
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value
resulting from operations........................ (0.57) (6.73) (4.56) (0.57) (3.05) 12.09
---------- ---------- ---------- ---------- ---------- ----------
Less: dividends and distributions to shareholders
Net investment income........................... -- -- -- -- -- (0.06)
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)
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)
---------- ---------- ---------- ---------- ---------- ----------
Dilutive effect of dividend reinvestment.......... -- -- -- (0.02) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period.................... $ 2.31 $ 2.88 $ 9.61 $17.52 $20.11 $23.81
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Per share market value, end of period............. $ 3.875 $ 3.750 $ 10.000 $15.750 $16.625 $22.750
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Total investment return:
Based on market price at beginning and end of
period, assuming reinvestment of dividends..... 3.33% (62.50)% (21.03)% 8.53% (24.44)% 109.50%
Based on net asset value at beginning and end of
period, assuming reinvestment of dividends..... (19.79)% (70.03)% (31.78)% (0.19)% (12.66)% 102.94%
Ratios and supplemental data:
Net assets, end of period (in millions)......... $ 14.5 $ 18.1 $ 60.1 $108.8 $124.1 $146.8
Ratios to average net assets of:
Expenses, excluding Thai taxes applicable to
net investment income........................ 3.66%** 2.78%+ 2.11%+ 2.17%+ 1.99% 2.15%
Expenses, including Thai taxes applicable to
net investment income........................ 3.83%** 3.16%+ 2.26%+ 2.29%+ 2.12% 2.35%
Net investment income (loss)*................. (1.01)%** 1.15% 0.15% (0.33)% (0.08)% 0.41%
Portfolio turnover................................ 27.47% 40.61% 33.36% 29.90% 44.47% 58.42%
Average commission rate per share++............... $ 0.0021 $ 0.0059 $ 0.0123 N/A N/A N/A
</TABLE>
- ----------------------------------
* After provision for Thai taxes.
+ Ratios for the years ended December 31, 1997, 1996 and 1995 include
certain costs incurred in connection with the proposed rights offering
which have been expensed by the Fund. If such expenses had not been
included, the ratios would have been 2.72% and 3.10% for the year
ended December 31, 1997, 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.
** Annualized.
++ For the six months ended June 30, 1998 and for the years ended
December 31, 1997 and 1996, the average commission rate paid on trades
for which commissions were charged was 0.33%, 0.3% and 0.3% of the
principal amount of the trade, respectively.
16
<PAGE>
THE THAI CAPITAL FUND, INC.
- ----------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On June 5, 1998, the Annual Meeting of Stockholders of The Thai Capital
Fund, Inc. (the "Fund") was held and the following matters were voted upon and
passed.
(1) Election of two Class I Directors to the Board of Directors of the Fund, to
serve for a term expiring on the date on which the Annual Meeting of
Stockholders is held in the year 2001 and one Class II Director to the Board of
Directors of the Fund, to serve for a term expiring on the date on which the
Annual Meeting of Stockholders is held in the year 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES/VOTES
- ---------------------------------------------------
PROXY AUTHORITY
CLASS I VOTED FOR WITHHELD
- ----------------------- --------- ---------------
<S> <C> <C>
Robert F. Gurnee 4,994,685 223,141
Suvit Yodmani* 5,067,582 150,244
<CAPTION>
CLASS II
- -----------------------
<S> <C> <C>
Virabongsa Ramangkura 5,007,479 210,347
</TABLE>
In addition to the Directors elected at the Meeting, Shuichi Komori,
Damrongsuk Amatyakul*, Austin C. Dowling and Alfred C. Morley were the other
members of the Board who continued to serve as Directors of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly, Price
Waterhouse LLP) as independent accountants of the Fund for its fiscal year
ending December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES/VOTES
- -------------------------------------
VOTED FOR VOTED AGAINST ABSTENTIONS
- --------- ------------- -----------
<S> <C> <C>
5,107,856 53,196 56,774
</TABLE>
- ------------------------
* Mr. Damrongsuk Amatyakul and Dr. Suvit Yodmani are no longer Directors of the
Fund. Mr. Damrongsuk resigned as the Fund's President and as a Director in
July 1998. Dr. Suvit resigned from the Board earlier in that same month. It is
anticipated that one or more Directors may be nominated and elected by the
remaining members of the Board to fill such vacancies. Under the Fund's
By-Laws, any new Directors so elected must stand for election as Directors at
the next Annual Meeting of Stockholders, which will be held in June, 1999.
17
<PAGE>
- -----------------------------------------
BOARD OF DIRECTORS
Shuichi Komori, CHAIRMAN
Austin C. Dowling
Robert F. Gurnee
Alfred C. Morley
Virabongsa Ramangkura
- ----------------------------------------------
OFFICERS
Daniel F. Barry
ACTING PRESIDENT
Lawrence Jacob
SECRETARY
Sean J. Peters
TREASURER
John A. Koopman
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 LLP
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
The financial informatiion included herein is taken from the records of the Fund
without examination by independent accountants who do not express an opinion
thereon.
SEMI-ANNUAL REPORT
JUNE 30, 1998
-------------------------
[LOGO]
THE THAI CAPITAL
FUND, INC.
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