<PAGE>
THE MALAYSIA FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
Dato Malek Merican ASSISTANT TREASURER
DIRECTOR
</TABLE>
---------------------------------------------
U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
---------------------------------------------------------
MALAYSIAN INVESTMENT ADVISER
Arab-Malaysian Consultant Sdn Bhd
21st-29th Floors, Bangurian Arab-Malaysian
Jalan Raja Chulan, 5200 Kuala Lumpur, Malaysia
---------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
---------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
Investor Relations Department
P.O. Box 644, Mail Stop 45-02-09
Boston, Massachusetts 02102-0644
(617) 575-2900
---------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
---------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
---------------------------------------------------------
For additional Fund information, including the Fund's net asset
value per share and information regarding the investments
comprising the Fund's portfolio, please call 1-800-221-6726
----------
THE
MALAYSIA FUND,
INC.
----------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
Despite substantial volatility in the Malaysian equity markets during the year,
The Malaysia Fund, Inc. generated a total return of 4.33% in 1995 compared with
a gain of 3.05% for the U.S. dollar adjusted Kuala Lampur Stock Exchange
("KLSE") Composite Index. The Fund's outperformance of the KLSE Composite Index
was largely aided by strong gains posted by Renong (+19.0%), Rothmans (+25.2%),
UEM (+28.6%) and Maybank (+39.0%) in which the Fund had significant weightings
during the year. The Fund's share price on the New York Stock Exchange
fluctuated between a premium of 3.6% and a discount of 12.8% to its net asset
value during the year. The share price of the Fund closed the year at $17.00 per
share, representing a discount of 8.5% to NAV. After adjusting for the July
dividend of $0.0704 per share and the year-end dividend of $0.7664 per share,
the Fund's market price per share appreciated by 2.03% for the year.
THE ECONOMY
Fueled by robust performance in the manufacturing (+12.5%) and construction
(+12.7%) sectors, the Malaysian economy is expected to register its eighth
consecutive year of growth at or above 8.0% in 1995. Reflecting the broad-based
growth throughout the economy, the agricultural sector is expected to record a
turnaround (+2.0%) while the mining sector also is expected to register an
improved performance (+2.0%). The services sector is estimated to turn in a
creditable growth rate of 9.0%.
The record streak of economic growth has taken a toll, however, on the
current account deficit which is expected to widen to 10.0% of GDP for 1995 and
8.5% in 1996. Although the deterioration in 1995 was largely attributable to the
hefty imports of aircraft, ships and machinery (capital goods that are expected
to generate future streams of export earnings), imports of big ticket consumer
items, such as automobiles, also increased. Bank Negara adopted a tight monetary
policy in order to counteract inflationary tendencies and three month interbank
rates rose by 130 basis points during the year. Recently imposed credit controls
and administrative measures appear to have exerted a moderating influence on the
property market as well as big ticket consumer items such as new car sales.
THE OUTLOOK
The imposition of credit control and administrative measures on car and
property financing in October 1995 appears to have succeeded in dampening demand
for new cars and high end properties. Anecdotal evidence also suggests a
substantial fall in interest for luxury properties as a result of the increase
in transaction and capital gains taxes. The Consumer Price Index, however,
continued to hover below the psychological 9.0% level. The Central Bank is
expected to maintain its tight monetary policy in order to reign in inflationary
tendencies. However, future rate increases are not expected to be substantial
against the global backdrop of falling U.S. interest rates.
After consolidating for two years, the Malaysian stock market is poised for
an upward re-rating as foreign investors refocus their attention on Asian
equities. Interest rates are expected to plateau in the second half of 1996 and
improvement in the current account position is possible. Negative market
sentiment is expected to gradually subside as the economy shifts into lower
gear. A more benign global interest rate environment is also expected to bolster
investor confidence in the equity markets. We expect retail trading activity to
surge as the market gathers momentum. The upside for blue chips, however,
remains constrained by a relatively uncompelling valuation of around 19x
prospective 1996 earnings (in line with five-year historical averages) and
earnings per share growth of 13%. The Fund will maintain a fully invested
position in order to capitalize on an anticipated rally in the initial period of
1996. The Fund will remain invested in blue chips and companies that benefit
from the current infrastructure boom.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
February 7, 1996
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)**
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR 2.03% 2.03% 4.33% 4.33% 3.05% 3.05%
FIVE YEAR 124.77+ 17.57+ 125.18+ 17.62+ 109.16 15.89
SINCE INCEPTION* 139.99+ 10.63+ 162.30+ 11.77+ 148.32 11.07
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1987* 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 7.42 $ 8.98 $ 13.77 $ 12.41 $ 13.55 $ 16.28 $ 27.32 $ 18.57 $18.58
Market Value Per Share $ 5.88 $ 7.50 $ 18.75 $ 11.38 $ 11.75 $ 16.25 $ 28.00 $ 17.38 $17.00
Premium/(Discount) -20.8% -16.5% 36.2% -8.3% -13.3% -0.2% 2.5% -6.4% -8.5%
Income Dividends $0.15 $0.17 $0.11 $0.21 $0.07 - $0.16 $0.02 -
Capital Gains Distributions - - - - - - $1.13 $3.59 $0.84
Fund Total Return (2) -32.20% 23.32% 54.57% -8.35% 9.80% 20.15% 98.28%+ -18.87% 4.33%
Index Total Return (1)(3)** -33.54% 25.73% 57.91% -10.02% 9.13% 20.19% 92.60% -19.66% 3.05%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This return does not include the effect of dilution in
connection with the Rights Offering. These percentages are not an indication
of the performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value per share of the Fund.
(3) U.S. dollar adjusted Kuala Lumpur Stock Exchange (KLSE) Composite Index.
* The Fund commenced operations on May 4, 1987.
** Unaudited.
+ Adjusted for Rights Offering.
3
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 95.1%
Short-Term Investments 4.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Leisure & Tourism 15.4%
Banking 13.3%
Multi-Industry 13.1%
Telecommunications 9.9%
Utilities - Electrical &
Gas 9.8%
Financial Services 8.2%
Machinery & Engineering 7.2%
Beverages & Tobacco 4.4%
Automobiles 3.1%
Construction & Housing 3.1%
Other 12.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Genting Bhd 9.1%
2. Malayan Banking Bhd 9.1
3. Telekom Malaysia Bhd 7.8
4. United Engineers, Ltd. 6.6
5. Resorts World Bhd 6.2
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Tenaga Nasional Bhd 5.7%
7. Renong Bhd 4.9
8. Sime Darby Bhd 4.5
9. Rothmans of Pall Mall (Malaysia) Bhd 4.4
10. Petronas Gas Bhd 4.1
---
62.4%
---
---
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ----------
STATEMENT OF NET ASSETS
- ----------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MALAYSIAN COMMON STOCKS (99.8%)
(Unless otherwise noted)
- ----------------------------------------------------------
- -------------
AUTOMOBILES (3.1%)
Cycle & Carriage Bintang Bhd 647,000 U.S.$ 3,669
Edaran Otomobil Nasional Bhd 251,000 1,888
------------
5,557
------------
- ----------------------------------------------------------
- -------------
BANKING (13.3%)
Development & Commercial Bank
Bhd 1,500,000 4,371
+Development & Commercial Bank
Bhd (Warrants), expiring
12/28/99 425,000 422
Malayan Banking Bhd 1,954,100 16,466
Public Bank Bhd (Foreign) 1,496,333 2,863
------------
24,122
------------
- ----------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (4.4%)
Rothmans of Pall Mall
(Malaysia) Bhd 965,000 7,941
------------
- ----------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (1.1%)
Lingui Developments Bhd 1,068,332 1,977
------------
- ----------------------------------------------------------
- -------------
CHEMICALS (1.1%)
Metacorp Bhd 793,333 2,062
------------
- ----------------------------------------------------------
- -------------
CONSTRUCTION & HOUSING (3.1%)
ACP Industries Bhd 940,000 3,868
Ekran Bhd 698,000 1,704
------------
5,572
------------
- ----------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (1.3%)
Time Engineering Bhd 1,000,000 2,323
------------
- ----------------------------------------------------------
- -------------
ELECTRONIC COMPONENTS & INSTRUMENTS (0.7%)
Malaysian Pacific Industries
Bhd 399,000 1,233
------------
- ----------------------------------------------------------
- -------------
FINANCIAL SERVICES (8.2%)
Affin Holdings Bhd 1,600,000 3,087
Hong Leong Credit Bhd 916,199 4,546
MBF Capital Bhd 4,700,000 4,756
Rashid Hussain Bhd 500,000 1,496
TA Enterprise Bhd 800,000 970
------------
14,855
------------
- ----------------------------------------------------------
- -------------
LEISURE & TOURISM (15.4%)
Genting Bhd 1,974,000 16,478
Resorts World Bhd 2,106,666 11,281
------------
27,759
------------
- ----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MACHINERY & ENGINEERING (7.2%)
UMW Holdings Bhd 400,000 U.S.$ 1,071
United Engineers, Ltd. 1,868,000 11,915
------------
12,986
------------
- ----------------------------------------------------------
- -------------
METALS -- NON-FERROUS (1.6%)
Timah Langat Bhd 621,000 2,934
------------
- ----------------------------------------------------------
- -------------
MISCELLANEOUS MATERIALS & COMMODITIES (1.4%)
Kian Joo Can Factory Bhd 612,000 2,530
------------
- ----------------------------------------------------------
- -------------
MULTI-INDUSTRY (13.1%)
Berjaya Sports Toto Bhd 1,780,000 4,135
Hong Leong Industries Bhd 494,000 2,626
Renong Bhd 5,920,000 8,764
Sime Darby Bhd 3,044,400 8,091
------------
23,616
------------
- ----------------------------------------------------------
- -------------
REAL ESTATE (1.2%)
Land & General Bhd 643,000 1,393
Tan & Tan Development Bhd 920,000 786
------------
2,179
------------
- ----------------------------------------------------------
- -------------
TELECOMMUNICATIONS (9.9%)
+Technology Resources
Industries Bhd 1,335,000 3,942
Telekom Malaysia Bhd 1,798,000 14,018
------------
17,960
------------
- ----------------------------------------------------------
- -------------
TRANSPORTATION -- AIRLINES (1.8%)
Malaysia Airline System Bhd 646,000 2,098
Malaysian Helicopter Bhd 794,000 1,025
+Malaysian Helicopter Bhd
(Warrants), expiring 6/11/00 158,800 64
------------
3,187
------------
- ----------------------------------------------------------
- -------------
TRANSPORTATION -- SHIPPING (2.1%)
Malaysian International
Shipping Bhd (Foreign) 1,432,000 3,750
------------
- ----------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS (9.8%)
+Petronas Gas Bhd 2,200,000 7,493
Tenaga Nasional Bhd 2,598,000 10,230
------------
17,723
------------
- ----------------------------------------------------------
- -------------
TOTAL MALAYSIAN COMMON STOCKS
(Cost U.S. $119,452) 180,266
------------
- ----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------
- -------------
SHORT TERM INVESTMENT (0.1%)
- ------------------------------------------------------------
- -------------
REPURCHASE AGREEMENT (0.1%)
Chase Manhattan Bank, N.A.,
5.35%, dated 12/29/95, due
1/2/96, to be repurchased at
U.S. $195, collateralized by
U.S. $180 United States
Treasury Notes 7.50%, due
11/15/01, valued at U.S. $200
(Cost U.S. $195) U.S.$ 195 U.S.$ 195
------------
- ------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (5.1%)
(Interest Bearing Demand Account)
Malaysian Ringgit
(Cost U.S. $9,181) MYR 23,289 9,170
------------
- ------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (105.0%)
(Cost U.S. $128,828) 189,631
------------
- ------------------------------------------------------------
- -------------
OTHER ASSETS (0.5%)
Cash U.S.$ 1
Dividends Receivable 396
Foreign Withholding Tax
Reclaim Receivable 568
Other Assets 18 983
------------ ------------
- ------------------------------------------------------------
- -------------
LIABILITIES (-5.5%)
Payable for:
Dividends Declared (7,451)
Investments Purchased (2,163)
U.S. Investment Advisory
Fees (101)
Custodian Fees (74)
Professional Fees (46)
Shareholder Reporting
Expenses (39)
Malaysian Investment
Advisory Fees (27)
Administrative Fees (22)
Directors' Fees and Expenses (13)
Other Liabilities (4) (9,940)
------------ ------------
- ------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 9,722,148,
issued and outstanding U.S.
$0.01 par value shares
(20,000,000 shares
authorized) U.S.$180,674
------------
- ------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 18.58
------------
- ------------------------------------------------------------
- -------------
</TABLE>
+ -- Non-income producing
December 31, 1995 exchange rate-Malaysian Ringgit (MYR) 2 . 540=U.S.$1.00
<TABLE>
<CAPTION>
AMOUNT
(000)
- -----------------------------------------------------------------
- -------------
<S> <C> <C>
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
Common Stock U.S.$ 97
Capital Surplus 120,948
Accumulated Net Realized Loss (1,167)
Unrealized Appreciation on
Investments and Foreign Currency Translations
60,796
- ------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 180,674
------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$2,629
Interest................................................ 143
Less: Foreign Taxes Withheld............................ (310)
- -------------------------------------------------------------------------------
Total Income.......................................... 2,462
- -------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................... 1,242
Custodian Fees.......................................... 545
Malaysian Investment Advisory Fees...................... 291
Administrative Fees..................................... 272
Professional Fees....................................... 98
Shareholder Reporting Expenses.......................... 96
Directors' Fees and Expenses............................ 84
Transfer Agent Fees..................................... 12
Other Expenses.......................................... 86
- -------------------------------------------------------------------------------
Total Expenses........................................ 2,726
- -------------------------------------------------------------------------------
Net Investment Loss................................. (264)
- -------------------------------------------------------------------------------
NET REALIZED GAIN
Investment Securities Sold.............................. 10,465
Foreign Currency Transactions........................... 198
- -------------------------------------------------------------------------------
Net Realized Gain..................................... 10,663
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Investments............................................. (2,113)
Foreign Currency Translations........................... (64)
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation........ (2,177)
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 8,486
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$8,222
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss).................. U.S.$ 116 U.S.$ (264)
Net Realized Gain............................. 15,702 10,663
Change in Unrealized
Appreciation/Depreciation.................... (65,640) (2,177)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations.................... (49,822) 8,222
- -----------------------------------------------------------------------------------------
Distributions:
In Excess of Net Investment Income............ (183) --
Net Realized Gain............................. (32,171) (7,166)
In Excess of Net Realized Gain................ (2,843) (969)
- -----------------------------------------------------------------------------------------
Total Distributions........................... (35,197) (8,135)
- -----------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (9,226
shares)...................................... 229 --
- -----------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From
Capital Share Transactions................... 229 --
- -----------------------------------------------------------------------------------------
Total Increase (Decrease)..................... (84,790) 87
Net Assets:
Beginning of Year............................. 265,377 180,587
- -----------------------------------------------------------------------------------------
End of Year (including accumulated
distributions in excess of net investment
income of U.S. $(1) and U.S. $0,
respectively.)............................... U.S.$180,587 U.S.$180,674
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND RATIOS: 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR, JANUARY 1............. U.S.$ 12.41 U.S.$ 13.55 U.S.$ 16.28 U.S.$ 27.32 U.S.$ 18.57
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Costs............................................ -- -- (0.07) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss).............................. 0.10 0.13 0.03 0.01 (0.03)
Net Realized and Unrealized Gain (Loss) on Investments.... 1.11 2.60 14.37 (5.15) 0.88
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations.................... 1.21 2.73 14.40 (5.14) 0.85
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................. (0.07) -- (0.13) -- --
In Excess of Net Investment Income.................... -- -- (0.03) (0.02) --
Net Realized Gains.................................... -- -- (0.96) (3.30) (0.74)
In Excess of Net Realized Gains....................... -- -- (0.17) (0.29) (0.10)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.07) -- (1.29) (3.61) (0.84)
- ----------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to Shares Issued through
Rights Offering......................................... -- -- (2.00) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR, DECEMBER 31................. U.S.$ 13.55 U.S.$ 16.28 U.S.$ 27.32 U.S.$ 18.57 U.S.$ 18.58
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF YEAR....................... U.S.$ 11.75 U.S.$ 16.25 U.S.$ 28.00 U.S.$ 17.38 U.S.$ 17.00
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.......................................... 3.88% 38.30% 103.00%+ (25.94%) 2.03%
Net Asset Value (1)................................... 9.80% 20.15% 98.28%+ (18.87%) 4.33%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (THOUSANDS)....................... U.S.$98,338 U.S.$118,175 U.S.$265,377 U.S.$180,587 U.S.$180,674
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets................... 1.70% 1.72% 1.60% 1.19% 1.44%
Ratio of Net Investment Income (Loss) to Average Net
Assets.................................................. 0.77% 0.86% 0.14% 0.05% (0.14%)
Portfolio Turnover Rate (2)............................... 15% 38% 43% 23% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Adjusted for Rights Offering
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This return does not include the effect of dilution in
connection with the Rights Offering. These percentages are not an indication
of the performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value of the Fund.
(2) Portfolio turnover rate is calculated by dividing the lesser of purchases
and sales of investment securities having maturities greater than one year
at the time of acquisition by the average monthly market value of those
investment securities.
Note: Current period permanent book-tax differences, if any, are not
included in the calculation of net investment income (loss) per share.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
The Malaysia Fund, Inc. (the "Fund") was incorporated on March 12, 1987 and
is registered as a diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is long-term capital appreciation through investment primarily in equity
securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of current bid and
asked prices obtained from reputable brokers. All non-equity securities as
to which market quotations are readily available are valued at their market
values. Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by the Board of Directors (the "Board"), although the actual
calculations may be done by others.
2. INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for U.S. Federal income taxes is required in the
financial statements.
Prior to November 1, 1993, pursuant to a memorandum of understanding (the
"MOU") with the Malaysian Treasury, the Fund was exempt, contingent on
compliance with certain conditions, from payment of Malaysian income tax for
a period of eight years which commenced with the establishment of the Fund.
Effective November 1, 1993, the MOU was revised and as a result
approximately 95% of the Fund's income was exempt from payment of Malaysian
income tax of 30% through October 31, 1995. Effective November 1, 1995, all
of the Fund's income is subject to Malaysian income tax. Malaysian income
tax is included in foreign taxes withheld on the Statement of Operations.
Capital surplus, distributions in excess of net investment income and
accumulated net realized loss have been adjusted for current and prior
period permanent book-tax differences. Current period adjust-
ments arose principally from differing book-tax treatments for foreign
currency transactions.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which equals or exceeds the principal
amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. To the extent that proceeds from
the sale of the underlying securities are less than the repurchase price
under the agreement, the Fund may incur a loss. In the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of
such currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during
9
<PAGE>
the period. Accordingly, realized and unrealized foreign currency gains
(losses) are included in the reported net realized and unrealized gains
(losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency contracts, disposition of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) in the Statement of Net Assets. The change in
net unrealized currency gains (losses) for the period is reflected in the
Statements of Operations.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign
currency contracts to protect securities and related receivables and
payables against changes in future foreign exchange rates. A forward foreign
currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Fund as unrealized gain or loss. The Fund records realized gains or losses
when the contract is closed equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and is
generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from unanticipated movements in
the value of a foreign currency relative to U.S. dollars.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date (except certain dividends which may be recorded as soon
as the Fund is informed of such dividend) net of applicable withholding
taxes where recovery of such taxes is not reasonably assured. Distributions
to shareholders are recorded on the ex-date. Income distributions and
capital gain distributions are determined in accordance with U.S. Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are principally due to the timing of the
recognition of gains and losses on securities and the permanent differences
described in note A-2.
B. Morgan Stanley Asset Management Inc. (the "U.S. Adviser") provides
investment advisory services to the Fund under the terms of an Investment
Advisory Agreement (the "Agreement"). Under the Agreement, the U.S. Adviser is
paid a fee computed weekly and payable monthly at an annual rate of .90% of the
Fund's first $50 million of average weekly net assets, .70% of the Fund's next
$50 million of average weekly net assets and .50% of the Fund's average weekly
net assets in excess of $100 million.
C. Arab-Malaysian Consultant Sdn Bhd (the "Malaysian Adviser") provides
investment advice, research and assistance on behalf of the Fund to Morgan
Stanley Asset Management Inc. under terms of a contract. Under the contract, the
Malaysian Adviser is paid a fee computed weekly and payable monthly at an annual
rate of .25% of the Fund's first $50 million of average weekly net assets, .15%
of the Fund's next $50 million of average weekly net assets and .10% of the
Fund's average weekly net assets in excess of $100 million.
For the year ended December 31, 1995, the Fund incurred $53,000 of brokerage
commissions to Arab Malaysian Securities, an affiliate of the Malaysian Adviser.
D. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative services to the Fund under
an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .20% of the Fund's first $50 million of average weekly net assets, .15%
of the Fund's next $50 million of average weekly net assets and .10% of the
Fund's average weekly net assets in excess of $100 million. In addition, the
Fund is charged certain out of pocket expenses by the Administrator. Effective
September 1, 1995, The Chase Manhattan Bank, N.A. acts as custodian for the
Fund's assets held in the United States. Prior to September 1, 1995, Mutual
Funds Service Company and United States Trust Company of New York provided
administrative and custodian services, respectively, to the Fund under the same
terms, conditions and fees as stated above.
E. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custody fees are payable monthly
based on assets under custody, investment purchase and sales activity, an
account maintenance
10
<PAGE>
fee, plus reimbursement for certain out-of-pocket expenses. During the year
ended December 31, 1995, the Fund incurred international custodian fees of
$538,000 of which $73,000 was payable to the International Custodian at December
31, 1995. In addition, for the year ended December 31, 1995, the Fund has earned
interest income of $103,000 on balances with the International Custodian.
F. During the year ended December 31, 1995, the Fund made purchases and sales
totaling $60,185,000 and $67,211,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases or sales of long-term U.S. Government securities. At
December 31, 1995, the U.S. Federal income tax cost basis of securities was the
same as that for financial reporting purposes and accordingly, net unrealized
appreciation for U.S. Federal income tax purposes was $60,814,000, of which
$65,190,000 related to appreciated securities and $4,376,000 related to
depreciated securities. For the year ended December 31, 1995, the Fund expects
to defer, to January 1, 1996 for U.S. Federal income tax purposes, post-October
capital losses of $1,488,000.
G. At December 31, 1995, a significant portion of the Fund's net assets consist
of equity securities and foreign currency. Changes in currency exchange rates
will affect the value of and investment income from such investments. Foreign
securities may be subject to greater price volatility, lower liquidity and less
diversity than equity securities of companies based in the United States. In
addition, Foreign securities may be subject to substantial governmental
involvement in the economy and greater social, economic and political
uncertainty.
H. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at December 31, 1995 totaled
$7,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During December 1995, the Board declared a distribution of $0.77 per share,
derived from net realized gains, payable on January 9, 1996, to shareholders of
record on December 29, 1995.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
U.S. AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
- -------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31
1995 1995 1995 1995
-------------------- ------------------ ------------------ ------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
---------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 818 $ 0.08 $ 607 $ 0.06 $ 447 $ 0.05 $ 590 $ 0.06
Net Investment Income
(Loss)....................... $ 269 $ 0.03 $ (58) $ (0.01) $ (274) $ (0.03) $ (201) $ (0.02)
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation.... $ 4,460 $ 0.46 $ 18,850 $ 1.94 $(12,567) $ (1.29) $ (2,257) $ (0.23)
Net Increase (Decrease) in Net
Assets Resulting from
Operations................... $ 4,729 $ 0.49 $ 18,792 $ 1.93 $(12,841) $ (1.32) $ (2,458) $ (0.25)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
-------------------- ------------------ ------------------ ------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
---------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 758 $ 0.08 $ 915 $ 0.09 $ 483 $ 0.05 $ 520 $ 0.05
Net Investment Income
(Loss)....................... $ 70 $ -- $ 274 $ 0.03 $ 1 $ -- $ (229) $ (0.02)
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation................. $ (60,068) $ (6.18) $ 11,760 $ 1.21 $ 36,733 $ 3.78 $(38,363) $ (3.96)
Net Increase (Decrease) in Net
Assets Resulting from
Operations................... $ (59,998) $ (6.18) $ 12,034 $ 1.24 $ 36,734 $ 3.78 $(38,592) $ (3.98)
- -------------------------------------------------------------------------------------------------------------------
The Fund may purchase shares of its Common Stock in the open market at such prices and in such amounts as the Board
of Directors may deem advisable.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund designates $7,452,000 as
long-term capital gain dividend and expects to pass through to shareholders
foreign tax credits of approximately $310,000.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
The Malaysia Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Malaysia Fund, Inc. (the "Fund") at December 31, 1995, 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, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
12
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders may elect, by instructing The First National Bank of Boston (the
"Plan Agent") in writing, to have all distributions automatically reinvested in
Fund shares. Participants in the Plan have the option of making additional
voluntary cash payments to the Plan Agent, semiannually, in any amount from $100
to $3,000, for investment in Fund shares. Shareholders who do not participate in
the Plan will receive distributions in cash.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at the market price.
The Fund may purchase shares of its Common Stock in the open market in
connection with dividend reinvestment requirements at the discretion of the
Board of Directors. Should the Fund declare a dividend or capital gain
distribution payable only in cash, non-participants in the Plan will receive
cash and the Plan Agent will purchase Fund shares for participants in the open
market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Participants who wish to withdraw from the Plan should notify the Plan Agent
in writing. There is no penalty for non-participation or withdrawal from the
Plan, and shareholders who have previously withdrawn from the Plan may rejoin at
any time. Requests for additional information or any correspondence concerning
the Plan should be directed to the Plan Agent at:
The Malaysia Fund, Inc.
The First National Bank of Boston
Dividend Reinvestment and
Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105
1-800-442-2001
13
