<PAGE>
THE MALAYSIA FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs Dato Malek Merican
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS William G. Morton, Jr.
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD James W. Grisham
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Michael F. Klein
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones James R. Rooney
DIRECTOR TREASURER
John A. Levin Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
</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
73 Tremont Street
Boston, Massachusetts 02108
---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank (Domestic)
770 Broadway
New York, New York 10003
---------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(617) 575-3120
---------------------------------------------------------
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.
----------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, the total return for The Malaysia Fund,
Inc. (the "Fund"), based on net asset value per share, was 16.13% compared to
16.23% for the U.S. dollar adjusted Kuala Lumpur Stock Exchange Composite Index
(the "KLSE Index"). For the period since the Fund's inception on May 4, 1987
through June 30, 1996, the Fund's total return, based on net asset value per
share, was 204.61% compared with 188.62% for the KLSE Index. On June 28, 1996,
the closing price of the Fund's shares on the New York Stock Exchange was
$18.75, representing a 13.0% discount to the Fund's net asset value per share.
After recording a credible performance in the first quarter of 1996, which had
come mainly on the back of improvement in the trade deficit and stronger than
expected corporate results, the Malaysian market marked time and recorded
basically flat performance in the second quarter. Second quarter performance was
attributable to two successive rounds of increases in the Statutory Reserve
Ratio ("SRR"), a clamp down in margin financing and the perception of political
tussles between the Prime Minister and the Finance Minister.
Fueled by a strong pipeline of privatization projects coupled with robust
manufacturing growth, the Malaysian economy appears to be on course to achieve
its ninth successive year of growth above 8.0%. First quarter GDP growth was
reported to be 8.7% with the momentum mainly emanating from the manufacturing
(+15.0%) and construction (+13.8%) sectors. The mining and services sectors were
also resilient, recording growth rates of 8.5% and 9.5%, respectively. The
agriculture sector, however, turned in negative growth of -4.5% due to lower
exports of palm oil and rubber.
Exports outpaced imports in the initial months of the year resulting in a modest
improvement in the trade account. For the year, the current account deficit is
expected to shrink to 7.6% of GNP compared with 8.8% in 1995. A major turnaround
in the current account deficit, however, is not expected until the year 2000.
The inflation picture as reflected by the Consumer Price Index ("CPI") continued
to show an improving trend with the CPI for the first four months of the year
averaging 3.4%, which is comfortably below the 4.0% targeted by the government.
However, with an impending increase in electricity tariffs and higher wheat
prices, feeding into other consumer related items, the CPI is expected to creep
upwards in the coming months.
Despite the tight monetary policy in place for the last two years, liquidity
continued to be plentiful with loans and advances growing above 30% for the
first four months of the year. This situation prompted the Central Bank to
intervene actively in the money market to raise short-term interest rates as
well as to hike the SRR twice in the first half of the year to 13.5%. Due to the
new Base Lending Rate ("BLR") formula that ties in short-term money market rates
and the SRR, the BLR rose 1.0% during the first half of the year to 9.2% as of
June 30, 1996. More credit control measures and monetary tightening can be
expected in the second half of 1996 if loan growth does not moderate.
We expect the Malaysian market to be locked in a trading range for the second
half of the year. While a gradual improvement in external accounts coupled with
an imminent peak in interest rates may lend some upside to the market, the
current valuation of 21 times 1996 prospective earnings per share is expected to
constrain any strong upsurge. As trading conditions are expected to be
increasingly turbulent with the risk of a major decline in the U.S. equity
markets and the absence of a clear trend in the Malaysian market, the Fund will
take advantage of market strength to reduce its investment level in the market
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Richard Toh
PORTFOLIO MANAGER
August 15, 1996
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
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>
FISCAL YEAR TO DATE 10.49% -- 16.13% -- 16.23% --
ONE YEAR 1.09 1.09% 7.20 7.20% 8.16 8.16%
FIVE YEAR 107.69+ 15.74+ 116.35+ 16.69+ 105.19 15.46
SINCE INCEPTION* 165.16+ 11.23+ 204.61+ 12.92+ 188.62 12.26
</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
<S> <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
Market Value Per Share $ 5.88 $ 7.50 $ 18.75 $ 11.38 $ 11.75 $ 16.25 $ 28.00 $ 17.38
Premium/(Discount) -20.8% -16.5% 36.2% -8.3% -13.3% -0.2% 2.5% -6.4%
Income Dividends $0.15 $0.17 $0.11 $0.21 $0.07 - $0.16 $0.02
Capital Gains Distributions - - - - - - $1.13 $3.59
The Malaysia Fund, Inc. (2) -32.20% 23.32% 54.57% -8.35% 9.80% 20.15% 98.28%+ -18.87%
U.S. dollar adjusted Kuala Lumpur
Stock Exchange Composite Index (1)(3)** -33.54% 25.73% 57.91% -10.02% 9.13% 20.19% 92.60% -19.66%
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31: JUNE 30,1996
1995 (UNAUDITED)
<S> <C> <C>
Net Asset Value Per Share $18.58 $21.54
Market Value Per Share $17.00 $18.75
Premium/(Discount) -8.5% -13.0%
Income Dividends - -
Capital Gains Distributions $0.84 $0.03
The Malaysia Fund, Inc. (2) 4.33% 16.13%
U.S. dollar adjusted Kuala Lumpur
Stock Exchange Composite Index (1)(3)** 3.05% 16.23%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. 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) The U.S. dollar adjusted Kuala Lumpur Stock Exchange (KLSE) Composite Index
is a broad based capitalization weighted index of 100 stocks listed on the
exchange.
* The Fund commenced operations on May 4, 1987.
** Unaudited.
+ Adjusted for Rights Offering.
3
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 98.7%
Short-Term Investments 1.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 4.9%
Banking 12.7%
Beverages 3.8%
Financial Services 10.5%
Leisure & Tourism 15.2%
Machinery & Engineering 5.5%
Multi-Industry 16.2%
Telecommunications 7.6%
Transportation - Shipping 2.4%
Utilities 10.2%
Other 11.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Malayan Banking Bhd 9.0%
2. Telekom Malaysia Bhd 7.6
3. Genting Bhd 7.4
4. Resorts World Bhd 5.8
5. Tenaga Nasional Bhd 5.2
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Petronas Gas Bhd 5.0%
7. Renong Bhd 4.3
8. United Engineers Ltd. 4.2
9. Rothmans of Pall Mall (Malaysia) Bhd 3.8
10. Sime Darby Bhd 3.7
---
56.0%
---
---
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNUADITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (97.0%)
(Unless otherwise noted)
- ---------------------------------------------------------
- ------------
AUTOMOBILES (4.9%)
Cycle & Carriage Bintang Bhd 200,000 U.S.$ 1,299
Diversified Resources Bhd 200,000 690
Edaran Otomobil Nasional Bhd 751,000 7,195
Perusahaan Otomobil Nasional 200,000 1,090
--------------
10,274
--------------
- ---------------------------------------------------------
- ------------
BANKING (12.7%)
DCB Holdings Bhd 700,000 2,399
Malayan Banking Bhd 1,954,100 18,801
Public Bank Bhd (Foreign) 1,496,333 4,139
Southern Bank Bhd (Foreign) 500,000 1,223
--------------
26,562
--------------
- ---------------------------------------------------------
- ------------
BEVERAGES (3.8%)
Rothmans of Pall Mall (Malaysia) Bhd 765,000 8,050
--------------
- ---------------------------------------------------------
- ------------
BUILDING MATERIALS & COMPONENTS (1.2%)
Lingui Developments Bhd 1,068,332 2,527
--------------
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (10.5%)
+Gadek Capital Bhd 1,600,000 5,067
Hong Leong Credit Bhd 916,199 4,334
MBF Capital Bhd 4,700,000 6,482
Rashid Hussain Bhd 650,000 2,384
TA Enterprise Bhd 2,420,000 3,784
--------------
22,051
--------------
- ---------------------------------------------------------
- ------------
FOREST PRODUCTS & PAPER (1.4%)
Jaya Tiasa Holdings 500,000 2,926
--------------
- ---------------------------------------------------------
- ------------
LEISURE & TOURISM (15.2%)
Genting Bhd 1,974,000 15,431
Magnum Corp. Bhd 1,500,000 2,538
Resorts World Bhd 2,106,666 12,077
Sarawak Enterprise Corp. 1,000,000 1,924
--------------
31,970
--------------
- ---------------------------------------------------------
- ------------
MACHINERY & ENGINEERING (5.5%)
UMW Holdings Bhd 800,000 2,854
+United Engineers Ltd. 1,268,000 8,794
--------------
11,648
--------------
- ---------------------------------------------------------
- ------------
METALS -- NON-FERROUS (2.2%)
Timah Langat Bhd 1,005,999 4,557
--------------
- ---------------------------------------------------------
- ------------
MISCELLANEOUS MATERIALS & COMMODITIES (1.1%)
Kian Joo Can Factory Bhd 412,000 2,263
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY (16.2%)
+Box-Pak Bhd 412,000 U.S.$ 256
Eastern & Oriental Bhd 800,000 1,892
Hong Leong Industries Bhd 494,000 2,396
IOI Corp. Bhd 2,630,000 3,648
Leader Universal Holdings Bhd 1,632,000 4,612
Renong Bhd 5,220,000 8,329
+Renong Bhd (Warrants), expiring
3/31/01 690,000 313
Renong Bhd 4.00%, 5/21/01, CULS 1,104,000 416
Road Builder Holdings Bhd 1,000,000 4,450
Sime Darby Bhd 2,809,400 7,771
--------------
34,083
--------------
- ---------------------------------------------------------
- ------------
REAL ESTATE (1.2%)
Selangor Properties Bhd 2,000,000 2,437
--------------
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (7.6%)
Telekom Malaysia Bhd 1,798,000 16,001
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- AIRLINES (0.9%)
Malaysia Airline System Bhd 546,000 1,740
+Malaysian Helicopter Bhd (Warrants),
expiring 6/11/00 158,800 73
--------------
1,813
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- SHIPPING (2.4%)
+Konsortium Perkapalan Bhd 86,000 517
Malaysian International Shipping Bhd
(Foreign) 1,432,000 4,449
--------------
4,966
--------------
- ---------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS (10.2%)
Petronas Gas Bhd 2,420,000 10,380
Tenaga Nasional Bhd 2,598,000 10,936
--------------
21,316
--------------
- ---------------------------------------------------------
- ------------
TOTAL MALAYSIAN COMMON STOCKS
(Cost U.S. $129,443) 203,444
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.1%)
- ---------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (0.1%)
Chase Securities, Inc. 5.15%, dated
6/28/96, due 7/1/96, to be
repurchased at U.S.$154,
collateralized by U.S.$190 United
States Treasury Notes 7.125%, due
9/30/99, valued at U.S.$194 (Cost
U.S.$154) U.S.$ 154 154
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.3%)
(Interest Bearing Demand Account)
Malaysian Ringgit
(Cost U.S. $2,625) MYR 6,549 U.S.$ 2,625
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (98.4%)
(Cost U.S. $132,222) 206,223
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (2.4%)
Receivable for Investments Sold U.S.$ 4,864
Dividends Receivable 318
Other Assets 23 5,205
--------------- --------------
- ---------------------------------------------------------
- ------------
LIABILITIES (-0.8%)
Payable for:
Investments Purchased (1,332)
U.S. Investment Advisory Fees (109)
Custodian Fees (89)
Shareholder Reporting Expenses (61)
Malaysian Investment Advisory Fees (54)
Professional Fees (45)
Administrative Fees (24)
Directors' Fees and Expenses (18)
Other Liabilities (44) (1,776)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 9,732,966 issued and
outstanding U.S. $0.01 par value
shares (20,000,000 shares
authorized) U.S.$ 209,652
--------------
--------------
NET ASSET VALUE PER SHARE U.S.$ 21.54
--------------
--------------
- ---------------------------------------------------------
- ------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
Common Stock U.S.$ 97
Capital Surplus 121,159
Accumulated Net Investment Loss (313)
Accumulated Net Realized Gain 14,707
Unrealized Appreciation on Investments
and Foreign Currency Translations 74,002
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$209,652
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
CULS -- Convertible Unsecured Loan Stock.
June 30, 1996 exchange rate -- Malaysian Ringgit (MYR)
2.495=U.S.$1.00
Note: Prior governmental approval for foreign investments may be required under
certain circumstances in some markets, and foreign ownership limitations may
also be imposed by the charters of individual companies in such markets. As a
result, an additional class of shares designated as foreign may be created and
offered for investment. The local and foreign shares' market values may vary.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 1,164
Interest................................................ 91
Less: Foreign Taxes Withheld............................ (270)
- -------------------------------------------------------------------------------
Total Income.......................................... 985
- -------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................... 658
Custodian Fees.......................................... 157
Malaysian Investment Advisory Fees...................... 151
Administrative Fees..................................... 143
Shareholder Reporting Expenses.......................... 47
Professional Fees....................................... 46
Directors' Fees and Expenses............................ 20
Transfer Agent Fees..................................... 8
Other Expenses.......................................... 68
- -------------------------------------------------------------------------------
Total Expenses........................................ 1,298
- -------------------------------------------------------------------------------
Net Investment Loss................................. (313)
- -------------------------------------------------------------------------------
NET REALIZED GAIN
Investment Securities Sold.............................. 16,179
Foreign Currency Transactions........................... 16
- -------------------------------------------------------------------------------
Net Realized Gain..................................... 16,195
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................. 13,187
Depreciation on Foreign Currency Translations........... 19
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation........ 13,206
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 29,401
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$29,088
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss........................... U.S.$ (313) U.S.$ (264)
Net Realized Gain............................. 16,195 10,663
Change in Unrealized
Appreciation/Depreciation.................... 13,206 (2,177)
- -----------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations................................... 29,088 8,222
- -----------------------------------------------------------------------------------------
Distributions:
Net Realized Gain............................. (321) (7,166)
In Excess of Net Realized Gain................ -- (969)
- -----------------------------------------------------------------------------------------
Total Distributions........................... (321) (8,135)
- -----------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (10,818
shares)...................................... 211 --
- -----------------------------------------------------------------------------------------
Total Increase................................ 28,978 87
Net Assets:
Beginning of Period........................... 180,674 180,587
- -----------------------------------------------------------------------------------------
End of Period (including accumulated net
investment loss of U.S.$313 and U.S.$0,
respectively.)............................... U.S.$209,652 U.S.$180,674
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA JUNE 30, 1996 ---------------------------------------------------------------------------
AND RATIOS: (UNAUDITED) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD.... U.S.$ 18.58 U.S.$ 18.57 U.S.$ 27.32 U.S.$ 16.28 U.S.$ 13.55 U.S.$ 12.41
- -------------------------------------------------------------------------------------------------------------------------
Offering Costs........... -- -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)................. (0.04) (0.03) 0.01 0.03 0.13 0.10
Net Realized and
Unrealized Gain (Loss)
on Investments......... 3.03 0.88 (5.15) 14.37 2.60 1.11
- -------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Operations....... 2.99 0.85 (5.14) 14.40 2.73 1.21
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment
Income............. -- -- -- (0.13) -- (0.07)
In Excess of Net
Investment
Income............. -- -- (0.02) (0.03) -- --
Net Realized Gains... (0.03) (0.74) (3.30) (0.96) -- --
In Excess of Net
Realized Gains..... -- (0.10) (0.29) (0.17) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total
Distributions.... (0.03) (0.84) (3.61) (1.29) -- (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset
Value due to Shares
Issued through Rights
Offering............... -- -- -- (2.00) -- --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. U.S.$ 21.54 U.S.$ 18.58 U.S.$ 18.57 U.S.$ 27.32 U.S.$ 16.28 U.S.$ 13.55
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE,
END OF PERIOD.......... U.S.$ 18.75 U.S.$ 17.00 U.S.$ 17.38 U.S.$ 28.00 U.S.$ 16.25 U.S.$ 11.75
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value......... 10.49% 2.03% (25.94%) 103.00%+ 38.30% 3.88%
Net Asset
Value (1).......... 16.13% 4.33% (18.87%) 98.28%+ 20.15% 9.80%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL
DATA:
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS)............ U.S.$209,652 U.S.$180,674 U.S.$180,587 U.S.$265,377 U.S.$118,175 U.S.$ 98,338
- -------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets..... 1.28%** 1.44% 1.19% 1.60% 1.72% 1.70%
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... (0.31%)** (0.14%) 0.05% 0.14% 0.86% 0.77%
Portfolio Turnover
Rate................... 24% 33% 23% 43% 38% 15%
Average Commission
Rate (2)............... U.S.$ 0.0178 N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
+ Adjusted for Rights Offering
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. 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) Beginning with fiscal year 1996, the Fund is required to disclose the
average commission rate per share it paid for portfolio trades on which
commissions were charged during the period.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
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. 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. 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.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and 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. In the event of default or
bankruptcy by the counter-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 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 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 exchange 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
9
<PAGE>
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 EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables against changes in future foreign
exchange rates. A forward foreign currency exchange 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.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions and of the timing of the recognition of gains and losses on
securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
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 six months ended June 30, 1996, the Fund incurred $27,000 of brokerage
commissions to Arab Malaysian Securities, an affiliate of the Malaysian Adviser.
D. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), 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. The Chase
Manhattan Bank, acts as custodian for the Fund's assets held in the United
States.
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 fee, plus reimbursement for certain out-of-pocket expenses.
During the six months ended June 30, 1996, the Fund incurred international
custodian fees of $154,000 of which $87,000 was payable to the International
Custodian at June 30, 1996. In addition, for the six months ended June 30, 1996,
the Fund has earned interest income of $85,000 on balances with the
International Custodian.
F. During the six months ended June 30, 1996, the Fund made purchases and sales
totaling $47,448,000 and $53,635,000, 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
June 30, 1996, 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 $74,001,000, of which
$74,774,000 related to appreciated securities and $773,000 related to
depreciated securities. For the year ended December 31, 1995, the
10
<PAGE>
Fund expects to defer, to January 1, 1996 for U.S. Federal income tax purposes,
post-October capital losses of $1,488,000.
G. A significant portion of the Fund's net assets consist of Malaysian 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 June 30, 1996 totaled
$14,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. SUPPLEMENTAL PROXY INFORMATION. The Annual Meeting of the Stockholders of
The Malaysia Fund, Inc. was held on June 5, 1996. The following is a summary of
each proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- ------------------------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase.......................... 5,525,179 39,735 -- --
David B. Gill........................... 5,521,735 43,179 -- --
Warren J. Olsen......................... 5,524,490 40,424 -- --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund.................................................... 5,537,677 10,520 -- 16,718
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN
NET INCREASE
(LOSS) AND CHANGE
IN UNREALIZED (DECREASE) IN NET
INVESTMENT INCOME NET INVESTMENT APPRECIATION/ ASSETS RESULTING
INCOME (LOSS) DEPRECIATION FROM OPERATIONS
-------------------- ------------------ ------------------ ------------------
PER PER PER PER
QUARTER ENDED AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ------------------------------ ---------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996................. $ 778 $ 0.08 $ 125 $ 0.01 $ 2,183 $ 0.22 $ 2,308 $ 0.23
March 31, 1996................ 207 0.02 (438) (0.05) 27,218 2.81 26,780 2.76
---------- ------- -------- ------- -------- ------- -------- -------
Total....................... $ 985 $ 0.10 $ (313) $ (0.04) $ 29,401 $ 3.03 $ 29,088 $ 2.99
---------- ------- -------- ------- -------- ------- -------- -------
---------- ------- -------- ------- -------- ------- -------- -------
December 31, 1995............. $ 590 $ 0.06 $ (201) $ (0.02) $ (2,257) $ (0.23) $ (2,458) $ (0.25)
September 30, 1995............ 447 0.05 (274) (0.03) (12,567) (1.29) (12,841) (1.32)
June 30, 1995................. 607 0.06 (58) (0.01) 18,850 1.94 18,792 1.93
March 31, 1995................ 818 0.08 269 0.03 4,460 0.46 4,729 0.49
---------- ------- -------- ------- -------- ------- -------- -------
Total....................... $ 2,462 $ 0.25 $ (264) $ (0.03) $ 8,486 $ 0.88 $ 8,222 $ 0.85
---------- ------- -------- ------- -------- ------- -------- -------
---------- ------- -------- ------- -------- ------- -------- -------
December 31, 1994............. $ 520 $ 0.05 $ (229) $ (0.02) $(38,363) $ (3.96) $(38,592) $ (3.98)
September 30, 1994............ 483 0.05 1 -- 36,733 3.78 36,734 3.78
June 30, 1994................. 915 0.09 274 0.03 11,760 1.21 12,034 1.24
March 31, 1994................ 758 0.08 70 -- (60,068) (6.18) (59,998) (6.18)
---------- ------- -------- ------- -------- ------- -------- -------
Total....................... $ 2,676 $ 0.27 $ 116 $ 0.01 $(49,938) $ (5.15) $(49,822) $ (5.14)
---------- ------- -------- ------- -------- ------- -------- -------
---------- ------- -------- ------- -------- ------- -------- -------
- -------------------------------------------------------------------------------------------------------------------
* Expressed in thousands of U.S. dollars except per share amounts.
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>
11
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders may elect, by instructing Boston Equiserve (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.
Boston Equiserve
Dividend Reinvestment and
Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105
1-800-442-2001
12
