<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.
----------
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the nine month period ended September 30, 1996, the total return for The
Malaysia Fund, Inc. (the "Fund"), based on net asset value per share, was 14.62%
compared to 15.60% for the U.S. dollar adjusted Kuala Lumpur Stock Exchange
Index ("KLSE Index"). For the three month period ended September 30, 1996, the
Fund's total return, based on net asset value per share was -1.30%, compared to
- -0.54% for the KLSE Index. For the period since the Fund's inception on May 4,
1987 through September 30, 1996, the Fund's total return, based on net asset
value per share, was 200.66% compared to 187.07% for the KLSE Index. On
September 30, 1996, the closing price of the Fund's shares on the New York Stock
Exchange was $19.375, representing 8.8% discount to the NAV per share.
The Malaysian market recorded a mixed performance in the third quarter of 1996
with market activity mainly centered on Second Board counters as investors
snapped up relatively illiquid stocks on reports of awards of infrastructure
contracts and backdoor injections of capital. For the third quarter, the market
initially fell on concerns of earnings disappointments but managed to rebound
late in the quarter as results turned out to be better than initially expected.
Continued improvement in the trade deficit during the quarter also soothed
sentiment in the market.
The bulk of the market's appreciation for the nine months ended September 30,
1996 came in the first quarter of the year when the market was re-rated on the
back of an improvement in the external accounts and a bullish outlook on
domestic interest rates. Second Board stocks, however, have continued to surge
ahead with a gain of more than 100% year-to-date on a composite basis. The
stronger performance of the Second Board partially reflects the robust
underlying liquidity that continues to flush the Malaysian market and the
greater occurrence of corporate activity among more tightly controlled companies
listed on the Second Board compared with the Main Board.
The Fund's modest underperformance to the KLSE Index for the nine month period
ended September 30, 1996 was essentially due to certain of the Fund's larger
positions such as Genting (-14.2%) and Resorts World (+4.4%) which lagged the
performance of the market. However, these stocks have strong underlying assets
and valuable franchises whose long-term potential remains excellent.
Following nine strong years of uninterrupted economic expansion, the Malaysian
economy is beginning to show some signs of consolidation with GDP growth for the
first half of 1996 reported at 8.4%. GDP growth for the full year is expected to
be revised down to 8.0%. Moderation in export growth, which coincides with the
slowdown in global growth and inventory adjustments in the electronic sector,
has had the desirable effect of cooling the Malaysian economy which has been
straining at full employment for many years. A steady stream of infrastructure
projects, however, is expected to cushion the growth from decelerating
significantly. Malaysia's trade deficit sank to MR 0.8 billion from MR 5.6
billion for the first half of 1996 compared to the first half of 1995. The
improvement to the underlying trend of imports slowing at a faster pace than
exports is expected to continue into 1997, thereby easing pressure on the
balance of payment accounts. The inflation picture as reflected by the Consumer
Price Index continued to show an improving trend averaging 3.6% for the year to
July, which is comfortably below the 4.0% targeted by the government. Finally,
interest rates have begun to show signs of peaking as deposit rates have already
been adjusted marginally downward.
The medium-term outlook for the Malaysian market remains positive as domestic
interest rates are expected to basically be flat and the upcoming Budget is
expected to be pro-growth. In addition, earnings for large cap stocks are
forecast to recover and valuations remain undemanding at approximately 19 times
prospective 1997 earnings. The Fund is well positioned for a rally in the fourth
quarter with its focus mainly on infrastructure-related stocks and consumer and
gaming stocks that are expected to benefit from an upswing in the market. The
Fund will continue to remain fully invested as the investment environment
appears benign with peaked interest rates, stable political conditions, upward
revisions in earnings and continued improvement in the trade and current
accounts deficits.
Sincerely,
[WARREN J. OLSEN SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[EAN WAH CHIN SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
[JOSPEH TERN SIGNATURE]
Joseph Tern
PORTFOLIO MANAGER
November 15, 1996
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of September 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 14.17% -- 14.62% -- 15.60% --
ONE YEAR 10.52 10.52% 12.92 12.92% 13.72 13.72%
FIVE YEAR 136.74+ 18.81+ 150.57+ 20.17+ 137.38 18.87
SINCE INCEPTION* 174.00+ 11.30+ 200.66+ 12.40+ 187.07 11.85
</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>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31: SEPTEMBER 30,1996
1995 (UNAUDITED)
<S> <C> <C>
Net Asset Value Per Share $18.58 $21.26
Market Value Per Share $17.00 $19.38
Premium/(Discount) -8.5% -8.8%
Income Dividends - -
Capital Gains Distributions $0.84 $0.03
The Malaysia Fund, Inc. (2) 4.33% 14.62%
U.S. dollar adjusted Kuala Lumpur
Stock Exchange Composite Index (1)(3)** 3.05% 15.60%
</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 September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 96.0%
Short-Term Investments 4.0%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 5.5%
Banking 8.4%
Construction & Housing 4.9%
Energy Sources 4.5%
Financial Services 10.4%
Leisure & Tourism 16.2%
Machinery & Engineering 4.0%
Multi-Industry 17.3%
Telecommunications 7.7%
Utilities-Electrical &
Gas 9.2%
Other 11.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Telekom Malaysia Bhd 7.7%
2. Malayan Banking Bhd 7.5
3. Genting Bhd 6.9
4. Resorts World Bhd 5.8
5. Petronas Gas Bhd 4.8
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Sime Darby Bhd 4.6%
7. Dialog Group Bhd 4.5
8. Tenaga Nasional Bhd 4.4
9. Renong Bhd 4.2
10. United Engineers Ltd. 4.0
---
54.4%
---
---
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (100.7%)
(Unless otherwise noted)
- ---------------------------------------------------------
- ------------
AUTOMOBILES (5.5%)
Diversified Resources Bhd 400,000 U.S.$ 1,277
Edaran Otomobil Nasional Bhd 801,000 7,894
Perusahaan Otomobil Nasional 400,000 2,170
--------------
11,341
--------------
- ---------------------------------------------------------
- ------------
BANKING (8.4%)
Malayan Banking Bhd 1,572,100 15,618
Public Bank Bhd (Foreign) 985,110 1,824
Southern Bank Bhd (Warrants), expiring
6/17/01 125,000 38
--------------
17,480
--------------
- ---------------------------------------------------------
- ------------
BEVERAGES (3.8%)
Rothmans of Pall Mall (Malaysia) Bhd 765,000 7,783
--------------
- ---------------------------------------------------------
- ------------
BROADCASTING & PUBLISHING (0.3%)
Nanyang Press (Malaysia) 200,000 694
--------------
- ---------------------------------------------------------
- ------------
CONSTRUCTION & HOUSING (4.9%)
Ekran Bhd 391,000 1,685
IJM Corp. Bhd 3,000,000 5,841
Intria Bhd 850,000 2,543
--------------
10,069
--------------
- ---------------------------------------------------------
- ------------
ENERGY SOURCES (4.5%)
Dialog Group Bhd 484,000 9,414
--------------
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (10.4%)
Gadek Capital Bhd 1,600,000 4,692
Hong Leong Credit Bhd 916,199 4,277
MBF Capital Bhd 4,700,000 6,676
Oriental Holdings Bhd 298,000 2,390
TA Enterprise Bhd 2,420,000 3,417
--------------
21,452
--------------
- ---------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (1.5%)
Kentucky Fried Chicken Holdings Bhd
(Malaysia) 675,001 2,935
Kentucky Fried Chicken Holdings Bhd
(Rights) 81,000 68
--------------
3,003
--------------
- ---------------------------------------------------------
- ------------
FOREST PRODUCTS & PAPER (0.8%)
Jaya Tiasa Holdings 282,000 1,755
--------------
- ---------------------------------------------------------
- ------------
LEISURE & TOURISM (16.2%)
Genting Bhd 1,974,000 14,334
Magnum Corp. Bhd 1,500,000 2,549
Resorts World Bhd 2,106,666 11,935
Sarawak Enterprise Corp. 1,000,000 1,788
Sunmay City Bhd 1,163,000 2,924
--------------
33,530
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MACHINERY & ENGINEERING (4.0%)
United Engineers Ltd. 1,068,000 U.S.$ 8,267
--------------
- ---------------------------------------------------------
- ------------
MISCELLANEOUS MATERIALS & COMMODITIES (2.1%)
Kian Joo Can Factory Bhd 772,000 4,251
--------------
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY (17.3%)
Eastern & Oriental Bhd 800,000 1,692
Hicom Holdings Bhd 1,550,000 4,236
Hicom Holdings Bhd (Warrants),
expiring 12/18/00 220,000 248
IOI Corp. Bhd 2,630,000 4,008
Leader Universal Cable Holdings Bhd 1,032,000 2,223
Renong Bhd 5,220,000 7,997
Renong Bhd (Warrants), expiring
11/21/00 690,000 287
Renong Bhd 4.00%, 5/21/01, CULS 1,104 405
Road Builder Holdings Bhd 1,000,000 5,147
Sime Darby Bhd 2,859,400 9,470
--------------
35,713
--------------
- ---------------------------------------------------------
- ------------
REAL ESTATE (1.9%)
Selangor Properties Bhd 2,300,000 2,652
Shah Alam Properties Bhd 284,000 1,348
--------------
4,000
--------------
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (7.7%)
Telekom Malaysia Bhd 1,798,000 15,854
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- AIRLINES (0.0%)
Malaysian Helicopter Bhd (Warrants),
expiring 6/11/00 158,800 75
--------------
- ---------------------------------------------------------
- ------------
TRANSPORTATION -- SHIPPING (2.2%)
Diperdana Corp. Bhd 15,000 118
Malaysian International Shipping Bhd
(Foreign) 1,432,000 4,400
--------------
4,518
--------------
- ---------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS (9.2%)
Petronas Gas Bhd 2,460,000 10,011
Tenaga Nasional Bhd 2,598,000 9,122
--------------
19,133
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TOTAL MALAYSIAN COMMON STOCKS
(Cost U.S. $149,529) U.S.$ 208,332
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT
(000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (4.1%)
(Interest Bearing Demand Account)
Malaysian Ringgit
(Cost U.S. $8,600) MYR 21,499 8,578
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (104.8%)
(Cost U.S. $158,129) 216,910
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS AND LIABILITIES (-4.8%)
Other Assets U.S.$ 3,405
Liabilities (13,400) (9,995)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 9,732,966, issued and
outstanding U.S. $0.01 par value
shares (20,000,000 shares
authorized) U.S.$ 206,915
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 21.26
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
CULS -- Convertible Unsecured Loan Stock.
6
