<PAGE>
THE MALAYSIA FUND, INC.
- --------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
Dato Malek Merican
DIRECTOR
- --------------------------------------------------
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
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997. The Malaysia Fund, Inc. (the "Fund") had
a total return, based on net asset value per share, of -15.50%, compared to
- -12.97% for the U.S. dollar adjusted Kuala Lumpur Stock Exchange Index (the
"Index"). For the one year ended June 30, 1997, the Fund had a total return,
based on net asset value per share, of -12.73% compared with -6.32% for the
Index. For the period since the Fund's commencement of operations on May 4, 1987
through June 30, 1997, the Fund's total return, based on net asset value per
share, was 165.82% compared to 172.62% for the Index. On June 30, 1997, the
closing price of the Fund's shares on the New York Stock Exchange was $14 7/8,
representing a 8.7% discount to the net asset value per share.
Buoyed by expectations for 1997 of good EPS growth of approximately 16% and a
continued GDP expansion of about 8%, the Malaysian market began the year on a
positive note but soon lost ground in the first quarter as investors were
unnerved by the volatility on Wall Street as well as a hike in the U.S. Federal
Funds rate. The market plummeted further in the second quarter following
surprise moves by Bank Negara to stem the growth in loans to the real property
and share financing sectors. Fears of a massive liquidity crunch coupled with a
property market overhang sparked a widespread and intense selloff in the market.
The selling appeared indiscriminate as foreign investors, conscious of the Thai
market meltdown, rushed to underweight the Malaysian market.
The Fund's underperformance of the Index for the first half of the year was
largely due to the sharp falls in Resort Worlds (-30.5%) whose business was
affected by the slowdown in tourist arrivals from Singapore as a consequence of
the political row between Singapore and Malaysia. On the other hand, Tenaga,
where the Fund had earlier taken profits, outperformed the market massively,
with a rise of 6.0% during the period following the government's approval to
raise electricity tariffs.
Following the sharp selloff, the Malaysian market is currently trading at 15
times prospective 1997 earnings - a multiple which was only last reached in the
doldrums of 1990. Given the pervasive pessimism in the market despite estimated
earnings per share growth of 16% for 1997 and 15% for 1998, the market's
valuation is becoming increasingly attractive.
As we wrote previously, the Fund took a defensive stance in raising its cash
position to approximately 10% following the announcement of Bank Negara's
measures. We have since reinvested the cash back into the market and intend to
keep the Fund fully invested to ride out the current trough of the market. We
will selectively accumulate stocks with strong earnings visibility and cash
flows and that are priced at compelling multiples.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Joseph Tern
PORTFOLIO MANAGER
JULY 1997
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
---------------------- ---------------------- ----------------------
FISCAL YEAR TO DATE -15.00% -- -15.50% -- -12.97% --
ONE YEAR -8.51 -8.51% -12.73 -12.73% -6.32 -6.32%
FIVE YEAR 90.72+ 13.78+ 82.06+ 12.73+ 83.78 12.94
SINCE INCEPTION* 142.58+ 9.19+ 165.82+ 10.10+ 172.62 10.55
</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 (3) -33.54% 25.73% 57.91% -10.02% 9.13% 20.19% 92.60% -19.66% 3.05%
<CAPTION>
YEARS ENDED DECEMBER 31:
SIX MONTHS ENDED
1996 JUNE 30, 1997
<S> <C> <C>
Net Asset Value Per Share $19.29 $16.30
Market Value Per Share $17.50 $14.88
Premium/(Discount) -9.3% -8.7%
Income Dividends - -
Capital Gains Distributions $2.82 -
Fund Total Return (2) 19.93% -15.50%
Index Total Return (3) 25.12% -12.97%
</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. 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) Index is a broad
based capitalization weighted index of 100 stocks listed on the exchange,
including dividends.
* The Fund commenced operations on May 4, 1987.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
3
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 98.3%
Short-Term Investments 1.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 14.6%
Beverages & Tobacco 3.7%
Broadcasting & Publishing 4.3%
Construction & Housing 4.8%
Electrical & Electronics 5.0%
Energy Sources 5.1%
Financial Services 7.1%
Leisure & Tourism 16.1%
Machinery & Engineering 5.0%
Multi-Industry 14.3%
Other 20.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-----------
<C> <S> <C>
1. Berjaya 9.0%
2. Malayan Banking Bhd 8.6
3. Sime Darby Bhd 6.1
4. Dialog Group Bhd 5.1
5. Lityan Holdings Bhd 5.0
<CAPTION>
PERCENT OF
NET ASSETS
-----------
<C> <S> <C>
6. United Engineers Bhd 5.0%
7. Genting Bhd 4.6
8. Rashid Hussain Bhd 4.1
9. IJM Corp. Bhd 3.9
10. Rothmans of Pall Mall Bhd 3.7
---
55.1%
---
---
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
MALAYSIAN COMMON STOCKS (98.4%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
AUTOMOBILES (2.9%)
Edaran Otomobil Nasional Bhd 200,000 U.S.$ 1,703
Tan Chong Motor Holdings Bhd 1,563,000 2,948
--------------
4,651
--------------
- -----------------------------------------------------------------
- -------------
BANKING (14.6%)
Commerce Asset Holding Bhd 1,540,000 4,058
(a)Commerce Asset Holding Bhd
(Warrants) expiring 6/27/98 217,500 --@
Commerce Asset Holding Bhd (Rights) 348,000 21
Kwong Yik Bank Bhd 800,000 2,710
Malayan Banking Bhd 1,300,100 13,650
Public Bank Bhd (Foreign) 1,000,000 1,561
Southern Bank Bhd (Foreign) 500,000 1,119
--------------
23,119
--------------
- -----------------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (3.7%)
Rothmans of Pall Mall Bhd 600,000 5,896
--------------
- -----------------------------------------------------------------
- -------------
BROADCASTING & PUBLISHING (4.3%)
Nanyang Press Bhd 350,000 1,234
New Straits Times Press Bhd 363,000 2,128
Star Publications 813,000 3,478
--------------
6,840
--------------
- -----------------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (3.4%)
Cahya Mata Sarawak Bhd 500,000 4,081
(a,b)Cahya Mata Sarawak Bhd (Warrants) 200,000 158
Magna Prima Bhd 300,000 1,235
--------------
5,474
--------------
- -----------------------------------------------------------------
- -------------
CONSTRUCTION & HOUSING (4.8%)
Gamuda Bhd 402,000 1,410
IJM Corp. Bhd 2,958,000 6,211
--------------
7,621
--------------
- -----------------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (5.0%)
Lityan Holdings Bhd 659,000 8,029
--------------
- -----------------------------------------------------------------
- -------------
ELECTRONIC COMPONENTS & INSTRUMENTS (1.4%)
Malaysian Pacific Industries Bhd 500,000 2,179
--------------
- -----------------------------------------------------------------
- -------------
ENERGY SOURCES (5.1%)
Dialog Group Bhd 559,000 8,084
--------------
- -----------------------------------------------------------------
- -------------
FINANCIAL SERVICES (7.1%)
(a)Gadek Capital Bhd 1,293,000 2,613
MBF Capital Bhd 1,200,000 2,206
Rashid Hussain Bhd 1,020,000 6,465
Rashid Hussain Bhd (Rights) 145,714 --@
--------------
11,284
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (2.4%)
Kentucky Fried Chicken Holdings Bhd 967,000 U.S.$ 3,640
Kentucky Fried Chicken Holdings Bhd
(Warrants), expiring 2/7/01 135,000 159
--------------
3,799
--------------
- -----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (2.8%)
Jaya Tiasa Holdings Bhd 869,000 4,373
--------------
- -----------------------------------------------------------------
- -------------
INSURANCE (0.8%)
Malaysian National Reinsurance Bhd 500,000 1,218
--------------
- -----------------------------------------------------------------
- -------------
LEISURE & TOURISM (16.1%)
Berjaya Group Bhd 7,776,000 9,551
Genting Bhd 1,536,000 7,363
Magnum Corp. Bhd 1,000,000 1,506
Resorts World Bhd 1,736,666 5,229
Tanjong plc 540,000 1,861
--------------
25,510
--------------
- -----------------------------------------------------------------
- -------------
MACHINERY & ENGINEERING (5.0%)
United Engineers Bhd 1,097,000 7,910
--------------
- -----------------------------------------------------------------
- -------------
MISCELLANEOUS MATERIALS & COMMODITIES (0.3%)
IOI Corporation Bhd 500,000 571
--------------
- -----------------------------------------------------------------
- -------------
MULTI-INDUSTRY (14.3%)
Berjaya Sport Toto Bhd 1,004,000 4,734
Hicom Holdings Bhd 1,500,000 2,841
Killinghall Bhd 750,000 868
Multi-Purpose Holdings Bhd 200,000 281
Road Builder Holdings 800,000 3,772
Sime Darby Bhd 2,909,400 9,682
(a)Tongkah Holdings Bhd 300,000 573
--------------
22,751
--------------
- -----------------------------------------------------------------
- -------------
REAL ESTATE (2.3%)
Malaysian Resources Corp. Bhd 1,300,000 3,580
--------------
- -----------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (0.9%)
Telekom Malaysia Bhd 300,000 1,403
--------------
- -----------------------------------------------------------------
- -------------
TRANSPORTATION-SHIPPING (1.2%)
Halim Mazmin Bhd 325,000 1,880
--------------
- -----------------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $138,755) 156,172
--------------
- -----------------------------------------------------------------
- -------------
</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 (1.7%)
(Interest Bearing Demand Account)
Malaysian Ringgit (Cost U.S.$2,762) MYR 6,958 U.S.$ 2,757
--------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (100.1%)
(Cost U.S. $141,517) 158,929
--------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (0.5%)
Cash U.S.$ 88
Receivable for Investments Sold 468
Dividends Receivable 154
Other Assets 23 733
--------------- --------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-0.6%)
Payable for:
Investments Purchased (586)
U.S. Investment Advisory Fees (93)
Malaysian Investment Advisory Fees (72)
Shareholder Reporting Expenses (66)
Professional Fees (53)
Custodian Fees (45)
Directors' Fees and Expenses (35)
Administrative Fees (21)
Other Liabilities (2) (973)
--------------- --------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 9,732,966, issued and outstanding
U.S. $0.01 par value shares
(20,000,000 shares authorized) U.S.$ 158,689
--------------
--------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 16.30
--------------
--------------
- -----------------------------------------------------------------
- -------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------
Common Stock U.S.$ 97
Capital Surplus 121,159
Accumulated Net Investment Loss (296)
Accumulated Net Realized Gain 20,317
Unrealized Appreciation on Investments
and Foreign Currency Translations 17,412
- -----------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$ 158,689
--------------
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
(a) -- Non-income producing.
(b) -- Security valued at fair value - see note A-1 to financial statements.
@ -- Value is less than U.S.$500.
June 30, 1997 exchange rate - Malaysian Ringgit (MYR) 2.524 = U.S. $1.00
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- --------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................................................... U.S.$ 1,130
Interest.................................................................... 77
Less: Foreign Taxes Withheld................................................ (314)
- --------------------------------------------------------------------------------------------------
Total Income.............................................................. 893
- --------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees............................................... 591
Malaysian Investment Advisory Fees.......................................... 138
Administrative Fees......................................................... 130
Custodian Fees.............................................................. 111
Shareholder Reporting Expenses.............................................. 79
Professional Fees........................................................... 52
Directors' Fees and Expenses................................................ 21
Transfer Agent Fees......................................................... 9
Other Expenses.............................................................. 17
- --------------------------------------------------------------------------------------------------
Total Expenses............................................................ 1,148
- --------------------------------------------------------------------------------------------------
Net Investment Loss..................................................... (255)
- --------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.................................................. 15,595
Foreign Currency Transactions............................................... (207)
- --------------------------------------------------------------------------------------------------
Net Realized Gain....................................................... 15,388
- --------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments................................................. (44,201)
Depreciation on Foreign Currency Translations............................... (5)
- --------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.......................... (44,206)
- --------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation...... (28,818)
- --------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ U.S.$ (29,073)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss......................................................... U.S.$(255) U.S.$(378)
Net Realized Gain........................................................... 15,388 33,877
Change in Unrealized Appreciation/Depreciation.............................. (44,206) 822
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations............. (29,073) 34,321
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Net Realized Gain........................................................... -- (27,444)
- ----------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (10,818 Shares)............................... -- 211
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)................................................... (29,073) 7,088
Net Assets:
Beginning of Period......................................................... 187,762 180,674
- ----------------------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss of U.S. $296
and U.S. $41, respectively.).............................................. U.S.$158,689 U.S.$187,762
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER,
1997 ----------------------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ U.S.$19.29 U.S.$ 18.58 U.S.$ 18.57 U.S.$ 27.32 U.S.$ 16.28 U.S.$ 13.55
- --------------------------------------------------------------------------------------------------------------------------------
Offering Costs..................... -- -- -- -- (0.07) --
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss)....... (0.03) (0.04) (0.03) 0.01 0.03 0.13
Net Realized and Unrealized Gain
(Loss) on Investments............ (2.96) 3.57 0.88 (5.15) 14.37 2.60
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations................... (2.99) 3.53 0.85 (5.14) 14.40 2.73
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......... -- -- -- -- (0.13) --
In Excess of Net Investment
Income....................... -- -- -- (0.02) (0.03) --
Net Realized Gains............. -- (2.82) (0.74) (3.30) (0.96) --
In Excess of Net Realized
Gains........................ -- -- (0.10) (0.29) (0.17) --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions............ -- (2.82) (0.84) (3.61) (1.29) --
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to
Shares Issued through Rights
Offering......................... -- -- -- -- (2.00) --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... U.S.$16.30 U.S.$ 19.29 U.S.$ 18.58 U.S.$ 18.57 U.S.$ 27.32 U.S.$ 16.28
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD............................ U.S.$14.88 U.S.$ 17.50 U.S.$ 17.00 U.S.$ 17.38 U.S.$ 28.00 U.S.$ 16.25
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value................... (15.00)% 18.92% 2.03% (25.94)% 103.00%+ 38.30%
Net Asset Value (1)............ (15.50)% 19.93% 4.33% (18.87)% 98.28%+ 20.15%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS)....................... U.S.$158,689 U.S.$187,762 U.S.$180,674 U.S.$180,587 U.S.$265,377 U.S.$118,175
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets............................ 1.30%* 1.29% 1.44% 1.19% 1.60% 1.72%
Ratio of Net Investment Income
(Loss) to Average Net Assets..... (0.29)%* (0.18)% (0.14)% 0.05% 0.14% 0.86%
Portfolio Turnover Rate............ 48% 50% 33% 23% 43% 38%
Average Commission Rate (2):
Per Share........................ U.S.$0.0187 U.S.$ 0.0186 N/A N/A N/A N/A
As a Percentage of Trade
Amount......................... 0.59% 0.63% N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ This Return does not include the effect of rights issued in connection with
the Rights Offering.
* Annualized.
(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. 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.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for portfolio
trades on which commissions were charged.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (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 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
9
<PAGE>
rates are reflected as a component of unrealized appreciation (depreciation)
on investments and foreign currency translations 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. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund
may enter into foreign currency exchange contracts to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A 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.
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, 1997, the Fund incurred international
custodian fees of $109,000 of which $45,000 was payable to the International
Custodian at June 30, 1997.
F. During the six months ended June 30, 1997, the Fund made purchases and sales
totaling $83,857,000 and $87,562,000, 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, 1997,
10
<PAGE>
the U.S. Federal income tax cost basis of securities was $138,755,000 and
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $17,417,000, of which $29,353,000 related to appreciated securities and
$11,936,000 related to depreciated securities.
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, 1997, totaled
$23,000 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
April 30, 1997. 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>
1. To elect the following Directors: John W. Croghan 5,422,680 -- 45,059 --
Graham E. Jones 5,424,847 -- 42,892 --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund. 5,435,794 15,402 -- 16,543
3. To approve an Investment Advisory and Management Agreement between the Fund
and Morgan Stanley Asset Management Inc. 5,200,547 49,921 192,620 24,651
4. To approve a Research Advisory Agreement among the Fund, Morgan Stanley
Asset Management, Inc. and Arab-Malaysia Consultant Sdn Bhd. 5,198,619 48,934 192,620 27,565
</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
