<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
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Michael F. Klein
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Belinda A. Brady
Dato Malek Merican ASSISTANT TREASURER
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.
---------------------
FIRST QUARTER REPORT
MARCH 31, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1997, The Malaysia Fund, Inc. (the "Fund")
had a total return, based on net asset value per share, of -1.76%, compared to
- -1.01% for the U.S. dollar adjusted Kuala Lumpur Stock Exchange Index (the
"Index"). For the one year ended March 31, 1997, the Fund had a total return,
based on net asset value per share, of 2.58% compared with 7.02% for the Index.
For the period since the Fund's commencement of operations on May 4, 1987,
through March 31, 1997, the Fund's total return, based on net asset value per
share, was 209.04% compared to 207.56% for the Index. On March 31, 1997, the
closing price of the Fund's shares on the New York Stock Exchange was $17.25,
representing a 9.0% discount to the Fund's net asset value per share.
The Malaysian market started the year on a strong note buoyed by expectations of
good earnings growth and continued gross domestic product (GDP) expansion. While
earnings results generally came in ahead of expectations, the market gradually
gave up its gains during the first quarter as sentiment was undermined by the
sharp declines on Wall Street and the hike in U.S. short-term interest rates.
Exacerbating the situation further, Bank Negara introduced fresh directives to
curb the strong growth in loans in the property and share financing sectors.
These largely unexpected measures sparked a sell-off in banks, finance and
property stocks resulting in the KLSE Index closing the quarter with a loss of
2.82%.
While the Malaysian economy continued to record an above 8.0% GDP growth for the
tenth consecutive year, signs of a moderating momentum have begun to surface.
Reflecting the reduction in the backlog of major infrastructure projects, the
construction sector's growth slowed to 13.0% in 1996 from 17.3% in the previous
year. Poor performance of major export markets coupled with a significant
downcycle in the electronics industry led the manufacturing sector to also grow
by a lower 12.2% versus 14.5% in the preceding year. For 1997, the Central Bank
has given a more conservative forecast of GDP growth of between 7.8% to 8.2%.
On the inflation front, the measures taken by Bank Negara are expected to
squeeze out some of the excesses that might have developed in the property and
share lending sectors and the consumer price index has not show signs of
deterioration at 3.5%.
After a prolonged period of more than two years of relatively tight monetary
policy, interest rates initially appeared to have room for a decline of between
50 to 75 basis points for 1997, especially when viewed in the context of a
slowing economy. However, the possibility of lower interest rates has been
diminished by the recent increase in U.S. short-term interest rates as well as
Bank Negara's latest measures to curb lending to unproductive sectors.
Finally, the current account deficit, which showed a sharp improvement in 1996,
is expected to remain stubborn at 5.5% of GNP for 1997 as imports of capital
goods are expected to rise.
The Fund's underperformance of the Index for the first quarter was largely due
to its underweight position in Tenaga, which was remarkably resilient in a
falling market. The Fund's relative performance was also eroded by the
underperformance of some of its significant holdings in Rothmans Malaysia
(-17.0%). Sime Darby (-9.1%), and Resorts World (-7.8%). However, the strong
gains of some of the Fund's other holdings in Oriental Holdings (+30.2%) and
Dialog Group (+12.5%) helped to mitigate the underperformance.
Following Bank Negara's announcement discussed above, the Fund has raised its
cash level to 10% as a defensive move to protect its capital in an environment
of increased market volatility and a significantly less favorable market
outlook. Stock holdings also will be adjusted to favor stocks which are less
vulnerable to the current measures as well as stocks with more defensive
attributes.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Joseph Tern
PORTFOLIO MANAGER
April 1997
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE -1.43% -- -1.76% -- -1.01% --
ONE YEAR 0.26 0.26% 2.58 2.58% 7.02 7.02%
FIVE YEAR 102.11+ 15.11+ 115.20+ 16.56+ 111.24 16.13
SINCE INCEPTION* 181.31+ 11.00+ 209.04+ 12.05+ 207.56 12.00
</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:
THREE MONTHS ENDED
1996 MARCH 31, 1997
<S> <C> <C>
Net Asset Value Per Share $19.29 $18.05
Market Value Per Share $17.50 $17.25
Premium/(Discount) -9.3% -9.07%
Income Dividends - -
Capital Gains Distributions $2.82 -
Fund Total Return (2) 19.93% -1.75%
Index Total Return (3) 25.12% -1.01%
</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) Composite 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 March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 99.2%
Short-Term Investments 0.8%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 13.8%
Broadcasting & Publishing 3.8%
Construction & Housing 6.1%
Energy Sources 5.0%
Financial Services 7.5%
Leisure & Tourism 15.2%
Machinery & Engineering 5.4%
Multi-Industry 16.7%
Telecommunications 7.6%
Utilities - Electrical &
Gas 4.2%
Other 14.7%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Malayan Banking Bhd 9.1%
2. Telekom Malaysia Bhd 7.6
3. Genting Bhd 7.3
4. Sime Darby Bhd 6.1
5. United Engineers 5.4
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Dialog Group Bhd 5.0%
7. Resorts World Bhd 4.5
8. Tenaga Nasional Bhd 4.2
9. Renong Bhd 4.1
10. IJM Corp. Bhd 4.0
---
57.3%
---
---
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
COMMON STOCKS (98.5%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
AUTOMOBILES (3.6%)
Edaran Otomobil Nasional Bhd 265,000 U.S.$ 2,673
Oriental Holdings Bhd 297,200 2,686
Perusahaan Otomobil Nasional 200,000 1,267
--------------
6,626
--------------
- -----------------------------------------------------------------
- -------------
BANKING (13.8%)
Commerce Asset Holding Bhd 607,000 4,262
Kwong Yik Bank Bhd 800,000 2,986
Malayan Banking Bhd 1,472,100 16,781
Southern Bank Bhd (Foreign) 500,000 1,493
--------------
25,522
--------------
- -----------------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (2.9%)
Rothmans of Pall Mall Bhd 600,000 5,327
--------------
- -----------------------------------------------------------------
- -------------
BROADCASTING & PUBLISHING (3.8%)
Nanyang Press Bhd 350,000 1,335
New Straits Times Press Bhd 363,000 2,226
Star Publications 813,000 3,346
--------------
6,907
--------------
- -----------------------------------------------------------------
- -------------
CONSTRUCTION & HOUSING (6.1%)
Gamuda Bhd 402,000 1,525
Gopeng Bhd 250,000 509
IJM Corp. Bhd 3,000,000 7,384
Magna Prima Bhd 300,000 1,913
--------------
11,331
--------------
- -----------------------------------------------------------------
- -------------
ENERGY SOURCES (5.0%)
Dialog Group Bhd 559,000 9,135
--------------
- -----------------------------------------------------------------
- -------------
FINANCIAL SERVICES (7.5%)
Affin Holdings Bhd 253,000 719
Gadek Capital Bhd 1,300,000 3,436
Hong Leong Credit Bhd 316,199 2,067
MBF Capital Bhd 688,000 1,216
Rashid Hussain Bhd 800,000 6,295
--------------
13,733
--------------
- -----------------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (1.8%)
Kentucky Fried Chicken Holdings Bhd 675,000 3,159
Kentucky Fried Chicken Holdings Bhd
(Warrants), expiring 2/7/01 135,000 218
--------------
3,377
--------------
- -----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (1.4%)
Jaya Tiasa Holdings Bhd 469,000 2,612
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.7%)
Leader Universal Holdings Bhd 544,000 U.S.$ 1,218
--------------
- -----------------------------------------------------------------
- -------------
INSURANCE (0.8%)
Malaysian National Reinsurance Bhd 500,000 1,544
--------------
- -----------------------------------------------------------------
- -------------
LEISURE & TOURISM (15.2%)
Berjaya Group Bhd 3,300,000 3,995
Genting Bhd 1,974,000 13,382
Resorts World Bhd 1,936,666 8,283
Tanjong plc 600,000 2,385
--------------
28,045
--------------
- -----------------------------------------------------------------
- -------------
MACHINERY & ENGINEERING (5.4%)
United Engineers 1,136,000 9,901
--------------
- -----------------------------------------------------------------
- -------------
MULTI-INDUSTRY (16.7%)
Hicom Holdings Bhd 1,550,000 4,034
Hicom Holdings Bhd (Warrants),
expiring 12/18/00 220,000 266
Killinghall Bhd 750,000 1,077
Renong Bhd 4,500,000 7,627
Road Builder Holdings 800,000 4,649
Sime Darby Bhd 3,059,400 11,172
Tongkah Holdings Bhd 1,000,000 1,977
--------------
30,802
--------------
- -----------------------------------------------------------------
- -------------
REAL ESTATE (1.6%)
Sunway City Bhd 1,163,000 2,980
--------------
- -----------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (7.6%)
Telekom Malaysia Bhd 1,798,000 14,002
--------------
- -----------------------------------------------------------------
- -------------
TRANSPORTATION -- SHIPPING (0.4%)
Malaysian International Shipping Bhd
(Foreign) 303,000 752
--------------
- -----------------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS (4.2%)
Tenaga Nasional Bhd 1,598,000 7,802
--------------
- -----------------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $130,370) 181,616
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.8%)
(Interest Bearing Demand Account)
Malaysian Ringgit (Cost U.S. $1,476) MYR 3,653 1,474
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
(000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
TOTAL INVESTMENTS (99.3%)
(Cost U.S. $131,846) U.S.$ 183,090
--------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets U.S. $ 2,526
Liabilities (1,178) 1,348
--------------- --------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 9,732,966 issued and outstanding
U.S. $0.01 par value shares
(20,000,000 shares authorized) U.S.$ 184,438
--------------
--------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 18.95
--------------
--------------
- -----------------------------------------------------------------
- -------------
NOTE: Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging 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.
</TABLE>
6
