<PAGE>
THE MALAYSIA FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs Dato Malek Merican
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS
William G. Morton, Jr.
Michael F. Klein DIRECTOR
PRESIDENT AND DIRECTOR
Stefanie V. Chang
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
Joanna M. Haigney
John A. Levin TREASURER
DIRECTOR
Belinda A. Brady
ASSISTANT TREASURER
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U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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MALAYSIAN INVESTMENT ADVISER
Arab-Malaysian Consultant Sdn Bhd
21st-29th Floors, Bangurian Arab-Malaysian
Jalan Raja Chulan, 5200 Kuala Lampur, Malaysia
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ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 730-6001
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LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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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, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the three months ended March 31, 1998, The Malaysia Fund, Inc. (the "Fund")
had a total return, based on net asset value per share, of 20.36% compared to
29.03% for the U.S. dollar adjusted Kuala Lumpur Stock Exchange Composite Index
(the "Index"). For the one year ended March 31, 1998 and for the period since
the Fund's commencement of operations on May 4, 1987 through March 31, 1998, the
Fund's total return, based on net asset value per share, was -66.98% and 2.04%,
respectively, compared to -59.21% and 25.41%, respectively, for the Index. On
March 31, 1998, the closing price of the Fund's shares on the New York Stock
Exchange was $7.75, representing a 28.5% premium to the Fund's net asset value
per share.
The Malaysian stock market opened the year on a weak note as the regional
currency crisis intensified. However, the market rallied sharply in February on
the resurgence of investor confidence in reaction to policy changes in Thailand
and Korea and receding concerns over currency and political problems in
Indonesia. Like a coiled spring that had been compressed by heavy selloffs in
the second half of 1997, the Malaysian market sprang to life with all of its
gains for the quarter made in February. Currency and interest rate-sensitive
stocks led the rally as the ringgit and interest rates eased off their
peak-crisis levels. The sharp jump in equity prices was not sustainable,
however, as corporate restructuring and economic slowdown brought reality back
to inflated equity prices. Uncertainties over the terms of certain bank mergers
and acquisitions further dampened sentiment. 1997 corporate results were
generally in line with expectations at the operating level; however, bottom
lines were distorted by massive write-offs to adjust for the currency effects on
corporates with heavy foreign debt.
The regional currency devaluation has put the brakes on Malaysia's break-neck
pace of above 8% GDP growth over the past decade. For 1997, the economy
recorded growth of 7.8%, primarily on the strength of the manufacturing and
construction sectors. The economy is expected to slump to a more muted 2%-3%
GDP growth rate in 1998, reflecting the economic adjustment that Malaysia must
undergo in the face of the region-wide economic crisis and the slow-down in
domestic consumption and investment. Trade balances have registered sharp
improvements in recent months as the weaker ringgit has led to a collapse in
imports, particularly of capital and intermediate goods. Exports, on the other
hand, recorded modest growth in U.S. dollar terms. The resultant inflation
following the ringgit's devaluation pushed the CPI to almost 5% in February. In
tandem with trends in regional interest rates, and as a consequence of
supporting the badly-battered ringgit, interest rates in Malaysia moved steadily
upwards with three-month interbank rates appreciating over the past six months
from 7.7% at the end of September, 1997 to 11.0% at March 31.
The Fund's underperformance relative to its benchmark for the first quarter was
largely attributable to the defensive positions established at the beginning of
the year. Although the Fund managed to claw back some of its relative
performance in March, as yen weakness and some negative corporate developments
eroded the market's earlier gains, the Fund did not fully participate in the
sudden turn-around in market sentiment in February, as the rally was led by
currency- and interest rate-sensitive stocks which were underrepresented in the
Fund's portfolio.
Looking ahead, the economy is expected to experience muted GDP growth in 1998,
as noted earlier. While trade balances are expected to be positive in the
coming months, further improvements are not expected to be significant in the
absence of a pick up in exports. Any economic growth likely will come from the
export sector as domestic demand and investment will continue to decline in
tandem with the negative wealth effect caused by the market crash and currency
crisis. Inflation is expected to push above 7% for the year and continued tight
monetary policy maintained by Bank Negara is expected to result in firmness in
interest rates with the Base Lending Rate staying above the psychologically
important 10% level in the short-term.
Following its sharp February gains, the market is currently trading at 22 times
prospective 1998 earnings with earnings per share expected to contract a further
15% this year. As short-term valuations do not appear attractive, we expect the
market to trade within a fairly narrow range for a considerable period of time.
Corporate failures may increase downside risks but a spate of upcoming mergers
and acquisition activity may spur interest in the Malaysian market.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Joseph Tern
Joseph Tern
PORTFOLIO MANAGER
April 1998
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of March 31, 1998 (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 18.10% - 20.36% - 29.03% -
ONE YEAR (53.38) (53.38)% (66.98) (66.98)% (59.21) (59.21)%
FIVE YEAR (20.14)+ (4.40)+ (36.95)+ (8.81)+ (20.21) (4.41)
TEN YEAR 120.79+ 8.24+ 43.53+ 3.68+ 77.49 5.90
SINCE INCEPTION* 31.15+ 2.52+ 2.04+ 0.19+ 25.41 2.10
Past performance is not predictive of future performance.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share . . $ 8.98 $ 13.77 $ 12.41 $ 13.55 $ 16.28 $ 27.32 $ 18.57 $ 18.58
Market Value Per Share. . . . $ 7.50 $ 18.75 $ 11.38 $ 11.75 $ 16.25 $ 28.00 $ 17.38 $ 17.00
Premium/(Discount). . . . . . (16.5)% 36.2% (8.3)% (13.3)% (0.2)% 2.5% (6.4)% (8.5)%
Income Dividends. . . . . . . $ 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) . . . . 23.32% 54.57% (8.35)% 9.80% 20.15% 98.28%+ (18.87)% 4.33%
Index Total Return (3). . . . 25.73% 57.91% (10.02)% 9.13% 20.19% 92.60% (19.66)% 3.05%
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net Asset Value Per Share . . $ 19.29 $ 5.04 $ 6.03
Market Value Per Share. . . . $ 17.50 $ 6.56 $ 7.75
Premium/(Discount). . . . . . (9.3)% 30.2% 28.5%
Income Dividends. . . . . . . - - -
Capital Gains Distributions . $ 2.82 $ 0.51 -
Fund Total Return (2) . . . . 19.93% (72.89)% 20.36%
Index Total Return (3). . . . 25.12% (68.71)% 29.03%
</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>
<TABLE>
<CAPTION>
<S><C>
The Malaysia Fund, Inc.
Portfolio Summary as of March 31, 1998 (Unaudited)
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PORTFOLIO INVESTMENTS DIVERSIFICATION
[CHART]
Short-Term Investments 4.7%
Equity Securities 95.3%
- --------------------------------------------------------------------------------
SECTORS
[CHART]
Other 30.5%
Utilities -- Electrical & Gas 11.2%
Transportation -- Shipping 3.8%
Telecommunications 5.5%
Banking 7.1%
Beverages & Tobacco 10.4%
Broadcasting & Publishing 7.8%
Energy Sources 6.5%
Leisure & Tourism 8.7%
Miscellaneous Materials & Commodities 4.2%
Multi-Industry 4.3%
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
PERCENT OF
NET ASSETS
----------
1. Tenaga Nasional Bhd 6.2%
2. Telekom Malaysia Bhd 5.5
3. New Straits Times Press Bhd 4.9
4. Petronas Gas Bhd 4.7
5. Malayan Banking Bhd 4.6
6. Rothmans of Pall Mall Bhd 4.3
7. MNI Holdings Bhd 3.4
8. Malaysian Resources Corp. Bhd 3.1
9. Sime Darby Bhd 3.1
10. Kentucky Fried Chicken Holding Bhd 2.9
----
42.7%
----
----
</TABLE>
* Excludes short-term investments.
4
<PAGE>
INVESTMENT (UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (95.0%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
AUTOMOBILES (3.3%)
MBM Resources Bhd 933,000 U.S.$ 465
Tan Chong Motor Holdings Bhd 2,014,000 1,451
------------
1,916
------------
- --------------------------------------------------------------------------------
BANKING (7.1%)
Commerce Asset Holding Bhd 1,500,000 1,307
Malayan Banking Bhd 700,100 2,685
Southern Bank Bhd (Foreign) 250,000 159
------------
4,151
------------
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BEVERAGES & TOBACCO (10.4%)
Carlsberg Brewery Malaysia Bhd 267,000 1,039
Guinness Anchor Bhd 827,000 1,359
R.J. Reynolds Bhd 641,500 1,177
Rothmans of Pall Mall Bhd 300,000 2,507
------------
6,082
------------
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BROADCASTING & PUBLISHING (7.8%)
Nanyang Press Bhd 264,000 282
New Straits Times Press Bhd 1,833,000 2,863
Star Publications 843,000 1,443
------------
4,588
------------
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BUILDING MATERIALS & COMPONENTS (1.7%)
Hume Industries (Malaysia) Bhd 931,000 1,010
------------
- --------------------------------------------------------------------------------
CONSTRUCTION & HOUSING (1.8%)
Ekran Bhd 3,250,000 1,051
------------
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CONSUMER PRODUCTS-MISCELLANEOUS (1.9%)
Amway (Malaysia) Holdings Bhd 509,000 1,102
------------
- --------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS (1.4%)
Lityan Holdings Bhd 451,000 846
------------
- --------------------------------------------------------------------------------
ENERGY SOURCES (6.5%)
Dialog Group Bhd 559,000 1,057
Petronas Gas Bhd 1,048,000 2,785
------------
3,842
------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (0.7%)
TA Enterprise Bhd 1,200,000 434
------------
- --------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (2.9%)
Kentucky Fried Chicken Holdings Bhd 967,000 1,683
Kentucky Fried Chicken Holdings Bhd
(Warrants), expiring 2/7/01 135,000 40
------------
1,723
------------
- --------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (1.5%)
Jaya Tiasa Holdings Bhd 500,000 856
------------
- --------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS (1.0%)
Malaysian Pacific Industries Bhd 200,000 586
------------
- --------------------------------------------------------------------------------
INSURANCE (2.4%)
Malaysian Assurance Alliance Bhd 524,000 1,084
Malaysian National Reinsurance Bhd 320,000 307
------------
1,391
------------
- --------------------------------------------------------------------------------
LEISURE & TOURISM (8.7%)
Berjaya Group Bhd 1,860,000 581
Genting Bhd 430,200 1,473
Magnum Corp. Bhd 500,000 427
Resorts World Bhd 588,000 1,297
Tanjong plc 540,000 1,317
------------
5,095
------------
- --------------------------------------------------------------------------------
METALS - NON-FERROUS (3.4%)
MNI Holdings Bhd 980,000 2,000
------------
- --------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES (4.2%)
Golden Hope Plantations Bhd 658,000 829
Hap Seng Consolidated Bhd 600,000 819
IOI Corporation Bhd 1,041,400 799
------------
2,447
------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (4.3%)
Renong Bhd 700,000 276
Sime Darby Bhd 1,601,400 1,790
Technology Resources Industries Bhd 397,000 453
------------
2,519
------------
- --------------------------------------------------------------------------------
REAL ESTATE (3.5%)
Malaysian Resources Corp. Bhd 3,118,000 1,811
Tan & Tan Development Bhd 678,000 266
------------
2,077
------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (5.5%)
Telekom Malaysia Bhd 938,000 3,238
------------
- --------------------------------------------------------------------------------
TRANSPORTATION - SHIPPING (3.8%)
Malaysian International Shipping Bhd 929,000 1,655
Malaysian International Shipping Bhd (Foreign) 300,000 575
------------
2,230
------------
- --------------------------------------------------------------------------------
UTILITIES - ELECTRICAL & GAS (11.2%)
Prime Utilities Bhd 743,000 1,211
Puncak Niaga Holding Bhd 1,134,000 1,243
Tenaga Nasional Bhd 1,450,000 3,655
YTL Power International Bhd 530,000 496
------------
6,605
------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$83,830) 55,789
------------
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (4.7%)
Malaysian Ringgit
(Cost U.S.$2,842) MYR 10,135 U.S.$ 2,777
------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(Cost U.S.$86,672) 58,566
------------
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets U.S.$ 2,173
Liabilities (2,016) 157
------------ ------------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 9,732,966 issued and
outstanding U.S.$0.01 par value shares
(20,000,000 shares authorized) U.S.$ 58,723
------------
------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 6.03
------------
------------
- --------------------------------------------------------------------------------
</TABLE>
NOTE: Prior government 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 emerging 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.
6
