<PAGE>
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THE
MALAYSIA FUND,
INC.
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THIRD QUARTER REPORT
SEPTEMBER 30, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
THE MALAYSIA FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
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INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment 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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CUSTODIAN
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
PricewaterhouseCoopers 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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
---------
For the nine months ended September 30, 1999, The Malaysia Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 48.34%
compared to 64.69% for the Kuala Lumpur Stock Exchange Composite Index expressed
in U.S. dollars (the "Index") and adjusted as described below. For the period
since the Fund's commencement of operations on May 4, 1987 through September 30,
1999, the Fund's total return, based on net asset value per share, was -23.39%
compared to 12.62% for the Index. On September 30, 1999, the closing price of
the Fund's shares on the New York Stock Exchange was $5 7/8, representing a
31.2% premium to the Fund's net asset value per share.
During September 1998 and until February 1999, the Fund adjusted its net asset
value and the Index in reaction to the imposition of capital controls by the
Malaysian government. During February 1999, the performance returns for the
Fund's net asset value and the Index were again modified to reflect the
relaxation of these capital controls.
The Malaysian market was volatile during the third quarter in anticipation of
the one-year anniversary of the imposition of capital controls in September.
Funds in Malaysia prior to September 1, 1998 became eligible for repatriation
free of punitive taxes after September 1, 1999. Some observers feared a
significant exodus by foreign investors. Some foreign selling has occurred but
it has been less than expected. Based on official figures, total outflows in the
first 15 days of September amounted to U.S. $800 million, significantly below a
government forecast. MSCI's announcement on August 31 of a reinstatement of
Malaysia into its Emerging Market and Asian indices effective February 2000
probably limited selling. On September 12, the government announced yet another
variation of its portfolio tax regime, replacing a two-tier levy with a 10%
capital gains tax. Frequent tax changes create problems for foreign investors
but at least the trend has been toward lighter levies.
Despite a weaker stock market in the third quarter of 1999, the economy
continued to show improvements. Real GDP grew 4.1% in the second quarter of 1999
and another strong trade surplus was reported in August. Foreign reserves rose
to U.S. $31.6 billion at the end of August, equivalent to 6 months of import
cover and an increase from U.S. $15.2 billion in August 1998. For the first 8
months, exports grew 14.0% and imports grew only 6.5%, resulting in a trade
balance of U.S. $12.2 billion. Manufacturing output grew 7.2% in August, the
seventh consecutive month of year-on-year increase. Port Klang, Malaysia's
biggest and busiest port, recorded a 43% increase in freight volume in the first
7 months of the year, signaling stronger industrial output growth in the coming
months. Industrial production has gained momentum to register 5.8% growth
year-on-year in August. Strong growth was evident in the electronics sector.
Real interest rates, as measured by inflation adjusted 3-month interbank rates,
fell to 0.8%. International agencies have gradually acknowledged Malaysia's
economic recovery. The IMF upgraded its Malaysian GDP forecast to 2.4% in 1999
and 6.5% in 2000. Thomson Financial upgraded Malaysia's sovereign rating from
BB+ to BBB-.
Political uncertainties have dogged the market. Rumors of a snap election have
circulated for months now, and could be called at any time up until the mid-2000
required deadline. The second Anwar trial commenced during the quarter and
corruption revelations were aired. There is no clear successor to the Prime
Minister at the present time, creating uncertainty. A proposed forcible merger
of all of the country's financial institutions into 6 groups hurt the market as
it was seen to be unfair to the country's important ethnic Chinese business
community. The government subsequently backed off from this proposal in October.
On economics alone the market would probably be higher; political uncertainty
and foreign portfolio regulatory changes have hindered market performance.
The interim corporate reporting season produced mixed results but some pleasant
surprises. In general, revenue remained sluggish but net income was helped by
lower interest rates, asset sales and the impact of the 1999 tax waiver. Some
companies delivered cost cutting and productivity improvements. Electronics
companies delivered the strongest growth in the first six months of 1999.
Bank lending remains sluggish; loan growth contracted 0.2% month- on-month and
6.3% year-on-year in August. Some of the year-on-year decline can be attributed
to write-downs of bad loans but it also reflects sluggish domestic investment.
An increase in approvals was reported which suggests that a pick-up in bank
lending should follow. Despite weak loan growth, growth of other monetary
aggregates has improved. M1 rose 21.4% year-on-year in August. Faster money
supply growth reflects loose monetary policy and unsterilized foreign trade
surpluses in a pegged currency regime. Faster money supply growth is generally
constructive for equity market performance.
The Fund remains invested in stronger banks, including Public Bank and Commerce
Asset Holdings, and
2
<PAGE>
consumer stocks, including Resorts World, Star Publications, Rothmans and
Tanjong. The Fund has added new names in the electronics sector, including
Malaysian Pacific Industries and Unisem. Electronics exports have been very
strong in 1999. Looking ahead, the market is likely to remain volatile,
supported by better economic fundamentals until more political clarity emerges.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
October 1999
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
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DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
WWW.MSDW.COM/INSTITUTIONAL/INVESTMENTMANAGEMENT.
3
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of September 30, 1999 (Unaudited)
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<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 46.88% -- 48.34% -- 64.69% --
One Year 74.07 74.07% 104.57 104.57% 158.44 158.44%
Five Year -66.77 -19.78 -74.22 -23.75 -59.67 -16.60
Ten Year -21.53 -2.40 -32.89 -3.91 -3.64 -0.37
Since Inception* 0.47 0.04 -23.39 -2.12 12.62 0.96
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
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RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
ENDED
SEPTEMBER 30,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . $13.77 $12.41 $13.55 $16.28 $27.32 $18.57 $18.58 $19.29 $ 5.04 $ 3.02 $ 4.48
Market Value Per Share . . . . . . $18.75 $11.38 $11.75 $16.25 $28.00 $17.38 $17.00 $17.50 $ 6.56 $ 4.00 $ 5.88
Premium/(Discount) . . . . . . . . 36.2% -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 31.2%
Income Dividends . . . . . . . . . $ 0.11 $ 0.21 $ 0.07 -- $ 0.16 $ 0.02 -- -- -- $ 0.03 --
Capital Gains Distributions. . . . -- -- -- -- $ 1.13 $ 3.59 $ 0.84 $ 2.82 $ 0.51 -- --
Fund Total Return (2). . . . . . . 54.57% -8.35% 9.80% 20.15% 98.28%+ -18.87% 4.33% 19.93% -72.89% -39.70% 48.34%
Index Total Return (3) . . . . . . 57.86% -10.07% 9.15% 20.33% 92.78% -19.74% 3.00% 25.12% -68.71% -29.63% 64.69%
</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 Kuala Lumpur Stock Exchange (KLSE) Composite Index expressed in U.S.
dollars (the "Index") is a broad based capitalization weighted index of 100
stocks listed on the exchange, including dividends. During September 1998,
the Fund adjusted its net asset value and the Index in reaction to the
imposition of capital controls by the Malaysian government. During February
1999, the performance returns for the Fund's net asset value and the Index
were again modified to reflect the relaxation of these capital controls.
* The Fund commenced operations on May 4, 1987.
+ This return does not include the effect of the rights issued in connection
with the Fund's 1993 rights offering.
4
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of September 30, 1999 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (95.8%)
Short-Term Investments (4.2%)
</TABLE>
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INDUSTRIES
[CHART}
<TABLE>
<S> <C>
Automobiles (4.8%)
Banking (25.6%)
Beverages & Tobacco (9.4%)
Broadcasting & Publishing (4.7%)
Leisure & Tourism (10.1%)
Misc. Materials & Commodities (4.3%)
Multi-Industry (4.8%)
Telecommunications -- Integrated (8.6%)
Transportation -- Shipping (4.5%)
Utilities -- Electrical & Gas (12.9%)
Other (10.3%)
</TABLE>
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TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C> <S>
1. Malayan Banking Bhd 10.1%
2. Telekom Malaysia Bhd 8.6
3. Public Finance Bhd 5.7
4. Public Bank Bhd 5.4
5. Sime Darby Bhd 4.8
6. Tenaga Nasional Bhd 4.8
7. Malaysian International Shipping Bhd 4.5
8. Commerce Asset Holding Bhd 4.4
9. Rothmans of Pall Mall Bhd 4.4
10. YTL Power International Bhd 4.3
----
57.0%
----
----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
---------
STATEMENT OF NET ASSETS (UNAUDITED)
---------
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
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<S> <C> <C>
MALAYSIAN COMMON STOCKS (101.7%)
(Unless otherwise noted)
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AUTOMOBILES (4.8%)
Oriental Holdings Bhd 210,000 U.S.$ 414
Tan Chong Motor Holdings Bhd 3,697,000 1,693
------------
2,107
------------
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BANKING (25.6%)
Commerce Asset Holding Bhd 1,079,000 1,917
Malayan Banking Bhd 1,417,000 4,400
Public Bank Bhd 2,905,000 2,370
Public Finance Bhd 2,222,000 2,491
------------
11,178
------------
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BEVERAGES & TOBACCO (9.4%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,169
Guinness Anchor Bhd 430,000 425
R.J. Reynolds Bhd 578,500 575
Rothmans of Pall Mall Bhd 313,000 1,911
------------
4,080
------------
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BROADCASTING & PUBLISHING (4.7%)
Nanyang Press Bhd 496,000 506
Star Publications (Malaysia) 670,000 1,552
------------
2,058
------------
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BUSINESS & PUBLIC SERVICES (1.4%)
Hap Seng Consolidated Bhd 1,087,000 632
------------
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ELECTRONIC COMPONENTS, INSTRUMENTS (4.0%)
Malaysian Pacific Industries Bhd 195,000 677
Unisem (M) Bhd 264,000 1,077
------------
1,754
------------
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FOOD & HOUSEHOLD PRODUCTS (3.7%)
Malakoff Bhd 262,000 596
Nestle Bhd 294,000 1,029
------------
1,625
------------
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LEISURE & TOURISM (10.1%)
Genting Bhd 557,200 1,862
Resorts World Bhd 565,000 1,294
Tanjong plc 587,000 1,236
------------
4,392
------------
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MACHINERY & ENGINEERING (1.0%)
Austral Enterprises Bhd 427,000 416
------------
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MISC. MATERIALS & COMMODITIES (4.3%)
Golden Hope Plantations Bhd 517,000 357
IOI Corporation Bhd 1,975,000 951
Kuala Lumpur Kepong Bhd 462,000 559
------------
1,867
------------
-------------------------------------------------------------------------------
MULTI-INDUSTRY (4.8%)
Sime Darby Bhd 1,819,400 U.S.$ 2,107
------------
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REAL ESTATE (1.9%)
Selangor Properties Bhd 1,782,000 835
------------
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TELECOMMUNICATIONS--INTEGRATED (8.6%)
Telekom Malaysia Bhd 1,444,000 3,743
------------
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TRANSPORTATION--SHIPPING (4.5%)
Malaysian International
Shipping Bhd 1,182,000 1,975
------------
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UTILITIES--ELECTRICAL & GAS (12.9%)
Petronas Gas Bhd 783,000 1,649
Tenaga Nasional Bhd 1,024,000 2,102
YTL Power International Bhd 2,263,200 1,870
------------
5,621
------------
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TOTAL COMMON STOCKS
(Cost U.S.$40,677) 44,390
------------
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<CAPTION>
FACE
AMOUNT
(000)
-------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
-------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.3%)
Chase Securities, Inc. 5.05%,
dated 9/30/99, due 10/1/99,
to be repurchased at
U.S.$1,021, collateralized by
U.S.$955, United States
Treasury Bonds, 7.125%, due
2/15/23, valued at $1,030
(Cost U.S.$1,021) U.S.$ 1,021 1,021
------------
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FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.2%)
Malaysian Ringgit
(Cost U.S.$948) MYR 3,604 948
------------
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TOTAL INVESTMENTS (106.2%)
(Cost U.S.$42,646) 46,359
------------
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OTHER ASSETS AND LIABILITIES (-6.2%)
Other Assets U.S.$ 1,191
Liabilities (3,908) (2,717)
------------ ------------
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NET ASSETS (100%)
Applicable to 9,738,015 issued and
outstanding U.S.$0.01 par value shares
(20,000,000 shares authorized) U.S.$ 43,642
------------
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NET ASSET VALUE PER SHARE U.S.$ 4.48
------------
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</TABLE>
6
