<PAGE>
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THE
MALAYSIA FUND,
INC.
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FIRST QUARTER REPORT
MARCH 31, 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 AND ACTING SECRETARY
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT 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 three months ended March 31, 1999, The Malaysia Fund, Inc. (the "Fund")
had a total return, based on net asset value per share, of 16.23% compared to
22.58% 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 March 31, 1999, the
Fund's total return, based on net asset value per share, was -39.98% compared to
- -16.16% for the Index. On March 31, 1999, the closing price of the Fund's shares
on the New York Stock Exchange was $4 1/8, representing a 17.7% premium to the
Fund's net asset value per share.
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.
Although both the Fund and the Index returns for the first quarter were positive
as a result of the changes described above, the Malaysian market performed
poorly in local currency terms despite some positive economic developments.
Economic news was overwhelmed by the country's capital control regime, which has
limited new portfolio inflows since implementation in September 1998. In August
1998, the Malaysian government banned the repatriation of portfolio capital for
one year to prevent outflows during the crisis atmosphere prevailing in the
Asian markets. Capital outflows across the region turned to inflows in the
fourth quarter of 1998 for most regional markets except Malaysia. The government
recognized that capital controls and other regulatory changes were preventing
the return of foreign portfolio investors to the market. In February 1999, the
government partially relaxed the capital controls, replacing the outright ban on
the repatriation of foreign portfolio investment with a declining "exit tax" on
the repatriation of capital invested in the country before September 1, 1998.
This punitive tax started at 30% of the "principal" amount invested as of
September 1 on amounts withdrawn before March 31, 1999 before stepping down to
20%, 10% and then no levy on repatriations completed after September 1. At the
same time the government implemented a new capital gains tax on capital brought
into the country after February 1999. While these announcements represented
progress relative to the one-year ban on repatriation, the market remains
encumbered by higher taxes and a variety of regulations that inhibit trading by
most foreign institutions. The market remains difficult to access by most
foreign investors and therefore remains outside several key indexes used to
track performance of most fund managers. Until further relaxation of the
regulatory and tax regimes occurs, Malaysia will attract less foreign capital
than neighboring markets.
The Malaysian economy is currently benefiting from growing exports and a large
current account surplus that is restoring international reserves and improving
liquidity in the domestic financial system. Interest rates have fallen, due to
easing of monetary policy, the current account surplus, slack demand for loans
and implementation of the capital controls. The currency has been fixed since
September 1, 1998; the appreciation of regional currencies since that time
leaves the ringgit fairly competitive relative to its trading partners and
competitors. The government has loosened fiscal policy through a combination of
tax cuts and infrastructure investments and the government sector should be the
main source of growth in 1999. Other sources of growth should include some
restocking of inventory. However, private consumption is expected to recover
slowly given lower employment levels and private sector investment is expected
to lag given relatively low capacity utilization levels. After a 6.8%
contraction in GDP in 1998 the consensus economic forecasts call for 0-1%
growth in 1999.
The government has initiated a promising program to recapitalize the Malaysian
banking system. Like many Asian countries the Malaysian banking system suffers
from a large burden of non-performing loans which are expected to peak at over
20% of the total system's loan portfolio. If Malaysian banks were forced to
write off these bad debts at once they would have insufficient capital to make
new loans and some would have to close. The government has created two new
institutions to help recapitalize the banks. Danaharta, the state-owned asset
management corporation, is purchasing non-performing loans from the banks at
discounts to face value. Through the end of March, Danaharta had purchased
approximately 18% of the non-performing loans in the system. Danamodal, the
state-owned Bank Restructuring and Recapitalization Corporation, is injecting
fresh capital into troubled banks or helping restore capital levels at new banks
created through mergers. Recapitalizing banks to allow them to make fresh loans
in the future is imperative to restore strong economic growth. Malaysia relies
on commercial banks for much of the financial intermediation in the economy.
This bank recap plan has received widespread praise and should help speed
economic recovery. The ultimate success and costs of the program will depend on
the liquidation of Danaharta's bad assets over the next three to five years.
The domestic political environment remains somewhat unsettled. The lengthy trial
of Deputy Prime Minister Anwar Ibrahim ended in his conviction on corruption
charges and he was given a six year jail sentence. This ef-
2
<PAGE>
fectively removes him from the political equation. A political movement known as
reformasi and spearheaded by Anwar's wife will probably challenge the ruling
UMNO party but is unlikely to unseat the ruling party. However, some political
uncertainty remains due to the lack of a clear successor to the long-serving
Prime Minister. UMNO must call new elections by May 2000.
The Fund remains invested in a mix of consumer products companies, utilities and
banks. Key positions include Telekom Malaysia, the leading telephone operator,
Tenaga, the leading electric utility, and Rothmans of Pall Mall. Rothmans and a
number of the other consumer companies generate very high returns on capital
employed and return excess capital to shareholders via high dividend payout
ratios. During the first quarter of 1999, we increased our exposure to the
banking sector, largely based on the reforms discussed above.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
April 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 CHARACTERISTICS,
CAN NOW BE ACCESSED AT WWW.MSDW.COM/INSTITUTIONAL/INVESTMENTMANAGEMENT.
3
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of March 31, 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 3.13% -- 16.23% -- 22.58% --
One Year -46.21 -46.21% -41.18 -41.18% -33.15 -33.15%
Five Year -68.41 -20.58 -74.58 -23.96 -62.66 -17.88
Ten Year 2.73+ 0.27+ -34.95+ -4.21+ -11.05 -1.16
Since Inception* -29.46+ -2.89+ -39.98+ -4.19+ -16.16 -1.47
</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, THREE MONTHS
ENDED
MARCH 31,
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 $ 3.51
Market Value Per Share ...... $18.75 $11.38 $11.75 $16.25 $28.00 $17.38 $17.00 $17.50 $ 6.56 $ 4.00 $ 4.13
Premium/(Discount)........... 36.2% -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 17.7%
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% 16.23%
Index Total Return (3)....... 57.86% -10.07% 9.15% 20.33% 92.78% -19.74% 3.00% 25.12% -68.71% -29.63% 22.58%
</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 March 31, 1999 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
Equity Securities (84.1%)
Short-Term Investments (15.9%)
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SECTORS
[CHART]
Banking (14.1%)
Beverages & Tobacco (13.4%)
Broadcasting & Publishing (4.8%)
Energy Sources (5.1%)
Leisure & Tourism (6.8%)
Misc. Materials &
Commodities (10.4%)
Multi-Industry (10.5%)
Telecommunications --
Integrated (10.8%)
Transportation --
Shipping (5.2%)
Utilities --
Electrical & Gas (10.0%)
Other (8.9%)
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TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Telekom Malaysia Bhd 10.8%
2. Tenaga Nasional Bhd 8.1
3. Commerce Asset Holding Bhd 5.9
4. Malayan Banking Bhd 5.8
5. Rothmans of Pall Mall Bhd 5.5
6. Malaysian International Shipping Bhd 5.2
7. Petronas Gas Bhd 5.1
8. Genting Bhd 4.1
9. Star Publications (Malaysia) 3.7
10. Nestle Bhd 3.4
----
57.6%
----
----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
MARCH 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
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<S> <C> <C>
MALAYSIAN COMMON STOCKS (101.5%)
(Unless otherwise noted)
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AUTOMOBILES (3.6%)
Oriental Holdings Bhd 210,000 U.S.$ 331
Tan Chong Motor Holdings Bhd 3,697,000 905
------------
1,236
------------
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BANKING (14.1%)
Commerce Asset Holding Bhd 1,954,000 2,026
Malayan Banking Bhd 1,058,000 1,977
Public Bank Bhd 1,469,000 812
------------
4,815
------------
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BEVERAGES & TOBACCO (13.4%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,087
Guinness Anchor Bhd 967,000 931
R.J. Reynolds Bhd 720,500 656
Rothmans of Pall Mall Bhd 320,000 1,895
------------
4,569
------------
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BROADCASTING & PUBLISHING (4.8%)
Nanyang Press Bhd 496,000 381
Star Publications (Malaysia) 934,000 1,254
------------
1,635
------------
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ENERGY SOURCES (5.1%)
Petronas Gas Bhd 856,000 1,735
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FOOD & HOUSEHOLD PRODUCTS (4.5%)
Nestle Bhd 333,000 1,165
Yeo Hiap Seng (Malaysia) Bhd 649,000 383
------------
1,548
------------
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LEISURE & TOURISM (6.8%)
Genting Bhd 624,200 1,396
Tanjong plc 587,000 927
------------
2,323
------------
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MISC. MATERIALS & COMMODITIES (10.4%)
Austral Enterprises Bhd 840,000 787
Golden Hope Plantations Bhd 1,017,000 723
IOI Corporation Bhd 1,896,000 938
Kuala Lumpur Kepong Bhd 887,000 1,111
------------
3,559
------------
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MULTI-INDUSTRY (10.5%)
Amway (Malaysia) Holdings Bhd 485,000 740
Hap Seng Consolidated Bhd 2,079,000 1,094
Puncak Niaga Holding Bhd 1,134,000 806
Sime Darby Bhd 1,031,400 939
------------
3,579
------------
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REAL ESTATE (2.3%)
Selangor Properties Bhd 1,351,000 U.S.$ 551
Tan & Tan Development Bhd 764,000 251
------------
802
------------
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TELECOMMUNICATIONS -- INTEGRATED(10.8%)
Telekom Malaysia Bhd 1,833,000 3,690
------------
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TRANSPORTATION -- SHIPPING(5.2%)
Malaysian International Shipping Bhd 1,131,000 1,786
------------
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UTILITIES -- ELECTRICAL & GAS(10.0%)
Tenaga Nasional Bhd 1,889,000 2,784
YTL Power International Bhd 907,000 649
------------
3,433
------------
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TOTAL COMMON STOCKS
(Cost U.S.$42,631) 34,710
------------
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FACE
AMOUNT
(000)
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SHORT-TERM INVESTMENTS(10.3%)
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REPURCHASE AGREEMENT(10.3%)
Chase Securities, Inc. 4.65%,
dated 3/31/99, due 4/1/99,
to be repurchased at
U.S.$3,535, collateralized by
U.S.$2,695, United States
Treasury Bonds, 8.875%, due
8/15/17, valued at
U.S.$3,565
(Cost U.S.$3,535) U.S.$ 3,535 3,535
------------
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FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (8.8%)
Malaysian Ringgit
(Cost U.S.$3,027) MYR 11,437 3,010
------------
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TOTAL INVESTMENTS(120.6%)
(Cost U.S.$49,193) 41,255
------------
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OTHER ASSETS AND LIABILITIES (-20.6%)
Other Assets U.S.$ 198
Liabilities (7,251) (7,053)
------------ ------------
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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.$34,202
------------
------------
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NET ASSET VALUE PER SHARE U.S.$ 3.51
------------
------------
</TABLE>
6
