<PAGE>
--------------------------------------------------------------
THE
MALAYSIA FUND,
INC.
--------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
THE MALAYSIA FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment 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 Lampur, Malaysia
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 730-6001
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the six months ended June 30, 1999, The Malaysia Fund, Inc. (the "Fund") had
a total return, based on net asset value per share, of 68.54% compared to 97.74%
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 June 30, 1999, the Fund's
total return, based on net asset value per share, was -12.96% compared to 35.24%
for the Index. On June 30, 1999, the closing price of the Fund's shares on the
New York Stock Exchange was $7 5/16, representing a 43.6% 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.
Incremental foreign portfolio investments have bypassed Malaysia largely due to
the continued existence of capital controls. Repatriation of principal will
continue to be subject to exit tax until September 1,1999. Malaysia is still not
included in several key indexes used to track performance of most fund managers.
The economic outlook for Malaysia is improving. Easy monetary policy backed by
aggressive public spending has set the scene for the economy to recover. The
first quarter contraction in gross domestic product of 1.3% is likely to be the
last quarter of contraction. Economic growth should return to a positive trend
in the second quarter and should accelerate further, primarily from a strong
fiscal stimulus. A pick up in intra-Asia trade and a weak Yen have also enabled
Malaysia to build a sizable current account surplus. We expect 1999 to continue
registering trade surpluses, albeit at a lower rate compared to 1998, as
economic recovery calls for higher export consumption. Regional electronics
demand has picked up substantially which should keep the export numbers
increasing.
Danaharta, modeled after the Asset Resolution Trust of the U.S., was set up in
June 1998. Progress so far has been satisfactory, and Danaharta has claimed to
have carved out close to 22% of total non-performing loans (NPLs) from the
banking system. Danamodal, in charge of the recapitalization of banks, has also
been efficient. An estimated MYR 6.7 billion has been injected into ten banks
and finance companies. Sales of NPLs, however, have not been transparent and
progress has been slow, partly due to the glut of property that has not been
removed from the system. These NPLs, therefore, remain in the system waiting to
be recovered when the property sector revives. Danaharta could potentially
become the single largest real estate owner in Malaysia and the problem could
become a fiscal one. At this point, most banks seem reluctant to lend despite
recent capital injections as they are more concerned with strengthening internal
operations.
Malaysia's approach to turning around the economy has involved a
heavy dose of government intervention and liberal injection of public funds to
bail-out troubled corporate and financial institutions. The policy response has
involved limited restructuring and reform and painful closure of excess capacity
in production and real estate. The latest bail-out involved Telekom Malaysia,
the nation's biggest telecommunications company and United Engineer Malaysia, a
politically connected group. Telekom Malaysia and UEM announced their joint
intention to acquire CLOB shares at a 25% discount by issuing new shares at a
30% premium. CLOB shares are shares traded in the Singapore market, which have
been frozen since the imposition of capital controls. The majority of CLOB
shares are held by Singapore retail investors, which are now forced to hold
shares of Telekom and UEM at a significant premium. Another example is the bail
out of Proton, Malaysia's biggest `national car' manufacturer, by cash rich
Petronas Gas. Oversupply in the property sector, lack of corporate governance
and no change in the political agenda, which encourage misallocation of capital,
could seriously limit investor appetite in Malaysian stocks in the long term.
Given the lack of adequate corporate governance in Malaysia, the Fund remains
invested in selected banks that have been recapitalized and in companies with
management which focus on shareholder value. Good companies, however, may
continue to be under the threat of government arm-twisting to bail out bad
companies. Based on the progressive reforms in the banking sector discussed
above, we have also increased our exposure in the banking sector stocks this
year.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
July 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.
- --------------------------------------------------------------------------------
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.
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of June 30, 1999 (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 82.81% -- 68.54% -- 97.74% --
ONE YEAR 36.05 36.05% 45.85 45.85% 93.47 93.47%
FIVE YEAR -49.50 -12.77 -65.35 -19.10 -45.04 -11.28
TEN YEAR 47.18 3.94 -15.55 -1.68 29.44 2.61
SINCE INCEPTION* 25.05 1.85 -12.96 -1.13 35.24 2.51
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 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 $ 5.09
Market Value Per Share $ 18.75 $ 11.38 $ 11.75 $ 16.25 $ 28.00 $ 17.38 $ 17.00 $ 17.50 $ 6.56 $ 4.00 $ 7.31
Premium/(Discount) 36.2% -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 43.6%
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% 68.54%
Index Total Return (3) 57.86% -10.07% 9.15% 20.33% 92.78% -19.74% 3.00% 25.12% -68.71% -29.63% 97.74%
</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.
3
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (94.9%)
Short-Term Investment (5.1%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Automobiles (5.5%)
Banking (17.4%)
Beverages & Tobacco (10.7%)
Broadcasting & Publishing (4.4%)
Finance (4.8%)
Leisure & Tourism (7.7%)
Misc. Materials & Commodities (4.7%)
Multi-Industry (5.0%)
Telecommunications -- Integrated (13.2%)
Utilities -- Electrical & Gas (14.3%)
Other (12.3%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Telekom Malaysia Bhd 13.2%
2. Commerce Asset Holding Bhd 7.3
3. Malayan Banking Bhd 6.4
4. Tenaga Nasional Bhd 5.0
5. Sime Darby Bhd 5.0
6. Genting Bhd 4.8
7. Rothmans of Pall Mall Bhd 4.8
8. Public Finance Bhd 4.8
9. Tan Chong Motor Holdings Bhd 4.4
10. Malaysian International Shipping Bhd 4.3
----
60.0%
----
----
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (102.4%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
AUTOMOBILES (5.5%)
Oriental Holdings Bhd 210,000 U.S.$ 574
Tan Chong Motor Holdings Bhd 3,697,000 2,160
-------------
2,734
- --------------------------------------------------------------------------------
BANKING (17.4%)
Commerce Asset Holding Bhd 1,454,000 3,597
Malayan Banking Bhd 1,058,000 3,174
Public Bank Bhd 2,416,000 1,837
-------------
8,608
- --------------------------------------------------------------------------------
BEVERAGES & TOBACCO (10.7%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,179
Guinness Anchor Bhd 967,000 1,064
R.J. Reynolds Bhd 578,500 676
Rothmans of Pall Mall Bhd 313,000 2,368
-------------
5,287
- --------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (4.4%)
Nanyang Press Bhd 496,000 624
Star Publications (Malaysia) 670,000 1,587
-------------
2,211
- --------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES (1.4%)
Hap Seng Consolidated Bhd 1,087,000 675
-------------
- --------------------------------------------------------------------------------
CONSTRUCTION & HOUSING (1.4%)
Tan & Tan Development Bhd 1,257,000 675
-------------
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (2.0%)
(a)Puncak Niaga Holding Bhd 1,134,000 1,015
-------------
- --------------------------------------------------------------------------------
FINANCE (4.8%)
Public Finance Bhd 2,243,000 2,361
-------------
- --------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (2.7%)
Nestle Bhd 343,000 1,354
-------------
- --------------------------------------------------------------------------------
LEISURE & TOURISM (7.7%)
Genting Bhd 624,200 2,382
Tanjong plc 587,000 1,460
-------------
3,842
- --------------------------------------------------------------------------------
MACHINERY & ENGINEERING (0.9%)
Austral Enterprises Bhd 427,000 440
-------------
- --------------------------------------------------------------------------------
MISC. MATERIALS & COMMODITIES (4.7%)
Golden Hope Plantations Bhd 517,000 443
IOI Corporation Bhd 1,975,000 1,253
Kuala Lumpur Kepong Bhd 462,000 632
-------------
2,328
-------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (5.0%)
Sime Darby Bhd 1,898,400 2,488
-------------
- --------------------------------------------------------------------------------
REAL ESTATE (2.0%)
Selangor Properties Bhd 1,782,000 975
-------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - INTEGRATED (13.2%)
Telekom Malaysia Bhd 1,753,000 6,551
-------------
- --------------------------------------------------------------------------------
TRANSPORTATION - SHIPPING (4.3%)
Malaysian International Shipping Bhd 1,182,000 2,131
-------------
- --------------------------------------------------------------------------------
UTILITIES - ELECTRICAL & GAS (14.3%)
Malakoff Bhd 262,000 696
Petronas Gas Bhd 885,000 2,096
Tenaga Nasional Bhd 1,083,000 2,494
YTL Power International Bhd 1,886,000 1,807
-------------
7,093
-------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$40,648) 50,768
-------------
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.6%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.6%)
Chase Securities, Inc. 4.55%,
dated 6/30/99, due 7/1/99,
to be repurchased at
U.S.$1,305, collateralized by
U.S.$1,215, United States
Treasury Bonds, 7.25%, due
5/15/16, valued at U.S.$1,350
(Cost U.S.$1,305) U.S.$ 1,305 1,305
------------- -------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.9%)
Malaysian Ringgit
(Cost $1,423) MYR 5,407 1,423
-------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (107.9%)
(Cost $43,376) 53,496
-------------
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
OTHER ASSETS (0.8%)
Cash U.S.$ 1
Receivable for Investments Sold 295
Dividends Receivable 56
Other Assets 44 396
------------- -------------
- --------------------------------------------------------------------------------
<CAPTION>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
AMOUNT AMOUNT
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
LIABILITIES (-8.7%)
Deferred Country Taxes U.S.$ (2,878)
Payable For:
Investments Purchased (914)
U.S. Investment Advisory Fees (263)
Custodian Fees (55)
Professional Fees (51)
Directors' Fees and Expenses (36)
Administrative Fees (35)
Shareholder Reporting Expenses (29)
Malaysian Investment Advisory Fees (20)
Other Liabilities (31) U.S.$ (4,312)
------------- -------------
- --------------------------------------------------------------------------------
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.$49,580
-------------
-------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 5.09
-------------
-------------
- --------------------------------------------------------------------------------
AT JUNE 30, 1999, NET ASSETS CONSISTED OF:
Common Stock U.S.$ 97
Capital Surplus 121,059
Undistributed Net Investment Income 87
Accumulated Net Realized Loss (78,905)
Unrealized Appreciation on Investments and
Foreign Currency Translations 7,242
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 49,580
-------------
-------------
- --------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
June 30, 1999 exchange rate -- Malaysian Ringgit (MYR) 3.80 =
U.S. $1.00.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends ...................................................................... U.S.$ 633
Interest ...................................................................... 56
Less: Foreign Taxes Withheld ................................................... (170)
- --------------------------------------------------------------------------------------------------------
Total Income ................................................................. 519
- --------------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees .................................................. 171
Malaysian Investment Advisory Fees ............................................. 47
Professional Fees .............................................................. 62
Administrative Fees ............................................................ 46
Directors' Fees and Expenses ................................................... 35
Shareholder Reporting .......................................................... 21
Custodian Fees ................................................................. 18
Transfer Agent Fees ............................................................ 3
Other Expenses ................................................................. 24
- --------------------------------------------------------------------------------------------------------
Total Expenses ............................................................... 427
- --------------------------------------------------------------------------------------------------------
Net Investment Income ....................................................... 92
- --------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ..................................................... (2,719)
Foreign Currency Transactions .................................................. 183
- --------------------------------------------------------------------------------------------------------
Net Realized Loss ........................................................... (2,536)
- --------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments .................................................... 22,404
Appreciation on Foreign Currency Translations .................................. 220
- --------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ............................... 22,624
- --------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized
Appreciation/Depreciation ........................................................ 20,088
- --------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ........................... U.S.$ 20,180
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net Investment Income ............................................. U.S.$ 92 U.S.$ 116
Net Realized Loss ................................................. (2,536) (47,692)
Change in Unrealized Appreciation/Depreciation .................... 22,624 28,245
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ... 20,180 (19,331)
- --------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ............................................. -- (328)
In Excess of Net Investment Income ................................ -- (5)
- --------------------------------------------------------------------------------------------------------
Total Distributions ............................................... -- (333)
- --------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (0 and 5,049 shares, respectively) .. -- 16
- --------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Capital Share Transactions .................................. -- 16
- --------------------------------------------------------------------------------------------------------
Total Increase (Decrease) ......................................... 20,180 (19,648)
Net Assets:
Beginning of Period ............................................... 29,400 49,048
- --------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income /
(distribution in excess of net investment income) of U.S.$87
and U.S.$(5), respectively) ...................................... U.S.$ 49,580 U.S.$ 29,400
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA 1999 ----------------------------------------
AND RATIOS: (UNAUDITED) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... U.S.$ 3.02 U.S.$ 5.04 U.S.$ 19.29
- -------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ............... 0.01 0.01 0.02
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 2.06 (2.00) (13.76)
- -------------------------------------------------------------------------------------------------------
Total from Investment Operations ........ 2.07 (1.99) (13.74)
- -------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ..................... -- (0.03) --
In Excess of Net Investment Income ........ -- (0.00)# --
Net Realized Gains ........................ -- -- --
In Excess of Net Realized Gains ........... -- -- (0.51)
- -------------------------------------------------------------------------------------------------------
Total Distributions ..................... -- (0.03) (0.51)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............. U.S.$ 5.09 U.S.$ 3.02 U.S.$ 5.04
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD ...... U.S.$ 7.31 U.S.$ 4.00 U.S.$ 6.56
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value .............................. 82.81% (38.66)% (61.09)%
Net Asset Value (1) ....................... 68.54% (39.70)% (72.89)%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ...... U.S.$49,580 U.S.$29,400 U.S.$49,048
- -------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets .... 2.25%* 2.32% 1.35%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................... 0.49%* 0.31% 0.14%
Portfolio Turnover Rate .................... 23% 124% 107%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
SELECTED PER SHARE DATA ------------------------------------------------------------
AND RATIOS: 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... U.S.$ 18.58 U.S.$ 18.57 U.S.$ 27.32
- --------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ............... (0.04) (0.03) 0.01
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 3.57 0.88 (5.15)
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations ........ 3.53 0.85 (5.14)
- --------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ..................... -- -- --
In Excess of Net Investment Income ........ -- -- (0.02)
Net Realized Gains ........................ (2.82) (0.74) (3.30)
In Excess of Net Realized Gains ........... -- (0.10) (0.29)
- --------------------------------------------------------------------------------------------------------
Total Distributions ..................... (2.82) (0.84) (3.61)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............. U.S.$ 19.29 U.S.$ 18.58 U.S.$ 18.57
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD ...... U.S.$ 17.50 U.S.$ 17.00 U.S.$ 17.38
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value .............................. 18.92% 2.03% (25.94)%
Net Asset Value (1) ....................... 19.93% 4.33% (18.87)%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ...... U.S.$187,762 U.S.$180,674 U.S.$180,587
- --------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets .... 1.29% 1.44% 1.19%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................... (0.18)% (0.14)% 0.05%
Portfolio Turnover Rate .................... 50% 33% 23%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
# Amount is less than U.S.$0.01
(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. This percentage is 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.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
- -----------
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 25% 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
generally 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 rate
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 rates are
reflected as a component of unrealized ap-
9
<PAGE>
preciation (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.
The Fund may use derivatives to achieve its investment objectives. The Fund
may engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with
the Fund's investment objectives and policies, the Fund may use derivatives
for non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may
utilize and their associated risks:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. 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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value
reported in the Statement of Net Assets may differ from that which would
be realized in the event the Fund terminated its position in the
agreement. Risks may arise upon entering into these agreements from the
potential inability of the counterparties to meet the terms of the
agreements and are generally limited to the amount of net interest
payments to be received and/or favorable movements in the value of the
underlying security, instrument or basket of instruments, if any, at the
date of default.
8. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
10
<PAGE>
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the Structured Security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in Structured Securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of
the original investment.
9. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
10. 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 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 Dean Witter Investment 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 0.90% of the Fund's first $50 million of average weekly net assets,
0.70% of the Fund's next $50 million of average weekly net assets and 0.50%
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 0.25% of the Fund's first $50 million of average weekly net
assets, 0.15% of the Fund's next $50 million of average weekly net assets and
0.10% of the Fund's average weekly net assets in excess of $100 million.
D. The Chase Manhattan Bank, through its corporate 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 0.20% of the Fund's first $50 million of
average weekly net assets, 0.15% of the Fund's next $50 million of average
weekly net assets and 0.10% 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.
E. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees
are payable monthly based on assets held in custody, investment purchase and
sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
F. During the six months ended June 30, 1999, the Fund made purchases and
sales totaling $11,275,000 and $8,384,000, 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, 1999, the U.S. Federal income tax cost basis of
securities was $41,953,000 and, accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $10,120,000, of which $12,031,000
related to appreciated securities and $1,911,000 related to depreciated
securities. At December 31, 1998, the Fund had a capital loss carryforward
for U.S. Federal income tax purposes of approximately $74,475,000 available
to offset future capital gains of which $8,792,000 will expire on December
31, 2005 and $65,683,000 will ex-
11
<PAGE>
pire on December 31, 2006. To the extent that capital loss carryforwards are
used to offset any future capital gains realized during the carryforward period
as provided by U.S. Federal income tax regulations, no capital gains tax
liability will be incurred by the Fund for gains realized and not distributed.
To the extent that capital gains are offset, such gains will not be distributed
to the shareholders.
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, 1999, totaled $30,000 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
June 21, 1999. The following is a summary of each proposal presented and the
total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES AUTHORITY VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
<S> <C> <C> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase 5,814,509 -- 97,778 --
David B. Gill 5,814,309 -- 97,978 --
Michael F. Klein 5,812,348 -- 99,939 --
2. To ratify the selection of PricewaterhouseCoopers LLP
as independent accountants of the Fund 5,851,761 23,194 -- 37,332
</TABLE>
12
<PAGE>
YEAR 2000 DISCLOSURE (UNAUDITED):
The investment advisory services provided to the Fund by the Advisers depend
on the smooth operation of their computer systems. Many computer and software
systems in use today cannot recognize the year 2000, but revert to 1900 or
some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Advisers have been
actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted
before that date. There can be no assurance, however, that they will be
successful. In addition, other unaffiliated service providers may be faced
with similar problems. The Advisers are monitoring their remedial efforts,
but, there can be no assurance that they and the services they provide will
not be adversely affected.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
13
<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 share s valued at 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 inc ome 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.
Shareholders who do not wish to have distributions automatically reinvested
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
1-800-730-6001
14
