<PAGE>
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THE MALAYSIA FUND, INC.
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THIRD QUARTER REPORT
SEPTEMBER 30, 2000 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
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
Andrew McNally IV
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
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
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
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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/im.
<PAGE>
LETTER TO SHAREHOLDERS
---------
For the nine months ended September 30, 2000, The Malaysia Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of -6.96%
compared to -12.16% for the Kuala Lumpur Stock Exchange Composite Index
expressed in U.S. dollars (the "Index"). For the period from the Fund's
commencement of operations on May 4, 1987 through September 30, 2000, the Fund's
total return, based on net asset value per share, was -10.58% compared to 18.97%
for the Index. On September 30, 2000, the closing price of the Fund's shares on
the New York Stock Exchange was $4 1/8, representing a 19.3% discount to the
Fund's net asset value per share.
The Index's fall during the third quarter was driven mainly by disappointing
corporate earnings. Telekom Malaysia, a heavy component of the Index, fell 23.7%
during the period following the failed merger talks with NTT of Japan and a
33.2% fall in the second quarter of 2000 net profit. The financial sector also
underperformed in the third quarter of 2000 on fears of declining interest
margins. Volumes remained thin as foreigners continued to shun the market due to
the lack of corporate governance and delays in corporate restructuring. The
possibility of potential changes in benchmark methodology computations by Morgan
Stanley Capital Index (MSCI) also raised concerns that Malaysia's weight in the
regional MSCI indices would fall significantly.
On the economic front, second quarter 2000 headline Gross Domestic Product (GDP)
growth of 8.8% came in below expectations. Growth was narrow-based with the
export sector benefiting from the resilience of the global technology cycle. The
manufacturing sector recorded a robust 22% rise in output, but a weak
agriculture sector (-4.8%) dragged down GDP growth. On the expenditure side,
domestic demand ex-inventory rose by 17.4%, spurred by a substantial increase in
capital-related government expenditure. Private consumption grew at a slower
pace of 13.9% year-over-year compared to 14.4% in the first quarter of 2000. On
the trade front, the surplus remained healthy with August exports rising by
25.0% while imports surged 43.1% on the back of a 91.0% jump in capital good
imports. The year to August trade surplus stood at 37.7 billion Malaysian
ringgits.
Foreign exchange reserves decreased to U.S. $33.0 billion in August from U.S.
$34.0 billion in June. With the current account still notably in surplus,
capital outflows were clearly substantial, threatening the central bank's
ability to conduct an independent monetary policy. To stem the outflow, the
central bank persuaded banks to hike deposit rates by 25 basis points during the
third quarter. Inflation remained well under control, rising by 1.5% in
September. Inflationary pressure emanated mainly from rent, fuel and power
(+1.5%), medical care (+2.0%) as well as transport and communication (+1.8%).
With public transport fares and gasoline prices rising 30% and 9.1%,
respectively, in October, the Consumer Price Index is likely to edge higher in
the fourth quarter of 2000.
On the corporate front, interim earnings came in largely in-line with
expectations, with positive surprises coming from the domestic plays such as the
automotive, tobacco and power sectors. Meanwhile, corporate restructuring
continued to spook investors. Bank restructurings best illustrated the overall
theme affecting the market, which was a lack of confidence. Public Bank, AMMB
and RHB Capital have all seen significant share price underperformance
following their restructuring announcements.
The current upturn in the Malaysian economy can be classified as cyclical with
structural issues yet to be adequately resolved. Banks remain reluctant to lend,
as non-performing loans (NPLs) transferred to the Corporate Debt Restructuring
Committee remain unresolved. Foreign direct investment remains sluggish due to a
less than clear position of the pegged exchange rate. Monetary policy
flexibility has hit its upper bounds as the negative onshore-offshore interest
rate differential creates pressure on the capital account. Meanwhile, fiscal
policy will be limited to infrastructure projects, which have low multiplier
effects on overall output either because of long gestation periods or
unfavorable project economics. The economy thus remains vulnerable to external
shocks. In view of the lack of corporate restructuring and slow-down in economic
outlook, the Fund has overweight equity positions in companies we believe
possess strong management and transparent disclosures. These include shares of
Computer Systems Advisers and British American Tobacco.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
October 2000
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.
FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS AND
CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL SUPERVISION AND
REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET VOLATILITY AND POLITICAL
INSTABILITY.
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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/IM.
2
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of September 30, 2000 (Unaudited)
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<TABLE>
<CAPTION>
TOTAL RETURN (%)
HISTORICAL ---------------------------------------------------------------------
INFORMATION 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>
YEAR TO DATE -40.35% -- -6.96% -- -12.16% --
ONE YEAR -28.29 -28.29% 16.72 16.72% 5.63 5.63%
FIVE YEAR -70.94 -21.90 -66.41 -19.60 -52.81 -13.94
TEN YEAR -33.26 -3.96 -17.80 -1.94 10.49 1.00
SINCE INCEPTION* -27.96 -2.41 -10.58 -0.83 18.97 1.30
</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,
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share ... $ 12.41 $ 13.55 $ 16.28 $27.32 $ 18.57 $ 18.58 $ 19.29 $ 5.04 $ 3.02 $ 5.62 $ 5.12
Market Value Per Share ...... $ 11.38 $ 11.75 $ 16.25 $28.00 $ 17.38 $ 17.00 $ 17.50 $ 6.56 $ 4.00 $ 7.06 $ 4.13
Premium/(Discount) .......... -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 25.6% -19.3%
Income Dividends ............ $ 0.21 $ 0.07 -- $ 0.16 $ 0.02 -- -- -- $ 0.03 -- $ 0.11
Capital Gains Distributions . -- -- -- $ 1.13 $ 3.59 $ 0.84 $ 2.82 $ 0.51 -- -- --
Fund Total Return (2) ....... -8.35% 9.80% 20.15% 98.28%+ -18.87% 4.33% 19.93% -72.89% -39.70% 86.09% -6.96%
Index Total Return (3) ...... -10.02% 9.13% 20.19% 92.60% -19.66% 3.05% 25.12% -68.71% -29.61% 98.04% -12.16%
</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. The Fund's return based on net asset value
per share and the Index's return for 1998 were adjusted in reaction to the
imposition of capital controls by the Malaysian government during September
1998. During February 1999, the adjustment was removed 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.
Portfolio Summary as of September 30, 2000 (Unaudited)
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DIVERSIFICATION OF TOTAL INVESTMENTS
[PIE CHART]
<TABLE>
<S> <C>
Equity Securities (97.1%)
Short-Term Investments (2.9%)
</TABLE>
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INDUSTRIES
[PIE CHART]
<TABLE>
<S> <C>
Banks (18.O%)
Electric Utilities (10.3%)
Diversified Telecomunication Services (7.6%)
Food Products (6.9%)
Hotels Restaurants & Leisure (6.8%)
Other* (24.7%)
Diversified Financials (4.0%)
Wireless Telecommunication Services (4.2%)
IT Consulting and Services (5.0%)
Tobacco (6.2%)
Media (6.3%)
</TABLE>
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TEN LARGEST HOLDINGS**
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Malayan Banking Bhd 10.9%
2. Telekom Malaysia Bhd 7.6
3. British American Tobacco (Malaysia) Bhd 6.2
4. Tenaga Nasional Bhd 6.1
5. Computer Systems Advisers Bhd 5.0
6. Star Publications (Malaysia) Bhd 4.6
7. Digi.com Bhd 4.2
8. Public Finance Bhd (Foreign) 4.0
9. Malaysian Pacific Industries Bhd 3.9
10. Nestle (Malaysia) Bhd 3.9
-----
56.4%
-----
-----
</TABLE>
* Other includes industries not shown separately and other assets and
liabilities.
** Excludes short-term investments.
4
<PAGE>
INVESTMENTS (UNAUDITED)
------
September 30, 2000
<TABLE>
<CAPTION>
VALUE
SHARES (000)
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<S> <C> <C>
MALAYSIAN COMMON STOCKS (97.6%)
(Unless otherwise noted)
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AUTO COMPONENTS (1.1%)
AIC Corp. Bhd 143,000 U.S.$ 241
APM Automotive Holdings Bhd 554,550 296
-------------------
537
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AUTOMOBILES (3.1%)
Oriental Holdings Bhd 110,000 223
Tan Chong Motor Holdings Bhd 3,957,000 1,343
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1,566
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BANKS (18.0%)
Commerce Asset Holding Bhd 771,000 1,816
Malayan Banking Bhd 1,417,000 5,444
Public Bank Bhd 2,281,000 1,693
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8,953
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BEVERAGES (2.8%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,245
Guinness Anchor Bhd 181,000 163
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1,408
-------------------
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CONSTRUCTION & ENGINEERING (0.8%)
United Engineers (Malaysia) Bhd 253,000 396
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CONSTRUCTION MATERIALS (1.3%)
Malayan Cement Bhd 2,100,000 630
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DIVERSIFIED FINANCIALS (4.0%)
Public Finance Bhd (Foreign) 2,222,000 1,988
-------------------
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DIVERSIFIED TELECOMMUNICATION SERVICES (7.6%)
Telekom Malaysia Bhd 1,444,000 3,800
-------------------
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ELECTRIC UTILITIES (10.3%)
Malakoff Bhd 262,000 665
Tenaga Nasional Bhd 1,024,000 3,045
YTL Power International Bhd 2,263,200 1,406
-------------------
5,116
-------------------
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FOOD PRODUCTS (6.9%)
IOI Corporation Bhd 1,975,000 1,507
Nestle (Malaysia) Bhd 370,000 1,948
-------------------
3,455
-------------------
--------------------------------------------------------------------------------
GAS UTILITIES (2.4%)
Petronas Gas Bhd 783,000 1,216
-------------------
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HOTELS RESTAURANTS & LEISURE (6.8%)
Genting Bhd 557,200 U.S.$ 1,422
Resorts World Bhd 281,000 455
Tanjong plc 732,000 1,512
-------------------
3,389
-------------------
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.7%)
Malaysian Resources Corp. Bhd 693,000 350
-------------------
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INSURANCE (1.8%)
MAA Holdings Bhd 415,000 901
-------------------
--------------------------------------------------------------------------------
IT CONSULTING & SERVICES (5.0%)
Computer Systems Advisers Bhd 657,000 2,473
-------------------
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MARINE (2.7%)
Malaysian International
Shipping Bhd 736,000 1,337
-------------------
--------------------------------------------------------------------------------
MEDIA (6.3%)
Nanyang Press Holdings Bhd 496,000 822
Star Publications (Malaysia) Bhd 800,000 2,316
-------------------
3,138
-------------------
--------------------------------------------------------------------------------
REAL ESTATE (1.7%)
Selangor Properties Bhd 1,782,000 872
-------------------
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (3.9%)
Malaysian Pacific Industries Bhd 295,000 1,960
-------------------
--------------------------------------------------------------------------------
TOBACCO (6.2%)
British American Tobacco
(Malaysia) Bhd 329,000 3,095
-------------------
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (4.2%)
Digi.com Bhd 1,176,000 2,105
-------------------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$42,315) 48,685
-------------------
--------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.6%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.6%)
(a)Chase Securities, Inc., 6.25% dated
9/29/00, due 10/02/00
(Cost U.S.$290) U.S.$ 290 290
-------------------
--------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.3%)
Malaysian Ringgit
(Cost U.S.$1,147) MYR 4,360 1,147
-------------------
--------------------------------------------------------------------------------
5
<PAGE>
<CAPTION>
VALUE VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.5%)
(Cost U.S.$43,752) U.S.$ 50,122
-------------------
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.5%)
Other Assets U.S.$ 60
Liabilities (312) (252)
--------------------------------
--------------------------------------------------------------------------------
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.$ 49,870
-------------------
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 5.12
-------------------
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</TABLE>
(a) -- The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of this
schedule of investments. The investment in the repurchase agreement is
through participation in a joint account with affiliated funds.
September 30, 2000 exchange rate -- Malaysian Ringgit (MYR) 3.80 = U.S. $1.00.
6