<PAGE>
-----------------------------------------------------------
THE
MALAYSIA FUND,
INC.
-----------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
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
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
================================================================================
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
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
================================================================================
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 six months ended June 30, 2000, The Malaysia Fund, Inc. (the "Fund") had
a total return, based on net asset value per share, of 5.22% compared to 2.59%
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 June 30, 2000, the Fund's total return, based on net asset value
per share, was 1.13% compared to 38.95% for the Index. On June 30, 2000, the
closing price of the Fund's shares on the New York Stock Exchange was $4 13/16,
representing a 16.9% discount to the Fund's net asset value per share.
Aided by strong macro fundamentals and the impending re-inclusion into the MSCI
series of indices, Malaysia became one of the best-performing markets in Asia-
for the first five months of 2000 the Index was up 12.2%. However, in the month
of June 2000, it succumbed to selling pressure and ended the first half of 2000
with an increase of only 2.6%. The re-entry of Malaysia into various MSCI
indices on May 31, 2000 proved to be a non-event. Local investors harbored high
expectations that indexed funds will start a second wave of foreign portfolio
funds rushing into the market. However, policy wavering, relatively expensive
valuations and the lack of any major corporate restructuring proved to be major
negative influences.
GDP growth momentum remained strong and rose 11.7% in the first quarter of 2000
compared to 10.8% in the fourth quarter of 1999. Investments and private
spending led the growth, recording impressive increases of 12.3% and 14.4%,
respectively. Low interest rates and the wealth effect from the stock market
sparked private consumption growth. Public consumption, however, was anemic and
grew by only 1.0%. From the supply perspective, the manufacturing sector
remained the star performer, expanding by 27.3%. On the external front, the
trade surplus remained healthy, reaching U.S. $6.3 billion by the end of May
2000.
Inflation remained well under control in the first half of 2000, with the CPI
hovering around 1.5%. With capital controls still in place, the liquidity story
in Malaysia remains one of the strongest in Asia. While concerns about
inflationary pressures are bound to occur, there are still no signs of
overheating so far. Labor market tightness was centered only in the electronics
export sector. Demand for loans remained weak and a fair amount of slack existed
in other areas of the economy. However, the Central Bank governor has already
hinted that deposit and real interest rates may have to rise in the second half
of 2000 to fight inflation and provide consumers with positive real rates.
The ruling political party, UMNO, held their elections in May 2000 which saw
deputy Prime Minister Datuk Seri Abdullah Ahmad Badawi receiving a strong
endorsement from UMNO president Datuk Seri Dr. Mahathir to be his successor
(i.e. the country's next Prime Minister). A common theme throughout the General
Assembly was a call to stop money politics. Tun Diam may step down as Finance
Minister as the economy has recovered from the financial crisis. There were some
signs of a rift between the Prime Minister and the Finance Minister over
apparent disagreements over the handling of bank mergers, the cancellation of
the strategic alliance between a local and foreign telecommunications company,
as well as the appointment of a special financial adviser to the Prime Minister
- a move seen to undermine Tun Diam's position as Finance Minister.
The first quarter of 2000 corporate earnings announcements were mixed with
positive surprises coming from the electronics companies. Disappointments were
seen in consumer related stocks due to higher than expected costs while revenue
growth was within consensus forecasts. What was more disappointing to investors
was the seeming lack of any major corporate restructuring. A recently proposed
strategic alliance between a local and a foreign telecommunications company was
greeted warmly by investors as it was the first major corporate restructuring by
the largest infrastructure group in Malaysia with injection of foreign capital
and technology. The deal appeared to be a win-win situation for all parties
involved. However, it was subsequently called off, which aroused investors'
suspicions that political influence was the main reason. Otherwise, a few
corporates also made debt restructuring announcements over the past few months
but they were more debt rescheduling than anything else. Other corporate
governance issues erupted during the period, including the non-resolution of
inter-company loans between Berjaya Sports Toto and its sister companies.
2
<PAGE>
The market's premium valuation relative to the region may collapse once U.S.
rates peak and the safe haven status of Malaysia is lost. Poor corporate
governance and the country's seemingly inward-looking policy makes stock picking
a challenging task in Malaysia. The Fund continues to be overweight in companies
with good management and promising industry growth outlook, such as Malaysian
Pacific Industries and Computer Systems Advisers. Consumer plays like Star
Publications and British American Tobacco are also our preferred stocks.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
July 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.
--------------------------------------------------------------------------------
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.
3
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of June 30, 2000 (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>
YEAR TO DATE -30.29% -- 5.22% -- 2.59% --
ONE YEAR -32.67 -32.67% 16.18 16.18% 2.75 2.75%
FIVE YEAR -67.90 -20.33 -64.41 -18.67 -47.93 -12.24
TEN YEAR -42.59 -5.40 -24.45 -2.76 1.69 0.17
SINCE INCEPTION* -15.81 -1.30 1.13 0.08 38.95 2.53
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
--------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[CHART]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 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 $5.79
Market Value Per Share ........ $11.38 $11.75 $16.25 $28.00 $17.38 $17.00 $17.50 $ 6.56 $ 4.00 $7.06 $4.81
Premium/(Discount) ............ -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 25.6% -16.9%
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% 5.22%
Index Total Return (3) ........ -10.02% 9.13% 20.19% 92.60% -19.66% 3.05% 25.12% -68.71% -29.61% 98.04% 2.59%
</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.
4
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of June 30, 2000 (Unaudited)
================================================================================
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (96.3%)
Short-Term Investments (3.7%)
</TABLE>
--------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Banks (18.7%)
Diversified Financials (4.2%)
Diversified Telecommunication Services (8.8%)
Electric Utilities (9.4%)
Food Products (5.2%)
Hotels Restaurants & Leisure (8.3%)
IT Consulting and Services (4.1%)
Media (6.6%)
Semiconductor Equipment & Products (8.6%)
Tobacco (4.8%)
Other (21.3%)
</TABLE>
--------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
------------
<S> <C>
1. Malayan Banking Bhd 10.2%
2. Telekom Malaysia Bhd 8.8
3. Tenaga Nasional Bhd 5.9
4. Malaysian Pacific Industries Bhd 5.4
5. Star Publications (Malaysia) 4.8
6. British American Tobacco Bhd 4.8
7. Public Bank Bhd 4.5
8. Public Finance Bhd (Foreign) 4.2
9. Computer Systems Advisers Bhd 4.1
10. Commerce Asset-Holding Bhd 4.0
----
56.7%
====
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
---------
STATEMENT OF NET ASSETS (UNAUDITED)
---------
JUNE 30, 2000
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (98.6%)
(Unless otherwise noted)
--------------------------------------------------------------------------------
AUTO COMPONENTS (0.5%)
APM Automotive Holdings Bhd 554,550 U.S.$ 295
------------
--------------------------------------------------------------------------------
AUTOMOBILES (3.6%)
Oriental Holdings Bhd 210,000 442
Tan Chong Motor Holdings Bhd 3,957,000 1,562
------------
2,004
------------
--------------------------------------------------------------------------------
BANKS (18.7%)
Commerce Asset-Holding Bhd 771,000 2,232
Malayan Banking Bhd 1,417,000 5,742
Public Bank Bhd 2,779,000 2,560
------------
10,534
------------
--------------------------------------------------------------------------------
BEVERAGES (2.8%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,398
Guinness Anchor Bhd 181,000 169
------------
1,567
------------
--------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (1.2%)
Malayan Cement Bhd 2,100,000 691
------------
--------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS (4.2%)
Public Finance Bhd (Foreign) 2,222,000 2,351
------------
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (8.8%)
Telekom Malaysia Bhd 1,444,000 4,978
------------
--------------------------------------------------------------------------------
ELECTRIC UTILITIES (9.4%)
Malakoff Bhd 262,000 655
Tenaga Nasional Bhd 1,024,000 3,342
YTL Power International Bhd 2,263,200 1,322
------------
5,319
------------
--------------------------------------------------------------------------------
FOOD PRODUCTS (5.2%)
IOI Corporation Bhd 1,975,000 1,554
Nestle Bhd 294,000 1,362
------------
2,916
------------
--------------------------------------------------------------------------------
GAS UTILITIES (2.5%)
Petronas Gas Bhd 783,000 1,401
------------
--------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE (8.3%)
Genting Bhd 557,200 2,053
Resorts World Bhd 327,000 895
Tanjong plc 732,000 1,753
------------
4,701
------------
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.7%)
(a)Malaysian Resources Corp. Bhd 693,000 397
------------
--------------------------------------------------------------------------------
INSURANCE (1.1%)
MAA Holdings Bhd 241,000 U.S.$ 634
------------
--------------------------------------------------------------------------------
IT CONSULTING & SERVICES (4.1%)
Computer Systems Advisers Bhd 552,000 2,324
------------
--------------------------------------------------------------------------------
MARINE (2.1%)
Malaysian International Shipping Bhd 736,000 1,152
------------
--------------------------------------------------------------------------------
MEDIA (6.6%)
Nanyang Press Holdings Bhd 496,000 972
Star Publications (Malaysia) 800,000 2,716
------------
3,688
------------
--------------------------------------------------------------------------------
REAL ESTATE (1.6%)
Selangor Properties Bhd 1,782,000 924
------------
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (8.6%)
Malaysian Pacific Industries Bhd 295,000 3,028
Unisem (Malaysia) Bhd 259,000 1,840
------------
4,868
------------
--------------------------------------------------------------------------------
TOBACCO (4.8%)
British American Tobacco Bhd 329,000 2,684
------------
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (3.8%)
(a)Digi.com Bhd 1,176,000 2,151
------------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$41,862) 55,579
------------
--------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.7%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Chase Securities Inc., 6.15%, dated 06/30/00
due 7/03/00, to be repurchased at U.S.$983,
collateralized by U.S.$695 United States
Treasury Bond, 13.25%, due 5/15/14, valued at
U.S.$1,026
(Cost U.S.$982) 982 982
------------
--------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.1%)
Malaysian Ringgit
(Cost U.S.$1,153) MYR 4,380 1,153
------------
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (102.4%)
(Cost U.S.$43,997) 57,714
------------
--------------------------------------------------------------------------------
OTHER ASSETS (0.1%)
Dividends Receivable U.S.$ 45
Other 12 U.S.$ 57
--------- ------------
--------------------------------------------------------------------------------
LIABILITIES (-2.5%)
Payable For:
Dividends Declared (1,065)
Directors' Fees and Expenses (51)
Professional Fees (47)
U.S. Investment Advisory Fees (41)
Shareholder Reporting Expenses (39)
Malaysian Investment Advisory Fees (35)
Administrative Fees (24)
Custodian Fees (22)
Other Liabilities (80) (1,404)
--------- ------------
--------------------------------------------------------------------------------
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.$ 56,367
============
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 5.79
============
--------------------------------------------------------------------------------
AT JUNE 30, 2000 NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Common Stock 97
Capital Surplus 121,059
Distributions in Excess of Net Investment Income (463)
Accumulated Net Realized Loss (78,043)
Unrealized Appreciation on Investments and Foreign
Currency Translations (net of accrued foreign
taxes of U.S.$20) 13,717
--------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 56,367
============
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing.
June 30, 2000 exchange rate -- Malaysian Ringgit (MYR) 3.80 = U.S. $1.00.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends ..................................................................................... U.S.$ 845
Interest ...................................................................................... 33
Less: Foreign Taxes Withheld .................................................................. (124)
---------------------------------------------------------------------------------------------------------------------------
Total Income .................................................................................. 754
---------------------------------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees ................................................................. 268
Malaysian Investment Advisory Fees ............................................................ 72
Administrative Fees ........................................................................... 66
Professional Fees ............................................................................. 51
Directors' Fees and Expenses .................................................................. 24
Custodian Fees ................................................................................ 17
Shareholder Reporting Expenses ................................................................ 15
Transfer Agent Fees ........................................................................... 13
Other Expenses ................................................................................ 23
---------------------------------------------------------------------------------------------------------------------------
Total Expenses ................................................................................ 549
---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ......................................................................... 205
---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold .................................................................... 1,261
Foreign Currency Transactions ................................................................. (15)
---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain ............................................................................. 1,246
---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments (net of accrued foreign taxes of U.S.$20) ......................... 1,241
---------------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation .................... 2,487
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................... U.S.$ 2,692
===========================================================================================================================
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income .......................................................... U.S.$ 205 U.S.$ 118
Net Realized Gain (Loss) ....................................................... 1,246 (2,636)
Change in Unrealized Appreciation/Depreciation ................................. 1,241 27,858
---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ........................... 2,692 25,340
---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .......................................................... (1,065) --
---------------------------------------------------------------------------------------------------------------------------
Total Increase ................................................................. 1,627 25,340
Net Assets:
Beginning of Period ............................................................ 54,740 29,400
---------------------------------------------------------------------------------------------------------------------------
End of Period (including (distributions in excess of)/undistributed
net investment income of U.S.$(463) and U.S.$397, respectively) ................ U.S.$ 56,367 U.S.$ 54,740
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA SIX MONTHS
AND RATIOS: ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 2000 --------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... U.S.$ 5.62 U.S.$ 3.02 U.S.$ 5.04 U.S.$ 19.29 U.S.$ 18.58 U.S.$ 18.57
------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ............. 0.02 0.01 0.01 0.02 (0.04) (0.03)
Net Realized and Unrealized Gain
(Loss) on Investments .................... 0.26 2.59 (2.00) (13.76) 3.57 0.88
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ......... 0.28 2.60 (1.99) (13.74) 3.53 0.85
------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .................... (0.11) -- (0.03) -- -- --
In Excess of Net Investment Income ....... -- -- (0.00)# -- -- --
Net Realized Gains ....................... -- -- -- -- (2.82) (0.74)
In Excess of Net Realized Gains .......... -- -- -- (0.51) -- (0.10)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ...................... (0.11) -- (0.03) (0.51) (2.82) (0.84)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ........... U.S.$ 5.79 U.S.$ 5.62 U.S.$ 3.02 U.S.$ 5.04 U.S.$ 19.29 U.S.$ 18.58
====================================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD .... U.S.$ 4.81 U.S.$ 7.06 U.S.$ 4.00 U.S.$ 6.56 U.S.$ 17.50 U.S.$ 17.00
====================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value ............................. (30.29)% 76.56% (38.66)% (61.09)% 18.92% 2.03%
Net Asset Value (1) ...................... 5.22% 86.09%+ (39.70)%+ (72.89)% 19.93% 4.33%
====================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) .... U.S.$ 56,367 U.S.$ 54,740 U.S.$ 29,400 U.S.$ 49,048 U.S.$187,762 U.S.$180,674
------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets .. 1.76%* 2.24% 2.32% 1.35% 1.29% 1.44%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................... 0.66%* 0.27% 0.31% 0.14% (0.18)% (0.14)%
Portfolio Turnover Rate .................. 12% 37% 124% 107% 50% 33%
------------------------------------------------------------------------------------------------------------------------------------
</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.
+ During the period from September 1998 to February 1999, the Fund adjusted
its net asset value in reaction to the imposition of capital controls by the
Malaysian government. During February 1999, the Fund's net asset value was
again modified to reflect the relaxation of these capital controls. The
result of such adjustment was a decrease to the total return in 1998 and an
increase to the total return in 1999.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
---------
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 under procedures
approved by the Board of Directors, 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.
All of the Fund's dividends from Malaysian equity securities are subject to
Malaysian tax. This tax is shown as foreign taxes withheld on the Statement
of Operations. Effective September 21, 1999, Malaysia enacted a 10% tax on
repatriated profits for new capital invested in the country. In addition,
all securities purchased after September 21, 1999 are subject to a 10% levy
on gains realized on sales of such securities. The Fund has accrued this
tax, which is included in unrealized appreciation on investments in the
Statement of Net Assets.
3. REPURCHASE AGREEMENTS: The Fund may enter into into repurchase agreements
under which the Fund lends excess cash and takes possession of securities
with an agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
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 counteparty 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
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) due to securities transactions
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
10
<PAGE>
rates are reflected as a component of unrealized appreciation
(depreciation) on investments and foreign currency translations in the
Statement of Net Assets. The change in net unrealized currency gains
(losses) on foreign currency translations for the period is reflected in
the Statements of Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
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 assets as
segregated on the Fund's records. 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.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the
11
<PAGE>
related amounts shown in the Statement of Net Assets.
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
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: Securities and other derivative instruments that
may be purchased or sold by the Fund may 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.
The Fund did not invest in Forward Commitments and When-Issued/Delayed
Delivery Securities, Swap Agreements, Structured Securities or participate in
Over-the-Counter Trading during the six month period ended June 30, 2000.
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 by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid in capital.
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 Dean Witter Investment 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. For the six month period ended June 30, 2000, the Fund made purchases and
sales totaling $7,075,000 and $7,778,000, 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, 2000,
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<PAGE>
the U.S. Federal income tax cost basis of securities was $42,844,000 and,
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $13,717,000, of which $15,830,000 related to appreciated securities and
$2,113,000 related to depreciated securities. At December 31, 1999, the Fund had
a capital loss carryforward for U.S. Federal income tax purposes of
approximately $77,195,000 available to offset future capital gains of which
$8,792,000 will expire on December 31, 2005, $65,683,000 will expire on December
31, 2006 and $2,720,000 will expire on December 31, 2007. 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. Future economic and political developments in
Malaysia could adversely affect the liquidity or value, or both, of securities
in which the Fund is invested. 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. At June 30, 2000, the deferred fees payable, under the
Plan, totaled $51,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
I. During June 2000, the Board of Directors declared a distribution of
$0.1094 per share, derived from net investment income, payable on July 11, 2000,
to shareholders of record on June 30, 2000.
J. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Fund was held on June 15, 2000.
The following is a summary of the proposal presented and the total number of
shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- --------- -----------
<S> <C> <C> <C>
1. To elect the following Directors: Andrew McNally IV ............ 6,005,130 83,497 --
Frederick O. Robertshaw ...... 6,002,833 85,794 --
Harold J. Schaaff, Jr. ....... 6,001,935 86,692 --
Fergus Reid .................. 6,001,531 87,096 --
Graham E. Jones .............. 6,004,342 84,285 --
John D. Barrett II ........... 6,001,513 87,114 --
Samuel T. Reeves ............. 6,003,086 85,541 --
Gerard E. Jones .............. 6,000,663 87,964 --
</TABLE>
The Annual Meeting of the Stockholders of the Fund was reconvened on August 1,
2000. The following is a summary of the proposal presented and the total number
of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- --------- -----------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as independent
accountants of the Fund ......................................... 5,848,438 41,092 13,828
</TABLE>
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS, IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP, WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS, AUDIT COMMITTEE AND SHAREHOLDERS, ENGAGED
ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS AS OF AUGUST 1, 2000.
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. 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 shares 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 income 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
