<PAGE>
--------------------------------------------------------
THE
MALAYSIA FUND,
INC.
--------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 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
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
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 year ended December 31, 1999, The Malaysia Fund, Inc. (the "Fund") had a
total return, based on net asset value per share, of 86.09% compared to 98.04%
for the Kuala Lumpur Stock Exchange Composite Index expressed in U.S. dollars
(the "Index") and adjusted as described below. For the period from the Fund's
commencement of operations on May 4, 1987 through December 31, 1999, the Fund's
total return, based on net asset value per share, was -3.89% compared to 35.46%
for the Index. On December 31, 1999, the closing price of the Fund's shares on
the New York Stock Exchange was $7 1/16, representing a 25.6% 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.
The Malaysian market started the fourth quarter with the Index rising 10% in the
first six trading days of October after exit taxes were replaced with a 10%
capital gains tax principally on capital brought into the country after
February, 1999. Thereafter the market gravitated to greater volatility on
concerns over political uncertainties pre and post general elections, the delay
in Malaysia's inclusion in the MSCI Far East Free Index from February 2000 to
May 2000, and policy and restructuring related news flow which threatened
perceived market-openness of the country.
Results of Malaysia's November 1999 snap general elections were not completely
favorable. While the Barisan National managed to retain the much vaunted
two-thirds majority, Malay votes were clearly split, suggesting waning in Dr.
Mohammed Mahathir's leadership. Gains by the fundamentalist Islamic party, PAS,
in the northern states also elevated fears of increased Islamisation of UMNO and
government policy going forward. A key positive that emerged from the elections
was the strengthening of deputy prime minister Abdullah Badawi's claim to be Dr.
Mahathir's heir, raising hope of a smooth transition of leadership and lower
political risk premium for the country. Recognizing rising resistance from both
foreign investors and the local Chinese business community, Bank Negara relaxed
its rules for the banking sector merger exercise in November, raising the number
of anchor banks in Malaysia from six to ten. Acquired banks were also free to
select their own merger partners.
Strong growth in the export sector is expected to lift Malaysia's 1999 GDP
growth to a projected 4.5% - 5.5%. Cumulative exports over the first eleven
months stood at an impressive 13.5% year-over-year (in U.S. dollar terms).
Mirroring the buoyant export trend, its industrial output is projected to rise
by 17% year-over-year in the fourth quarter. The manufacturing sector in
Malaysia benefited significantly from electronics operations (predominantly
disks drives and PCBAs) in Singapore shifting their production bases up north to
take advantage of the undervalued currency and cheaper labor cost. Stronger
imports, particularly intermediate imports, signal sustained activity in the
industrial sector and sustained export strength into the first quarter of 2000.
The strong rebound in economic flow should begin to filter down to listed
company earnings for fiscal year 1999 and fiscal year 2000. While bottom-line
growth for fiscal year 1999 was distorted by the low earnings base in 1998 and
tax exemption in 1999, earnings before tax in 2000 are expected to grow well
above 15%. Projected double-digit sales revenue growth pointed to the return of
domestic demand. Consumer demand picked up in the fourth quarter as reflected by
rising motor vehicles purchases. Meanwhile bank credit rose only modestly over
the quarter, reflecting negligible demand for new investment funds and the
bank's tight credit stance despite government pressure to encourage lending.
Excess capacity in the system kept inflation relatively subdued, with the
average rising by 2.8% in 1999 (almost half the level seen in 1998).
Going forward, the historically low 3-month KLIBOR will continue to be a strong
driver for Malaysian equities - at least for the rest of 2000. The economy
should stay reasonably robust because of the protection provided by exit taxes
on foreign investments. Malaysia's imminent inclusion in the MSCI Far East Free
Index will continue to attract institutional portfolio money into the country.
An undervalued currency has helped boost foreign reserves through substantial
current account surpluses and has led to considerable expansion of central bank
debt via sterilization. As demand for credit returns, some of the debt will be
monetized, enhancing liquidity. Malaysian exports continue to surprise on the
upside with electronics making up more than two-thirds of manufactured exports.
With the general elections behind us, political and policy risks were
substantially lower. Some investors might be concerned with candidates
challenging for key positions in the May 2000 UMNO general assembly election.
However, we expect Dr. Mahathir to further consolidate his position in the party
during this event
2
<PAGE>
and move forward to focus on promoting restructuring and liberalization
objectives for the next few quarters. Positive policy surprises in the form of a
swift and clean resolution of the Central Limit Order Book (CLOB) issue and the
removal of capital gains tax for foreign investors would go a long way in
attracting more capital inflows.
The Fund remains invested in the stronger banks, including Malayan Banking,
Public Bank and Commerce Asset-Holdings, and consumer stocks such as Resorts
World, Star Publications, British American Tobacco and Tanjong. Our holdings in
Malaysian Pacific Industries and Unisem have benefited significantly from the
strong bounce in electronics exports in 1999. In the fourth quarter, the Fund
has added new names such as Digi-Swisscom and United Engineers (Malaysia) which
could benefit from mergers and acquisitions possibilities. Looking into the
first half of 2000, the market is likely to be well-supported by better economic
fundamentals, strong corporate earnings and positive results from corporate
restructuring in the past two years.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
January 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.
- -------------------------------------------------------------------------------
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.
EFFECTIVE JANUARY, 2000, TIMOTHY JENSEN NO LONGER SERVES AS A MANAGER OF THE
FUND. ASHUTOSH SINHA, WHO PREVIOUSLY SHARED PRIMARY RESPONSIBLITY WITH MR.
JENSEN, WILL CONTINUE TO HAVE PRIMARY RESPONSIBILITY FOR THE DAY-TO-DAY
MANAGEMENT OF THE FUND.
3
<PAGE>
The Malaysia Fund, Inc.
Investment Summary as of December 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
-----------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
---------------------- --------------------- ---------------------
ANNUAL ANNUAL ANNUAL
CUMULATIVE AVERAGE CUMULATIVE AVERAGE CUMULATIVE AVERAGE
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
One Year 76.56% 76.56% 86.09% 86.09% 98.04% 98.04%
Five Year -48.65 -12.48 -61.77 -17.50 -43.80 -10.89
Ten Year -31.38 -3.70 -25.64 -2.92 2.70 0.27
Since Inception* 20.78 1.50 -3.89 -0.31 35.46 2.43
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- -------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
Market Value Per Share ....... $11.38 $11.75 $16.25 $28.00 $17.38 $17.00 $17.50 $ 6.56 $ 4.00 $ 7.06
Premium/(Discount) ........... -8.3% -13.3% -0.2% 2.5% -6.4% -8.5% -9.3% 30.2% 32.5% 25.6%
Income Dividends ............. $ 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) ........ -8.35% 9.80% 20.15% 98.28%+ -18.87% 4.33% 19.93% -72.89% -39.70% 86.09%
Index Total Return (3) ....... -10.02% 9.13% 20.19% 92.60% -19.66% 3.05% 25.12% -68.71% -29.61% 98.04%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The Kuala Lumpur Stock Exchange (KLSE) Composite Index expressed in U.S.
dollars (the "Index") is a broad based capitalization weighted index of 100
stocks listed on the exchange, including dividends. During September 1998,
the Fund adjusted its net asset value and the Index in reaction to the
imposition of capital controls by the Malaysian government. During February
1999, the performance returns for the Fund's net asset value and the Index
were again modified to reflect the relaxation of these capital controls.
* The Fund commenced operations on May 4, 1987.
+ This return does not include the effect of the rights issued in connection
with the Fund's 1993 rights offering.
4
<PAGE>
The Malaysia Fund, Inc.
Portfolio Summary as of December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (97.8%)
Short-Term Investments (2.2%)
</TABLE>
- -------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Other (11.0%)
Utilities -- Electrical & Gas (11.6%)
Transportation -- Shipping (3.8%)
Telecommunications -- Integrated (10.2%)
Multi-Industry (5.3%)
Leisure & Tourism (10.7%)
Automobiles (4.2%)
Banking (23.3%)
Beverages & Tobacco (7.6%)
Broadcasting & Publishing (6.9%)
Electronic Components, Instruments (5.4%)
</TABLE>
- -------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Telekom Malaysia Bhd 10.2%
2. Malayan Banking Bhd 9.2
3. Commerce-Asset Holding Bhd 5.1
4. Tenaga Nasional Bhd 4.8
5. Resorts World Bhd 4.7
6. Public Finance Bhd (Foreign) 4.6
7. Public Bank Bhd 4.4
8. British American Tobacco Bhd 4.4
9. Sime Darby Bhd 4.2
10. Star Publications (Malaysia) 4.1
-----
55.7%
-----
-----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIAN COMMON STOCKS (98.2%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
AUTOMOBILES (4.2%)
(a)APM Automotive Holdings Bhd 554,550 U.S.$ 315
Oriental Holdings Bhd 210,000 459
Tan Chong Motor Holdings Bhd 3,697,000 1,556
----------------
2,330
----------------
- --------------------------------------------------------------------------------
BANKING (23.3%)
Commerce Asset-Holding Bhd 1,079,000 2,768
Malayan Banking Bhd 1,417,000 5,034
Public Bank Bhd 2,779,000 2,428
Public Finance Bhd (Foreign) 2,222,000 2,526
----------------
12,756
----------------
- --------------------------------------------------------------------------------
BEVERAGES & TOBACCO (7.6%)
Carlsberg Brewery (Malaysia) Bhd 415,000 1,278
Guinness Anchor Bhd 430,000 475
British American Tobacco Bhd 313,000 2,389
----------------
4,142
----------------
- --------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (6.9%)
(a)Digi Swisscom Bhd 784,000 846
Nanyang Press Holdings Bhd 496,000 666
Star Publications (Malaysia) 800,000 2,252
----------------
3,764
----------------
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS, INSTRUMENTS (5.4%)
Malaysian Pacific Industries Bhd 195,000 1,257
Unisem (Malaysia) Bhd 264,000 1,695
----------------
2,952
----------------
- --------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (3.6%)
Malakoff Bhd 262,000 689
Nestle Bhd 294,000 1,269
----------------
1,958
----------------
- --------------------------------------------------------------------------------
LEISURE & TOURISM (10.7%)
Genting Bhd 557,200 1,979
Resorts World Bhd 892,000 2,559
Tanjong plc 587,000 1,298
----------------
5,836
----------------
- --------------------------------------------------------------------------------
MISC. MATERIALS & COMMODITIES (3.7%)
Golden Hope Plantations Bhd 517,000 465
IOI Corporation Bhd 1,975,000 1,196
Kuala Lumpur Kepong Bhd 268,000 370
----------------
2,031
----------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (5.3%)
Sime Darby Bhd 1,819,400 U.S.$ 2,308
(a)United Engineers (Malaysia) Bhd 364,000 579
----------------
2,887
----------------
- --------------------------------------------------------------------------------
REAL ESTATE (1.7%)
Selangor Properties Bhd 1,782,000 938
----------------
- --------------------------------------------------------------------------------
RECREATION, OTHER CONSUMER GOODS (0.2%)
(a)Warisan TC Holdings Bhd 184,850 123
----------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - INTEGRATED (10.2%)
Telekom Malaysia Bhd 1,444,000 5,586
----------------
- --------------------------------------------------------------------------------
TRANSPORTATION - SHIPPING (3.8%)
Malaysian International Shipping Bhd 1,182,000 2,100
----------------
- --------------------------------------------------------------------------------
UTILITIES - ELECTRICAL & GAS (11.6%)
Petronas Gas Bhd 783,000 1,834
Tenaga Nasional Bhd 1,024,000 2,641
YTL Power International Bhd 2,263,200 1,882
----------------
6,357
----------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$41,284) 53,760
----------------
- --------------------------------------------------------------------------------
NO. OF
RIGHTS
- --------------------------------------------------------------------------------
RIGHTS (0.0%)
- --------------------------------------------------------------------------------
BROADCASTING & PUBLISHING (0.0%)
(a)Digi Swisscom Bhd, expiring
1/26/00
(Cost $ - @) 392,000 --@
----------------
--@
----------------
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.1%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.1%)
Chase Securities, Inc., 2.6%, dated
12/31/99, due 1/3/00, to be
repurchased at U.S.$1,168,
collateralized by U.S.$1,195
United States Treasury Note,
6.125%, due 12/31/01, valued at
U.S.$1,193 (Cost U.S.$1,168) U.S.$ 1,168 1,168
----------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<CAPTION>
FACE VALUE
AMOUNT (000)
(000)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.1%)
Malaysian Ringgit
(Cost U.S.$42) MYR 161 U.S.$ 42
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.4%)
(Cost U.S.$42,494) 54,970
----------------
- --------------------------------------------------------------------------------
OTHER ASSETS (0.2%)
Dividends Receivable U.S.$ 111
Other Assets 12 123
----------- ----------------
- --------------------------------------------------------------------------------
LIABILITIES (0.6%)
Payable For:
Professional Fees (50)
Malaysian Investment Advisory Fees (49)
Shareholder Reporting Expenses (47)
U.S. Investment Advisory Fees (38)
Directors' Fees and Expenses (36)
Custodian Fees (16)
Administrative Fees (11)
Bank Overdraft (68)
Other Liabilities (38) (353)
----------- ----------------
- --------------------------------------------------------------------------------
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.$ 54,740
----------------
----------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 5.62
----------------
----------------
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 97
Capital Surplus 121,059
Undistributed Net Investment Income 397
Accumulated Net Realized Loss (79,289)
Unrealized Appreciation on Investments and
Foreign Currency Translations 12,476
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 54,740
----------------
----------------
- --------------------------------------------------------------------------------
</TABLE>
(a) - Non-income producing.
@ - Value is less than U.S.$500.
December 31, 1999 exchange rate - Malaysian Ringgit (MYR)
3.80 = U.S. $1.00.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends ...................................................................................... U.S.$ 1,376
Interest ....................................................................................... 82
Less: Foreign Taxes Withheld ................................................................... (377)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income ................................................................................. 1,081
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees .................................................................. 387
Malaysian Investment Advisory Fees ............................................................. 107
Administrative Fees ............................................................................ 99
Shareholder Reporting Expenses ................................................................. 79
Professional Fees .............................................................................. 83
Custodian Fees ................................................................................. 60
Directors' Fees and Expenses ................................................................... 46
Transfer Agent Fees ............................................................................ 22
Other Expenses ................................................................................. 80
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses ............................................................................... 963
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ...................................................................... 118
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ..................................................................... (2,815)
Foreign Currency Transactions .................................................................. 179
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Loss ............................................................................ (2,636)
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments .................................................................... 27,638
Appreciation on Foreign Currency Translations .................................................. 220
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ............................................... 27,858
- ---------------------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation ......................... 25,222
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... U.S.$ 25,340
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 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.$ 118 U.S.$ 116
Net Realized Loss ....................................................... (2,636) (47,692)
Change in Unrealized Appreciation/Depreciation .......................... 27,858 28,245
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ......... 25,340 (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) ............................................... 25,340 (19,648)
Net Assets:
Beginning of Period ..................................................... 29,400 49,048
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment
income/distributions in excess net investment income of U.S.$397
and U.S.$(5), respectively) ........................................... U.S.$ 54,740 U.S.$ 29,400
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
SELECTED PER SHARE DATA
AND RATIOS: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .......... U.S.$ 3.02 U.S.$ 5.04 U.S.$ 19.29 U.S.$ 18.58 U.S.$ 18.57
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................. 0.01 0.01 0.02 (0.04) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments ................................. 2.59 (2.00) (13.76) 3.57 0.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .......... 2.60 (1.99) (13.74) 3.53 0.85
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ....................... -- (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 ....................... -- (0.03) (0.51) (2.82) (0.84)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................ 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.$ 7.06 U.S.$ 4.00 U.S.$ 6.56 U.S.$ 17.50 U.S.$ 17.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value ................................ 76.56% (38.66)% (61.09)% 18.92% 2.03%
Net Asset Value (1) ......................... 86.09%+ (39.70)%+ (72.89)% 19.93% 4.33%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ......... 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 ....... 2.24% 2.32% 1.35% 1.29% 1.44%
Ratio of Net Investment Income (Loss) to
Average Net Assets .......................... 0.27% 0.31% 0.14% (0.18)% (0.14)%
Portfolio Turnover Rate ....................... 37% 124% 107% 50% 33%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# 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 September 1998 and until 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 an increase to the total return in 1999 and a
decrease to the total return in 1998.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 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 is subject to
Malaysian tax. Malaysian dividend tax is included in foreign taxes withheld
on the Statement of Operations. Effective September 21, 1999, Malaysia has
enacted a 10% tax on repatriated profits for new capital invested in the
country. In addition, all purchases of securities after September 21, 1999
are subject to the 10% gains levy. 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
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gains (losses) from valuing foreign currency denominated assets and
liabilities at period end exchange 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
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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 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 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.
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 year ended December 31, 1999.
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
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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 year ended December 31, 1999, the Fund made purchases and sales
totaling $19,269,000 and $15,647,000, 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
December 31, 1999, the U.S. Federal income tax cost basis of securities was
$44,919,000 and, accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $10,009,000, of which $12,098,000 related to appreciated
securities and $2,089,000 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 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. For the year ended
December 31, 1999, the Fund intends to elect to defer to January 1, 2000, for
U.S. Federal income tax purposes, post October currency losses of $2,000 and
post-October capital losses of $280,000.
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 December 31, 1999, the deferred fees payable, under the Plan, totaled
$36,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
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REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------
To the Shareholders and Board of Directors of
The Malaysia Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Malaysia Fund, Inc. (the "Fund") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 18, 2000
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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
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