ASA LIMITED
ANNUAL
REPORT
1999
<PAGE>
ASA LIMITED
Incorporated in the
Republic of South Africa
(Registration No. 58/01920/06)
ANNUAL REPORT AND
FINANCIAL STATEMENTS
Year ended November 30, 1999
DIRECTORS
Robert J.A. Irwin (U.S.A.)
Henry R. Breck (U.S.A.)
Harry M. Conger (U.S.A.)
Chester A. Crocker (U.S.A.)
Joseph C. Farrell (U.S.A.)
James G. Inglis (South Africa)
Malcolm W. MacNaught (U.S.A.)
Ronald L. McCarthy (South Africa)
Robert A. Pilkington (Great Britain)
A. Michael Rosholt (South Africa)
- ----------
Wesley A. Stanger, Jr. (Director Emeritus)
CONTENTS
Directors' report 2
Chairman's report 2
Certain investment policies and restrictions 4
Report of independent public accountants 4
Portfolio changes (unaudited) 5
Schedule of investments 6
Statements of assets and liabilities 7
Statements of operations 8
Statements of surplus 9
Statements of changes in net assets 9
Statements of cash flows 10
Supplementary information 10
Notes to financial statements 11
Financial highlights 13
Certain tax information for United States shareholders 14
Dividend reinvestment plan 15
OFFICERS
Robert J.A. Irwin, CHAIRMAN OF THE BOARD AND TREASURER
Ronald L. McCarthy, MANAGING DIRECTOR
Chester A. Crocker, UNITED STATES SECRETARY
Henry R. Breck, ASSISTANT TREASURER
Ranquin Associates, SOUTH AFRICAN SECRETARY
AUDITORS
Arthur Andersen & Co., Johannesburg, South Africa
Arthur Andersen LLP, New York, N.Y., U.S.A.
COUNSEL
Werksmans, Johannesburg, South Africa
Kirkpatrick & Lockhart LLP, New York, N.Y., U.S.A.
CUSTODIAN
The Chase Manhattan Bank, N.A.
Chase Metrotech Center, Brooklyn, N.Y. 11245, U.S.A.
SHAREHOLDER SERVICES
LGN Associates
Florham Park, NJ, USA
(973) 377-3535
SUBCUSTODIAN
Standard Bank of South Africa Limited
Johannesburg, South Africa
REGISTERED OFFICE
36 Wierda Road West, Sandton 2196,
South Africa
Website-HTTP://WWW.ASALTD.COM
TRANSFER AGENT
EquiServe-First Chicago Trust Division
P.O. Box 2500, Jersey City, NJ 07303-2500, U.S.A.
SOUTH AFRICAN SECRETARY
Ranquin Associates
Sandton 2196, South Africa
COPIES OF THE QUARTERLY AND ANNUAL REPORTS OF THE COMPANY AND THE LATEST
VALUATION OF NET ASSETS PER SHARE MAY BE REQUESTED FROM THE COMPANY, AT ITS
REGISTERED OFFICE (011) 784-0500/1/2, OR FROM LGN ASSOCIATES, LAWRENCE G.
NARDOLILLO, C.P. A., P.O. BOX 269, FLORHAM PARK, NEW JERSEY 07932 (973)
377-3535. SHAREHOLDERS ARE REMINDED TO NOTIFY EQUISERVE-FIRST CHICAGO TRUST
DIVISION OF ANY CHANGE OF ADDRESS.
1
<PAGE>
DIRECTORS' REPORT
The Directors submit herewith their report together with audited financial
statements for the fiscal years ended November 30, 1999 and 1998. The U.S.
dollar amounts, which are shown solely for the convenience of United States
shareholders, are based on the rates of exchange that were in effect during the
periods covered, as more fully explained in Note 1 of the notes to financial
statements on page 11.
In addition to the financial statements are statements setting forth: (1)
certain investment policies and restrictions, (2) portfolio changes during the
year, (3) financial highlights for the fiscal years ended 1995 through 1999, (4)
certain tax information for United States shareholders and (5) information
regarding the Company's dividend reinvestment plan.
ASA Limited is incorporated in the Republic of South Africa and
consequently values its investments at Johannesburg Stock Exchange share prices
translated into U.S. dollars at the rand exchange rate. (See Notes (l)B and (3)
to the financial statements for additional information.)
At November 30, 1999 the Company's net assets, including investments valued
at Johannesburg Stock Exchange quotations, were equivalent to R138.62 ($22.51)
per share. The closing price of our Company's stock was $19.125 per share at
November 30, 1999, which represented a 15% discount to the net asset value. This
compares with R108.18 ($19.01) per share, at November 30, 1998 at which time the
closing price was $19.125, a premium of .6% to the net asset value.
Net investment income for the fiscal year ended November 30, 1999 was
equivalent to R3.56 ($.58) per share, as compared to R3.59 ($.66) per share for
the year ended November 30, 1998. Net realized gains from investments were R3.76
($.62) per share for the fiscal year ended November 30, 1999 as compared to
R1.91 ($0.32) per share for the fiscal year ended November 30, 1998. Net
realized gain (loss) from foreign currency transactions was R.14 (($.95)) per
share for the year ended November 30, 1999 as compared to R.19 (($.11)) per
share for the fiscal year ended November 30, 1998.
The Company paid dividends in U.S. currency during the fiscal year ended
November 30, 1999 in the aggregate amount of R3.69 ($.60) per share. For the
fiscal year ended November 30, 1998, the dividend payments totaled R4.41 ($.80)
per share. (See Certain tax information for United States shareholders (pages 14
and 15) for further comments.)
CHAIRMAN'S REPORT
THE GOLD BULLION MARKET
Early in the year the market was focusing on the likelihood of further
official sector gold sales with sentiment reaching a low in July when prices
hovered in the low $250 per ounce range. This followed the surprising
announcement in May by the Bank of England (BoE) stating its intention to offer
for sale approximately 415 tons of gold, 125 tons of it to be auctioned off in
25 ton lots every other month starting July 6th.
Then a remarkable shift in sentiment broke a seemingly inexorable downward
trend. On September 21st the second of the BoE gold sales was eight times
oversubscribed, with the deal being done at $255.75 per ounce. Gold Fields
Limited bought 12.5% of the 25 tons (804,000 ounces), enabling it to close out
certain forward-sale contracts.
This was followed five days later by a joint announcement, by 15 European
central banks, of a moratorium on gold sales above 2,000 tons over the next five
years. The sales already announced by the BoE and the Swiss National Bank which
plans to sell about 1,300 tons, are permitted under this agreement, although
total annual sales are not to exceed 400 tons. Simultaneously, the same banks
announced self-imposed limits on lending and option-related activities over the
same time period. Even though the permitted gold sales under this agreement
exceed the annual average of 397 tons during the 1990's it removes some of the
unpredictability in central bank sales. The limitations on central bank lending
should tend to contain speculation against gold and hedging by producers. Haruko
Fukuda, Executive Director of the World Gold Council declared in a speech on
October 18th, because of this agreement, "a new era dawned for gold."
In addition to the boost to market sentiment, the IMF formally approved
plans to revalue up to 14 million ounces of the IMF's gold reserves to fund debt
relief for the world's poorest countries. This plan supersedes the IMF's
original plan to sell up to 10 million ounces of gold reserves into the market,
which drew international protest. In a response to all this positive news, the
gold price spiked to $335 per ounce and then settled back to a level below $300.
These developments are and should remain positive for the gold price
outlook. However, the third BoE gold sale on November 29th was only 2.1 times
oversubscribed and the bidding level was disappointing. The gold market was also
discouraged by the November announcement by the Dutch Central Bank of their
plans to sell 300 tons of gold over the next five years, the forthcoming sales
by the Swiss, and the report of an 80 ton sale by the Russians. As the year
draws to a close gold is trading close to its price of $287.45 on December 31,
1998.
THE GOLD SHARE MARKET
The weak gold price during the first half of calendar 1999 was not good for
gold mining shares. The Johannesburg Stock Exchange All Gold Index traded for
much of the year below 1000. With the improved gold price outlook following the
successful September BoE auction and the announcement by the 15 Central Banks,
the All Gold Index spiked to 1424. At the end of November the All Gold Index
stood at 1110, some 7% higher than twelve months previously, although in dollar
terms the index was 1.63% lower
ASA gold assets reacted well in Rand currency terms and were up 12% over
the same period. In US dollars, however, the increase was somewhat lower at 4%.
Net assets increased by 28% in Rand and 18% in Dollar terms, being boosted by
the outstanding performance of the platinum and the diamond assets.
Unfortunately, most of the appreciation in our net asset value per share was
offset as the market value of our shares moved from a premium of .6% at the
beginning of our fiscal year to a discount of 15% on November 30, 1999.
THE SOUTH AFRICAN GOLD MINING INDUSTRY
Gold mining companies, under pressure from a reduced gold price, have
continued to restructure to enhance profitability. Quarter after quarter
impressive reductions in costs have been seen. Ongoing fundamental restructuring
continues to make the industry much more robust and profitable. In addition to
the innovative but also sometimes "back to basics" approach being
2
<PAGE>
implemented, the synergies that are being unlocked in terms of the mineral
rights swaps and even the cleaning up of ownership structures is unlocking
value. A number of cooperative and well-constructed deals have been done over
the past year, most notably by Anglogold and Gold Fields.
In particular, Anglogold sold its stake in Driefontein to Gold Fields for
R1.3 billion. Driefontein was then used as the vehicle for the "new" Gold Fields
Limited and its name was changed to Gold Fields Limited. ASA now has a
significant part of its gold related holdings in the stock of these two mining
giants.
While these companies will continue to rationalise and optimise the large
and profitable operating bases they have in South Africa, they will continue to
look for opportunities internationally. Anglogold's recent bid for the
Australian producer Acacia Resources is a good example. If the bid is
successful, Anglogold will then be well represented in all the major gold
producing regions of the world and will be one of the few truly global
producers.
LABOR RELATIONS
The continued rationalisation of the gold industry has resulted in a large
number of job losses. Nevertheless, the pro-active nature in which the
government, the producers and the unions have worked together has resulted in
very little labor unrest.
A trend to emerge this year has also been an increased effort by the
producers to put social programs in place that will help to minimize the impact
of the job losses on the community. Whenever possible, workers are retrained in
other skills as well as being assisted in small business initiatives.
PORTFOLIO RESTRUCTURING
Over the past year, the shares in Polifin, Sasol, and Minorco were sold.
The weighting of Canadian Gold Mines was increased and a small position in
Ashanti Goldfields, a Ghanaian gold mining company, was added in order to
continue our diversification away from the very heavy concentration in South
African shares. However, the unexpected spike in the gold price during September
highlighted the precarious forward-sale hedging position of Ashanti and prior to
year-end the holding was sold. A position in Harmony Gold Mining Company Limited
was subsequently initiated. Harmony was established in 1950 and since 1997 has
restructured itself to become a profitable, major independent South African gold
mining company, with an international portfolio of interests.
During the year under review, Franco and Euro Nevada merged to form
Franco-Nevada Mining Corporation Limited. The combined company has a portfolio
of over sixty royalty interests, spanning six countries. With a market
capitalization of over $2.6 billion, it ranks as the fifth largest gold company
in the world.
ASA continues to have approximately one third of its total assets invested
in non-gold investments such as Anglo American Platinum Corporation Limited,
Impala Platinum Holdings Limited, Anglo American Corporation PLC. And De Beers
Consolidated Mines Limited/Centenary AG. Demand for platinum has been
significant in world markets during the year, and the major producers have been
realizing very favorable prices. Higher prices for platinum, however, invariably
raise the spectre of possible substitutes, which in turn, would have a
restraining effect in the market place on any excessive price increases. A
further unknown is Russian inventory holdings and the uncertainty of their
timing in bringing the metal to market.
De Beers Consolidated Mines has enjoyed a most profitable year with sales
out of the Central Selling Organization (CSO) improving by more than 55% for
1999 compared to 1998. Prospects for the Millennium year are also bright and a
record turnover in diamond sales is forecast.
ECONOMIC ENVIRONMENT
South Africa's financial markets have benefited from a more stable global
and emerging market environment. The rapid unwinding of crisis level interest
rates, particularly in the first half of 1999, has virtually guaranteed the
local economy a "soft landing" this year, and the prospect of accelerated growth
next year.
This view is all the more likely given the improvement in the gold price,
as gold accounts for 13% of total exports and 3.25% of GDP. This outlook is also
supported by evidence of the changing composition of local economic output, as
revealed in GDP revisions earlier this year. The economy is becoming more
services-based and, thus, more resilient to large swings in interest rates,
fluctuating commodity prices and the effect of weather on agricultural
production.
The Treasury's official forecast is for 3.5% growth, which should boost
business and consumer confidence. However, at least this rate of growth is
necessary for the next several years before any meaningful gain in real living
standards can be achieved. Real investment by both domestic and foreign
investors must be encouraged and accelerated growth will help.
In spite of a growth rate below the targeted 6%, envisioned by the "Growth,
Employment and Redistribution Program (GEAR)," much has been accomplished. This
includes 700,000 new houses, which have been built since the new government came
to power. A million homes have been electrified and almost everyone now has
clean water. The economy has demonstrated an amazing resiliency. It has
weathered the 1998 Asian financial crisis, the value of its currency has
stabilized, the government has been slowly unwinding exchange controls, the
budget deficit has shrunk to almost 3% of GDP and inflation has been contained.
Foreign debt is at a manageable level and the government appears stable. Thus
challenges remain, but progress has been encouraging.
YEAR 2000 COMPLIANCE
The financial impact to the Company has not been and is not anticipated to
be material to its financial position or results of operations in any given
year.
* * *
THE ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD ON FRIDAY, FEBRUARY 4, 2000
AT 10:00 A.M. AT THE PARK LANE HOTEL, 36 CENTRAL PARK SOUTH, NEW YORK, NEW YORK
USA. WE LOOK FORWARD TO HAVING YOU IN ATTENDANCE.
ROBERT J.A. IRWIN, CHAIRMAN OF THE BOARD
AND TREASURER
3
<PAGE>
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS
The following is a summary of certain of the Company's investment policies and
restrictions and is subject to the more complete statements contained in the
Company's Memorandum of Association (Charter), Articles of Association (By-Laws)
and Registration Statement under the United States Investment Company Act of
1940, each as amended:
1. To invest over 50 per cent in value of its assets in common shares (or
securities convertible into common shares) of gold mining companies in South
Africa;
2. To invest substantially the remainder of its assets, subject to the following
notes, in common shares (or securities convertible into common shares) of other
companies in South Africa; except, in the case of both 1 and 2, for temporary
holdings of cash, cash equivalents or securities of, or guaranteed by, the
Government of South Africa or an instrumentality thereof;
3. Not to invest in securities of any issuer if as a result over 20 per cent in
value of the Company's assets would at the time be invested in securities of
such issuer provided that no more than 40 per cent of the Company's assets would
at the time be invested in securities of issuers, each of which exceeds 10 per
cent of such value;
4. Not to invest in securities of any issuer which has a record of less than
three years' continuous operation if as a result over 10 per cent in value of
the Company's assets would at the time be invested in securities of all such
issuers;
5. Not to invest in securities of any class of any issuer (except securities of
or guaranteed by the Government of South Africa or an instrumentality thereof)
if as a result the Company would at the time own over 10 per cent of such
securities outstanding;
6. Not to invest in securities of any issuer if officers and directors of the
Company, owning in each case over one-half of 1 per cent of the securities of
such issuer, together own over 5 per cent of the securities of such issuer; and
7. Not to purchase any securities on margin or to sell any securities short.
NOTE A. In April 1969, the shareholders approved an amendment of the Company's
Registration Statement to permit the Company to invest up to 20 per cent of the
value of its total assets in common shares (or securities convertible into
common shares) of companies primarily engaged outside of South Africa in
extractive or related industries or in the holding or development of real
estate, provided that such amendment should not change the policy set forth in 1
above. The implementation of this amendment required the approval of the South
African Exchange Control Authorities.
NOTE B. The Company is also permitted by its Registration Statement to hold up
to 25 per cent in value of its assets in gold or gold certificates.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of
Directors of ASA Limited:
We have audited the accompanying statements of assets and liabilities of
ASA Limited (incorporated in the Republic of South Africa) as of November 30,
1999 and 1998, including the schedule of investments as of November 30, 1999,
the related statements of operations, surplus, changes in net assets and cash
flows and supplementary information for each of the two years in the period
ended November 30, 1999, and the financial highlights for each of the five years
in the period then ended. These financial statements, financial highlights and
supplementary information are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements,
financial highlights and supplementary information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements, financial
highlights and supplementary information are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, financial highlights and supplementary
information. Our procedures included the physical examination or confirmation of
securities owned as of November 30, 1999 and 1998, by correspondence with the
custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements, financial highlights and
supplementary information referred to above present fairly, in all material
respects, the financial position of ASA Limited as of November 30, 1999 and
1998, the results of its operations, its cash flows, the changes in its net
assets and supplementary information for each of the two years in the period
ended November 30, 1999 and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen & Co.
Johannesburg, South Africa
Arthur Andersen LLP
December 17, 1999 New York, N.Y., U.S.A.
4
<PAGE>
[The following table represents a chart in the printed piece.]
JSE ACTUARIES GOLD SHARE INDEX: Monthly average prices (rand)
11/30/96 1524.1
12/31/96 1495.3
01/31/97 1350
02/28/97 1565.8
03/31/97 1301.6
04/30/97 1235
05/31/97 1174.2
06/30/97 994.8
07/31/97 969.8
08/31/97 1016.2
09/30/97 942.9
10/31/97 896.2
11/30/97 727.2
12/31/97 840.1
01/31/98 881.1
02/28/98 782.1
03/31/98 753.3
04/30/98 1101.5
05/31/98 934
06/30/98 804.8
07/31/98 985.2
08/31/98 749.2
09/30/98 1053.3
10/31/98 1060.9
11/30/98 1032.2
12/31/98 866.9
01/31/99 934.5
02/28/99 847.5
03/31/99 899
04/30/99 1022.3
05/31/99 855.3
06/30/99 861
07/31/99 863.0
08/31/99 983.9
09/30/99 1034.1
10/31/99 1198.5
11/30/99 1175.3
[The following table represents a chart in the printed piece.]
LONDON FREE MARKET GOLD PRICE: Monthly average $ per ounce
11/29/96 371.30
12/30/96 369.25
01/31/97 345.50
02/28/97 358.60
03/27/97 348.10
04/30/97 340.15
05/30/97 345.60
06/30/97 334.55
07/31/97 326.35
08/29/97 325.35
09/30/97 332.10
10/30/97 316.75
11/28/97 296.80
12/31/97 289.80
01/30/98 304.85
02/27/98 297.40
03/31/98 301.00
04/30/98 310.70
05/29/98 292.40
06/30/98 296.30
07/31/98 288.85
08/28/98 273.40
09/30/98 293.85
10/30/98 292.30
11/30/98 294.70
12/31/98 287.45
01/28/99 285.40
02/26/99 287.05
03/31/99 279.45
04/30/99 286.60
05/28/99 268.60
06/30/99 261.00
07/30/99 255.60
08/31/99 254.80
09/30/99 299.00
10/29/99 299.10
11/30/99 291.35
================================================================================
PORTFOLIO CHANGES (UNAUDITED) NUMBER OF SHARES
-------------------------
NET CHANGES DURING THE YEAR ENDED NOVEMBER 30, 1999 INCREASE DECREASE
---------- -----------
ORDINARY SHARES OF GOLD MINING COMPANIES
Gold Fields Limited(2) 7 905 315
Ashanti Goldfields GDS 306 500 306 500
Barrick Gold Corporation 132 000
Euro Nevada Mining Corporation(1) 284 000 398 000
Franco-Nevada Mining Company Limited(3) 306 460
Harmony Gold Mining Company Limited 152 000
Placer Dome Incorporated 155 000
Driefontein Consolidated Limited(2) 6 316 000
ORDINARY SHARES OF OTHER COMPANIES
De Beers Consolidated Mines Limited/Centenary AG 200 000
Minorco Societe Anonyme 100 000
Polifin Limited 281 250
Randfontein Estates-options 61 339
Sasol Limited 1 798 300
- ----------
(1) Shares exchanged for Franco-Nevada Mining Company Limited -- September, 1999
(2) Shares received in connection with merger of Driefontein Consolidated
Limited -- May, 1999
(3) Shares for exchange from Euro Nevada Mining Corporation -- September, 1999
5
<PAGE>
SCHEDULE OF INVESTMENTS
(NOTE 1)
November 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Number of South African United States Percent of
Name of Company Shares Rand Dollars Net assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ORDINARY SHARES OF GOLD MINING COMPANIES
SOUTH AFRICAN GOLD MINES
Western Areas Gold Mining Company Limited 600 300 R 9 484 740 .7%
Anglogold Limited 1 194 947 376 408 305 28.3
Gold Fields Limited 10 794 979 299 560 667 22.5
Harmony Gold Mining Company Limited 152 000 6 080 000 .5
- ----------------------------------------------------------------------------------------------------------------------------------
691 533 712 $112 261 966 52.0
- ----------------------------------------------------------------------------------------------------------------------------------
CANADIAN GOLD MINES
Barrick Gold Corporation 282 000 31 268 160 2.4
Placer Dome Incorporated 365 312 25 597 411 1.9
Franco Nevada Mining Corporation Limited 306 460 34 672 884 2.6
- ----------------------------------------------------------------------------------------------------------------------------------
91 538 455 14 860 139 6.9
- ----------------------------------------------------------------------------------------------------------------------------------
OPTIONS
Randfontein Estates 16 700 25 885 4 202 --
- ----------------------------------------------------------------------------------------------------------------------------------
783 098 052 127 126 307 58.9
- ----------------------------------------------------------------------------------------------------------------------------------
ORDINARY SHARES OF OTHER COMPANIES
Anglo American Corporation PLC 320 000 115 904 000 8.7
De Beers Consolidated Mines Limited/Centenary AG 1 001 300 167 217 100 12.6
Impala Platinum Holdings Limited 262 700 59 107 500 4.4
Anglo American Platinum Corporation Limited 1 014 800 187 738 000 14.1
- ----------------------------------------------------------------------------------------------------------------------------------
529 966 600 86 033 539 39.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Market Value 1 313 064 652 213 159 846 98.7
CASH AND OTHER ASSETS LESS PAYABLES 17 713 891 2 891 602 1.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Assets R 1 330 778 543 $216 051 448 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of this schedule.
The Company's accounts are maintained in rand, the currency of the Republic of
South Africa. U.S. dollar amounts are shown solely for the convenience of United
States shareholders. There is no assurance that the valuations at which the
Company's investments are carried could be realized upon sale.
================================================================================
6
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
ASSETS Rand Dollars Rand Dollars
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, at market value (Note 1)
Gold mining companies--
Cost R 198 285 731 ($92 323 036) in 1999
R 136 695 947 ($82 300 179) in 1998 R 783 098 052 $127 126 307 R 697 032 421 $122 501 304
Other companies--
Cost R 80 132 354 ($34 342 056) in 1999
R 107 238 657 ($47 791 939) in 1998 529 966 600 86 033 539 57 237 362 325 680 591
- ----------------------------------------------------------------------------------------------------------------------------------
1 313 064 652 213 159 846 1 022 713 012 179 738 666
Cash in banks 6 424 960 1 043 013 15 623 284 2 745 743
Bank time deposits 9 240 000 1 500 000 -- --
Receivable for securities sold 6 511 139 1 057 003 297 248 52 240
Dividends and interest receivable 2 519 689 409 041 207 615 36 487
Other assets 363 705 75 013 472 624 93 201
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 1 338 124 145 217 243 916 1 039 313 783 182 666 337
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Accounts payable and accrued liabilities 756 448 122 800 778 392 136 800
Payable for securities purchased 6 589 154 1 069 668 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 7 345 602 1 192 468 778 392 136 800
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (SHAREHOLDERS' INVESTMENT)
- ----------------------------------------------------------------------------------------------------------------------------------
Ordinary (common) shares R 0.25 nominal (par) value
Authorized: 24 000 000 shares
Issued and Outstanding: 9 600 000 shares 2 400 000 3 360 000 2 400 000 3 360 000
Share premium (capital surplus) 19 636 586 27 489 156 19 636 586 27 489 156
Undistributed net investment income 19 424 305 56 205 253 20 681 662 56 403 698
Undistributed net realized gain (loss)
from foreign currency transactions 5 605 568 (28 247 288) 4 228 205 (19 096 561)
Undistributed net realized gain on investments 243 499 635 71 253 751 207 371 759 65 271 491
Net unrealized appreciation on investments 1 034 686 836 86 494 686 778 778 375 49 646 548
Net unrealized appreciation (depreciation)
on translation of assets and liabilities
in foreign currency 5 525 613 (504 110) 5 438 804 (544 795)
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets R 1 330 778 543 $216 051 448 R 1 038 535 391 $182 529 537
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets per share R 138.62 $ 22.51 R 108.18 $ 19.01
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The closing price of the company's shares on the New York Stock
Exchange was $19.125 per share on November 30, 1999 and $19.125
per share on November 30, 1998.
The notes to the financial statements form an integral part of these statements.
ROBERT J.A. IRWIN, CHAIRMAN OF THE BOARD
RONALD L. MCCARTHY, MANAGING DIRECTOR
7
<PAGE>
STATEMENTS OF OPERATIONS
Years ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
Rand Dollars Rand Dollars
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends R 44 682 352 $ 7 287 594 R 44 850 804 $8 204 192
Interest 2 108 300 344 556 1 446 613 264 687
- ----------------------------------------------------------------------------------------------------------------------------------
46 790 652 7 632 150 46 297 417 8 468 879
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses
Shareholders' report and proxy expenses 706 872 117 300 1 032 241 197 313
Directors' fees and expenses 2 786 996 456 603 2 305 300 419 041
Salaries 2 090 196 344 388 1 933 100 359 046
Other administrative expenses 2 101 423 347 333 1 878 190 346 208
Transfer agent, registrar and custodian 650 306 106 036 583 890 107 026
Professional fees and expenses 1 113 856 182 484 830 044 146 399
Insurance 531 393 87 505 718 769 130 726
Contributions 424 610 69 281 423 250 74 078
Other 2 189 557 359 665 2 094 685 392 534
- ----------------------------------------------------------------------------------------------------------------------------------
12 595 209 2 070 595 11 799 469 2 172 371
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 34 195 443 5 561 555 34 497 948 6 296 508
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from
investments and foreign currency transactions
Net realized gain from investments
Proceeds from sales 75 502 788 12 461 594 19 797 718 3 345 866
Cost of securities sold 39 374 912 6 479 334 1 484 561 249 588
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments 36 127 876 5 982 260 18 313 157 3 096 278
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from foreign currency transactions
Investments -- (9 000 638) -- (1 123 123)
Foreign currency transactions 1 377 363 (150 089) 1 807 383 51 703
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from foreign currency transactions 1 377 363 (9 150 727) 1 807 383 (1 071 420)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation on investments
Balance, beginning of year 778 778 375 49 646 548 705 737 193 63 834 015
Balance, end of year 1 034 686 836 86 494 686 778 778 375 49 646 548
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) 255 908 461 36 848 138 73 041 182 (14 187 467)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation (depreciation)
on translation of assets and liabilities in foreign currency 86 809 40 685 (842 799) (225 096)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from investments
and foreign currency transactions 293 500 509 33 720 356 92 318 923 (12 387 705)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations R 327 695 952 $39 281 911 R 126 816 871 $(6 091 197)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of these statements.
8
<PAGE>
STATEMENTS OF SURPLUS AND STATEMENTS OF CHANGES IN NET ASSETS
Years ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
STATEMENTS OF SURPLUS Rand Dollars Rand Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share premium (capital surplus)
Balance, beginning and end of year R 19 636 586 $ 27 489 156 R 19 636 586 $ 27 489 156
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
Balance, beginning of year R 20 681 662 $ 56 403 698 R 28 481 314 $ 57 787 190
Net investment income for the year 34 195 443 5 561 555 34 497 948 6 296 508
- -----------------------------------------------------------------------------------------------------------------------------------
54 877 105 61 965 253 62 979 262 64 083 698
Dividends paid (35 452 800) (5 760 000) (42 297 600) (7 680 000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 19 424 305 $ 56 205 253 R 20 681 662 $ 56 403 698
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss)
from foreign currency transactions
Balance, beginning of year R 4 228 205 $(19 096 561) R 2 420 822 $(18 025 141)
Net realized gain (loss) for the year 1 377 363 (9 150 727) 1 807 383 (1 071 420)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 5 605 568 $(28 247 288) R 4 228 205 $(19 096 561)
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments
(Computed on identified cost basis)
Balance, beginning of year R 207 371 759 $ 65 271 491 R 189 058 602 $ 62 175 213
Net realized gain for the year 36 127 876 5 982 260 18 313 157 3 096 278
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 243 499 635 $ 71 253 751 R 207 371 759 $ 65 271 491
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments
Balance, beginning of year R 778 778 375 $ 49 646 548 R 705 737 193 $ 63 834 015
Increase (decrease) for the year 255 908 461 36 848 138 73 041 182 (14 187 467)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 1 034 686 836 $ 86 494 686 R 778 778 375 $ 49 646 548
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
on translation of assets
and liabilities in foreign currency
Balance, beginning of year R 5 438 804 $ (544 795) R 6 281 603 $ (319 699)
Net unrealized appreciation (depreciation) for the year 86 809 40 685 (842 799 (225 096)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 5 525 613 $ (504 110) R 5 438 804 $ (544 795)
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
STATEMENTS OF CHANGES IN NET ASSETS Rand Dollars Rand Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income R 34 195 443 $ 5 561 555 R 34 497 948 $ 6 296 508
Net realized gain from investments 36 127 876 5 982 260 18 313 157 3 096 278
Net realized gain (loss) from foreign currency transactions 1 377 363 (9 150 727) 1 807 383 (1 071 420)
Net increase (decrease) in unrealized appreciation
on investments 255 908 461 36 848 138 73 041 182 (14 187 467)
Net unrealized appreciation (depreciation) on translation
of assets and liabilities in foreign currency 86 809 40 685 (842 799) (225 096)
- -----------------------------------------------------------------------------------------------------------------------------------
327 695 952 39 281 911 126 816 871 (6 091 197)
Dividends paid (35 452 800) (5 760 000) (42 297 600) (7 680 000)
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 292 243 152 33 521 911 84 519 271 (13 771 197)
Net assets, beginning of year 1 038 535 391 182 529 537 954 016 120 196 300 734
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year R 1 330 778 543 $216 051 448 R 1 038 535 391 $ 182 529 537
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of these statements.
9
<PAGE>
STATEMENTS OF CASH FLOWS
Years ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
Rand Dollars Rand Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Interest and dividends R 46 790 652 $ 7 632 150 R 46 297 417 $8 468 879
Operating expenses (12 595 209) (2 070 595) (11 799 469) (2 172 371)
Unrealized exchange gains (losses) 86 809 40 685 (842 799) (225 096)
Realized exchange gains (losses) 1 377 363 (9 150 727) 1 807 383 (1 071 420)
(Increase) in receivable for securities sold (6 213 891) (1 004 763) (297 248) (52 240)
(Increase) decrease in dividends and interest receivable (2 312 074) (372 554) 670 139 144 120
(Increase) decrease in other assets 108 919 18 188 (266 076) (49 581)
Increase in accounts payable and accrued liabilities 6 567 210 1 055 668 134 379 4 287
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 33 809 779 (3 851 948) 35 703 726 5 046 578
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments acquired (73 818 091) (12 053 014) (11 759 628) (2 007 329)
Proceeds from disposal of investments 75 502 788 12 461 594 19 797 718 3 345 866
Adjustments to cost for realized foreign exchange differences -- 9 000 638 -- 1 123 123
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 1 684 697 9 409 218 8 038 090 2 461 660
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITY
Dividends paid (35 452 800) (5 760 000) (42 297 600) (7 680 000)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash in banks (9 198 324) (1 702 730) 9 220 216 1 428 238
Increase (decrease) in bank time deposits 9 240 000 1 500 000 (7 776 000) (1 600 000)
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN AVAILABLE CASH R 41 676 $ (202 730) R 1 444 216 $ (171 762)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTARY INFORMATION
Years ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
South African United States South African United States
CERTAIN FEES INCURRED BY THE COMPANY Rand Dollars Rand Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors' fees R 1 356 952 $ 222 750 R 1 141 138 $ 207 250
Officers' salaries 1 352 393 222 485 1 259 175 234 987
Arthur Andersen (Auditors) 352 004 58 223 308 164 58 711
Ranquin Associates (South African Secretary) 575 700 95 212 522 500 96 434
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of these statements.
10
<PAGE>
Years ended November 30, 1999 and 1998
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the
Company's significant accounting policies:
A INVESTMENTS
Security transactions are recorded on the respective trade dates. Securities
owned are reflected in the accompanying financial statements at quoted market
value. The difference between cost and current market value is reflected
separately as unrealized appreciation (depreciation) on investments. The net
realized gain or loss from the sale of securities is determined for accounting
purposes on the basis of the cost of specific certificates.
Substantially all shares in the Company's portfolio are traded on the
Johannesburg Stock Exchange. The Company cannot trade in securities markets
other than the Johannesburg Stock Exchange without permission of the South
African Exchange Control Authorities.
Quoted market value of those shares traded on the Johannesburg Stock
Exchange or other stock exchanges, as applicable, represents the last recorded
sales price on the financial statement date, or the mean between the closing bid
and asked prices of those securities not traded on that date. In the event that
a mean price cannot be computed due to the absence of either a bid or an asked
price, then the bid price plus 1% or the asked price less 1%, as applicable, is
used.
There is no assurance that the valuation at which the Company's investments
are carried could be realized upon sale.
B TRANSLATION OF SOUTH AFRICAN RAND INTO UNITED STATES DOLLARS
The Company's accounts are maintained in rand, the currency of the Republic of
South Africa. United States dollar amounts are shown solely for the convenience
of United States shareholders. The Company translates rand into U.S. dollars at
the current rand exchange rate in computing its net asset values. At November
30, 1999, the rand exchange rate was approximately R6.16 to the dollar ($.16 to
the rand).
United States dollar equivalents have been determined at appropriate rates
of exchange as follows:
(i) Purchases, sales, receipts and expenditures are translated at the
approximate current rates of exchange in effect at the respective dates of such
transactions.
(ii) Assets, including investment securities, at quoted market value (Note
1(A)), and liabilities at each reporting date are translated at the current
exchange rate in effect at such date.
(iii) Ordinary shares outstanding and share premium (capital surplus) accounts
are translated at historical rates, averaging $1.40 to the rand.
C EXCHANGE GAINS AND LOSSES
The Company has adopted the provisions of the American Institute of Certified
Public Accountants Statement of Position 93-4, Foreign Currency Accounting and
Financial Statement Presentation for Investment Companies ("SOP") effective for
the fiscal year beginning December 1, 1994. The adoption of the SOP results in
the reclassification of net realized gain (loss) from foreign currency
transactions, previously included as a component of net investment income, to
net realized gain (loss) on foreign currency transactions and the inclusion of
unrealized gain (loss) on the translation of currency into net unrealized
appreciation (depreciation) on translation of assets and liabilities in foreign
currency.
D SECURITY TRANSACTIONS AND INVESTMENT INCOME
During the year ended November 30, 1999,
sales of securities amounted to R75,502,788 ($12,461,594) and purchases of
securities amounted to R73,818,091 ($12,053,014). Security transactions are
accounted for on the date the securities are purchased or sold. Dividend income
is recorded on the ex-dividend date (the date on which the securities would be
sold ex-dividend). Interest income is recognized on the accrual basis.
11
<PAGE>
E DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date.
F USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses for the period. Actual results could differ from those estimates.
2 TAX STATUS OF THE COMPANY There is no South African tax payable on
dividends received by the Company and it is exempt from tax on gains realized on
the sale of securities, provided, as has been the Company's practice, that its
purchases of securities are made for investment purposes. Effective June 1992,
the Company is no longer subject to tax on interest income. Exemption has been
granted to the Company from the payment of a Secondary Tax on Companies. The
Company (a South African corporation) intends to conduct its business in a
manner that will not subject it to United States income or capital gain taxes.
The reporting for financial statement purposes of distributions made during
the fiscal year from net investment income or net realized gains may differ from
their ultimate reporting for U.S. federal income tax purposes. These differences
primarily are caused by the separate line item reporting for financial statement
purposes of foreign exchange gains or losses. See pages 14 and 15 for additional
tax information for United States Shareholders.
3 CURRENCY EXCHANGE There are exchange control regulations restricting the
transfer of funds from South Africa. In 1958 the South African Reserve Bank, in
the exercise of its powers under such regulations, advised the Company that the
exchange control authorities would permit the Company to transfer to the United
States in dollars both the Company's capital and its gross income, whether
received as dividends or as profits on the sale of investments, at the current
official exchange rate prevailing from time to time. Future implementation of
exchange control policies could be influenced by national monetary
considerations that may prevail at any given time.
4 RETIREMENT PLAN Effective April 1, 1989, the Company established a defined
contribution plan (the "Plan") to replace its previous pension plan. The Plan
covers all full-time employees. The Company will contribute 15% of each covered
employee's salary to the Plan. The Plan provides for immediate vesting by the
employee without regard to length of service. During the year ended November 30,
1999, retirement plan expense aggregated R3,995 ($740), and in the year ended
November 30, 1998, retirement plan expense aggregated R8,568 ($1,607). In
addition, the Company purchased an annuity policy owned by the Company, for the
benefit of the Chairman, at an annual cost of $25,000 per year. Effective May 1,
1999, the annual cost to the Company was increased to $28,125.
12
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended November 30
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
South African Rand
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year R 108.18 R 99.38 R 161.77 R 127.19 R 181.42
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.56 3.59 4.43 4.52 5.17
Net realized gain from investments 3.76 1.91 -- 1.50 2.39
Net realized gain (loss) from foreign currency transactions .14 .19 .11 (.12) .10
Net increase (decrease) in unrealized appreciation on investments 26.66 7.61 (61.40) 34.03 (54.67)
Net unrealized appreciation (depreciation) on translation
of assets and liabilities in foreign currency .01 (.09) .02 .62 .01
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 34.13 13.21 (56.84) 40.55 (47.00)
Less dividends and distributions (3.69) (4.41) (5.55) (5.97) (7.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year R 138.62 R 108.18 R 99.38 R 161.77 R 127.19
===================================================================================================================================
United States Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 19.01 $ 20.45 $ 35.09 $ 34.66 $ 51.10
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .58 .66 .97 1.10 1.43
Net realized gain from investments .62 .32 -- .39 .65
Net realized gain (loss) from foreign currency transactions (.95) (.11) -- (.71) (.93)
Net increase (decrease) in unrealized appreciation on investments 3.84 (1.49) (14.41) 1.05 (15.58)
Net unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currency .01 (.02) -- -- (.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.10 (.64) (13.44) 1.83 (14.44)
Less dividends and distributions (.60) (.80) (1.20) (1.40) (2.00)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 22.51 $ 19.01 $ 20.45 $ 35.09 $ 34.66
===================================================================================================================================
Market value per share, end of year $19.125 $19.125 $20.625 $37.625 $ 39.00
TOTAL INVESTMENT RETURN(1)
Based on market value per share 3.44% (3.30%) (42.86%) (.28%) (6.36%)
RATIOS TO AVERAGE NET ASSETS(1)
Expenses 1.13% 1.15% .71% .49% .53%
Net investment income 3.02% 3.34% 3.25% 2.72% 3.47%
SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $216 051 $182 530 $196 301 $336 882 $332 691
Portfolio turnover rate 6.66% 1.06% -- 1.79% 2.40%
</TABLE>
Per share calculations are based on the 9,600,000 shares outstanding.
(1) Determined in dollar terms.
13
<PAGE>
CERTAIN TAX INFORMATION FOR
UNITED STATES SHAREHOLDERS
From December 1, 1963 through November 30, 1987, the Company was treated as a
"foreign investment company" for United States federal income tax purposes
pursuant to Section 1246 of the Internal Revenue Code (the "Code"). Under
Section 1246 of the Code, a United States shareholder who has held his shares of
the Company for more than one year is subject to tax at ordinary income tax
rates on his profit (if any) on a sale of his shares to the extent of his
"ratable share" of the Company's earnings and profits accumulated between
December 1, 1963 and November 30, 1987. If such shareholder's profit on the sale
of his shares exceeds such ratable share and he held his shares for more than
one year, then, subject to the discussion below regarding the United States
federal income tax rules applicable to taxable years of the Company beginning
after November 30, 1987, he is subject to tax at long term capital gain rates on
the excess.
The Company's per share earnings and profits accumulated (undistributed) in
each of the fiscal years from 1964 through 1987 is given below in United States
currency. All the per share amounts give effect to the two-for-one stock splits
that became effective on May 10, 1966, May 10, 1973 and May 9, 1975. All the per
share amounts reflect distributions through November 30, 1998.
Year ended November 30 Per year Per day
- --------------------------------------------------------------------------------
1964 $ .042 $.00012
- --------------------------------------------------------------------------------
1965 .067 .00019
- --------------------------------------------------------------------------------
1966 .105 .00029
- --------------------------------------------------------------------------------
1967 .277 .00076
- --------------------------------------------------------------------------------
1968 .241 .00066
- --------------------------------------------------------------------------------
1969 .461 .00126
- --------------------------------------------------------------------------------
1970 .218 .00060
- --------------------------------------------------------------------------------
1971 .203 .00056
- --------------------------------------------------------------------------------
1972 .445 .00122
- --------------------------------------------------------------------------------
1973 .497 .00136
- --------------------------------------------------------------------------------
1974 1.151 .00316
- --------------------------------------------------------------------------------
1975 .851 .00233
- --------------------------------------------------------------------------------
1976 .370 .00101
- --------------------------------------------------------------------------------
1977 .083 .00023
- --------------------------------------------------------------------------------
1978 .357 .00098
- --------------------------------------------------------------------------------
1979 .219 .00060
- --------------------------------------------------------------------------------
1980 1.962 .00538
- --------------------------------------------------------------------------------
1981 .954 .00261
- --------------------------------------------------------------------------------
1982 .452 .00124
- --------------------------------------------------------------------------------
1983 -0- -0-
- --------------------------------------------------------------------------------
1984 -0- -0-
- --------------------------------------------------------------------------------
1985 (.151) (.00041)
- --------------------------------------------------------------------------------
1986 -0- -0-
- --------------------------------------------------------------------------------
1987 -0- -0-
- --------------------------------------------------------------------------------
Under rules enacted by the Tax Reform Act of 1986, the Company became a
"passive foreign investment company" (a "PFIC") on December 1, 1987. The manner
in which these rules apply depends on whether a United States shareholder elects
either to treat the PFIC as a qualified electing fund ("QEF") with respect to
his interest therein, or for taxable years of such United States shareholder
beginning after December 31, 1997, to "mark-to-market" his PFIC shares as of the
close of each taxable year.
In general, if a United States shareholder of the Company does not make
either such election, any gain realized on the direct or indirect disposition of
Company stock by the United States shareholder will be treated as ordinary
income. In addition, such non-electing United States shareholder will be subject
to an "interest charge" on part of his tax liability with respect to such gain,
as well as with respect to certain "excess distributions" made by the Company.
Under proposed regulations, a "disposition" would include a U.S. taxpayer
becoming a nonresident alien.
If the United States shareholder elects to treat the Company as a QEF with
respect to his interest therein for the first year he holds his shares during
which the Company is a PFIC (or who later makes the QEF election and also elects
to treat his interest generally as if it were sold on the first day of the first
taxable year of the Company for which the QEF election is effective), the rules
described in the preceding paragraph generally will not apply. Instead, the
electing United States shareholder would include annually in his gross income
his pro rata share of the Company's ordinary earnings and net capital gain (his
"QEF" inclusion) regardless of whether such income or gain was actually
distributed. A United States shareholder who made the QEF election for the first
year he held his shares during which the Company was a PFIC (or who later made
the election and also elected to treat his interest generally as if it were sold
on the first day of the first taxable year of the Company for which the QEF
election is effective) would recognize capital gain on any profit from the
actual sale of his shares if those shares were held as capital assets, except to
the extent of the shareholder's ratable share of the earnings and profits of the
Company accumulated between December 1, 1963 and November 30, 1987, as described
above.
Alternatively, if the United States shareholder makes the mark-to-market
election with respect to regularly-traded PFIC stock for taxable years beginning
on or after January 1, 1998, such electing United States shareholder would be
required annually to report any unrealized gain with respect to such
shareholder's stock as an item of ordinary income, and any unrealized loss would
be permitted as an ordinary loss, but only to the extent of previous inclusions
of ordinary income. Any gain subsequently realized by the electing United States
shareholder on a sale or other disposition of the PFIC stock also would be
treated as ordinary income, but such United States shareholder would not be
subject to an interest charge on his resulting tax liability. Special rules
would apply to a United States shareholder that held his PFIC stock prior to the
first taxable year for which the mark-to-market election was effective.
14
<PAGE>
A United States shareholder with a valid QEF election in effect would not
be taxed on any distributions paid by the Company to the extent of any QEF
inclusions, but any distributions out of earnings and profits in excess thereof
would be treated as taxable dividends. Such shareholder would increase the tax
basis in his Company stock by the amount of any QEF inclusions and reduce such
tax basis by any distributions to him that are not taxable as described in the
preceding sentence. Special rules apply to United States shareholders who make
the QEF election and wish to defer the payment of tax on their annual QEF
inclusions.
Each shareholder who desires QEF treatment must individually elect such
treatment. The QEF election must be made for the taxable year of the shareholder
in which the taxable year of the PFIC ends. A QEF election is effective for the
shareholder's taxable year for which it is made and all subsequent taxable years
of the shareholder and may not be revoked without the consent of the Internal
Revenue Service. A shareholder of the Company who first held his shares in the
Company after November 30, 1998 and who files his tax return on the basis of a
calendar year may make a QEF election on his 1999 tax return. A shareholder of
the Company who first held his shares in the Company on or before November 30,
1998 may also make the QEF election on his 1999 tax return, but should consult
his tax advisor concerning the tax consequences and special rules that apply
where a QEF election could have been made with respect to such shares for an
earlier taxable year. A shareholder of the Company who has already made a valid
QEF election with respect to his shares in the Company need not make another
such election with respect to those shares.
The QEF election must be made by the due date, with extensions, of the
federal income tax return for the taxable year for which the election is to
apply. Under Treasury regulations, the QEF election is made on Internal Revenue
Service Form 8621, which must be completed and attached to a timely filed income
tax return in which the shareholder reports his QEF inclusion for the year to
which the election applies. In order to allow United States shareholders to make
the QEF elections and to continue to comply with the applicable reporting
requirements, the Company annually will provide a "PFIC Annual Information
Statement" containing certain information required by Treasury regulations (the
annual information statement). A completed copy of the Form 8621 also must be
filed with the Internal Revenue Service Center, P.O. Box 21086, Philadelphia,
Pennsylvania 19114 at the time the election statement is filed with the return.
In early 2000 the Company will send to United States shareholders the PFIC
annual information statement for the 1999 fiscal year. Such annual information
statement may be used for purposes of completing Internal Revenue Service Form
8621. A shareholder who either is subject to a prior QEF election or is making
such QEF election for the first time must attach a completed Form 8621 to his
income tax return each year. Other United States shareholders also must attach
completed Forms 8621 to their tax returns each year, but shareholders not
electing QEF treatment will not need to report QEF inclusions thereon. Copies of
all Forms 8621 also must be sent to the Philadelphia Internal Revenue Service
Center identified above by the due date, with extensions, of the returns to
which the Forms 8621 are attached.
Special rules apply to United States persons who hold interests in the
Company through intermediate entities or persons and to United States
shareholders who directly or indirectly pledge their shares, including those in
a margin account.
Ordinarily, the tax basis that is obtained by a transferee of property on
the death of the owner of that property is adjusted to the property's fair
market value on the date of death (or alternate valuation date). If a United
States shareholder dies owning shares with respect to which he does not elect
QEF treatment (or elects such treatment after the first year in which he owns
shares in which the Company is a PFIC and does not elect to recognize gain as
described above) the transferee of those shares will not be entitled to adjust
the tax basis of such shares to the fair market value on the date of death (or
alternate valuation date). In this case, in general, the transferee of such
shares will take a basis in the shares equal to the shareholder's basis
immediately before his death. If a United States shareholder dies owning shares
in the Company for which a valid QEF election was in effect for all taxable
years in such shareholder's holding period during which the Company was a PFIC
(or the shareholder elected to treat the shares as if sold on the first day of
the first taxable year of the Company for which the QEF election was effective),
then the basis increase generally will be available unless the holding period
for his shares began on or prior to November 30, 1987. In the latter case, in
general, any otherwise applicable basis increase will be reduced to the extent
of the shareholder's ratable share of the earnings and profits of the Company
accumulated between December 1, 1963 and November 30, 1987.
DUE TO THE COMPLEXITY OF THE APPLICABLE TAX RULES, UNITED STATES
SHAREHOLDERS OF THE COMPANY ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE IMPACT OF THESE RULES ON THEIR INVESTMENT IN THE COMPANY AND ON
THEIR INDIVIDUAL SITUATIONS.
DIVIDEND REINVESTMENT PLAN
The Company's Board of Directors has authorized EquiServe-First Chicago
Trust Division ("First Chicago") to offer a dividend reinvestment plan (the
"Plan") to shareholders. Shareholders must elect to participate in the plan by
signing an authorization. The authorization appoints First Chicago as agent to
apply to the purchase of common shares of the Company in the open market (i) all
cash dividends (after deduction of the applicable South African withholding tax
and the service charge described below) which become payable to such participant
on the Company's shares (including shares registered in his or her name and
shares accumulated under the plan) and (ii) any voluntary cash payments ($50
minimum, $3,000 maximum per dividend period) received from such participant
within 30 days prior to such dividend payment date.
For the purpose of making purchases, First Chicago will commingle each
participant's funds with those of all other participants in the Plan. The price
per share of shares purchased for each participant's account shall be the
average price (including brokerage commissions and any other costs of purchase)
of all shares purchased in the open market with the funds available from that
dividend and any voluntary cash payments being con-
15
<PAGE>
currently invested. Any stock dividends or split shares distributed on shares
held in the Plan will be credited to the participant's account.
A service charge of 5% of the combined amount of the dividend (less
applicable South African withholding tax) and any voluntary payment being
concurrently invested, up to a maximum charge of $2.50 per participant, will be
deducted prior to purchase of shares. Shareholder sales of shares held by First
Chicago in book-entry form in the Plan are subject to a fee of $10.00 plus
applicable brokerage commissions deducted from the proceeds of the sale.
Additional nominal fees are charged by First Chicago for specific shareholder
requests such as requests for information regarding share cost basis detail in
excess of two prior years and for replacement 1099 reports older than one year.
Participation in the Plan may be terminated by a participant at any time by
written instructions to First Chicago. Upon termination, participants will
receive certificates for the full number of shares credited to their account,
unless they request the sale of all or part of such shares.
Dividends reinvested by a shareholder under the Plan will generally be
treated for U.S. federal income tax purposes in the same manner as dividends
paid to such shareholder in cash. See "Certain tax information for United States
shareholders" for more information regarding tax consequences to U.S. investors
of an investment in shares of the Company, including the effect of the Company's
status as a "passive foreign investment company." The amount of the service
charge is deductible for U.S. federal income tax purposes, subject to
limitations. In addition, shareholders who are U.S. citizens or residents may
use the amount of South African tax withheld either as a deduction from income
or, subject to certain limitations, as a credit against their U.S. federal
income taxes.
An investor participating in the Plan may not hold his or her shares in a
"street name" brokerage account.
Additional information regarding the Plan may be obtained from First
Chicago Dividend Reinvestment Plan, P.O. Box 2598, Jersey City, New Jersey
07303-2598. Information may also be obtained by calling First Chicago's
Telephone Response Center at (201) 324-0498 between 8:30 a.m. and 7 p. m.,
Eastern time, Monday through Friday.
