ASA LIMITED
ANNUAL
REPORT
2000
<PAGE>
ASA LIMITED
Incorporated in the
Republic of South Africa
(Registration No. 1958/01920/06)
ANNUAL REPORT AND
FINANCIAL STATEMENTS
Year ended November 30, 2000
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 (U.S.A.)
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
Dana L. Platt, Esq. VICE PRESIDENT AND ASSISTANT SECRETARY
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, 2000 and 1999. 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 1996 through 2000, (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, 2000 the Company's net assets, including investments valued
at Johannesburg Stock Exchange quotations, were equivalent to R135.49 ($17.58)
per share. The closing price of our Company's stock was $14.56 per share at
November 30, 2000, which represented a 17.2% discount to the net asset value.
This compares with R138.62 ($22.51) per share, at November 30, 1999 at which
time the closing price was $19.125, a discount of 15% to the net asset value.
Net investment income for the fiscal year ended November 30, 2000 was
equivalent to R4.08 ($.61) per share, as compared to R3.56 ($.58) per share for
the year ended November 30, 1999. Net realized gains from investments were R7.01
($1.00) per share for the fiscal year ended November 30, 2000 as compared to
R3.76 ($0.62) per share for the fiscal year ended November 30, 1999. Net
realized gain (loss) from foreign currency transactions was R.29 (($1.02)) per
share for the year ended November 30, 2000 as compared to R.14 (($.95)) per
share for the fiscal year ended November 30, 1999.
The Company paid dividends in U.S. currency during the fiscal year ended
November 30, 2000 in the aggregate amount of R4.20 ($.60) per share. For the
fiscal year ended November 30, 1999, the dividend payments totaled R3.69 ($.60)
per share. (See Certain tax information for United States shareholders (pages 14
and 15) for further comments.)
CHAIRMAN'S REPORT
THE GOLD BULLION MARKET
The year started with much promise, with the price rallying to a high of
$316.60 per ounce in February 2000. This excitement was precipitated by
announcements from the major producers with respect to their hedge books
(predominantly relating to hedge buy back programmes), bringing hopes of a
fundamental change in hedging policies and the reduction of forward sales. At
the same time, ongoing speculation on what action would be required to rescue
Ashanti Gold Fields also permeated the market.
While the miners tried their best to keep interest in the metal, robust
announcements from a number of Central Banks again assailed the market. The Bank
of England announced that it would again sell another 150 tonnes of gold in the
same manner it did before (bi-monthly auctions). Sales were also made by
Switzerland, the Netherlands, Canada, Uruguay and Chile. While the European
sales all fell within the "quota" allowed by the Washington Agreement, these
sales remained negative in terms of sentiment. The effect remains more
psychological than real as the market could probably easily absorb the volumes
being sold.
At a recent conference on "The Euro, the Dollar and Gold" organized by the
World Gold Council, the Governor of the Bank of Italy had an interesting comment
on gold's role as a reserve asset. "It is up to economists to analyze whether
and to what extent in an international monetary system that has surely not yet
become fully consistent in many of its parts -- gold, which performed a monetary
function for thousands of years, can still contribute to preserving that
fundamental condition for orderly economic activity: price stability."
It looks like the economists may have given us their answer for now, with
gold having remained subdued in an environment of high oil prices, a strong
dollar relative to the Euro and Asian currencies and a volatile stock market.
The softening dollar could however provide some relief, as is being witnessed
right now with the year drawing to a close and gold clawing its way back into
the $270 per ounce range.
THE GOLD SHARE MARKET
The gold share market has not reacted well to the generally poor performance
of the gold price. In fact gold shares are trading at valuation multiples not
seen for an extended period of time. This situation is probably not sustainable
and a re-rating could well occur as the gold price improves and restructuring
becomes a reality.
At the end of fiscal 1999 the Philadelphia Stock Exchange gold and silver
index (XAU) was trading at a level of 67.04. At the close of fiscal 2000, it
declined to a level of 47.08, some 30% lower. The Johannesburg stock exchange
All Gold Index declined approximately 46% when expressed in United States
dollars. The net assets of ASA per share in United States dollar terms
significantly bettered both indexes with a decline of 22%. The discount on the
market value of our shares moved from 15% at the start of the fiscal year to a
little over 17% on November 30, 2000. Despite the weakness in the Rand which has
seen the Rand gold price rise to near record levels of R2 080 per ounce, the
shares continue to be driven by moves in the dollar gold price.
THE GOLD MINING INDUSTRY RESPONSE
The lackluster gold price has continued to focus the minds of gold company
executives and the industry has continued to rationalize and restructure. A
number of deals and proposed deals both country specific and cross border have
been announced.
These include the Newmont Mining Corporation purchase of Battle Mountain
Gold, the merger of Franco Nevada and Euro Nevada to form Franco Nevada and
subsequently the proposal to merge Franco Nevada with Gold Fields Limited to
form Gold Fields International. The Gold Fields Limited and Franco Nevada deal
was, however, not consummated due to the inability to obtain approval from the
Ministry of Finance and South
2
<PAGE>
African Reserve Bank for the listing of Gold Fields International. The
cautionary announcements, however, have not been retracted and we believe it is
possible that other alternatives are being pursued to complete the deal.
Anglogold has continued its growth drive and during the year acquired 40% of the
Morila project in Mali and 50% of the Geita project in Tanzania.
Harmony acquired the Randfontein Estates Gold Mine at the beginning of this
year. This will see them becoming a 2.3 million ounce annual producer. In a
recent cautionary move it has also been announced that Harmony has bid for
Anglogold's Elandsrand/Deelkraal operation. If successful in their bid,
Harmony's production will grow to around 3 million ounces per annum.
The Elandsrand/Deelkraal sale is just the start of what could be the last
great restructuring of the South African gold mining industry. This is being
driven not so much by the gold price, as the Rand gold price is near all time
highs, but more by the need to better utilize existing infrastructure to
optimally extract the maturing ore resource base in the country. While this
restructuring should result in a more sensible and logical extraction of the
resources, the opportunity is also being used to pursue Black Economic
Empowerment (BEE). This will be done through a process of joint ventures and
partnerships.
There is still a long way to go in the consolidation of the global gold
industry. Perhaps with a more centralized and better financed gold mining
industry, there may be less reason or inclination for the industry to depress
the price of their product, by selling forward into a dull market to hedge
against a decline in price or finance future production which should probably
not be brought on line if it can not deliver a return at these prices.
PORTFOLIO RESTRUCTURING
The Company has made minor changes to the overall investment portfolio during
the year. The small holding in Western Areas Gold Mine has been sold and certain
lesser disposals took place in De Beers Consolidated Mines and Anglo American
Platinum Corporation Ltd. The Company continues to hold a significant part of
its total assets in both these latter investments, and the proceeds of the
disposals were used to increase the investment in Harmony Gold Mining Company
Limited - ADR.
The platinum producers have again had an outstanding year. This has been a
direct result of the ongoing positive fundamentals in both the platinum and
palladium market. The weaker rand has also contributed to strong earnings
growth. Right now the outlook on the supply/demand side remains positive, with
the expansion programmes only expected to push the market into surplus in two to
three years time. While Russian deliveries remain uncertain, as the size of the
market increases their overall impact is starting to be diluted. This is
particularly applicable to the platinum market.
De Beers has also had an outstanding year in terms of both share price
performance and earnings, with sales being as robust as expected in the
Millennium. Much has also been said about a restructuring of the company and the
unwinding of the Anglo American PLC cross holding. With the US economy slowing,
however, it is expected that diamond sales will decrease.
ECONOMIC ENVIRONMENT
The South African economy is showing increasing evidence of a broad-based
recovery with a growth of 31/2% which should be easily attainable in 2001. The
main driver on the supply-side will continue to be the tertiary sector, where
the largest sectors (excluding government) -- finance and real estate, transport
and communication, and wholesale and retail trade -- are currentlY showing
annual growth rates of between 5% and 6%. There should be considerable added
support to overall growth from the manufacturing sector.
Private consumption and, especially, investment are expected to lead
demand-side growth. Although some increase in parastatal investment is expected,
the private sector is anticipated to contribute the greatest portion to the
increase in investment. Improving confidence as previous fears of interest rate
hikes recede should help this process, and momentum in private-sector investment
has already picked up strongly. The Rand currency has suffered an unprecedented
depreciation against the US Dollar from last year, moving from six to almost
eight Rand to the dollar. This is not from any inherent weakness in the economy,
but as with the majority of world currencies has more to do with the ongoing
strength of the Dollar.
South Africa's current account deficit is expected to remain below 1% of GDP
in 2001, so financing should not prove to be a problem. However, in this context
it should be noted that portfolio inflows remain the dominant source of capital
flows into South Africa and, although the country occupies a respectably high
position on the table of developing nations of the world, remains vulnerable to
shifts in global risk appetite with respect to its ability to finance the
current account deficit.
GENERAL COMMENTS
At the Annual Meeting of Shareholders to be held on February 15, 2001, your
Board of Directors is asking you to vote on revisions to ASA's investment
policies and conforming changes to ASA's corporate documents, its Articles of
Association and By-Laws. These revisions are designed to respond to
consolidation taking place in the gold mining industry. YOUR PARTICIPATION IN
THE VOTING PROCESS IS IMPORTANT NO MATTER HOW MANY SHARES YOU HOLD.
The Board has appointed Ms. Dana Platt to the office of Vice President. Ms.
Platt brings to this position a wealth of experience and expertise, having
formerly held a senior position with our independent legal counsel.
***
THE ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD ON THURSDAY, FEBRUARY 15,
2001 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, 2000
and 1999, including the schedule of investments as of November 30, 2000, 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, 2000, 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, 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, 2000 and
1999, 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, 2000 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 22, 2000 New York, N.Y., U.S.A.
4
<PAGE>
[FIGURES BELOW REPRESENT LINE CHART IN ITS PRINTED PIECE]
JSE ALL GOLD SHARE INDEX: Monthly average prices (rand)
-------------------------------------------------------
11/30/97 725.6
800.2
879.2
780.2
812.3
1077.5
931/70
870.3
912.4
781.3
1095.3
1058.4
11/30/98 1040.1
869.3
932.3
847.1
912.4
1022.3
853.1
904
863
988.5
1250.2
1198.5
11/30/99 1110.2
1148.7
1074.2
1186.1
1076.6
932.9
994.3
1020.5
987.2
996.1
953.3
815.6
11/30/00 752.3
[FIGURES BELOW REPRESENT LINE CHART IN ITS PRINTED PIECE]
LONDON FREE MARKET GOLD PRICE: Monthly average $ per ounce
----------------------------------------------------------
11/30/97 296.80
290.20
304.85
297.40
301.00
310.70
293.60
296.30
288.85
273.40
293.85
292.30
11/30/98 294.70
287.80
285.40
287.05
279.45
286.60
268.60
261.00
255.60
254.80
299.00
299.10
11/30/99 291.35
290.25
283.30
293.65
276.75
275.05
272.25
288.15
276.75
277.00
273.65
264.50
11/30/00 269.10
================================================================================
<TABLE>
<CAPTION>
PORTFOLIO CHANGES (UNAUDITED) NUMBER OF SHARES
----------------
NET CHANGES DURING THE YEAR ENDED NOVEMBER 30, 2000 INCREASE DECREASE
-----------------------
<S> <C> <C>
ORDINARY SHARES OF GOLD MINING COMPANIES
Harmony Gold Mining Company Limited ADR 2 166 400
Harmony Gold Mining Company Limited 150 664
Western Areas Gold Mining Company Limited 600 300
ORDINARY SHARES OF OTHER COMPANIES
Anglo American Platinum Corporation Limited 194 300
De Beers Consolidated Mines Limited/Centenary AG 300 000
OPTIONS
Randfontein Estates 16 700
<CAPTION>
GOVERNMENT BONDS PRINCIPAL AMOUNT (RAND)
-----------------------
Republic of South Africa S150 12% due 2/28/05 39 000 000
</TABLE>
The notes to the financial statements form an integral part of this information.
5
<PAGE>
SCHEDULE OF INVESTMENTS
(NOTE 1)
<TABLE>
<CAPTION>
November 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
Number of Shares/ South African United States Percent of
Name of Company Principal Amount Rand Dollars Net assets
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ORDINARY SHARES OF GOLD MINING COMPANIES
SOUTH AFRICAN GOLD MINES
Anglogold Limited 1 194 947 R 225 844 983 17.4%
Gold Fields Limited 10 794 979 235 330 542 18.1
Harmony Gold Mining Company Limited 1 336 38 343 --
Harmony Gold Mining Company Limited - ADR 2 166 400 63 648 832 4.9
---------------------------------------------------------------------------------------------------------------------------------
524 862 700 $ 68 075 577 40.4
---------------------------------------------------------------------------------------------------------------------------------
CANADIAN GOLD MINES
Barrick Gold Corporation 282 000 32 613 300 2.5
Franco Nevada Mining Corporation Limited 306 460 23 091 761 1.8
Placer Dome Incorporated 365 312 25 363 612 1.9
---------------------------------------------------------------------------------------------------------------------------------
81 068 673 10 514 744 6.2
---------------------------------------------------------------------------------------------------------------------------------
605 931 373 78 590 321 46.6
---------------------------------------------------------------------------------------------------------------------------------
ORDINARY SHARES OF OTHER COMPANIES
Anglo American Platinum Corporation Limited 820 500 255 996 000 19.7
Anglo American Corporation PLC 320 000 127 232 000 9.8
De Beers Consolidated Mines Limited/Centenary AG 701 300 146 571 700 11.3
Impala Platinum Holdings Limited 262 700 95 885 500 7.4
---------------------------------------------------------------------------------------------------------------------------------
625 685 200 81 152 425 48.2
---------------------------------------------------------------------------------------------------------------------------------
1 231 616 573 159 742 746 94.8
---------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT BONDS
Republic of South Africa S150 12% due 2/28/05 R 39 000 000 38 192 236 3.0
---------------------------------------------------------------------------------------------------------------------------------
38 192 236 4 953 597 3.0
---------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Market Value 1 269 808 809 164 696 343 97.8
CASH AND OTHER ASSETS LESS PAYABLES 30 851 372 4 029 421 2.2
---------------------------------------------------------------------------------------------------------------------------------
Total Net Assets R 1 300 660 181 $ 168 725 764 100.0%
---------------------------------------------------------------------------------------------------------------------------------
</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.
================================================================================
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2000 and 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
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 235 254 940 ($92 828 943) in 2000
R 198 285 731 ($92 323 036) in 1999 R 605 931 373 $ 78 590 321 R783 098 052 $127 126 307
Other companies--
Cost R 62 594 863 ($27 341 307) in 2000
R 80 132 354 ($34 342 056) in 1999 625 685 200 81 152 425 529 966 600 86 033 539
Government bonds--
Cost R 38 192 236 ($4 953 597) in 2000 38 192 236 4 953 597 -- --
------------------------------------------------------------------------------------------------------------------------------------
1 269 808 809 164 696 343 1 313 064 652 213 159 846
Cash in banks 82 573 813 10 706 444 6 424 960 1 043 013
Bank time deposits -- -- 9 240 000 1 500 000
Receivable for securities sold -- -- 6 511 139 1 057 003
Dividends and interest receivable 1 949 453 252 847 2 519 689 409 041
Other assets 266 157 62 467 363 705 75 013
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1 354 598 232 175 718 101 1 338 124 145 217 243 916
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities 1 658 783 215 147 756 448 122 800
Payable for securities purchased 52 279 268 6 777 190 6 589 154 1 069 668
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 53 938 051 6 992 337 7 345 602 1 192 468
------------------------------------------------------------------------------------------------------------------------------------
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 18 126 615 56 298 974 19 424 305 56 205 253
Undistributed net realized gain (loss) from foreign
currency transactions 8 383 498 (38 065 714) 5 605 568 (28 247 288)
Undistributed net realized gain on investments 310 822 353 80 849 895 243 499 635 71 253 751
Net unrealized appreciation on investments 933 807 038 39 591 628 1 034 686 836 86 494 686
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currencies 7 484 091 (798 175) 5 525 613 (504 110)
------------------------------------------------------------------------------------------------------------------------------------
Net assets R 1 300 660 181 $168 725 764 R 1 330 778 543 $216 051 448
------------------------------------------------------------------------------------------------------------------------------------
Net assets per share R 135.49 $ 17.58 R138.62 $22.51
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The closing price of the Company's shares on the New York Stock Exchange
was $14.56 per share on November 30, 2000 and $19.125 per share on
November 30, 1999.
The notes to the financial statements form an integral part of these
statements.
ROBERT J.A. IRWIN, CHAIRMAN OF THE BOARD & TREASURER
RONALD L. MCCARTHY, MANAGING DIRECTOR
7
<PAGE>
STATEMENTS OF OPERATIONS
Years ended November 30, 2000 and 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
South African United States South African United States
Rand Dollars Rand Dollars
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends R 51 966 163 $ 7 734 885 R 44 682 352 $ 7 287 594
Interest 2 197 308 310 503 2 108 300 344 556
------------------------------------------------------------------------------------------------------------------------------------
54 163 471 8 045 388 46 790 652 7 632 150
------------------------------------------------------------------------------------------------------------------------------------
Expenses
Shareholders' report and proxy expenses 921 491 137 396 706 872 117 300
Directors' fees and expenses 3 425 213 489 072 2 786 996 456 603
Salaries 2 302 599 338 231 2 090 196 344 388
Other administrative expenses 2 342 037 347 619 2 101 423 347 333
Transfer agent, registrar and custodian 848 862 120 925 650 306 106 036
Professional fees and expenses 1 655 208 237 427 1 113 856 182 484
Insurance 588 437 87 557 531 393 87 505
Contributions 426 643 55 515 424 610 69 281
South African tax on foreign dividends (Note 2) 206 086 26 730 -- --
Other 2 395 785 351 195 2 189 557 359 665
------------------------------------------------------------------------------------------------------------------------------------
15 112 361 2 191 667 12 595 209 2 070 595
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 39 051 110 5 853 721 34 195 443 5 561 555
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from
investments and foreign currency transactions
Net realized gain from investments
Proceeds from sales 115 504 638 15 851 707 75 502 788 12 461 594
Cost of securities sold 48 181 920 6 255 563 39 374 912 6 479 334
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments 67 322 718 9 596 144 36 127 876 5 982 260
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from foreign currency transactions
Investments -- (9 137 335) -- (9 000 638)
Foreign currency transactions 2 777 930 (681 091) 1 377 363 (150 089)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from foreign currency
transactions 2 777 930 (9 818 426) 1 377 363 (9 150 727)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation on
investments
Balance, beginning of year 1 034 686 836 86 494 686 778 778 375 49 646 548
Balance, end of year 933 807 038 39 591 628 1 034 686 836 86 494 686
------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) (100 879 798) (46 903 058) 255 908 461 36 848 138
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation
(depreciation) on translation of assets and
liabilities in foreign currency 1 958 478 (294 065) 86 809 40 685
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from
investments and foreign currency transactions (28 820 672) (47 419 405) 293 500 509 33 720 356
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations R 10 230 438 $(41 565 684) R 327 695 952 $39 281 911
------------------------------------------------------------------------------------------------------------------------------------
</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, 2000 and 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
South African United States South African United States
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 19 424 305 $ 56 205 253 R 20 681 662 $ 56 403 698
Net investment income for the year 39 051 110 5 853 721 34 195 443 5 561 555
------------------------------------------------------------------------------------------------------------------------------------
58 475 415 62 058 974 54 877 105 61 965 253
Dividends paid (40 348 800) (5 760 000) (35 452 800) (5 760 000)
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 18 126 615 $ 56 298 974 R 19 424 305 $ 56 205 253
------------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from foreign
currency transactions
Balance, beginning of year R 5 605 568 $(28 247 288) R 4 228 205 $(19 096 561)
Net realized gain (loss) for the year 2 777 930 (9 818 426) 1 377 363 (9 150 727)
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 8 383 498 $(38 065 714) R 5 605 568 $(28 247 288)
------------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments
(Computed on identified cost basis)
Balance, beginning of year R 243 499 635 $ 71 253 751 R 207 371 759 $ 65 271 491
Net realized gain for the year 67 322 718 9 596 144 36 127 876 5 982 260
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 310 822 353 $ 80 849 895 R 243 499 635 $ 71 253 751
------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments
Balance, beginning of year R 1 034 686 836 $ 86 494 686 R 778 778 375 $ 49 646 548
Increase (decrease) for the year (100 879 798) (46 903 058) 255 908 461 36 848 138
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 933 807 038 $ 39 591 628 R 1 034 686 836 $ 86 494 686
------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currency
Balance, beginning of year R 5 525 613 $ (504 110) R 5 438 804 $ (544 795)
Net unrealized appreciation (depreciation) for
the year 1 958 478 (294 065) 86 809 40 685
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year R 7 484 091 $ (798 175) R 5 525 613 $ (504 110)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
South African United States South African United States
Rand Dollars Rand Dollars
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income R 39 051 110 $ 5 853 721 R 34 195 443 $ 5 561 555
Net realized gain from investments 67 322 718 9 596 144 36 127 876 5 982 260
Net realized gain (loss) from foreign currency
transactions 2 777 930 (9 818 426) 1 377 363 (9 150 727)
Net increase (decrease) in unrealized appreciation
on investments (100 879 798) (46 903 058) 255 908 461 36 848 138
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currency 1 958 478 (294 065) 86 809 40 685
------------------------------------------------------------------------------------------------------------------------------------
10 230 438 (41 565 684) 327 695 952 39 281 911
Dividends paid (40 348 800) (5 760 000) (35 452 800) (5 760 000)
------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (30 118 362) (47 325 684) 292 243 152 33 521 911
Net assets, beginning of year 1 330 778 543 216 051 448 1 038 535 391 182 529 537
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year R 1 300 660 181 $168 725 764 R 1 330 778 543 $216 051 448
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of these
statements.
9
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended November 30, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
South African United States South African United States
Rand Dollars Rand Dollars
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Interest and dividends R 54 163 471 $ 8 045 388 R 46 790 652 $ 7 632 150
Operating expenses (15 112 361) (2 191 667) (12 595 209) (2 070 595)
Unrealized exchange gains (losses) 1 958 478 (294 065) 86 809 40 685
Realized exchange gains (losses) 2 777 930 (9 818 426) 1 377 363 (9 150 727)
(Increase) decrease in receivable for securities sold 6 511 139 1 057 003 (6 213 891) (1 004 763)
(Increase) decrease in dividends and interest receivable 570 236 156 194 (2 312 074) (372 554)
Decrease in other assets 97 548 12 546 108 919 18 188
Increase in accounts payable, accrued liabilities and
payable for securities purchased 46 592 449 5 799 869 6 567 210 1 055 668
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 97 558 890 2 766 842 33 809 779 (3 851 948)
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments acquired (105 805 875) (13 832 453) (73 818 091) (12 053 014)
Proceeds from disposal of investments 115 504 638 15 851 707 75 502 788 12 461 594
Adjustments to cost for realized foreign exchange differences -- 9 137 335 -- 9 000 638
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 9 698 763 11 156 589 1 684 697 9 409 218
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITY
Dividends paid (40 348 800) (5 760 000) (35 452 800) (5 760 000)
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash in banks 76 148 853 9 663 431 (9 198 324) (1 702 730)
Increase (decrease) in bank time deposits (9 240 000) (1 500 000) 9 240 000 1 500 000
------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN AVAILABLE CASH R 66 908 853 $ 8 163 431 R 41 676 $ (202 730)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUPPLEMENTARY INFORMATION
Years ended November 30, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
South African United States South African United States
CERTAIN FEES INCURRED BY THE COMPANY Rand Dollars Rand Dollars
------------------------------------------------------------------------------------------------------------------------------------
Directors' fees R 1 663 788 $ 236 000 R 1 356 952 $ 222 750
Officers' salaries 2 135 271 313 491 1 928 093 317 697
Arthur Andersen (Auditors) 416 717 62 508 352 004 58 223
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the financial statements form an integral part of these
statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 2000 and 1999
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe 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. 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, 2000, the rand exchange rate was approximately R7.71 to the dollar ($.13 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 records exchange gains and losses in accordance with 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"). The SOP requires separate disclosure in the
accompanying financial statements of net realized gain (loss) from foreign
currency transactions, and inclusion of unrealized gain (loss) on the
translation of currency as part of 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, 2000, sales of securities amounted to R
115,504,638 ($15,851,707) and purchases of securities amounted to R 105,805,875
($13,832,453). 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) net of withholding taxes, if
any. 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 COMPANYPursuant to the South African Taxation Laws Amendment
Act, the Company is subject to tax on foreign dividends received, effective
February 23, 2000. Beginning with the fiscal year ending November 30, 2002, the
Company will also be subject to tax on foreign interest earned. A provision for
tax on foreign dividends of R 206 086 ($26,730) has been included in the
accompanying financial statements for the year ending November 30, 2000.
The South African Revenue Service has recently announced proposed amendments
to levy a tax on capital gains resulting from the disposal of capital assets. If
enacted into law, certain of the Company's capital gains might be subject to
taxation. However, due to the uncertainty surrounding these proposed changes and
their applicability to the Company, management has not assessed the ultimate
impact of the capital gains tax amendment on the Company's financial position.
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 EXCHANGEThere 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 PLANEffective 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,
2000, there was no retirement plan expense, and in the year ended November 30,
1999, retirement plan expense aggregated R3,995 ($740). 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.
5 COMMITMENTS The Company's lease for office space in Johannesburg will expire
in February 2001. Rent expense under this lease for the year ending November 30,
2000 was R288,174 ($43,250). The Company has an option to extend this lease for
a period up to twelve months.
6 SUBSEQUENT EVENTS Effective December 1, 2000, the internal accounting function
and various administrative duties performed by Ranquin Associates in South
Africa will be transferred to the United States. Kaufman Rossin & Co., PA will
succeed Ranquin Associates and perform the accounting function for the Company.
12
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended November 30
------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
South African Rand
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year R 138.62 R 108.18 R 99.38 R 161.77 R 127.19
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.08 3.56 3.59 4.43 4.52
Net realized gain from investments 7.01 3.76 1.91 -- 1.50
Net realized gain (loss) from foreign currency transactions .29 .14 .19 .11 (.12)
Net increase (decrease) in unrealized appreciation on investments (10.51) 26.66 7.61 (61.40) 34.03
Net unrealized appreciation (depreciation) on translation
of assets and liabilities in foreign currency .20 .01 (.09) .02 .62
-----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 34.13 13.21 (56.84) 40.55
Less dividends and distributions (4.20) (3.69) (4.41) (5.55) (5.97)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year R 135.49 R 138.62 R 108.18 R 99.38 R 161.77
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
United States Dollars
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 22.51 $ 19.01 $ 20.45 $ 35.09 $ 34.66
------------------------------------------------------------------------------------------------------------------------------------
Net investment income .61 .58 .66 .97 1.10
Net realized gain from investments 1.00 .62 .32 -- .39
Net realized gain (loss) from foreign currency transactions (1.02) (.95) (.11) -- (.71)
Net increase (decrease) in unrealized appreciation on investments (4.88) 3.84 (1.49) (14.41) 1.05
Net unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currency (.04) .01 (.02) -- --
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.33) 4.10 (.64) (13.44) 1.83
Less dividends and distributions (.60) (.60) (.80) (1.20) (1.40)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 17.58 $ 22.51 $ 19.01 $ 20.45 $ 35.09
------------------------------------------------------------------------------------------------------------------------------------
Market value per share, end of year $ 14.56 $ 19.125 $ 19.125 $ 20.625 $ 37.625
TOTAL INVESTMENT RETURN(1)
Based on market value per share (21.06%) 3.44% (3.30%) (42.86%) (.28%)
RATIOS TO AVERAGE NET ASSETS(1)
Expenses 1.15% 1.13% 1.15% .71% .49%
Net investment income 3.06% 3.02% 3.34% 3.25% 2.72%
SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $168 726 $216 051 $182 530 $196 301 $336 882
Portfolio turnover rate 7.43% 6.66% 1.06% -- 1.79%
</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 taxable 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, 1999.
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 .102 .00028
--------------------------------------------------------------
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 (1)
elects to treat the Company as a qualified electing fund ("QEF") with respect to
his Company shares, or (2) for taxable years of such United States shareholder
beginning after December 31, 1997, elects to "mark-to-market" his Company shares
as of the close of each taxable year, or (3) makes neither election.
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 shares by such shareholder will be treated as ordinary income. In
addition, such 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 a United States shareholder elects to treat the Company as a QEF with
respect to his shares 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 shares generally as if they were sold for their fair market value
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 will 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 makes a
valid QEF election will 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 a United States shareholder makes the mark-to-market
election with respect to Company shares for taxable years beginning on or after
January 1, 1998, such shareholder will be required annually to report any
unrealized gain with respect to his shares as 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 his Company
shares also would be treated as ordinary income, but such shareholder would not
be subject to an interest charge on his resulting tax liability. Special rules
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 accumulated earnings and profits in
excess thereof would be treated as taxable dividends. Such shareholder would
increase the tax basis in his Company shares 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 or with which the taxable year of the Company 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, 1999 and who files his tax
return on the basis of a calendar year may make a QEF election on his 2000 tax
return. A shareholder of the Company who first held his shares in the Company on
or before November 30, 1999 may also make the QEF election on his 2000 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.
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 comply with the applicable annual reporting
requirements, the Company annually will provide to them 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 2001 the Company will send to United States shareholders the PFIC
Annual Information Statement for the Company's 2000 taxable 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 a 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 shares 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 did not elect QEF
treatment (or elected such treatment after the first year in which he owned
shares in which the Company was a PFIC and did 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 net funds available from a
cash dividend and any voluntary cash payments
15
<PAGE>
being concurrently invested. Any stock dividends or split shares distributed on
shares held in the Plan will be credited to the participant's account.
For each participant, a service charge of 5% of the combined amount of the
participant's dividend and any voluntary payment being concurrently invested, up
to a maximum charge of $2.50 per participant, will be deducted (and paid to
First Chicago) prior to each purchase of shares. Shareholder sales of shares
held by First Chicago 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, a participant will
receive a certificate for the full number of shares credited to his or her
account, unless he or she requests 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 PFIC. 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, if any, 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.
16
