<PAGE>
LETTER TO SHAREHOLDERS The Southern Africa Fund
================================================================================
July 27, 1998
Dear Shareholder:
We are pleased to provide you with investment results and market commentary for
The Southern Africa Fund for the semi-annual reporting period ended May 31,
1998.
INVESTMENT RESULTS
The following table provides performance for your Fund and its benchmark, the
Johannesburg Stock Exchange (JSE) All-Share Index, for the six and 12-month
periods ended May 31, 1998. As shown, your Fund substantially outperformed its
benchmark, posting returns of 23.54% and 10.02% for the six and 12-month periods
ended May 31, 1998, respectively. This performance was attributable to the
Fund's relative underweight positions in commodity stocks and its overweight
exposure to growth stocks.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS*
Periods Ended May 31, 1998
Total Returns
-------------------------
6 Months 12 Months
-------- ---------
The Southern Africa
Fund 23.54% 10.02%
Johannesburg Stock
Exchange (JSE)
All-Share Index 14.98% -3.51%
* The Fund's investment results are total returns for the periods and are based
on the net asset value of the Fund's shares as of May 31, 1998. All fees and
expenses related to the operation of the Fund have been deducted. Past
performance is no guarantee of future results.
The Johannesburg Stock Exchange (JSE) All-Share Index is a
capitalization-weighted index of all domestic stocks traded on the
Johannesburg Stock Exchange. The index is unmanaged and reflects no fees or
expenses. An investor cannot invest directly in an index.
- --------------------------------------------------------------------------------
ECONOMIC AND MARKET
REVIEW AND OUTLOOK
South African financial markets have been through a period of considerable
turbulence in recent weeks. In the early part of 1998, financial stocks led in a
strong re-rating of the market, but the renewed attack on the Rand during June
has resulted in some substantial price declines which more than eliminated those
earlier gains.
Essentially, the decision by the South African Central Bank (the "Bank") to fend
off persistent Rand selling resulted in a severe depletion of the country's
foreign exchange reserves. Investors became concerned that the need to rebuild
this reserve position would require a more sustained period of high real
interest rates than had previously been anticipated. At the same time, the Bank
failed in its objective to sustain the Rand exchange rate, and the currency has
subsequently fallen by more than 20% since the beginning of 1998. Investors'
concerns have been further aggravated by the decision to appoint Tito Mboweni,
the Minister for Labour with strong left wing links, as the successor to Chris
Stahls as the Governor of the South African Central Bank in 1999. The decision
thereby eliminated any remaining confidence that long-term inflation could be
brought under control. At this stage, confidence remains low, and in dollar
terms, the stock market is trading at the same level as it was three years ago.
It is our feeling that prospects for an economic recovery this year have been
severely dented. We believe that, although exporters should derive some major
benefits from the decline in the Rand, corporate profits will be under pressure
from a weak domestic market. Overall, we would expect South African Gross
Domestic Product growth of no more than 1% for the calendar year. At the same
time, the outlook
1
<PAGE>
The Southern Africa Fund
================================================================================
for inflation remains difficult to predict. Domestic deflationary pressures are
potentially counterbalanced by the inflationary impact of a weaker Rand on
import prices. We feel that the two should neutralize each other, and we expect
a Consumer Price Index growth of around 5% for the current year. The net result
should be that, with real bond yields now at more than 11%, there is some
prospect for declines in both long-term yields and short-term money market rates
over the remainder of the year as the recent speculative frenzy abates.
Recent events must also put some strain on the political landscape. With the
prospect of unemployment rising even further as a result of the prolongation of
the current slow growth environment, demands for some sort of reflation will
probably increase. The business community is likely to be blamed for failing to
deliver on employment, and President Nelson Mandela will need all of his
political skills to avert a backlash from the economically disenfranchised black
community.
PORTFOLIO STRATEGY
At current price levels we feel that much of this more negative scenario has
already been priced into the market. During June, we moved from having been
fully invested in equities in the early part of the year, towards investing in
some fixed-income investments. In addition, we are currently repurchasing
financial stocks which we feel have now become oversold.
We believe that exporting companies will benefit from a weaker Rand, and we have
held our positions in that area. Overall, we continue to emphasize growth stocks
in the portfolio because we feel that they will be less sensitive to a further
downturn in the economic cycle.
In conclusion, while recognizing that these are difficult times for the Southern
Africa region, we believe that the longer term prospects remain bright. And we
feel that from current market levels, investors can enjoy some significant
rewards in the future.
Thank you for your continued interest and participation in The Southern Africa
Fund. We look forward to reporting to you again on developments in the Southern
African markets and your Fund's investment results in coming periods.
Sincerely,
/s/ Dave H. Williams
Dave H. Williams
Chairman and President
/s/ Mark H. Breedon
Mark H. Breedon
Senior Vice President
2
<PAGE>
TEN LARGEST EQUITY HOLDINGS
May 31, 1998 (unaudited) The Southern Africa Fund
================================================================================
================================================================================
COMPANY U.S.$ VALUE PERCENT OF NET ASSETS
================================================================================
M-Cell, Ltd. $ 6,474,771 5.74%
- --------------------------------------------------------------------------------
Anglo-American Corp. of South Africa, Ltd. 6,331,097 5.61
- --------------------------------------------------------------------------------
South African Breweries, Ltd. 5,552,308 4.92
- --------------------------------------------------------------------------------
Rembrandt Group, Ltd. 5,353,913 4.75
- --------------------------------------------------------------------------------
Standard Bank Investment Corp., Ltd. 5,238,141 4.64
- --------------------------------------------------------------------------------
Nampak, Ltd. 5,196,236 4.61
- --------------------------------------------------------------------------------
Billiton Plc 4,718,207 4.18
- --------------------------------------------------------------------------------
Dimension Data Holdings, Ltd. 4,620,784 4.10
- --------------------------------------------------------------------------------
South African Iron & Steel Industry Corp. 4,347,704 3.86
- --------------------------------------------------------------------------------
Nedcor, Ltd. 4,088,195 3.63
- --------------------------------------------------------------------------------
Total $51,921,356 46.04%
- --------------------------------------------------------------------------------
3
<PAGE>
PORTFOLIO OF INVESTMENTS
May 31, 1998 The Southern Africa Fund
================================================================================
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
COMMON STOCKS--98.4%
BOTSWANA--1.3%
CONSUMER
MANUFACTURING--0.4%
MISCELLANEOUS--0.4%
Sefalana Holdings Co. .................. 350,000 $ 461,213
-----------
CONSUMER STAPLES--0.6%
BEVERAGES--0.6%
Kgolo Ya Sechaba, Ltd. ................. 100,000 7,530
Sechaba Breweries, Ltd. ................ 398,000 634,352
-----------
641,882
-----------
FINANCIAL SERVICES--0.3%
INSURANCE--0.3%
Botswana Insurance
Holdings, Ltd. ....................... 215,455 356,923
-----------
Total Botswanan Securities
(cost $1,054,682) ...................... 1,460,018
-----------
KENYA--0.1%
CONSUMER STAPLES--0.1%
BEVERAGES--0.1%
Kenya Breweries Ltd.
(cost $74,568) ....................... 88,893 69,226
-----------
MALAWI--1.8%
CONSUMER SERVICES--1.8%
PRINTING &
PUBLISHING--1.8%
Press Corporation(a)
(cost $2,002,638) .................... 188,750 2,002,638
-----------
MAURITIUS--2.0%
CONSUMER SERVICES--0.5%
RESTAURANTS & LODGING--0.5%
Rogers and Company, Ltd. ............... 83,679 546,189
-----------
CONSUMER STAPLES--0.5%
BEVERAGES--0.3%
Mauritius Breweries, Ltd. .............. 102,122 358,922
FOOD--0.2%
Happy World Foods, Ltd. ................ 387,837 235,299
-----------
594,221
-----------
FINANCIAL SERVICES--1.0%
BANKING--1.0%
Mauritius Commercial Bank .............. 110,000 529,289
State Bank of Mauritius, Ltd. .......... 960,000 642,678
-----------
1,171,967
-----------
Total Mauritian Securities
(cost $1,886,067) ...................... 2,312,377
-----------
NAMIBIA--1.0%
BASIC INDUSTRY--0.4%
MINING & METALS--0.4%
Namibian Minerals Corp.(b) ............. 130,000 426,641
-----------
CONSUMER STAPLES--0.6%
BEVERAGES--0.6%
Namibian Breweries, Ltd. ............... 1,000,000 733,591
-----------
Total Namibian Securities
(cost $1,071,883) .................... 1,160,232
-----------
SOUTH AFRICA--89.4%
BASIC INDUSTRIES--14.8%
GOLD--2.3%
Anglogold, Ltd. ........................ 40,000 1,986,614
Gold Fields, Ltd.(b) ................... 94,680 551,052
-----------
2,537,666
-----------
MINING & METALS--10.5%
Billiton Plc(b) ........................ 1,900,000 4,718,207
De Beers Centenary AG .................. 78,900 1,643,973
Gencor, Ltd. ........................... 585,000 1,146,280
South African Iron & Steel
Industry Corp. ....................... 14,940,160 4,347,704
-----------
11,856,164
-----------
4
<PAGE>
The Southern Africa Fund
================================================================================
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
PAPER & FOREST
PRODUCTS--2.0%
Sappi, Ltd. ............................ 425,700 $ 2,295,947
-----------
16,689,777
-----------
CAPITAL GOODS--3.2%
ENGINEERING &
CONSTRUCTION--1.6%
Murray & Roberts
Holdings, Ltd. ........................ 1,020,000 1,761,180
-----------
MULTI-INDUSTRY
COMPANY--1.6%
Barlow, Ltd. ........................... 220,000 1,803,279
-----------
3,564,459
-----------
CONSUMER
MANUFACTURING--4.6%
MISCELLANEOUS--4.6%
Nampak, Ltd. ........................... 1,488,000 5,196,236
-----------
CONSUMER SERVICES--17.6%
BROADCASTING & CABLE--3.2%
Electronic Media
Network, Ltd. ......................... 1,700,000 1,846,930
M-Web Holdings Ltd.(b) ................. 400,000 1,780,968
-----------
3,627,898
-----------
ENTERTAINMENT &
LEISURE--0.2%
Millenium Entertainment
Group Africa Ltd. .................... 145,051 178,693
-----------
MISCELLANEOUS--2.2%
Teljoy Holdings, Ltd.(b) ............... 1,124,400 2,541,325
-----------
PRINTING & PUBLISHING--7.0%
Independent Newspapers
Holdings, Ltd. ....................... 40,000 191,677
Kagiso Media, Ltd. ..................... 1,352,740 1,837,070
Nasionale Pers Beperk .................. 200,000 1,897,371
Perskorgroep, Ltd. ..................... 336,000 1,140,751
Omni Media Corp., Ltd. ................. 100,000 1,862,450
Times Media, Ltd. ...................... 127,800 942,167
-----------
7,871,486
-----------
RETAIL--GENERAL
MERCHANDISE--5.0%
New Clicks Holdings, Ltd. .............. 2,026,683 3,342,091
Pick 'N Pay Stores, Ltd. ............... 1,461,300 2,248,154
-----------
5,590,245
-----------
19,809,647
-----------
CONSUMER STAPLES--11.5%
BEVERAGES--4.9%
South African Breweries, Ltd. .......... 196,832 5,552,308
-----------
FOOD--1.9%
Afriband Holdings, Ltd. ................ 1,000,000 446,212
The Premier Group, Ltd. ................ 10,250,839 1,590,973
-----------
2,037,185
-----------
TOBACCO--4.7%
Rembrandt Group, Ltd. .................. 650,100 5,353,913
-----------
12,943,406
-----------
ENERGY--5.2%
DOMESTIC
INTEGRATED--3.3%
Energy Africa, Ltd.(b) ................. 983,750 3,731,169
-----------
OIL SERVICE--1.9%
Sasol, Ltd. ............................ 275,000 2,187,409
-----------
5,918,578
-----------
FINANCIAL SERVICES--14.5%
BANKING--8.3%
Nedcor, Ltd. ........................... 152,700 4,088,195
Standard Bank
Investment Corp., Ltd. ............... 1,000,000 5,238,141
-----------
9,326,336
-----------
INSURANCE--4.9%
Fedsure Holdings, Ltd. ................. 200,000 3,080,803
Forbes Group, Ltd. ..................... 1,000,000 2,425,065
-----------
5,505,868
-----------
MISCELLANEOUS
FINANCE--1.3%
Liberty Life Association
of Africa Ltd. ....................... 54,000 1,489,727
-----------
16,321,931
-----------
5
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) The Southern Africa Fund
================================================================================
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
MULTI-INDUSTRY
COMPANIES--8.2%
Anglo-American Corp. of
South Africa, Ltd. ..................... 132,120 $ 6,331,097
Anglo-American Industrial
Corp. Ltd. ............................. 73,000 2,152,682
New Africa
Investments, Ltd.(b) ................... 548,262 755,196
------------
9,238,975
------------
TECHNOLOGY--4.1%
COMPUTER SOFTWARE--4.1%
Dimension Data
Holdings, Ltd.(b) ...................... 690,372 4,620,784
------------
UTILITY--5.7 %
TELEPHONE UTILITY--5.7%
M-Cell, Ltd. ............................. 3,256,020 6,474,771
------------
Total South African Securities
(cost $88,029,861) ..................... 100,778,564
------------
ZAMBIA--1.2%
CONSUMER STAPLES--0.2%
BEVERAGES--0.2%
National Breweries PLC ................... 2,000,000 213,333
------------
FOOD--0.3%
Zambia Sugar Co. ......................... 30,720,000 425,984
------------
TOBACCO--0.7%
Rothmans of Pall Mall
(Zambia) Berhad ........................ 771,794 771,796
------------
Total Zambian Securities
(cost $1,162,450) ........................ 1,411,113
------------
Shares or
Principal
Amount
Company (000) U.S.$ Value
- --------------------------------------------------------------------------------
ZIMBABWE--1.6%
CONSUMER SERVICES--0.4%
RESTAURANTS &
LODGING--0.4%
Meikles Africa, Ltd.(c) .................. 400,000 $ 420,000
------------
CONSUMER STAPLES--0.5%
BEVERAGES--0.5%
Delta Corp. .............................. 820,731 551,752
------------
FINANCIAL SERVICES--0.3%
BANKING--0.3%
NMBZ Holdings, Ltd.(b) ................... 525,000 370,588
------------
MULTI-INDUSTRY
COMPANY--0.4%
TA Holdings, Ltd. ........................ 8,024,800 449,569
------------
Total Zimbabwean Securities
(cost $2,537,077) ........................ 1,791,909
------------
Total Common Stocks
(cost $97,819,226) ....................... 110,986,077
------------
TIME DEPOSIT--0.1%
Brown Brothers Harriman & Co.
5.625%, 6/01/98
(cost $100,000)........................ U.S.$ 100 100,000
------------
TOTAL INVESTMENTS--98.5%
(cost $97,919,226) ....................... 111,086,077
Other assets less liabilities--1.5% .......... 1,690,965
------------
NET ASSETS--100% ............................. $112,777,042
============
- --------------------------------------------------------------------------------
(a) Illiquid securities, valued at fair market value (see Note A).
(b) Non-income producing security.
(c) U.S. Dollar denominated security.
See notes to financial statements
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998 (unaudited) The Southern Africa Fund
================================================================================
ASSETS
Investments in securities, at value (cost $97,919,226) ..... $ 111,086,077
Cash, at value (cost $1,357,018) ........................... 1,343,064
Receivable for investment securities sold .................. 1,791,908
Dividends and interest receivable .......................... 287,919
Deferred organization expenses and other assets ............ 20,044
-------------
Total assets ............................................... 114,529,012
-------------
LIABILITIES
Payable for investment securities purchased ................ 1,127,517
Management fee payable ..................................... 263,874
Sub-advisory fee payable ................................... 64,578
Administrative fee payable ................................. 20,410
Accrued expenses and other liabilities ..................... 275,591
-------------
Total liabilities .......................................... 1,751,970
-------------
NET ASSETS ................................................... $ 112,777,042
=============
COMPOSITION OF NET ASSETS:
Common stock, at par ....................................... $ 60,071
Additional paid-in capital ................................. 83,255,566
Distributions in excess of net investment income ........... (602,803)
Accumulated net realized gain on investment transactions ... 16,901,539
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities .............. 13,162,669
-------------
$ 112,777,042
=============
NET ASSET VALUE PER SHARE (based on 6,007,100 shares outstanding) $18.77
======
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1998 (unaudited) The Southern Africa Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $24,098) .... $1,032,130
Interest ................................................ 334,461 $ 1,366,591
----------
EXPENSES
Management fee .......................................... 491,119
Directors' fees and expenses ............................ 127,657
Sub-advisory fee ........................................ 111,262
Administrative fee ...................................... 109,558
Custodian ............................................... 104,726
Audit & legal ........................................... 90,923
Reports and notices to shareholders ..................... 44,644
Registration ............................................ 6,904
Amortization of organization expenses ................... 5,915
Transfer agency ......................................... 3,232
Miscellaneous ........................................... 8,016
----------
Total expenses .......................................... 1,103,956
-----------
Net investment income ................................... 262,635
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ............ 16,011,484
Net realized gain on foreign currency transactions ...... 221,249
Net change in unrealized appreciation (depreciation) of:
Investments ........................................... 327,376
Foreign currency denominated assets and liabilities ... (152,279)
-----------
Net gain on investments and foreign currency transactions 16,407,830
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $16,670,465
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
May 31, Year Ended
1998 November 30,
(unaudited) 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income .................................................... $ 262,635 $ 2,442,370
Net realized gain on investments and foreign currency transactions ....... 16,232,733 15,848,303
Net change in unrealized appreciation (depreciation) of investments
and foreign currency denominated assets and liabilities ................ 175,097 (9,252,409)
------------ ------------
Net increase in net assets from operations ............................... 16,670,465 9,038,264
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................... (2,516,975) (2,012,378)
Net realized gains ....................................................... (15,558,389) (13,455,904)
------------ ------------
Total decrease ........................................................... (1,404,899) (6,430,018)
NET ASSETS
Beginning of year ........................................................ 114,181,941 120,611,959
------------ ------------
End of period (including undistributed net investment income of $1,651,537
at November 30, 1997) .................................................. $112,777,042 $114,181,941
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1998 The Southern Africa Fund
================================================================================
NOTE A: Significant Accounting Policies
The Southern Africa Fund, Inc. (the "Fund") was incorporated under the laws of
the State of Maryland on March 25, 1993 and is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund commenced operations on March 7, 1994. The financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities in the financial
statements and amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies of the Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sales price or if no sale occurred, at the mean of
the closing bid and asked prices on that day. Readily marketable securities
traded in over-the-counter market, securities listed on a foreign securities
exchange whose operations are similar to the U.S. over-the-counter market, and
securities listed on a national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the current bid and
asked prices. U.S. government and fixed income securities which mature in 60
days or less are valued at amortized cost, unless this method does not represent
fair value.
Securities for which current market quotations are not readily available are
valued at their fair value as determined in good faith by, or in accordance with
procedures adopted by, the Board of Directors. Fixed income securities may be
valued on the basis of prices obtained from a pricing service when such prices
are believed to reflect the fair market value of such securities.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated into U.S. dollars at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated into U.S. dollars at rates of exchange
prevailing when accrued.
Net realized gains or losses on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of foreign fixed-income
investments and closed forward exchange currency contracts, holdings of foreign
currencies, currency gains and losses realized between the trade and settlement
dates on foreign investment transactions and the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net currency gains and losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation or depreciation of investments and foreign currency
denominated assets and liabilities.
3. Organization Expenses
Organization expenses of approximately $60,000 have been deferred and are being
amortized on a straight-line basis through March, 1999.
4. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially all
of its investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. Withholding taxes on foreign interest and dividends have been provided
for in accordance with the applicable tax requirements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date the securities are purchased or sold.
Investment gains and losses are determined on the identified cost basis. The
Fund accretes discounts on short-term securities as adjustments to interest
income.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) The Southern Africa Fund
================================================================================
6. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with federal
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification.
- --------------------------------------------------------------------------------
NOTE B: Management, Sub-advisory and Administrative fees
Under the terms of the Investment Management Agreement, amended as of May 1,
1998, the Fund pays Alliance Capital Management L.P. (the "Investment Manager")
a fee calculated and paid quarterly, either (i) .81% of the Fund's average
weekly net assets if 90% or less of the Fund's average weekly net assets are
invested in securities of South African issuers, or (ii) the sum of (a) .80% of
the Fund's average weekly net assets and (b) .10% of the Fund's average weekly
net assets not invested in securities of South African issuers if greater than
90% of the Fund's average weekly net assets are invested in securities of South
African issuers.
Under the new terms of the Sub-Advisory Agreement, amended as of May 1, 1998,
the Fund pays Sanlam Asset Management (Gibraltar) Limited a fee calculated and
paid quarterly equal to an annualized rate of .30 of 1% of the greater of (i)
the Fund's average weekly net assets invested in securities of South African
issuers or (ii) 90% of the Fund's average weekly net assets during the quarter.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Investment Manager, the Fund
reimburses AFS for costs relating to servicing phone inquires for the Fund.
There were no reimbursements from the Fund to AFS during the six months ended
May 31, 1998 relating to shareholder servicing costs.
Under the terms of an Administrative Agreement, the Fund pays Princeton
Administrators, L.P. (the "Administrator") a monthly fee equal to the annualized
rate of .20 of 1% of the Fund's average adjusted weekly net assets subject to an
annual minimum of $150,000. The Administrator prepares certain financial and
regulatory reports for the Fund and provides clerical and other services.
- --------------------------------------------------------------------------------
NOTE C: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $34,269,773 and $53,964,465,
respectively, for the six months ended May 31, 1998. There were no purchases or
sales of U.S. government or government agency obligations for the six months
ended May 31, 1998.
At May 31, 1998, the cost of investments for federal income tax purposes was the
same as the cost for financial reporting purposes. Accordingly, gross unrealized
appreciation of investments was $22,848,548 and gross unrealized depreciation of
investments was $9,681,697 resulting in net unrealized appreciation of
$13,166,851 (excluding foreign currency transactions).
Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio holdings,
to hedge certain firm purchase and sales commitments denominated in foreign
currencies and for investment purposes. A forward exchange currency contract is
a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contracts and the closing of such contracts is included in realized
gains or losses from foreign currency transactions. Fluctuations in the value of
forward exchange currency contracts are recorded for financial reporting
purposes as unrealized gains or losses by the Fund.
10
<PAGE>
The Southern Africa Fund
================================================================================
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value at least
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar.
At May 31, 1998, the Fund had no outstanding forward exchange currency
contracts.
- --------------------------------------------------------------------------------
NOTE D: Capital Stock
There are 100,000,000 shares of $.01 par value capital stock authorized.
Of the 6,007,100 shares of Common Stock outstanding at May 31, 1998, the
Investment Manager owned 7,100 shares.
- --------------------------------------------------------------------------------
NOTE E: Concentration of Risk
Investment in equity securities of Southern African issuers involves special
consideration and risks not typically associated with investments in the United
States. Among others, the risks associated with political and economic
uncertainty, particularly with respect to South Africa, may adversely affect the
securities markets of Southern African countries.
11
<PAGE>
FINANCIAL HIGHLIGHTS The Southern Africa Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months Ended Year Ended November 30, March 7, 1994 (a)
May 31, 1998 ------------------------------------ to
(unaudited) 1997 1996 1995 November 30, 1994
---------------- --------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 19.01 $ 20.08 $ 21.49 $ 18.34 $ 13.87(b)
--------- --------- -------- --------- --------
Income From Investment Operations
Net investment income ................... .04 .41 .39 .17 .42
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 2.73 1.10 (.30) 4.27 4.05
--------- --------- -------- --------- --------
Net increase in net asset value
from operations ....................... 2.77 1.51 .09 4.44 4.47
--------- --------- -------- --------- --------
Less: Dividends and Distributions
Dividends from net investment income .... (.42) (.34) (.59) (.52) -0-
Distributions from net realized gains
on investments and foreign currency
transactions .......................... (2.59) (2.24) (.91) (.77) -0-
--------- --------- -------- --------- --------
Total dividends and distributions ....... (3.01) (2.58) (1.50) (1.29) -0-
--------- --------- -------- --------- --------
Net asset value, end of period .......... $ 18.77 $ 19.01 $ 20.08 $ 21.49 $ 18.34
========= ========= ======== ========= ========
Market value, end of period ............. $ 15.1875 $ 15.375 $ 16.50 $ 16.75 $ 14.875
========= ========= ======== ========= ========
Total Return
Total investment return based on:(c)
Market value .......................... 23.60% 9.28% 6.12% 22.90% 5.50%
Net asset value ....................... 23.54% 11.03% .66% 27.89% 30.07%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted) .............................. $ 112,777 $ 114,182 $120,612 $ 129,112 $110,181
Ratio of expenses to average net
assets ................................ 2.02%(d) 2.05% 2.04% 2.05% 2.30%(d)
Ratio of net investment income
to average net assets ................. .48%(d) 2.00% 1.87% .94% 3.65%(d)
Portfolio turnover rate ................. 32% 46% 62% 41% 15%
Average commission rate(e) .............. $ .0016 $ .0073 $ .0046 -- --
</TABLE>
- --------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Net of offering costs of $.23.
(c) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods. Total investment return for a period
of less than one year is not annualized.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This amount includes commissions paid to foreign
brokers which may materially affect the rate shown. Amounts paid in foreign
currencies have been converted into U.S. dollars using the prevailing
exchange rate on the date of the transaction.
12
<PAGE>
The Southern Africa Fund
================================================================================
Supplemental Proxy Information
The Annual Meeting of the Shareholders of the Southern Africa Fund, Inc. was
held on April 30, 1998. The description of each proposal and number of shares
are as follows:
<TABLE>
<CAPTION>
Shares Shares Voted
Voted For Without Authority
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect directors: Class Three Directors
(term expires in 2001)
T. N. Chapman 3,875,310 93,402
David D. T. Hatendi 3,844,753 123,959
Dr. Reba W. Williams 3,344,282 624,430
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP
as the Fund's independent auditors for the Fund's
fiscal year end November 30, 1998 3,338,248 42,972 587,492
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3. To ratify new terms of the Sub-Advisory
Agreement 2,713,811 670,566 45,387
</TABLE>
13
<PAGE>
The Southern Africa Fund
================================================================================
BOARD OF DIRECTORS
Dave H. Williams, Chairman and President
T.N. Chapman(1) Ronnie Masson
Prof. Dennis Davis(1) Frank Savage
David D.T. Hatendi(1) Dr. Reba W. Williams
Dr. Willem de Klerk(1) Peter G.A. Wrighton(1)
Moss L. Leoka
OFFICERS
Norman S. Bergel, Senior Vice President Mark D. Gersten, Treasurer &
Mark H. Breedon, Senior Vice President Chief Financial Officer
Edmund P. Bergan Jr., Secretary Vincent S. Noto, Controller
ADMINISTRATOR INDEPENDENT AUDITORS
Princeton Administrators, L.P. Ernst & Young LLP
P.O. Box 9095 787 Seventh Avenue
Princeton, NJ 08543-9095 New York, NY 10019
CUSTODIAN DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
Brown Brothers Harriman & Co.
40 Water Street The Bank of New York
Boston, MA 02109 101 Barclay Street
New York, NY 10286
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------
(1) Member of the Audit Committee.
Notice is hereby given in accordance with Section 23 (c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
This report, including the financial statements herein, is transmitted to the
shareholders of The Southern Africa Fund for their information. The financial
information included herein is taken from the records of the Fund. This is not a
prospectus, circular or representation intended for use in the purchases of
shares of the Fund or any securities mentioned in this report.
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
THE SOUTHERN AFRICA FUND
SUMMARY OF GENERAL INFORMATION
Investment Policies and Objectives
The investment objective of the Fund is to seek long-term capital appreciation
through investment in equity and fixed income securities of Southern African
issuers.
Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers. The Fund's NYSE trading
symbol is "SOA". Weekly comparative net asset value (NAV) and market price
information about the Fund is published each Monday in The Wall Street Journal
and each Sunday in The New York Times and other newspapers in a table called
"Closed-End Funds".
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains distributions in additional Fund shares.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call The Bank of New
York at 1-800-432-8224.
The Southern Africa Fund
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL [LOGO]
(R)These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SAFSR
THE
SOUTHERN AFRICA
FUND
Semi-Annual Report
May 31, 1998
[LOGO]
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