<PAGE>
LETTER TO SHAREHOLDERS The Southern Africa Fund
================================================================================
December 30, 1997
Dear Shareholder:
South Africa has not been immune to the dramatic shakeouts in emerging markets
around the globe over the past few months. Although the Southern African region
should not be severely impacted by a slow down in Asia, investor perceptions as
to an increase in the riskiness of emerging markets has led to a general
withdrawal of funds from the African region. At the same time, significant falls
in the prices of commodities and gold has had a further negative impact on
growth prospects for South Africa.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
<TABLE>
<CAPTION>
For the Periods
Ended 11/30/97
--------------------------
6 Months 12 Months
<S> <C> <C>
The Southern Africa
Fund -7.18% 11.03%
Johannesburg Stock
Exchange
All-Share Index -16.08% -8.38%
</TABLE>
Total returns are based on net asset value. The Johannesburg Stock Exchange
All-Share Index is not actively managed.
SOUTH AFRICAN MARKET
REVIEW AND OUTLOOK
There is little doubt that South African gross domestic product (GDP) growth
will come in below most forecasters' estimates for 1997 at around the 2% level.
At present, there seems to be little prospect of any significant improvement in
underlying conditions until the second half of 1998.
However, the positive side of this slowing growth scenario has been recent
declines in both the consumer price and producer price indices. With money
supply and loan growth slowing, we anticipate further improvement on the
inflation front over the next six months.
In this environment, we would expect the South African Central Bank to begin
reducing interest rates far more aggressively than in 1997. With real rates
currently around the 7% level, South Africa is operating an extremely tight
money policy. With unemployment rising sharply and corporate profit margins
under pressure, some relaxation of this policy would seem appropriate.
Investors have also been concerned with events on the political landscape as the
gradual transfer of power from President Nelson Mandela to Deputy President
Thabo Mbeki has elicited some alarmist rhetoric from some members of the African
National Congress (ANC) as well as from Mandela himself. It must be noted that
most of the more erratic statements that have been made have been for the
consumption of the local party and not for the world at-large. We continue to
feel that South Africa will plot a conservative and sensible path towards
long-term growth and succeed in avoiding many of the mistakes made by its
African neighbors.
At the same time, the ruling ANC remains a very broad political spectrum ranging
from unreconstructed communists to free market liberalizers. Over time, this
situation is likely to prove untenable and the party will have to break on more
traditional left/right terms. It will be Mbeki's task to deal with the
increasing tensions within his own party, but he will be judged on his ability
to deliver sustainable growth with low inflation.
Despite the soft economy and these political concerns, South Africa retains a
considerable level of financial strength. Unlike many emerging and some
developed countries, South Africa enjoys a trade surplus, has little foreign
debt and a low outstanding debt to GDP ratio. Although reserve levels are low,
South Africa's macro-economic balance sheet is extremely strong.
With declining growth expectations, fixed income instruments significantly
outperformed equities
1
<PAGE>
The Southern Africa Fund
================================================================================
during the period under review. With the prospect of a more rapid decline in
interest rates, we have begun to reduce our exposure to the bond market and
increase holdings in the more economically sensitive areas of the market.
At this stage, we see companies such as Nampak and Sappi as offering
considerable value relative to their international competitors while offering
substantial leverage to any upturn in economic activity. We believe that
investors will begin to recognize the possibility of increasing growth during
1998 and that, after their relative underperformance of the last three years,
cyclical companies will enjoy some relative strength against the market.
ELSEWHERE IN THE REGION
Our concern over the extended valuation levels of Zimbabwe proved justified.
Both the Zimbabwean stock market and the Zimbabwe dollar have fallen
dramatically over the last two months. Short-term interest rates have had to be
raised but Zimbabwe's politicians seem to have been unable to revive any
international confidence that they will pursue sound economics in the future.
Although we find valuations much more appealing today, we remain unconvinced as
to the authorities capability to tackle the fundamental problems of the country,
and have consequently resisted increasing our weightings.
As always we appreciate your continued interest and investment in The Southern
Africa Fund and look forward to continuing to serve your investment needs.
Sincerely,
/s/ Dave H. Williams
Dave H. Williams
Chairman and President
/s/ Mark H. Breedon
Mark H. Breedon
Senior Vice President
2
<PAGE>
<TABLE>
<CAPTION>
TEN LARGEST EQUITY HOLDINGS
November 30, 1997 The Southern Africa Fund
=====================================================================================================================
=====================================================================================================================
COMPANY U.S.$ VALUE PERCENT OF NET ASSETS
=====================================================================================================================
<S> <C> <C>
Teljoy Holdings, Ltd. $ 5,169,183 4.5%
- ---------------------------------------------------------------------------------------------------------------------
Nampak, Ltd. 4,903,811 4.3
- ---------------------------------------------------------------------------------------------------------------------
Standard Bank Investment Corp., Ltd. 4,366,632 3.8
- ---------------------------------------------------------------------------------------------------------------------
Amalgamated Banks of South Africa Ltd. 4,154,068 3.6
- ---------------------------------------------------------------------------------------------------------------------
M-Cell, Ltd. 4,089,023 3.6
- ---------------------------------------------------------------------------------------------------------------------
Energy Africa, Ltd. 3,997,168 3.5
- ---------------------------------------------------------------------------------------------------------------------
South African Iron & Steel Industry Corp. 3,903,839 3.4
- ---------------------------------------------------------------------------------------------------------------------
Metropolitan Life, Ltd. 3,861,998 3.4
- ---------------------------------------------------------------------------------------------------------------------
Fedsure Holdings, Ltd. 3,665,231 3.2
- ---------------------------------------------------------------------------------------------------------------------
Rembrandt Group, Ltd. 3,606,843 3.2
- ---------------------------------------------------------------------------------------------------------------------
Total $41,717,796 36.5%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
PORTFOLIO OF INVESTMENTS
November 30, 1997 The Southern Africa Fund
================================================================================
<TABLE>
<CAPTION>
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS-89.5%
BOTSWANA-1.2%
CONSUMER
MANUFACTURING-0.6%
MISCELLANEOUS-0.6 %
Sefalana Holdings Co. .................. 350,000 $ 644,350
------------
CONSUMER STAPLES-0.4%
BEVERAGES-0.4%
Kgolo Ya Sechaba, Ltd. ................. 100,000 9,205
Sechaba Breweries, Ltd. ................ 398,000 423,930
------------
433,135
------------
FINANCIAL SERVICES-0.2%
INSURANCE-0.2%
Botswana Insurance
Holdings, Ltd. ....................... 211,646 236,567
------------
Total Botswanan Securities
(cost $1,054,682) ...................... 1,314,052
------------
MAURITIUS-2.5%
CONSUMER SERVICES-0.9%
RESTAURANTS &
LODGING-0.9%
Rogers and Company, Ltd. ............... 83,679 418,395
Sun Resorts, Ltd. ...................... 280,000 602,000
------------
1,020,395
------------
CONSUMER STAPLES-0.7%
BEVERAGES-0.3%
Mauritius Breweries, Ltd. .............. 102,122 343,501
------------
FOOD-0.4%
Happy World Foods, Ltd. ................ 687,837 497,119
------------
840,620
------------
FINANCIAL SERVICES-0.9%
BANKING-0.9%
Mauritius Commercial
Bank ................................. 110,000 485,000
State Bank of Mauritius,
Ltd .................................. 960,000 549,818
------------
1,034,818
------------
Total Mauritian Securities
(cost $2,637,585) ...................... 2,895,833
------------
NAMIBIA-1.1%
BASIC INDUSTRY-0.5%
MINING & METALS-0.5%
Namibian Minerals
Corp.(a) ............................. 130,000 589,326
------------
MULTI-INDUSTRY
COMPANY-0.6%
Namibian Breweries, Ltd. ............... 1,000,000 618,174
------------
Total Namibian Securities
(cost $1,071,883) ...................... 1,207,500
------------
SOUTH AFRICA-80.3%
BASIC INDUSTRIES-10.9%
GOLD-2.0%
Beatrix Mines, Ltd. .................... 225,000 683,574
HJ Joel Gold Mining
Co., Ltd. ............................ 400,000 181,256
Vaal Reefs Exploration &
Mining Co., Ltd. ..................... 40,000 1,384,140
------------
2,248,970
------------
MINING & METALS-6.8%
Billiton Plc(a) ........................ 800,000 1,977,343
De Beers Centenary AG(b) ............... 78,900 1,657,631
Gencor, Ltd. ........................... 160,000 248,816
South African Iron & Steel
Industry Corp. ....................... 8,940,160 3,903,839
------------
7,787,629
------------
MISCELLANEOUS-0.3%
Consol, Ltd. ........................... 66,000 366,365
------------
PAPER & FOREST
PRODUCTS-1.8%
Sappi, Ltd. ............................ 365,700 2,045,058
------------
12,448,022
------------
CAPITAL GOODS-0.8%
ENGINEERING &
CONSTRUCTION-0.8%
Murray & Roberts
Holdings, Ltd. ....................... 500,000 876,416
------------
CONSUMER
MANUFACTURING-4.3%
MISCELLANEOUS-4.3%
Nampak, Ltd.(b) ........................ 1,488,000 4,903,811
------------
</TABLE>
4
<PAGE>
The Southern Africa Fund
================================================================================
<TABLE>
<CAPTION>
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES-17.1%
BROADCASTING & CABLE-2.8%
Electronic Media Network,
Ltd .................................... 1,700,000 $ 1,523,172
MIH Holdings, Ltd.(a) .................... 545,700 1,629,794
------------
3,152,966
------------
MISCELLANEOUS-4.5%
Teljoy Holdings, Ltd.(a) ................. 3,696,080 5,169,183
------------
PRINTING & PUBLISHING-7.5%
Independent Newspapers
Holdings, Ltd. ......................... 40,000 189,495
Kagiso Media, Ltd. ....................... 1,352,740 1,198,101
Nasionale Pers Beperk .................... 363,287 2,993,096
Perskorgroep, Ltd. ....................... 336,000 930,834
Omni Media Corp., Ltd. ................... 190,000 2,445,932
Times Media, Ltd. ........................ 127,800 855,510
------------
8,612,968
------------
RETAIL-GENERAL
MERCHANDISE-2.3%
New Clicks Holdings, Ltd. ................ 2,008,494 2,337,382
Pick 'N Pay Stores, Ltd. ................. 169,100 268,192
------------
2,605,574
------------
19,540,691
------------
CONSUMER STAPLES-11.3%
BEVERAGES-2.9%
South African Breweries,
Ltd.(b)............................... 132,832 3,255,820
------------
FOOD-2.4%
Afriband Holdings, Ltd.................. 3,333,333 1,524,202
The Premier Group, Ltd.................. 1,151,200 1,244,861
------------
2,769,063
------------
RETAIL-FOOD & DRUG-2.8%
Metro Cash & Carry, Ltd................. 3,449,136 3,232,455
------------
TOBACCO-3.2%
Rembrandt Group, Ltd.(b)................ 470,100 3,606,843
------------
12,864,181
------------
ENERGY-5.0%
DOMESTIC INTEGRATED-3.5%
Energy Africa, Ltd.(a).................. 843,750 3,997,168
------------
OIL SERVICE-1.5%
Sasol, Ltd.............................. 175,000 1,764,418
------------
5,761,586
------------
FINANCIAL SERVICES-21.1%
BANKING-12.2%
Amalgamated Banks of
South Africa, Ltd..................... 674,515 4,154,068
Investec Bank, Ltd...................... 50,000 1,989,701
Nedcor, Ltd............................. 150,590 3,411,926
Standard Bank Investment
Corp., Ltd............................ 100,000 4,366,632
------------
13,922,327
------------
INSURANCE-8.9%
Fedsure Holdings, Ltd................... 317,196 3,665,231
Forbes Group, Ltd....................... 1,450,000 2,687,951
Metropolitan Life, Ltd.................. 1,500,000 3,861,998
------------
10,215,180
------------
24,137,507
------------
MULTI-INDUSTRY
COMPANY-2.0%
Anglo-American Corp. of
South Africa, Ltd.(b)................. 55,220 2,297,516
------------
TECHNOLOGY-4.2%
COMMUNICATION
EQUIPMENT-1.6%
Plessey Corp., Ltd...................... 1,416,374 1,823,344
------------
COMPUTER SOFTWARE-2.6%
Dimension Data Holdings,
Ltd.(a)............................... 686,255 2,968,353
------------
4,791,697
------------
UTILITY-3.6%
TELEPHONE UTILITY-3.6%
M-Cell, Ltd............................. 3,254,460 4,089,023
------------
Total South African Securities
(cost $81,132,902)...................... 91,710,450
------------
ZAMBIA-1.5%
CONSUMER STAPLES-1.5%
FOOD-0.7%
Zambia Sugar Co......................... 30,720,000 778,003
------------
TOBACCO-0.8%
Rothmans of Pall Mall
(Zambia) Berhad....................... 15,031,902 916,381
------------
Total Zambian Securities
(cost $859,632)......................... 1,694,384
------------
</TABLE>
5
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) The Southern Africa Fund
================================================================================
<TABLE>
<CAPTION>
Company Shares U.S.$ Value
- --------------------------------------------------------------------------------
<S> <C> <C>
ZIMBABWE-2.9%
CONSUMER SERVICES-0.5%
RESTAURANTS & LODGING-0.5%
Meikles Africa, Ltd.(c)................. 400,000 $ 610,000
------------
CONSUMER STAPLES-0.7%
BEVERAGES-0.7%
Delta Corp.............................. 820,731 863,329
------------
FINANCIAL SERVICES-0.3%
BANKING-0.3%
NMBZ Holdings, Ltd.(a).................. 200,000 332,180
------------
MULTI-INDUSTRY
COMPANY-1.4%
TA Holdings, Ltd........................ 8,024,800 1,554,979
------------
Total Zimbabwean Securities
(cost $2,322,979)....................... 3,360,488
------------
Total Common Stocks
(cost $89,079,663)...................... 102,182,707
------------
<CAPTION>
Principal
Amount
Company (000) U.S.$ Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT
OBLIGATIONS-10.7%
SOUTH AFRICA-10.7%
Republic of South Africa,
13.00%, 8/31/10....................... ZAR 36,000 $ 6,844,916
13.50%, 9/15/15....................... 27,500 5,372,577
------------
Total Foreign Government
Obligations
(cost $12,481,062)...................... 12,217,493
------------
TIME DEPOSIT-0.2%
Canadian Imperial Bank
of Commerce
5.6875%, 12/01/97
(cost $200,000)......................... US $ 200 200,000
------------
TOTAL INVESTMENTS-100.4%
(cost $101,760,725)..................... 114,600,200
Other assets less liabilities-(0.4%)........ (418,259)
------------
NET ASSETS-100%............................. $114,181,941
============
</TABLE>
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Securities, or portion thereof, with an aggregate market value of
$8,883,538 have been segregated to collateralize forward exchange currency
contracts.
(c) U.S. Dollar denominated security.
Glossary:
ZAR - South African Rand.
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997 The Southern Africa Fund
====================================================================================================================================
<S> <C>
ASSETS
Investments in securities, at value (cost $101,760,725)......................................................... $114,600,200
Cash, at value (cost $155,343).................................................................................. 154,481
Interest and dividends receivable............................................................................... 520,206
Net unrealized appreciation on forward exchange currency contracts ............................................. 157,514
Deferred organization expenses and other assets ................................................................ 16,692
------------
Total assets.................................................................................................... 115,449,093
------------
LIABILITIES
Payable for investment securities purchased .................................................................... 627,087
Management fee payable ......................................................................................... 281,961
Sub-advisory fee payable ....................................................................................... 57,294
Administrative fee payable ..................................................................................... 19,440
Accrued expenses and other liabilities ......................................................................... 281,370
------------
Total liabilities .............................................................................................. 1,267,152
------------
NET ASSETS........................................................................................................ $114,181,941
============
COMPOSITION OF NET ASSETS:
Common stock, at par ........................................................................................... $ 60,071
Additional paid-in capital ..................................................................................... 83,255,566
Undistributed net investment income ............................................................................ 1,651,537
Accumulated net realized gain on investment transactions ....................................................... 16,227,195
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities .................................................................. 12,987,572
------------
$114,181,941
============
NET ASSET VALUE PER SHARE (based on 6,007,100 shares outstanding)................................................. $19.01
============
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended November 30, 1997 The Southern Africa Fund
====================================================================================================================================
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................................................ $3,117,631
Dividends (net of foreign taxes withheld of $23,963)............................................ 1,829,651 $ 4,947,282
----------
EXPENSES
Management fee.................................................................................. 1,099,280
Directors' fees and expenses.................................................................... 314,200
Custodian....................................................................................... 255,996
Administrative fee.............................................................................. 244,233
Audit & legal .................................................................................. 229,086
Sub-advisory fee................................................................................ 226,451
Transfer agency................................................................................. 46,504
Reports and notices to shareholders............................................................. 42,342
Registration.................................................................................... 15,974
Amortization of organization expenses .......................................................... 11,994
Miscellaneous .................................................................................. 18,852
----------
Total expenses ................................................................................. 2,504,912
-----------
Net investment income .......................................................................... 2,442,370
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ................................................... 16,268,101
Net realized loss on foreign currency transactions.............................................. (419,798)
Net change in unrealized appreciation (depreciation) of:
Investments................................................................................... (9,400,786)
Foreign currency denominated assets and liabilities........................................... 148,377
-----------
Net gain on investments and foreign currency transactions ...................................... 6,595,894
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................................................ $ 9,038,264
===========
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
====================================================================================================================================
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income............................................................... $ 2,442,370 $ 2,349,924
Net realized gain on investments and foreign currency transactions.................. 15,848,303 12,952,857
Net change in unrealized appreciation (depreciation) of investments
and foreign currency denominated assets and liabilities........................... (9,252,409) (14,792,618)
----------- -----------
Net increase in net assets from operations.......................................... 9,038,264 510,163
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................................. (2,012,378) (3,544,189)
Net realized gains.................................................................. (13,455,904) (5,466,461)
----------- -----------
Total decrease...................................................................... (6,430,018) (8,500,487)
NET ASSETS
Beginning of year................................................................... 120,611,959 129,112,446
----------- -----------
End of year (including undistributed net investment income of
$1,651,537 and $1,641,343, respectively).......................................... $114,181,941 $120,611,959
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 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 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 the 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 Fund's 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 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 earned or accrued.
Net realized loss on foreign currency transactions represents net 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 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.
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.
9
<PAGE>
The Southern Africa Fund
================================================================================
NOTE B: Management, Sub-advisory and Administrative fees
Under the terms of a Management Agreement, the Fund pays Alliance Capital
Management L.P. (the "Investment Manager") a fee calculated and paid quarterly,
equal to an annualized rate of .90 of 1% of the Fund's average weekly net assets
during the quarter.
Under the terms of a Sub-Advisory Agreement, the Fund pays Sanlam Asset
Management (Gibraltar) Limited a fee, calculated and paid quarterly, equal to an
annualized rate of .20 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. The
Fund reimbursed AFS $1,230 during the year ended November 30, 1997 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 $54,482,301 and $63,100,342,
respectively, for the year ended November 30, 1997. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
November 30, 1997.
At November 30, 1997, the cost of investments for federal income tax purposes
was $101,954,231. Accordingly, gross unrealized appreciation of investments was
$21,150,644 and gross unrealized depreciation of investments was $8,504,675
resulting in net unrealized appreciation of $12,645,969 (excluding foreign
currency transactions).
Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. 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 contract
and the closing of such contract is included in net realized gain or loss on
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.
The Fund's custodian will place and maintain 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.
Risk 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. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) The Southern Africa Fund
================================================================================
At November 30, 1997, the Fund had outstanding forward exchange currency
contracts as follows:
<TABLE>
<CAPTION>
U.S. $
Contract Value on U.S. $ Unrealized
Amount Origination Current Appreciation
Foreign Currency Buy Contract (000) Date Value (Depreciation)
- ----------------------------- -------- ----------- ------- --------------
<S> <C> <C> <C> <C>
South African Rand
expiring 1/27/1998................................... 14,487 $2,993,205 $2,940,829 $ (52,376)
Foreign Currency Sale Contract
- ------------------------------
Zimbabwe Dollars
expiring 1/27/1998................................... 37,765 2,854,497 2,644,607 209,890
--------
$157,514
========
</TABLE>
- --------------------------------------------------------------------------------
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 November 30, 1997, 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>
Year Ended November 30, March 7, 1994 (a)
----------------------------------- to
1997 1996 1995 November 30, 1994
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............................ $ 20.08 $ 21.49 $ 18.34 $ 13.87(b)
------- ------- ------- -------
Income From Investment Operations
- ---------------------------------
Net investment income........................................... .41 .39 .17 .42
Net realized and unrealized gain (loss) on investments
and foreign currency transactions............................. 1.10 (.30) 4.27 4.05
------- ------- ------- -------
Net increase in net asset value from operations................. 1.51 .09 4.44 4.47
------- ------- ------- -------
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income............................ (.34) (.59) (.52) -0-
Distributions from net realized gains on
investments and foreign currency transactions................. (2.24) (.91) (.77) -0-
------- ------- ------- -------
Total dividends and distributions............................... (2.58) (1.50) (1.29) -0-
------- ------- ------- -------
Net asset value, end of period.................................. $ 19.01 $ 20.08 $ 21.49 $ 18.34
======= ======= ======= =======
Market value, end of period..................................... $15.375 $ 16.50 $ 16.75 $14.875
======= ======= ======= =======
Total Return
- ------------
Total investment return based on: (c)
Market value.................................................. 9.28% 6.12% 22.90% 5.50%
Net asset value............................................... 11.03% .66% 27.89% 30.07%
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000's omitted)....................... $114,182 $120,612 $129,112 $110,181
Ratio of expenses to average net assets......................... 2.05% 2.04% 2.05% 2.30%(d)
Ratio of net investment income to average net assets............ 2.00% 1.87% .94% 3.65%(d)
Portfolio turnover rate......................................... 46% 62% 41% 15%
Average commission rate (e)..................................... $ .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>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS. The Southern Africa Fund
================================================================================
To the Shareholders and Board of Directors
The Southern Africa Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
Southern Africa Fund, Inc., including the portfolio of investments, as of
November 30, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1997, by correspondence with the custodian 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Southern Africa Fund, Inc. at November 30, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
January 6, 1998
13
<PAGE>
ADDITIONAL INFORMATION (unaudited) The Southern Africa Fund
================================================================================
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment Plan (the "Plan"), pursuant to which
dividends and capital gain distributions to shareholders will be reinvested in
additional shares of the Fund. The Bank of New York (the "Agent") will act as
agent for participants under the Plan. Shareholders whose shares are held in the
name of a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue
new shares at the greater of net asset value or 95% of the then current
market price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or
elsewhere, for the participants' accounts. Such purchases will be made on
or shortly after the payment date for such dividend or distribution and in
no event more than 30 days after such date except where temporary
curtailment or suspension of purchase is necessary to comply with Federal
securities laws. If, before the Agent has completed its purchases, the
market price exceeds the net asset value of a share of Common Stock, the
average purchase price per share paid by the Agent may exceed the net asset
value of the Fund's shares of Common Stock, resulting in the acquisition of
fewer shares than if the dividend or distribution had been paid in shares
issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of the
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market plus
the cost of any shares issued by the Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
written notice of the change sent to participants in the Plan at least 90 days
before the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at The Bank of New York, 101 Barclay Street, New York, New
York 10286.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change of
control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio, who
is Mark H. Breedon, a Senior Vice President of the Fund.
14
<PAGE>
The Southern Africa Fund
================================================================================
Supplemental Proxy Information
The Annual Meeting of the Shareholders of the Southern Africa Fund, Inc. was
held on March 26, 1997. 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 Two Directors
(term expires in 2000)
Dr. William De Klerk 3,403,015 100,116
Moss L. Leoka 3,405,019 97,112
Ronnie Masson 3,406,322 96,809
Frank Savage 3,422,171 80,960
Peter G. A. Wrighton 3,408,648 94,483
</TABLE>
<TABLE>
<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, 1997. 3,459,833 28,438 14,860
</TABLE>
15
<PAGE>
The Southern Africa Fund
================================================================================
<TABLE>
BOARD OF DIRECTORS
<S> <C>
Dave H. Williams, Chairman and President Dr. Enos Mabuza(1)
T.N. Chapman(1) Ronnie Masson(1)
Prof. Dennis Davis(1) Frank Savage
David D.T. Hatendi(1) Desmond Smith
Dr. Willem de Klerk(1) Reba W. Williams
Stephen Koseff Peter G.A. Wrighton(1)
Moss L. Leoka(1)
OFFICERS
Norman S. Bergel, Senior Vice President Mark D. Gersten, Treasurer & Chief Financial Officer
Mark H. Breedon, Senior Vice President Vincent S. Noto, Controller
Edmund P. Bergan Jr., Secretary
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,
Brown Brothers Harriman & Co. TRANSFER AGENT AND REGISTRAR
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
</TABLE>
- --------------------------------------------------------------------------------
(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.
16
<PAGE>
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<PAGE>
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<PAGE>
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<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
AllianceCapital [LOGO](R)
(R)These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SAFAR
================================================================================
THE
- --------------------------------------------------------------------------------
SOUTHERN AFRICA
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
[GRAPHIC]
Annual Report
November 30, 1997
Alliance(R) [LOGO]
