THE NEW SOUTH AFRICA FUND, INC.
SEMI-ANNUAL REPORT
AUGUST 31, 1997
(UNAUDITED)
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THE NEW SOUTH AFRICA FUND INC.
OBJECTIVE
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The New South Africa Fund Inc. (the "Fund") seeks to achieve long-term capital
appreciation through investments principally in securities of issuers in the
Republic of South Africa ("South Africa"), as well as, to a lesser extent, in
other countries in the Southern African region. Under normal cir cumstances, the
Fund will invest at least 80% of its assets in securities of South African
issuers, including at least 65% of its assets in equity securities of South
African issuers. The Fund may also invest up to 35% of its assets in fixed
income securities.
MANAGEMENT
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Fleming International Asset Management Limited ("FIAM") is the investment
management company appointed to advise on and manage the Fund's portfolio. The
Investment Adviser is an affiliate of Robert Fleming Holdings Limited, which
manages over $99 billion in assets worldwide. Effective April 3, 19 97, Raymond
Goldblatt has principal responsibility for recommending the purchase and sale of
investment securities by the Fund to the Fund's investment adviser, FIAM, which
has sole investment discretion with respect to the Fund's assets. Mr. Goldblatt
is Chief Executive Officer of Fleming Martin Asset Management, an affiliate of
FIAM, and has 12 years of investment management experience.
MARKET INFORMATION
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The Fund is listed on the New York Stock Exchange (symbol "NSA"). THE SHARE
PRICE IS PUBLISHED IN: The New York Times (daily) under the designation "NwSAfr"
and The Wall Street Journal (daily), and Barron's (each Monday) under the
designation "NewSoAfrFd".
THE NET ASSET VALUE PER SHARE IS PUBLISHED UNDER "CLOSED END FUNDS" each Sunday
in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL AND BARRON'S.
1
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THE NEW SOUTH AFRICA FUND INC.
DIRECTORS AND ADMINISTRATION
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OFFICERS AND DIRECTORS Iain O.S. Saunders - President, Treasurer
and Chairman of the Board of Directors
Anton Dirk Botha - Director
Arthur Levy - Director
Dr. Nthato H. Motlana - Director
Arnold Witkin - Director
Ann Cranmer - Vice President
Raymond Goldblatt - Vice President
Linda Field - Secretary
INVESTMENT ADVISER Fleming International Asset
Management Limited
25 Copthall Avenue
London EC2R 7DR
England
ADMINISTRATOR Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167 U.S.A.
CUSTODIAN Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540 U.S.A.
INDEPENDENT ACCOUNTANTS Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036 U.S.A.
LEGAL COUNSEL Baker & McKenzie
805 Third Avenue
New York, NY 10022
U.S.A.
REGISTRAR, TRANSFER PNC Bank, N.A.
AGENT & Bellevue Corporate Center
DIVIDEND PAYING AGENT 400 Bellevue Parkway Mail Stop 400 0202
Wilmington, DE 19809
U.S.A.
2
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THE NEW SOUTH AFRICA FUND
HIGHLIGHTS OF THE PERIOD (UNAUDITED)
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AT AUGUST 31, 1997
US $
----
Net Assets 82,944,606
Net Asset Value ("NAV") per Share 18.35
Market Price on New York Stock Exchange 15.38
Discount to NAV 16.21%
PERFORMANCE FROM MARCH 11, 1994* TO AUGUST 31, 1997
Total Return based on Market Price 22.86%+
Total Return based on NAV 48.66%+
Johannesburg Stock Exchange ("JSE") All Share 36.48%++
Index
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* Commencement of operations.
+ Assumes reinvestment of dividends in accordance with the Fund's Dividend
Reinvestment and Cash Purchase Plan.
++ The JSE All Share Index excludes reinvestment of dividends on the
underlying securities. In addition, the JSE All Share Index is unmanaged.
NAV & MARKET PRICE VS. JSE ALL SHARE INDEX
JSE NAV Market
Inception Inception Inception
to Date to Date to Date
Date Return Return Return
---- ------ ------ ------
03/11/94 100.00% 100.00% 100.00%
03/18/94 100.08% 99.85% 92.29%
03/25/94 96.03% 99.93% 94.09%
03/31/94 87.91% 98.84% 85.13%
04/08/94 85.87% 96.66% 85.13%
04/15/94 81.37% 92.44% 80.65%
04/22/94 90.42% 99.49% 89.61%
04/29/94 101.45% 108.36% 97.67%
05/06/94 99.65% 105.60% 88.71%
05/13/94 99.00% 104.72% 91.40%
05/20/94 97.34% 102.62% 86.02%
05/27/94 98.39% 104.00% 87.81%
05/31/94 98.39% 104.94% 89.61%
06/03/94 100.65% 105.81% 89.61%
06/10/94 102.96% 106.83% 92.29%
06/17/94 106.30% 109.59% 97.67%
06/24/94 103.42% 109.74% 93.19%
06/30/94 99.21% 104.36% 90.50%
07/01/94 99.26% 104.22% 91.40%
07/08/94 99.54% 104.29% 88.71%
07/15/94 109.36% 111.99% 91.40%
07/22/94 105.73% 109.52% 94.09%
07/29/94 106.78% 109.08% 92.29%
08/05/94 109.63% 112.57% 89.61%
08/12/94 112.21% 113.81% 92.29%
08/19/94 113.72% 115.41% 93.19%
08/26/94 113.13% 113.81% 94.98%
08/31/94 113.39% 114.83% 92.29%
09/02/94 114.59% 115.12% 91.40%
09/09/94 115.87% 116.72% 92.29%
09/16/94 115.78% 117.51% 93.19%
09/23/94 116.92% 118.02% 94.09%
09/30/94 116.53% 118.31% 94.09%
10/07/94 117.53% 119.48% 94.09%
10/14/94 120.32% 122.24% 98.57%
10/21/94 128.15% 128.71% 103.05%
10/28/94 125.55% 127.18% 103.05%
10/31/94 124.66% 127.18% 101.25%
11/04/94 125.80% 127.91% 102.15%
11/11/94 125.57% 127.91% 103.05%
11/18/94 125.89% 129.14% 101.25%
11/25/94 122.88% 126.38% 97.67%
11/30/94 122.47% 127.25% 100.36%
12/02/94 122.00% 126.60% 100.36%
12/09/94 120.14% 124.71% 100.36%
12/16/94 123.12% 127.91% 103.94%
12/23/94 124.22% 131.10% 106.24%
12/30/94 126.21% 131.41% 107.19%
01/06/95 124.38% 130.18% 107.19%
01/13/95 118.33% 124.25% 104.35%
01/20/95 114.70% 121.25% 95.81%
01/27/95 111.75% 118.87% 93.91%
01/31/95 107.93% 115.87% 92.96%
02/03/95 115.16% 122.64% 99.60%
02/10/95 115.57% 123.18% 99.60%
02/17/95 115.32% 123.02% 96.76%
02/24/95 117.07% 123.64% 101.50%
02/28/95 115.39% 122.25% 101.50%
03/03/95 118.19% 125.41% 102.45%
03/10/95 124.27% 132.64% 107.19%
03/17/95 129.07% 136.18% 107.19%
03/24/95 126.89% 133.87% 109.09%
03/31/95 129.39% 136.25% 108.14%
04/07/95 133.04% 139.02% 107.19%
04/13/95 130.20% 136.64% 108.14%
04/21/95 131.54% 137.79% 111.94%
04/28/95 132.75% 138.72% 110.04%
04/30/95 132.75% 138.72% 110.04%
05/05/95 135.33% 140.64% 112.88%
05/12/95 133.53% 139.64% 110.99%
05/19/95 130.89% 136.95% 108.14%
05/26/95 131.61% 137.95% 108.14%
05/31/95 130.15% 137.79% 110.04%
06/02/95 131.76% 138.64% 107.19%
06/09/95 130.02% 136.95% 107.19%
06/16/95 129.96% 136.95% 107.19%
06/23/95 132.65% 139.64% 107.19%
06/30/95 130.65% 138.10% 109.09%
07/07/95 131.09% 138.33% 108.14%
07/14/95 131.00% 138.33% 108.14%
07/21/95 130.93% 137.64% 108.14%
07/28/95 130.98% 137.72% 108.14%
07/31/95 131.65% 138.25% 107.19%
08/04/95 134.12% 140.49% 109.09%
08/11/95 134.27% 140.56% 108.14%
08/18/95 134.04% 140.49% 107.19%
08/25/95 133.40% 139.79% 107.19%
08/31/95 132.93% 140.25% 107.19%
09/01/95 132.92% 140.25% 107.19%
09/08/95 133.87% 141.33% 107.19%
09/15/95 135.43% 142.64% 109.09%
09/22/95 136.08% 143.33% 109.09%
09/29/95 135.83% 143.66% 109.99%
10/06/95 137.26% 144.59% 109.99%
10/13/95 139.02% 146.22% 110.95%
10/20/95 140.24% 147.93% 114.77%
10/27/95 139.00% 147.54% 111.90%
10/31/95 139.15% 147.77% 111.90%
11/03/95 140.57% 148.78% 113.82%
11/10/95 145.19% 152.19% 116.69%
11/17/95 144.72% 152.19% 116.69%
11/24/95 143.65% 150.95% 115.73%
11/30/95 142.72% 150.41% 117.64%
12/01/95 142.78% 150.41% 116.69%
12/08/95 148.42% 155.22% 119.55%
12/15/95 148.58% 156.77% 117.64%
12/22/95 149.88% 158.17% 120.51%
12/29/95 149.75% 159.04% 119.20%
12/31/95 149.77% 159.04% 119.20%
01/05/96 157.65% 166.93% 125.16%
01/12/96 162.27% 171.12% 130.13%
01/19/96 163.89% 171.44% 139.07%
01/26/96 166.92% 173.13% 141.06%
01/31/96 165.01% 170.96% 137.08%
02/02/96 168.05% 171.85% 143.04%
02/09/96 165.26% 169.91% 138.08%
02/16/96 155.79% 162.82% 133.11%
02/23/96 154.29% 159.36% 124.17%
02/29/96 151.68% 156.11% 122.18%
03/01/96 150.49% 155.41% 123.18%
03/08/96 149.76% 154.93% 118.21%
03/15/96 149.79% 153.88% 120.20%
03/22/96 149.77% 153.72% 123.18%
03/29/96 148.63% 152.03% 121.19%
04/04/96 143.26% 145.90% 117.22%
04/12/96 140.20% 143.89% 113.24%
04/19/96 143.75% 145.98% 113.24%
04/26/96 138.97% 141.71% 114.24%
04/30/96 141.23% 143.89% 113.24%
05/03/96 138.42% 140.51% 113.24%
05/10/96 134.94% 135.35% 109.27%
05/17/96 137.12% 137.61% 111.26%
05/24/96 134.47% 135.59% 109.27%
05/31/96 137.40% 138.41% 107.28%
06/07/96 136.79% 137.69% 107.28%
06/14/96 137.18% 139.30% 106.29%
06/21/96 137.73% 139.38% 108.27%
06/28/96 139.58% 141.55% 109.27%
07/05/96 139.47% 141.15% 110.26%
07/12/96 135.07% 135.91% 111.26%
07/19/96 135.53% 136.80% 107.28%
07/26/96 130.65% 131.40% 104.30%
07/31/96 128.12% 128.50% 103.31%
08/02/96 131.05% 131.24% 103.31%
08/09/96 128.90% 128.90% 103.31%
08/16/96 125.56% 123.83% 103.31%
08/23/96 126.94% 124.88% 99.33%
08/30/96 130.63% 128.82% 100.33%
09/06/96 131.99% 131.64% 102.31%
09/13/96 133.92% 135.11% 102.31%
09/20/96 134.98% 136.72% 106.29%
09/27/96 134.05% 135.75% 108.27%
09/30/96 132.80% 134.54% 107.28%
10/04/96 135.59% 137.04% 111.26%
10/11/96 136.18% 139.54% 109.27%
10/18/96 134.80% 136.72% 108.27%
10/25/96 132.68% 134.54% 106.29%
10/31/96 130.23% 132.29% 102.31%
11/01/96 130.52% 132.45% 103.31%
11/08/96 126.57% 128.42% 101.32%
11/15/96 128.44% 130.52% 103.31%
11/22/96 127.77% 129.79% 102.31%
11/29/96 127.57% 129.79% 103.31%
12/06/96 124.11% 126.57% 100.33%
12/13/96 122.45% 122.46% 99.33%
12/20/96 122.41% 125.12% 99.33%
12/27/96 123.37% 126.06% 100.89%
12/31/96 124.53% 127.52% 101.89%
01/03/97 123.03% 126.22% 100.89%
01/10/97 124.96% 133.27% 107.88%
01/17/97 127.94% 132.46% 102.89%
01/24/97 127.11% 132.14% 105.88%
01/31/97 128.34% 132.78% 106.88%
02/07/97 135.86% 140.32% 111.88%
02/14/97 139.40% 143.32% 112.88%
02/21/97 139.38% 143.64% 113.87%
02/28/97 139.81% 142.26% 111.88%
03/07/97 138.85% 142.10% 111.88%
03/14/97 140.82% 144.77% 113.87%
03/21/97 140.57% 144.86% 114.87%
03/28/97 140.87% 145.26% 114.87%
03/31/97 140.71% 145.26% 114.87%
04/04/97 139.41% 145.02% 115.87%
04/11/97 138.37% 144.29% 115.87%
04/18/97 138.39% 144.37% 114.87%
04/25/97 139.54% 146.72% 115.87%
04/30/97 140.54% 147.45% 115.87%
05/02/97 140.79% 147.61% 116.87%
05/09/97 141.16% 148.26% 118.87%
05/16/97 139.92% 148.50% 118.87%
05/23/97 138.68% 147.93% 118.87%
05/30/97 137.78% 146.64% 118.87%
06/06/97 141.99% 152.23% 119.87%
06/13/97 141.59% 153.85% 122.86%
06/20/97 140.61% 154.74% 124.86%
06/27/97 143.79% 156.52% 127.86%
06/30/97 143.41% 155.87% 129.86%
07/04/97 142.66% 156.93% 131.85%
07/11/97 141.74% 155.47% 128.86%
07/18/97 142.54% 154.82% 128.86%
07/25/97 143.02% 155.47% 128.36%
07/31/97 142.27% 155.31% 127.86%
08/01/97 141.00% 154.25% 122.37%
08/08/97 142.69% 156.12% 125.37%
08/15/97 139.16% 152.15% 124.37%
08/22/97 137.24% 149.23% 121.87%
08/31/97 136.48% 148.66% 122.86%
Past performance is not predictive of future performance.
3
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THE NEW SOUTH AFRICA FUND
MAJOR EQUITY HOLDINGS (unaudited)
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At August 31, 1997
Percentage of
Net Assets
----------
SASOL LTD. 4.1
Converts coal into fuels and chemicals. It also owns 64%
of Natref, a crude oil refinery with Total of France. Its
plants produce approximately 45% of South Africa's fuel
requirements and most of its petrochemical feedstocks. It
is also a large exporter of chemical products. Sasol has
significant rand hedge qualities as its costs are
denominated in rand but its revenues are in dollars.
NBS HOLDINGS LTD. 3.9
A niche bank and financial services company. Its core
business is savings and loans and it also has a fast
growing life insurance company. Recently it merged with
the Board of Executors to form a large financial
conglomerate.
THE BIDVEST GROUP LTD. 3.4
A company that distributes food and allied products to the
catering business. In addition, it supplies towel
cabinets, soap dispensers and sanitary disposal equipment.
It also manufactures staples and adhesive tapes.
REMBRANDT GROUP LTD. 3.3
An industrial holding company with interests in the
tobacco business, medical services, wine and spirits and
forestry and mining.
LIBERTY LIFE ASSOCIATION OF AFRICA LTD. 3.2
The third largest life insurance office in South Africa in
terms of assets, but is the largest listed insurer.
Strategic investments include holdings in The South
African Breweries Ltd. and Standard Bank Investment Corp.
Ltd.
4
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THE NEW SOUTH AFRICA FUND INC.
MAJOR EQUITY HOLDINGS (UNAUDITED) (CONTINUED)
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Percentage of
Net Assets
----------
PERSETEL HOLDINGS LTD. 3.1
Engaged in the marketing and support of computer hardware,
software and network systems in all segments of the
information technology field in South Africa. It also has
operations in Germany.
PROTEA FURNISHERS LTD. 3.0
A niche furniture and appliance retailer operating three
different chains. It has approximately 140 stores in South
Africa and 54 outlets in the neighboring states.
JD GROUP LTD. 3.0
A large South African retailer specializing in furniture,
appliances and the audio market. It sells primarily on
credit and operates under six different brand names.
THE TONGAAT-HULETT GROUP LTD. 3.0
A holding company for a diverse group of businesses. It is
a large producer of sugar. Subsidiaries, Toncoro
manufactures facebrick, Hulett Aluminium produces
semi-fabricated aluminium product and African Products
makes starch and glucose for use in the food beverage and
packaging industries.
DE BEERS CONSOLIDATED MINES LTD. 2.9
Comprised of two companies: De Beers, which owns diamond
mines in the Republic of South Africa and an investment
portfolio including a 38% stake in Anglo American
Corporation of South Africa Ltd., and Centenary, which
houses the Central Selling Organization through which a
majority of the world's gem diamonds are sold.
5
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THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT
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OCTOBER 14, 1997
DEAR SHAREHOLDERS,
The New South Africa Fund Inc. ("NSA" or the "Fund") has been in existence for
three-and-a-half years, having listed in March 1994. Since inception, the net
asset value ("NAV") of the Fund (assuming reinvestment of all distributions) has
risen by 48.66% against 36.48% for the Johannesburg Stock Ex change ("JSE") All
Share Index.
MARKET ENVIRONMENT
The following table summarizes key indicators pertinent to the Fund's
performance over the past six months.
August 31, February 28, %
1997 1997 Change
---- ---- ------
NAV (US $) ................................ 18.35 17.56 4.50
Price (US $) .............................. 15.38 14.00 9.82
Discount (%) .............................. 16.21 20.27 --
SOUTH AFRICA
Rand vs US $ .............................. 4.69 4.48 (4.69)
JSE All Share Index
(local) ................................... 7,307 7,145 (2.22)
(US $) .................................... 1,557 1,595 (2.38)
Three months bankers'
acceptance rate (%) .................... 15.00 16.00 (6.25)
Yield on benchmark long
bond (R150) (%) ........................ 14.22 14.96 (4.95)
ZIMBABWE
Industrial Index (local) .................. 10,905 10,700 1.92
Industrial Index (US $) ................... 916.8 958 (4.30)
BOTSWANA
Share Index (local) ....................... 749.08 374.46 100.04
Share Index (US $) ........................ 202.25 105.22 92.22
The JSE All Share Index (the "Index") fell 2.38% in dollar terms over the period
under review, closing at 7,307 on August 31, 1997 after reaching a high of 7,617
on August 7, 1997. The Index dropped by over 4% between these two dates when it
became apparent that the Reserve Bank intended to mainta in the high current
interest rates for longer than the market had been anticipating. In addition,
gold shares on the JSE board were down-
6
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THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (continued)
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rated as gold continued its dismal performance, falling from $370/oz. to around
$320/oz. between February and August. Despite the momentum of this market being
temporarily halted by frustrated interest rate expectations, the fundamental
outlook remains good, and it may be expected to rise as soon as players gain a
clearer notion of monetary easing.
After strengthening in the first quarter by over 5% against the US dollar, the
South African currency resumed its downward trend to around R4.70 to the dollar
where it has tended to find some support. However, it is expected to depreciate
steadily over the next few months, and is forecast to trade at around R4.80 at
the 1997 year-end, and around R5.15 by year-end 1998. The Fund has its cash in
dollar deposits.
ECONOMY
The South African economy is pausing for breath, with most economists
forecasting real 1997 GDP growth at below 2%, down from last year's 3.12%.
Non-primary GDP grew by 2.2% in 1997 (year on year), whereas headline GDP came
in at 1.7%; this reflects agriculture's poor performance, which has depressed
GDP figures this year. By contrast, manufacturing volumes were up 8.9% in April,
which helped to buoy second quarter growth. However, manufacturing growth has
since subsided and is expected to trend downwards in line with weaker consumer
demand. The current account of the balance of payments improved in response to
the correction in the rand last year, and its deficit is likely to amount to
about 1% of GDP this year. Short-term inflows have also been substantial this
year, attracted by favorably high interest rates. Inflation is also on a
downward trend, and is forecast to drop to around 7.5% by December from its
present reading of 9.1%.
INTEREST RATES
All that is favorable and unfavorable in the economy may be traced to the
particularly high real interest rates in the country at present. Those insisting
on lower interest rates argue that current levels are excessively punitive, and
that the economy is headed for a recession if rates aren't eased soon. They fear
that mistiming of monetary easing will introduce unnecessary volatility into our
business cycle, with the economy entering a prolonged phase of boom-and-bust
cycles. A negative first quarter GDP figure of 0.9% (quarter-on-quarter
annualized) gave credence to this view, the release of which intensified the
call for lower rates.
7
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THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (continued)
- --------------------------------------------------------------------------------
This camp also cites the need to stimulate investment, which is discouraged by
the high prime rate of 20.25%. Indeed, with inflation on a downward trend,
monetary policy will become effectively tighter even if the bank rate is not
cut. In other words, even if nominal rates are cut, real interest rates will
remain high. On this view, there is scope for monetary easing.
The main function of the South African Central Bank (SARB) is to protect the
value of the currency and to fight inflation. Since Dr. Stals took office as
governor of the SARB in 1989, a secular downward shift in inflation has been
achieved by a strict regime of high real interest rates. Dr. Stals' resolve on
high rates stems from a longer-term view of the economy. Indeed, lower rates
should stimulate investment in the short-term, but the flip side is that the
savings rate in the country is still too low. Savings and foreign inflows
finance investment. Hence the need to maintain the current monetary stance.
The Reserve Bank has resisted calls to lower real interest rates and was in part
vindicated by the second quarter (quarter on quarter) real GDP figure of 2.6%,
which showed the economy to be more robust than expected. However, there are
signs of the economy slowing down again in the third quarter. In a recent
speech, Dr. Stals outlined six guidelines as a basis for monetary policy, none
of which were indicators of economic growth. Money supply and credit extension
to the private sector remain some of the key indicators monitored by the Reserve
Bank, notwithstanding the recent structural changes that might have distorted
their usefulness as economic barometers.
The good news is that these two indicators have been moving in the right
direction over the past few months. If they continue to move downwards (as we
expect) towards the Reserve Bank's guidelines of 10% and 12% respectively,
coupled with the continued softening in economic activity, a 100 basis points
cut in rates can be expected towards the end of the fourth quarter.
THE ASIAN CURRENCY DEBACLE
When the Mexican peso fell early in 1995, many emerging markets around the world
took a tumble along with Mexico's. This phenomenon was termed the "tequila
effect", and referred to the action of investors who took fright from all
markets with a similar risk to Mexico's. Investors closed their
8
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (continued)
- --------------------------------------------------------------------------------
positions in emerging markets by selling their holdings, thereby depressing
prices. With Southeast Asia (especially Thailand, Malaysia, Indonesia and the
Philippines) now in financial turmoil, some analysts are wondering whether there
is an eastern flavored "tequila effect" in the offing.
Investors in South Africa can take heart from the fact that economic
fundamentals in South Africa are sounder than those reigning in South East Asia
when their currencies collapsed. Elements common to the South East Asian
countries whose currencies were battered included a managed exchange rate
regime, large current account deficits (+ 8% of GDP in Thailand and Malaysia),
weak banking systems and excessive credit extension. In South Africa, the rand
is allowed to float, and the current account deficit amounted to about 1.5% in
1996. The quality of the banking system is comparable to that of any first world
country. In this respect, the country is in a comparatively sound position.
This is not to say that the South African currency is immune from speculative
attack or disinvestment by foreigners. Worrisome risk factors still prevail,
foremost of which are the inflation differential between South Africa and its
trading partners, and the huge exposure of the Reserve Bank to th e forward
exchange market. A lack of confidence in the government's ability to run a tight
fiscal policy and to combat crime should continue to confine the greatest
portion of foreign investment to the short-term. This should correct over time
assuming success of the Government's policies.
THE PORTFOLIO
At August 31, 1997 the Fund held 88.0% of its net assets in equities of which
79.3% was invested in South Africa, 7.7% in Zimbabwe and 1.0% in Botswana. There
was also a 7.1% holding in South African bonds in the expectation of lower
interest rates in the latter stages of 1997 and into 1998. Over the reporting
period the Fund has had a change in focus, concentrating more heavily on the
financial sector and moving away from the larger market capitalization mining
producers and industrials. This had a favorable impact on the Fund's performance
as the JSE financials returned 13.6% in US dollar terms over the last six
months, while the Index returned negative 2.4% over the same period.
The Fund will continue to underweight the mining sector in favor of its current
mix, viz. 23.4% financials and 52.5% industrials. The intention of
9
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (continued)
- --------------------------------------------------------------------------------
the Fund is to pick long-term winners based on sustainability of earnings
growth. However, in the South African context, the price earnings ratios of
these "growth" shares such as the niche banks (Coronation Holdings Ltd. and
Investec Group Ltd.) and the information technology shares (Persetel Holdings
Ltd.), are high. The ideal would be to select shares based on the philosophy of
"growth at a reasonable price." This gives one scope to pay a high price
earnings ratio for a share with above market growth as well as to choose shares
that represent good "value". The Fund has tried to balance the highly rated
shares with recovery situations, such as Plate Glass and Shatterprufe Industries
Ltd. Over the longer term, industrials are expected to outperform the cyclical
nature of the mining shares.
Since the Fund's annual report in February, the major changes have been the
trimming of its holding in De Beers Consolidated Mines Ltd., The Tongaat-Hulett
Group Ltd. and Anglo American Corporation of South Africa Ltd. The niche bank
exposure was boosted by the purchase of Investec Group Ltd. and C oronation
Holdings Ltd., while Standard Bank Investment Corp. Ltd. - the larger commercial
bank - was sold. The Zimbabwean component of the Fund was increased with
investments in the leisure industry, breweries and the merchant banking sectors.
In line with our fundamental economic viewpoint we anticipate the Fund to be
fully invested by year end.
We appreciate your interest and continued support of the Fund.
Respectfully submitted,
/s/Iain O.S. Saunders
Iain O.S. Saunders
President, Treasurer and
Chairman of the Board of Directors
10
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 1997
MARKET
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ----
COMMON STOCKS - 87.99%
BOTSWANA - 1.04%
BEVERAGES & HOTELS - 0.96%
Sechaba Investment Trust Co. Ltd. 610,800 793,063
--------
COMMERCIAL BANKS - 0.08%
Barclays Bank of Botswana Ltd.* 5,000 22,992
Standard Chartered Bank Botswana Ltd. 10,000 44,632
--------
67,624
--------
TOTAL BOTSWANA (cost $770,885) 860,687
--------
SOUTH AFRICA - 79.27%
BEVERAGES & HOTELS - 2.69%
The South African Breweries Ltd. 74,382 2,231,539
---------
BUILDING & CONSTRUCTION - 1.77%
LTA Ltd. 200,000 1,470,745
---------
CHEMICALS & OIL - 4.63%
Chemical Services Ltd. 145,000 445,060
Sasol Ltd. 254,889 3,395,622
---------
3,840,682
---------
COMMERCIAL BANKS - 5.09%
NBS Holdings Ltd. 150,659 3,219,347
Nedcor Ltd. 51,232 1,004,656
---------
4,224,003
---------
COMPUTERS - INTEGRATED SYSTEMS - 4.92%
Dimension Data Holdings Ltd. 350,000 1,488,330
Persetel Holdings Ltd. 380,000 2,591,922
---------
4,080,252
---------
DIAMOND MINING - 2.88%
De Beers Consolidated Mines Ltd. 75,000 2,389,961
---------
11
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (continued)
- --------------------------------------------------------------------------------
MARKET
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ----
SOUTH AFRICA (continued)
DIVERSIFIED MINERALS - 3.76%
Billiton PLC* 607,500 2,343,760
Gencor Ltd. (Letter of Entitlement)(a) 202,500 776,937
---------
3,120,697
---------
DIVERSIFIED OPERATIONS - 1.60%
Lonrho PLC 670,000 1,322,434
---------
FINANCE & BANKING - 9.54%
Coronation Holdings Ltd. Class N* 137,500 2,286,049
Genbel Securities Ltd. 75,000 975,168
Investec Group Ltd. 62,900 2,289,284
RMB Holdings Ltd. 843,700 2,364,842
---------
7,915,343
---------
FOOD - 7.77%
The Bidvest Group Ltd. 356,643 2,835,508
The Tongaat-Hulett Group Ltd. 163,706 2,477,486
Tiger Oats Ltd. 75,800 1,130,982
---------
6,443,976
FURNITURE & HOUSEHOLDS - 6.08%
JD Group Ltd. 355,890 2,522,294
Protea Furnishers Ltd. 4,520,000 2,524,225
---------
5,046,519
---------
GLASS PRODUCTS - 1.85%
Plate Glass and Shatterprufe Industries Ltd. 55,856 1,535,846
---------
GOLD MINING - 3.10%
Consolidated Mining Corp. Ltd. 10,600,000 971,544
NK Properties 1,338,278 927,082
Western Areas Gold Mining Co. Ltd. 80,000 669,295
---------
2,567,921
---------
12
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (continued)
- --------------------------------------------------------------------------------
MARKET
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ----
SOUTH AFRICA (continued)
INSURANCE - 7.78%
Capital Alliance Holdings Ltd. 261,962 1,717,006
Fedsure Holdings Ltd. 185,000 2,080,092
Liberty Life Association of Africa Ltd. 86,278 2,657,395
---------
6,454,493
---------
MEDIA - 0.69%
Sasani Ltd. 3,000,000 569,114
---------
MINING HOUSES - 2.51%
Anglo American Corporation of South Africa Ltd. 40,000 2,080,358
---------
PAPER & PACKAGING - 1.04%
Sappi Ltd. 93,000 860,322
---------
RETAIL - CONVENIENCE STORES - 1.89%
Metro Cash & Carry Ltd. 1,566,406 1,569,245
---------
RETAIL - MISCELLANEOUS/DIVERSIFIED - 1.95%
Mathomo Group Ltd.* 1,390,000 1,614,729
---------
STORES - 4.46%
Pepkor Ltd. 305,001 2,080,365
Specialty Stores Ltd. 517,254 463,064
Specialty Stores Ltd. Class N 1,307,486 1,156,574
---------
3,700,003
---------
TOBACCO - 3.27%
Rembrandt Group Ltd. 280,500 2,714,420
---------
TOTAL SOUTH AFRICA (cost $52,214,992) 65,752,602
----------
13
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (continued)
- --------------------------------------------------------------------------------
MARKET
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ----
ZIMBABWE - 7.68%
BEVERAGES & HOTELS - 2.09%
Delta Corp. Ltd.* 1,131,653 1,735,534
---------
BUILDINGS & CONSTRUCTION - 1.94%
Portland Holdings Ltd. 700,000 1,613,241
---------
COMMERCIAL BANKS - 0.86%
NMBZ Holdings Ltd. 250,000 712,340
---------
DIVERSIFIED OPERATIONS - 0.87%
Trans Zambesi Industries 340,000 323,000
Trans Zambesi Industries ZDR* 529,400 395,969
---------
718,969
---------
HOTELS & MOTELS - 0.93%
Zimbabwe Sun Ltd.* 1,800,000 769,327
---------
RETAIL - MISCELLANEOUS/DIVERSIFIED - 0.99%
Meikles Africa Ltd.* 320,000 817,934
---------
TOTAL ZIMBABWE (cost $5,720,709) 6,367,345
---------
TOTAL COMMON STOCKS
(cost $58,706,586) 72,980,634
---------
PAR
(000)
----------
DEBT OBLIGATION - 7.11%
Republic of South Africa Bond,
13.00%, 08/31/10 (cost $5,915,043) R 30,000 5,898,966
---------
See accompanying notes to financial statements.
14
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (continued)
- --------------------------------------------------------------------------------
MARKET
VALUE
DESCRIPTION PAR US $
- ----------- ------ ----
SHORT-TERM INVESTMENT - 4.76%
REPURCHASE AGREEMENT - 4.76%
Repurchase Agreement dated 08/31/97 with
Bear, Stearns & Co. Inc., 5.45%, due
09/03/97, collateralized by $3,703,702
Federal National Mortgage Association
2.675% to 7.218%, due 06/25/00 to
06/25/23; and by $300,773 Federal Home
Loan Mortgage 3.812%, due 12/15/22;
total value: $4,001,475; proceeds:
$3,953,114 (cost $3,950,722) US $ 3,951 3,950,722
----------
TOTAL INVESTMENTS - 99.86% 82,830,322
(cost $68,572,351) (b)
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES - 0.14% 114,284
----------
NET ASSETS - 100.00% 82,944,606
* Non income producing securities.
R Republic of South Africa rand.
US $ United States dollars.
ZDR Zimbabwe Depositary Receipts.
(a) The Fund will receive one share of Billiton PLC for each share of Gencor
Ltd. that it holds. Such Letters of Entitlement are tradeable on the
Johannesburg Stock Exchange and will convert on September 8, 1997 to
shares of Billiton PLC.
(b) Aggregate cost for US federal income tax purposes is $68,572,351. The
aggregate unrealized appreciation (depreciation) for all securities is
as follows:
US $
----
Excess of market value over tax cost 17,784,725
Excess of tax cost over market value (3,526,754)
Net unrealized appreciation 14,257,971
See accompanying notes to financial statements.
15
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1997
US $
ASSETS
Investments, at value (cost $68,572,351) (Note 2) 82,830,322
Cash (representing foreign currency holdings with a
cost of $42,527 in an interest-bearing account) 42,526
Receivables:
Securities sold 2,111,667
Interest 442,120
Dividends 171,756
Deferred organizational costs (Note 1) 33,625
Prepaid expenses 31,328
----------
TOTAL ASSETS 85,663,344
----------
LIABILITIES
Payables:
Investments purchased 2,370,973
Investment advisory fees (Note 5) 185,486
Directors' fees 32,005
Administration fee (Note 5) 10,858
Other accrued expenses 119,416
----------
TOTAL LIABILITIES 2,718,738
----------
NET ASSETS 82,944,606
==========
NET ASSETS CONSIST OF:
Common stock, $0.001 par value (200,000,000 shares
authorized; 4,519,311 shares issued
and outstanding) (Note 8) 4,519
Additional paid-in capital 61,322,362
Undistributed net investment income 477,289
Accumulated net realized gain on investments
and foreign currency transactions 6,888,508
Net unrealized appreciation on investments, foreign
currency holdings and other assets and liabilities
denominated in foreign currencies 14,251,928
----------
NET ASSETS 82,944,606
==========
NET ASSET VALUE PER SHARE
($82,944,606 / 4,519,311) $18.35
=======
16
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED AUGUST 31, 1997
US $
INVESTMENT INCOME
Dividends (net of foreign withholding taxes
of $3,268) (Note 2) 857,154
Interest 457,258
----------
TOTAL INVESTMENT INCOME 1,314,412
---------
EXPENSES
Investment advisory fees (Note 5) 525,039
Administration fees (Note 5) 63,005
Custodian fees 39,560
Legal fees 37,128
Accounting fees 37,003
Audit fees 34,600
Directors' fees and expenses 23,304
Transfer agent fees and expenses 19,320
Insurance 16,841
Reports and notices to shareholders 15,740
Amortization of organizational costs (Note 1) 10,988
NYSE listing fees 7,461
Miscellaneous 7,134
----------
TOTAL EXPENSES 837,123
----------
NET INVESTMENT INCOME 477,289
----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, FOREIGN
CURRENCY HOLDINGS AND OTHER ASSETS AND LIABILITIES DENOMINATED IN
FOREIGN CURRENCIES (Note 2)
NET REALIZED GAIN ON:
Investments 6,772,320
Foreign currency transactions 92,317
----------
6,864,637
----------
NET CHANGE IN UNREALIZED APPRECIATION ON:
Investments (3,585,720)
Foreign currency holdings and other assets and
liabilities denominated in foreign currencies (175,902)
----------
(3,761,622)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY HOLDINGS AND OTHER ASSETS
AND LIABILITIES DENOMINATED IN FOREIGN
CURRENCIES 3,103,015
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 3,580,304
=========
See accompanying notes to financial statements.
17
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the
Six Months ended For the
August 31, 1997 Year ended
(unaudited) February 28, 1997
US $ US $
---- ----
INCREASE/(DECREASE) IN NET ASSETS
OPERATIONS
Net investment income 477,289 771,986
---------- ----------
Net realized gain/(loss) on investments
and foreign currency transactions 6,864,637 (630,421)
---------- ----------
Net change in unrealized appreciation on
investments, foreign currency holdings
and other assets and liabilities
denominated in foreign currencies (3,761,622) (9,258,326)
---------- ----------
Net increase/(decrease) in net assets
resulting from operations 3,580,304 (9,116,761)
---------- ----------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income -- (335,785)
---------- ----------
CAPITAL STOCK TRANSACTIONS
Cost of shares repurchased -- (3,379,400)
---------- ----------
NET INCREASE/(DECREASE)
IN NET ASSETS 3,580,304 (12,831,946)
NET ASSETS:
Beginning of period 79,364,302 92,196,248
---------- ----------
End of period (including undistributed net
investment income of $477,289 for the
six months ended August 31, 1997) 82,944,606 79,364,302
========== ==========
See accompanying notes to financial statements.
18
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED MARCH 11, 1994*
AUGUST 31, 1997 FOR THE YEAR ENDED THROUGH
(UNAUDITED) FEBRUARY 28, 1997 FEBRUARY 29, 1996 FEBRUARY 28, 1995
US $ US $ US $ US $
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period 17.56 19.38 15.89 13.95**
Offering costs charged to additional
paid-in capital -- -- -- (0.19)
------ ------ ------ ------
17.56 19.38 15.89 13.76
------ ------ ------ ------
Net investment income 0.10 0.17+ 0.33 0.39
Net realized and unrealized gain/(loss)
on investments, foreign currency
holdings and other assets and liabilities
denominated in foreign currencies 0.69 (2.12)+ 3.96 2.51
------ ------ ------ ------
Total from investment operations 0.79 (1.95) 4.29 2.90
------ ------ ------ ------
Dividends and distributions to
shareholders from:
Net investment income -- (0.07) (0.33) (0.39)
In excess of net investment income -- -- (0.42) (0.32)
Net realized gains on investments -- -- (0.05) (0.06)
------ ------ ------ ------
Total dividends and distributions to
shareholders -- (0.07) (0.80) (0.77)
------ ------ ------ ------
Antidilutive impact due to shares
of beneficial interest repurchased -- 0.20 -- --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD 18.35 17.56 19.38 15.89
====== ====== ======= =======
MARKET VALUE, END OF PERIOD 15.38 14.00 15.38 13.38
====== ====== ======= =======
TOTAL INVESTMENT RETURN BASED ON: (A)(B)
Market value 9.82% (8.43)% 20.38% 1.50%
Net asset value 4.50% (8.88)% 27.72% 22.25%
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) 82,945 79,364 92,196 75,605
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 1.99%++ 2.35% 1.98% 2.10%++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.14%++ 1.01% 1.77% 2.61%++
PORTFOLIO TURNOVER RATE 47.56%+++ 9.92% 18.91% 10.88%+++
AVERAGE COMMISSION RATE PER SHARE (c) $ 0.0078 $ 0.0084 -- --
<FN>
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share.
+ Based on average shares outstanding.
++ Annualized.
+++ Not annualized.
(a) 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 the 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. Total investment
return does not reflect sales charges or brokerage commissions.
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 the 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.
(b) Total investment return for periods of less than one year are not
annualized.
(c) Disclosure is required for fiscal years beginning on or after September
1, 1995. Represents average commission rate per share charged to the
Fund on purchases and sales of investments subject to such commissions
during the period.
</FN>
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1997
1. ORGANIZATION
The New South Africa Fund Inc. (the "Fund") was incorporated in the
State of Maryland on January 11, 1994 as a registered, non-diversified,
closed-end management investment company under the Investment Company
Act of 1940, as amended ( the "Investment Company Act"). Organizational
costs of $109,346 have been deferred and are being amortized on a
straight-line basis over a 60-month period from the date the Fund
commenced operations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, which are
generally accepted in the United States of America, followed by the
Fund.
i) SECURITY VALUATION
All securities for which the primary market is an exchange are
valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price
quoted on such day. Portfolio securities that are actively traded on
the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued at
the mean between the most recently quoted bid and asked prices
provided by the principal market makers. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors. US government securities and other debt
instruments having 60 days or less remaining until maturity are
stated at amortized cost if their original maturity was 60 days or
less, or by amortizing their market value as of the 61st day prior
to maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this
method does not represent fair value).
ii) REPURCHASE AGREEMENTS
The Fund may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that
they will be repurchased by the seller at a fixed price on an agreed
date. These agreements may be made with respect to any of the
portfolio securities in which the Fund is authorized to invest.
Repurchase agreements may be characterized as loans secured by the
20
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
underlying securities. The Investment Adviser monitors the continued
creditworthiness of counterparties, subject to the supervision of
the Fund's Board of Directors. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased
security. The collateral is marked to market daily. In the event of
default or bankruptcy of the counterparty, the Fund's realization of
the value of the collateral may be delayed or limited.
iii) TAXES
It is the intention of the Fund to continue to qualify as a
regulated investment company and to distribute, at least annually,
substantially all of its net investment income and any net long-term
capital gains in excess of net short-term capital losses.
Accordingly, no provision for US federal income taxes is required.
In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a US federal
excise tax. For US federal income tax purposes, realized capital
losses and foreign exchange losses incurred after October 31, but
within the fiscal year are deemed to arise on the first day of the
following fiscal year. For the fiscal year ended February 28, 1997,
the Fund incurred and elected to defer foreign exchange losses of
$36,497. The Republic of South Africa ("South Africa") does not
impose a withholding tax on dividends paid by South African
companies to the Fund. However, other income received by the Fund
from sources within South Africa or Southern African regions may be
subject to withholding and other taxes imposed by such countries.
iv) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date.
Realized gains and losses on the sale of investment securities are
determined on the identified cost basis. Interest income is recorded
on the accrual basis. Dividend income and other distributions are
recorded on the ex-dividend date or as the Fund becomes aware of
such dividends. The collectibility of income receivable from foreign
securities is evaluated periodically and resulting allowance for
uncollectible amounts, if any, are reflected currently in the
determination of net investment income. At August 31, 1997, no such
allowance was established.
21
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
v) DISTRIBUTION OF INCOME AND GAINS
The Fund intends to distribute to shareholders at least annually,
substantially all of its net investment income and net realized
capital gains. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The amount of dividends and distributions from net investment income
and net realized capital gains are determined in accordance with US
federal income tax regulations, which may differ from generally
accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are
reclassified within capital accounts based on their US federal
tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions
exceed current and accumulated earnings and profits for US federal
income tax purposes, they are reported as distributions of paid-in
capital.
vi) FOREIGN CURRENCY TRANSLATION
The books and records of the Fund are maintained in US dollars.
Foreign currency amounts are translated into US dollars at the 12
p.m. mid-market price of such currencies against US dollars as
quoted by major New York banks as follows:
- investments, other assets and liabilities; at the prevailing rates
of exchange on the valuation date;
- investment transactions and investment income and expenses: at the
prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign
exchange rates and market values at the close of the period, the
Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from
the fluctuations arising from changes in the market prices of the
securities held at period end. Similarly, the Fund does not isolate
the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of
equity-related securities sold during the period. Accordingly,
realized and unrealized
22
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
foreign currency gains and losses with respect to such securities
are included in the reported net realized and unrealized gains and
losses on investment transactions balances. However, the Fund does
isolate the effect of fluctuations in foreign exchange rates when
determining the gain or loss upon the sale or maturity of foreign
currency denominated debt obligations pursuant to US federal income
tax regulations. Such amount is categorized as foreign exchange gain
or loss for both financial reporting and income tax reporting
purposes.
Net currency gains from valuing foreign currency denominated assets
and liabilities (other than investments) at period-end exchange
rates are reflected as a component of net unrealized
appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains of $92,317 represent foreign
exchange gains and losses from sales and maturities of debt
securities, holdings of foreign currencies, transactions in forward
foreign currency contracts, exchange gains or losses realized
between the trade dates and settlement dates on security
transactions, and the difference between the amounts of interest and
dividends recorded on the Fund's books and the US dollar equivalent
of the amounts actually received.
3. FORWARD CURRENCY CONTRACTS
The Fund conducts any currency exchange transactions on a spot, i.e.
cash basis at the rate prevailing in the currency exchange market. A
forward currency contract typically involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. When the Fund enters into a
forward contract or other currency obligation, the Fund's custodian or a
sub-custodian will place cash or high grade debt securities in a
segregated account of the Fund in an amount equal to the value of the
Fund's total assets committed to the consummation of the obligation. If
the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the
value of the account will be equal to the amount of the Fund's
commitment with respect to the contract. During the six months ended
August 31, 1997, the Fund held no such contracts.
23
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
For the six months ended August 31, 1997, total purchases and sales of
portfolio investments excluding short-term securities, were $41,120,391
and $35,743,687, respectively.
5. INVESTMENT ADVISER AND ADMINISTRATOR
i) Fleming International Asset Management Limited provides investment
advisory services to the Fund under the terms of an Investment
Advisory Agreement. Under the Investment Advisory Agreement, the
Investment Adviser is paid a monthly advisory fee at an annual rate
of 1.25% of the Fund's aver age weekly net assets.
ii) Bear Stearns Funds Management Inc. (the "Administrator"), an
affiliate of Bear, Stearns & Co. Inc. ("Bear Stearns"), provides
administrative services to the Fund under an Administration
Agreement. The Administrator receives a fee that is computed weekly
and paid quarterly at an annual rate of 0.15% of the Fund's average
weekly net assets.
6. TRANSACTIONS WITH AFFILIATES
For the six months ended August 31, 1997, the Fund paid $118,936 in
brokerage commissions to Fleming Martin Ltd., an affiliate of the
Investment Adviser.
7. CONCENTRATION OF RISK
The South African and the Southern African regions securities markets
are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. A high proportion of the
securities of many companies in South Africa or Southern African regions
may be held by a limited number of persons, which may limit the number
of securities available for investment by the Fund. The limited
liquidity of South Africa and the Southern African region securities
markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so. The Fund, subject
to local investment limitation, may invest up to 10% of its assets in
non-publicly traded equity securities which may involve a high degree of
business and financial risk and may result in substantial losses.
Because of the current absence of any liquid trading market for these
investments, the Fund may take longer to liquidate these positions than
would be the case for publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the
prices realized on such sales could be less than those originally paid
by the Fund. Further, companies whose securities are not publicly traded
may not be subject
24
<PAGE>
THE NEW SOUTH AFRICA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. At August 31, 1997,
the Fund held no such securities.
The Fund is permitted to engage in the trading of sovereign debt of
South Africa or Southern African regions which involves a substantial
degree of risk. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to
repay principal and/or interest when due in accordance with the terms of
such debt. Sovereign debt in which the Fund invests may be considered to
have credit quality below investment grade as determined by US rating
agencies. As a result, sovereign debt may be regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligations and
involves major risk exposure to adverse conditions. However, the Fund's
investment in the government bond held at August 31, 1997 has been rated
by US rating agencies as investment grade.
8. CAPITAL STOCK
The authorized capital stock of the Fund is 200,000,000 shares of common
stock, $0.001 par value. Of the 4,519,311 shares outstanding at August
31, 1997, Robert Fleming Inc., an affiliate of the Investment Adviser,
owned 7,169 shares. In addition to the issuance of common stock to
Robert Fleming Inc., a public offering of the Fund's shares by a group
of underwriters resulted in the issuance of 4,750,000 shares of the
Fund's common stock.
On February 29, 1996, the Board of Directors announced that it had given
the Fund's investment adviser discretion to cause the Fund to repurchase
up to 5% of the outstanding shares when the discount to net asset value
exceeds 20%. During the quarter ended May 31, 1996, the Fund repurchased
5% or 237,858 of its outstanding shares.
In addition, on February 20, 1997, the Board of Directors announced a
second share repurchase program with identical terms to the initial
program. Since the date of the announcement through August 31, 1997, the
Fund has not made any such repurchases.
25
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On May 29, 1997, the annual meeting of the shareholders of The New South Africa
Fund Inc. (the "Fund") was held and the following matters were voted upon:
(1) To re-elect two directors to the Board of Directors of the Fund.
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
---------------- --- -------- ---------
Iain O.S. Saunders 3,323,637 18,077 1,177,597
Arthur Levy 3,330,765 10,949 1,177,597
In addition to the directors re-elected at the meeting, Anton Dirk Botha, Dr.
Nthato H. Motlana, and Arnold Witkin continue to serve as directors of the Fund.
(2) To ratify the selection of Price Waterhouse LLP as independent
accountants for the year ending February 28, 1998.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
3,336,162 1,983 3,569 1,177,597
26
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
- --------------------------------------------------------------------------------
1. Pursuant to The New South Africa Fund Inc. (the "Fund") Dividend
Reinvestment and Cash Purchase Plan (the "Plan") each shareholder
("Shareholder") holding shares of common stock in the Fund will
automatically be a participant in the Plan, unless PNC Bank, National
Association, the Plan agent (the "Plan Agent"), is otherwise instructed
by the Shareholder, in writing, to have all distributions, net of any
applicable US withholding tax, paid in cash. Shareholders who do not
wish to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the Shareholder by the Plan Agent. The
Plan Agent will act as agent for individual Shareholders and will open
an account for each Shareholder under the Plan in the same name as her
or his present shares of common stock are registered.
2. Whenever the directors of the Fund declare a capital gains distribution
or an income dividend payable in shares of common stock or cash,
participating Shareholders will take such distribution or dividend
entirely in shares of common stock and the Plan Agent shall
automatically receive such shares of common stock, including fractions,
for the Shareholder's account, except in the circumstances described in
paragraph 3 below.
3. Whenever the market price per share of common stock equals or exceeds
net asset value per share on the date the event described in paragraph 2
above occurs, participants will be issued shares of common stock at net
asset value or, if the net asset value is less than 95% of the market
price on the date the shares of common stock are valued, then
participants will be issued shares valued at 95% of the market price. If
net asset value per share of the common stock at such time exceeds the
market price of common stock on the date such shares are valued, the
Plan Agent, as agent for the participants, will buy shares of common
stock on the open market, on the New York Stock Exchange (the
"Exchange") or elsewhere, for the participants' accounts. If, before the
Plan Agent has completed its purchases, the market price exceeds the net
asset value of shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of shares, resulting in the
acquisition of fewer shares than if the dividend or distribution had
been paid in shares issued by the Fund at net asset value. Additionally,
if the market price exceeds the net asset value of shares before the
Plan Agent has completed its purchases, the Plan Agent is permitted to
cease purchasing shares and the Fund may issue the remaining shares at a
price equal to the greater of (a) net asset value or (b) 95% of the then
current market price. In a case where the Plan Agent has terminated open
market purchases and the Fund has issued the remaining shares, the
number of shares received by the participant in respect of the cash
dividend or distribution will be based on the weighted average of prices
paid for shares purchased in the open market and the price at which the
Fund issues remain-
27
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
- --------------------------------------------------------------------------------
ing shares. If the Fund should declare an income dividend or capital
gains distribution payable only in cash, the Plan Agent will, as
purchasing agent for the participants, buy shares of common stock in the
open market, on the Exchange or elsewhere, for the participants'
accounts on, or shortly after, the payment date. To the extent the Plan
Agent is unable to do so and, before the Plan Agent has completed its
purchases, the market price exceeds the net asset value of the common
stock, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the common stock, resulting in the
acquisition of fewer shares of common stock than if the dividend or
capital gains distribution had been paid in common stock issued by the
Fund. The Plan Agent will apply all cash received as a dividend or
capital gains distribution to purchase shares of common stock on the
open market as soon as practicable after the payment date of such
dividend or capital gains distribution, but in no event later than 30
days after such date, except where necessary to comply with applicable
provisions of the federal securities laws.
4. Participants in the Plan may make additional cash payments to the Plan
Agent, semi-annually, in any amount from $100 to $3,000, for investment
in shares of common stock. The Plan Agent will use all funds received
from participants to purchase shares in the open market on or about
February 15 and August 15 of each year. Any voluntary cash payments
received more than 30 days prior to these dates will be returned by the
Plan Agent, and interest will not be paid on any uninvested cash
payments. Voluntary cash payments should be received by the Plan Agent
approximately ten days before February 15 or August 15, as the case may
be. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48
hours before the payment is to be invested.
5. For all purposes of the Plan: (a) the market price of Fund shares of
common stock on a particular date shall be the last sales price on the
Exchange on the close of the previous trading day or, if there is no
sale on the Exchange on that date, then the mean between the closing bid
and asked quotations for such stock on the Exchange on such date, (b)
the date shares of common stock are valued is the dividend or
distribution payment date or, if that date is not an Exchange trading
day, the next preceding trading date and (c) net asset value per share
of common stock or a particular date shall be as determined by or on
behalf of the Fund.
6. The open-market purchases provided for above may be made on any
securities exchange where the shares of common stock of the Fund are
traded, in the over-the-counter market or in negotiated transactions,
and may be on such terms as to price, delivery and otherwise as the Plan
Agent shall determine. Funds held by the Plan Agent uninvested will not
bear interest, and
28
<PAGE>
it is understood that, in any event, the Plan Agent shall have no
liability in connection with any inability to purchase shares of common
stock within 30 days after the initial date of such purchase as herein
provided, or with the timing of any purchases effected. The Plan Agent
shall have no responsibility as to the value of the shares of common
stock of the Fund acquired for Shareholders' accounts.
7. The Plan Agent will hold shares of common stock acquired pursuant to the
Plan in noncertificated form in the participant's name. The Plan Agent
will forward to the Shareholders any proxy solicitation material and
will vote any shares of common stock so held for each of the
Shareholders only in accordance with the proxy returned by her or him to
the Fund. In the case of Shareholders, such as banks, brokers or
nominees, that hold shares for others who are the beneficial owners of
such shares, the Plan Agent will administer the Plan on the basis of the
number of shares certified from time to time by such Shareholders as
representing the total amount registered in the name of such
Shareholders and held for the account of beneficial owners who
participate in the Plan. Upon a Shareholder's written request, the Plan
Agent will deliver to her or him, without charge, a certificate or
certificates for the full shares of common stock.
8. The Plan Agent will confirm in writing each acquisition made for the
account of a Shareholder as soon as practicable, but not later than 60
days after the date thereof. Although a Shareholder may from time to
time have an undivided fractional interest (computed to three decimal
places) in a share of common stock of the Fund, no certificates for a
fractional share will be issued. However, dividends and distributions on
fractional shares of common stock will be credited to such Shareholder's
account. In the event of termination of a Shareholder's account under
the Plan, the Plan Agent will adjust for any such undivided fractional
interest in cash at the market value of the shares of common stock at
the time of termination.
9. Any stock dividends or split shares distributed by the Fund on shares of
common stock held by the Plan Agent for a Shareholder will be credited
to such Shareholder's account. In the event that the Fund makes
available to Shareholders rights to purchase additional shares of common
stock or other securities, the Plan Agent will sell such rights and
apply the proceeds of the sale to the purchase of additional shares of
common stock of the Fund for the account of such Shareholders.
10. The Shareholders each will be charged a pro rata share of brokerage
commissions on all open market purchases.
11. Each Shareholder may terminate her or his account under the Plan by
notifying the Plan Agent in writing. Such termination will be effective
immediately if notice is received by the Plan Agent not less than 10
days prior to
29
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
- --------------------------------------------------------------------------------
any dividend or distribution record date; otherwise such termination
will be effective, with respect to any subsequent dividend or
distributions, on the first trading day after the dividend or
distribution paid for such record date shall have been credited to the
Shareholder's account. The Plan may be terminated by the Plan Agent or
the Fund as applied to any voluntary cash payments made and any dividend
or distributions paid subsequent to notice of the terminations in
writing mailed to the Shareholders at least 30 days prior to the
relevant semi-annual voluntary payment date or to any record date for
the payment of any dividend or distribution by the Fund. Upon any
termination the Plan Agent will cause a certificate or certificates for
the full shares held for each Shareholder under the Plan and cash
adjustment for any fraction to be delivered to her or him.
12. These terms and conditions may be amended or supplemented by the Plan
Agent or the Fund at any time or times but, except when necessary or
appropriate to comply with applicable law or the rules or policies of
the Securities and Exchange Commission or any other regulatory
authority, only by mailing to the Shareholders appropriate written
notice at least 30 days prior to be effective date thereof. The
amendment or supplement shall be deemed to be accepted by a Shareholder
unless, prior to the effective date thereof, the Plan Agent receives
written notice of the termination of such Shareholder's account under
the Plan. Any such amendment may include an appointment by the Plan
Agent in its place and stead of a successor Plan Agent under these terms
and conditions, with full power and authority to perform all or any of
the acts to be performed by the Plan Agent under these terms and
conditions. Upon any such appointment of a Plan Agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to
pay to such successor Plan Agent, for Shareholders' accounts, all
dividends and distributions payable on the share of common stock held in
the Shareholders' name or under the Plan for retention or application by
such successor Plan Agent as provided in these terms and conditions.
13. The Plan Agent shall at all times act in good faith and agree to use its
best efforts within reasonable limits to ensure the accuracy of all
services performed under its Plan and to comply with applicable law, but
assumes no responsibility and shall not be liable for loss or damage due
errors unless such error is caused by its negligence, bad faith or
willful misconduct or that of its employees.
14. All correspondence concerning the Plan should be directed to the Plan
Agent, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809
or by telephone at 1-800-852-4750.
30
<PAGE>
This report, including the financial statements herein, is transmitted to the
shareholders of The New South Africa Fund Inc. for their information. The
financial information included herein is taken from the records of the Fund
without audit by the Fund's independent accountants who do not express an
opinion thereon. This is not a prospectus, circular or representation intended
for use in the purchase of shares of the Fund or any securities mentioned in
this report.
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.
Comparisons between changes in the Fund's net asset value per share and changes
in the Johannesburg Stock Exchange All Share Index should be considered in light
of the Fund's investment policy and objectives, the characteristics and quality
of the Fund's investments, the size of the Fund and variations in the US
dollar/rand exchange rate.
<PAGE>
NSA
Listed
NYSE
New York Stock Exchange
Bear Stearns Funds Management Inc.
Administrator for The New South Africa Fund Inc.
245 Park Avenue
New York, NY 10167
Telephone (212) 272-2479
