THE NEW SOUTH AFRICA FUND INC.
SEMI-ANNUAL REPORT
AUGUST 31, 1998
(UNAUDITED)
<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>
THE NEW SOUTH AFRICA FUND INC.
OBJECTIVE
- --------------------------------------------------------------------------------
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 circumstances, 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
- --------------------------------------------------------------------------------
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 approximately $100 billion in assets worldwide. Effective April 3, 1997,
Raymond Goldblatt was designated to have 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 was Chief Executive Officer of
Fleming Martin Asset Management, an affiliate of FIAM, and has 13 years of
investment management experience. Subsequent to the six-month period ending
August 31, 1998, which is the period covered by this report, Mr. Goldblatt
resigned from his position as Vice President of the Fund and as Chief Executive
Officer of Fleming Martin Asset Management. Steven Mills, Chief Investment
Officer of Fleming Martin Asset Management, assumed Mr. Goldblatt's
responsibilities for recommending the purchase and sale of investment securities
by the Fund to FIAM effective October 9, 1998. Mr. Mills also was appointed a
Vice President of the Fund as of such date.
MARKET INFORMATION
- --------------------------------------------------------------------------------
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
"NewSAfr" 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
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIRECTORS AND ADMINISTRATION
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS Arnold Witkin - President, Treasurer
and Chairman of the Board of Directors
Albert Francke - Director
Arthur Levy - Director
Dr. Nthato H. Motlana - Director
Iain O.S. Saunders - Director
Ann Cranmer - Vice President
Raymond Goldblatt - Vice President*
Steven Mills - Vice President**
Linda E. Field - Secretary
-----------------
* Resigned effective October 9, 1998.
** Appointed effective October 9, 1998.
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 PricewaterhouseCoopers 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 AGENT & PNC Bank, N.A.
DIVIDEND PAYING AGENT Bellevue Corporate Center
400 Bellevue Parkway
Mail Stop W3-F400-02-4
Wilmington, DE 19809 U.S.A.
2
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
HIGHLIGHTS OF THE PERIOD (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
US $
----------
Net Assets 36,005,362
Net Asset Value ("NAV") per Share 8.90
Market Price on New York Stock Exchange 6.875
Discount to NAV 22.75%
PERFORMANCE FROM MARCH 11, 1994* TO AUGUST 31, 1998
Total Return based on Market Price (38.86)%+
Total Return based on NAV (19.75)%+
Johannesburg Stock Exchange ("JSE") All Share Index (33.09)%++
- -------------------
* Commencement of operations.
+ Assumes reinvestment of dividends and distributions 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
GRAPH DEPICTED HERE SHOWS:
NAV & MARKET PRICE VS. JSE ALL SHARE INDEX FROM THE PERIOD 3/11/94 THROUGH
8/31/98
<TABLE>
<CAPTION>
DATE NAV MARKET PRICE JSE
- ------- --------- ------------ ---------
<S> <C> <C> <C>
03/11/94 $1,000.00 $1,000.00 $1,000.00
05/31/94 1,049.42 896.06 983.86
08/31/94 1,148.26 992.94 1,133.89
11/30/94 1,272.53 1,003.58 1,224.73
02/28/95 1,222.52 1,015.01 1,153.94
05/31/95 1,377.93 1,100.38 1,301.55
08/31/95 1,402.55 1,071.92 1,329.31
11/30/95 1,504.11 1,176.42 1,427.23
02/29/96 1,561.11 1,221.82 1,516.81
05/31/96 1,384.11 1,072.82 1,374.03
08/31/96 1,288.24 1,003.28 1,306.27
11/29/96 1,297.90 1,275.73 1,033.08
02/28/97 1,422.63 1,118.77 1,398.08
05/30/97 1,466.38 1,188.69 1,377.78
08/29/97 1,486.63 1,228.65 1,372.36
11/28/97 1,284.36 1,000.37 1,142.82
02/28/98 1,583.31 1,239.61 1,257.46
05/31/98 1,696.02 1,467.47 1,297.13
08/31/98 802.47 611.45 669.09
</TABLE>
3
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
MAJOR EQUITY HOLDINGS (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
PERCENTAGE OF
NET ASSETS
-------------
STANDARD CHARTERED BANK BOTSWANA LTD. 7.4
Stanchart has operated in Botswana for over 50 years. It was
a direct subsidiary of Standard Chartered PLC in 1975, which
still retains 75% of the equity. The recent good price
performance has been enhanced by cost cutting controls. It
has 15 branches, 6 agencies and 22 ATM's.
PERSETEL Q DATA HOLDINGS LTD. 7.3
A technology company servicing the computer industry. It
markets and supports computer hardware, software and
relevant systems in all segments of the industry. It also
has large investments in Germany.
SECHABA BREWERIES LTD. 7.2
A listed brewer in Botswana. It manufactures and sells
traditional sorghum/maize based beer as well as clear beer
and soft drinks. It has 100% of the market excluding
home-brewed products. Current production of traditional beer
is double that of clear beer. Its market share for
traditional beer is protected from import as sorghum beer
has a shelf life of only a few days.
REAL AFRICA HOLDINGS LTD. 6.2
A black controlled company with core focuses on financial
services, information technology and industrial companies.
It is one of South Africa's premier black empowerment
groupings with clear investment criteria and highly regarded
management. It has sizeable investments in African Life
Insurance, Real Africa Durolink Holdings Ltd. (RAD) and PQ
Africa.
PARADIGM INTERACTIVE MEDIA LTD. 5.6
A technology based company with various subsidiaries in
media, information and smart card technology.
4
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
MAJOR EQUITY HOLDINGS (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
PERCENTAGE OF
NET ASSETS
-------------
THE BIDVEST GROUP LTD. 5.3
Operates in the field of food, catering and related products
servicing the tourism industry in South Africa. It also has
freight, packaging and hygiene services business.
THETA GROUP LTD. 4.6
A financial services company controlling operations in niche
growth sectors of all South African economy. Its
subsidiaries are also prominent in the subsistence lending
market.
INVESTEC GROUP LTD. 4.5
Investec Holdings is the holding company for Investec Group
Ltd. Its subsidiaries offer a wide range of investment
banking, private banking, asset management and property
services. It also has interests in entities operating in
London, Israel, Holland, New York and Mauritius.
PRIMEDIA LTD. 3.8
A diversified media company with interests in radio
stations, print media, cinemas and outdoor advertising.
PROTEA FURNISHERS LTD. 3.6
A furniture retailer operating throughout South Africa. It
has six chains, supplying both furniture and home
appliances.
5
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT
- --------------------------------------------------------------------------------
October 26, 1998
DEAR SHAREHOLDERS,
The New South Africa Fund Inc. ("NSA" or the "Fund") has been in existence since
March 1994, when it was listed on the New York Stock Exchange. Since inception,
the net asset value ("NAV") of the Fund (assuming reinvestment of all dividends
and distributions) has declined by 19.75% against a decrease of 33.09% for the
Johannesburg Stock Exchange ("JSE") All Share Index. For the six months ended
August 31, 1998, the Fund's NAV decreased by 49.32% and the JSE All Share Index
decreased by 46.79% for the same period.
MARKET ENVIRONMENT
The following table summarizes market moves between February 28, 1998 and the
six months ended August 31, 1998.
<TABLE>
<CAPTION>
August February %
31, 1998 28, 1998 Change
-------- -------- ------
<S> <C> <C> <C>
SOUTH AFRICA
Rand vs US $ ................................. 6.45 4.95 (30.30)
JSE All Share Index*
(local) ................................. 4,923 7,096 (30.62)
(US $) .................................. 763 1,434 (46.79)
Three month bankers'
acceptance rate (%) ..................... 21.52 13.75 56.51
Yield on benchmark long bond (%) ............. 19.55 13.21 47.99
ZIMBABWE
Industrial Index (local) ..................... 5,578 7,879 (29.20)
BOTSWANA
Share Index (local) .......................... 974 751 29.69
<FN>
- --------------------
*PRICE MOVEMENT ONLY
</FN>
</TABLE>
The South African Equity market experienced one of its worst monthly
performances ever when the equity market crashed by 29.68% during August 1998.
Over the six-month reporting period, the JSE All Share Index was down 30.62% in
rand terms, which implies that most of the damage occurred in August.
Performance year to date reads like a tale of two parts. From mid-January to
mid-April the JSE All Share Index went up around 50% as market players drew
false comfort from the belief that the troubles in Southeast Asia were over.
This strong rise was unsustainable, and soon reversed by around 15% when renewed
fears about Asia, and especially the recessionary Japanese economy resurfaced.
6
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (CONTINUED)
- --------------------------------------------------------------------------------
The market then marked time from mid-June to the beginning of August when the
Russian debt crisis hit the markets. Sentiment turned extremely negative after
this, and the market kept falling in bouts of between 1% and 6% on a daily basis
with the odd negligibly weak rally. The sub-indices that rose spectacularly
during the up-phase (for example, the financial and banking sectors) were sold
off by around 40%. The furniture sector also sustained a major fall, declining
by around 50%. In fact, the sectors that fell least were the mining producers,
as they had already been sold off in preceding periods and were showing
comparative value.
Equally, bonds were sold off aggressively, especially by foreigners who divested
themselves of R19 billion of South African bonds between May and August this
year. This phenomenon was repeated on all emerging markets, and the yield spread
of emerging markets' bonds over that of US bonds widened significantly.
The outlook for the domestic equity market remains subdued. Exporters are seeing
their markets contract as world growth slows, whereas the domestic operators
will feel the full brunt of an interest rate environment that has become
prohibitive for growth. A tough monetary stance was taken by the South African
Reserve Bank in the face of the crisis, which ratcheted up the repo rate from
around 16% to the current 22% in an aggressive defense of its reserves. The
heavily indebted consumer will come increasingly under pressure as high interest
rates translate into higher mortgage and higher purchase costs, leaving less
money for discretionary spending in the average family's budget.
THE ECONOMY After having held up well last year while other emerging markets'
currencies fell, the South African Rand was caught in the maelstrom over
May/June, falling by around 30% in value. A lot of this was the result of
foreign investors abandoning the markets, especially their South African bonds.
The steep interest rate hikes (current real rates stand at above 15%) are highly
likely to arrest the growth of the domestic economy. Given the high import
component of the economy, the fall in the currency is likely to bring about a
rise in inflation that should peak at under 10% at the end of the year. The
inflationary effects have already started filtering through, with headline CPI
having risen from 5.02% year on year low in May to 7.6% in August.
7
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (CONTINUED)
- --------------------------------------------------------------------------------
An interesting change of policy was announced by the Reserve Bank in August. The
governor stressed that in the past, the rand was allowed to depreciate in times
of crisis. Whenever there were inflows of capital into the country, the rand
would be held weak by the Reserve Bank as they build up their reserves. This
gave speculators against the rand an asymmetrical canvas against which they
could speculate successfully. Henceforth, however, the Reserve Bank announced
that it would manage its foreign exchange policy in a manner that would see
periods of appreciation as well as depreciation for the rand, albeit on a
general trend that preserved purchasing power parity. This would steepen the
task for speculators, since there will be a downside as well as an upside to
speculating against the rand going forward.
One thing has become obvious to commentators on the South African economy:
growth is going to stagnate over the next eighteen months if interest rate
relief does not materialize soon. Forecasts for economic growth for 1998 have
been constantly and intermittently downgraded from 2% in January to around
- -0.8%. Consensus forecasts reflect an expected full-blown recession for 1999,
with at least one prominent brokerage house forecasting a growth rate of -1.0%
for next year. While we do not expect such a severe downturn, we nonetheless
expect growth for 1999 to remain flat at best. In addition, South Africa's
export markets are under pressure, which does not bode well for the earnings of
exporters.
Economic prospects can hope to improve only once prospects for emerging markets
brighten, and domestic interest rates decline. An interest cut in the US should
also improve general investor sentiment towards financial markets.
THE PORTFOLIO
At August 31, 1998, the Fund had 81.03% of its net assets in South African
equities, 4.23% in money market instruments, and 15.29% in Botswana equities.
We believe that some of the shares in the portfolio have been sold off in excess
of their fundamentals. They have large cash reserves, are unborrowed,
operationally sound and expected to bounce back in time.
8
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (CONTINUED)
- --------------------------------------------------------------------------------
However, we are still nervous and approaching the market with caution. We are
expecting a large bounce in the market from very oversold levels. This bounce
will be used as an opportunity to trim certain holdings and increase our bond
exposure. Bonds look attractive at these higher interest rates, especially with
a weakening economy.
Currently Botswana remains insulated from the recent falls but is expected to be
adversely affected over the next few months. We will thus continue to trade
cautiously in this scenario.
DISCOUNT TO NET ASSET VALUE AND SELF TENDER OFFER Over the last six months, the
discount of the market price to net asset value ("NAV") has been in the range of
between 7.96% to 22.75%. The discount at which the Fund's shares trade is a
matter of concern to the Board. The Board has an ongoing policy to address the
issue of the discount, and reviews measures to reduce the discount at each
meeting. The actions the Board has taken with respect to the discount reflect
the Board's judgment that it is appropriate to take action from time to time,
subject to the considerations relating to potential effectiveness, cost, and
impact on the Fund's continued viability. In this regard, over the last six
months, the Board has taken several steps intended to address the issue of the
discount, including a self tender offer. Please refer to Note 8 on pages 22-23
for further details.
/S/ ARNOLD WITKIN
- --------------------
Arnold Witkin
President, Treasurer and
Chairman of the Board of Directors
FROM FLEMING INTERNATIONAL ASSET MANAGEMENT LTD.:
Like other financial and business organizations, the Fund and its portfolio
could be adversely affected if the computer systems they rely on do not properly
process date-related information and data involving the years 2000 and after. We
at Flemings are taking steps that we believe are reasonable to address this
problem in our own computer system and are seeking assurances that comparable
steps are being taken by the Fund's other major service providers. Flemings is
also attempting to evaluate the potential impact of this problem on the issues
of investment securities that the portfolio purchases. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund and its portfolio.
9
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ------
<S> <C> <C>
COMMON STOCKS -- 96.32%
BOTSWANA -- 15.29%
BREWERY -- 7.22%
Sechaba Breweries Ltd. 2,110,800 2,599,168
----------
COMMERCIAL BANKS -- 8.07%
Barclays Bank of Botswana 51,000 233,486
Standard Chartered Bank Botswana Ltd. 528,900 2,671,876
----------
2,905,362
----------
TOTAL BOTSWANA (cost $4,585,741) 5,504,530
----------
SOUTH AFRICA-- 81.03%
AUDIO & VIDEO PRODUCTS -- 2.33%
Teljoy Holdings Ltd. 1,080,000 840,433
----------
COMMERCIAL BANKS -- 0.01%
Nedcor Ltd. 331 4,301
----------
COMPUTERS - INTEGRATED SYSTEMS -- 10.35%
Dimension Data Holdings Ltd. 289,988 1,083,180
Persetel Q Data Holdings Ltd. 381,791 2,644,204
----------
3,727,384
----------
COMPUTER SERVICES -- 2.53%
Spescom Electronics Ltd. 651,200 912,150
----------
DIVERSIFIED FINANCIAL SERVICES-- 7.27%
Capital Alliance Holdings Ltd. * 301,962 352,471
Genbel Securities Ltd. 75,896 448,861
Real Africa Durolink Holdings Ltd. * 99,721 155,202
Theta Group Ltd. * 743,400 1,660,289
----------
2,616,823
----------
DIVERSIFIED OPERATIONS -- 22.85%
B.O.E. Corp. Ltd. Class N 1,411,667 703,058
CorpGro Ltd. 40,764 18,081
New Africa Investments Ltd. Class N * 1,300,000 748,608
Primedia Ltd. Class N 490,000 1,365,081
Real Africa Holdings Ltd. 1,009,557 2,239,005
</TABLE>
10
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ------
<S> <C> <C>
SOUTH AFRICA (CONTINUED)
DIVERSIFIED OPERATIONS (CONTINUED)
The Bidvest Group Ltd. 333,631 1,895,259
The Board of Executors Ltd. 2,220,141 1,257,741
----------
8,226,833
----------
FINANCE & BANKING -- 7.86%
Investec Group Ltd. 68,900 1,604,206
RMB Holdings Ltd. 978,981 1,226,534
----------
2,830,740
----------
FINANCIAL SERVICES -- 1.07%
Brait SA * 105,384 385,435
----------
INSURANCE -- 3.12%
Fedsure Holdings Ltd. 185,000 1,122,912
----------
INVESTMENT COMPANIES -- 3.29%
Coronation Holdings Ltd. Class N 138,187 1,182,876
----------
NETWORKING PRODUCTS -- 2.40%
DataTec Ltd. 75,000 863,778
----------
RETAIL-HOME FURNISHINGS -- 6.47%
JD Group Ltd. 361,135 1,039,802
Protea Furnishers Ltd. 4,062,036 1,289,684
----------
2,329,486
----------
STORES -- 4.17%
Pepkor Ltd. 305,001 738,144
Specialty Stores Ltd. 520,832 235,074
Specialty Stores Ltd. Class N 1,316,531 527,615
----------
1,500,833
----------
TELECOMMUNICATIONS EQUIPMENT -- 7.21%
Allied Technologies Ltd. 300,000 582,466
Paradigm Interactive Media Ltd. * 2,400,000 2,013,304
----------
2,595,770
----------
TRANSPORT SERVICES -- 0.10%
Super Group Ltd. 22,949 34,645
----------
</TABLE>
11
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES US $
- ----------- ------ ------
<S> <C>
TOTAL SOUTH AFRICA (cost $43,755,400) 29,174,399
----------
TOTAL COMMON STOCKS
(cost $48,341,141) 34,678,929
----------
SHORT-TERM INVESTMENT -- 4.23% PAR
(000)
-----
REPURCHASE AGREEMENT -D 4.23%
Repurchase Agreement dated 08/31/98
with Bear, Stearns & Co. Inc., 5.71%,
due 09/01/98, collateralized by
$1,558,314 Federal National Mortgage
Association Strips (Principal-Only), zero
coupon due 07/01/24; total value: $1,547,776;
proceeds: $1,522,653 (cost $1,522,412) US $ 1,522 1,522,412
----------
TOTAL INVESTMENTS -- 100.55%
(cost $49,863,553)(a) 36,201,341
LIABILITIES IN EXCESS OF CASH &
OTHER ASSETS -- (0.55)% (195,979)
----------
NET ASSETS -- 100.00% 36,005,362
----------
---------------
* Non income producing securities.
US $ United States dollars.
(a) Aggregate cost for US federal income tax purposes is
$49,863,553. The aggregate unrealized appreciation/(depreciation)
for all securities is as follows:
US $
----------
Excess of market value over tax cost 2,023,370
Excess of tax cost over market value (15,685,582)
----------
Net unrealized depreciation (13,662,212)
----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
US $
----------
ASSETS
Investments, at value (cost $49,863,553) (Note 2) 36,201,341
Cash (representing foreign currency holdings with a
cost of $147,988 in an interest-bearing account) 144,579
Receivables:
Dividends 122,268
Interest 12,494
Deferred organizational costs (Note 1) 11,827
Prepaid expenses 23,149
----------
TOTAL ASSETS 36,515,658
----------
LIABILITIES
Payables:
Investment advisory fees (Note 4) 131,614
DirectorsO fees 28,203
Administration fees (Note 4) 15,997
Other accrued expenses 334,482
----------
TOTAL LIABILITIES 510,296
----------
NET ASSETS 36,005,362
==========
Net assets consist of:
Common stock, $0.001 par value (200,000,000 shares
authorized; 4,046,869 shares issued
and outstanding) (Note 7) 4,047
Additional paid-in capital 54,234,648
Undistributed net investment income 9,056
Accumulated net realized loss on investments and
foreign currency transactions (4,572,877)
Net unrealized depreciation on investments, foreign
currency holdings and other assets and liabilities
denominated in foreign currencies (13,669,512)
----------
NET ASSETS 36,005,362
==========
NET ASSET VALUE PER SHARE
($36,005,362 O 4,046,869) $ 8.90
===========
See accompanying notes to financial statements.
13
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
US $
----------
INVESTMENT INCOME
Dividends (net of foreign withholding taxes
of $2,320) (Note 2) 745,405
Interest 331,573
----------
TOTAL INVESTMENT INCOME 1,076,978
----------
EXPENSES
Investment advisory fees (Note 4) 477,456
Professional fees (Note 2) 403,546
Reports and notices to shareholders 77,080
Administration fees (Note 4) 57,495
Custodian fees 44,060
Accounting fees 41,602
Transfer agent fees and expenses 25,820
Directors' fees and expenses 23,304
Insurance 17,602
Amortization of organizational costs (Note 1) 10,988
NYSE listing fees 8,136
Miscellaneous 13,834
----------
TOTAL EXPENSES 1,200,923
----------
NET INVESTMENT LOSS (123,945)
----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS, FOREIGN CURRENCY
HOLDINGS AND OTHER ASSETS AND LIABILITIES
DENOMINATED IN FOREIGN CURRENCIES (Note 2)
Net realized loss on:
Investments (1,673,244)
Foreign currency transactions (1,020,779)
----------
(2,694,023)
----------
Net change in unrealized appreciation /
(depreciation) on:
Investments (33,354,715)
Foreign currency holdings and other assets and
liabilities denominated in foreign currencies (5,025)
----------
(33,359,740)
----------
Net realized and unrealized loss on investments,
foreign currency holdings and other assets and
liabilities denominated in foreign currencies (36,053,763)
----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS (36,177,708)
==========
See accompanying notes to financial statements.
14
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
US $ US $
---------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
OPERATIONS
Net investment income/(loss) (123,945) 637,707
Net realized gain/(loss) on investments
and foreign currency transactions (2,694,023) 3,483,467
Net change in unrealized appreciation/
(depreciation) on investments, foreign
currency holdings and other assets
and liabilities denominated in foreign
currencies (33,359,740) 1,676,678
---------- ----------
Net increase/(decrease) in net assets
resulting from operations (36,177,708) 5,797,852
---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income -- (515,660)
Net realized gains on investments -- (3,496,384)
In excess of net realized gains on investments -- (1,878,854)
---------- ----------
-- (5,890,898)
---------- ----------
CAPITAL STOCK TRANSACTIONS
Cost of shares repurchased (Notes 7, 8) (6,794,242) (293,944)
---------- ----------
NET DECREASE IN NET ASSETS (42,971,950) (386,990)
Net Assets:
Beginning of period 78,977,312 79,364,302
---------- ----------
End of period (including undistributed net
investment income of $9,056 and
$133,001, respectively) 36,005,362 78,977,312
========== ==========
</TABLE>
See accompanying notes to financial statements.
15
<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, FOR THE YEAR ENDED THROUGH
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995
US $ US $ US $ US $ US $
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 17.56 17.56 19.38 15.89 13.95**
Offering costs charged to additional paid-in capital -- -- -- -- (0.19)
------ ------ ------ ------ ------
17.56 17.56 19.38 15.89 13.76
------ ------ ------ ------ ------
Net investment income/(loss) (0.04)+ 0.14+ 0.17+ 0.33 0.39
Net realized and urealized gain/(loss) on investments,
foreign currency holdings and other assets and
liabilities denominated in foreign currencies (8.62)+ 1.15+ (2.12)+ 3.96 2.51
------ ------ ------ ------ ------
Total from investment operations (8.66)+ 1.29+ (1.95)+ 4.29 2.90
------ ------ ------ ------ ------
Dividends and distributions to shareholders from:
Net investment income -- (0.11) (0.07) (0.33) (0.39)
In excess of net investment income -- -- -- (0.42) (0.32)
Net realized gains on investments -- (0.78) -- (0.05) (0.06)
In excess of net realized gains on investments -- (0.42) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders -- (1.31) (0.07) (0.80) (0.77)
------ ------ ------ ------ ------
Antidilutive impact due to shares of
beneficial interest repurchased -- 0.02 0.20 -- --
------ ------ ------ ------ ------
Net asset value, end of period 8.90 17.56 17.56 19.38 15.89
====== ====== ====== ====== ======
Market value, end of period 6.88 13.94 14.00 15.38 13.38
====== ====== ====== ====== ======
Total investment return based on: (a) (b)
Market value (50.67)% 10.80% (8.43)% 20.38% 1.50%
Net asset value (49.32)% 11.29% (8.88)% 27.72% 22.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) 36,005 78,977 79,364 92,196 75,605
Ratio of expenses to average net assets 3.13%++ 2.07% 2.35% 1.98% 2.10%++
Ratio of net investment income/(loss) to average
net assets (0.32)%++ 0.82% 1.01% 1.77% 2.61%++
Portfolio turnover rate 30.27% +++ 90.53% 9.92% 18.91% 10.88%+++
<FN>
- -----------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share.
+ Based on weighted 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.
</FN>
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
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) MANAGEMENT ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
ii) 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).
iii) REPURCHASE AGREEMENTS
The Fund may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are
17
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
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
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.
iv) 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, 1998, the Fund
incurred and elected to defer $1,341,276 of realized capital losses
and $537,578, of realized foreign exchange losses.
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.
v) 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 and amortization of premium and discount are recorded on
18
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
a straight-line 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, 1998, no such
allowance was established.
vi) 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.
vii) 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
19
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
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 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 or losses 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 losses of $1,020,779 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.
viii)PROFESSIONAL FEES
Professional fees increased during the six months ended August 31,
1998, principally as a result of costs associated with the Fund's self
tender offer as well as matters related to the Fund's proxy materials.
3. INVESTMENT TRANSACTIONS
For the six months ended August 31, 1998, total purchases and sales of
portfolio investments excluding short-term securities, were
$20,950,627 and $25,181,578, respectively.
20
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
4. 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 average weekly net assets.
ii) Bear Stearns Funds Management Inc. (the "Administrator"), a
wholly-owned subsidiary of The Bear Stearns Companies Inc.,
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.
5. TRANSACTIONS WITH AFFILIATES
For the six months ended August 31, 1998, the Fund paid $6,166 in
brokerage commissions to Fleming Martin Ltd., an affiliate of the
Investment Adviser.
6. 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 to the
disclosure and other investor protection requirements applicable to
companies whose securities are publicly traded. At August 31, 1998,
the Fund held no such securities.
21
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
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.
7. CAPITAL STOCK
The authorized capital stock of the Fund is 200,000,000 shares of
common stock, $0.001 par value. Of the 4,046,869 shares outstanding at
August 31, 1998, 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.
On February 20, 1997, the Board of Director's announced a second share
repurchase program with identical terms to the initial program. Since
the date of the announcement through August 31, 1998, the Fund has
repurchased 22,790 of its outstanding shares.
8. BOARD POLICIES WITH RESPECT TO THE DISCOUNT TO NET ASSET VALUE
Over the last six months, the discount of the market price to net
asset value ("NAV") has been in the range of between 7.96% to 22.75%.
The discount at which the Fund's shares trade is a matter of concern
to the Board. The Board has an ongoing policy to address the issue of
the discount, and reviews measures to reduce the discount at each
meeting. The actions the Board has taken with respect to the discount
reflect the Board's judgment that it is appropriate to take action
from time to time, subject to the considerations relating to potential
effectiveness, cost, and impact on the Fund's continued viability. In
this regard, over the
22
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
AT AUGUST 31, 1998
last six months, the Board has taken several steps intended to address
the issue of the discount.
The Fund conducted a self-tender offer, which expired on July 29,
1998, for up to 10% or 449,652 of its outstanding shares.
Stockholders, who were required to tender all of the shares owned by
them if they wished to participate in the tender offer, tendered
3,574,793 shares, or approximately 79.5% of the Fund's outstanding
shares as of the expiration date of the tender offer. The Fund
repurchased 449,652 shares, pro rata in accordance with the number of
shares tendered by each stockholder, for cash at a price of $15.11 per
share, the NAV of the shares on July 29, 1998.
The Board has also announced its intention to convene a special
meeting of stockholders to give all stockholders the opportunity to
express their approval or disapproval of the actions the Board has
taken and is proposing to take with respect to the discount, and
invited stockholders to submit proposals for inclusion in the Fund's
proxy statement. In response to the invitation, two stockholders have
submitted proposals and the Board has agreed to include both proposals
in the Fund's proxy statement.
The Board intends to continue to address the discount so long as it
believes the discount is a problem that can be effectively addressed.
The Board is carefully monitoring the recent significant depreciation
in value of the Southern African securities markets and currency
generally and the impact which such depreciation has had on the Fund's
portfolio. The Board is also giving careful consideration to its
ongoing policies with respect to the discount to NAV in the light of
the current volatile market conditions in South Africa.
9. SUBSEQUENT EVENT
On September 8, 1998, the Board of Directors announced certain changes
to the Fund's existing share repurchase plan. The changes allow up to
5% of the shares to be bought back whenever the discount exceeds 15%.
Previously, the discount had to exceed 20% before the Fund could
effect repurchases. Since the date of the announcement through October
26, 1998, the Fund repurchased 11,700 of its outstanding shares. The
share repurchase plan is discretionary in nature and decisions to
repurchase shares will be made by the Fund's investment adviser
depending upon existing facts and circumstances such as market
volatility, as well as available cash to effect such repurchases.
23
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On May 14, 1998, the annual meeting of the shareholders of The New South
Africa Fund Inc. (the "Fund") was convened and adjourned to July 27, 1998.
On such date, the meeting was reconvened and the following matters were
voted upon:
(1) To re-elect one director to the Board of Directors of the Fund.
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
---------------- ---------- -------- ----------
Arnold Witkin 1,964,515 344,167 2,187,839
In addition to the directors re-elected at the meeting, Iain O.S. Saunders,
Arthur Levy, Albert Francke and Dr. Nthato H. Motlana, continue to serve as
directors of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly Price
Waterhouse LLP) as independent accountants for the year ending February
28, 1999.
FOR AGAINST WITHHELD NON-VOTES
---------- ---------- -------- ---------
3,188,682 3,809 336,851 967,179
24
<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 remaining
25
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
- --------------------------------------------------------------------------------
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 on 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
26
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
- --------------------------------------------------------------------------------
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
27
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THE NEW SOUTH AFRICA FUND INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
- --------------------------------------------------------------------------------
prior to 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 PNC Bank, N.A., 400 Bellevue Parkway, Mail Stop
W3-F400-02-4, Wilmington, Delaware 19809 or by telephone at
1-800-852-4750.
28
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NSA
LISTED
NYSE
THE 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
