NSA THE NEW SOUTH AFRICA
FUND INC.
NSA
ANNUAL REPORT
FEBRUARY 28, 1999
<PAGE>
THIS REPORT, INCLUDING THE FINANCIAL STATEMENTS HEREIN, IS TRANSMITTED TO
THE SHAREHOLDERS OF THE NEW SOUTH AFRICA FUND INC. FOR THEIR INFORMATION.
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") was organized 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 invested 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 was also permitted to invest up to 35% of its assets
in fixed income securities.
On December 10, 1998, the Board of Directors of the Fund adopted a Plan of
Liquidation and Dissolution (the "Plan") of the Fund. The Plan was approved by
the Fund's stockholders at a special meeting thereof on April 28, 1999 and the
Fund is currently in the process of liquidating. The Fund expects to make a
liquidating distribution to its stockholders and to de-list its shares from
trading on the New York Stock Exchange in late May or early June this year. As
of February 28, 1999, approximately 94% of the Fund's assets were invested in
cash, short-term U.S. Treasury securities and other money market instruments.
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. Effective October 9, 1998, 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; he resigned from such position
effective January 31, 1999.
Following the December 10, 1998 adoption of the Plan by the Board of Directors
of the Fund, the Fund's portfolio of securities of South African and other
1
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
MANAGEMENT (CONTINUED)
- --------------------------------------------------------------------------------
regional issuers has been gradually liquidated and the proceeds invested in
cash, U.S. Treasury securities and other, high-quality, highly liquid money
market instruments. The investment and reinvestment of Fund assets in these
securities is managed by FIAM and Mr. Mills made no recommendations to FIAM as
to the purchase or sale of any of such securities.
At a special meeting of stockholders of the Fund on December 8, 1998,
stockholders voted to terminate the Fund's Investment Advisory Agreement with
FIAM. Under applicable law, such vote is binding, and, accordingly, the
Directors of the Fund terminated the Investment Advisory Agreement with FIAM.
Such termination became effective on February 6, 1999 following expiration of
the 60-day notice period contained in such agreement. The Directors, including a
majority of directors who were not interested persons of the Fund as defined in
the Investment Company Act of 1940 (the "Investment Company Act"), at a special
meeting held in person, voted to adopt a new Investment Advisory Agreement with
FIAM. The new agreement became effective on February 7, 1999 and is
substantially similar to the old agreement with FIAM except that the investment
advisory fee payable by the Fund to FIAM is fixed at $12,500 per month,
regardless of the asset size of the Fund, for so long as the Fund is
substantially invested in cash, U.S. Treasury securities and other high-quality,
highly liquid money market instruments. The old Investment Advisory Agreement
with FIAM provided for an investment advisory fee payable monthly and calculated
at the annualized rate of 1.25% of average weekly net assets of the Fund.
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.
The Fund expects to pay a liquidating distribution to its stockholders and
de-list its shares from trading on the New York Stock Exchange, pursuant to the
Plan, in late May or early June of this year.
2
<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 and Vice President
(Appointed effective December 8, 1998.)
Dr. Nthato H. Motlana - Director
Iain O.S. Saunders - Director
Ann Cranmer - Vice President
Raymond Goldblatt - Vice President
(Resigned effective October 9, 1998.)
Steven Mills - Vice President
(Appointed effective October 9, 1998
and resigned effective January 31, 1999.)
Linda E. Field - Secretary
Investment Adviser Fleming International Asset
Management Limited
25 Copthall Avenue
London EC2R 7DR
England
Administrator Bear Stearns Funds Management Inc.
575 Lexington Avenue
New York, NY 10022 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 & PFPC Inc.
Dividend Paying Agent Bellevue Corporate Center
400 Bellevue Parkway
Mail Stop W3-F400-02-4
Wilmington, DE 19809
U.S.A
3
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
HIGHLIGHTS OF THE PERIOD
- --------------------------------------------------------------------------------
AT FEBRUARY 28, 1999
US $
----------
Net Assets 41,492,548
Net Asset Value ("NAV") per Share 10.29
Market Price on New York Stock Exchange 9.9375
Discount to NAV 3.43%
PERFORMANCE FROM MARCH 11, 1994* THROUGH FEBRUARY 28, 1999
Total Return based on Market Price (11.29)%+
Total Return based on NAV (6.88)%+
Johannesburg Stock Exchange ("JSE") All Share (16.27)%++
Index
- -------------------
* Commencement of operations.
+ Assumes reinvestment of all dividends and distributions paid by the Fund in
accordance with the Fund's Dividend Reinvestment and Cash Purchase Plan.
++ The JSE All Share Index performance calculation assumes no reinvestment of
dividends and distributions on securities in the Index and does not assume
or give effect to any expenses which could be incurred in connection with
the actual purchase, sale or holding of any securities in the Index.
NAV & Market Price vs. JSE All Share Index
(The information contained in the footnotes to the table above are
applicable to the corresponding information in this graph.)
GRAPH OMITTED SHOWS THE % INCREASE/DECREASE IN PERFORMANCE FROM
3/11/94 THROUGH 2/28/99 AND IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
4
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT
- --------------------------------------------------------------------------------
APRIL 30, 1999
DEAR STOCKHOLDERS,
Calendar 1998, and the Fund's fiscal year ended February 28, 1999, were
difficult periods for emerging markets generally, and for funds investing in the
equity securities traded in those markets. The securities markets in which the
Fund was organized to invest -- South Africa and its neighboring countries --
were not exempt from these difficulties, nor was the Fund. The challenges which
your Fund faced from an investment and performance standpoint during these
periods were also accompanied by the continuation of a long-standing matter of
serious concern to Fund investors as well as to the Directors of the Fund: the
persistently high discount to net asset value ("NAV") at which the Fund's shares
traded on the New York Stock Exchange.
During fiscal 1998, the Directors of the Fund met many times and, as they have
almost since the inception of the Fund when the discount problem first
developed, considered various means to narrow the discount. In this context, as
well as against the backdrop of the development of serious negative economic and
other fundamentals in the countries and securities markets in which the Fund was
organized to invest, the Board also reconsidered the Fund's future and, in that
regard, what, if any, alternatives to the continuation of the Fund in its
current structure might be in the best interests of the Fund's stockholders.
Also during the period, a number of large and small stockholders approached me,
certain other Directors and representatives of the Fund's investment adviser,
FIAM, to voice their concern that the market discount to NAV was continuing
largely unabated despite the various actions which the Directors had caused the
Fund and FIAM to take to seek to ameliorate the problem. In particular, a number
of stockholders, representing a significant number of the Fund's outstanding
shares, expressed the view that the discount was preventing many stockholders
from realizing the full value of their investment. Different stockholders had
different ideas as to what should be done both regarding the discount and
regarding the Fund's future.
In light of our own continuing concerns, as well as in response to the interest
expressed by stockholders in these matters, the Directors decided to convene a
special meeting of stockholders and to invite all stockholders to submit
proposals as to how to address the discount, the future of the Fund, and any
other matters which concerned them. As a result, a special meeting of
stockholders of the Fund was held on December 8, 1998 at which two stockholder
proposals were presented for consideration. The first recommended that the Board
of Directors take such steps as would be necessary to effect the orderly
liquidation of the Fund as soon as possible.
5
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (CONTINUED)
- --------------------------------------------------------------------------------
The second proposal called for the termination of the Fund's investment advisory
agreement with FIAM and recommended that the Directors cause the Fund to enter
into a new Investment Advisory Agreement with FIAM on the same terms as the old
except, the proposal recommended, that the advisory fee payable to FIAM under
the new agreement would vary inversely with the size of the discount to NAV at
which the Fund's shares traded. In other words, the stockholder proposed that
the Fund enter into a new Investment Advisory Agreement with FIAM under which
the amount of the advisory fee would be tied to the discount to NAV; as the
discount was higher, the advisory fee would be lower. The Directors of the Fund
took no position with respect to either stockholder proposal. At the December 8,
1998 special stockholder meeting at which these proposals were considered,
although only a small majority of stockholders were present in person or by
proxy to vote their shares, an overwhelming percentage of shares represented
were voted in favor of both stockholder proposals.
Two days later, on December 10, 1998, the Directors met and voted to adopt a
Plan of Liquidation and Dissolution ("the Plan") of the Fund. By law, the Plan
was subject to stockholder approval, which was obtained at another special
meeting of stockholders of the Fund held on April 28, 1999. The Fund is now in
the process of liquidating and winding up its affairs in accordance with the
Plan and applicable law. The Fund expects to make a substantial liquidating
distribution of its assets to stockholders in late May or early June; a
relatively small amount will be withheld, however, to enable to the Fund to pay
its remaining liabilities and expenses. In conjunction with such distribution,
the Fund's shares will also be de-listed from trading on The New York Stock
Exchange. Thereafter, the Fund will file Articles of Dissolution with the State
of Maryland (the state in which the Fund is incorporated), and will seek an
order of the U.S. Securities and Exchange Commission de-registering the Fund as
an investment company under the U.S. Investment Company Act of 1940. Next,
stockholders will be requested to surrender their stock certificates for their
shares in the Fund to the Fund's transfer agent and a final distribution of the
Fund's remaining assets (which are not expected to be sizeable as most of the
assets will have already been distributed in the first distribution) will be
made.
Now, having outlined in general terms the chronology of events which has led up
to this point in time at which the Fund is actually in the process of
liquidating and winding up its affairs, I would like to take a step back and
review with stockholders in somewhat more detail the considerations which led
the Directors to conclude at their December 10, 1998 meeting that it was in the
best interests of stockholders that the Fund be liquidated and wound up. In
reaching this decision, the Directors considered many factors.
6
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT (CONTINUED)
- --------------------------------------------------------------------------------
One factor was the Fund's prospects for achieving its investment objective of
long-term capital appreciation by investing principally in equity securities of
issuers in South Africa and neighboring countries in light of the recent sharp
decline in the market values of those securities, the increased volatility of
the securities markets and currencies of those countries. The Directors also
considered recent macro-economic and social developments in the South African
regions and the prospects for the future as seen at this time, as compared with
earlier periods. In addition, the Directors considered the continuing
persistence of the high discount to market value of the Fund's shares to their
net asset value, notwithstanding the actions which the Fund has taken over the
years to seek to reduce the discount. The Directors considered other
possibilities for the Fund's future such as converting to an open-end structure,
merging with another fund and maintaining the Fund's current status. On balance,
the Board concluded that it was in the best interests of stockholders that the
Fund be liquidated at this time and adopted the Plan of Liquidation of
Dissolution.
In light of its determination that it was in the best interest of stockholders
that the Fund be liquidated, the Board also decided that it was appropriate for
the Fund to liquidate its portfolio of equity securities of issuers in South
Africa and neighboring countries, and to invest the proceeds from such
liquidation in cash, short-term U.S. Treasury securities and other high quality,
low risk money market instruments. The purpose of doing this was to reduce the
Fund's risk profile and preserve assets pending its anticipated liquidation
following the stockholder vote on the Plan of Liquidation and Dissolution.
As of the close of business on February 28, 1999, approximately 94% of the
Fund's assets was invested in cash and high-quality, highly liquid, money market
instruments such as short-term U.S. Treasury securities, while approximately 6%
was invested in equity securities of South African and other regional issuers.
As of the time this report went to press, 100% of the Fund's net assets were
invested in cash and high-quality, highly liquid money market instruments such
as short-term U.S. Treasury securities.
As mentioned above, stockholders also voted at their December 8, 1998 special
meeting to terminate the Fund's Investment Advisory Agreement with FIAM. On
February 6, 1999, the contract was terminated following a 60-day notice period
for a new advisory agreement with FIAM which became effective on February 7,
1999, under which the investment advisory fee payable to FIAM under the new
contract is substantially less than that which was payable under the former
agreement: the new fee is a fixed amount of $12,500 per month as compared with
the fee payable under the former agreement of 1.25% of average weekly net assets
calculated on an annualized basis and payable monthly.
7
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT MANAGEMENT REPORT CONTINUED)
- --------------------------------------------------------------------------------
I would like to conclude on a somewhat personal note. At our most recent
Directors' meeting, which immediately followed the stockholder vote to liquidate
the Fund on April 28, one of our Directors, Dr. Nthato H. Motlana, a prominent
physician, social activist and philanthropist in South Africa -- and one of the
Fund's original directors -- remarked that it was a sad day for his country,
South Africa, that the Fund was then completely divested of South African
securities. For Dr. Motlana, as no doubt for others, it was a remarkable
achievement that South Africa had come so far along the path to joining the
family of nations that by 1994, there were a sufficient number of investors,
individual and institutional, both in the United States and world-wide, to
support the creation and continued existence of an investment vehicle such as
the Fund (and two others with similar objectives), which was to invest almost
entirely in equity securities of issuers of his country. The existence of the
Fund (and its two counterparts), the inclusion of South African equities in
international emerging markets indices, the return of foreign capital -- all
these developments and others like them could only be seen as an endorsement of
the accomplishments of the people of South Africa and a vote of confidence in
the prospects for that country's future. Inferentially, the significant decline
in prices for South African securities experienced in the past 12 months, and
the doubtful to negative political and economic indicators now prevalent in the
minds of investors vis a vis South Africa, must be seen as a vote of a lack of
confidence. Dr. Motlana is right; this is a sad day. My personal hope, and I
believe it is shared by the other Directors, is that South Africa will once
again pick itself up and get on with the business of constructive
nation-building. Then, I am confident that investors will welcome the
opportunity to return.
It has been an honor to serve as your Chairman, and I thank each of you for the
privilege.
Yours sincerely,
/s/ ARNOLD WITKIN
- ------------------
Arnold Witkin
President, Treasurer and
Chairman of the Board of Directors
8
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
AT FEBRUARY 28, 1999
VALUE
DESCRIPTION SHARES US $
- ----------- ------ -----
COMMON STOCKS - 6.93%
SOUTH AFRICA - 6.93%
DIVERSIFIED OPERATIONS - 6.93%
New Africa Investments Ltd. Class N * 1,097,100 591,494
Real Africa Durolink Holdings Ltd. * 99,721 91,753
Real Africa Holdings Ltd.* 1,009,557 2,191,852
----------
TOTAL COMMON STOCKS
(cost $5,114,344) 2,875,099
----------
PAR
(000)
----------
SHORT-TERM INVESTMENTS - 93.91%
REPURCHASE AGREEMENT - 0.12%
Repurchase Agreement dated 02/26/99
with Bear, Stearns & Co. Inc., 4.77%,
due 03/01/99, collateralized by $50,921
Federal Home Loan Mortgage Corporation,
due 11/15/21; total value: $49,575;
proceeds: $49,835 (cost $49,815) US $ 50 49,815
US GOVERNMENT OBLIGATIONS - 93.79%
US Treasury Bills, 4.324% - 4.457%**,
due 03/25/99- 05/13/99 (cost $38,942,055) US $39,184 38,915,543
----------
TOTAL SHORT-TERM INVESTMENTS - 93.91%
(cost $38,991,870) 38,965,358
----------
9
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
INVESTMENT PORTFOLIO (CONTINUED)
US Tax Information (unaudited)
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION US $
- ----------- -----
TOTAL INVESTMENTS - 100.84%
(cost $44,106,214)(a) 41,840,457
LIABILITIES IN EXCESS OF CASH &
OTHER ASSETS - (0.84)% (347,909)
----------
NET ASSETS - 100.00% 41,492,548
==========
- ------------------
* Non income producing securities.
** Effective yield on the date of purchase.
US $ United States dollars.
(a) Aggregate cost for US federal income tax purposes is $44,106,214. The
aggregate unrealized appreciation/(depreciation) for all securities is
as follows:
US $
----------
Excess of market value over tax cost 12,581
Excess of tax cost over market value (2,278,338)
----------
Net unrealized depreciation (2,265,757)
==========
See accompanying notes to financial statements.
10
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
US $
----------
ASSETS
<S> <C>
Investments, at value (cost $44,106,214) ( Note 2) 41,840,457
Cash (representing foreign currency holdings with a
cost of $159 in an interest-bearing account) 159
Receivables:
Interest 10,153
Dividends 6,206
Deferred organizational costs and prepaid expenses 1,803
----------
TOTAL ASSETS 41,858,778
----------
LIABILITIES
Payables:
Investment advisory fee (Note 4) 16,251
Directors' fees 39,400
Administration fee (Note 4) 10,279
Legal fees (Note 2) 188,848
Other accrued expenses 111,452
----------
TOTAL LIABILITIES 366,230
----------
NET ASSETS 41,492,548
==========
Net assets consist of:
Common stock, $0.001 par value (200,000,000 share
authorized; 4,030,869 shares issued
and outstanding) (Note 7) 4,031
Additional paid-in capital 52,133,167
Accumulated net realized loss on investments and
foreign currency transactions (8,375,354)
Net unrealized depreciation on investments, foreign
currency holdings and other assets and liabilities
denominated in foreign currencies (2,269,296)
----------
NET ASSETS 41,492,548
==========
NET ASSET VALUE PER SHARE
($41,492,548 .\. 4,030,869) $ 10.29
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
US $
-----------
INVESTMENT INCOME
Dividends (net of foreign withholding taxes
<S> <C>
of $14,175) (Note 2) 949,068
Interest 672,402
----------
TOTAL INVESTMENT INCOME 1,621,470
----------
EXPENSES
Professional fees (Note 2) 764,135
Investment advisory fees (Note 4) 710,267
Reports and notices to shareholders 132,800
Administration fees (Note 4) 88,148
Accounting fees 83,605
Transfer agent fees and expenses 66,325
Custodian fees 64,975
DirectorsO fees and expenses 56,227
Insurance 34,932
Amortization of organizational costs (Note 1) 21,798
NYSE listing fees 16,155
Miscellaneous 26,566
----------
TOTAL EXPENSES 2,065,933
----------
NET INVESTMENT LOSS (444,463)
----------
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 (6,191,952)
Foreign currency transactions (1,826,321)
(8,018,273)
Net change in unrealized appreciation/(depreciation) on:
Investments (21,958,262)
Foreign currency holdings and other assets and
liabilities denominated in foreign currencies (1,262)
-----------
(21,959,524)
-----------
Net realized and unrealized loss on investments,
foreign currency holdings and other assets and
liabilities denominated in foreign currencies (29,977,797)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS (30,422,260)
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year ended
---------------------------
February 28, February 28,
1999 1998
US $ US $
---------------------------
INCREASE/(DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C>
Net investment income/(loss) (444,463) 637,707
Net realized gain/(loss) on investments
and foreign currency transactions (8,018,273) 3,483,467
Net change in unrealized appreciation/
(depreciation) on investments,
foreign currency holdings
and other assets and liabilities
denominated in foreign currencies (21,959,524) 1,676,678
----------- ----------
Net increase/(decrease) in net assets
resulting from operations (30,422,260) 5,797,852
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income (133,378) (515,660)
Net realized gains on investments -- (3,496,384)
In excess of net realized gains on
investments -- (1,878,854)
----------- ----------
(133,378) (5,890,898)
----------- ----------
CAPITAL STOCK TRANSACTIONS
Cost of shares repurchased (Notes 7,8) (6,929,126) (293,944)
----------- ----------
NET DECREASE IN NET ASSETS (37,484,764) (386,990)
NET ASSETS:
Beginning of year 78,977,312 79,364,302
----------- ----------
End of year 41,492,548 78,977,312*
----------- ----------
<FN>
- -------------
* Includes undistributed net investment income of $133,001.
</FN>
</TABLE>
See accompanying notes to financial statements.
13
<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
Period
March 11,
1994*
For the Year ended through
------------------------------------------------------- ------------
February 28, February 28, February 28, February 29, February 28,
1999 1998 1997 1996 1995
US $ US $ US $ US $ US $
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of the 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) (0.11)+ 0.14 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 (7.14)+ 1.15 (2.12)+ 3.96 2.51
------- -------- -------- -------- --------
Total from investment operations (7.25)+ 1.29 (1.95)+ 4.29 2.90
------- -------- -------- -------- --------
Dividends and distributions to shareholders from:
Net investment income (0.03) (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 (0.03) (1.31) (0.07) (0.80) (0.77)
------- -------- -------- -------- --------
Antidilutive impact due to shares of
beneficial interest repurchased 0.01 0.02 0.20 -- --
------- -------- -------- -------- --------
Net asset value, end of period 10.29 17.56 17.56 19.38 15.89
======= ======== ======== ======== ========
Market value, end of period 9.94 13.94 14.00 15.38 13.38
======= ======== ======== ======== ========
Total investment return based on: (a) (b)
Market value (28.44)% 10.80% (8.43)% 20.38 1.50%
Net asset value (41.19)% 11.29% (8.88)% 27.72 22.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) 41,493 78,977 79,364 92,196 75,605
Ratio of expenses to average net assets 3.52% 2.07% 2.35% 1.98% 2.10%++
Ratio of net investment income/(loss)
to average net assets (0.76)% 0.82% 1.01% 1.77% 2.61%++
Portfolio turnover rate 51.93% 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.
14
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At February 28, 1999
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
15
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 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, 1999, the Fund incurred and elected
to defer $4,435,462 of realized capital losses and $842,127 of
realized foreign exchange losses. At February 28, 1999, the Fund had a
capital loss carryforward for US federal income tax purposes of
$3,097,766 which expires in 2007. The Republic of South Africa ("South
Africa") does not impose a withholding tax on dividends paid by South
African companies to the Fund. However, dividend income received by
the Fund from other 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
16
<PAGE>
on the identified cost basis. Interest income is recorded on the
accrual basis and amortization of premium and discount are recorded on
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 February 28, 1999, 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. At February 28, 1999, the Fund reclassified within the
composition of net assets permanent book/tax differences relating to
net realized losses on foreign currency denominated transactions of
$1,521,773 and a net investment loss of $444,840 to additional 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:
17
<PAGE>
-- 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 foreign
currency gains and losses with respect to such securities are included
in the reported net realized and unrealized gains and losses on
investment transaction 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 $1,826,321 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.
18
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
- --------------------------------------------------------------------------------
viii) PROFESSIONAL FEES
Professional fees shown in the Statement of Operations primarily
represent costs associated with the Fund's self tender offer and costs
associated with preparation of proxy materials.
3. INVESTMENT TRANSACTIONS
For the fiscal year ended February 28, 1999, total purchases and sales of
portfolio investments excluding short-term securities, were $25,756,157 and
$67,851,519, respectively.
4. INVESTMENT ADVISER AND ADMINISTRATOR
i) Fleming International Asset Management Limited ("FIAM") provides
investment advisory services to the Fund under the terms of an
Investment Advisory Agreement. Through February 6, 1999, under the
Investment Advisory Agreement, the Investment Adviser was paid a
monthly advisory fee at an annual rate of 1.25% of the Fund's average
weekly net assets. On December 8, 1998, at a special meeting of
stockholders of the Fund, stockholders adopted a resolution to
terminate the Fund's existing Investment Advisory Agreement with FIAM.
In accordance with such resolution, the Board of Directors terminated
the Fund's existing Investment Advisory Agreement and approved a new
Investment Advisory Agreement with FIAM which became effective
February 7, 1999. The new Investment Advisory Agreement reflects the
current policy of the Board to liquidate the Fund's equity holdings in
an orderly manner and to reinvest the Fund's assets in short-term U.S.
Treasury securities and other money market instruments, and,
commensurate with such policy, the advisory fee has been reduced to a
fixed amount of $12,500 per month.
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 fiscal year ended February 28, 1999, the Fund paid $13,093 in
brokerage commissions to Fleming Martin Ltd., an affiliate of the
Investment Adviser.
19
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 February 28, 1999, 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.
7. CAPITAL STOCK
The authorized capital stock of the Fund is 200,000,000 shares of common
stock, $0.001 par value. Of the 4,030,869 shares outstanding at February
28, 1999, 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
20
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 September 7, 1998, the Fund repurchased
22,790 of its outstanding shares.
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 February 28, 1999, the Fund
repurchased 16,000 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.
8. BOARD POLICIES WITH RESPECT TO THE DISCOUNT TO NET ASSET VALUE
For the past year, the discount of the market price to net asset value
("NAV") has been in the range of between 3.43% 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 past year, 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
21
<PAGE>
THE NEW SOUTH AFRICA FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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.
At a meeting on December 10, 1998, the Fund's Board of Directors adopted a
formal Plan of Liquidation and Dissolution ("the Plan") of the Fund. The
Board's vote followed a special meeting of stockholders of the Fund held on
December 8, 1998 at which stockholders adopted a resolution recommending
that the Fund's Board of Directors consider approving and submitting to
stockholders a plan whereby the Fund would be liquidated in an orderly
manner. The Plan will be presented to stockholders for their consideration
at a special meeting to be held on April 28, 1999.
Assuming that the holders of a majority of the outstanding shares of the
Fund, present in person or by proxy at such meeting, vote to liquidate the
Fund, the Fund anticipates that it will be able to make a substantial
distribution of its assets to stockholders (reserving a portion to cover
outstanding and anticipated liabilities and other contingencies) within
four to five weeks following such vote, and to de-list its shares from the
New York Stock Exchange and de-register as an investment company under the
Investment Company Act of 1940, as amended thereafter.
22
