UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21650
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ASA (BERMUDA) LIMITED
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(Exact name of registrant as specified in charter)
11 SUMMER STREET - 4TH FLOOR
BUFFALO, NEW YORK 14209
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(Address of Principal executive offices) (Zip code)
JPMORGAN CHASE BANK, N.A.
3 CHASE METROTECH CENTER
BROOKLYN, NEW YORK 11245
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(Name and address of agent for service)
Registrant's telephone number, including area code: 716 -883-2428
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Date of fiscal year end: NOVEMBER 30, 2006
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Date of reporting period: MAY 31, 2006
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ITEM 1. REPORT TO STOCKHOLDERS
ASA (BERMUDA) LIMITED
TO THE SHAREHOLDERS: (unaudited)
At May 31, 2006 the Company's net asset value was $70.16 per share. This
compares with $55.93 per share at November 30, 2005, the end of the Company's
previous fiscal year. The Company's most recent net asset value on June 16, 2006
was $63.09 per share. On this date, the closing market price of our shares was
$55.90 per share, a discount of 11.4% to the net asset value.
Net investment income for the six months ended May 31, 2006 was $.31 per
share vs. $.08 for the same period last year. The Board of Directors declared a
semi-annual dividend of $.20 per share on May 19, 2006 payable June 2, 2006 to
shareholders of record on May 26, 2006.
At our annual meeting held on March 8, 2006 shareholders reelected the ten
incumbent directors, ratified the selection of Ernst & Young LLP to serve as the
Company's auditors for the fiscal year ending November 30, 2006 and defeated a
shareholder proposal recommending action with regard to the discount. See page
15 of this report for details regarding the results of the voting.
In early May, the U.S. dollar gold price began a sharp correction bringing
its price down by mid June approximately 19%. This decline was probably overdue
following the gold price spike from $500 to over $700 earlier in the year. The
Company's stock price, impacted by this decline, fell from a high of $73.15 on
May 9, 2006 to a low of $52.59 on June 14, 2006, a decline of approximately 28%.
The fall in the gold price denominated in South African rand was much more
subdued - declining only about 13%. The recent weakening of the rand should
improve profit margins in the South African gold mines.
Investors appear to have become nervous and anxious to bolster their
liquidity in the face of statements by U.S. Federal Reserve Chairman Bernanke
and other international spokesmen expressing concern over inflation and the
higher interest rates this implies. The prospect of rising interest rates has
helped to reverse the recent fall of the dollar. A strong dollar is generally
not helpful to the dollar gold price. In addition, the fall in the Middle
Eastern, Asian and European stock markets seems to have resulted in a flight to
the relative security of the U.S. dollar, adding to its strength while
negatively impacting the gold price.
Randgold Resources Limited was added to our portfolio in February and April
of this year. This company was originally the exploration arm of Randgold and
Exploration Company Limited. It was incorporated in the Channel Islands in 1995
and is now totally independent of its former parent company. Randgold describes
itself as an African gold mining and exploration business. Gold discoveries to
date include deposits in Southern Mali, Northern Mali and in the Ivory Coast.
These deposits total approximately 17 million ounces. Randgold's gold production
was up 54% in 2005 at a total cash cost of $211 per ounce. The company has been
profitable for the past five years and earned a net profit of $41 million in
2005. Additional exploration is being undertaken in Senegal, Tanzania,
Burkina-Fasco and Ghana. This investment provides us with a position in the
rapidly developing gold prospects in Central Africa.
Anglo American plc is the only company in our portfolio whose major
activity is not in the mining of precious metals. Over the past several years
this company has been pursuing a strategy designed to simplify its complicated
shareholder structure. It has disposed of a number of smaller business interests
and has announced its intention to focus more on the mining of industrial metals
and coal while continuing to dispose of additional companies, particularly in
the paper and packaging business and in steel and vanadium production. It has
also announced its intention to reduce and eventually eliminate its 41% stake in
AngloGold Ashanti Limited, thus, removing itself totally from the mining of
gold. Finally, it has announced its intention to continue buying in its own
shares.
1
The prospect of further reduction by Anglo American of its stake in
AngloGold Ashanti has placed a damper on AngloGold Ashanti's stock price and it
has underperformed both Harmony Gold Mining Company Limited and Gold Fields
Limited.
Platinum also spiked higher during the year and in spite of a correction in
the past month is still up 18% in dollars. Like gold, it appears to still have
an intact medium and long-term rising trend. Demand for the platinum group
metals has been boosted by ongoing environmental concerns. The current high oil
price, increased global warming concerns and soot emissions should stimulate the
demand for catalytic converters. Jewelry demand for platinum remains firm.
Impala Platinum Holdings Limited has been negotiating the participation of
the Zimbabwean government in the company's platinum properties. These
negotiations now appear to be resolved. Zimplats, its Zimbabwean subsidiary, has
agreed to release 36% of its resources to the government in return for Black
Empowerment Credits and cash. This agreement will allow Impala to proceed with
the development of its sizable platinum resources in Zimbabwe.
In February 2006, after 48 years, the Company closed the Johannesburg
office of its predecessor, ASA Limited. At the same time Mr. Ronald L. McCarthy,
who had served for 17 years as Managing Director of ASA Limited, retired. He
will remain on our Board and will be available to provide us with guidance and
advice as we evolve from a company primarily invested in gold mining companies
in South Africa into a company investing in gold and other precious minerals
companies worldwide.
Copies of financial reports of the Company, as well as its latest net asset
value may be requested from LGN Group, LLC, P.O. Box 269, Florham Park, NJ
07932, (973) 377-3535, or may be found on the Company's website
(www.asaltd.com).
I would also like to call to your attention the availability of the
Dividend Reinvestment and Stock Purchase Plan. See page 14 of this report for
information. Computershare, the agent for the Plan, is able to communicate with
shareholders through the Internet. The only requirement for shareholder
participation is use of a personal computer and access to an electronic mail
package. The Computershare address is www.computershare.com/equiserve and access
is available 24 hours a day. In addition, Computershare has a Telephone Response
Center to respond to shareholders' questions in a timely manner. The telephone
number is 781-575-2723. The Center is available Monday through Friday between
9:00 a.m. and 5:00 p.m. (Eastern Time).
June 19, 2006 Robert J.A. Irwin
CHAIRMAN, PRESIDENT AND TREASURER
2
SCHEDULE OF INVESTMENTS
(NOTE 1) (UNAUDITED)
May 31, 2006
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Number of Percent of
Name of Company Shares Market Value Net Assets
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ORDINARY SHARES OF GOLD MINING COMPANIES
AUSTRALIA
Newcrest Mining Limited - ADRs 3,000,000 $ 45,470,490 6.8%
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CANADA
Barrick Gold Corporation 730,000 22,345,300 3.3
Goldcorp Inc. 900,000 27,594,000 4.1
Meridian Gold Inc. (1) 600,000 18,750,000 2.8
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68,689,300 10.2
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CHANNEL ISLANDS
Randgold Resources Limited - ADRs (1) 900,000 17,649,000 2.6
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PERU
Compania de Minas Buenaventura - ADRs 900,000 23,193,000 3.4
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SOUTH AFRICA
AngloGold Ashanti Limited 2,245,894 103,826,640 15.4
Gold Fields Limited 8,359,977 183,165,263 27.2
Harmony Gold Mining Company Limited (1) 292,459 4,193,820 .6
Harmony Gold Mining Company Limited - ADRs (1) 2,166,400 31,066,176 4.7
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322,251,899 47.9
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UNITED STATES
Newmont Mining Corporation 520,368 27,137,191 4.0
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Total ordinary shares of gold mining companies
(Cost - $134,332,768) 504,390,880 74.9
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ORDINARY SHARES OF OTHER MINING COMPANIES
SOUTH AFRICA
Anglo Platinum Limited 520,100 46,099,890 6.8
Impala Platinum Holdings Limited 215,300 36,280,946 5.4
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82,380,836 12.2
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UNITED KINGDOM
Anglo American plc 1,280,000 51,549,357 7.7
Lonmin PLC - ADRs 450,000 22,127,900 3.3
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73,677,257 11.0
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Total ordinary shares of other mining companies
(Cost - $25,909,431) 156,058,093 23.2
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Total investments (Cost - $160,242,199) (2) 660,448,973 98.1
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CASH, CASH EQUIVALENTS, RECEIVABLES AND
OTHER ASSETS LESS LIABILITIES 13,123,630 1.9
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Total Net Assets $673,572,603 100.0%
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(1) Non-income producing security.
(2) Cost of investments shown approximates cost for U.S. federal income
tax purposes, determined in accordance with U.S. income tax principles.
Gross unrealized appreciation of investments and gross unrealized
depreciation of investments at May 31, 2006 were $500,495,080 and
$288,306, respectively, resulting in net unrealized appreciation on
investments of $500,206,774.
ADR - American Depository Receipt
PORTFOLIO STATISTICS
May 31, 2006
COUNTRY BREAKDOWN*
South Africa 60.1% United States 4.0%
United Kingdom 11.0% Peru 3.4%
Canada 10.2% Channel Islands 2.6%
Australia 6.8%
* Country breakdowns are expressed as a percentage of total net assets. The
entire portfolio consists of investments in ordinary shares of companies
engaged, directly or indirectly, in the mining of gold and other precious
minerals.
3
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
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ASSETS May 31, 2006
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Investments, at market value (Cost - $160,242,199) $660,448,973
Cash and cash equivalents 16,249,272
Dividends and interest receivable 123,712
Other assets 327,022
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Total assets 677,148,979
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LIABILITIES
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Accounts payable and accrued liabilities 963,717
Liability for retirement benefits due to retired directors 692,659
Dividend payable 1,920,000
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Total liabilities 3,576,376
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NET ASSETS (SHAREHOLDERS' INVESTMENT) $673,572,603
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Common shares $1 par value
Authorized: 30,000,000 shares
Issued & Outstanding: 9,600,000 shares $ 9,600,000
Share premium (capital surplus) 21,249,156
Undistributed net investment income 55,972,185
Undistributed net realized (loss) from foreign currency transactions (75,023,830)
Undistributed net realized gain on investments 161,024,275
Net unrealized appreciation on investments 500,206,774
Net unrealized appreciation on translation of
assets and liabilities in foreign currency 544,043
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Net assets $673,572,603
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Net assets per share $70.16
==================================================================================================================
The closing price of the Company's shares on the New York Stock Exchange
was $62.46 on May 31, 2006.
The notes to the financial statements form an integral part of these
statements.
4
STATEMENT OF OPERATIONS
(UNAUDITED)
Six months ended
MAY 31, 2006
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Investment income
Dividend income (net of foreign withholding taxes of $70,804) $ 5,332,974
Interest income 217,141
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Total investment income 5,550,115
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Expenses
Shareholder reports and proxy expenses 308,495
Directors' fees and expenses 295,308
Salaries and benefits 478,862
Other administrative expenses 348,154
Fund accounting 47,500
Transfer agent, registrar and custodian (134,335)
Professional fees and expenses 408,871
Insurance 133,283
Wind-up expenses - ASA Limited 552,031
Other 109,948
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Total expenses 2,548,117
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Net investment income 3,001,998
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Net realized and unrealized gain (loss) from investments and foreign
currency transactions
Net realized gain from investments
Proceeds from sales 33,773,417
Cost of securities sold 21,184,671
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Net realized gain from investments 12,588,746
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Net realized gain (loss) from foreign currency transactions
Investments 665,981
Foreign currency (12,934)
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Net realized gain (loss) from foreign currency transactions 653,047
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Net increase in unrealized appreciation on investments
Balance, beginning of period 377,887,288
Balance, end of period 500,206,774
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Net increase in unrealized appreciation on investments 122,319,486
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Net unrealized gain (loss) on translation of assets and liabilities in foreign currency --
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Net realized and unrealized gain (loss) from investments and foreign
currency transactions 135,561,279
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Net increase in net assets resulting from operations $138,563,277
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The notes to the financial statements form an integral part of these
statements.
5
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
Six months ended Year ended
May 31, 2006 November 30, 2005
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Net investment income $ 3,001,998 $ 935,618
Net realized gain from investments 12,588,746 33,023,562
Net realized gain (loss) from foreign currency
transactions 653,047 (21,009,487)
Net increase in unrealized appreciation on
investments 122,319,486 53,525,733
Net unrealized gain (loss) on translation of
assets and liabilities in foreign currency -- (439,268)
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Net increase in net assets resulting from operations 138,563,277 66,036,158
Dividends payable/paid
From net investment income (1,920,000) (1,920,000)
From net realized gain from investments -- (6,720,000)
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Net increase in net assets 136,643,277 57,396,158
Net assets, beginning of period 536,929,326 479,533,168
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Net assets, end of period (including
undistributed net investment income of
$55,972,185 and $54,890,187, respectively) $673,572,603 $536,929,326
==================================================================================================================
The notes to the financial statements form an integral part of these
statements.
6
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 2006
(UNAUDITED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ASA (Bermuda) Limited ("Company")
is a closed-end management investment company registered under the United States
Investment Company Act of 1940, and was organized as an exempted limited
liability company under the laws of Bermuda. The following is a summary of the
Company's significant accounting policies:
A. INVESTMENTS
Portfolio securities listed on U.S. and foreign stock exchanges are generally
valued at the last reported sales price on the last trading day of the period,
or the mean between the closing bid and asked prices of those securities not
traded on that date. In the event that a mean price cannot be computed due to
the absence of either a bid or an asked price, then the bid price plus 1% or the
asked price less 1%, as applicable, is used. Securities listed on foreign stock
exchanges may be fair valued based on significant events that have occurred
subsequent the close of the foreign markets.
Securities for which current market quotations are not readily available are
valued at their fair value as determined in good faith by, or in accordance with
procedures adopted by, the Company's Board of Directors. If a security is valued
at a "fair value", that value is likely to be different from the last quoted
price for the security. Various factors may be reviewed in order to make a good
faith determination of a security's fair value. These factors include, but are
not limited to, the nature of the security; relevant financial or business
developments of the issuer; actively traded similar or related securities;
conversion rights on the security; and changes in overall market conditions.
Where the Company holds securities listed on foreign stock exchanges and ADRs
representing these securities are actively traded on the New York Stock
Exchange, the securities are fair valued based on the last reported sales price
of the ADRs.
The difference between cost and current value is reflected separately as net
unrealized appreciation (depreciation) on investments. The net realized gain or
loss from the sale of securities is determined for accounting purposes on the
identified cost basis.
There is no assurance that the valuation at which the Company's investments are
carried could be realized upon sale.
B. CASH EQUIVALENTS
The Company considers all money market and all highly liquid temporary cash
investments purchased with an original maturity of less than three months to be
cash equivalents.
C. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the closing rate of
exchange on the date of valuation. Purchases and sales of investment securities
and income and expense items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
resulting net foreign currency gain or loss is included in the statement of
operations.
D. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
During the six months ended May 31, 2006 sales of securities amounted to
$33,773,417 and purchases of securities amounted to $24,677,970.
Dividend income is recorded on the ex-dividend date (date on which the
securities would be sold ex-dividend) net of withholding taxes, if any. Interest
income is recognized on the accrual basis.
E. DISTRIBUTION TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date.
7
The reporting for financial statement purposes of distributions made during the
fiscal year from net investment income or net realized gains may differ from
their ultimate reporting for United States federal income tax purposes. The
differences are caused primarily by the separate line item reporting for
financial statement purposes of foreign exchange gains or losses. See pages 11
through 13 for additional tax information for United States shareholders.
F. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses for the period. Actual results could differ from those estimates.
G. BASIS OF PRESENTATION
The financial statements are presented in United States dollars.
2 CUSTODIAN FEES For the six months ended May 31, 2006, the Company reversed its
accrual as of November 30, 2005 in the amount of $159,342 as a result of the
resolution of the fee structure related to custodian services.
3 RETIREMENT PLANS In 1994, the Company entered into a supplemental
non-qualified pension agreement with its Chairman. Under the terms of the
agreement, the Company agreed to credit $25,000 per year for five years,
beginning December 1, 1993, to a Supplemental Pension Account with interest
credited at an annual rate of 3.5%.
The Board of Directors approved increases in the amount of the annual credit
as follows: $28,125 in May 1999; $31,250 in February 2002, $45,000 in March
2003, $55,000 in February 2004, $60,000 in March 2005 and $66,000 in March 2006.
As a result, the Company has recorded an expense of $33,000 for the six months
ended May 31, 2006.
The Company has recorded an asset in the amount of $170,000 related to the
retirement obligation liability of $504,467 as of May 31, 2006. The $504,467
represents the total liability payable under the agreement at May 31, 2006. Upon
retirement from the Company, the liability under the agreement is payable in ten
consecutive equal annual payments to the Chairman.
During the fiscal year ended November 30, 2005, the Company recorded an
actuarially determined unfunded liability for retirement benefits due to current
and future retired directors. Directors of the Company qualify to receive
retirement benefits if they have served the Company (and its
predecessor, ASA Limited) for at least twelve years prior to retirement. During
the six months ended May 31, 2006 the Company recorded a net benefit of $46,772
in the statement of operations for this item due to the death of a retired
director.
4 ASA LIMITED In connection with the winding up of ASA Limited, the Company
incurred expenses of $552,031 for the six months ended May 31, 2006. This amount
includes a severance payment of $500,673 to Ronald L. McCarthy, former Managing
Director.
5 CONCENTRATION RISK It is a fundamental policy of the Company that at least 80%
of its total assets be invested in securities of companies engaged, directly or
indirectly, in the exploration, mining or processing of gold or other precious
minerals and/or in other gold and precious mineral investments. A substantial
portion of the Company's assets currently is invested in South African companies
and other companies having significant assets or operations in South Africa. The
Company is, therefore, subject to gold and precious metal related risks as well
as risks related to investing in South Africa, including political, economic,
regulatory, currency fluctuation and foreign exchange risks. As a result of
industry consolidation, the Company currently is invested in a limited number of
securities and thus holds large positions in certain securities. Because the
Company's investments are concentrated in a limited number of securities of
companies involved in the mining of gold and other precious minerals and related
activities, the net asset value of the Company may be subject to greater
volatility than that of a more broadly diversified investment company.
8
6 INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
9
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months Ended Year Ended November 30
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May 31,
2006 2005 2004 2003 2002 2001
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PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 55.93 $ 49.95 $ 51.54 $ 33.48 $ 21.97 $ 17.58
----------------------------------------------------------------------------------------------------------------------------
Net investment income .31 .10 .22 .84 .85 1.00
Net realized gain from investments 1.31 3.44 .73 -- .51 3.05
Net realized gain (loss) from foreign
currency transactions .07 (2.19) (.68) .32 (1.13) (.24)
Net increase (decrease) in unrealized
appreciation on investments 12.74 5.58 (1.34) 17.76 11.84 1.40
Net increase (decrease) in unrealized appreciation
(depreciation) on translation of assets and
liabilities in foreign currency -- (.05) .03 (.06) .24 (.02)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 14.43 6.88 (1.04) 18.86 12.31 5.19
Less dividends (.20) (.90) (.55) (.80) (.80) (.80)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 70.16 $ 55.93 $ 49.95 $ 51.54 $ 33.48 $ 21.97
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Market value per share, end of period $ 62.46 $ 49.65 $ 44.82 $ 47.16 $ 30.06 $ 19.83
TOTAL INVESTMENT RETURN(1)
Based on market value per share 25.80% 11.40% (3.67%) 59.91% 55.72% 41.76%
RATIOS TO AVERAGE NET ASSETS(2)
Expenses .75% 1.15% 1.03% .84% .91% 1.10%
Net investment income .89% .21% .46% 2.09% 2.63% 4.61%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $673,573 $536,929 $479,533 $494,784 $321,423 $210,944
Portfolio turnover rate 3.75% 7.31% 1.63% -- 4.41% 11.18%
Per share calculations are based on the 9,600,000 shares outstanding.
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and other
distributions, if any, are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Company's dividend reinvestment
plan.
(2) Annualized for the six months ended May 31, 2006.
SUPPLEMENTARY INFORMATION (UNAUDITED)
Six months ended May 31, 2006
--------------------------------------------------------------------------------
CERTAIN FEES INCURRED BY THE COMPANY
--------------------------------------------------------------------------------
Directors' fees $156,000
Officers' remuneration 478,862
Ronald L. McCarthy (compensation related to ASA Limited) 519,275
--------------------------------------------------------------------------------
The notes to the financial statements form an integral part of these
statements.
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of ASA (Bermuda) Limited:
We have reviewed the accompanying statement of assets and liabilities of
ASA (Bermuda) Limited, including the schedule of investments, as of May 31,
2006, and the related statements of operations, changes in net assets,
supplementary information and financial highlights for the six-month period
ended May 31, 2006. These financial statements, financial highlights and
supplementary information are the responsibility of the Company's management.
A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the statements of changes in net assets for
the year ended November 30, 2005 and financial highlights for each of the four
years in the period ended November 30, 2005 and in our report, dated December
28, 2005, we expressed an unqualified opinion on those financial statements and
financial highlights. The financial highlights for the year ended November 30,
2001 were audited by other auditors who have ceased operations and whose report
dated December 18, 2001 expressed an unqualifed opinion on those financial
highlights.
June 19, 2006 Ernst & Young LLP
New York, N.Y., U.S.A
--------------------------------------------------------------------------------
CERTAIN TAX INFORMATION FOR
UNITED STATES SHAREHOLDERS (UNAUDITED)
From December 1, 1963 through November 30, 1987, the Company was treated as a
"foreign investment company" for United States federal income tax purposes
pursuant to Section 1246 of the Internal Revenue Code. Under that section, a
United States shareholder who has held his shares in the Company for more than
one year is subject to tax at ordinary income tax rates on his profit (if any)
on a sale of his shares to the extent of his "ratable share" of the Company's
earnings and profits accumulated for the period during which he held those
shares between December 1, 1963 and November 30, 1987. If such shareholder's
profit on the sale of his shares exceeds such ratable share and he held his
shares for more than one year, then, subject to the discussion below regarding
the United States federal income tax rules applicable to taxable years of the
Company beginning after November 30, 1987, he is subject to tax at long-term
capital gain rates on the excess.
The Company's per share earnings and profits accumulated (undistributed) in
each of the taxable years from 1964 through 1987 is available upon request from
LGN Group, LLC, P.O. Box 269, Florham Park, NJ 07932.
Under rules enacted by the Tax Reform Act of 1986, the Company became a
"passive foreign investment company" (a "PFIC") on December 1, 1987. The manner
in which these rules apply depends on whether a United
11
States shareholder (1) elects to treat the Company as a qualified electing fund
("QEF") with respect to his Company shares, (2) for taxable years of a United
States shareholder beginning after December 31, 1997, elects to "mark-to-market"
his Company shares as of the close of each taxable year, or (3) makes neither
election.
In general, if a United States shareholder of the Company does NOT make
either such election, any gain realized on the disposition of his Company shares
will be treated as ordinary income. In addition, such shareholder will be
subject to an "interest charge" on part of his tax liability with respect to
such gain, as well as with respect to an "excess distribution" made by the
Company (as explained in the following paragraph). Furthermore, shares held by
such a shareholder may be denied the benefit of any otherwise applicable
increase in tax basis at death. Under proposed regulations, a "disposition"
would include a U.S. taxpayer's becoming a nonresident alien.
As noted, the general tax consequences described in the preceding paragraph
apply to an "excess distribution" on Company shares, which is defined as the
total distri-butions by the Company a shareholder receives during a taxable year
that are more than 125% of the average amount it distributed for the three
preceding taxable years.* If the Company makes an excess distribution in a year,
a United States shareholder who has not made a QEF or mark-to-market election
would be required to allocate the excess amount ratably over the ENTIRE holding
period for his shares. That allocation would result in tax being payable at the
highest applicable rate in the prior taxable years to which the distribution is
allocated and interest charges being imposed on the resulting "underpayment" of
taxes made in those years. In contrast, a distribution that is not an excess
distribution would be taxable to a United States shareholder as a normal
dividend,** with no interest charge.
If a United States shareholder elects to treat the Company as a QEF with
respect to his shares therein for his first year he holds his shares during
which the Company is a PFIC (or later makes the QEF election and also elects to
treat his shares generally as if they were sold for their fair market value on
the first day of the first taxable year of the Company for which the QEF
election is effective, in which event the gain from such "deemed sale" would be
treated as an excess distribution), the rules described in the preceding
paragraphs generally would not apply. Instead, the electing United States
shareholder would include annually in his gross income his PRO RATA share of the
Company's ordinary earnings and net capital gain (his "QEF" inclusion)
regardless of whether such income or gain was actually distributed. A United
States shareholder who makes a valid QEF election will recognize capital gain on
any profit from the actual sale of his shares if those shares were held as
capital assets, except to the extent of the shareholder's ratable share of the
earnings and profits of the Company accumulated for the period during which he
held those shares between December 1, 1963 and November 30, 1987, as described
above.
Alternatively, if a United States shareholder makes the mark-to-market
election with respect to Company shares for taxable years beginning on or after
January 1, 1998, such shareholder would be required annually to report any
unrealized gain with respect to his shares as ordinary income, and any
unrealized loss would be permitted as an ordinary loss, but only to the extent
of previous inclusions of ordinary income. Any gain subsequently realized by an
electing United States shareholder on a sale or other disposition of his Company
shares also would be treated as ordinary income, but such shareholder would not
be subject to an interest charge on his resulting tax liability. Special rules
apply to a United States shareholder that held his PFIC stock prior to his first
taxable year for which the mark-to-market election was effective.
A United States shareholder with a valid QEF election in effect would not be
taxed on any distributions paid by the Company to the extent of any QEF
inclusions, but any distributions out of accumulated earnings and profits in
excess thereof would be treated as taxable dividends. Such a shareholder would
increase the tax basis in his Company shares by the amount of any QEF inclusions
and reduce such tax basis by any distributions to him that are not taxable as
described in the preceding sentence. Special rules apply to United States
shareholders who make the QEF election and wish to defer the payment of tax on
their annual QEF inclusions.
Each shareholder who desires QEF treatment must individually elect such
treatment. The QEF election must be made for the taxable year of the shareholder
in which or with which the taxable year of the Company ends. A QEF election is
effective for the shareholder's taxable year for which it is made and all
subsequent taxable years of the shareholder and may not be revoked without the
consent of the Internal Revenue Service. A shareholder of the Company who first
held his Company shares after
-------------------------------------------------------
* For example, the Company made annual distributions of $.90, $.55 and $.80 per
share during 2005, 2004 and 2003, respectively, an average per year of $.75 per
share. Accordingly, any distribution in excess of $.9375 per share (125% of
$.75) would be treated as an excess distribution for 2006. (All amounts in U.S.
currency.)
** Because the Company is a PFIC, dividends it pays will not qualify for the 15%
maximum U.S. federal income tax rate on dividends that individuals receive and
instead will be taxed at rates up to 35%.
12
November 30, 2005 and who files his tax return on the basis of a calendar year
may make a QEF election on his 2006 tax return. A shareholder of the Company who
first held his Company shares on or before November 30, 2005 may also make the
QEF election on his 2006 tax return but should consult his tax advisor
concerning the tax consequences and special rules that apply when a QEF election
could have been made with respect to such shares for an earlier taxable year.
A QEF election must be made by the due date, with extensions, of the federal
income tax return for the taxable year for which the election is to apply. Under
Treasury regulations, a QEF election is made on Internal Revenue Service Form
8621, which must be completed and attached to a timely filed income tax return
in which the shareholder reports his QEF inclusion for the taxable year to which
the election applies. In order to allow United States shareholders to make QEF
elections and to comply with the applicable annual reporting requirements, the
Company annually provides them a "PFIC Annual Information Statement" containing
certain information required by Treasury regulations.
In early 2007, the Company will send to United States shareholders the PFIC
Annual Information Statement for the Company's 2006 taxable year. Such annual
information statement may be used for purposes of completing Form 8621. A
shareholder who either is subject to a prior QEF election or is making a QEF
election for the first time must attach a completed Form 8621 to his income tax
return each year. Other United States shareholders also must attach completed
Forms 8621 to their tax returns each year, but shareholders not electing QEF
treatment will not need to report QEF inclusions thereon.
Special rules apply to United States persons who hold Company shares through
intermediate entities or persons and to United States shareholders who directly
or indirectly pledge their shares, including those in a margin account.
Ordinarily, the tax basis that is obtained by a transferee of property on the
death of the owner of that property is adjusted to the property's fair market
value on the date of death (or alternate valuation date). If a United States
shareholder dies owning shares with respect to which he did not elect QEF
treatment (or elected such treatment after the first taxable year in which he
owned shares in which the Company was a PFIC and did not elect to recognize gain
as described above), the transferee of those shares will not be entitled to
adjust the tax basis in such shares to the fair market value on the date of
death (or alternate valuation date). In that case, in general, the transferee of
such shares will take a basis in the shares equal to the shareholder's basis
therein immediately before his death. If a United States shareholder dies owning
Company shares for which a valid QEF election was in effect for all taxable
years in such shareholder's holding period during which the Company was a PFIC
(or the shareholder made a "deemed sale election"), then the basis increase
generally will be available unless the holding period for his shares began on or
prior to November 30, 1987. In the latter case, in general, any otherwise
applicable basis increase will be reduced to the extent of the shareholder's
ratable share of the earnings and profits of the Company accumulated for the
period during which he held those shares between December 1, 1963 and November
30, 1987.
DUE TO THE COMPLEXITY OF THE APPLICABLE TAX RULES, UNITED STATES SHAREHOLDERS
OF THE COMPANY ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE IMPACT OF THESE RULES ON THEIR INVESTMENT IN THE COMPANY AND ON THEIR
INDIVIDUAL SITUATIONS.
13
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN (UNAUDITED)
Computershare Trust Company, N.A. ("Computershare") has been engaged to offer
a dividend reinvestment and stock purchase plan (the "Plan") to shareholders.
Shareholders may elect to participate in the Plan by signing an authorization.
The authorization appoints Computershare as agent to apply to the purchase of
common shares of the Company in the open market (i) all cash dividends (after
deduction of the service charge described below) that become payable to such
participant on the Company's shares (including shares registered in his or her
name and shares accumulated under the Plan) and (ii) any optional cash
investments ($50 minimum, subject to an annual maximum of $60,000) received from
such participant.
For the purpose of making purchases, Computershare will commingle each
participant's funds with those of all other participants in the Plan. The price
per share of shares purchased for each participant's account shall be the
average price (including brokerage commissions and any other costs of purchase)
of all shares purchased in the open market with the net funds available from a
cash dividend and any voluntary cash payments being concurrently invested. Any
stock dividends or split shares distributed on shares held in the Plan will be
credited to the participant's account.
For each participant, a service charge of 5% of the combined amount of the
participant's dividend and any voluntary payment being concurrently invested, up
to a maximum charge of $2.50 per participant plus $.03 per share, will be
deducted (and paid to Computershare) prior to each purchase of shares.
Shareholder sales of shares held by Computershare in the Plan are subject to a
fee of $10.00 plus $.12 per share deducted from the proceeds of the sale.
Additional nominal fees are charged by Computershare for specific shareholder
requests such as requests for information regarding share cost basis detail in
excess of two prior years and for replacement 1099 reports older than three
years.
Participation in the Plan may be terminated by a participant at any time by
written instructions to Computershare. Upon termination, a participant will
receive a certificate for the full number of shares credited to his or her
account, unless he or she requests the sale of all or part of such shares.
Dividends reinvested by a shareholder under the Plan will generally be
treated for U.S. federal income tax purposes in the same manner as dividends
paid to such shareholder in cash. See "Certain tax information for United States
shareholders" for more information regarding tax consequences to U.S. investors
of an investment in shares of the Company, including the effect of the Company's
status as a PFIC. The amount of the service charge is deductible for U.S.
federal income tax purposes, subject to limitations.
To participate in the Plan an investor may not hold his or her shares in a
"street name" brokerage account.
Additional information regarding the Plan may be obtained from Computershare,
P.O. Box 43081, Providence, RI 02940-3081. Information may also be obtained on
the internet at WWW.COMPUTERSHARE.COM/EQUISERVE or by calling Computershare's
Telephone Response Center at 781-575-2723 between 9:00 a.m. and 5:00 p.m.,
Eastern time, Monday through Friday.
--------------------------------------------------------------------------------
PRIVACY NOTICE (UNAUDITED)
The Company is committed to protecting the financial privacy of its
shareholders.
We do not share any nonpublic, personal information that we may collect about
shareholders with anyone, including our affiliates, except to service and
administer shareholders' share accounts, to process transactions, to comply with
shareholders' requests or legal requirements or for other limited purposes
permitted by law. For example, the Company may disclose a shareholder's name,
address, social security number and the number of shares owned to its
administrator, transfer agent or other service providers in order to provide the
shareholder with proxy statements, tax reporting forms, annual reports or other
information about the Company. This policy applies to all of the Company's
shareholders and former shareholders.
We keep nonpublic personal information in a secure environment. We restrict
access to nonpublic personal information to Company officers, agents and service
providers who have a need to know the information based on their role in
servicing or administering shareholders' accounts. The Company also maintains
physical, electronic and procedural safeguards that comply with federal
regulations and established security standards to protect the confidentiality of
nonpublic personal information.
14
RESULTS OF PROPOSALS PRESENTED AT THE ANNUAL GENERAL MEETING
OF SHAREHOLDERS
The following votes were cast at the Annual General Meeting of Shareholders
held on March 8, 2006:
---------------------------------------------------------------------------------------------------------------
ELECTION OF DIRECTORS
For Withheld
---------------------------------------------------------------------------------------------------------------
Robert J.A. Irwin 7,271,883 1,045,218
Henry R. Breck 7,608,279 708,822
Harry M. Conger 7,606,659 710,442
Chester A. Crocker 7,605,339 711,762
Joseph C. Farrell 7,608,462 708,639
James G. Inglis 7,601,274 715,827
Ronald L. McCarthy 7,271,697 1,045,404
Malcolm W. MacNaught 7,608,704 708,397
Robert A. Pilkington 7,609,338 707,763
A. Michael Rosholt 7,597,712 719,389
---------------------------------------------------------------------------------------------------------------
APPOINTMENT OF AUDITORS
For Against Abstain
---------------------------------------------------------------------------------------------------------------
Ernst & Young LLP 7,617,989 568,766 130,346
---------------------------------------------------------------------------------------------------------------
SHAREHOLDER PROPOSAL
RECOMMENDING ACTION
REGARDING THE DISCOUNT* 1,400,488 2,746,015 191,740
---------------------------------------------------------------------------------------------------------------
* Broker non-votes for this proposal were 3,978,858.
PROXY VOTING
The policies and procedures used by the Company to determine how to vote
proxies relating to portfolio securities and information regarding how the
Company voted proxies relating to portfolio securities during the twelve month
period ended June 30, 2005 is available on the Company's website at
HTTP://WWW.ASALTD.COM and on the Securities and Exchange Commission's website at
HTTP://WWW.SEC.GOV. A written copy of the Company's policies and procedures is
available without charge, upon request, by calling collect (973) 377-3535.
FORM N-Q
The Company files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Company's Forms N-Q are available
on the Commission's website at http://www.sec.gov. The Company's Forms N-Q also
may be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C.; information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The schedule of portfolio holdings
reported on Form N-Q also is included in the Company's financial statements for
the first and third quarters of each fiscal year which are available on the
Company's website at HTTP://WWW.ASALTD.COM.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature
all forward-looking statements involve risks, uncertainties and other factors
which may cause actual results, performance or achievements of management's
plans to be materially different from those contemplated by the forward-looking
statements. Such factors include, but are not limited to, the performance of the
companies whose securities comprise the Company's portfolio, the conditions in
the U.S., South African and other international securities and foreign exchange
markets, the price of gold, platinum and other precious minerals and changes in
tax law.
15
ASA (BERMUDA) LIMITED
DIRECTORS
HENRY R. BRECK ROBERT J.A. IRWIN ASA
(U.S.A.) (U.S.A.) (BERMUDA)
LIMITED
HARRY M. CONGER MALCOLM W. MACNAUGHT
(U.S.A.) (U.S.A.)
CHESTER A. CROCKER RONALD L. MCCARTHY
(U.S.A.) (South Africa)
JOSEPH C. FARRELL ROBERT A. PILKINGTON
(U.S.A.) (U.S.A.)
JAMES G. INGLIS A. MICHAEL ROSHOLT INTERIM
(South Africa) (South Africa) REPORT
OFFICERS
ROBERT J.A. IRWIN, CHAIRMAN, PRESIDENT AND TREASURER
PAUL K. WUSTRACK, JR., SECRETARY AND CHIEF COMPLIANCE OFFICER
EXECUTIVE OFFICES
11 SUMMER STREET
BUFFALO, NY, U.S.A.
REGISTERED OFFICE
CANON'S COURT
22 VICTORIA STREET
HAMILTON HM12, BERMUDA
AUDITORS
ERNST & YOUNG LLP, NEW YORK, NY, U.S.A.
COUNSEL
APPLEBY SPURLING HUNTER
HAMILTON, BERMUDA
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
WASHINGTON, DC, U.S.A.
CUSTODIAN
JPMORGAN CHASE BANK, BROOKLYN, NY, U.S.A.
FUND ACCOUNTANTS
KAUFMAN ROSSIN & CO., PA, MIAMI, FL, U.S.A.
SHAREHOLDER SERVICES
LGN GROUP, LLC, FLORHAM PARK, NJ 07932, U.S.A.
(973) 377-3535
TRANSFER AGENT FOR THE
COMPUTERSHARE TRUST COMPANY, N.A., SIX MONTHS
525 WASHINGTON BOULEVARD, JERSEY CITY, NJ 07310, ENDED
U.S.A. MAY 31, 2006
WEBSITE--http://www.asaltd.com
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included as part of the report to shareholders filed under
Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-
End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors since
the registrant provided disclosure in response to Item 7(d)(2)(ii)(G) of
Schedule 14A in its proxy statement dated January 11, 2006.
Item 11. Controls and Procedures
(a) The Chairman of the Board, President and Treasurer, in
his capacities as principal executive officer and
principal financial officer of the registrant, has
concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "1940 Act")) are
effective, based on his evaluation of these controls
and procedures as of a date within 90 days prior to the
filing date of this report.
(b) There were no changes in the registrant's internal
control over financial reporting (as defined in Rule
30a-3(d) under the 1940 Act) that occurred during the
second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal
control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(2) The certification required by Rule 30a-2(a) under the
1940 Act is attached hereto.
(3) Not applicable.
(b) The certification required by Rule 30a-2(b) under the
1940 Act, Rule 13a-14(b) under the Securities Exchange
Act of 1934 (the "Exchange Act") and Section 1350 of
Chapter 63 of Title 18 of the United States Code is
attached hereto. This certification is not deemed
"filed" for purposes of Section 18 of the Exchange Act,
or otherwise subject to the liability of that section.
Such certification will not be deemed to be
incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act, except to
the extent that the registrant specifically
incorporates it by reference.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ASA (Bermuda) Limited
Date: July 6, 2006 By: /s/ Robert J.A. Irwin
-----------------------
Robert J.A. Irwin
Chairman of the Board, President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
date indicated.
Date: July 6, 2006 By: /s/ Robert J.A. Irwin
-----------------------
Robert J.A. Irwin
Chairman of the Board, President and Treasurer
(Principal Executive Officer and Principal
Financial Officer)