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: 811-00833
ASA LIMITED
-----------
(Exact name of Registrant as Specified in Charter)
36 Wierda Road West
Sandton 2196
South Africa
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (716) 883-2427
Lawrence G. Nardolillo, CPA
LGN Associates
P.O. Box 269
Florham Park, NJ 07932
(Name and Address of Agent for Service)
Copy to:
R. DARRELL MOUNTS, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
Date of fiscal year end: November 30, 2003
Date of reporting period: November 30, 2003
Item 1. Report to Shareholders
ASA LIMITED
ANNUAL
REPORT
2003
ASA LIMITED
Incorporated in the
Republic of South Africa
(Registration No. 1958/01920/06)
ANNUAL REPORT AND
FINANCIAL STATEMENTS
November 30, 2003
DIRECTORS
Robert J.A. Irwin (U.S.A.)
Henry R. Breck (U.S.A.)
Harry M. Conger (U.S.A.)
Chester A. Crocker (U.S.A.)
Joseph C. Farrell (U.S.A.)
James G. Inglis (South Africa)
Malcolm W. MacNaught (U.S.A.)
Ronald L. McCarthy (South Africa)
Robert A. Pilkington (U.S.A.)
A. Michael Rosholt (South Africa)
CONTENTS
Directors' report 2
Chairman's report 2
Portfolio changes (Unaudited) 5
Certain investment policies and restrictions 6
Report of independent public accountants 6
Schedule of investments 7
Statements of assets and liabilities 8
Statements of operations 9
Statements of surplus 10
Statements of changes in net assets 10
Notes to financial statements 11
Financial highlights 13
Supplementary information 13
Certain tax information for United States shareholders 14
Dividend reinvestment plan 16
Privacy notice 16
Forward-looking statements 17
Board of directors 18
OFFICERS
Robert J.A. Irwin, CHAIRMAN OF THE BOARD AND TREASURER
Ronald L. McCarthy, MANAGING DIRECTOR AND SOUTH AFRICAN SECRETARY
Chester A. Crocker, UNITED STATES SECRETARY
Paul K. Wustrack, Jr., ASSISTANT UNITED STATES SECRETARY
Dorothy Faith Kenny, ASSISTANT SOUTH AFRICAN SECRETARY
AUDITORS
Ernst & Young LLP, New York, NY, U.S.A.
Ernst & Young, Johannesburg, South Africa
COUNSEL
Werksmans, Johannesburg, South Africa
Kirkpatrick & Lockhart LLP, Washington, DC, U.S.A.
CUSTODIAN
J.P. Morgan Chase Brooklyn, NY, U.S.A.
SUBCUSTODIAN
Standard Bank of South Africa Limited
Johannesburg, South Africa
FUND ACCOUNTANTS
Kaufman Rossin & Co., PA
Miami, FL, U.S.A.
SHAREHOLDER SERVICES
LGN Associates
Florham Park, NJ, U.S.A.
(973) 377-3535
REGISTERED OFFICE
36 Wierda Road West, Sandton 2196,
South Africa
Website-http://www.asaltd.com
TRANSFER AGENT
EquiServe Trust Company, N.A.
525 Washington Boulevard, Jersey City, NJ 07310, U.S.A.
COPIES OF THE SEMI-ANNUAL AND ANNUAL REPORTS OF THE COMPANY AND THE LATEST
VALUATION OF NET ASSETS PER SHARE MAY BE REQUESTED FROM THE COMPANY, AT ITS
REGISTERED OFFICE (011) 27-11 784-0500/1/2, OR FROM LGN ASSOCIATES, LAWRENCE G.
NARDOLILLO, C.P.A., P.O. BOX 269, FLORHAM PARK, NEW JERSEY 07932 (973) 377-3535.
SHAREHOLDERS ARE REMINDED TO NOTIFY EQUISERVE TRUST COMPANY, N.A. OF ANY CHANGE
OF ADDRESS.
1
DIRECTORS' REPORT (UNAUDITED)
The Directors submit herewith their report together with audited financial
statements for the fiscal years ended November 30, 2003 and 2002.
In addition to the financial statements there are statements setting forth:
(1) certain investment policies and restrictions, (2) portfolio changes during
the year, (3) financial highlights for the fiscal years ended 1999 through 2003,
(4) supplementary information, (5) certain tax information for United States
shareholders, (6) information regarding the Company's dividend reinvestment
plan, (7) privacy notice and (8) forward-looking statements.
ASA Limited is incorporated in the Republic of South Africa. The
accompanying financial statements are reported in United States dollars. (See
Notes (l)B and (3) to the financial statements for additional information.)
At November 30, 2003 the Company's net assets were equivalent to $51.54 per
share. The closing price of our Company's stock was $47.16 per share at November
30, 2003, which represented a 8.5% discount to the net asset value. This
compares with $33.48 per share at November 30, 2002 at which time the closing
price was $30.06, a discount of 10.2% to the net asset value. For the fiscal
year ended November 30, 2003 the net assets of the Company per share in United
States dollar terms increased by 54%.
Net investment income for the fiscal year ended November 30, 2003 was
equivalent to $.84 per share, as compared to $.85 per share for the fiscal year
ended November 30, 2002. There were no realized gains from investments for the
fiscal year ended November 30, 2003 as compared to $.51 per share for fiscal
year ended November 30, 2002. Net realized gain from foreign currency
transactions was $.32 per share for the fiscal year ended November 30, 2003 as
compared to a (loss) of ($1.13) per share for the fiscal year ended November 30,
2002.
The Company paid dividends totaling $.80 per share in U.S. currency during
the fiscal year ended November 30, 2003. For the fiscal year ended November 30,
2002, the dividend payments also totaled $.80 per share. (See Certain tax
information for United States shareholders (pages 14 and 15) for further
comments.)
CHAIRMAN'S REPORT (UNAUDITED)
THE GOLD BULLION MARKET
Following the sound performance of the gold price during 2002, the price of
gold bullion continued to rise in 2003. The gold price tracked from US$318/oz at
the beginning of the fiscal year to US$398/oz at the end of November 2003.
Technically, the gold price remains in an uptrend.
The strong fundamentals for gold remain in place. The producers are
continuing to de-hedge, although the pace of de-hedging slowed in the third
quarter of 2003. The contango remained unattractive during the third quarter of
2003 and lease rates remain sluggish. A number of the larger producers have
stated that they will reduce forward positions while the US dollar gold price
remains high.
The net position on the New York Mercantile Exchange (Comex) (which seems
to correlate with the trend in the gold price) is long and has been in this
position since the gold price bottomed in 2001. Recent supply and demand data
shows that gold demand is being driven by net investment demand while
fabrication demand has risen, chiefly in Turkey and India. Mine supply in the
third quarter of 2003 was flat. Industry consolidation has continued during
2003, which augurs well for producer discipline.
The U.S. dollar continues to weaken against the currencies of all of its
trading partners of consequence. The dollar gold price obviously has been
affected positively by this weakness. At the same time, gold priced in other
major currencies has, at least for the past year, been much less buoyant. Strong
U.S. economic statistics, strong equity markets and strong debt markets, at one
time considered bullish for the dollar, no longer seem to provide support. As
long as the dollar's decline continues, it is reasonable to expect that the
price of gold will remain firm.
THE GOLD SHARE MARKET
Despite the 25% rise in the dollar gold price during the fiscal year, the
South African gold shares struggled to perform. The stronger rand dollar
exchange rate offset the rise in the dollar gold price, and, as a result, the
rand gold price fell 14% during the fiscal year. This, along with higher costs,
led to narrowing margins at the South African gold mines. Lower profits were
reflected in the share price performances.
The share prices of Gold Fields and Harmony suffered reversals during the
fiscal year with falls of 14.6% and 16.5% (in rand terms), respectively.
AngloGold's share price rose by 23.6% (in rand terms) during the fiscal year but
this rise occurred largely during November when the group was finalizing its
merger with Ashanti. Gold Fields and Harmony concluded Black Economic
Empowerment deals towards the end of fiscal 2003, but this corporate activity
did not lead to a recovery in the share prices of these stocks.
During the fiscal year the Philadelphia Stock Exchange gold and silver
index (XAU) rose 73%, indicating that the North American gold producers
performed strongly.
2
THE GOLD MINING INDUSTRY
The trend of industry consolidation continued during 2003, both globally
and in South Africa. The major deal of the year was the AngloGold and Ashanti
merger. Early in the year Harmony merged with ARMgold (a South African gold
producer). In November 2003, Harmony announced a deal whereby the assets of the
Company together with those of African Rainbow Minerals Investments (a resource
company) and Anglovaal Mining Ltd (Avmin) (a South African Mining House) are to
form part of a scheme of arrangement. Arising out of this scheme, Anglovaal
Mining's gold shareholdings in Avgold Ltd will be merged into Harmony and
Armgold with Harmony's platinum assets reverting to Avmin. The Gold Fields
transaction involves the sale of 15% of Gold Fields' South African assets to
Mvelaphanda Resources. Both the Harmony and Gold Fields deals are Black Economic
Empowerment transactions.
THE PLATINUM INDUSTRY
At the end of the fiscal year, the platinum price was US$765/oz, which is
up 29% from the price at the start of the year. Estimates of supply and demand
by the platinum companies in South Africa suggest that the market should remain
in deficit for 2003 and therefore, the price is expected to remain robust.
The demand for autocatalysts should enjoy longer-term growth, because
demand for catalysts in China is strong as is the growth potential in diesel
catalysts in Europe. Jewelry demand in China grew strongly in 2002, but this
market is price sensitive and demand may slip in 2003 due to the current high
price.
The stronger rand offset the strong performance of the dollar platinum
price, and therefore the action of the share prices was disappointing during
fiscal 2003. Anglo American Platinum lost 18.9% while Impala gained a mere 3.0%
during the period.
PORTFOLIO MOVEMENTS
During fiscal 2003 the Company increased its holding in Placer Dome, and
made a new acquisition in Avgold, a well known and long established gold mining
company in South Africa. Avgold is mining an ore body of exceptional value with
cash costs of US$175/oz. In its latest annual report, its Chairman had this to
say:
"We own and will have access to the last unexploited gold area located
between two of the largest gold fields in the world: the Klerksdorp and Welkom
gold fields. This is one of the most extensive undeveloped gold resources in the
world."
As mentioned above, the company is expected to be merged into Harmony.
ECONOMIC ENVIRONMENT
The South African mining companies have begun to implement the requirements
of the Socio-Economic Empowerment Charter. Although the companies can fulfill
the requirements of the charter through a scorecard approach, there have been a
number of headline-capturing empowerment ownership deals during the year. These
empowerment deals are expected to fulfill the ownership criteria outlined in the
charter. These are important deals as failure to fulfill the obligations of the
Charter could result in the government withholding the new mining rights. As
noted above, Gold Fields has recently announced its deal with Mvelaphanda, while
Harmony has been instrumental in the Avmin, ARMgold and Harmony tie-up. Impala
Platinum, in partnership with Lonmin PLC, has also announced a major Black
Economic Empowerment deal.
The Money Bill outlining the royalty payments that must be made by the
industry has been published and should be passed by Parliament in 2004. At
present, different minerals will carry different royalties, with gold mines
expected to pay 3% of revenue and platinum mines 4%.
The Finance Minister's GDP growth target of 2.2% in 2003 is unlikely to be
achieved as a result of downward revisions (by the South African statistical
authorities) to growth in the first and second quarters. GDP growth in the
second quarter was revised down from 1.1% to 0.5% while growth in the first
quarter was revised down from 1.5% to 0.9% on a seasonally adjusted annualized
basis. Third quarter growth, at 1.1%, was held back by a contraction in the
agricultural sector and lower exports as a result of the strong rand.
The rand has strengthened from ZAR9.28 per USD at the start of the fiscal
year to ZAR6.39 per USD at the end of November. This strengthening has
negatively impacted South African exporters and mining companies. The strong
rand has capped revenue, while high cost inflation brought about by the weak
rand last year has contributed to narrowing margins.
Inflation, as measured by the CPIX (consumer prices less mortgage payments)
has fallen sharply to a record low of 4.4% in October. This is within the
Reserve Bank's 3% to 6% target range. Producer prices, as recorded by the PPI,
fell 1.8% in October 2003. Producer price deflation and lower consumer inflation
is a function of the strong rand and tight monetary policy. In 2002, the Reserve
Bank hiked interest rates by 400 basis points, but has recently begun to lower
interest rates with a 150 basis points drop in October 2003. The market believes
that further interest rate cuts are possible.
THE COMPANY'S TAX STATUS
On December 17, 2003 the South African Income Tax Act of 1962 was amended
by the Revenue Laws Amendment Bill 71 of 2003 and signed into law by the
President of South Africa. This amendment extends until November 30, 2004 the
Company's exemptions from certain taxes imposed in South Africa. Shareholders'
attention is directed to Note 2 to the Financial Statements.
3
The Company announced earlier this year that, in view of its tax situation,
it had filed an application for an exemptive order with the Securities and
Exchange Commission to permit the Company to move from the Republic of South
Africa to the Commonwealth of Bermuda by reorganizing itself into a newly formed
company incorporated in Bermuda. The move would not involve any material change
in the Company's investment policies. The relocation to Bermuda is subject to a
number of conditions, including (1) receiving the requested relief from the
Securities and Exchange Commission; (2) receiving approval to list the shares of
the new Bermuda company on the New York Stock Exchange; and (3) satisfying
shareholder approval requirements. No assurance can be given that these
conditions will be satisfied.
* * *
THE ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD ON FRIDAY, FEBRUARY 6, 2004
AT 10:00 A.M. AT THE OFFICES OF UBS SECURITIES LLC 1285 AVENUE OF THE AMERICAS,
14TH FLOOR, NEW YORK, NEW YORK USA. WE LOOK FORWARD TO HAVING YOU IN ATTENDANCE.
ROBERT J.A. IRWIN, CHAIRMAN OF THE BOARD
AND TREASURER
4
[The tables below represent line charts in the printed report.]
PHILADELPHIA GOLD & SILVER INDEX (XAU): Monthly average price (unaudited)
"2000" "2001" "2002" "2003"
44 49 58 78
51 48 66 73
51 65 66
52 71 66
59 81 72
57 78 78
54 69 79
56 65 87
57 73 93
55 63 94
53 66 101
54 74
LONDON FREE MARKET GOLD PRICE: Monthly average $ per ounce (unaudited)
"2000" "2001" "2002" "2003"
269 266 282 357
258 262 296 359
263 294 341
260 303 328
272 314 356
270 321 357
267 313 351
272 310 360
283 319 379
283 317 379
276 319 390
276 332
================================================================================
PORTFOLIO CHANGES (UNAUDITED) NUMBER OF SHARES
----------------
NET CHANGES DURING THE YEAR ENDED NOVEMBER 30, 2003 INCREASE DECREASE
-----------------------
ORDINARY SHARES OF GOLD MINING COMPANIES
Anglogold Limited 1 194 917(1)
Avgold Limited 2 671 230
Placer Dome Incorporated 100 000
Compania de Minas Buenaventura--ADRs 450 000(2)
(1) Received as 2 for 1 Stock Split, effective December 27, 2002.
(2) Received as 2 for 1 Stock Split, effective November 12, 2003.
5
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS (UNAUDITED)
The following is a summary of certain of the Company's investment policies and
restrictions and is subject to the more complete statements contained in the
Company's Memorandum of Association (Charter), Articles of Association (By-Laws)
and Registration Statement under the United States Investment Company Act of
1940, each as amended:
1. To invest over 50% of the value of its total assets in the common shares or
securities convertible into common shares of companies conducting, as the major
portion of their business, gold mining and related activities in the Republic of
South Africa. It is expected that most of such companies will have reached the
production stage. The balance of the Company's total assets, other than minor
amounts which may be held in cash, may (i) be invested in common shares or
securities convertible into common shares of companies engaged in other business
of varied types in the Republic of South Africa, (ii) be held in the form of
gold bullion or certificates of deposit therefor to be purchased, directly or
indirectly, with South African rand (provided that the Company's holdings in the
form of gold bullion or certificates of deposit therefor may not exceed 25% of
the value of the Company's total assets) and/or (iii) be invested in common
shares or securities convertible into common shares of companies primarily
engaged outside of South Africa in extractive or related industries or in the
holding or development of real estate (provided that the Company's investment in
such companies may not exceed 20% of the value of the Company's total assets).
If investment considerations warrant, the Company may deviate from the foregoing
to the extent it temporarily holds its assets in cash, cash equivalents or
securities issued or guaranteed by the Government of South Africa (South African
Government Securities).
2. Not to invest in securities, except South African government securities, of
any issuer if as a result over 20 per cent in value of the Company's total
assets would at the time be invested in securities of such issuer provided that
no more than 40 per cent of the Company's assets would at the time be invested
in securities of companies, each of which exceeds 10 per cent of such value.
3. Not to invest in securities of any class of any issuer (except securities
of or guaranteed by the Government of South Africa or an instrumentality
thereof) if as a result the Company would at the time own over 10 per cent of
such securities outstanding.
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of
Directors of ASA Limited:
We have audited the accompanying statements of assets and liabilities of
ASA Limited (incorporated in the Republic of South Africa) as of November 30,
2003 and 2002, including the schedule of investments as of November 30, 2003,
and the related statements of operations, surplus and changes in net assets,
financial highlights and supplementary information for each of the two years in
the period ended November 30, 2003. These financial statements, financial
highlights and supplementary information are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements, financial highlights and supplementary information based on our
audits. The financial highlights for years presented prior to November 30, 2002
were audited by other auditors who have ceased operations and whose report dated
December 18, 2001 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements, financial highlights and supplementary information are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, financial
highlights and supplementary information. Our procedures included the
confirmation of securities owned as of November 30, 2003 and 2002, by
correspondence with the custodians and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements, financial highlights and
supplementary information referred to above present fairly, in all material
respects, the financial position of ASA Limited as of November 30, 2003 and
2002, the results of its operations, the surplus and changes in its net assets,
financial highlights and supplementary information for each of the two years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
New York, N.Y., U.S.A.
Ernst & Young
Johannesburg, SA
December 23, 2003
6
SCHEDULE OF INVESTMENTS
(NOTE 1)
November 30, 2003
--------------------------------------------------------------------------------
Number of Percent of
Name of Company Shares Market Value Net Assets
--------------------------------------------------------------------------------
ORDINARY SHARES OF GOLD MINING COMPANIES
AUSTRALIAN GOLD MINES
Newcrest Mining Limited - ADRs 3 000 000 $ 28 500 000 5.8%
--------------------------------------------------------------------------------
28 500 000 5.8
--------------------------------------------------------------------------------
UNITED STATES GOLD MINES
Newmont Mining Corporation 520 368 25 050 516 5.1
--------------------------------------------------------------------------------
25 050 516 5.1
--------------------------------------------------------------------------------
SOUTH AFRICAN GOLD MINES
Anglogold Limited 2 389 894 114 544 340 23.2
Avgold Limited 2 671 230 4 178 605 .8
Gold Fields Limited 10 344 977 142 407 297 28.8
Harmony Gold Mining Company Limited 1 336 21 150 --
Harmony Gold Mining Company Limited - ADRs 2 166 400 34 294 112 6.8
--------------------------------------------------------------------------------
295 445 504 59.6
--------------------------------------------------------------------------------
CANADIAN GOLD MINES
Barrick Gold Corporation 730 000 16 308 200 3.3
Placer Dome Incorporated 1 065 312 19 335 413 3.9
--------------------------------------------------------------------------------
35 643 613 7.2
--------------------------------------------------------------------------------
SOUTH AMERICAN GOLD MINES
Compania de Minas Buenaventura - ADRs 900 000 26 199 000 5.3
--------------------------------------------------------------------------------
410 838 633 83.0
--------------------------------------------------------------------------------
ORDINARY SHARES OF OTHER COMPANIES
SOUTH AFRICAN MINING
Anglo American PLC 1 280 000 27 281 392 5.5
Anglo American Platinum Corporation Limited 820 500 35 168 123 7.1
Impala Platinum Holdings Limited 262 700 24 656 497 5.0
--------------------------------------------------------------------------------
87 106 012 17.6
--------------------------------------------------------------------------------
Total investments 497 944 645 100.6
--------------------------------------------------------------------------------
CASH AND OTHER ASSETS LESS LIABILITIES (3 160 556) (.6)
--------------------------------------------------------------------------------
Net assets $494 784 089 100.0%
--------------------------------------------------------------------------------
There is no assurance that the valuations at which the Company's investments are
carried could be realized upon sale.
The notes to the financial statements form an integral part of these statements.
7
STATEMENTS OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
November 30, November 30,
ASSETS 2003 2002
--------------------------------------------------------------------------------
Investments, at market value (Note 1)
Gold mining companies -
Cost $125 445 039 in 2003
$120 148 921 in 2002 $410 838 633 $253 534 199
Other companies -
Cost $26 678 003 in 2003 and 2002 87 106 012 63 462 990
--------------------------------------------------------------------------------
497 944 645 316 997 189
--------------------------------------------------------------------------------
Cash 6 864 615 8 225 357
Dividends and interest receivable 175 216 138 999
Other assets 177 852 31 885
--------------------------------------------------------------------------------
Total assets 505 162 328 325 393 430
--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Accounts payable and accrued liabilities 612 977 289 074
Payable for securities purchased 1 027 362 --
Current year South African tax liability 121 313 219 954
Deferred South African tax liability 8 616 587 3 461 175
--------------------------------------------------------------------------------
Total liabilities 10 378 239 3 970 203
--------------------------------------------------------------------------------
NET ASSETS (SHAREHOLDERS' INVESTMENT) 494 784 089 321 423 227
--------------------------------------------------------------------------------
Ordinary (common) shares R 0.25 nominal (par) value
Authorized: 24 000 000 shares
Issued and Outstanding: 9 600 000 shares 3 360 000 3 360 000
Share premium (capital surplus) 27 489 156 27 489 156
Undistributed net investment income 59 083 301 58 663 135
Undistributed net realized (loss) from foreign
currency transactions (48 181 979) (51 220 869)
Undistributed net realized gain from investments 115 112 525 115 112 525
Net unrealized appreciation on investments 337 205 016 166 709 091
Net unrealized appreciation on translation of
assets and liabilities in foreign currency 716 070 1 310 189
--------------------------------------------------------------------------------
Net assets $494 784 089 $321 423 227
--------------------------------------------------------------------------------
Net assets per share $51.54 $33.48
--------------------------------------------------------------------------------
The closing price of the Company's shares on the New York Stock
Exchange was $47.16 and $30.06 on November 30, 2003 and 2002,
respectively.
The notes to the financial statements form an integral part of these statements.
8
STATEMENTS OF OPERATIONS
Years ended November 30, 2003 and 2002
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
Investment income
Dividend income $ 10 947 308 $ 10 423 088
Interest income 704 772 499 036
--------------------------------------------------------------------------------
Total investment income 11 652 080 10 922 124
--------------------------------------------------------------------------------
Expenses
Shareholders' report and proxy expenses 122 387 103 129
Directors' fees and expenses 462 872 538 420
Salaries and benefits 468 678 297 796
Other administrative expenses 442 500 373 250
Transfer agent, registrar and custodian 127 291 107 433
Professional fees and expenses 1 023 897 511 274
Insurance 144 417 104 595
Contributions 117 619 80 793
Other 347 267 311 444
--------------------------------------------------------------------------------
Total expenses 3 256 928 2 428 134
--------------------------------------------------------------------------------
Net investment income before South African tax 8 395 152 8 493 990
South African tax (294 986) (376 213)
--------------------------------------------------------------------------------
Net investment income 8 100 166 8 117 777
--------------------------------------------------------------------------------
Net realized gain from investments
Proceeds from sales -- 13 409 630
Cost of securities sold -- (8 399 743)
South African tax -- (71 956
--------------------------------------------------------------------------------
Net realized gain from investments -- 4 937 931
--------------------------------------------------------------------------------
Net realized gain (loss) from foreign currency
transactions
Investments -- (9 832 299)
Foreign currency 1 399 249 505 300
South African tax refund (tax) 1 639 641 (1 515 713)
--------------------------------------------------------------------------------
Net realized gain (loss) from foreign
currency transactions 3 038 890 (10 842 712)
--------------------------------------------------------------------------------
Net increase in unrealized appreciation
on investments
Balance, beginning of year 170 170 266 53 028 160
Balance, end of year 345 821 603 170 170 266
--------------------------------------------------------------------------------
Increase 175 651 337 117 142 106
Deferred South African tax (5 155 412) (3 461 175)
--------------------------------------------------------------------------------
Net increase in unrealized appreciation
from investments 170 495 925 113 680 931
--------------------------------------------------------------------------------
Net increase (decrease) in unrealized
appreciation on translation of assets and
liabilities in foreign currency (594 119) 743 200
South African tax benefit -- 1 521 577
--------------------------------------------------------------------------------
Net increase (decrease) in unrealized
appreciation on translation of assets and
liabilities in foreign currency (594 119) 2 264 777
--------------------------------------------------------------------------------
Net realized and unrealized gain from investments
and foreign currency transactions 172 940 696 110 040 927
--------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $181 040 862 $118 158 704
--------------------------------------------------------------------------------
The notes to the financial statements form an integral part of these statements.
9
STATEMENTS OF SURPLUS AND STATEMENTS OF CHANGES IN NET ASSETS
Years ended November 30, 2003 and 2002
--------------------------------------------------------------------------------
November 30, November 30,
STATEMENTS OF SURPLUS 2003 2002
--------------------------------------------------------------------------------
Share premium (capital surplus)
Balance, beginning and end of year $ 27 489 156 $ 27 489 156
--------------------------------------------------------------------------------
Undistributed net investment income
Balance, beginning of year $ 58 663 135 $ 58 225 358
Net investment income for the year 8 100 166 8 117 777
Dividends paid (7 680 000) (7 680 000)
--------------------------------------------------------------------------------
Balance, end of year $ 59 083 301 $ 58 663 135
--------------------------------------------------------------------------------
Undistributed net realized (loss) from
foreign currency transactions
Balance, beginning of year $(51 220 869) $(40 378 157)
Net realized gain (loss) for the year 3 038 890 (10 842 712)
--------------------------------------------------------------------------------
Balance, end of year $(48 181 979) $(51 220 869)
--------------------------------------------------------------------------------
Undistributed net realized gain from investments
(Computed on identified cost basis)
Balance, beginning of year $115 112 525 $110 174 594
Net realized gain for the year -- 4 937 931
--------------------------------------------------------------------------------
Balance, end of year $115 112 525 $115 112 525
--------------------------------------------------------------------------------
Net unrealized appreciation on investments
Balance, beginning of year $166 709 091 $ 53 028 160
Net increase for the year 170 495 925 113 680 931
--------------------------------------------------------------------------------
Balance, end of year $337 205 016 $166 709 091
--------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in
foreign currency
Balance, beginning of year $ 1 310 189 $ (954 588)
Net unrealized appreciation (depreciation)
for the year (594 119 2 264 777
--------------------------------------------------------------------------------
Balance, end of year $ 716 070 $ 1 310 189
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 2003 2002
--------------------------------------------------------------------------------
Net investment income $ 8 100 166 $ 8 117 777
Net realized gain from investments -- 4 937 931
Net realized gain (loss) from foreign currency
transactions 3 038 890 (10 842 712)
Net increase in unrealized appreciation
on investments 170 495 925 113 680 931
Net unrealized appreciation (depreciation) on
translation of assets
and liabilities in foreign currency (594 119 2 264 777
--------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 181 040 862 118 158 704
Dividends paid (7 680 000) (7 680 000)
--------------------------------------------------------------------------------
Net increase in net assets 173 360 862 110 478 704
Net assets, beginning of year 321 423 227 210 944 523
--------------------------------------------------------------------------------
Net assets, end of year $494 784 089 $321 423 227
--------------------------------------------------------------------------------
The notes to the financial statements form an integral part of these statements.
10
NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 2003 and 2002
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of
the Company's significant accounting policies:
A. INVESTMENTS
Security transactions are recorded on the respective trade dates. Securities
owned are reflected in the accompanying financial statements at quoted market
value. The difference between cost and current market value is reflected
separately as net unrealized appreciation from investments. The net realized
gain or loss from the sale of securities is determined on the identified cost
basis.
Quoted market value of those shares traded represents the last recorded
sales price on the financial statement date, 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 ask price less 1%, as applicable, is
used.
There is no assurance that the valuation at which the Company's investments
are carried could be realized upon sale.
B. EXCHANGE GAINS AND LOSSES
The Company records exchange gains and losses in accordance with the provisions
of the American Institute of Certified Public Accountants Statement of Position
93-4, Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies ("SOP"). The SOP requires separate disclosure in the
accompanying financial statements of net realized gain (loss) from foreign
currency transactions, and inclusion of unrealized gain (loss) on the
translation of currency as part of net unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign currency.
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME
During the year ended November 30, 2003 there were no sales of securities and
purchases of securities amounted to $5,296,118. During the year ended November
30, 2002 sales of securities amounted to $13,409,639 and purchases of securities
amounted to $19,129,051. Dividend income is recorded on the ex-dividend date
(the date on which the securities would be sold ex-dividend) net of withholding
taxes, if any. Interest income is recognized on the accrual basis.
D. DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date.
E. 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.
2. TAX STATUS OF THE COMPANY Pursuant to the South African Income Tax Act, as
amended, the Company is subject to tax on dividends received from sources other
than South Africa. In addition, in terms of the residence based system of
taxation, beginning with the fiscal year ended November 30, 2002, the Company is
subject to tax on interest earned on cash deposits. A provision for South
African taxes of $294,986 and $376,213 for these items has been included in the
accompanying financial statements for the fiscal years ended November 30, 2003
and November 30, 2002, respectively.
In addition, the Company had previously provided for and paid taxes on
foreign exchange gains. However, the Company was assessed by the South African
Revenue Service ("SARS") on the basis that it is exempt from tax on foreign
exchange gains and in November 2003, after the completion of a refund audit
performed by SARS, the Company received a refund in respect of the overpayment
of tax in the amount of $1,639,641, plus interest.
A tax provision of -0- and $71,956 has been included in the accompanying
financial statements for realized capital gains during the fiscal years ended
November 30, 2003 and November 30, 2002, respectively. Also, a deferred tax
liability of $8,616,587 and $3,461,175 has been included for the tax on
unrealized capital gains on securities for the fiscal years ended November 30,
2003 and November 30, 2002, respectively.
SARS has held that, effective October 1, 2001, the Company became subject
to a tax on capital gains realized since that date on the disposal of South
African and foreign securities. However, after numerous representations with
SARS as well as the Treasury Department, the Company has been successful in
negotiating relief from this tax. On December 17, 2003, the South
11
African Income Tax Act of 1962 was amended by the Revenue Laws Amendment Bill 71
of 2003 and signed into law by the President of South Africa. This amendment
provides the Company with an exemption from the Capital Gains Tax until November
30, 2004.
The Company has commenced actions necessary to relocate its place of
business to Bermuda before the expiration of its exemption. (See Note 5.) While
it is management's intention to complete this relocation before the November 30,
2004 expiration date, no assurance can be given that all conditions will be
satisfied. Therefore, the Company will continue to provide deferred South
African tax on unrealized capital gains on securities subsequent to November 30,
2003.
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 U.S. federal income tax purposes. The difference
are caused primarily by the separate line items reporting for financial
statement purposes of foreign exchange gains or losses. See pages 14 and 15 for
additional tax information for United States shareholders.
3 CURRENCY EXCHANGE There are exchange control regulations restricting the
transfer of funds from South Africa. In 1958 the South African Reserve Bank, in
the exercise of its powers under such regulations, advised the Company that the
exchange control authorities would permit the Company to transfer to the United
States in dollars both the Company's capital and its gross income, whether
received as dividends or as profits on the sale of investments, at the current
official exchange rate prevailing from time to time. Future implementation of
exchange control policies could be influenced by national monetary
considerations that may prevail at any given time.
4 RETIREMENT PLANS Effective April 1, 1989, the Company established a defined
contribution plan (the "Plan") to replace its previous pension plan. The Plan
covers all full-time employees. The Company will contribute 15% of each covered
employee's salary to the Plan. The Plan provides for immediate vesting by the
employee without regard to length of service. During the years ended November
30, 2003 and 2002 there were no covered employees under the plan and,
consequently, no retirement expense was incurred.
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 and $45,000 in
March 2003. As a result, the Company has recorded expense amounts of $41,562 and
$29,688 for the years ended November 30, 2003 and November 30, 2002,
respectively.
The Company has an asset in the amount of $145,000 related to the
retirement obligation liability of $315,900 as of November 30, 2003.
5 COMPANY REORGANIZATION The Company announced earlier this year that, in
view of its tax situation, it had filed an application for an exemptive order
with the Securities and Exchange Commission to permit the Company to move from
the Republic of South Africa to the Commonwealth of Bermuda by reorganizing
itself into a newly formed company incorporated in Bermuda. The move would not
involve any material change in the Company's investment policies. The relocation
to Bermuda is subject to a number of conditions, including (1) receiving the
requested relief from the Securities and Exchange Commission; (2) receiving
approval to list the shares of the new Bermuda company on the New York Stock
Exchange and (3) satisfying shareholder approval requirements. No assurance can
be given that these conditions will be satisfied.
In connection with the reorganization, the Company has incurred
approximately $575,000 in legal and other professional fees as of November 30,
2003.
6 COMMITMENTS The Company's lease for office space in Johannesburg expired
in February 2003. The Company has renewed the lease for a two year period at an
annual cost of approximately $55,000.
12
FINANCIAL HIGHLIGHTS
Year Ended November 30
--------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 33.48 $ 21.97 $ 17.58 $ 22.51 $ 19.01
--------------------------------------------------------------------------------------------------------------------------------
Net investment income .84 .85 1.00 .61 .58
Net realized gain from investments -- .51 3.05 1.00 .62
Net realized gain (loss) from foreign currency transactions .32 (1.13) (.24) (1.02) (.95)
Net increase (decrease) in unrealized appreciation on investments 17.76 11.84 1.40 (4.88) 3.84
Net unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currency (.06) .24 (.02) (.04) .01
--------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 18.86 12.31 5.19 (4.33) 4.10
Less dividends (.80) (.80) (.80) (.60) (.60)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 51.54 $ 33.48 $ 21.97 $ 17.58 $ 22.51
================================================================================================================================
Market value per share, end of year $47.16 $30.06 $19.83 $14.56 $19.125
TOTAL INVESTMENT RETURN(1)
Based on market value per share 59.91% 55.72% 41.76% (21.06%) 3.44%
RATIOS TO AVERAGE NET ASSETS(1)
Expenses .84% .91% 1.10% 1.15% 1.13%
Net investment income 2.09% 2.63% 4.61% 3.06% 3.02%
SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $494 784 $321 423 $210 944 $168 726 $216 051
Portfolio turnover rate -- 4.41% 11.18% 7.43% 6.66%
Per share calculations are based on the 9,600,000 shares outstanding.
(1) Determined in U.S. dollar terms.
SUPPLEMENTARY INFORMATION
Years ended November 30, 2003 and 2002
--------------------------------------------------------------------------------------------------------------------------------
CERTAIN FEES INCURRED BY THE COMPANY 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Directors' fees $288 500 $ 220 000
Officers' remuneration 500 220 285 018
Ranquin Associates (a company of which an officer is an affiliated person) 37 800 35 000
Auditors 110 000 50 000
--------------------------------------------------------------------------------------------------------------------------------
The notes to the financial statements form an integral part of these statements.
13
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 given below in United States
currency. All the per share amounts give effect to the two-for-one stock splits
that became effective on May 10, 1966, May 10, 1973 and May 9, 1975. All the per
share amounts reflect distributions through November 30, 2002.
Year ended November 30 Per year Per day
--------------------------------------------------------------------------------
1964 $ .042 $.00012
--------------------------------------------------------------------------------
1965 .067 .00019
--------------------------------------------------------------------------------
1966 .105 .00029
--------------------------------------------------------------------------------
1967 .277 .00076
--------------------------------------------------------------------------------
1968 .241 .00066
--------------------------------------------------------------------------------
1969 .461 .00126
--------------------------------------------------------------------------------
1970 .218 .00060
--------------------------------------------------------------------------------
1971 .203 .00056
--------------------------------------------------------------------------------
1972 .445 .00122
--------------------------------------------------------------------------------
1973 .497 .00136
--------------------------------------------------------------------------------
1974 1.151 .00316
--------------------------------------------------------------------------------
1975 .851 .00233
--------------------------------------------------------------------------------
1976 .370 .00101
--------------------------------------------------------------------------------
1977 .083 .00023
--------------------------------------------------------------------------------
1978 .357 .00098
--------------------------------------------------------------------------------
1979 .219 .00060
--------------------------------------------------------------------------------
1980 1.962 .00538
--------------------------------------------------------------------------------
1981 .954 .00261
--------------------------------------------------------------------------------
1982 .102 .00028
--------------------------------------------------------------------------------
1983 -0- -0-
--------------------------------------------------------------------------------
1984 -0- -0-
--------------------------------------------------------------------------------
1985 (.151) (.00041)
--------------------------------------------------------------------------------
1986 -0- -0-
--------------------------------------------------------------------------------
1987 -0- -0-
--------------------------------------------------------------------------------
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 States shareholder (1)
elects to treat the Company as a qualified electing fund ("QEF") with respect to
his Company shares, or (2) for taxable years of such 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 direct or indirect 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 certain "excess
distributions" made by the Company. Furthermore, shares held by such 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 a
distribution by the Company for a taxable year that is more than 125% of the
average amount it distributed for the three preceding taxable years.** If the
Company makes an excess distribution in a taxable 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 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 (see
above), with no interest charge.
If a United States shareholder elects to treat the Company as a QEF with
respect to his shares therein for the first year he holds his shares during
which the Company is a PFIC (or who 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), the rules described in the preceding paragraphs
generally will not apply. Instead, the electing United States shareholder will
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
----------
* Because the Company is a PFIC, dividends it pays will not qualify for the
recently enacted 15% maximum U.S. federal income tax rate on dividends that
individuals receive.
** For example, the Company made annual distributions of $.80, $.80 and $.60
per share during the taxable years ended November 30, 2002, 2001 and 2000,
respectively, an average per year of $.733 per share. Accordingly, any
distribution in excess of $.917 per share (125% of $.733) would be treated as an
excess distribution for the taxable year ended November 30, 2003. (All amounts
in U.S. currency.)
14
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 will 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 the
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 the 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 November 30, 2002 and who files his tax return on
the basis of a calendar year may make a QEF election on his 2003 tax return. A
shareholder of the Company who first held his Company shares on or before
November 30, 2002 may also make the QEF election on his 2003 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.
The 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, the 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 year to
which the election applies. In order to allow United States shareholders to make
the QEF elections and to comply with the applicable annual reporting
requirements, the Company annually will provide to them a "PFIC Annual
Information Statement" containing certain information required by Treasury
regulations.
In early 2004 the Company will send to United States shareholders the PFIC
Annual Information Statement for the Company's 2003 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 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 elected to treat the shares as if sold on the first day of the first
taxable year of the Company for which the QEF election was effective), 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.
15
DIVIDEND REINVESTMENT PLAN
EquiServe Trust Company, N.A. ("EquiServe") has been engaged to offer a dividend
reinvestment plan (the "Plan") to shareholders. Shareholders must elect to
participate in the Plan by signing an authorization. The authorization appoints
EquiServe 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 voluntary cash payments ($50 minimum, $3,000 maximum per
dividend period) received from such participant within 30 days prior to such
dividend payment date.
For the purpose of making purchases, EquiServe 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, will be deducted (and paid to
EquiServe) prior to each purchase of shares. Shareholder sales of shares held by
EquiServe in the Plan are subject to a fee of $10.00 plus applicable brokerage
commissions deducted from the proceeds of the sale. Additional nominal fees are
charged by EquiServe for specific shareholder requests such as requests for
information regarding share cost basis detail in excess of two prior years and
for replacement Forms 1099 older than three years.
Participation in the Plan may be terminated by a participant at any time by
written instructions to EquiServe. 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 EquiServe
Dividend Reinvestment Plan, 150 Royall St., Canton, MA 02021. Information may
also be obtained by calling EquiServe's Telephone Response Center at
800-446-2617 between 8:30 a.m. and 5 p.m., Eastern time, Monday through Friday.
--------------------------------------------------------------------------------
PRIVACY NOTICE
ASA Limited (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.
16
--------------------------------------------------------------------------------
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 Africa and other international securities and foreign exchange
markets, the price of gold, platinum and other precious metals, changes in tax
law and the Company's efforts to move from South Africa to Bermuda.
17
THE BOARD OF DIRECTORS OF ASA LIMITED
Each of the individuals listed below serves as a director for ASA Limited. The
address of each director is c/o LGN Associates, P.O. Box 269, Florham Park, NJ
07932.
INTERESTED DIRECTORS
ROBERT J.A. IRWIN (76)
Position held with the Company: Chairman & Treasurer
Director since: 1987
Principal Occupations During Past 5 Years: Chairman of ASA Limited
Other Directorships held by Director: Former Director of Niagara Share
Corporation
CHESTER A. CROCKER (62)
Position held with the Company: Director and U.S. Secretary since 1999
Director since: 1996
Principal Occupations During Past 5 Years: James R. Schlesinger Professor of
Strategic Studies, School of Foreign Service, Georgetown University;
President of Crocker Group (consultants)
Other Directorships held by Director: Chairman and Director of United States
Institute of Peace, Director of Ashanti Goldfields, Ltd., Director of Africa
Holdings Ltd., Director of Modern Africa Growth & Income Fund
RONALD L. MCCARTHY (70)
Position held with the Company: Director and Managing Director since 1988
Director since: 1988
Principal Occupations During Past 5 Years: Managing Director of ASA Limited
Other Directorships held by Director: None
--------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
HENRY R. BRECK (66)
Position held with the Company: Director
Director since: 1996
Principal Occupations During Past 5 Years: Chairman and a director of Ark
Asset Management Co., (registered investment adviser)
Other Directorships held by Director: Director of Butler Capital Corp.
HARRY M. CONGER (73)
Position held with the Company: Director
Director since: 1984
Principal Occupations During Past 5 Years: Chairman and CEO Emeritus of
Homestake Mining Company
Other Directorships held by Director: Director of Apex Silver Mines, Trustee of
the California Institute of Technology
JOSEPH C. FARRELL (68)
Position held with the Company: Director
Director since: 1999
Principal Occupations During Past 5 Years: Chairman, President and CEO of
The Pittston Company
Other Directorships held by Director: Director of Universal Corporation
JAMES G. INGLIS (59)
Position held with the Company: Director
Director since: 1998
Principal Occupations During Past 5 Years: Chairman of Melville Douglas
Investment Management (Pty) Ltd.
Other Directorships held by Director: None
MALCOLM W. MACNAUGHT (66)
Position held with the Company: Director
Director since: 1998
Principal Occupations During Past 5 Years: Former Vice President
and Portfolio Manager at Fidelity Investments
Other Directorships held by Director: Director of Meridian Gold Corporation
ROBERT A. PILKINGTON (58)
Position held with the Company: Director
Director since: 1979
Principal Occupations During Past 5 Years: Investment banker and
Managing Director of UBS Securities LLC or predecessor companies since 1985
Other Directorships held by Director: Director of Avocet Mining PLC
A. MICHAEL ROSHOLT (83)
Position held with the Company: Director
Director since: 1982
Principal Occupations During Past 5 Years: Chairman of the National Business
Initiative (South Africa), a non-profit organization
Other Directorships held by Director: Former Chairman of Barlow Rand Limited
18
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to
its principal executive officer and principal financial
officer. A copy of the registrant's code of ethics is filed
herewith.
(c) During the period covered by this report, there were no
amendments to the code of ethics referred to in 2(a) above.
(d) During the period covered by this report, there were no
waivers to the provisions of the code of ethics referred to in
2(a) above.
Item 3. Audit Committee Financial Expert.
The registrant's board of directors has determined that Malcolm W.
MacNaught is an "audit committee financial expert" as defined in Item 3 to Form
N-CSR. Mr. MacNaught has 35 years of experience evaluating and analyzing
investments and was Vice President and portfolio manager at Fidelity Investments
from 1968 until his retirement in 1996. He has served on registrant's Audit
Committee for five years and is Chairman thereof. He also served as chairman of
the audit committee of another public company. Mr. MacNaught is an "independent"
director pursuant to Item 3 to Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Applicable only for reports covering fiscal years ending on or after
December 15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the
earlier of (i) the first annual shareholder meeting after January 15, 2004 or
(ii) October 31, 2004.
Item 6. [Reserved]
19
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
ASA LIMITED
PROXY VOTING POLICIES AND PROCEDURES
The following is a statement of the proxy voting policies and
procedures of ASA Limited.
PROXY ADMINISTRATION
ASA understands its proxy voting responsibilities and that proxy voting
decisions may affect the long-term interests of its shareholders. ASA attempts
to process every proxy vote it receives. However, voting proxies for shares of
certain non-U.S. companies may involve significantly greater effort and cost
than for shares of U.S. companies. There may be situations where ASA may not or
cannot vote a proxy. For example, ASA may receive proxy material too late to act
upon or the cost of voting may outweigh the benefit of voting.
Authority and responsibility to vote proxies with respect to ASA's
portfolio securities has been delegated to the Chairman of the Board and, in the
event of his inability to act, to the Managing Director of ASA. In evaluating
proxy proposals, the Chairman (or Managing Director) may consider information
from various sources, including management of the company presenting a proposal
as well as independent sources. The ultimate decision rests with the Chairman
(or Managing Director), who is accountable to the Board of Directors of ASA.
GENERAL PRINCIPLES
In voting proxies, ASA will act solely in the best economic interests
of its shareholders with the goal of maximizing the value of ASA's portfolio.
These policies and procedures are designed to promote accountability of a
portfolio company's management and board of directors to its shareholders and to
align their interests with those of shareholders. These policies and procedures
recognize that a portfolio company's managers are entrusted with the day-to-day
operations of the company, as well as longer-term strategic planning, subject to
the company's board of directors.
ASA believes that the quality and depth of a portfolio company's
management, including its board of directors, is an important consideration in
determining the desirability of an investment. Accordingly, the recommendations
of management on many issues are given substantial weight in determining how to
vote a proxy. However, each issue is considered on its own merits, and the
position of the portfolio company's management will not be supported whenever it
is determined not to be in the best interests of ASA and its shareholders.
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SPECIFIC POLICIES
A. ROUTINE MATTERS
1. ELECTION OF DIRECTORS. In general, ASA will vote in
favor of management's director nominees if they are
running unopposed. ASA believes that management is in
the best position to evaluate the qualifications of
directors and the needs of a particular board.
Nevertheless, ASA will vote against, or withhold its
vote for, any nominee whom it feels is not qualified.
When management's nominees are opposed in a proxy
contest, ASA will evaluate which nominee's
publicly-announced management policies and goals are
most likely to maximize shareholder value, as well as
the past performance of the incumbent.
2. RATIFICATION OF SELECTION OF AUDITORS. In general,
ASA will rely on the judgment of management in
selecting the independent auditors, Nevertheless, ASA
will examine the recommendation of management in
appropriate cases, e.g., where there has been a
change in auditors based upon a disagreement on
accounting matters.
3. STOCK OPTION AND OTHER EQUITY BASED COMPENSATION PLAN
PROPOSALS. ASA will generally approve management's
recommendations with respect to the adoption or
amendment of stock option plans and other equity
based compensation plans, provided that the total
number of shares reserved under all of a company's
plans is reasonable and not excessively dilutive.
B. ACQUISITIONS, MERGERS, REINCORPORATIONS, REORGANIZATIONS AND
OTHER TRANSACTIONS
Because voting on transactions such as acquisitions, mergers,
reincorporations and reorganizations involve considerations
unique to each transaction, ASA does not have a general policy
in regard to voting on those transactions. ASA will vote on a
case-by-case basis on each transaction.
C. CHANGES IN CAPITAL STRUCTURE
ASA evaluates proposed capital actions on a case-by-case basis
and will generally defer to management's business analysis in
support of such actions. In cases where proposed capital
actions support proxy defenses or act to reduce or limit
shareholder rights, particular consideration will be given to
all the effects of the action and ASA's vote will be made in a
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manner consistent with the objective of maximizing long-term
shareholder value.
D. ANTI-TAKEOVER PROPOSALS
In general, ASA will vote against any proposal which ASA
believes would materially contribute to preventing a potential
acquisition or takeover, including proposals to:
o Stagger the board of directors;
o Introduce cumulative voting;
o Introduce unequal voting rights;
o Create supermajority voting;
o Establish preemptive rights.
In general, ASA will vote in favor of any proposals to reverse
the above.
E. SHAREHOLDER PROPOSALS INVOLVING SOCIAL, MORAL OR ETHICAL MATTERS
In general, ASA will vote in accordance with management's
recommendation on issues that primarily involve social, moral
or ethical matters, although exceptions may be made in certain
instances where ASA believes a proposal has substantial
economic implications.
F. CONFLICT OF INTEREST
In view of the fact that ASA is internally managed and does
not have an investment advisor, it is unlikely that conflicts
of interest will arise in voting the proxies of ASA's
portfolio companies. ASA maintains a record of the affiliated
persons of each director and officer of ASA including the
Chairman and the Managing Director. The Compliance Officer
reviews proxy statement proposals to determine the existence
of a potential conflict of interest. In the event that the
Chairman (or the Managing Director) has a personal conflict of
interest, he shall remove himself from the voting process. In
cases of a conflict of interest, a record shall be maintained
confirming that ASA's vote was made solely in the interests of
ASA and without regard to any other consideration.
Date: November 6, 2003
Item 8. [Reserved]
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Item 9. Controls and Procedures.
(a) The Chairman of the Board and Treasurer, in his capacities as
principal executive officer and principal financial officer of
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) 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 that occurred during the registrant's
most recent fiscal half-year that has materially affected, or
is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 10. Exhibits.
(a) (1) The code of ethics that is the subject of disclosure under
Item 2 hereof is attached hereto.
(2) The certification required by Rule 30a-2(a) under the
Investment Company Act of 1940, as amended ("Investment
Company Act"), is attached hereto.
(b) The certification required by rule 30a-2(b) under the
Investment Company Act, Rule 13a-14(b) under the Securities
Exchange Act of 1934 ("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.
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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 LIMITED
Date: January 9, 2004
By: /s/ Robert J.A. Irwin
-----------------------------------
Robert J.A. Irwin
Chairman of the Board and Treasurer
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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: January 9, 2004
By: /s/ Robert J.A. Irwin
------------------------------
Robert J.A. Irwin
Chairman of the Board and
Treasurer
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