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January
29, 2010
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R.
Darrell Mounts
D 202.778.9298
F 202.778.9100
darrell.mounts@klgates.com
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VIA EDGAR
CORRESPONDENCE
Mr. James
O’Connor, Esq.
U.S.
Securities and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
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Re:
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ASA
Limited (File No. 811-21650)
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Dear Mr.
O’Connor:
Set forth
below are the comments you provided me on the preliminary proxy statement for
ASA Limited (the “Company”) via telephone on January 22, 2010, and our
responses thereto.
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1.
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Comment: Identify
any precedent you are relying on for setting up an investment advisory
subsidiary.
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Response: The
Company has submitted a draft no-action letter to the staff of the
Division of Investment Management seeking relief under Section 12(d)(3) of
the Investment Company Act of 1940, as amended, to permit the Company to
establish an investment advisory subsidiary. The Securities and
Exchange Commission has previously issued an exemptive order to General
American Investors Company, Inc., a registered closed-end investment
company, that permitted General American to establish an investment
advisory subsidiary.1
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2.
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Comment: What
kind of assets will the subsidiary invest clients in and how do they
believe they have the expertise to invest in those assets and to operate
an investment advisory subsidiary.
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Response: In
providing investment advisory services to others the Company anticipates
that it will initially focus on investments in the precious minerals
sector. The disclosure in Proposal 3 in the proxy statement has
been revised. Proposal 3 now discloses that: “[t]he
Board believes it may be possible for the Company to develop new products
in the precious minerals sector that it could manage in a bottom up,
fundamental investment style similar to that of the
Company. There also may be products developed by others and
other accounts that would be suitable for the Company to
manage.” A complete copy of the
revised
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_______________________
1 General American Investors Company,
Inc., Investment Company Act Release Nos. 11345 (Sept. 10, 1980 (notice) and
11396 (Oct. 10, 1980) (order).
Securities
and Exchange Commission
January
29, 2010
Page
2
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Proposal
3 disclosure is attached to this letter. In the event the
Company were to invest in assets outside the precious minerals sector, it
would do so only if the Company’s Board believed it had investment
personnel with the necessary investment management
expertise.
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3.
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Comment: Expand
the disclosure to explain why establishing a subsidiary is preferable to
providing investment advisory services directly.
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Response: The
preliminary proxy statement at the end of Proposal 3 disclosed that
“[t]here may also be certain additional risks if the Company provides
investment advisory services directly, including the risk of litigation
against the Company (in its role as an investment adviser) and the greater
regulatory burdens and operating complexities of operating as both an
investment company and an investment adviser.” Proposal 3 now
discloses that
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[t]he
Company prefers providing investment advisory services to others through an
Advisory Subsidiary rather than directly because there may be certain additional
risks if the Company provides advisory services directly, including the risk of
litigation against the Company (in its role as an investment adviser) and the
greater regulatory burdens and operating complexities of operating as both an
investment company and an investment adviser. However, if the Company
is unable to obtain the relief discussed above to establish an Advisory
Subsidiary, the Company may determine to directly provide advisory services to
others which requires no relief from the Staff or the Commission.
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4.
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Comment: Does
the Company’s status as a passive foreign investment company impact the
Company’s ability to provide investment advisory services
directly.
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Response: The
Company’s status as a passive foreign investment company (“PFIC”) would
not directly impact its ability to provide advisory
services. However, the fee income generated from providing
advisory services might indirectly affect the Company’s shareholders who
have made elections to treat the Company as a qualified electing fund
(“QEF”).2 This
could happen because providing investment advisory services directly would
generate fee income, net of deductions (i.e., ordinary income
for federal income tax purposes), that, in effect, would be passed on to
the QEF-electing shareholders. (A shareholder that has made a QEF
election constructively takes into income each taxable year his/her/its
pro
rata
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____________________________
2 A
U.S. shareholder of a PFIC, such as the Company, generally is taxed in one of
three ways, depending on whether the shareholder (1) elects to treat the
PFIC as a QEF with respect to his/her/its PFIC shares, (2) elects to
“mark-to-market” his PFIC shares as of the close of each taxable year, or (3)
makes neither election. PFIC shareholders are not obligated to inform
the PFIC which of these three tax regimes they are subject to, and the Company
thus does not know how many of its shareholders fall into each of these three
categories.
Securities
and Exchange Commission
January
29, 2010
Page
3
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share
of the QEF’s net capital gain and “ordinary earnings” -- the latter is
defined as earnings and profits less net capital gain.)
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The
Company’s directly providing investment advisory services would not affect
a shareholder that (1) makes a mark-to-market election -- which
requires an electing shareholder annually to report any unrealized gain
(i.e.,
appreciation in value) with respect to his/her/its shares of the Company
as ordinary income, while any unrealized loss is permitted as an ordinary
loss, but only to the extent of previous inclusions of ordinary income --
except to the extent it increased the market value of the shares of the
Company or (2) shareholders that make neither election -- who are
subject to a complicated tax and interest regime applicable to “excess
distributions” on, and disposition of, their PFIC shares -- except to the
extent providing those services increased the amount of
distributions.
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5.
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Comment: Add
disclosure concerning the types of assets the subsidiary will invest
clients in.
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Response: See
response to Comment 2.
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6.
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Comment: Confirm
the disclosure is correct regarding the effect broker non-votes on the
vote with respect to those proposals where the required vote is the
affirmative vote of a majority of the votes cast at the
meeting.
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Response: The
Company is organized under the laws of Bermuda. We have
confirmed with the Company’s Bermuda counsel that the disclosure regarding
the effect of broker non-votes on the vote with respect to those proposals
where the required vote is the affirmative vote of a majority of the votes
cast at the meeting is correct.
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If you
have any questions regarding the foregoing, please contact me at (202)
778-9298
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Sincerely,
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/s/
R. Darrell Mounts
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R.
Darrell Mounts
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Attachment
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cc:
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David
J. Christensen
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ASA
Limited
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Paul
K. Wustrack, Jr., Esq.
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ASA
Limited
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ATTACHMENT
PROPOSAL
3: TO APPROVE A PROPOSAL FOR THE COMPANY, EITHER THROUGH A NEW WHOLLY-OWNED
SUBSIDIARY OR DIRECTLY, TO PROVIDE INVESTMENT ADVISORY SERVICES TO
OTHERS
As
shareholders may recall, the Company initiated a tender offer program in 2008 to
address concerns regarding the discount to net asset value at which the
Company’s Common Shares were trading. As a result of the tender offer
program, the Company’s net assets have declined very significantly in spite of a
strong bull market in gold related investments and the Company’s good investment
results during the past year. Following a strategic review, the Board
believes it would be in the best interests of the Company’s shareholders to
broaden the asset base managed by the Company. During the last few
years, numerous pooled investment products oriented to the broad global
resources sector, including the precious minerals sector, have been launched,
which indicates significant investor interest in this sector. The
Board believes it may be possible for the Company to develop new products in the
precious minerals sector that it could manage in a bottom up, fundamental
investment style similar to that of the Company. There also may be
products developed by others and other accounts that would be suitable for the
Company to manage. The Board believes that broadening the asset base
managed by the Company would be in the best interests of the Company’s
shareholders because:
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it
would allow the Company to use its investment personnel and facilities to
seek to increase the Company’s gross revenues and income, thereby
enhancing returns for long-term investors;
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it
would enhance the Company’s ability to retain and attract other highly
qualified investment staff;
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expanding
the Company’s small investment staff would
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reduce
key man risk
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provide
a greater depth of investment management expertise, thereby enhancing the
Company’s capability to pursue a larger number and variety of global
investment opportunities in the precious minerals
sector;
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it
would mitigate the potential adverse effects on the Company resulting from
future decreases in the Company’s net assets due to
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actions
(for example, tender offers) taken by the Company to address concerns
regarding the discount to net asset value at which the Company’s Common
Shares trade
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a
bear market for investments in the precious minerals
sector.
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The
Company would not pursue new investment management opportunities that would
compete with the Company. The Company proposes to implement this
strategy by organizing a wholly-owned investment advisory subsidiary (the
“Advisory Subsidiary”). The Company’s success in broadening the
assets under management would depend, in part, on favorable stock market
conditions in the precious minerals sector.
To this
end, the Company intends to submit a request to the staff (the “Staff”) of the
Division of Investment Management, a division of the Securities and Exchange
Commission (the “Commission”) for no-action relief under Section 12(d)(3) of the
1940 Act to permit the Company to establish an Advisory
Subsidiary. If the Staff declines to grant no-action relief, the
Company may seek exemptive relief from the Commission to allow it to establish
an Advisory Subsidiary.
7. The
Company prefers providing investment advisory services to others through an
Advisory Subsidiary rather than directly because there may be certain additional
risks if the Company provides advisory services directly, including the risk of
litigation against the Company (in its role as an investment adviser) and the
greater regulatory burdens and operating complexities of operating as both an
investment company and an investment adviser. However, if the Company
is unable to obtain the relief discussed above to establish an Advisory
Subsidiary, the Company may determine to directly provide advisory services to
others which requires no relief from the Staff or the Commission.
If the
Company forms an Advisory Subsidiary, it will capitalize such subsidiary with an
amount of money and assets reasonably necessary to cover the Advisory
Subsidiary’s organizational expenses and the Advisory Subsidiary will utilize
certain employees and facilities of the Company. Operating expenses
attributable to the Advisory Subsidiary will be borne by it. The
Advisory Subsidiary will solicit clients that may include registered investment
companies, U.S. and non-U.S. unregistered investment companies, and
non-investment company clients, such as institutional investors and separate
account clients (“Clients”). The Advisory Subsidiary may or may not
register as an investment adviser under the Investment Advisers Act of 1940 (the
“Advisers Act”). It is expected that, initially, all of the officers
and employees of the Company will hold similar positions as officers and
employees of the Advisory Subsidiary. Certain members of the Board
will become members of the Board of Directors of the Advisory
Subsidiary. Net fee income generated by the Advisory Subsidiary, if
any, will be periodically distributed in the form of dividends to the
Company. These dividend payments will provide income to defray
operating expenses of the Company and to augment dividends to the Company’s
shareholders. No assurance can be provided that advisory fees to be
generated by the Advisory Subsidiary will exceed the Advisory Subsidiary’s
operating expenses. The Advisory Subsidiary will not provide
investment advisory services to the Company and the Company will continue to be
internally managed. The Board will review at least annually the
investment advisory business of the Advisory Subsidiary in order to determine
whether or not such business should be continued and whether or not the benefits
derived by the Company from the Advisory Subsidiary’s business warrant the
Company’s continued ownership of the Advisory Subsidiary and, if applicable,
approve at least annually such continuation.
If the
Company determines to provide investment advisory services directly, it is
expected that the Company will utilize certain of its employees and facilities
to provide advisory services to the same types of Clients that the Advisory
Subsidiary may service. The day-to-day administration of the
Company’s investment advisory services to Clients would be the responsibility of
the Company’s management, including Mr. Christensen, subject to the oversight of
the Board. The Company may or may not register as an investment
adviser under the Advisers Act.
Clients
to be serviced by the Advisory Subsidiary or the Company may have investment
objectives and strategies that are similar to those of the
Company. Consequently, certain securities which the Company buys and
sells may also be bought and sold for Client accounts managed by the Advisory
Subsidiary or the Company. In order to mitigate any potential
conflicts of interest, the Advisory Subsidiary and/or the Company will institute
procedures to ensure that the purchase and sale of securities for the Company’s
investment portfolio and for each Client account managed by the Advisory
Subsidiary or the Company are conducted in a manner designed to treat all
accounts fairly and not give priority to either the Company’s investment
portfolio or to any Client account. This would be accomplished by
fixing in advance the number of shares of each security to be bought or sold for
all accounts and the number of shares for each account. Purchases and
sales would then be allocated daily in the proportions determined in this
way. This allocation policy may at times make it somewhat more
difficult, in the case of securities having limited liquidity, for the Company
to acquire or dispose of securities. Also, in a rising market it may
result in the Company paying more for some of the shares that it desires to
purchase and in a declining market it may result in the Company receiving less
for some of the shares it desires to sell. The possibly unfavorable
results for the Company may be minimized by the policy of
investing
principally
in securities that have a broad market and by the Company’s relatively low
turnover rate. In addition, the Company does not anticipate
purchasing securities issued by any Clients advised by the Advisory Subsidiary
or the Company or selling or purchasing securities to or from such
Clients.
The
investment management business is very competitive and the Company does not know
what, if any, Clients the Advisory Subsidiary or the Company will be able to
procure or the amount of income the Advisory Subsidiary or the Company may be
able to generate by providing investment advisory services. There may
be a risk that the added responsibility placed on the Company’s current officers
and employees may result in a significant burden on the Company’s resources as
Client accounts grow in number and size. The Board believes that this
risk may be mitigated by expansion of the Advisory Subsidiary’s or Company’s
staff as the investment advisory business grows. There may also be
certain additional risks if the Company provides investment advisory services
directly, including the risk of litigation against the Company (in its role as
an investment adviser) and the greater regulatory burdens and operating
complexities of operating as both an investment company and an investment
adviser.
Required Vote: Approval of an
Advisory Subsidiary or the Company providing investment advisory services to
others requires the affirmative vote of a majority of the votes cast at the
Meeting.
The
Directors unanimously recommend that you vote FOR proposal 3.