As of this writing, ASA’s Board has not announced how it will proceed. The tax risks discussed below arise from Saba’s proposal to transfer ASA assets to a U.S. subsidiary and related restructuring steps. If the Board does not pursue that structure, some punitive PFIC consequences described below may be avoided. However, any liquidation or restructuring of ASA’s portfolio could still impose substantial tax liabilities on shareholders, given the Fund’s very strong recent performance.

Saba’s proposed plan may impose substantial—and in some cases punitive—tax consequences on thousands of ASA shareholders. 

If you are a shareholder, do not wait—your voice matters now. File a complaint with the SEC to ensure these actions are reviewed before further harm occurs.

What this means for you

Saba’s proposal may force many shareholders to realize gains and trigger complex "PFIC" tax rules—potentially resulting in substantial, and in some cases punitive, tax liabilities.

These consequences do not arise simply from owning ASA—they arise if gains are forced to be realized within the Fund as part of the proposed restructuring, rather than at a time and in a manner chosen by the investor.

Punitive Tax Consequences

As a Bermuda based Fund, ASA is a so-called passive investment company (a "PFIC"). U.S. investors in taxable accounts may elect to have a tax treatment similar to that of a US investment company by making a so-called QEF filing the first year they hold ASA shares. If they fail to do so, they are subject to a tax regime that can be highly punitive. While Merk has always made an effort to alert investors of ASA's PFIC status, I understand that there may be thousands of investors who have not made the QEF election. Some ASA shareholders have held shares since before the PFIC rules were introduced in the 1980s.

I can't give tax advice here, but note that one of the PFIC rules is that a so-called "excess distribution" is triggered when a distribution exceeds 125% of the previous three year average. This rule is a key reason why dividends have only grown slowly in ASA to stay within those parameters and not impose an undue tax burden on investors. Under Saba’s proposal to transfer ASA’s assets from Bermuda to a U.S. subsidiary, this would likely trigger an excess distribution.

What are the tax consequences of an excess distribution? Under PFIC rules, the IRS treats the excess distribution as if it had been earned ratably over prior years—taxed at the highest applicable rates, with interest and penalties applied to prior periods. And given that you won't have paid taxes in all but the most recent year, there's interest and penalty that applies. The total tax burden can be rather substantial, in extreme cases over 100% of the value of the investment. 

For many investors, these consequences would not arise from market performance—but from a structural change to the Fund that they did not invest for.

This discussion is provided for general informational purposes only and does not constitute tax advice. Shareholders should consult their own tax advisors regarding their specific circumstances.

Liquidation

After years of stalling Saba finally showed its true cards in January in a  Schedule 13D filing, proposing:

• ASA be liquidated
• A US subsidiary be created for ASA, a Bermuda based fund
• ASA's cash be transferred to the US subsidiary
• ASA henceforth pursue a fixed income strategy
• the Bermuda parent company be closed down

Saba has now made explicit what had long been apparent: it seeks to take over management of ASA itself and convert the Fund into a BDC-style investment vehicle subject to management and incentive fees. For context, on February 13, 2024, Saba's proxy statement wrote, "Saba Capital would stand ready to ... offer its services to the Board to act as ... manager to the Fund" -- beyond this statement, Saba has not prominently emphasized this intention. The reason for their activism? In the 2024 proxy statement, Saba attributed their engagement with the Fund: "to poor management of the Fund by its investment manager, Merk Investments LLC"; if Saba truly believed this, they would have long moved on once the Fund's performance beat all its peers, including most on a risk adjusted basis, over several time horizons. . 

Since Saba formally became an activist investor on October 13, 2023, ASA has delivered a net return of 379.45% (NAV up approximately 369.57%) through May 31, 2026—outperforming its benchmark and all peers both absolutely and on a risk-adjusted basis. These results raise serious questions about the rationale once given for fundamentally changing the Fund’s strategy.

In my reading, an amended Schedule 13D filed by Saba in February 2026 suggests the possibility of a transaction involving the U.S. subsidiary, potentially including a combination with a Saba-managed closed-end fund.

Tender Offer Trap?

It has recently been proposed by Saba that shareholders would be provided liquidity through a limited tender offer.

But the structure and timing matter.

For investors waiting for a limited tender offer, the timing and structure could materially worsen the outcome. If ASA assets are first transferred into a U.S. subsidiary before any tender offer occurs, gains that many investors expected to qualify for long-term capital gains treatment could instead be taxed at higher ordinary income rates depending on individual circumstances.

I have consistently supported evaluating a tender offer within ASA’s current structure — providing liquidity for shareholders seeking an exit while preserving ASA’s precious metals mandate and potentially avoiding adverse tax consequences associated with restructuring.

A Hedge Fund Fee Structure?

Saba’s latest filing confirms that it seeks to manage ASA directly under a BDC-style fee structure that includes management fees and performance fees to be paid to Saba. These profit-sharing arrangements would not be permitted under the investor protections currently afforded to ASA shareholders. This would represent a fundamental departure from ASA’s historic role as a precious metals mining fund and raises serious questions about whose interests are being prioritized.

High Taxes for Other Taxable Investors

Let's assume you are an investor with a taxable account that has made the QEF filings. The proposal will still have a substantial tax impact on you given the high unrealized gains. The gains realized will be taxable.

Who Benefits?

The primary beneficiaries of Saba’s proposal are:

• Saba—through control and potential management fees, not necessarily its own investors, who may also face tax consequences.
• Future investors in a restructured U.S. vehicle, who might not be subject to PFIC rules, depending on how the restructuring is implemented. The fiduciary duty of directors is of course towards current, not future shareholders.

These tax consequences may be triggered by actions taken without your consent and outside your control.

The process that has led to this point raises serious questions about whether shareholders have been misled through material omissions and conflicted decision-making. If you are a shareholder, file a complaint to help protect your investment and ensure these issues are reviewed before irreversible harm occurs.