AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
Security Act File No. 333-48431
Investment Company Act File No. 811-00041
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. ________________
|_| Post-Effective Amendment No. ________________
and/or
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
(Check appropriate box or boxes)
-----------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
-----------------------------
450 Lexington Avenue
Suite 3300
New York, New York 10017
(Address of Principal Executive Offices)
-----------------------------
Eugene L. DeStaebler, Jr.
450 Lexington Avenue
Suite 3300
New York, New York 10017
(212) 916-8400
(Name and Address of Agent for Service)
-----------------------------
Copies to:
John E. Baumgardner, Jr., Esq. Richard T. Prins, Esq.
Sullivan & Cromwell Skadden, Arps, Slate, Meagher & Flom LLP
125 Broad Street 919 Third Avenue
New York, New York 10004 New York, New York 10022
(212) 558-4000 (212) 735-3000
-----------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. |_|
It is proposed that this filing will become effective (check appropriate box):
|_| when declared effective pursuant to Section 8(c)
If appropriate, check the following box
|_| this [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
|_| this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is -
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box |_|
---------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE PRICE (2) (3) REGISTRATION FEE(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
__% Cumulative Preferred Stock, par value $1.00 per share 6,000,000 $25.00 $150,000,000 $44,250
====================================================================================================================================
<FN>
(1) Of such amount, 4,000,000 shares were previously registered.
(2) A maximum aggregate offering price of $100,000,000 was previously registered.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) A fee in the amount of $29,500 was previously paid.
</FN>
</TABLE>
---------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a)
N-2 Item Number Location in Part A (Caption)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
PART A
1. Outside Front Cover..................................... OUTSIDE FRONT COVER PAGE
2. INSIDE FRONT AND OUTSIDE BACK COVER PAGE................ OUTSIDE FRONT COVER PAGE; INSIDE FRONT COVER PAGE;
OUTSIDE BACK COVER PAGE
3. FEE TABLE AND SYNOPSIS.................................. NOT APPLICABLE
4. FINANCIAL HIGHLIGHTS.................................... FINANCIAL HIGHLIGHTS
5. PLAN OF DISTRIBUTION.................................... OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY;
UNDERWRITING
6. SELLING SHAREHOLDERS.................................... NOT APPLICABLE
7. USE OF PROCEEDS......................................... PROSPECTUS SUMMARY; USE OF PROCEEDS; INVESTMENT
OBJECTIVES AND POLICIES
8. GENERAL DESCRIPTION OF THE REGISTRANT................... OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY; THE
COMPANY; INVESTMENT OBJECTIVES AND POLICIES; RISK
FACTORS; DESCRIPTION OF CUMULATIVE PREFERRED STOCK
9. MANAGEMENT.............................................. PROSPECTUS SUMMARY; MANAGEMENT; CUSTODIAN, TRANSFER
AGENT, REGISTRAR AND DIVIDEND-PAYING AGENT
10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES..... OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY;
CAPITALIZATION; INVESTMENT OBJECTIVES AND POLICIES;
DESCRIPTION OF CUMULATIVE PREFERRED STOCK; DESCRIPTION OF
CAPITAL STOCK AND OTHER SECURITIES; TAXATION
11. DEFAULTS AND ARREARS ON SENIOR SECURITIES............... NOT APPLICABLE
12. LEGAL PROCEEDINGS....................................... NOT APPLICABLE
13. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
INFORMATION
PART B LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------
14. COVER PAGE............................................... OUTSIDE FRONT COVER PAGE
15. TABLE OF CONTENTS........................................ OUTSIDE FRONT COVER PAGE
16. GENERAL INFORMATION AND HISTORY.......................... GENERAL INFORMATION AND HISTORY
17. INVESTMENT OBJECTIVES AND POLICIES....................... INVESTMENT OBJECTIVES AND POLICIES
18. MANAGEMENT............................................... MANAGEMENT OF THE COMPANY
19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...... MANAGEMENT OF THE COMPANY; PRINCIPAL STOCKHOLDERS
20. INVESTMENT ADVISORY AND OTHER SERVICES................... INVESTMENT ADVISORY AND OTHER SERVICES
21. BROKERAGE ALLOCATION AND OTHER PRACTICES................. BROKERAGE ALLOCATION AND OTHER PRACTICES
22. TAX STATUS............................................... TAXATION
23. FINANCIAL STATEMENTS..................................... FINANCIAL STATEMENTS
</TABLE>
PART C
INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE
APPROPRIATE ITEM, SO NUMBERED, IN PART C TO THIS REGISTRATION STATEMENT.
<PAGE>
(RED HERRING)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
================================================================================
SUBJECT TO COMPLETION, DATED __________, 1998
PROSPECTUS
6,000,000 SHARES
GENERAL AMERICAN INVESTORS COMPANY, INC.
__% CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
The shares of __% Cumulative Preferred Stock, liquidation preference $25 per
share (the "Cumulative Preferred Stock"), to be issued by General American
Investors Company, Inc. (the "Company") will be senior securities of the
Company. Prior to the offering, there has been no public market for the
Cumulative Preferred Stock. The Company is a closed-end diversified management
investment company. The Company's principal investment objective is long-term
capital appreciation. Lesser emphasis is placed on current income. No assurance
can be given, however, that the Company's investment objectives will be
achieved.
Dividends on the Cumulative Preferred Stock offered hereby will be
cumulative from _________, 1998 and will be payable quarterly commencing
___________, 1998, at the annual rate of __% of the liquidation preference of
$25 per share.
Dividends paid on the Cumulative Preferred Stock are expected to consist of
varying proportions of net long-term capital gains (consisting of 20% Rate Gain
(as defined) derived from the sale of assets held longer than 18 months and 28%
Rate Gain (as defined) derived from the sale of assets held longer than one year
but less than 18 months), ordinary income and, in unusual circumstances, return
of capital. Dividends consisting of net long-term capital gains may be taxed at
a lower rate than dividends consisting of ordinary income for certain
non-corporate taxpayers. During the past one, three and five fiscal years ended
December 31, net long-term capital gains comprised 93%, 93% and 95%,
respectively, of distributions paid by the Company on its Common Stock. It is
currently expected that dividends paid on the Cumulative Preferred Stock will
also consist primarily of net long-term capital gains. No assurance can be
given, however, as to what percentage, if any, of the dividends paid on the
Cumulative Preferred Stock will be paid out of net long-term capital gains,
which are generally taxed at lower rates for individuals than dividends paid out
of net short-term capital gains and ordinary income, which are generally taxed
at ordinary income rates.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated "aaa" by Moody's Investors Service, Inc. ("Moody's"). In connection with
the receipt of such rating, the composition of the Company's portfolio must
reflect the guidelines established by Moody's, and the Company will be required
to maintain a minimum discounted asset coverage ratio with respect to the
Cumulative Preferred Stock. See "Description of Rating Agency Guidelines-Rating
Agency Guidelines." (continued on next page)
---------------
The Company has filed an application to list the Cumulative Preferred Stock
on the New York Stock Exchange. Trading of the Cumulative Preferred Stock on the
New York Stock Exchange is expected to commence within 30 days of this
Prospectus. See "Underwriting."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE CUMULATIVE PREFERRED STOCK.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
------------ ----------------------- -----------
Per Share.................
Total(2)..................
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting estimated offering expenses of $700,000 payable by the
Company.
The shares of Cumulative Preferred Stock offered hereby are offered
severally by the Underwriters, as specified herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part. It is expected that certificates for the shares of Cumulative Preferred
Stock will be ready for delivery only through the facilities of The Depository
Trust Company in New York, New York on or about ________, 1998 against payment
therefor in immediately available funds.
---------------
As Co-Representatives
Merrill Lynch & Co. Salomon Smith Barney
The date of this Prospectus is __________, 1998.
<PAGE>
(continued from cover page)
The Cumulative Preferred Stock is subject to mandatory redemption in whole
or in part by the Company for cash at a price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
"Redemption Price") in the event that the Company fails to maintain a quarterly
asset coverage of at least 200% or to maintain the discounted asset coverage
required by Moody's, subject to the Company's determination to terminate
compliance with the Rating Agency Guidelines (as defined herein). Commencing
__________, 2003 and thereafter, the Company at its option may redeem the
Cumulative Preferred Stock in whole or in part for cash at a price equal to the
Redemption Price. Prior to __________, 2003, the Cumulative Preferred Stock will
be redeemable, at the option of the Company, for cash at a price equal to the
Redemption Price, only to the extent necessary for the Company to continue to
qualify for tax purposes as a regulated investment company. See "Description of
Cumulative Preferred Stock--Redemption" and "Description of Rating Agency
Guidelines--Redemption."
If the Company voluntarily terminates compliance with the Rating Agency
Guidelines, the dividend rate payable on the Cumulative Preferred Stock will be
increased by .375% per annum and, among other things, the Company will no longer
be required to maintain the discounted asset coverage required by Moody's. See
"Description of Rating Agency Guidelines--Rating Agency Guidelines" and
"--Termination of Rating Agency Guidelines."
This Prospectus sets forth concisely the information that a prospective
investor should know about the Company before investing. Investors are advised
to read this Prospectus carefully and to retain it for future reference.
Additional information about the Company, including a Statement of Additional
Information (the "SAI"), has been filed with the Securities and Exchange
Commission (the "Commission"). The SAI is available without charge and upon
request by writing to the Company at its address at 450 Lexington Avenue, Suite
3300, New York, New York 10017, or by calling the Company at (212) 916-8400 or
toll-free at (800) 436-8401. The SAI is dated the same date as this Prospectus
and is incorporated by reference in its entirety. The table of contents of the
Statement of Additional Information appears on page 36 of this Prospectus.
----------------------
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE PAGE
<S> <C> <C> <C>
Prospectus Summary............................... 4 Description of Capital Stock and
Tax Attributes of Preferred Stock Dividends...... 11 Other Securities............................ 30
Financial Highlights............................. 15 Taxation......................................... 31
The Company...................................... 17 Certain Provisions of the Restated Certificate of
Use of Proceeds.................................. 17 Incorporation and By-Laws; Anti-Takeover
Capitalization................................... 17 Provisions................................. 33
Portfolio........................................ 18 Custodian, Transfer Agent, Registrar and
Investment Objectives and Policies............... 19 Dividend-Paying Agent...................... 33
Management....................................... 21 Underwriting..................................... 34
Risk Factors..................................... 21 Validity of Cumulative Preferred Stock........... 35
Description of Cumulative Preferred Stock........ 22 Experts.......................................... 35
Description of Rating Agency Guidelines.......... 27 Additional Information........................... 35
Table of Contents of Statement of Additional
Information................................ 36
Glossary......................................... 36
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CUMULATIVE
PREFERRED STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE
COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information included elsewhere in
this Prospectus and the Statement of Additional Information. Capitalized terms
not defined in this Prospectus are defined in the Glossary that appears at the
end of this Prospectus.
The Company............. General American Investors Company, Inc., a Delaware
corporation (the "Company"), has been engaged in
business as a closed-end diversified management
investment company since October 15, 1928. The
Company succeeded to a similar business established
in 1927. The Company's outstanding common stock,
par value $1.00 per share (the "Common Stock"), is
listed and traded on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "GAM."
Investment
Objectives
and Policies............ The principal investment objective of the Company
is to obtain long-term capital appreciation. Lesser
emphasis is placed on current income. No assurance
can be given, however, that the Company's
investment objectives will be achieved. See
"Investment Objectives and Policies."
Portfolio............... As of March 31, 1998, the net assets of the Company
were $776,990,594 of which $394,832,119 was
unrealized appreciation on investments. See
"Portfolio."
Management.............. The Board of Directors of the Company has overall
management responsibility for the Company. The
Company's portfolio is managed by Spencer Davidson,
President and Chief Executive Officer of the
Company. See "Management--Portfolio Management"
herein and "Management of the Company" in the
Statement of Additional Information.
The Offering............ The Company is offering up to 6,000,000 shares of ___%
Cumulative Preferred Stock, par value $1.00 per
share, liquidation preference $25 per share (the
"Cumulative Preferred Stock"), at a purchase price
of $__ per share.
Dividends............... Dividends on the Cumulative Preferred Stock at the
annual rate of ___% of the liquidation preference
of $25 per share, when, as and if declared by the
Board of Directors, will be cumulative from
________, 1998 and will be payable, out of the
Company's legally available funds therefor,
quarterly on ________, _______, ________ and
________ in each year, commencing on ___________,
1998 to the holders of record on the preceding
_______, ______, _______ and _______, respectively.
See "Description of Cumulative Preferred
Stock--Dividends."
Potential Tax
Benefit to Certain
Investors............... Dividends paid on the Cumulative Preferred Stock are
expected to consist of varying proportions of net
long-term capital gains (consisting of gains
attributable to the sale of assets held longer than
18 months, which are taxable to individuals at a
maximum
4
<PAGE>
Federal tax rate of 20% ("20% Rate Gain") and gains
attributable to the sale of assets held longer than
12 months but less than 18 months, which are
taxable to individuals at a maximum Federal tax
rate of 28% ("28% Rate Gain")), ordinary income
and, in unusual circumstances, return of capital.
For individual taxpayers in the 15% marginal
Federal income tax bracket, the Federal tax rate on
20% Rate Gain is 10% and on 28% Gain is 15%. See
"Tax Attributes of Preferred Stock Dividends" and
"Taxation."
Under the distribution policy adopted by the Company,
all dividends received by the holders of the
Cumulative Preferred Stock within a given calendar
year will have the same proportions of 20% Rate
Gain, 28% Rate Gain, ordinary income and return of
capital. The amount and composition of dividends
paid to stockholders in a given calendar year will
be reported to each stockholder after the calendar
year on Form 1099-DIV.
The Company intends to allocate net long-term capital
gain and other types of income recognized by the
Company in a given taxable year proportionately
among holders of shares of Common Stock and shares
of Cumulative Preferred Stock, in accordance with
the current position of the Internal Revenue
Service (the "IRS"). Dividends to be paid by the
Company on the Cumulative Preferred Stock are
expected to consist of varying proportions of 20%
Rate Gain, 28% Rate Gain, ordinary income and, in
unusual circumstances, return of capital. Distri-
butions from net investment income and short-term
capital gains are generally taxable to individuals
as ordinary income. During the past one, three and
five fiscal years ended December 31, long-term
capital gains (i.e., capital gains from the sale of
assets held longer than 12 months) comprised 93%,
93% and 95%, respectively, of distributions paid by
the Company on its Common Stock. It is currently
expected that dividends paid on the Cumulative
Preferred Stock will also consist primarily of
long-term capital gains. Accordingly, investors in
the Cumulative Preferred Stock who are individuals
may realize a tax benefit to the extent that
dividends paid by the Company on those shares are
comprised of the less highly taxed long-term
capital gains. No assurance can be given, however,
as to what percentage, if any, of the dividends
paid on the Cumulative Preferred Stock will consist
of long-term capital gains. To the extent that
dividends on the Cumulative Preferred Stock are not
paid from such capital gains, they generally will
be paid from net investment income and short-term
capital gains and will be taxable as ordinary
income. See "Tax Attributes of Preferred Stock
Dividends."
Rating.................. It is a condition to its issuance that the Cumulative
Preferred Stock be issued with a rating of "aaa"
from Moody's Investors Service, Inc. ("Moody's"),
the highest investment grade rating issued for
preferred stock by Moody's. The Certificate of
<PAGE>
Designations, Preferences and Rights creating and
fixing the rights and preferences of the Cumulative
Preferred Stock (the "Certificate of Designations")
contains certain provisions which reflect
guidelines established by Moody's (the "Rating
Agency Guidelines") in order to obtain such rating
on the Cumulative Preferred Stock on ______, 1998
(the "Date of Original Issue"). See "Description of
Rating Agency Guidelines--Rating Agency
Guidelines." Although it is the Company's present
intention to comply with the Rating Agency
Guidelines, such that the Cumulative Preferred
Stock will continue to be rated "aaa" by Moody's,
the Board of Directors of the Company may determine
that it is not in the best interests of the Company
to continue to comply with the Rating Agency
Guidelines. If the Company voluntarily terminates
compliance with the Rating Agency Guidelines, the
dividend rate payable on the Cumulative Preferred
Stock will be increased by .375% per annum. See
"Description of Rating Agency Guidelines--
Termination of Rating Agency Guidelines."
Asset Coverage.......... The Company will be required to maintain two
different asset maintenance requirements: the asset
coverage required by the Investment Company Act of
1940, as amended (the "1940 Act"), and the
discounted asset coverage required by Moody's. Each
asset maintenance requirement is summarized below.
The Company will be required to maintain, as of the
last Business Day of March, June, September and
December of each year, asset coverage of at least
200% with respect to the Cumulative Preferred
Stock, which is the asset coverage required by
Section 18 of the 1940 Act. If the Company had
issued and sold the shares of Cumulative Preferred
Stock offered hereby as of March 31, 1998, the
asset coverage would have been 614%. See
"Description of Rating Agency Guidelines--Asset
Maintenance."
Also, the Company will be required to maintain a
Portfolio Calculation for Moody's at least equal to
the Basic Maintenance Amount. The discount factors
and guidelines for determining the Portfolio
Calculation have been established by Moody's in
connection with the Company's receipt of a rating
on the Cumulative Preferred Stock on their Date of
Original Issue of "aaa" from Moody's. See
"Description of Rating Agency Guidelines--Rating
Agency Guidelines."
Voting Rights........... At all times, holders of shares of Cumulative
Preferred Stock and any other Preferred Stock will
elect two members of the Company's Board of
Directors, and holders of shares of Cumulative
Preferred Stock, any other Preferred Stock and
Common Stock, voting as a single class, will elect
the remaining directors. However, upon a failure by
the Company to pay dividends on the Cumulative
Preferred Stock in an amount equal to two full
years' dividends, holders of shares of Cumulative
6
<PAGE>
Preferred Stock, voting as a separate class with
any other outstanding shares of Preferred Stock of
the Company, will have the right to elect the
smallest number of directors that would constitute
a majority of the directors until cumulative
dividends have been paid or provided for. Holders
of shares of Cumulative Preferred Stock and any
other Preferred Stock will vote separately as a
class on certain other matters, as required under
the Company's Certificate of Designations, the 1940
Act and Delaware law. Except as otherwise indicated
in this Prospectus and as otherwise required by
applicable law, holders of shares of Cumulative
Preferred Stock will be entitled to one vote per
share on each matter submitted to a vote of
stockholders and will vote together with holders of
shares of Common Stock and any other Preferred
Stock as a single class. See "Description of
Cumulative Preferred Stock--Voting Rights."
Mandatory
Redemption.............. The Company will be required to redeem the Cumulative
Preferred Stock in the situations discussed below.
The Cumulative Preferred Stock is subject to mandatory
redemption in whole or in part by the Company in
the event that the Company fails (i) to maintain
the quarterly asset coverage or (ii) to maintain a
Portfolio Calculation at least equal to the Basic
Maintenance Amount required by Moody's and, in each
case, does not cure such failure by the applicable
Cure Date (as defined herein), subject to the
Company's determination to terminate compliance
with the Rating Agency Guidelines. Any such
redemption will be made for cash at a price equal
to $25 per share plus accumulated and unpaid
dividends (whether or not earned or declared) to
the redemption date (the "Redemption Price").
In the event that shares are redeemed due to a failure
to maintain the quarterly asset coverage, the
Company may redeem a sufficient number of shares of
Cumulative Preferred Stock in order that the Asset
Coverage, as defined in the 1940 Act, of the
remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock after
redemption is up to 225%.
In the event that shares are redeemed due to a failure
to maintain a Portfolio Calculation at least equal
to the Basic Maintenance Amount, the Company may
redeem a sufficient number of shares of Cumulative
Preferred Stock in order that the Portfolio
Calculation exceeds the Basic Maintenance Amount of
the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock by up
to 10%.
The Cumulative Preferred Stock is also subject to
mandatory redemption in whole if the Company's
Board of Directors and holders of Common Stock
authorize certain transactions. See "Description of
Cumulative Preferred Stock--Redemption--
7
<PAGE>
Mandatory Redemption" and "Description of Rating
Agency Guidelines--Redemption."
Optional
Redemption.............. Commencing ____, 2003 and thereafter, the Company at
its option may redeem the Cumulative Preferred
Stock, in whole or in part, for cash at a price
equal to the Redemption Price. Prior to ____, 2003
the Cumulative Preferred Stock will be redeemable
at the option of the Company at the Redemption
Price only to the extent necessary for the Company
to continue to qualify for tax purposes as a
regulated investment company. See "Description of
Cumulative Preferred Stock--Redemption--Optional
Redemption."
Liquidation
Preference.............. The liquidation preference of each share of Cumulative
Preferred Stock is $25 plus an amount equal to
accumulated and unpaid dividends (whether or not
earned or declared) to the date of distribution.
See "Description of Cumulative Preferred
Stock--Liquidation Rights."
Use of Proceeds......... The Company will use the net proceeds from the
offering of the Cumulative Preferred Stock to
purchase additional portfolio securities in
accordance with its investment objectives and
policies. See "Use of Proceeds."
Listing................. Prior to this offering, there has been no public
market for the Cumulative Preferred Stock. The
Company has filed an application to list the shares
of Cumulative Preferred Stock on the NYSE. However,
during an initial period which is not expected to
exceed 30 days from the date of this Prospectus,
the Cumulative Preferred Stock may not be listed on
such securities exchange. During such period, it is
expected that the Underwriters intend to make a
market in the Cumulative Preferred Stock; however,
they have no obligation to do so. Consequently, an
investment in the Cumulative Preferred Stock may be
illiquid during such period. See "Underwriting."
Risk Factors............ The market price for the Cumulative Preferred Stock
will be influenced by changes in interest rates,
the perceived credit quality of the Cumulative
Preferred Stock and other factors, and may be
influenced by the portion of the Company's assets
consisting of unrealized appreciation, the relative
percentage of dividends on the Cumulative Preferred
Stock consisting of net investment income and net
realized long-term capital gains and other factors.
As indicated above, the Cumulative Preferred Stock is
subject to redemption under specified
circumstances. Subject to such circumstances, the
Cumulative Preferred Stock is perpetual. To the
extent that the Company experiences a substantial
decline in the value of its net assets, it may be
required to redeem Cumulative Preferred Stock to
restore compliance with the applicable asset
coverage requirements.
8
<PAGE>
The credit rating on the Cumulative Preferred Stock
could be reduced or withdrawn while an investor
holds shares either as a result of the Company's
termination of compliance with the Rating Agency
Guidelines or otherwise, and the credit rating does
not eliminate or mitigate the risks of investing in
the Cumulative Preferred Stock. A reduction or
withdrawal of the credit rating may have an adverse
effect on the market value of the Cumulative
Preferred Stock.
The Cumulative Preferred Stock is not a debt
obligation of the Company. The Cumulative Preferred
Stock will be junior in respect of dividends and
liquidation preferences to any indebtedness
incurred by the Company.
Although not anticipated, precipitous declines in the
value of the Company's assets could result in the
Company having insufficient assets to redeem all of
the Cumulative Preferred Stock for the full
Redemption Price. See "Risk Factors--Preferred
Stock."
The Company may invest its assets in foreign
securities. Investing in securities of foreign
companies and foreign governments, which generally
are denominated in foreign currencies, may involve
certain risk and opportunity considerations not
typically associated with investing in domestic
companies and could cause the Company to be
affected favorably or unfavorably by changes in
currency exchange rates and revaluations of
currencies. See "Risk Factors--Foreign Securities."
The Company is dependent upon the expertise of Mr.
Spencer Davidson in providing portfolio management
services with respect to the Company's investments.
If the Company were to lose the services of Mr.
Davidson, its investment decisions could be
adversely affected to the extent the Company could
not appoint a successor in a timely manner. There
can be no assurance that a suitable replacement
could be found for Mr. Davidson in a timely manner
in the event of his death, resignation, retirement
or inability to act on behalf of the Company. See
"Risk Factors--Dependence on Key Personnel."
Federal Income Tax
Considerations....... The Company has qualified, and intends to remain
qualified, for Federal income tax purposes, as a
regulated investment company ("RIC"). Qualification
requires, among other things, compliance by the
Company with certain distribution requirements.
Limitations on distributions, which could be
imposed in the event the Company fails to satisfy
the Asset Coverage requirements under the 1940 Act
on the Cumulative Preferred Stock, could jeopardize
the Company's ability to meet the distribution
requirements. The Company presently intends,
however, to the extent possible, to purchase or
redeem Cumulative Preferred Stock, if necessary, in
order to maintain
9
<PAGE>
compliance with such asset coverage requirements.
See "Taxation" for a more complete discussion of
these and other Federal income tax considerations.
Anti-takeover
Provisions.............. Certain provisions of the Company's Restated
Certificate of Incorporation (the "Restated
Certificate of Incorporation") and By-Laws may be
regarded as "anti-takeover" provisions. Pursuant to
these provisions, the affirmative vote of the
holders of 66 2/3% of the outstanding shares of
capital stock of the Company is necessary to
authorize the conversion of the Company from a
closed-end to an open-end investment company and to
authorize a merger or consolidation of the Company
with an open-end investment company. The overall
effect of these provisions is to render more
difficult the accomplishment of a proposal to
convert the Company's status to an open-end
investment company. In addition, the affirmative
vote of the holders of 66 2/3% of the outstanding
shares of capital stock of the Company is necessary
to authorize the sale of all or substantially all
of the assets of the Company. See "Certain
Provisions of the Restated Certificate of Incor-
poration and ByLaws; Anti-Takeover Provisions."
Custodian, Transfer
Agent, Registrar
and Dividend-Paying
Agent................... Bankers Trust Company serves as the Company's
custodian. ChaseMellon Shareholder Services, L.L.C.
serves as the Company's stock transfer agent,
registrar and dividend-paying agent. See
"Custodian, Transfer Agent, Registrar and
Dividend-Paying Agent."
10
<PAGE>
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS
Dividends paid on the Cumulative Preferred Stock are expected to
consist of varying proportions of net long-term capital gains (consisting of 20%
Rate Gain (as defined) derived from the sale of assets held longer than 18
months and 28% Rate Gain (as defined) derived from the sale of assets held
longer than one year but less than 18 months), ordinary income and, in unusual
circumstances, return of capital.
The Company intends to distribute to its stockholders substantially all
of its investment company taxable income. The Company is a regulated investment
company ("RIC"), and a RIC's distributions generally retain their character as
capital gains or ordinary income when received by its preferred and common
stockholders. However, distributions from short-term capital gains are taxable
as ordinary income. Thus, the stated __% dividends payable by the Company to
holders of the Cumulative Preferred Stock may, for Federal income tax purposes,
consist of capital gains earned on the sale of assets with various holding
periods, ordinary income and/or returns of capital.
Dividends paid out of net capital gain on assets held longer than 18
months by the Company ("20% Rate Gain") generally are currently taxable to
individuals at a maximum Federal tax rate of 20%. Dividends paid out of net
capital gain on assets held longer than 12 months but not longer than 18 months
by the Company ("28% Rate Gain") generally are currently taxable to individuals
at a maximum Federal tax rate of 28%. Dividends paid out of net investment
income and net short-term capital gains of the Company ("Ordinary Income")
generally are taxable to individuals at a maximum Federal tax rate of 39.6%.
Although the Company is not managed utilizing a tax-focused investment
strategy and does not seek to achieve any particular distribution composition,
individual investors in the Cumulative Preferred Stock would, under current
Federal income tax law, realize a tax advantage to the extent that distributions
by the Company to its stockholders are composed of the less highly taxed 20%
Rate Gain and 28% Rate Gain. In contrast, preferred stock dividends distributed
by corporations that are not RICs are generally taxed at ordinary income rates.
Dividends paid by the Company on the Cumulative Preferred Stock are
expected to consist of 20% Rate Gain, 28% Rate Gain and Ordinary Income. During
the past one, three and five fiscal years ended December 31, net long-term
capital gains (i.e., capital gains from the sale of assets held longer than 12
months and thus constituting either 20% Rate Gain or 28% Rate Gain) comprised
93%, 93% and 95%, respectively, of distributions paid by the Company on its
Common Stock. It is currently expected that dividends paid on the Cumulative
Preferred Stock will also consist primarily of net long-term capital gains. No
assurance can be given, however, as to what percentage, if any, of the dividends
paid on the Cumulative Preferred Stock will consist of 20% Rate Gain or 28% Rate
Gain.
The Federal income tax characteristics of the Company and the taxation
of its stockholders are described more fully under "Taxation."
The following table shows the percentage of yearly common stock
dividends comprised of net long-term capital gain attributable to assets held
longer than 12 months.
TEN YEAR DIVIDEND HISTORY
[Bar chart demonstrating the percentage of the Company's
dividends from 1997-1988 comprised of net long-term capital
gains attributable to assets held longer than 12 months]
11
<PAGE>
The following chart shows the composition of the aggregate earnings of
the Company during the 5-year period from 1993 through 1997.
5-YEAR AVERAGE-EARNINGS COMPOSITION (1)
[Pie chart demonstrating the five year average earnings
composition: 90.6% of the Company's aggregate earnings
consisted of 20% Rate Gain; 5.5% consisted of ordinary
income; and 3.9% consisted of 2.8% Rate Gain]
(1) Recalculated as if the current 20% Rate Gain and 28%
Rate Gain categories were in effect during the 5-year
period from 1993 through 1997.
ORDINARY INCOME EQUIVALENT YIELD CALCULATION
The following table shows examples of the pure Ordinary Income
equivalent yield that would be generated by the stated dividend rate on the
Cumulative Preferred Stock, assuming distributions for Federal income tax
purposes consisting of six different proportions of 20% Rate Gain, 28% Rate Gain
and Ordinary Income for an individual in the 31% Federal marginal income tax
bracket. Both this table and the following table assume the indicated
proportions of 20% Rate Gain and 28% Rate Gain. In reading these tables,
prospective investors should understand that a number of actions could affect
the actual composition for Federal income tax purposes of the Company's
distributions each year. Such factors include (i) the Company's investment
performance for any particular year, which may result in varying proportions of
20% Rate Gain, 28% Rate Gain, Ordinary Income and/or return of capital in the
year's distributions, and (ii) revocation or revision of the IRS revenue ruling
requiring the proportionate allocation of 20% Rate Gain and 28% Rate Gain among
holders of various classes of a closed-end RIC's capital stock.
12
<PAGE>
THESE TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY AND CANNOT BE TAKEN AS
AN INDICATION OF THE ACTUAL COMPOSITION FOR FEDERAL INCOME TAX PURPOSES OF THE
COMPANY'S FUTURE DISTRIBUTIONS.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED
DIVIDEND RATE OF
----------------------
PERCENTAGE OF CUMULATIVE PREFERRED STOCK 7.0% 7.125% 7.25%
STATED ANNUAL DIVIDEND COMPRISED OF
------------------------------------------------
LONG-TERM CAPITAL GAINS ORDINARY
-----------------------
20% RATE 28% RATE INCOME IS EQUIVALENT FOR AN INDIVIDUAL IN THE 31% FEDERAL
-------- -------- -------- INCOME TAX BRACKET TO AN ORDINARY INCOME YIELD OF:
GAIN GAIN --------------------------------------------------
---- ----
<S> <C> <C> <C> <C> <C>
75.0% 15.0% 10.0% 7.88% 8.02% 8.16%
50.0% 25.0% 25.0% 7.63% 7.77% 7.91%
33.3% 33.3% 33.3% 7.48% 7.61% 7.74%
25.0% 25.0% 50.0% 7.36% 7.49% 7.62%
10.0% 15.0% 75.0% 7.16% 7.29% 7.41%
-- -- 100.0% 7.00% 7.13% 7.25%
-----------------------------
</TABLE>
Assuming that 20% Rate Gain, 28% Rate Gain and Ordinary Income comprise
75%, 15% and 10%, respectively, of a stated Cumulative Preferred Stock dividend,
the following table shows the pure Ordinary Income equivalent yields that would
be generated at the stated dividend rate for individuals in the indicated tax
brackets.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
----------------
7.0% 7.125% 7.25%
IS EQUIVALENT TO AN
FEDERAL TAX BRACKET(1) ORDINARY INCOME YIELD OF
---------------------- ----------------------------------
<S> <C> <C> <C>
39.6%............................... 8.91% 9.06% 9.22%
36.0%............................... 8.44% 8.59% 8.75%
31.0%............................... 7.88% 8.02% 8.16%
28.0%............................... 7.58% 7.72% 7.85%
15.0%(2)............................ 7.31% 7.44% 7.57%
</TABLE>
The tax characteristics of the Company are described more fully under
"Taxation." Consult your tax adviser for further details.
The charts above are for illustrative purposes only and cannot be taken
as an indication of the composition of future distributions by the Company.
- ---------------
(1) Annual taxable income levels corresponding to the 1998 Federal marginal tax
brackets are as follows:
<TABLE>
<CAPTION>
1998 FEDERAL INCOME
TAX BRACKET SINGLE JOINT
- ---------------------- ------ -----
<S> <C> <C>
39.6% over $278,450 over $278,450
36.0% $128,101 - $278,450 $155,951 - $278,450
31.0% $61,401 - $128,100 $102,301 - $155,950
28.0% $25,351 - $61,400 $42,351 - $102,300
15.0% up to and including $25,350 up to and including $42,350
</TABLE>
13
<PAGE>
An investor's Federal marginal income tax rates may exceed the rates shown
in the above tables due to the reduction, or possible elimination, of the
personal exemption for high-income taxpayers and an overall limit on
itemized deductions. Income may also be subject to certain state, local
and foreign taxes. For investors who pay alternative minimum tax,
equivalent yields may be lower than those shown above. The tax rates shown
above do not apply to corporate taxpayers.
(2) Reflects the fact that individuals in the 15% tax bracket are taxed at a
10% rate on gain attributable to assets held longer than 18 months and at
a 15% rate on gain attributable to assets held longer than 12 months but
not longer than 18 months.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The selected financial data set forth below is for shares of Common
Stock outstanding for the three months ended March 31, 1998 and for each year in
the ten-year period ended December 31, 1997. The financial information was
derived from and should be read in conjunction with the financial statements of
the Company incorporated by reference into this Prospectus and the Statement of
Additional Information. The financial information set forth below has been
derived from the financial statements and (except for the financial data as of
March 31, 1998) has been audited by Ernst & Young LLP, independent auditors, as
stated in their unqualified report accompanying such financial statements, which
report is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------------- ----------- ---------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $29.15 $25.24 $23.94 $22.31 $24.75 $28.56
------ ------ ------ ------ ------ ------
Net investment income.......................... .10 .21 .22 .08 .05 .03
Net gain (loss) on securities-realized and
unrealized.................................... 3.49 7.15 3.86 4.54 (.94) (.80)
---- ---- ---- ---- ---- ----
Total from investment operations................. 3.59 7.36 4.08 4.62 (.89) (.77)
---- ---- ---- ---- ---- ----
Less distributions
Dividends from net investment income(1)........ (.01) (.26) (.20) (.11) (.05) (.04)
Distributions from capital gains............... (.20) (3.19) (2.58) (2.87) (1.49) (2.98)
In excess of net income........................ -- -- -- (.01) (.01) (.02)
---- ---- ----
Total distributions.............................. (.21) (3.45) (2.78) (2.99) (1.55) (3.04)
---- ----- ----- ----- ----- -----
Net asset value, end of period................... $32.53 $29.15 $25.24 $23.94 $22.31 $24.75
====== ====== ====== ====== ====== ======
Per share market value, end of period............ $29.19 $26.19 $21.00 $20.00 $19.00 $22.25
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:
Stockholder Return based on market price
per share........................................ 12.38%(3) 42.58% 19.48% 21.22% -7.86% -15.92%
RATIOS AND SUPPLEMENTAL DATA:
Total net assets, end of period (000's omitted).. $776,991 $702,597 $597,597 $573,693 $519,722 $553,898
Ratio of expenses to average net assets.......... 0.23%(3) 0.98% 1.05% 1.25% 1.17% 1.16%
Ratio of net income to average net assets........ 0.34%(3) 0.80% 0.88% 0.36% 0.21% 0.14%
Portfolio turnover rate.......................... 6.70%(3) 32.45% 33.40% 29.14% 17.69% 19.50%
Average commission rate paid per share(2)........ $.0500 $.0504 $.0500
Shares outstanding, end of period (000's omitted) 23,886 24,105 23,679 23,963 23,292 22,379
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1991 1990 1989 1988
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $30.60 $20.60 $21.41 $17.03 $16.70
------ ------ ------ ------ ------
Net investment income.......................... -- .09 .18 .19 .28
Net gain (loss) on securities-realized and
unrealized.................................. 1.05 12.05 .92 5.92 2.20
---- ----- --- ---- ----
Total from investment operations................. 1.05 12.14 1.10 6.11 2.48
---- ----- ---- ---- ----
Less distributions
Dividends from net investment income(1)........ (.03) (.10) (.21) (.27) (.25)
Distributions from capital gains............... (3.06) (2.04) (1.70) (1.46) (1.90)
In excess of net income........................ -- -- -- -- --
------ ------ ------ ------ ------
Total distributions.............................. (3.09) (2.14) (1.91) (1.73) (2.15)
------ ------ ------ ------ ------
Net asset value, end of period................... $28.56 $30.60 $20.60 $21.41 $17.03
====== ====== ====== ====== ======
Per share market value, end of period............ $30.00 $29.00 $17.00 $18.13 $13.38
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:
Stockholder Return based on market price
per share..................................... 14.78% 85.00% 4.00% 48.60% 20.94%
RATIOS AND SUPPLEMENTAL DATA:
Total net assets, end of period (000's omitted).. $586,489 $587,213 $382,234 $381,933 $301,791
Ratio of expenses to average net assets.......... 1.16% 1.02% 1.07% 1.04% 1.14%
Ratio of net income to average net assets........ 0.00% 0.37% 0.84% 0.96% 1.60%
Portfolio turnover rate.......................... 14.42% 21.30% 18.77% 26.91% 19.37%
Average commission rate paid per share(2)
Shares outstanding, end of period (000's omitted) 20,534 19,187 18,559 17,843 17,725
- ------------
<FN>
(1) Includes short-term capital gains in the amount of $.05 per share for 1997,
$.03 per share for 1995 and $.02 per share for 1989.
(2) Beginning with the year ended December 31, 1996, the Company is required to
disclose its average commission rate paid per share for purchases and sales
of investment securities.
(3) Not annualized.
</FN>
</TABLE>
16
<PAGE>
THE COMPANY
General American Investors Company, Inc. (the "Company") is a
closed-end diversified management investment company, incorporated under the
laws of the State of Delaware on October 15, 1928, and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Company
succeeded to a similar business established in 1927. As of March 31, 1998, the
Company had 23,885,978 shares of Common Stock issued and outstanding with an
aggregate net asset value of $776,990,594. The Company's principal office is
located at 450 Lexington Avenue, Suite 3300, New York, New York 10017, its
telephone number is (212) 916-8400 and its toll free telephone number is (800)
436-8401.
The Company's principal investment objective is long-term capital
appreciation. Lesser emphasis is placed on current income. In seeking to achieve
its primary investment objective, the Company invests principally in common
stocks believed by its management to have better-than-average growth potential.
Normally, a substantially fully-invested position in equities is maintained. See
"Investment Objectives and Policies."
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
$144,575,000 (after deducting the underwriting discounts and estimated offering
expenses). The Company expects to invest such proceeds in accordance with the
Company's investment objectives and policies within six months from the
completion of the offering, depending on market conditions for the types of
securities in which the Company principally invests. Pending such investment,
the proceeds will be held in high quality short-term debt securities and
instruments. See "Investment Objectives and Policies."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 on an actual basis and as adjusted to give effect to the
consummation of the offering.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
ACTUAL AS ADJUSTED(1)
------------- ------------------
<S> <C> <C>
LONG-TERM DEBT ---- ----
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value:
Authorized 10,000,000 shares; outstanding 0 shares; as adjusted,
6,000,000 shares of ___% Cumulative Preferred Stock
outstanding......................................................... $--- $150,000,000
============ ============
Common Stock, $1 par value:
Authorized 30,000,000 shares; outstanding 23,885,978 shares
(exclusive of 262,000 shares held in Treasury)...................... $ 23,885,978 $ 23,885,978
Paid-in capital..................................................... 342,306,878 336,881,878
Undistributed realized gain on securities sold...................... 14,085,006 14,085,006
Undistributed net income............................................ 1,880,613 1,880,613
Unrealized appreciation on investments.............................. 394,832,119 394,832,119
------------ ------------
Net Assets applicable to Common Stock........................... $776,990,594 $771,665,594
============ ============
- ---------------
<FN>
(1) After deducting the underwriting discounts and estimated offering expenses
of $5,425,000.
</FN>
</TABLE>
17
<PAGE>
PORTFOLIO
The following table sets forth certain information with respect to the
Company's investment portfolio as of March 31, 1998.
<TABLE>
<CAPTION>
VALUE PERCENTAGE
------ -----------
<S> <C> <C>
Common stocks..................................................... $656,845,123 84.5%
Corporate discount notes.......................................... 111,392,625 14.3
Convertible corporate note........................................ 9,996,875 1.3
Liabilities in excess of cash and other assets.................... (1,244,029) (0.1)
-------------- -------
Total net assets......................................... $776,990,594 100.0%
============= =====
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO: VALUE PERCENTAGE
----- ----------
Pharmaceuticals and health care................................... $123,667,175 15.9%
Retail trade...................................................... 109,543,125 14.1
Banking........................................................... 100,350,909 12.9
Insurance......................................................... 93,897,125 12.1
Consumer products and services.................................... 80,759,063 10.4
Communications and information services........................... 42,930,737 5.5
Computer software and systems..................................... 35,224,750 4.5
Oil and natural gas (including services).......................... 24,012,250 3.1
Environment control (including services).......................... 20,186,813 2.6
Miscellaneous..................................................... 16,818,813 2.2
Semiconductors.................................................... 9,351,563 1.2
Special holdings.................................................. 102,800 0.0
------------ -----
$656,845,123 84.5%
============ ====
</TABLE>
The following table sets forth the Company's ten largest investment holdings as
of March 31, 1998.
<TABLE>
<CAPTION>
% TOTAL
SHARES VALUE NET ASSETS
------ ----- ----------
<S> <C> <C> <C>
THE HOME DEPOT, INC......................... 990,000 $ 66,948,750 8.6%
PFIZER INC.................................. 365,000 36,385,938 4.7
WAL-MART STORES, INC........................ 670,000 34,044,375 4.4
AB ASTRA.................................... 1,382,500 27,962,450 3.6
FORD MOTOR COMPANY.......................... 420,000 27,221,250 3.5
FIRST EMPIRE STATE CORPORATION.............. 50,000 24,993,750 3.2
LIFE RE CORPORATION......................... 275,000 20,281,250 2.6
USA WASTE SERVICES, INC..................... 453,000 20,186,813 2.6
GENERAL RE CORPORATION...................... 90,000 19,856,250 2.6
CRESTAR FINANCIAL CORP...................... 300,000 17,737,500 2.3
------------- -----
$295,618,326 38.0%
============ ====
</TABLE>
18
<PAGE>
The following table sets forth as of March 31, 1998 the unrealized
appreciation on investments as a percentage of the Company's net assets.
<TABLE>
<S> <C> <C>
Cost Basis of Net Assets.................... $ 382,158,475 49.2%
Unrealized Appreciation on Investments...... $ 394,832,119 50.8%
------------- -----
Total Net Assets............................ $ 776,990,594 100.0%
============= =====
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Company's principal investment objective is long-term capital
appreciation. Lesser emphasis is placed on current income. In seeking to achieve
its primary investment objective, the Company invests principally in common
stocks believed by its management to have better-than-average growth potential.
Normally, a substantially fully-invested position in equities is maintained.
There are market risks inherent in any investment, and no assurance can be given
that the investment objectives of the Company will be achieved.
INVESTMENT POLICIES
The Company's investment policy is flexible, as its Restated
Certificate of Incorporation permits investment in all forms of securities
without limiting the portion of its assets which may be invested in any one
type. While common stocks have made up the bulk of investments, assets may be
held in cash or invested in all types of securities, that is, in bonds,
debentures, notes, preferred and common stocks, rights and warrants, and other
securities in whatever amounts or proportions the Company believes are best
suited to current and anticipated economic and market conditions. As a
diversified management investment company registered under the 1940 Act, the
Company may not make any investment which would result in less than 75% of its
assets being in cash or cash items, Government securities and securities of
other companies, limited in the case of any one issuer to not more than 5% of
the Company's total assets and to 10% of the voting securities of such issuer.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES; INVESTMENT RESTRICTIONS
The Company's principal investment objective is long-term capital
appreciation. Lesser emphasis is placed on current income. These investment
objectives may not be changed without a vote of the holders of a majority of the
Company's outstanding voting securities.
The policies set forth below are fundamental policies of the Company
and may not be changed without the affirmative vote of the holders of a majority
of the Company's outstanding voting securities, as indicated above. The Company
may not:
1. Issue any class of senior security, or sell any such security of
which it is the issuer, except as permitted by the 1940 Act.
2. Borrow money in excess of 25% of its gross assets, except for the
purchase or redemption of outstanding senior securities.
3. Underwrite securities in excess of 20% of its gross assets.
19
<PAGE>
4. Increase its holdings in a particular industry by additional
investment in that industry beyond 50% of the value of the
Company's gross assets.
5. Purchase or sell real estate.
6. Purchase or sell commodities or commodity contracts in excess of
20% of its gross assets.
7. Make loans (other than through the purchase of a portion of an
issue of bonds, debentures or other securities, issued by another
person) to other persons in an amount exceeding 10% to any one
person or exceeding in the aggregate 20% of its gross assets.
8. Invest in companies for the purpose of exercising control of
management, unless it becomes necessary to do so to conserve any
investment.
If a percentage restriction is met at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or amount of total assets will not be considered a
violation of any of the above restrictions.
Within the limits of these fundamental policies the Company has
reserved freedom of action. While the Company's fundamental policy permits the
Company to invest up to 50% of the gross value of its assets in a particular
industry, it is the operating policy of the Company to invest not more than 25%
of its assets in any one particular industry.
FOREIGN SECURITIES
The Company may invest its assets in foreign securities, which may
include securities issued by companies in developing countries. As of March 31,
1998, 9% of the Company's assets were invested in securities of companies
domiciled in foreign countries. Of this amount, 4.9% represented direct foreign
investment in foreign companies and 4.1% represented investment in foreign
companies through American Depositary Receipts.
PORTFOLIO TURNOVER
The Company buys and sells securities to accomplish its investment
objective. The investment policies of the Company and fluctuating market
conditions are instrumental in determining the frequency of changes in
investments. Consequently, it is not possible to predict the portfolio turnover
of the Company with certainty. During the three months ended March 31, 1998 and
the years ended December 31, 1997 and 1996, the portfolio turnover of the
Company was 6.70% (not annualized), 32.45% and 33.40%, respectively.
Portfolio turnover generally involves some expense to the Company,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. The portfolio
turnover rate is computed by dividing the lesser of the amount of the long-term
securities purchased or securities sold by the average monthly value of
securities owned during the year (excluding securities whose maturities at
acquisition were one year or less).
20
<PAGE>
MANAGEMENT
Under the Company's Restated Certificate of Incorporation and Delaware
General Corporation Law, the Company's business and affairs are managed by or
under the direction of its Board of Directors. The Company's portfolio is
internally managed by the officers of the Company, without an investment
adviser. Information about the directors and officers of the Company is included
in the Statement of Additional Information.
PORTFOLIO MANAGEMENT
Spencer Davidson, President and Chief Executive Officer of the Company,
has been responsible for the management of the Company's portfolio since August
1995. Mr. Davidson joined the Company in 1994 as senior investment counselor.
Prior thereto, he was the general partner of a private investment partnership.
He has spent his entire business career on "Wall Street" since first joining an
investment and banking firm in 1966.
Mr. Davidson supervises and coordinates the Company's investment
operations and provides overall guidance with respect to industry developments
and the economic outlook. He is assisted by four individuals who have ongoing
responsibility for monitoring and evaluating developments in industries in which
they specialize. This internal effort is supplemented by the use of consultants,
two of whom are currently on retainer. The essential function of the investment
staff is to assess social, economic and technological changes and to evaluate
whether such changes give rise to investment opportunities.
EXPENSES
The Company pays all of its own expenses, including, without
limitation, salaries and benefits of its officers and employees; rent for office
space; other investment research, administration and office operations costs;
non-affiliated directors' fees; transfer agent, registrar and custodian fees;
preparation, printing and distribution of its proxy statements, stockholder
reports and notices; auditing and legal fees; Federal registration fees; stock
exchange listing fees and expenses; Federal, state and local taxes; brokerage
commissions; and the cost of issue and sale of its securities.
The Company has taken steps that it believes are reasonably designed to
address the potential failure of computer systems used by the Company and the
Company's service providers in response to the Year 2000 issue. There can be no
assurance that these steps will be sufficient to avoid any adverse impact.
RISK FACTORS
Prospective investors should consider carefully the following risk
factors in addition to other information set forth in this Prospectus and the
Statement of Additional Information prior to making an investment in the
Cumulative Preferred Stock.
PREFERRED STOCK
There are a number of risks associated with an investment in Cumulative
Preferred Stock. The market price for the Cumulative Preferred Stock will be
influenced by changes in interest rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors, and may be influenced by the
portion of the Company's assets consisting of unrealized appreciation, the
relative percentage of dividends on the Cumulative Preferred Stock consisting of
net investment income and net realized long-term capital gains and other
factors. The Cumulative Preferred Stock is subject to redemption under specified
circumstances and investors may not be able to reinvest the proceeds of any such
redemption in an investment providing the same or a better rate of return than
that of the Cumulative Preferred Stock. Unless the Company is required to redeem
the Cumulative Preferred Stock in the circumstances described in "Description of
Preferred Stock--Redemption--Mandatory Redemption" and "Description of Rating
Agency Guidelines -- Redemption" or elects to do so voluntarily, the Cumulative
Preferred Stock is perpetual. The credit
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rating on the Cumulative Preferred Stock could be reduced or withdrawn while an
investor holds shares, and the credit rating does not eliminate or mitigate the
risks of investing in the Cumulative Preferred Stock. A reduction or withdrawal
of the credit rating would likely have an adverse effect on the market value of
the Cumulative Preferred Stock. The Cumulative Preferred Stock is not a debt
obligation of the Company. The Cumulative Preferred Stock would be junior in
respect of dividends and liquidation preference to any indebtedness incurred by
the Company. Although not anticipated, precipitous declines in the value of the
Company's assets could result in the Company having insufficient assets to
redeem all of the Cumulative Preferred Stock for the full Redemption Price.
FOREIGN SECURITIES
The Company may invest its assets in foreign securities. Investing in
securities of foreign companies and foreign governments, which generally are
denominated in foreign currencies, may involve certain risk and opportunity
considerations not typically associated with investing in domestic companies and
could cause the Company to be affected favorably or unfavorably by changes in
currency exchange rates and revaluations of currencies. In addition, less
information may be available about foreign companies and foreign governments
than about domestic companies and foreign companies and foreign governments
generally are not subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to domestic companies. Foreign securities and their markets
may not be as liquid as U.S. securities and their markets. Securities of some
foreign companies may involve greater market risk than securities of U.S.
companies. Investing in foreign securities may result in higher expenses than
investing in domestic securities because of the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. Investment in foreign securities may also be
subject to local economic risks, including instability of some foreign
governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the expertise of Mr. Spencer Davidson in
providing portfolio management services with respect to the Company's
investments. If the Company were to lose the services of Mr. Davidson, its
investment decisions could be adversely affected to the extent the Company could
not appoint a successor in a timely manner. There can be no assurance that a
suitable replacement could be found for Mr. Davidson in a timely manner in the
event of his death, resignation, retirement or inability to act on behalf of the
Company.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Certificate of Designations, the form of which is
filed as an exhibit to this Registration Statement. Certain of the capitalized
terms used herein are defined in the Glossary that appears at the end of this
Prospectus.
GENERAL
On March 11, 1998, the shareholders of the Company approved an
amendment to the Company's Restated Certificate of Incorporation to increase the
Company's total authorized capitalization to 40,000,000 shares, consisting of
30,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. In
addition, such amendment granted the Board of Directors the authority to
establish by resolution or resolutions, the designations and the powers,
preferences and rights of the shares of each series of Preferred Stock, if
applicable, and the qualifications, limitations or restrictions of such shares
of Preferred Stock. As of the date of this Prospectus, there are no shares of
Cumulative Preferred Stock or any other Preferred Stock of the Company
outstanding.
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Under the Certificate of Designations, the Company will be authorized
to issue up to 6,000,000 shares of Cumulative Preferred Stock. No fractional
shares of Cumulative Preferred Stock will be issued. The Board of Directors
reserves the right to issue additional shares of Cumulative Preferred Stock,
from time to time, subject to the restrictions set forth in the Certificate of
Designations. The shares of Cumulative Preferred Stock will, upon issuance, be
fully paid and nonassessable and will have no preemptive, exchange or conversion
rights. Any shares of Cumulative Preferred Stock repurchased or redeemed by the
Company will be cancelled and will revert to authorized but unissued Preferred
Stock undesignated as to series. The Board of Directors may by resolution
classify or reclassify any authorized but unissued Preferred Stock from time to
time by setting or changing the preferences, rights, voting powers,
restrictions, limitations or terms of redemption. The Company will not issue any
class of stock senior to the shares of Cumulative Preferred Stock.
Payments to the holders of Cumulative Preferred Stock of dividends or
upon redemption or in liquidation will be subject to the prior payments of
interest and repayment of principal then due on any other indebtedness of the
Company.
DIVIDENDS
Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company out
of funds legally available therefor, cumulative cash dividends at the annual
rate of __% per share of the liquidation preference of $25 per share and no
more, payable quarterly on ____________, ___________, ___________ and
___________ in each year (or, if such date is not a Business Day, on the next
succeeding Business Day) (each, a "Dividend Payment Date"), commencing on
__________, to the persons in whose names the shares of Cumulative Preferred
Stock are registered at the close of business on the preceding ____________,
___________, ___________ and ___________ respectively. Dividends on the shares
of Cumulative Preferred Stock will accumulate from the date of issuance thereof
(the "Date of Original Issue").
No dividends will be declared or paid or set apart for payment on
shares of Cumulative Preferred Stock for any dividend period or part thereof
unless full cumulative dividends have been or contemporaneously are declared and
paid on all outstanding shares of Cumulative Preferred Stock through the most
recent Dividend Payment Dates thereof. If full cumulative dividends are not
declared and paid (or a sum sufficient is set apart) on the Cumulative Preferred
Stock, all dividends declared on the shares of Cumulative Preferred Stock will
be paid pro rata to the holders of the outstanding shares. Holders of shares of
Cumulative Preferred Stock will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends. No
interest, or sum of money in lieu of interest, will be payable in respect of any
dividend payment that may be in arrears.
For so long as any shares of Cumulative Preferred Stock are
outstanding, the Company will not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock or other stock, if any, ranking junior to the Cumulative
Preferred Stock as to dividends or upon liquidation) in respect of the Common
Stock or any other stock of the Company ranking junior to or on a parity with
the Cumulative Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any shares
of its Common Stock or any other junior stock (except by conversion into or
exchange for stock of the Company ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends and upon liquidation), unless, in
each case, (i) immediately after such transaction, the Company will have a
Portfolio Calculation for Moody's at least equal to the Basic Maintenance Amount
and the Company will maintain the Asset Coverage (see "Description of Rating
Agency Guidelines--Asset Maintenance" and "--Redemption"), (ii) full cumulative
dividends on shares of Cumulative Preferred Stock due on or prior to the date of
the transactions have been declared and paid (or sufficient Deposit Securities
to cover such payment have been deposited with the Dividend-Paying Agent) and
(iii) the Company has redeemed the full number of shares of Cumulative Preferred
Stock required to be redeemed by any provision for mandatory redemption
contained in the Certificate of Designations.
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REDEMPTION
Mandatory Redemption. The Company will be required to redeem the
Cumulative Preferred Stock in whole or in part in the event that the Company
fails to maintain a quarterly asset coverage of at least 200% or to maintain the
discounted asset coverage required by Moody's, subject to the Company's
determination to terminate compliance with the Rating Agency Guidelines
discussed under "Description of Rating Agency Guidelines." See "Description of
Rating Agency Guidelines--Redemption."
The Cumulative Preferred Stock is also subject to mandatory redemption
in whole by the Company at the Redemption Price if the Company's Board of
Directors and holders of Common Stock authorize (a) the dissolution of the
Company; (b) any plan of reorganization (as that term is defined in the 1940
Act) adversely affecting the Cumulative Preferred Stock or (c) any action to
change the nature of the Company business so as to cease to be an investment
company as provided in Section 13(a)(4) of the 1940 Act.
Optional Redemption. Prior to _________, 2003, the Company may, at its
option, redeem shares of Cumulative Preferred Stock at the Redemption Price per
share only to the extent that any such redemption is necessary, in the judgment
of the Company, to maintain the Company's status as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"). Commencing _______, 2003, and at any time and from time to time
thereafter, the Company may, at its option, redeem shares of Cumulative
Preferred Stock in whole or in part at the Redemption Price. Such redemptions
are subject to the limitations of the 1940 Act, Delaware law and any other
agreement relating to indebtedness of the Company.
Redemption Procedures. A Notice of Redemption will be given to the
holders of record of Cumulative Preferred Stock selected for redemption not less
than 30 or more than 60 days prior to the date fixed for the redemption. Each
Notice of Redemption will state (i) the redemption date, (ii) the number of
shares of Cumulative Preferred Stock to be redeemed, (iii) the CUSIP number(s)
of such shares, (iv) the Redemption Price, (v) the place or places where such
shares are to be redeemed, (vi) that dividends on the shares to be redeemed will
cease to accrue on such redemption date, and (vii) the provision of the
Certificate of Designations under which the redemption is being made. No defect
in the Notice of Redemption or in the mailing thereof will affect the validity
of the redemption proceedings, except as required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution or winding up of the affairs of the
Company (whether voluntary or involuntary), holders of shares of Cumulative
Preferred Stock then outstanding will be entitled to receive out of the assets
of the Company available for distribution to stockholders, after satisfying
claims of creditors but before any distribution or payment of assets is made to
holders of the Common Stock or any other class of stock of the Company ranking
junior to the Cumulative Preferred Stock as to liquidation payments, a
liquidation distribution in the amount of $25 per share plus an amount equal to
all unpaid dividends accumulated thereon up to and including the date fixed for
such distribution or payment (whether or not earned or declared by the Company,
but excluding interest thereon) (the "Liquidation Preference"), and such holders
will be entitled to no further right or claim to any of the remaining assets of
the Company. If, upon any liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or involuntary, the assets of the Company
available for distribution among the holders of all outstanding shares of
Cumulative Preferred Stock and any other outstanding Preferred Stock of the
Company ranking on a parity with the Cumulative Preferred Stock as to payment
upon liquidation, will be insufficient to permit the payment in full to such
holders of Cumulative Preferred Stock of the Liquidation Preference and the
amounts due upon liquidation with respect to such other Preferred Stock, then
such available assets will be distributed among the holders of Cumulative
Preferred Stock and such other Preferred Stock ratably in proportion to the
respective preferential amounts to which they are entitled. Unless and until the
Liquidation Preference has been paid in full to the holders of Cumulative
Preferred Stock, no dividends or distributions will be made to holders of the
Common Stock or any other stock of the Company ranking junior to the Cumulative
Preferred Stock as to liquidation.
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VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of Cumulative Preferred Stock will be
entitled to one vote per share on each matter submitted to a vote of
stockholders and will vote together with holders of shares of Common Stock and
of any other Preferred Stock of the Company then outstanding as a single class.
In connection with the election of the Company's directors, holders of
shares of Cumulative Preferred Stock and any other Preferred Stock, voting as a
separate class, will be entitled at all times to elect two of the Company's
directors, and the remaining directors will be elected by holders of shares of
Common Stock and holders of shares of Cumulative Preferred Stock and any other
Preferred Stock, voting together as a single class. In addition, if at any time
dividends on outstanding shares of Cumulative Preferred Stock and/or any other
Preferred Stock are unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any shares of Preferred Stock are
entitled, together with the holders of shares of Cumulative Preferred Stock, to
elect a majority of the directors of the Company under the 1940 Act, then the
number of directors constituting the Board of Directors automatically will be
increased by the smallest number that, when added to the two directors elected
exclusively by the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock as described above, would constitute a majority of the Board of
Directors as so increased by such smallest number. Such additional directors
will be elected at a special meeting of stockholders which will be called and
held as soon as practicable, and at all subsequent meetings at which directors
are to be elected, the holders of shares of Cumulative Preferred Stock and any
other Preferred Stock, voting as a separate class, will be entitled to elect the
smallest number of additional directors that, together with the two directors
which such holders in any event will be entitled to elect, constitutes a
majority of the total number of directors of the Company as so increased. The
terms of office of the persons who are directors at the time of that election
will continue. If the Company thereafter pays, or declares and sets apart for
payment in full, all dividends payable on all outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock for all past dividend periods, the
additional voting rights of the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock as described above will cease, and the terms of
office of all of the additional directors elected by the holders of shares of
Cumulative Preferred Stock and any other Preferred Stock (but not of the
directors with respect to whose election the holders of shares of Common Stock
were entitled to vote or the two directors the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock have the right to elect in any
event) will terminate immediately and automatically.
So long as the shares of Cumulative Preferred Stock are outstanding,
the Company will not, without the affirmative vote of the holders of a majority
of the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Restated
Certificate of Incorporation, whether by merger, consolidation or otherwise, so
as to materially adversely affect any of the rights set forth in the Restated
Certificate of Incorporation of holders of the shares of Cumulative Preferred
Stock. The Board of Directors, however, without stockholder approval, may amend,
alter or repeal the Rating Agency Guidelines in the event the Company receives
confirmation from Moody's that any such amendment, alteration or repeal would
not impair the rating then assigned to the Cumulative Preferred Stock.
Furthermore, under certain circumstances, without the vote of stockholders, the
Board of Directors of the Company may determine that it is not in the best
interests of the Company to continue to comply with the Rating Agency
Guidelines. See "Description of Rating Agency Guidelines--Termination of Rating
Agency Guidelines." The affirmative vote of a majority of the votes entitled to
be cast by holders of outstanding shares of the Cumulative Preferred Stock and
any other Preferred Stock, voting as a separate class, will be required to
approve any plan of reorganization adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the 1940 Act,
including, among other things, any action to change the subclassification from a
closed-end investment company to an open-end investment company and changes in
the Company's investment objective or changes in the investment restrictions
described as fundamental policies under "Investment Objectives and Policies,"
each to the extent shareholder authorization is required. The class vote of
holders of shares of the Cumulative Preferred Stock and any other Preferred
Stock described above will be in addition to a separate vote of the requisite
percentage of shares of Common Stock and Cumulative Preferred Stock and any
other Preferred Stock, voting together as a single class, necessary to authorize
the action in question.
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The foregoing voting provisions will not apply to any shares of
Cumulative Preferred Stock if, at or prior to the time when the act with respect
to which such vote otherwise would be required will be effected, such shares
will have been (i) redeemed or (ii) called for redemption and sufficient Deposit
Securities provided to the Dividend-Paying Agent to effect such redemption.
LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF ADDITIONAL
PREFERRED STOCK
So long as any shares of Cumulative Preferred Stock are outstanding,
the Company may issue and sell one or more series of a class of senior
securities of the Company representing indebtedness under the 1940 Act and/or
otherwise create or incur indebtedness, provided that the Company will,
immediately after giving effect to the incurrence of such indebtedness and to
its receipt and application of the proceeds thereof, have an "asset coverage"
for all senior securities of the Company representing indebtedness, as defined
in the 1940 Act, of at least 300% of the amount of all indebtedness of the
Company then outstanding and no such additional indebtedness will have any
preference or priority over any other indebtedness of the Company upon the
distribution of the assets of the Company or in respect of the payment of
interest. Any possible liability resulting from lending and/or borrowing
portfolio securities, entering into reverse repurchase agreements, entering into
futures contracts and writing options, to the extent such transactions are made
in accordance with the investment restrictions of the Company then in effect,
will not be considered to be indebtedness limited by the Certificate of
Designations.
So long as any shares of Cumulative Preferred Stock are outstanding,
the Company may issue and sell shares of one or more other series of Preferred
Stock constituting a series of a class of senior securities of the Company
representing stock under the 1940 Act in addition to the shares of Cumulative
Preferred Stock, provided that (i) if the Company is using the proceeds (net of
all offering expenses payable by the Company) of such additional Preferred Stock
to purchase all or a portion of the shares of Cumulative Preferred Stock or to
redeem or otherwise refinance all or a portion of the shares of Cumulative
Preferred Stock, any other Preferred Stock and/or any indebtedness of the
Company then outstanding, then the Company will, immediately after giving effect
to the issuance of such additional Preferred Stock and to its receipt and
application of the proceeds thereof, have an "asset coverage" for all senior
securities of the Company which are stock, as defined in the 1940 Act, of at
least 200% of the shares of Cumulative Preferred Stock and all other Preferred
Stock of the Company then outstanding, or (ii) if the Company is using the
proceeds (net of all offering expenses payable by the Company) of such
additional Preferred Stock for any other purpose, then the Company will,
immediately after giving effect to the issuance of such additional Preferred
Stock and to its receipt and application of the proceeds thereof, have an "asset
coverage" for all senior securities of the Company which are stock, as defined
in the 1940 Act, of at least 200% of the shares of Cumulative Preferred Stock
and all other Preferred Stock of the Company then outstanding, and, in the case
of either (i) or (ii) above, (iii) no such additional Preferred Stock will have
any preference or priority over any other Preferred Stock of the Company upon
the distribution of the assets of the Company or in respect of the payment of
dividends.
REPURCHASE OF CUMULATIVE PREFERRED STOCK
The Company is a closed-end investment company and, as such, holders of
Cumulative Preferred Stock do not, and will not, have the right to redeem their
shares of the Company. The Company, however, may repurchase shares of the
Cumulative Preferred Stock when it is deemed advisable by the Board of Directors
in compliance with the requirements of the 1940 Act and the rules and
regulations thereunder and the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
BOOK-ENTRY
Shares of Cumulative Preferred Stock will initially be held in the name
of Cede & Co. ("Cede") as nominee for The Depository Trust Company ("DTC"). The
Company will treat Cede as the holder of record of the Cumulative Preferred
Stock for all purposes. In accordance with the procedures of DTC, however,
purchasers of Cumulative Preferred Stock will be deemed the beneficial owners of
shares purchased for purposes of dividends, voting and
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liquidation rights. Purchasers of Cumulative Preferred Stock may obtain
registered certificates by contacting the Transfer Agent (as defined below).
DESCRIPTION OF RATING AGENCY GUIDELINES
RATING AGENCY GUIDELINES
Certain of the capitalized terms used herein are defined in the
Glossary that appears at the end of this Prospectus.
The Cumulative Preferred Stock will be rated by Moody's. Moody's has
established guidelines in connection with the Company's receipt of a rating for
the Cumulative Preferred Stock on their Date of Original Issue of "aaa" by
Moody's. Moody's, a nationally recognized securities rating organization, issues
ratings for various securities reflecting the perceived creditworthiness of such
securities. The guidelines have been developed by Moody's in connection with
issuances of asset-backed and similar securities, including debt obligations and
various preferred stocks, generally on a case-by-case basis through discussions
with the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be sufficiently
varied and will be of sufficient quality and amount to justify investment-grade
ratings. The guidelines do not have the force of law but are being adopted by
the Company in order to satisfy current requirements necessary for Moody's to
issue the above-described rating for the Cumulative Preferred Stock, which
rating is generally relied upon by investors in purchasing such securities. The
guidelines provide a set of tests for portfolio composition and discounted asset
coverage that supplements (and in some cases is more restrictive than) the
applicable requirements of Section 18 of the 1940 Act. Moody's guidelines are
included in the Certificate of Designations and are referred to in this
Prospectus as the "Rating Agency Guidelines."
The Company intends to maintain a Portfolio Calculation at least equal
to the Basic Maintenance Amount. If the Company fails to meet such requirement
and such failure is not cured, the Company will be required to redeem some or
all of the Cumulative Preferred Stock. See "-- Redemption." The Rating Agency
Guidelines also exclude from Moody's Eligible Assets and, therefore, from the
Portfolio Calculation, certain types of securities in which the Company may
invest and also limit the Company's acquisition of futures contracts or options
on futures contracts, limit reverse repurchase agreements, limit the writing of
options on portfolio securities and limit the lending of portfolio securities to
5% of the Company's total assets. The Company historically has either not
acquired these instruments or has engaged in investment strategies requiring
these instruments to only a limited degree. As a result, the Company does not
believe that compliance with the Rating Agency Guidelines will have an adverse
effect on its portfolio or on the achievement of its investment objectives.
The Company may, but is not required to, adopt any modifications to the
Rating Agency Guidelines that may hereafter be established by Moody's. Failure
to adopt such modifications, however, may result in a change in Moody's rating
or a withdrawal of a rating altogether. In addition, Moody's may, at any time,
change or withdraw such rating. As set forth in the Certificate of Designations,
the Board of Directors of the Company may, without stockholder approval, adjust,
modify, alter or change the Rating Agency Guidelines if Moody's advises the
Company in writing that such adjustment, modification, alteration or change will
not adversely affect its then current rating on the Cumulative Preferred Stock.
Furthermore, under certain circumstances, the Board of Directors of the Company
may determine that it is not in the best interests of the Company to continue to
comply with the Rating Agency Guidelines. If the Company terminates compliance
with the Rating Agency Guidelines, it is likely that Moody's will change its
rating on the Cumulative Preferred Stock or withdraw its rating altogether,
which may have an adverse effect on the market value of the Cumulative Preferred
Stock. It is the Company's present intention to continue to comply with the
Rating Agency Guidelines.
As recently described by Moody's, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the Cumulative Preferred Stock is not a
recommendation to purchase, hold or sell such shares, inasmuch as the rating
does not comment as to market price or suitability for a
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particular investor. Nor do the Rating Agency Guidelines address the likelihood
that a holder of Cumulative Preferred Stock will be able to sell such shares.
The rating is based on current information furnished to Moody's by the Company
and information obtained from other sources. The rating may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of, such
information.
ASSET MAINTENANCE
The Company will be required to satisfy two separate asset maintenance
requirements under the terms of the Certificate of Designations. These
requirements are summarized below.
Asset Coverage. The Company will be required under the Certificate of
Designations to maintain as of the last Business Day of each March, June,
September and December of each year, an asset coverage of at least 200% (or such
higher percentage as may be required under the 1940 Act) with respect to all
outstanding senior securities of the Company which are stock, including the
Cumulative Preferred Stock. If the Company fails to maintain the asset coverage
on such dates and such failure is not cured within 60 days, the Company will be
required under certain circumstances to redeem certain of the shares of
Cumulative Preferred Stock. See "--Redemption."
If the shares of Cumulative Preferred Stock offered hereby had been
issued and sold as of March 31, 1998, the asset coverage immediately following
such issuance and sale (after giving effect to the deduction of the underwriting
discounts and estimated offering expenses of $5,425,000) would have been
computed as follows:
Value of Company assets less
liabilities not constituting
senior securities $921,565,594
- --------------------------------------- ------------ = 614%
Senior securities representing $150,000,000
indebtedness
plus liquidation
preference of the
Cumulative Preferred
Stock
Basic Maintenance Amount. The Company will be required under the
Certificate of Designations to maintain, as of each Valuation Date, portfolio
holdings meeting specified guidelines of Moody's, as described under "--Rating
Agency Guidelines," having an aggregate discounted value (a "Portfolio
Calculation") at least equal to the Basic Maintenance Amount. If the Company
fails to meet such requirement as to any Valuation Date and such failure is not
cured within 14 days after such Valuation Date, the Company will be required to
redeem certain of the shares of Cumulative Preferred Stock. See "--Redemption."
Any security not in compliance with the Rating Agency Guidelines
described under "--Rating Agency Guidelines" will be excluded from the Portfolio
Calculation.
The Moody's Discount Factors and guidelines for determining the market
value of the Company's portfolio holdings have been based on criteria
established in connection with the rating of the Cumulative Preferred Stock.
These factors include, but are not limited to, the sensitivity of the market
value of the relevant asset to changes in interest rates, the liquidity and
depth of the market for the relevant asset, the credit quality of the relevant
asset (for example, the lower the rating of a corporate debt obligation, the
higher the related discount factor) and the frequency with which the relevant
asset is marked to market. The Moody's Discount Factor relating to any asset of
the Company and the Basic Maintenance Amount, the assets eligible for inclusion
in the calculation of the discounted value of the Company's portfolio and
certain definitions and methods of calculation relating thereto may be changed
from time to time by the Board of Directors, provided that, among other things,
such changes will not impair the rating then assigned to the Cumulative
Preferred Stock by Moody's.
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On or before the fifth Business Day after each Quarterly Valuation
Date, the Company is required to deliver to Moody's a Basic Maintenance Report.
Within ten Business Days after delivery of such report relating to the Quarterly
Valuation Date, the Company will deliver letters prepared by the Company's
independent auditors regarding the accuracy of the calculations made by the
Company in its most recent Basic Maintenance Report. If any such letter prepared
by the Company's independent auditors shows that an error was made in the most
recent Basic Maintenance Report, the calculation or determination made by the
Company's independent auditors will be conclusive and binding on the Company.
REDEMPTION
The Company will be required to redeem, at a redemption price equal to
$25 per share plus accumulated and unpaid dividends through the date of
redemption (whether or not earned or declared) (the "Redemption Price"), certain
of the shares of Cumulative Preferred Stock (to the extent permitted under the
1940 Act, Delaware law and any other agreement relating to indebtedness of the
Company), subject to the Company's determination to terminate compliance with
the Rating Agency Guidelines discussed under "--Termination of Rating Agency
Guidelines," in the event that:
(i) the Company fails to maintain the quarterly asset coverage
of at least 200% and such failure is not cured on or before 60 days
following such failure (a "Cure Date"); or
(ii) the Company fails to maintain a Portfolio Calculation at
least equal to the Basic Maintenance Amount as of any Valuation Date,
and such failure is not cured on or before the 14th day after such
Valuation Date (also, a "Cure Date").
The amount of such mandatory redemption will equal the minimum number
of outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on a
Cure Date, would have resulted in the asset coverage having been satisfied or
the Company having a Portfolio Calculation equal to or greater than the Basic
Maintenance Amount on such Cure Date or, if the asset coverage or a Portfolio
Calculation equal to or greater than the Basic Maintenance Amount, as the case
may be, cannot be so restored, all of the shares of Cumulative Preferred Stock,
at the Redemption Price. In the event that shares of Cumulative Preferred Stock
are redeemed due to the occurrence of (i) above, the Company may, but is not
required to, redeem a sufficient number of shares of Cumulative Preferred Stock
in order to increase the "asset coverage" of a class of senior security which is
stock, as defined in the 1940 Act, of the remaining outstanding shares of
Cumulative Preferred Stock and any other Preferred Stock after redemption up to
225%. In the event that shares of Cumulative Preferred Stock are redeemed due to
the occurrence of (ii) above, the Company may, but is not required to, redeem a
sufficient number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%.
If the Company does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the shares of Cumulative Preferred
Stock to be redeemed on any redemption date, the Company will redeem on such
redemption date that number of shares for which it has legally available funds,
or is otherwise able, to redeem ratably from each holder whose shares are to be
redeemed, and the remainder of the shares required to be redeemed will be
redeemed on the earliest practicable date on which the Company will have funds
legally available for the redemption of, or is otherwise able to redeem, such
shares upon written notice of redemption ("Notice of Redemption").
If fewer than all shares of Cumulative Preferred Stock are to be
redeemed, such redemption will be made pro rata from each holder of shares in
accordance with the respective number of shares held by each such holder on the
record date for such redemption. If fewer than all shares of Cumulative
Preferred Stock held by any holder are to be redeemed, the Notice of Redemption
mailed to such holder will specify the number of shares to be redeemed from such
holder. Unless all accumulated and unpaid dividends for all past dividend
periods will have been or are contemporaneously paid or declared and Deposit
Securities for the payment thereof deposited with the Dividend-Paying Agent, no
redemptions of Cumulative Preferred Stock may be made.
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<PAGE>
TERMINATION OF RATING AGENCY GUIDELINES
The Certificate of Designations provides that the Board of Directors of
the Company may determine that it is not in the best interests of the Company to
continue to comply with the Rating Agency Guidelines, in which case the Company
will no longer be required to comply with such guidelines, provided that (i) the
Company has given the Dividend-Paying Agent, Moody's and holders of the
Cumulative Preferred Stock at least 20 calendar days' written notice of such
termination of compliance, (ii) the Company is in compliance with the Rating
Agency Guidelines at the time the notice required in clause (i) above is given
and at the time of termination of compliance with the Rating Agency Guidelines,
(iii) at the time the notice required in clause (i) above is given and at the
time of termination of compliance with the Rating Agency Guidelines, the
Cumulative Preferred Stock is listed on the NYSE or on another exchange
registered with the Commission as a national securities exchange and (iv) at the
time of termination of compliance with the Rating Agency Guidelines, the
cumulative cash dividend rate payable on a share of the Cumulative Preferred
Stock is increased by .375% per annum.
If the Company voluntarily terminates compliance with the Rating Agency
Guidelines, Moody's may change its rating on the Cumulative Preferred Stock or
withdraw its rating altogether, which may have an adverse effect on the market
value of the Cumulative Preferred Stock. It is the Company's present intention
to continue to comply with the Rating Agency Guidelines.
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
CAPITAL STOCK
Common Stock. The Company is authorized to issue 30,000,000 shares of
Common Stock, par value $1.00 per share. Each share of Common Stock has equal
voting, dividend, distribution and liquidation rights. The shares of Common
Stock outstanding are fully paid and nonassessable. The shares of Common Stock
are not redeemable and have no preemptive, conversion or cumulative voting
rights. As a NYSE-listed company, the Company is required to hold annual
meetings of its stockholders.
Preferred Stock. The Company's Board of Directors has the authority to
cause the Company to issue and sell up to 10,000,000 shares of Preferred Stock,
par value $1.00 per share. The terms of such Preferred Stock would be fixed by
the Board of Directors and could materially limit and/or qualify the rights of
the holders of the Company's Common Stock. The Board of Directors has designated
6,000,000 shares of Preferred Stock as the Cumulative Preferred Stock offered
hereby. See "Description of Cumulative Preferred Stock."
The following table shows the number of shares of (i) capital stock
authorized, (ii) capital stock held by the Company for its own account and (iii)
capital stock outstanding for each class of authorized capital stock of the
Company as of March 31, 1998.
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT HELD (EXCLUSIVE OF AMOUNT
AMOUNT BY COMPANY FOR HELD BY COMPANY FOR
TITLE OF CLASS AUTHORIZED ITS OWN ACCOUNT ITS OWN ACCOUNT)
- -------------- ---------- --------------- --------------------
<S> <C> <C> <C>
Common Stock.............................. 30,000,000 262,000 23,885,978
Preferred Stock........................... 10,000,000 0 0
</TABLE>
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TAXATION
The following is a description of certain U.S. Federal income tax
consequences to a stockholder of acquiring, holding and disposing of the
Cumulative Preferred Stock. The discussion reflects applicable tax laws of the
United States as of the date of this Prospectus. These tax laws may be changed
or subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively.
No attempt is made to present a detailed explanation of all U.S.
Federal, state, local and foreign tax concerns affecting the Company and its
stockholders, and the discussion set forth herein does not constitute tax
advice. INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS TO DETERMINE THE
TAX CONSEQUENCES TO THEM OF INVESTING IN THE CUMULATIVE PREFERRED STOCK.
TAXATION OF THE COMPANY
The Company has qualified as, and intends to continue to qualify as, a
RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). If it so qualifies, the Company (but not its stockholders) will not be
subject to U.S. Federal income tax on the portion of its net investment income
(i.e., its investment company taxable income as defined in the Code without
regard to the deduction for dividends paid) and its net realized capital gains
(i.e., the excess of its net realized long-term capital gains over its net
realized short-term capital loss) which it distributes to its stockholders in
each taxable year. If the Company fails to qualify as a RIC under the Code, it
would become subject to taxation on all of its taxable income, regardless of
whether the Company has made distributions to its stockholders.
Qualification as a RIC requires, among other things, that the Company:
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies and (b)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the market value of the Company's assets is represented by
cash, cash items, U.S. government securities, securities of other RICs and other
securities with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Company's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other RICs).
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Company must distribute during each calendar
year an amount equal to, at the minimum, the sum of (1) 98% of its ordinary
income for the calendar year, (2) 98% of its capital gain net income, generally
for the one year period ending on October 31 of such year, and (3) all ordinary
income and capital gain net income for previous years that were not previously
distributed. While the Company intends to distribute its ordinary income and
capital gain net income in the manner necessary to minimize imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of the Company's
ordinary income and capital gain net income will be distributed to avoid
entirely the imposition of the tax. In such event, the Company will be liable
for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
If the Company does not meet the asset coverage requirements of the
1940 Act or the Certificate of Designations, the Company will be required to
suspend distributions to the holders of the Cumulative Preferred Stock and
Common Stock until the asset coverage is restored. See "Description of
Cumulative Preferred Stock -- Dividends." Such a suspension of distributions
might prevent the Company from distributing 90% of its investment company
taxable income, as is required to qualify as a RIC, or might prevent it from
distributing enough ordinary income and capital gain net income to avoid
completely the imposition of the excise tax. Upon any failure to meet the asset
coverage requirements, the Company may, and in certain circumstances will, be
required to redeem shares of Cumulative Preferred Stock in order to restore the
requisite asset coverage and avoid the adverse consequences to the Company and
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<PAGE>
its stockholders of failing to qualify as a RIC. If asset coverage were
restored, the Company would again be able to pay dividends and might be able to
avoid Company-level taxation.
TAXATION OF STOCKHOLDERS
Dividends are paid by the Company in cash and are taxable to
stockholders. Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
("Ordinary Income Dividends") are taxable to stockholders as ordinary income.
Dividends paid from an excess of net long-term capital gains over net short-term
capital losses (including gains or losses from certain transactions in warrants,
rights, futures and options) and properly designated by the Company ("Capital
Gain Dividends") are taxable to stockholders as long-term capital gains,
regardless of the length of time the stockholder has owned Company shares. Any
loss upon the sale or exchange of Company shares held for six months or less
will be treated as long-term capital loss to the extent of any Capital Gain
Dividends received by the stockholder. Distributions in excess of the Company's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gain to such holder (assuming the shares are held as capital assets).
Capital Gain Dividends may be taxed at a lower rate than Ordinary
Income Dividends for certain non-corporate taxpayers. Recent legislation has
introduced additional categories of gain, taxable at different rates for
individual taxpayers. These categories include 20% Rate Gain and 28% Rate Gain.
The amount of 28% Rate Gain on assets held longer than 12 months but not longer
than 18 months is taxed at the taxpayer's marginal Federal income tax rate, but
not higher than 28%. The amount of 20% Rate Gain on assets held longer than 18
months is taxed at a maximum rate of 20%. Not later than 60 days after the close
of its taxable year, the Company will provide its stockholders with a written
notice designating the amounts of any Ordinary Income Dividends or Capital Gain
Dividends as well as the portions of its Capital Gain Dividends that constitute
28% Rate Gain and 20% Rate Gain.
Stockholders may be entitled to offset their Capital Gain Dividends
with capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.
Gain or loss, if any, recognized on the sale or other disposition of
shares of Cumulative Preferred Stock, including, without limitation, a
redemption by the Company, will be taxed as a capital gain or loss if the shares
are capital assets in the stockholder's hands. Capital gain of an individual is
generally subject to a maximum rate of 28% in respect of property held longer
than 12 months but not longer than 18 months and a maximum rate of 20% in
respect of property held longer than 18 months.
Ordinary Income Dividends (but not Capital Gain Dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject to
a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under an applicable treaty.
Non-resident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
At the time of a stockholder's purchase, the market price of the
Cumulative Preferred Stock may reflect undistributed net investment income or
net realized capital gains. A subsequent distribution of these amounts by the
Company will be taxable to the stockholder even though the distribution
economically is a return of part of the stockholder's investment. Investors
should carefully consider the tax implications of acquiring shares just prior to
a distribution, as they will receive a distribution that would nevertheless be
taxable to them.
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<PAGE>
BACKUP WITHHOLDING
Under certain provisions of the Code, some stockholders may be subject
to 31% withholding on Ordinary Income Dividends, Capital Gain Dividends and
redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
stockholder maintains his or her account), certifying under penalties of perjury
that such stockholder's taxpayer identification number is correct and that such
stockholder (i) has never been notified by the IRS that he or she is subject to
backup withholding, (ii) has been notified by the IRS that he or she is no
longer subject to backup withholding, or (iii) is exempt from backup
withholding. Corporate stockholders and certain other stockholders are exempt
from backup withholding. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be credited against such
stockholder's Federal income tax liability.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. ADDITIONAL
DISCUSSION OF THE TAX RULES APPLICABLE TO THE COMPANY CAN BE FOUND IN THE
STATEMENT OF ADDITIONAL INFORMATION WHICH IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. FOR THE COMPLETE PROVISIONS APPLICABLE TO BOTH STOCKHOLDERS AND THE
COMPANY, REFERENCE SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND THE
TREASURY REGULATIONS PROMULGATED THEREUNDER. THE CODE AND THE TREASURY
REGULATIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE
ACTION, EITHER PROSPECTIVELY OR RETROACTIVELY.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS; ANTI-TAKEOVER PROVISIONS
The Company presently has provisions in its Restated Certificate of
Incorporation and By-Laws (together, in each case, its "Governing Documents")
which could have the effect of rendering more difficult the accomplishment of a
proposal to convert the Company's status to an open-end investment company. The
affirmative vote of the holders of 66 2/3% of the outstanding shares of capital
stock of the Company is required to authorize the conversion of the Company from
a closed-end to an open-end investment company and to authorize a merger or
consolidation of the Company with an open-end investment company. These and
other provisions of the Governing Documents of the Company may be regarded as
"anti-takeover" provisions. In addition, the affirmative vote of 66 2/3% of the
outstanding shares of capital stock of the Company is required to approve the
sale of all or substantially all of the assets of the Company.
The Board of Directors has determined that the foregoing voting
requirements are in the best interests of the stockholders generally.
CUSTODIAN, TRANSFER AGENT, REGISTRAR AND DIVIDEND-PAYING AGENT
Bankers Trust Company, which is located at One Bankers Trust Plaza, New
York, N.Y. 10006, acts as custodian of the securities, cash and other assets of
the Company directly or through a book-entry system and is responsible for
delivering and receiving payment for securities sold by the Company, receiving
and paying for securities purchased by the Company, collecting income from
investments of the Company and performing other duties, all as directed by an
authorized person of the Company. ChaseMellon Shareholder Services, L.L.C.,
which is located at Overpeck Centre, 85 Challenger Road, Ridgefield Park, N.J.
07660, acts as the Company's transfer agent, registrar and dividend-paying agent
and will serve in such capacity with respect to the Cumulative Preferred Stock.
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<PAGE>
UNDERWRITING
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to the Underwriters
severally, the respective number of shares of Cumulative Preferred Stock set
forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
- ---- ------
<S> <C>
Merrill Lynch & Co.........................................
Salomon Smith Barney.......................................
-------------
6,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Cumulative
Preferred Stock offered hereby are subject to the terms and conditions set forth
herein. The Underwriters are committed to take and pay for all of the shares of
Cumulative Preferred Stock offered hereby if any are taken.
The Underwriters initially propose to offer part of the shares of
Cumulative Preferred Stock offered hereby directly to the public at the public
offering price set forth on the cover page hereof and part to certain dealers at
a price that represents a concession not in excess of $________ per share. Any
Underwriter may allow, and such dealers may allow, a concession not in excess of
$_____ per share to certain other dealers. After the initial offering of the
Cumulative Preferred Stock, the offering price and other selling terms may from
time to time be varied by the Underwriters named on the cover page of this
Prospectus. The underwriting discount of $_____ per share is equal to ___% of
the initial public offering price. Investors must pay for any shares of
Cumulative Preferred Stock purchased on or before __________, 1998.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters have advised the Company that, pursuant to Regulation
M under the 1933 Act, certain persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Cumulative Preferred Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of shares of Cumulative Preferred Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of shares of
Cumulative Preferred Stock. A "syndicate covering transaction" is a bid for or
purchase of Cumulative Preferred Stock on behalf of the Underwriters to reduce a
short position incurred by the Underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the Underwriters to reclaim the
selling concession otherwise accruing to an Underwriter or selling group member
in connection with the offering if any of the shares of Cumulative Preferred
Stock originally sold by such Underwriter or selling group member is purchased
in a syndicate covering transaction and has therefore not been effectively
placed by such Underwriter or selling group member. The Underwriters have
advised the Company that such transactions may be effected on the NYSE otherwise
and, if commenced, may be discontinued at any time.
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<PAGE>
The Company anticipates that the Underwriters may, subsequent to the
completion of the offering of Cumulative Preferred Stock hereunder, from time to
time act as brokers or dealers in connection with the execution of portfolio
transactions for the Company. The Underwriters may also, during the pendency of
the offering of Cumulative Preferred Stock hereunder, act as brokers with
respect to such transactions. See "Brokerage Allocation and Other Practices" in
the Statement of Additional Information.
Prior to this offering, there has been no market for the Cumulative
Preferred Stock. The Company has filed an application to list the Cumulative
Preferred Stock on the NYSE. However, during an initial period which is not
expected to exceed 30 days from the date of this Prospectus, the Cumulative
Preferred Stock may not be listed on such securities exchange. During such
period, the Underwriters intend to make a market in the Cumulative Preferred
Stock; however, they have no obligation to do so. Consequently, an investment in
the Cumulative Preferred Stock may be illiquid during such period. The
Underwriters have undertaken to sell shares to a minimum of 100 beneficial
owners.
It is expected that delivery of the shares of Cumulative Preferred
Stock will be made against payment therefor on or about the date specified in
the last paragraph of the cover page of this Prospectus.
VALIDITY OF CUMULATIVE PREFERRED STOCK
The validity of the shares of Cumulative Preferred Stock will be passed
on for the Company by Sullivan & Cromwell, New York, New York. Certain legal
matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, New York,
New York, counsel to the Underwriters.
EXPERTS
Ernst & Young LLP are the independent auditors of the Company. The
audited financial statements of the Company and certain of the information
appearing under the caption "Financial Highlights" included in this Prospectus
have been audited by Ernst & Young LLP. Ernst & Young LLP has an office at 787
Seventh Avenue, New York, New York 10019, and also performs tax and other
professional services for the Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
files reports and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of such Acts can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Northeast Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048; Pacific Regional
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648;
and Midwest Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and copies of such material
can be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with it.
The Company's Common Stock is listed on the New York Stock Exchange,
and reports, proxy statements and other information concerning the Company and
filed with the SEC by the Company can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement filed by
the Company with the SEC under the Securities Act of 1933 and the 1940 Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Company and the
Cumulative Preferred Stock offered hereby. Any statements contained herein
35
<PAGE>
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such
statement is qualified in its entirety by such reference. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by its rules and regulations.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information dated the date hereof has been
filed with the SEC and is incorporated by reference in this Prospectus. A copy
of the Statement of Additional Information may be obtained by writing to the
Company at its address at 450 Lexington Avenue, Suite 3300, New York, New York
10017, or calling the Company at (212) 916-8400 or toll-free at (800) 436-8401.
The Table of Contents of the Statement of Additional Information is as follows:
PAGE
General Information and History............................... B-2
Investment Objectives and Policies............................ B-2
Management of the Company..................................... B-3
Principal Stockholders........................................ B-9
Code of Ethics and Related Matters............................ B-9
Investment Advisory and Other Services........................ B-10
Brokerage Allocation and Other Practices...................... B-10
Net Asset Value............................................... B-10
Financial Statements.......................................... B-11
Taxation...................................................... B-11
General Information........................................... B-14
Counsel and Independent Auditors.............................. B-15
GLOSSARY
"Asset Coverage" means, asset coverage, as defined in Section 18(h) of
the 1940 Act, of at least 200%, or such other percentage as may be required
under the 1940 Act, with respect to all outstanding senior securities of the
Company constituting stock, including all outstanding shares of Cumulative
Preferred Stock.
"Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
Preferred Stock, then from the Date of Original Issue) through the Valuation
Date plus all dividends to accumulate on the Cumulative Preferred Stock then
outstanding during the 70 days following such Valuation Date; (C) the Company's
other liabilities due and payable as of such Valuation Date (except that
dividends and other distributions payable by the Company by the issuance of
Common Stock will not be included as a liability) and such liabilities projected
to become due and payable by the Company during the 90 days following such
Valuation Date (excluding liabilities for investments to be purchased and for
dividends and other distributions not declared as of such Valuation Date); (D)
any current liabilities of the Company as of such Valuation Date to the extent
not reflected in any of (i)(A) through (i)(C) (including, without limitation,
and immediately upon determination, any amounts due and payable by the Company
pursuant to reverse repurchase agreements and any payables for assets purchased
as of such Valuation Date) less (ii) (A) the Discounted Value of any of the
Company's assets and/or (B) the face value of any of the Company's assets if, in
the
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<PAGE>
case of both (ii)(A) and (ii)(B), such assets are either cash or securities
which mature prior to or on the date of redemption or repurchase of Cumulative
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or securities which have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-l+ or A-1+, in both
cases irrevocably held by the Company's custodian bank in a segregated account
or deposited by the Company with the Dividend-Paying Agent for the payment of
the amounts needed to redeem or repurchase Cumulative Preferred Stock subject to
redemption or repurchase or any of (i)(B) through (i)(D) and provided that in
the event the Company has repurchased Cumulative Preferred Stock at a price of
less than the Liquidation Preference thereof and irrevocably segregated or
deposited assets as described above with its custodian bank or the
Dividend-Paying Agent for the payment of the repurchase price the Company may
deduct 100% of the Liquidation Preference of such Cumulative Preferred Stock to
be repurchased from (i) above.
"Basic Maintenance Report" means a report signed by the President,
Treasurer or any Vice President of the Company which sets forth, as of the
related Valuation Date, the assets of the Company, the market value and
Discounted Value thereof (seriatim and in the aggregate) and the Basic
Maintenance Amount.
"Business Day" means a day on which the New York Stock Exchange is open
for trading and that is neither a Saturday, Sunday nor any other day on which
banks in the City of New York are authorized by law to close.
"Certificate of Designations" means the Company's Certificate of
Designations, Preferences and Rights creating and fixing the rights and
limitations of the Cumulative Preferred Stock.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $1.00 per share, of
the Company.
"Company" means General American Investors Company, Inc., a Delaware
corporation.
"Cumulative Preferred Stock" means the __% Cumulative Preferred Stock,
par value $1.00 per share, of the Company.
"Cure Date" has the meanings set forth on page 29 of this Prospectus.
"Date of Original Issue" has the meaning set forth on page 23 of this
Prospectus.
"Deposit Securities" means cash, Short-Term Money Market Instruments
and U.S. Government Obligations. Except for determining whether the Company has
a Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security will be deemed to have a value equal to its principal or
face amount payable at maturity plus any interest payable thereon after delivery
of such Deposit Security but only if payable on or prior to the applicable
payment date in advance of which the relevant deposit is made.
"Discounted Value" means the quotient of (A) in the case of
non-convertible fixed income securities, the lower of the principal amount and
the market value thereof or (B) in the case of any other Moody's Eligible
Assets, the market value thereof, divided by the applicable Moody's Discount
Factor.
"Dividend-Paying Agent" means ChaseMellon Shareholder Services, L.L.C.
or its successor, or any other dividend-paying agent appointed by the Company.
"Dividend Payment Date" has the meaning set forth on page 23 of this
Prospectus.
"Governing Documents" has the meaning set forth on page 33 of this
Prospectus.
"Liquidation Preference" has the meaning set forth on page 24 of this
Prospectus.
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<PAGE>
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Moody's Discount Factor" means, with respect to a Moody's Eligible
Asset specified below, the following applicable numbers:
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
<S> <C>
Moody's Short-Term Money Market Instruments (other than U.S. Government
Obligations set forth below) and other commercial paper:
Demand or time deposits, certificates of deposit and bankers' acceptances
includible in Moody's Short-Term Money Market Instruments.......................... 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less.................. 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days
but in 270 days or less....................................................... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less.................... 1.25
Repurchase obligations includible in Moody's Short-Term Money Market
Instruments if term is less than 30 days and counterparty is rated at least A2..... 1.00
Discount Factor
applicable to
Other repurchase obligations....................................................... underlying assets
Common stocks............................................................................... 3.00
Preferred Stocks:
Auction rate preferred stocks...................................................... 3.50
Other preferred stocks issued by issuers in the financial and industrial industries 2.35
Other preferred stocks issued by issuers in the utilities industry................. 1.60
U.S. Government Obligations (other than U.S. Treasury Securities Strips set forth below)
with remaining terms to maturity of:
1 year or less..................................................................... 1.08
2 years or less.................................................................... 1.15
3 years or less.................................................................... 1.20
4 years or less.................................................................... 1.26
5 years or less.................................................................... 1.31
7 years or less.................................................................... 1.40
10 years or less................................................................... 1.48
15 years or less................................................................... 1.54
20 years or less................................................................... 1.61
30 years or less................................................................... 1.63
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less..................................................................... 1.08
2 years or less.................................................................... 1.16
3 years or less.................................................................... 1.23
4 years or less.................................................................... 1.30
5 years or less.................................................................... 1.37
7 years or less.................................................................... 1.51
10 years or less................................................................... 1.69
15 years or less................................................................... 1.99
20 years or less................................................................... 2.28
30 years or less................................................................... 2.56
Corporate bonds:
38
<PAGE>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
Corporate bonds rated Aaa
with remaining terms to maturity of:
1 year or less................................................................ 1.14
2 years or less............................................................... 1.21
3 years or less............................................................... 1.26
4 years or less............................................................... 1.32
5 years or less............................................................... 1.38
7 years or less............................................................... 1.47
10 years or less.............................................................. 1.55
15 years or less.............................................................. 1.62
20 years or less.............................................................. 1.69
30 years or less.............................................................. 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less................................................................ 1.19
2 years or less............................................................... 1.26
3 years or less............................................................... 1.32
4 years or less............................................................... 1.38
5 years or less............................................................... 1.44
7 years or less............................................................... 1.54
10 years or less.............................................................. 1.63
15 years or less.............................................................. 1.69
20 years or less.............................................................. 1.77
30 years or less.............................................................. 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less................................................................ 1.24
2 years or less............................................................... 1.32
3 years or less............................................................... 1.38
4 years or less............................................................... 1.45
5 years or less............................................................... 1.51
7 years or less............................................................... 1.61
10 years or less.............................................................. 1.70
15 years or less.............................................................. 1.77
20 years or less.............................................................. 1.85
30 years or less.............................................................. 1.87
Convertible corporate bonds with senior debt securities rated Aa issued
by the following type of issuers:
Utility....................................................................... 1.80
Industrial.................................................................... 2.97
Financial..................................................................... 2.92
Transportation................................................................ 4.27
Convertible corporate bonds with senior debt securities rated A issued
by the following type of issuers:
Utility....................................................................... 1.85
Industrial.................................................................... 3.02
Financial..................................................................... 2.97
Transportation................................................................ 4.32
Convertible corporate bonds with senior debt securities rated Baa
issued by the following type of issuers:
Utility....................................................................... 2.02
Industrial.................................................................... 3.18
39
<PAGE>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
Financial..................................................................... 3.13
Transportation................................................................ 4.48
Convertible corporate bonds with senior debt securities rated Ba issued
by the following type of issuers:
Utility....................................................................... 2.02
Industrial.................................................................... 3.19
Financial..................................................................... 3.14
Transportation................................................................ 4.49
Convertible corporate bonds with senior debt securities rated B issued
by the following type of issuers:
Utility....................................................................... 2.12
Industrial.................................................................... 3.29
Financial..................................................................... 3.24
Transportation................................................................ 4.59
</TABLE>
"Moody's Eligible Assets" means:
i. cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt securities are
rated at least Baa3 by Moody's or a counterparty approved by Moody's
and payable within five Business Days following such Valuation Date and
dividends and interest receivable within 70 days on investments);
ii. Short-Term Money Market Instruments;
iii. commercial paper that is not includible as a Short-Term
Money Market Instrument having on the Valuation Date a rating from
Moody's of at least P-1 and maturing within 270 days;
iv. preferred stocks (A) which either (1) are issued by
issuers whose senior debt securities are rated at least Baa1 by Moody's
or (2) are rated at least "baa3" by Moody's (or in the event an
issuer's senior debt securities or preferred stock is not rated by
Moody's, which either (1) are issued by an issuer whose senior debt
securities are rated at least A by S&P or (2) are rated at least A by
S&P and for this purpose have been assigned a Moody's equivalent rating
of at least "baa3"), (B) of issuers which have (or, in the case of
issuers which are special purpose corporations, whose parent companies
have) common stock listed on the New York Stock Exchange or the
American Stock Exchange, (C) which have a minimum issue size (when
taken together with other of the issuer's issues of similar tenor) of
$50,000,000, (D) which have paid cash dividends consistently during the
preceding three-year period (or, in the case of new issues without a
dividend history, are rated at least "a1" by Moody's or, if not rated
by Moody's, are rated at least AA by S&P), (E) which pay cumulative
cash dividends in U.S. dollars, (F) which are not convertible into any
other class of stock and do not have warrants attached, (G) which are
not issued by issuers in the transportation industry and (H) in the
case of auction rate preferred stocks, which are rated at least "aa" by
Moody's, or if not rated by Moody's, AAA by S&P or are otherwise
approved in writing by Moody's and have never had a failed auction;
provided, however, that for this purpose the aggregate market value of
the Company's holdings of any issue of preferred stock will not be less
than $500,000 nor more than $5,000,000;
v. common stocks (A)(i) which are traded in the United
States on a national securities exchange or in the over-the-counter
market, (ii) which, if cash dividend paying, pay cash dividends in U.S.
dollars, and (iii) which may be sold without restriction by the
Company; provided, however, that (1) common stock which, while a
Moody's Eligible Asset owned by the Company, ceases paying any regular
cash dividend will no longer be considered a Moody's Eligible Asset
until 71 days after the date of the announcement of such
40
<PAGE>
cessation, unless the issuer of the common stock has senior debt
securities rated at least A3 by Moody's and (2) the aggregate market
value of the Company's holdings of the common stock of any issuer will
not exceed 4% in the case of utility common stock and 6% in the case of
non-utility common stock of the number of outstanding shares times the
market value of such common stock, and (B) which are securities
denominated in any currency other than the U.S. dollar or securities of
issuers formed under the laws of jurisdictions other than the United
States, its states, commonwealths, territories and possessions,
including the District of Columbia, for which there are
dollar-denominated American Depositary Receipts ("ADRs") which are
traded in the United States on a national securities exchange or in the
over-the-counter market and are issued by banks formed under the laws
of the United States, its states, commonwealths, territories and
possessions, including the District of Columbia, provided, however,
that the aggregate market value of the Company's holdings of securities
denominated in currencies other than the U.S. dollar and ADRs in excess
of (i) 6% of the aggregate market value of the outstanding shares of
common stock and ADRs of the issuer thereof or (ii) 10% of the market
value of Moody's Eligible Assets with respect to issuers formed under
the laws of any single such non-U.S. jurisdiction, other than
Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland and the United Kingdom, shall not be a Moody's Eligible
Asset;
vi. U.S. Government Obligations;
vii. corporate bonds (A) which may be sold without restriction
by the Company and are rated at least B3 (Caa subordinate) by Moody's
(or, in the event the bond is not rated by Moody's, the bond is rated
at least BB- by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), with such rating
confirmed on each Valuation Date, (B) which have a minimum issue size
of at least (x) $100,000,000 if rated at least Baa3 or (y) $50,000,000
if rated B or Ba3, (C) which are U.S. dollar denominated and pay
interest in cash in U.S. dollars, (D) which are not convertible or
exchangeable into equity of the issuing corporation and have a maturity
of not more than 30 years, (E) for which, if rated below Baa3, the
aggregate market value of the Company's holdings do not exceed 10% of
the aggregate market value of any individual issue of corporate bonds
calculated at the time of original issuance, (F) the cash flow from
which must be controlled by an Indenture trustee and (G) which are not
issued in connection with a reorganization under any bankruptcy law;
viii. convertible corporate bonds (A) which are issued by
issuers whose senior debt securities are rated at least B2 by Moody's
(or, in the event an issuer's senior debt securities are not rated by
Moody's, which are issued by issuers whose senior debt securities are
rated at least BB by S&P and which for this purpose is assigned a
Moody's equivalent rating of one full rating category lower), (B) which
are convertible into common stocks which are traded on the New York
Stock Exchange or the American Stock Exchange or are quoted on the
NASDAQ National Market System and (C) which, if cash dividend paying,
pay cash dividends in U.S. dollars; provided, however, that once
convertible corporate bonds have been converted into common stock, the
common stock issued upon conversion must satisfy the criteria set forth
in clause (v) above and other relevant criteria set forth in this
definition in order to be a Moody's Eligible Asset;
provided, however, that the Company's investment in preferred stock, common
stock, corporate bonds and convertible corporate bonds described above must be
within the following diversification requirements (utilizing Moody's industry
and sub-industry categories) in order to be included in Moody's Eligible Assets:
<TABLE>
<CAPTION>
ISSUER:
NON-UTILITY
MAXIMUM UTILITY MAXIMUM
MOODY'S RATING (1) (2) SINGLE ISSUER (3)(4) SINGLE ISSUER (3)(4)
- ---------------------- -------------------- --------------------
<S> <C> <C>
"aaa", Aaa................................ 100% 100%
"aa", Aa.................................. 20% 20%
41
<PAGE>
"a", A.................................... 10% 10%
CS/CB, "Baa", Baa(5)...................... 6% 4%
Ba........................................ 4% 4%
B1/B2..................................... 3% 3%
B3 (Caa subordinate)...................... 2% 2%
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY AND STATE:
NON-UTILITY
MAXIMUM UTILITY MAXIMUM UTILITY MAXIMUM
MOODY'S RATING (1) (2) SINGLE ISSUER (3) SINGLE STATE (3)(6) SINGLE STATE (3)
- ---------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
"aaa", Aaa......................... 100% 100% 100%
"aa", Aa........................... 60% 20% 20%
"a", A............................. 40% 10% 10%(7)
CS/CB, "baa", Baa (5).............. 20% 4% 7%(7)
Ba................................. 12% 3% N/A
B1/B2.............................. 8% 2% N/A
B3 (Caa subordinate)............... 5% 5% N/A
- ----------
<FN>
(1) The equivalent Moody's rating must be lowered one full rating category for
preferred stocks, corporate bonds and convertible corporate bonds rated by
S&P but not by Moody's.
(2) Corporate bonds from issues ranging from $50,000,000 to 100,000,000 are
limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the
related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility bonds
and utility convertible bonds, the definition of industry refers to
sub-industries (electric, water, hydro power, gas, diversified).
Investments in other sub-industries are eligible only to the extent that
the combined sum represents a percentage position of Moody's Eligible
Assets less than or equal to the percentage limits in the diversification
tables above.
(7) Such percentage will be 15% in the case of utilities regulated by
California, New York and Texas;
</FN>
</TABLE>
and provided, further, that the Company's investments in auction rate
preferred stocks described in clause (iv) above will be included in the
Moody's Eligible Assets only to the extent that the aggregate market value
of such stocks does not exceed 10% of the aggregate market value of all of
the Company's investments meeting the criteria set forth in clauses (i)
through (viii) above less the aggregate market value of those investments
excluded from Moody's Eligible Assets pursuant to the immediately preceding
proviso; and
ix. no assets which are subject to any lien or irrevocably
deposited by the Company for the payment of amounts needed to meet the
obligations described in clauses (i)(A) through (i)(E) of the definition of
"Basic Maintenance Amount" may be includible in Moody's Eligible Assets.
42
<PAGE>
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notice of Redemption" has the meaning set forth on page 29 of this
Prospectus.
"Portfolio Calculation" means the aggregate Discounted Value of all of
Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $1.00 per share,
of the Company, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date" means the last Valuation Date in March,
June, September and December of each year, commencing ___________, 1998.
"Rating Agency Guidelines" has the meaning set forth on page 27 of this
Prospectus.
"Redemption Price" has the meaning set forth on page 29 of this
Prospectus.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., a corporation organized and existing under the laws
of the State of Delaware, its successors and their assigns, and if such
corporation shall be dissolved or liquidated or shall no longer perform the
functions of a securities rating agency, "S&P" shall be deemed to refer to any
other nationally recognized securities rating agency designated by the Company.
"senior security" means, as defined in Section 18(g) of the 1940 Act,
unless otherwise provided therein, any bond, debenture, note, or similar
obligation or instrument constituting a security and evidencing indebtedness,
and any stock of a class having priority over any other class as to distribution
of assets or payment of dividends.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Company (or, in the case of an instrument specified by clauses (i) and (ii)
below, on the Valuation Date), the remaining terms to maturity thereof are not
in excess of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is
issued by an issuer (or guaranteed or supported by a person or entity
other than the issuer) whose long-term unsecured debt obligations are
rated at least Aa by Moody's;
(iii) demand or time deposits in or certificates of deposit of
or banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or
any state thereof or the District of Columbia or (B) a United States
branch office or agency of a foreign depository institution (provided
that such branch office or agency is subject to banking regulation
under the laws of the United States, any state thereof or the District
of Columbia) if, in each case, the commercial paper, if any, and the
long-term unsecured debt obligations (other than such obligations the
ratings of which are based on the credit of a person or entity other
than such depository institution or trust company) of such depository
institution or trust company at the time of purchase or acquisition and
the Valuation Date, have (1) credit ratings from Moody's of at least
P-1 in the case of commercial paper and (2) credit ratings from Moody's
of at least Aa in the case of long-term unsecured debt obligations;
provided, however, that in the case of any such investment that matures
in no more than one Business Day from the date of purchase or other
acquisition by the Company, all of the foregoing requirements will be
applicable except that the required long-term unsecured debt credit
rating of such depository institution or trust company from Moody's
will be at least A2; and provided, further, however, that the foregoing
credit rating requirements will be deemed to be met with respect to a
depository institution or trust company if (1) such depository
institution or trust company is the principal depository institution in
a holding company system, (2) the commercial paper, if any, of such
depository institution or trust company is not rated below P-1 by
Moody's and (3) the holding company will meet all of
43
<PAGE>
the foregoing credit rating requirements (including the preceding
proviso in the case of investments that mature in no more than one
Business Day from the date of purchase or other acquisition by the
Company);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3
if the maturity is three months or less, (B) at least A1 if the
maturity is two months or less and (C) at least A2 if the maturity is
one month or less; and
(v) Eurodollar demand or time deposits in, or certificates of
deposit of, the head office or the London branch office of a depository
institution or trust company meeting the credit rating requirements of
commercial paper and long-term unsecured debt obligations specified in
clause (iii) above, provided that the interest receivable by the
Company will be payable in U.S. dollars and will not be subject to any
withholding or similar taxes.
"U.S. Government Obligations" means direct non-callable obligations of
the United States, provided that such direct obligations are entitled to the
full faith and credit of the United States and that any such obligations, other
than United States Treasury Bills and U.S. Treasury Securities Strips, provide
for the periodic payment of interest and the full payment of principal at
maturity.
"Valuation Date" means every Friday or, if such day is not a Business
Day, the immediately preceding Business Day.
44
<PAGE>
<TABLE>
<S> <C>
============================================================= ====================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR 6,000,000 SHARES
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE GENERAL AMERICAN
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME INVESTORS COMPANY, INC.
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE _____% CUMULATIVE PREFERRED STOCK
SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITATION IS (LIQUIDATION PREFERENCE $25 PER SHARE)
UNLAWFUL.
---------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary..................................... 4 --------------------------
Tax Attributes of Preferred Stock Dividends............ 11
Financial Highlights................................... 15 P R O S P E C T U S
The Company............................................ 17
Use of Proceeds........................................ 17 ______________, 1998
Capitalization......................................... 17
Portfolio.............................................. 18 --------------------------
Investment Objectives and Policies..................... 19
Management............................................. 21
Risk Factors .......................................... 21
Description of Cumulative Preferred Stock.............. 22
Description of Rating Agency Guidelines................ 27
Description of Capital Stock and Other Securities...... 30
Taxation............................................... 31
Certain Provisions of the Restated Certificate
of Incorporation and By-Laws; Anti-takeover
Provisions........................................... 33
Custodian, Transfer Agent, Registrar and Dividend-
Paying Agent......................................... 33
Underwriting........................................... 34
Validity of Cumulative Preferred Stock................. 35
Experts................................................ 35
Additional Information................................. 35
Table of Contents of Statement of Additional
Information.......................................... 36
Glossary............................................... 36
THROUGH AND INCLUDING _______, 1998 (THE 25TH DAY AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE __% CUMULATIVE PREFERRED STOCK, WHETHER MERRILL LYNCH & CO.
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED SALOMON SMITH BARNEY
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================================================= ====================================================
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED ____________, 1998
GENERAL AMERICAN INVESTORS COMPANY, INC.
-----------------------
STATEMENT OF ADDITIONAL INFORMATION
General American Investors Company, Inc. (the "Company") is a diversified
closed-end management investment company that seeks long-term capital
appreciation by investing primarily in a portfolio of equity securities. Lesser
emphasis is placed on current income.
This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus of the Company dated
___________, 1998 (the "Prospectus"). This SAI does not include all information
that a prospective investor should consider before purchasing shares of
Cumulative Preferred Stock, and investors should obtain and read the Prospectus
prior to purchasing shares of Cumulative Preferred Stock. A copy of the
Prospectus may be obtained without charge, by calling the Company at (212)
916-8400 or toll free at (800) 436-8401. This SAI incorporates by reference the
entire Prospectus.
------------------------------
TABLE OF CONTENTS
PAGE
-----
General Information and History........................................ B-2
Investment Objectives and Policies..................................... B-2
Management of the Company.............................................. B-3
Principal Stockholders................................................. B-9
Code of Ethics and Related Matters..................................... B-9
Investment Advisory and Other Services................................. B-10
Brokerage Allocation and Other Practices............................... B-10
Net Asset Value........................................................ B-10
Financial Statements................................................... B-11
Taxation............................................................... B-11
General Information.................................................... B-14
Counsel and Independent Auditors....................................... B-15
The Prospectus and this SAI omit certain of the information contained in
the registration statement of Form N-2 (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission"), Washington, D.C. The
Registration Statement may be obtained from the Commission upon payment of the
fee prescribed, or inspected at the Commission's office at no charge.
This Statement of Additional Information is dated _______________, 1998.
B-1
<PAGE>
GENERAL INFORMATION AND HISTORY
General American Investors Company, Inc. (the "Company") was organized as a
Delaware corporation on October 15, 1928 and succeeded to a similar business
established in 1927. The Company is a diversified closed-end investment company,
and is an internally-managed independent organization. Total net assets of the
Company were $776,990,594 as of March 31, 1998.
In 1973, the Company commenced providing investment advisory services to
outside accounts and, in 1974, it registered under the Investment Advisers Act
of 1940, as amended (the "Advisers Act"). In 1980, the Company formed a
wholly-owned subsidiary, General American Advisers, Inc., which also registered
under the Advisers Act. The subsidiary, which began operations in April 1981,
was formed to enable the Company to remain in compliance with the provisions of
the Internal Revenue Code, which, in effect, limit the amount of service income
that may be earned by a regulated investment company. As of December 31 1995,
the subsidiary discontinued its operations and, in early 1996, deregistered as
an investment advisory company. As an investment adviser, the Company currently
provides investment advisory services to an outside client account whose
investment objectives are compatible with those of the Company. In addition, the
Company provides investment advisory services to the Company's Employees'
Retirement Plan trust.
Shares of the Company's Common Stock, $1.00 par value, are listed and
traded on The New York Stock Exchange, Inc. (under the symbol "GAM").
INVESTMENT OBJECTIVES AND POLICIES
The Company's principal investment objective is long-term capital
appreciation. Lesser emphasis is placed on current income. These objectives may
not be changed without the affirmative vote of the holders of a majority of the
Company's outstanding voting securities.
FUNDAMENTAL POLICIES
Except for the information set forth in items (2) and (5) below, the
following are fundamental policies which may not be changed without a vote of
the holders of a majority of the Company's voting securities:
(1) The Company may issue debt and senior equity securities to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940
Act").
(2) The Company has no policy with respect to short sales, purchases on
margin or the writing of put and call options. While the Company has
not engaged in transactions of this nature, it has complete freedom of
action to do so in the future.
(3) The Company may not borrow money in excess of 25% of its gross assets,
except for the purchase or redemption of outstanding senior securities.
(4) The Company may not underwrite securities in excess of 20% of its gross
assets.
(5) The Company has no policy restricting the acquisition of restricted
securities (securities that must be registered under the Securities Act
of 1933, as amended (the "Act") before they may be offered or sold to
the public).
(6) The Company's holdings in a particular industry may not be increased by
additional investment in that industry beyond 50% of the value of the
Company's gross assets.
(7) The Company does not purchase or sell real estate.
B-2
<PAGE>
(8) The Company may not trade in commodities and commodity contracts in
excess of 20% of its gross assets.
(9) The Company may not make loans (other than through the purchase of a
portion of an issue of bonds, debentures or other securities issued by
another person) to other persons in an amount exceeding 10% to any one
person or exceeding in the aggregate 20% of its gross assets.
(10) The Company does not make investments for the purpose of participating
in management, although it maintains the freedom to do so if it should
become necessary to conserve any investment.
Other than as set forth above and subject to the requirements of the
1940 Act relating to diversified investment companies, the Company's investment
policy is flexible, as its charter permits investment in all forms of securities
without limiting the portion of its assets which may be invested in any one
type. The Company's operating policy, however, is to invest not more than 25% of
the value of its assets in any one particular industry.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to each
director and officer of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
Position Held With Principal Occupations During the Past Five
Name, Address and Age the Company Years and Current Affiliations
- --------------------------------- -------------------------- ------------------------------------------------
<S> <C> <C>
Arthur G. Altschul, Jr. (34)..... Director Co-chairman and managing member of Diaz &
745 Fifth Avenue, Suite 3001 Altschul Group, LLC (investments and securities)
New York, NY 10151 which was founded in May 1996; from 1992 to May
1996, employed by SUGEN, Inc.
(biopharmaceuticals), most recently as senior
director of corporate affairs; assistant
secretary of SUGEN from May 1992 to May 1996;
managing general partner of Altschul Investment
Group, L.P. (a private investment partnership)
since 1988; director of Delta Opportunity
Company, Ltd., Medicis Pharmaceutical
Corporation, the New York Council for the
Humanities, and several privately owned
companies.
Lawrence B. Buttenwieser (66).... Director, Chairman of Chairman of the Board of Directors of the
575 Madison Avenue the Board Company since May 1995 and a director of the
New York, NY 10022 Company since 1967; partner of Rosenman & Colin
LLP (lawyers)
B-3
<PAGE>
Position Held With Principal Occupations During the Past Five
Name, Address and Age the Company Years and Current Affiliations
- --------------------------------- -------------------------- ------------------------------------------------
Lewis B. Cullman (79)............ Director President of Cullman Ventures, Inc. (calendars
767 Third Avenue and catalogs and formerly solely a holding
New York, NY 10017 company) since 1968; chairman and a director of
Chess-in-the-Schools (charitable foundation);
vice chairman of the international council and
an honorary trustee of the Museum of Modern Art;
an honorary trustee of the Metropolitan Museum
of Art
Spencer Davidson* (55)........... Director, President and President and Chief Executive Officer of the
450 Lexington Avenue Chief Executive Officer Company since August 1995; prior thereto, senior
New York, NY 10017 investment counselor since joining the Company
in 1994; prior thereto, general partner of The
Hudson Partnership (a private investment
partnership); trustee of the Innisfree
Foundation, Inc. (not-for-profit foundation) and
of the Neurosciences Research Foundation
(scientific research foundation)
Gerald M. Edelman (68)........... Director Member and the chairman of the Department of
10666 North Torrey Pines Rd. Neurobiology of The Scripps Research Institute
LaJolla, CA 92037 since July 1992; prior thereto, Vincent Astor
Professor of The Rockefeller University;
director and president of the Neurosciences
Institute of the Neurosciences Research
Foundation (scientific research foundation);
president and a director of the Neurosciences
Support Corporation (scientific research support
foundation); director of Becton, Dickinson and
Company; and member emeritus of the board of
governors of the Weizmann Institute of Science
Anthony M. Frank (66)............ Director Chairman of Belvedere Capital Partners (private
101 California Street, Suite 2050 financial consulting) since 1994; chairman of
San Francisco, CA 94111 Acrogen Inc. (biotechnology company) since March
1992; prior thereto, The Postmaster General of
the United States from March 1988; director of
Bedford Properties, Cotelligent Group, Inc.,
Crescent Real Estate Equities, Inc., Financial
Security Assurance Holdings Ltd., Irvine
Apartment Communities, Inc., The Schwab
(Charles) Corporation, and Temple-Inland, Inc.
John D. Gordan, III (52)......... Director Partner of Morgan, Lewis and Bockius LLP
101 Park Avenue (lawyers) since October 1994; prior thereto,
New York, NY 10178 partner of Lord Day & Lord, Barrett Smith and
predecessor firm from 1979
B-4
<PAGE>
Position Held With Principal Occupations During the Past Five
Name, Address and Age the Company Years and Current Affiliations
- --------------------------------- -------------------------- ------------------------------------------------
Bill Green (68).................. Director Represented the 15th New York Congressional
14 East 60th Street - Suite 702 District (east side of Manhattan) in the U.S.
New York, NY 10022 House of Representatives from 1978 through 1992;
director of ClientSoft, Inc., Commercial Capital
Corp. and Energy Answers Corporation; member of
the New York City Campaign Finance Board and
member and vice chair of the New York City
Housing Development Corporation
Victoria Hamilton* (44).......... Director, Executive Executive Vice-President and Chief Operating
450 Lexington Avenue Vice-President and Officer of the Company since August 1995; prior
New York, NY 10017 Chief Operating Officer thereto, Vice-President from the time she joined
the Company in February 1992; director of
BioReliance Corporation
Sidney R. Knafel (67)............ Director Managing partner of SRK Management Company
126 East 56th Street (private investment company) since 1981;
New York, NY 10022 chairman of the board of directors of
BioReliance Corporation and Insight
Communications, Inc; director of Cellular
Communications International, Inc., CoreComm
Incorporated, IGENE Biotechnology, Inc., NTL
Incorporated, and some privately owned companies
Richard R. Pivirotto (67)........ Director President of Richard R. Pivirotto Co., Inc.
111 Clapboard Ridge Road (self-employed consultant); director of CBS
Greenwich, CT 06830 Inc., The Gillette Company, The Greenwich Bank
and Trust Company, Immunomedics, Inc.
(biopharmaceuticals), and New York Life
Insurance Company; trustee of Greenwich Hospital
Corporation and General Theological Seminary;
charter trustee emeritus of Princeton
University; director of the Yale New Haven
Health Services Corp.
Joseph T. Stewart, Jr. (68)...... Director Executive consultant to Johnson & Johnson, since
147 Rolling Hill Road September 1990; director of Liposome Co., Inc.;
Skillman, NJ 08558 trustee of the Foundation of the University of
Medicine and Dentistry of New Jersey; trustee of
the New School for Social Research; member of
the advisory council to the Marine Biological
Laboratory
B-5
<PAGE>
Position Held With Principal Occupations During the Past Five
Name, Address and Age the Company Years and Current Affiliations
- --------------------------------- -------------------------- ------------------------------------------------
Raymond S. Troubh (71).......... Director Financial consultant since 1974; director of
10 Rockefeller Plaza - Suite 712 Ariad Pharmaceuticals, Inc., Becton, Dickinson
New York, NY 10020 and Company, Diamond Offshore Drilling, Inc.,
Foundation Health Systems, Inc., Olsten
Corporation, Time Warner Inc., Triarc Companies,
Inc., and WHX Corporation; trustee of MicroCap
Liquidating Trust and Petrie Stores Liquidating
Trust
Eugene L. DeStaebler, Jr.* (59).. Vice-President, Vice-President, Administration of the Company
450 Lexington Avenue Administration since 1978
New York, NY 10017
Peter P. Donnelly* (49).......... Vice-President Vice-President of the Company since 1991 and
450 Lexington Avenue securities trader for the Company since 1974
New York, NY 10017
Andrew V. Vindigni* (38)......... Vice-President Vice-President of the Company since September
450 Lexington Avenue 1995; prior thereto, Assistant Vice-President of
New York, NY 10017 the Company from 1991; security analyst for the
Company since 1988
Diane G. Radosti* (45)........... Treasurer Treasurer of the Company since 1990; employee of
450 Lexington Avenue the Company since 1980
New York, NY 10017
Carole Anne Clementi* (51)....... Secretary Secretary of the Company since October 1994;
450 Lexington Avenue prior thereto, Assistant Secretary from July
New York, NY 10017 1993; employee of the Company since 1982
<FN>
* An "interested person" of the Company as defined under Section 2(a)(19) of
the 1940 Act by reason of being an officer of the Company.
</FN>
</TABLE>
--------------------
Normally, holders of shares of Preferred Stock of the Company,
including the Cumulative Preferred Stock, voting as a separate class, will elect
two members of the Company's Board of Directors, and holders of Preferred Stock,
including the Cumulative Preferred Stock, and Common Stock, voting as a single
class, will elect the remaining directors. See "Description of Cumulative
Preferred Stock--Voting Rights" in the Prospectus. Messrs. Green and Knafel have
been designated as the Preferred Stock directors, subject to election at the
first meeting of the Company's stockholders to be called after issuance of the
Cumulative Preferred Stock.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee comprised of the
following directors, all of whom are "non-interested" directors: Mr. Sidney R.
Knafel, Chairman, Mr. Arthur G. Altschul, Jr., Mr. Lawrence B. Buttenwieser, Mr.
Lewis B. Cullman, Mr. John D. Gordan, III, Mr. Bill Green, and Mr. Raymond S.
Troubh. Mr. Anthony M. Frank serves as an alternate member of the Audit
Committee. Generally, the Audit Committee monitors the Company's
B-6
<PAGE>
financial reporting, reviews reports on the Company's system of internal
accounting control, reviews the scope of the audit work performed for the
Company, reviews fees in relation to services performed by the auditors, reviews
the results of auditors' work, reviews and oversees responses to
recommendations, if any, made to the Company by the auditors, recommends the
selection of the auditors to the Board of Directors and acts as a liaison
between the Board of Directors and the auditors and management personnel.
The Board of Directors has a Compensation Committee comprised of the
following directors: Mr. Bill Green, Chairman, Mr. Arthur G. Altschul, Jr., Mr.
Lawrence B. Buttenwieser, Mr. Anthony M. Frank, Mr. Sidney R. Knafel, Mr.
Richard R. Pivirotto, Mr. Joseph T. Stewart, Jr. and Mr. Raymond S. Troubh. Mr.
Lewis B. Cullman and Dr. Gerald M. Edelman serve as alternate members of the
Compensation Committee. Generally, the Compensation Committee reviews the
Company's operations and performance as well as contributions made during each
year by its officers and employees, reviews management proposals for year-end
supplemental compensation and levels of compensation for the ensuing year,
reviews comparable operating and compensation data of other companies in the
investment industry and makes recommendations on matters of compensation to the
Board of Directors.
The Board of Directors has an Executive Committee/Nominating Committee
comprised of the following directors: Mr. Richard R. Pivirotto, Chairman, Mr.
Lawrence B. Buttenwieser, Mr. Spencer Davidson, Dr. Gerald M. Edelman, Ms.
Victoria Hamilton and Mr. Joseph T. Stewart, Jr. Mr. John D. Gordan III and Mr.
Bill Green serve as alternate members of the Executive Committee/Nominating
Committee. In addition to functioning as an Executive Committee with authority
to exercise the powers of the Board of Directors in the management of the
business and affairs of the Company when the Board of Directors is not in
session, the Executive Committee/Nominating Committee is responsible for
identifying individuals who may be nominated to serve as directors of the
Company, responding to inquiries relating to nominations to the Board and making
recommendations to the Board of Directors with respect to individuals to be
nominated to serve as directors.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation received from the
Company by its executive officers and directors for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
Pension or
Name of Individual Capacities retirement
or number of persons in which Aggregate benefits accrued
in group served compensation during 1997(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Spencer Davidson President and $ 685,000 $ 52,200
Chief Executive Officer
Victoria Hamilton Executive Vice-President and 325,000 36,000
Chief Operating Officer
Andrew V. Vindigni Vice-President 575,000 32,994
7 executive officers as a group 2,437,000 200,615
13 directors as a group 170,000(2)
- ---------------
<FN>
(1) The amounts shown in this column represent the Company's payments made
during 1997 to the trustee of the Company's Employees' Thrift Plan, as described
below, or accounting reserves established during 1997 under the Company's Excess
Contribution Plan, as described below, on behalf of the respective individuals
or group members.
(2) Each director who is not a paid officer of the Company received a fee of
$10,000 as an annual retainer, a fee of $500 for attendance at each Directors'
meeting and $500 for each Committee meeting which he attended in his capacity as
a Director.
</FN>
</TABLE>
B-7
<PAGE>
With respect to the Company's Employees' Thrift Plan, the Company
matches 150% of an employee's contributions up to 8% of basic salary to the
plan. Company contributions are invested in shares of the Company's Common
Stock. An employee's interest in Company contributions to his account is fully
vested after six years of service. Partial vesting begins after two years of
participation in the plan. All employees, including officers, are eligible to
participate in the Thrift Plan after six months of service with the Company.
Employees whose annual compensation exceeds $150,000 are required to invest
their future contributions to the plan in shares of the Company's Common Stock,
and their existing plan balances will be converted into the Company's Common
Stock over the three years next succeeding the attainment of that compensation
level.
The Company has an Employees' Retirement Plan which is broadly
characterized as a defined benefit plan. The Company contributes to the trustee
for the plan annual costs which include actuarially determined current service
costs and amortization of prior service costs. Retirement benefits are based on
final average earnings (basic salary, exclusive of overtime, bonuses,
commissions, pension, retainer fees, fees under contracts or any other forms of
additional or special compensation, for the five consecutive years in which the
participant had the highest basic salary during the last ten years of service)
and years of credited service, less an offset for social security covered
compensation, plus an additional amount equal to $50 for each year of credited
service. All employees, including officers, over age 21 commence participation
in the plan after one year of service and are fully vested after six years of
service. Partial vesting begins after two years of service. Participants are
eligible to receive normal retirement benefits at age 65. In certain instances,
a reduced benefit may begin upon retirement between ages 55 and 65.
The following table shows the estimated annual retirement benefits
(including amounts attributable to the Company's Excess Benefit Plan, as
described below), which are subject to a deduction based on a portion of social
security covered compensation, payable on a straight life annuity basis, at
normal retirement date to all eligible employees, including officers, in
specified compensation and years-of-service classifications:
<TABLE>
<CAPTION>
Estimated Annual Benefits Based Upon Years of Credited Service
----------------------------------------------------------------------------
Final Average 10 20 30 40
Earnings
<S> <C> <C> <C> <C>
$ 50,000 $ 8,685 $ 17,375 $ 26,060 $ 32,035
100,000 16,830 33,665 50,495 61,900
150,000 24,975 49,955 74,930 91,765
200,000 33,120 66,245 99,365 121,630
250,000 41,265 82,535 123,800 151,495
300,000 49,410 98,825 148,235 181,360
350,000 57,555 115,115 172,670 211,225
400,000 65,700 131,405 197,105 241,090
450,000 73,845 147,695 221,540 270,955
</TABLE>
For those officers of the Company listed in the compensation table on
page B-7, the following indicates his or her years of credited services in the
Company's Retirement Plan and basic salary for 1997: Spencer Davidson (3)
$435,000, Victoria Hamilton (5) $300,000 and Andrew V. Vindigni (9) $275,000.
The Company also has Excess Contribution and Excess Benefit Plans.
Under such plans, the Company may establish accounting reserves and make
payments directly to selected participants in the Company's Thrift and
Retirement Plans, respectively, to the extent the levels of contributions or
benefits for such participants under such plans are limited by Sections 415, 416
and/or 401(a)(17) of the Internal Revenue Code. Such benefits commence at the
time benefits commence under the related tax-qualified plan. Mr. Davidson, Ms.
Hamilton and Mr. Vindigni are participants in both the Excess Contribution and
Excess Benefit Plans.
B-8
<PAGE>
PRINCIPAL STOCKHOLDERS
As of April 30, 1998, the following person owned of record or was known
by the Company to have owned beneficially 5% or more of the 23,779,878 shares of
its Common Stock then outstanding:
NAME AND ADDRESS TYPE AND PERCENTAGE OF OWNERSHIP
- ----------------------------------- ----------------------------------
The Depository Trust Company Of record only 71.8%
Cede & Co
P.O. Box 20, Bowling Green Station
New York, New York 10274
All officers and directors of the Company as a group owned
approximately 7.0% of the Company's outstanding shares of Common Stock as of
such date. In addition, approximately 1.4% of the Company's outstanding shares
of Common Stock were held as of such date by the trustee for the Company's
Employees' Thrift Plan with respect to which the Company has the power to vote.
CODE OF ETHICS AND RELATED MATTERS
The Company has had a written code of ethics since 1981, which was
amended most recently on December 13, 1995, with respect to trading in
securities by its directors, officers and employees. It generally provides that
such persons are not to take personal advantage of any information which they
may have concerning the Company's current investment decisions or programs. It
also requires preclearance of all personal securities transactions and, with
respect to disinterested directors, preclearance of personal securities
transactions in securities held by the Company and/or any of its advisory client
accounts.
In order to enforce the foregoing policy, the Company follows the
practice of maintaining "restricted lists" which show securities being
considered for purchase or sale or securities in process of being purchased or
sold for its portfolio or for the portfolio of any of its clients. All
employees, officers and directors are expected to check the lists before they
make individual investment decisions and to preclear their intentions with the
Company's trader or compliance personnel. At the end of each quarter, the
Company obtains from each of its employees, officers and interested directors a
sealed report of his or her security transactions during the quarter and, with
respect to each of its disinterested directors, a limited report, relating only
to the securities held in the Company's portfolio or in any of the client
accounts, of his security transactions during the quarter. In addition, since
January 1, 1995, each of its employees, officers and interested directors have
been required to have their brokers provide the Company with duplicate copies of
trade confirmations and monthly statements.
The Company provides the transaction reports, duplicate confirmations
and month-end statements to its independent public auditors, together with a
copy of the "restricted lists" for the period. The auditors compare the reports
and brokerage material with the restricted lists and report their findings to
the Company. Any transactions in a "restricted" security by individuals during
the period would be investigated thoroughly and appropriate action taken. The
individual reports, brokerage material and restricted lists are returned to the
Company by the auditors in a sealed envelope together with their report; these
are maintained in the Company's files.
B-9
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
CUSTODIAN
Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006, is
the custodian for the assets of the Company. The custodian is responsible for
holding all cash and securities of the Company, directly or through a book-entry
system, delivering and receiving payment for securities sold by the Company,
receiving and paying for securities purchased by the Company, collecting income
from investments of the Company and performing other duties, all as directed by
an authorized person of the Company. The custodian does not exercise any
supervisory functions in such matters as the purchase and sale of securities by
the Company, payment of dividends or payment of expenses of the Company. During
1997, 1996 and 1995, the Company paid $28,500, $33,000 and $25,500,
respectively, in fees to Bankers Trust Company for its custodial services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Company's general policy regarding the execution of securities
transactions is to select brokers and dealers on the basis of the most favorable
markets, prices and execution of orders. A certain amount of the Company's
securities transactions are placed with brokers and dealers who provide
brokerage and research services and in these circumstances the commissions paid
may be higher than those which might otherwise have been paid to another broker
or dealer if those services had not been provided.
Research services generally include receipt of written reports,
attendance at meetings or participation in discussions with respect to specific
subjects, such as a company, an industry or the economic outlook. Block
availability is also a consideration in determining the selection of brokers.
The Company seeks to utilize services obtained from brokers and dealers fairly
with respect to all accounts under its management. To the extent that the
ability to direct brokerage enhances its access to such services, the benefits
are fairly shared.
In negotiating brokerage commissions on securities transactions, the
Company's trader, with his awareness of competitive rates, negotiates the most
favorable commission to effect a particular transaction. Size of order and
difficulty of execution are considerations in the negotiation. All transactions,
including the commission factor, are subject to supervision and review by the
Company's officers.
During the year ended December 31, 1997, the Company did not acquire
any securities of any of its regular brokers or dealers (as defined in Rule
10b-1 under the 1940 Act) or of any of their parents.
Brokerage commissions paid by the Company during 1997, 1996 and 1995
were $362,483, $425,409 and $609,368, respectively. Such amounts included
$59,904 (16.53%), $45,077 (10.60%) and $124,075 (20.36%), respectively, which
were paid to Goldman, Sachs & Co. The Chairman Emeritus of the Company is a
limited partner of The Goldman Sachs Group, L.P. which is an affiliate of
Goldman, Sachs & Co. Of the aggregate dollar amount of the Company's
transactions involving brokerage commissions during 1997, 13.29% were effected
through Goldman, Sachs & Co.
One or more of the Underwriters may have effected purchases and sales
of the portfolio securities of the Company and of the account managed by the
Company and may be chosen to effect future transactions for the Company and such
other account.
NET ASSET VALUE
The Company calculates the net asset value of its shares of Common
Stock daily and makes that information available daily by telephone at (212)
916-8400 or, toll free, (800) 436-8401 and weekly for publication. Currently,
The Wall Street Journal, The New York Times and Barron's publish net asset
values for closed-end investment companies
B-10
<PAGE>
weekly. Net asset value per share of Common Stock is determined at the close of
regular trading on the New York Stock Exchange (currently 4:00 P.M., Eastern
time) on each day on which the Exchange is open. The net asset value of the
Company's Common Stock is calculated by dividing the current value of the
Company's total assets less the sum of all of its liabilities and the aggregate
liquidation preference of its outstanding shares of Preferred Stock, by the
total number of shares of the Common Stock outstanding.
In determining net asset value, securities listed on an exchange or on
the National Association of Securities Dealers Automated Quotation System are
valued on the basis of the last reported sale prior to the time the valuation is
made or, if no sale is reported for such day, at their electronically-reported
bid price. Quotations are taken from the market where the security is primarily
traded. Other over-the-counter securities for which market quotations are
readily available are valued at their electronically-reported bid price or, if
there is no such price, then at their representative bid price. Securities
traded primarily on foreign exchanges are valued at the closing values of such
securities on their respective exchanges as of the day the securities are being
valued. Corporate discount notes are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at their fair value under procedures established
and supervised by the Company's Board of Directors.
The underwriting discount and the expenses of issuance and distribution
associated with the Cumulative Preferred Stock will be charged to paid-in
capital.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Company's Stockholders for the fiscal year ended December 31, 1997, together
with the report of Ernst & Young LLP thereon, and the unaudited financial
statements of the Company for the three months ended March 31, 1998 are
incorporated herein by reference.
TAXATION
The following discussion is a brief summary of certain tax
considerations affecting the Company and its stockholders. No attempt is made to
present a detailed explanation of all U.S. Federal, state, local and foreign tax
concerns, and the discussions set forth herein and in the Prospectus do not
constitute tax advice. The discussion reflects applicable Federal tax laws of
the United States as of the date of this SAI, which tax laws may be changed or
subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively. INVESTORS ARE URGED TO CONSULT THEIR
OWN TAX ADVISERS WITH ANY SPECIFIC QUESTIONS RELATING TO FEDERAL, STATE, LOCAL
AND FOREIGN TAXES.
TAXATION OF THE COMPANY
The Company has qualified as, and intends to continue to qualify as, a
regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Company
(but not its stockholders) will not be subject to U.S. Federal income tax on the
portion of its net investment income (i.e., its investment company taxable
income as defined in the Code without regard to the deduction for dividends
paid) and its net realized capital gains (i.e., the excess of its net realized
long-term capital gains over its net realized short-term capital loss) which it
distributes to its stockholders in each taxable year. If the Company fails to
qualify as a RIC under the Code, it would become subject to taxation on all of
its taxable income, regardless of whether the Company has made distributions to
its stockholders.
Qualification as a RIC requires, among other things, that the Company:
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies and (b)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the market value of the Company's
B-11
<PAGE>
assets is represented by cash, cash items, U.S. government securities,
securities of other RICs and other securities with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Company's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. government securities or
the securities of other RICs).
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Company must distribute during each calendar
year, an amount equal to, at the minimum, the sum of (1) 98% of its ordinary
income for the calendar year, (2) 98% of its capital gain net income, generally
for the one year period ending on October 31 of such year, and (3) all ordinary
income and capital gain net income for previous years that were not previously
distributed. A distribution will be treated as paid during the calendar year if
it is paid during the calendar year or declared by the Company in October,
November or December of the year, payable to stockholders of record on a date
during such month and paid by the Company during January of the following year.
Any such distributions paid during January of the following year will be deemed
to be received by stockholders of the Company on December 31 of the year the
distributions are declared, rather than when the distributions are received.
While the Company intends to distribute its ordinary income and capital gain net
income in the manner necessary to minimize imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Company's ordinary
income and capital gain net income will be distributed to avoid entirely the
imposition of the tax. In such event, the Company will be liable for the tax
only on the amount by which it does not meet the foregoing distribution
requirements.
As a result of investing in certain types of securities which produce
income for tax purposes that is not matched by a corresponding cash distribution
to the Company, the Company could be required to include in current income
amounts it has not yet received. Any such income would be subject to the
distribution requirements of the Code. This might prevent the Company from
distributing 90% of its net investment company taxable income, as is required to
qualify as a RIC, or might prevent it from distributing enough ordinary income
and capital gain net income to avoid completely the imposition of the excise
tax. To avoid this result, the Company may be required to borrow money or
dispose of other securities to be able to make distributions to its investors.
If the Company does not meet the asset coverage requirements of the
1940 Act or the Certificate of Designations, the Company will be required to
suspend distributions to the holders of the Cumulative Preferred Stock and
Common Stock until the asset coverage is restored. See "Description of
Cumulative Preferred Stock -- Dividends" in the Prospectus. Such a suspension of
distributions might prevent the Company from distributing 90% of its net
investment company taxable income, as is required to qualify as a RIC, or might
prevent it from distributing enough ordinary income and capital gain net income
to avoid completely the imposition of the excise tax. Upon any failure to meet
the asset coverage requirements, the Company may, and in certain circumstances
will, be required to redeem shares of Cumulative Preferred Stock in order to
restore the requisite asset coverage and avoid the adverse consequences to the
Company and its stockholders of failing to qualify as a RIC. If asset coverage
were restored, the Company would again be able to pay dividends and might be
able to avoid Company-level taxation.
TAXATION OF STOCKHOLDERS
Dividends are paid by the Company in cash and are taxable to
stockholders. Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
("Ordinary Income Dividends") are taxable to stockholders as ordinary income.
Dividends paid from an excess of net long-term capital gains over net short-term
capital losses (including gains or losses from certain transactions in warrants,
rights, futures and options) and properly designated by the Company ("Capital
Gain Dividends") are taxable to stockholders as long-term capital gains,
regardless of the length of time the stockholder has owned Company shares. Any
loss upon the sale or exchange of Company shares held for six months or less
will be treated as long-term capital loss to the extent of any Capital Gain
Dividends received by the stockholder. Distributions in excess of the Company's
earnings and
B-12
<PAGE>
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gain to such
holder (assuming the shares are held as capital assets).
Capital Gain Dividends may be taxed at a lower rate than ordinary
income dividends for certain non-corporate taxpayers. Under recent legislation,
"long-term capital gain" has been broken down into additional categories of
gain, taxable at different rates for individual taxpayers. These categories
include 20% Rate Gain and 28% Rate Gain. The amount of "28% Rate Gain" (net
capital gain on assets held longer than 12 months but not longer than 18 months)
is taxed at the taxpayer's marginal Federal income tax rate, but not higher than
28%. The amount of "20% Rate Gain" (net capital gain on assets held longer than
18 months) is taxed at a maximum rate of 20%. Not later than 60 days after the
close of its taxable year, the Company will provide its stockholders with a
written notice designating the amounts of any Ordinary Income Dividends or
Capital Gain Dividends as well as the portions of its Capital Gain Dividends
that constitute 28% Rate Gain and 20% Rate Gain.
Stockholders may be entitled to offset their Capital Gain Dividends
with capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Cumulative Preferred Stock including, without limitation, a
redemption, by the Company, will be taxed as a capital gain or loss if the
shares are capital assets in the stockholder's hands. Capital gain of an
individual is generally subject to a maximum rate of 28% in respect of property
held longer than 12 months but not longer than 18 months and a maximum rate of
20% in respect of property held longer than 18 months. A loss realized on a sale
or exchange of shares of the Company will be disallowed if other Company shares
of the same class are acquired within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Ordinary Income Dividends (but not Capital Gain Dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject to
a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under an applicable treaty.
Non-resident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
At the time of a stockholder's purchase, the market price of the
Cumulative Preferred Stock may reflect undistributed net investment income or
net realized capital gains. A subsequent distribution of these amounts by the
Company will be taxable to the stockholder even though the distribution
economically is a return of part of the stockholder's investment. Investors
should carefully consider the tax implications of acquiring shares just prior to
a distribution, as they will receive a distribution that would nevertheless be
taxable to them.
Designation of Capital Gain Dividends to Cumulative Preferred Stock.
The IRS has taken the position in Revenue Ruling 89-81 that if a RIC has two
classes of shares, it may designate distributions made to each class from the
RIC's taxable income in any year as consisting of no more than such class's
proportionate share of particular types of income, such as long-term capital
gains, recognized by the RIC in such year. A class's proportionate share of a
particular type of income is determined according to the percentage of total
dividends paid to such class out of the RIC's earnings for such year.
Consequently, the Company will designate distributions made to the Common Stock
and Cumulative Preferred Stock and any other Preferred Stock series as
consisting of particular types of income in accordance with the classes'
proportionate shares of such income. Because of this rule, the Company is
required to allocate a portion of its net capital gains to holders of Common
Stock, holders of Cumulative Preferred Stock and any other Preferred Stock. The
amount of net capital gains allocable among holders of the Common Stock, the
Cumulative Preferred Stock and any other Preferred Stock will depend upon the
amount of such gains and other income recognized
B-13
<PAGE>
by and taxes paid by the Company during a taxable year and the total dividends
paid by the Company on shares of Common Stock and Cumulative Preferred Stock and
any other Preferred Stock during a taxable year.
Under the distribution policy adopted by the Company, all dividends
received by holders of the Cumulative Preferred Stock within a given calendar
year will have the same proportions of 20% Rate Gain, 28% Rate Gain, ordinary
income and return of capital. As a result of this distribution policy,
"spill-over" dividends paid by the Company pursuant to Section 855 of the Code
will be paid solely to holders of the Common Stock. No portion of the quarterly
dividends paid to the holders of the Cumulative Preferred Stock will be deemed
to consist of any portion of such "spill-over" dividends.
BACKUP WITHHOLDING
Under certain provisions of the Code, some stockholders may be subject
to 31% withholding on Ordinary Income Dividends, Capital Gain Dividends and
redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
stockholder maintains his or her account), certifying under penalties of perjury
that such stockholder's taxpayer identification number is correct and that such
stockholder (i) has never been notified by the IRS that he or she is subject to
backup withholding, (ii) has been notified by the IRS that he or she is no
longer subject to backup withholding, or (iii) is exempt from backup
withholding. Corporate stockholders and certain other stockholders are exempt
from backup withholding. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be credited against such
stockholder's Federal income tax liability.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. FOR THE
COMPLETE PROVISIONS APPLICABLE TO BOTH STOCKHOLDERS AND THE COMPANY, REFERENCE
SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND THE TREASURY REGULATIONS
PROMULGATED THEREUNDER. THE CODE AND THE TREASURY REGULATIONS ARE SUBJECT TO
CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE ACTION, EITHER PROSPECTIVELY
OR RETROACTIVELY.
GENERAL INFORMATION
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the shares of Cumulative Preferred Stock offered
pursuant to the Prospectus (the "Securities"). The information in this section
concerning DTC and DTC's book-entry system is based upon information obtained
from DTC. The Securities initially will be issued only as fully-registered
securities registered in the name of Cede & Co. (as nominee for DTC). One or
more fully-registered global Security certificate or certificates initially will
be issued, representing in the aggregate the total number of Securities, and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant,
B-14
<PAGE>
either directly or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Participants are on file with the Commission.
Purchases of Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except as provided herein.
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
securities are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant.
Payments on the Securities will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Company, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Furthermore, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
Beneficial Owners may obtain certificates representing the Securities
by contacting ChaseMellon Shareholder Services, L.L.C., which acts as transfer
agent for the Company's capital stock.
DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depository is not obtained, certificates representing the Securities will be
printed and delivered. The Company may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor securities depository). In
that event, Security certificates will be printed and delivered.
COUNSEL AND INDEPENDENT AUDITORS
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, is
counsel to the Company in connection with the offering of the Cumulative
Preferred Stock.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been selected as independent auditors for the Company.
B-15
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements*
(1)(a)(1) Restated Certificate of Incorporation**
(2) Certificate of Amendment to the Restated Certificate of
Incorporation, dated April 28, 1987**
(3) Certificate of Amendment to the Restated Certificate of
Incorporation, dated March 19, 1992**
(4) Certificate of Amendment to the Restated Certificate of
Incorporation, dated March 11, 1998**
(5) Certificate of Correction to the Certificate of Amendment
to the Restated Certificate of Incorporation, dated March
20, 1998**
(6) Certificate of Designations***
(b) By-Laws**
(c) Not Applicable
(d) Specimen Stock Certificate+
(e) Not Applicable
(f) Not Applicable
(g) Not Applicable
(h)(1) Form of Underwriting Agreement***
(2) Form of Master Agreement Among Underwriters***
(i)(1) Employees' Retirement Plan**
(2) Amendment of the Employees' Retirement Plan**
(3) Employees' Thrift Plan**
(4) Excess Benefit Plan**
(5) Excess Contribution Plan**
(j) Custodian Agreement**
(k) Not Applicable
(l) Opinion and Consent of Sullivan & Cromwell***
(m) Not Applicable
(n) Consent of Ernst & Young, LLP+
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Not Applicable
- ------------------
* Incorporated by reference from Registrant's Annual Report for the year
ended December 31, 1997, File No. 811-00041, as filed with the Securities
and Exchange Commission on February 2, 1998 and from Registrant's Quarterly
Report for the three months ended March 31, 1998, File No. 811-00041, as
filed with the Securities and Exchange Commission on April 24, 1998.
** Previously filed.
*** To be filed by amendment.
+ Filed herewith.
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution(1)
C-1
<PAGE>
The following table sets forth the estimated expenses payable by the
Company in connection with the offering described in this Registration Statement
(excluding underwriting discounts and commissions):
Nature of Expenses Amount
- ------------------ ------
SEC Registration fees.................................. $ 44,250
NYSE listing fee....................................... 51,300
Rating Agency fee...................................... 37,500
Printing expenses...................................... 90,000
Auditing fees and expenses............................. 22,000
Legal fees and expenses................................ 300,000
Consulting fees and expenses........................... 137,500
Miscellaneous.......................................... 17,450
--------
Total......................................... $700,000
========
(1) The amounts set forth above, except for the SEC and NYSE fees, are in each
case estimated.
Item 27. Persons Controlled by or Under Common Control with Registrant
General American Advisers, Inc. is a wholly owned, inactive subsidiary
of the Company.
Item 28. Number of Holders of each class of securities of the Company as of
March 31, 1998:
Number of
Title of Class Record Holders
- -------------- --------------
Common Stock, par value $1.00 per share................ 5,903
Item 29. Indemnification
Under the Company's Restated Certificate of Incorporation and By-Laws,
the directors and officers of the Company will not be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that the foregoing shall not eliminate or limit liability of
a director (i) for any breach of such director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct, gross negligence or reckless disregard of the
duties involved in the conduct of such director's office, or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which such director derived an improper personal benefit.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the directors and officers, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Company by the directors or officers
in connection with the Shares, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
C-2
<PAGE>
Item 30. Business and Other Connections of Adviser
Not applicable.
Item 31. Location of Accounts and Records
The Company's accounts and records are maintained at the Company's
principal executive offices located at 450 Lexington Avenue, Suite 3300, New
York, New York 10017. In addition, Bankers Trust Company, which is located at
One Bankers Trust Plaza, New York, NY 10006, acts as the custodian of the
securities, cash and other assets of the Company and maintains certain accounts
and records of the Company. ChaseMellon Shareholder Services, L.L.C., which is
located at Overpeck Centre, 85 Challenger Road, Ridgefield Park, NJ 07660, acts
as the Company's transfer agent, registrar and dividend-paying agent and
maintains certain accounts and records of the Company.
Item 32. Management Services
Not Applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend the offering of shares of
Cumulative Preferred Stock until the prospectus is amended if (1)
subsequent to the effective date of this Registration Statement,
its net asset value declines more than ten percent from its net
asset value as of the effective date of the Registration
Statement or (2) its net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that (a) for the purpose of determining any
liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to
Rule 497(h) will be deemed to be a part of the Registration
Statement as of the time it was declared effective; and (b) for
the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus will be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time will be deemed to be the initial
bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two Business
Days of receipt of a written or oral request, any Statement of
Additional Information constituting Part B of this Registration
Statement.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on the 27th day of May, 1998.
GENERAL AMERICAN INVESTORS COMPANY, INC.
By: /s/ EUGENE L. DESTAEBLER, JR.
---------------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President, Administration
IN WITNESS WHEREOF, the undersigned officers and directors have
hereunto set their hands this 27th day of May, 1998.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
*
- -------------------------------------------------------------- President and Chief Executive Officer and Director
(Spencer Davidson) (Principal Executive Officer)
*
- -------------------------------------------------------------- Executive Vice-President, Chief Operating Officer
(Victoria Hamilton) and Director
/s/ Eugene L. DeStaebler, Jr.
- -------------------------------------------------------------- Vice-President, Administration
(Eugene L. DeStaebler, Jr.) (Principal Financial Officer and Principal
Accounting Officer)
*
- -------------------------------------------------------------- Chairman of the Board of Directors and Director
(Lawrence B. Buttenwieser)
*
- -------------------------------------------------------------- Director
(Arthur G. Altschul, Jr.)
*
- -------------------------------------------------------------- Director
(Lewis B. Cullman)
*
- -------------------------------------------------------------- Director
(Gerald M. Edelman)
C-4
<PAGE>
Signature Title
*
- -------------------------------------------------------------- Director
(Anthony M. Frank)
*
- -------------------------------------------------------------- Director
(John D. Gordan, III)
*
- -------------------------------------------------------------- Director
(Bill Green)
*
- -------------------------------------------------------------- Director
(Sidney R. Knafel)
*
- -------------------------------------------------------------- Director
(Richard R. Pivirotto)
*
- -------------------------------------------------------------- Director
(Joseph T. Stewart, Jr.)
- -------------------------------------------------------------- Director
(Raymond S. Troubh)
* By: /s/ EUGENE L. DESTAEBLER, JR.
--------------------------------------------------------
Attorney-in-Fact
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
- ------ ------- ------
<C> <S> <C>
Exhibit A (1) Restated Certificate of Incorporation**.......................................
(2) Certificate of Amendment to the Restated Certificate of Incorporation,
dated April 28, 1987**............................................................
(3) Certificate of Amendment to the Restated Certificate of Incorporation,
dated March 19, 1992**............................................................
(4) Certificate of Amendment to the Restated Certificate of Incorporation,
dated March 11, 1998**............................................................
(5) Certificate of Correction to the Certificate of Amendment to the
Restated Certificate of Incorporation, dated March 20, 1998**.....................
(6) Certificate of Designations*
Exhibit B By-Laws**.........................................................................
Exhibit C Not Applicable....................................................................
Exhibit D Specimen Stock Certificate+.......................................................
Exhibit E Not Applicable....................................................................
Exhibit F Not Applicable....................................................................
Exhibit G Not Applicable....................................................................
Exhibit H (1) Form of Underwriting Agreement*...............................................
(2) Form of Master Agreement Among Underwriters*..................................
Exhibit I (1) Employees' Retirement Plan**..................................................
(2) Amendment of the Employees' Retirement Plan**
(3) Employees' Thrift Plan**
(4) Excess Benefit Plan**
(5) Excess Contribution Plan**
Exhibit J Custodian Agreement**.............................................................
Exhibit K Not Applicable....................................................................
Exhibit L Opinion and Consent of Sullivan & Cromwell*.......................................
Exhibit M Not Applicable....................................................................
Exhibit N Consent of Ernst & Young LLP+.....................................................
Exhibit O Not Applicable....................................................................
Exhibit P Not Applicable....................................................................
Exhibit Q Not Applicable....................................................................
Exhibit R Not Applicable....................................................................
<FN>
* To be filed by amendment.
** Previously filed.
+ Filed herewith.
</FN>
</TABLE>
C-6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Experts", "Financial Statements" and "Counsel and Independent
Auditors" and to the use of our report dated January 14, 1998, which is
incorporated by reference in this Registration Statement on Form N-2 of General
American Investors Company, Inc.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
New York, New York
May 26, 1998
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, NY AND RIDGEFIELD PARK, NJ
Number Shares
PREFERRED PREFERRED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE ON OCTOBER 15, 1926
GENERAL AMERICAN INVESTORS COMPANY, INC.
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that is the owner of
CUSIP 368802 XX X
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $1 EACH
OF THE % CUMULATIVE PREFERRED STOCK OF
GENERAL AMERICAN INVESTORS COMPANY, INC. transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares of stock
represented hereby are issued and shall be held subject to all the provisions of
the Certificate of Incorporation (a copy of which is on file at the office of
the Transfer Agent of the Corporation) and all amendments thereto. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
[ SEAL ]
Dated
/s/ Carole Anne Clementi /s/ Spencer Davidson
Secretary President
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT
AND REGISTRAR,
By
AUTHORIZED SIGNATURE
<PAGE>
GENERAL AMERICAN INVESTORS COMPANY, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO A STOCKHOLDER UPON REQUEST A
STATEMENT OF THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ..........Custodian..........
(Cust) (Minor)
under Uniform Gifts to Minors
Act....................
(State)
Additional abbreviations may also be used though not in the above list.
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
For value received, hereby sell, assign and transfer unto
-----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the capital stock, represented by the within Certificate, and do hereby
irrevocably constitute and appoint
----------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer for the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
----------------------
---------------------------------------
Signature(s) Guaranteed
- ---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
