<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1998
SECURITY ACT FILE NO. 333-48431
INVESTMENT COMPANY ACT FILE NO. 811-00041
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 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:
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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
</TABLE>
------------------------
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 [ ]
------------------------
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.
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<PAGE> 2
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(A)
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N-2 ITEM NUMBER LOCATION IN PART A (CAPTION)
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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 Information................. Table of Contents of Statement of Additional
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
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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> 3
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.
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 10, 1998
6,000,000 SHARES
GENERAL AMERICAN INVESTORS COMPANY, INC.
% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
------------------------
The shares of % Tax-Advantaged 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
September 23, 1998, at the annual rate of % of the liquidation preference of
$25 per share.
The tax advantage associated with the Cumulative Preferred Stock arises from
the Company's status as a registered investment company and the current
requirement that dividends on the Cumulative Preferred Stock consist of ordinary
income and capital gains in proportion to which the Company earns that character
of income. Therefore, 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,
five, ten and twenty fiscal years ended December 31, 1997, net long-term capital
gains comprised 93%, 95%, 94% and 88%, 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."
The Cumulative Preferred Stock has been approved for listing on the New York
Stock Exchange, subject to notice of official issuance. Trading of the
Cumulative Preferred Stock on the New York Stock Exchange is expected to
commence within 30 days of this Prospectus. See "Underwriting."
(continued on next page)
------------------------
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.
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...........................
- ---------------------------------------------------------------------------------------------------------------------------
Total(2)............................
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(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 Joint Bookrunners
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
------------------------
PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1998.
<PAGE> 4
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
June 23, 2003 and thereafter, on any quarterly Dividend Payment Date (as defined
herein), 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
June 23, 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.
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."
2
<PAGE> 5
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 in arrears on March
23, June 23, September 23 and December 23, in
each year, commencing on September 23, 1998 to
the holders of record on the preceding March 6,
June 6, September 6 and December 6,
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 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
3
<PAGE> 6
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% Rate
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.
Distributions from net investment income and
short-term capital gains ("Ordinary Income")
generally are taxable to individuals at a
maximum Federal tax rate of 39.6%. During the
past one, five, ten and twenty fiscal years
ended December 31, 1997, long-term capital
gains (i.e., capital gains from the sale of
assets held longer than 12 months) comprised
93%, 95%, 94% and 88%, 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 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."
4
<PAGE> 7
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, an 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 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
5
<PAGE> 8
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 weekly 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 weekly 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 -- Mandatory Redemption"
and "Description of Rating Agency
Guidelines -- Redemption."
Optional Redemption........... Commencing June 23, 2003 and thereafter, on any
quarterly Dividend Payment Date (as defined
herein), 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 June 23, 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."
6
<PAGE> 9
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 Cumulative Preferred Stock has been
approved for listing on the NYSE, subject to
notice of official issuance. 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.
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.
The tax advantage associated with the
Cumulative Preferred Stock is dependent on the
Company's recognition of long-term capital
gains. No assurance can be given as to what
percentage, if any, of the dividends paid on
the Cumulative Preferred Stock will be paid
7
<PAGE> 10
out of net long-term capital gains. 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 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 Incorporation and
By-Laws; Anti-Takeover Provisions."
8
<PAGE> 11
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."
9
<PAGE> 12
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.
During the past one, five, ten and twenty fiscal years ended December 31,
1997, 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%, 95%, 94% and 88%, 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."
10
<PAGE> 13
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
The following chart shows the composition of the average earnings of the
Company during the 5-year period from 1993 through 1997.
5 YEAR AVERAGE-EARNINGS COMPOSITION(1)
(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,
11
<PAGE> 14
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.
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
----------------------
<S> <C> <C> <C> <C> <C>
7.0% 7.125% 7.25%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE PREFERRED STOCK
STATED ANNUAL DIVIDEND COMPRISED OF
- ------------------------------------------
LONG-TERM CAPITAL GAINS
- ---------------------------
20% RATE 28% RATE ORDINARY IS EQUIVALENT FOR AN INDIVIDUAL IN THE 31% FEDERAL
GAIN GAIN INCOME INCOME TAX BRACKET TO AN ORDINARY INCOME YIELD OF:
- ------------ ------------ ------------ ----------------------------------------------------
<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
----------------------------
<S> <C> <C> <C> <C> <C>
7.0% 7.125% 7.25%
</TABLE>
<TABLE>
<CAPTION>
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.
12
<PAGE> 15
- ---------------
(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>
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.
13
<PAGE> 16
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>
14
<PAGE> 17
<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
</TABLE>
- ---------------
(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.
15
<PAGE> 18
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
============ ============
</TABLE>
- ---------------
(1) After deducting the underwriting discounts and estimated offering expenses
of $5,425,000.
16
<PAGE> 19
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:
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>
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>
17
<PAGE> 20
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.
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.
18
<PAGE> 21
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).
19
<PAGE> 22
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.
20
<PAGE> 23
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 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.
The tax advantage associated with the Cumulative Preferred Stock is
dependent on the Company's recognition of long-term capital gains. While some
portion of the dividends paid by the Company on its Common Stock have
historically consisted of net long-term capital gains, no assurance can be given
as to what percentage, if any, of the dividends paid on the Cumulative Preferred
Stock will consist of long-term capital gains.
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.
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<PAGE> 24
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.
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 in arrears on March 23, June 23, September 23 and
December 23 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
September 23, 1998, to the persons in whose names the shares of Cumulative
Preferred Stock are registered at the close of business on the preceding March
6, June 6, September 6 and December 6, 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 any
shares of Cumulative Preferred Stock for any dividend period or part thereof
unless full cumulative dividends have been or contemporaneously
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<PAGE> 25
are declared and paid on all outstanding shares of Cumulative Preferred Stock
through the most recent Dividend Payment Dates therefor. If full cumulative
dividends are not declared and paid on the Cumulative Preferred Stock, any
dividends declared on the shares of Cumulative Preferred Stock will be paid pro
rata to the holders of all 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
on any shares of Cumulative Preferred Stock 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.
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 June 23, 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 June 23, 2003, and at any time and from time to time
thereafter, on any quarterly Dividend Payment Date, 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
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<PAGE> 26
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.
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
24
<PAGE> 27
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.
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 of 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
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<PAGE> 28
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 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 weekly 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
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<PAGE> 29
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 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
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<PAGE> 30
the underwriting discounts and estimated offering expenses of $5,425,000) would
have been computed as follows:
<TABLE>
<C> <C> <S>
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
</TABLE>
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.
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
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<PAGE> 31
(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.
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
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<PAGE> 32
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>
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
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<PAGE> 33
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 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.
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<PAGE> 34
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.
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
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<PAGE> 35
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 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.
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, Pierce, Fenner & Smith
Incorporated....................................
Smith Barney Inc. ..........................................
PaineWebber Incorporated....................................
Prudential Securities Incorporated..........................
---------
6,000,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Smith Barney Inc.
are acting as joint bookrunners and co-representatives of the Underwriters.
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
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<PAGE> 36
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 reallow, 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.
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. In addition, the Underwriters have
agreed to pay Financial Products Group, Inc. a fee for services performed by it
for the Company in respect of the Cumulative Preferred Stock.
Prior to this offering, there has been no market for the Cumulative
Preferred Stock. The Cumulative Preferred Stock has been approved for listing on
the NYSE, subject to notice of official issuance. 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.
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<PAGE> 37
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
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.
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<PAGE> 38
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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History............................. B-2
Investment Objectives and Policies.......................... B-2
Management of the Company................................... B-4
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-11
Financial Statements........................................ B-11
Taxation.................................................... B-11
General Information......................................... B-14
Counsel and Independent Auditors............................ B-16
</TABLE>
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 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
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<PAGE> 39
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 % Tax-Advantaged Cumulative
Preferred Stock, par value $1.00 per share, of the Company.
"Cure Date" has the meanings set forth on pages 28 and 29 of this
Prospectus.
"Date of Original Issue" has the meaning set forth on page 22 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 22 of this
Prospectus.
"Governing Documents" has the meaning set forth on page 32 of this
Prospectus.
"Liquidation Preference" has the meaning set forth on page 24 of this
Prospectus.
"Moody's" means Moody's Investors Service, Inc., or its successor.
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<PAGE> 40
"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
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
------------------------------ -----------------
<S> <C>
Corporate bonds:
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
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
------------------------------ -----------------
<S> <C>
Convertible corporate bonds with senior debt securities
rated Baa issued by the following type of issuers:
Utility................................................ 2.02
Industrial............................................. 3.18
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
40
<PAGE> 43
dividend will no longer be considered a Moody's Eligible Asset until 71
days after the date of the announcement of such 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 Depository 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;
41
<PAGE> 44
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:
ISSUER:
<TABLE>
<CAPTION>
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%
"a", A.................................................... 10% 10%
CS/CB, "Baa", Baa(5)...................................... 6% 4%
Ba........................................................ 4% 4%
B1/B2..................................................... 3% 3%
B3 (Caa subordinate)...................................... 2% 2%
</TABLE>
INDUSTRY AND STATE:
<TABLE>
<CAPTION>
NON-UTILITY UTILITY MAXIMUM
MAXIMUM SINGLE SUB- UTILITY MAXIMUM
MOODY'S RATING(1)(2) SINGLE ISSUER(3) INDUSTRY(3)(6) SINGLE STATE(3)
- -------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
"aaa", "Aaa................................... 100% 100% 100%
"aa", Aa...................................... 60% 60% 20%
"a", A........................................ 40% 50% 10%(7)
CS/CB, "baa", Baa(5).......................... 20% 50% 7%(7)
Ba............................................ 12% 12% N/A
B1/B2......................................... 8% 8% N/A
B3 (Caa Subordinate).......................... 5% 5% N/A
</TABLE>
- ---------------
(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;
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
provison; and
42
<PAGE> 45
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.
"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 September, 1998.
"Rating Agency Guidelines" has the meaning set forth on page 26 of this
Prospectus.
"Redemption Price" has the meaning set forth on page 28 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 the foregoing
43
<PAGE> 46
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> 47
======================================================
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
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 AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME 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 SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITATION IS
UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................... 3
Tax Attributes of Preferred Stock
Dividends.............................. 10
Financial Highlights..................... 14
The Company.............................. 16
Use of Proceeds.......................... 16
Capitalization........................... 16
Portfolio................................ 17
Investment Objectives and Policies....... 18
Management............................... 20
Risk Factors............................. 21
Description of Cumulative Preferred
Stock.................................. 22
Description of Rating Agency
Guidelines............................. 26
Description of Capital Stock and Other
Securities............................. 30
Taxation................................. 30
Certain Provisions of the Restated
Certificate of Incorporation and
By-laws; Anti-takeover Provisions...... 32
Custodian, Transfer Agent, Registrar and
Dividend-Paying Agent.................. 33
Underwriting............................. 33
Validity of Cumulative Preferred Stock... 34
Experts.................................. 35
Additional Information................... 35
Table of Contents of Statement of
Additional Information................. 36
Glossary................................. 36
</TABLE>
Through and including , 1998 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the % Cumulative
Preferred Stock, whether or not participating in this distribution, may be
required 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.
======================================================
======================================================
6,000,000 SHARES
GENERAL AMERICAN
INVESTORS COMPANY, INC.
% TAX-ADVANTAGED
CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1998
======================================================
<PAGE> 48
SUBJECT TO COMPLETION DATED JUNE 10, 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History............................. B-2
Investment Objectives and Policies.......................... B-2
Management of the Company................................... B-4
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-11
Financial Statements........................................ B-11
Taxation.................................................... B-11
General Information......................................... B-14
Counsel and Independent Auditors............................ B-16
</TABLE>
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> 49
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.
(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.
B-2
<PAGE> 50
(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.
B-3
<PAGE> 51
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 PRINCIPAL OCCUPATIONS DURING THE
NAME, ADDRESS AND AGE WITH THE COMPANY PAST FIVE 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
New York, NY 10151 securities) 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 Chairman of the Board of Directors of
575 Madison Avenue of the Board the Company since May 1995 and a
New York, NY 10022 director of the Company since 1967;
partner of Rosenman & Colin LLP
(lawyers)
Lewis B. Cullman (79)................ Director President of Cullman Ventures, Inc.
767 Third Avenue (calendars and catalogs and formerly
New York, NY 10017 solely a holding 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 President and Chief Executive Officer of
450 Lexington Avenue and Chief Executive the Company since August 1995; prior
New York, NY 10017 Officer thereto, senior 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)
</TABLE>
B-4
<PAGE> 52
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATIONS DURING THE
NAME, ADDRESS AND AGE WITH THE COMPANY PAST FIVE YEARS AND CURRENT AFFILIATIONS
- --------------------- ---------------- ----------------------------------------
<S> <C> <C>
Gerald M. Edelman (68)............... Director Member and the chairman of the
10666 North Torrey Pines Rd. Department of Neurobiology of The
LaJolla, CA 92037 Scripps Research Institute 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
101 California Street, Suite 205 (private financial consulting) since
San Francisco, CA 94111 1994; chairman of 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
New York, NY 10178 thereto, partner of Lord Day & Lord,
Barrett Smith and predecessor firm from
1979
Bill Green (68)...................... Director Represented the 15th New York
14 East 60th Street -- Suite 702 Congressional District (east side of
New York, NY 10022 Manhattan) in the U.S. 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
450 Lexington Avenue Vice-President and Operating Officer of the Company since
New York, NY 10017 Chief Operating August 1995; prior thereto,
Officer Vice-President from the time she joined
the Company in February 1992; director
of BioReliance Corporation
</TABLE>
B-5
<PAGE> 53
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATIONS DURING THE
NAME, ADDRESS AND AGE WITH THE COMPANY PAST FIVE YEARS AND CURRENT AFFILIATIONS
- --------------------- ---------------- ----------------------------------------
<S> <C> <C>
Sidney R. Knafel (67)................ Director Managing partner of SRK Management
126 East 56th Street Company (private investment company)
New York, NY 10022 since 1981; 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.,
111 Clapboard Ridge Road Inc. (self-employed consultant);
Greenwich, CT 06830 director of CBS 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 &
147 Rolling Hill Road Johnson, since September 1990; director
Skillman, NJ 08558 of Liposome Co., Inc.; 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
Raymond S. Troubh (71)............... Director Financial consultant since 1974;
10 Rockefeller Plaza -- Suite 712 director of Ariad Pharmaceuticals, Inc.,
New York, NY 10020 Becton, Dickinson 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
450 Lexington Avenue Administration Company since 1978
New York, NY 10017
Peter P. Donnelly* (49).............. Vice-President Vice-President of the Company since 1991
450 Lexington Avenue and securities trader for the Company
New York, NY 10017 since 1974
Andrew V. Vindigni* (38)............. Vice-President Vice-President of the Company since
450 Lexington Avenue September 1995; prior thereto, Assistant
New York, NY 10017 Vice-President of the Company from 1991;
security analyst for the Company since
1988
Diane G. Radosti* (45)............... Treasurer Treasurer of the Company since 1990;
450 Lexington Avenue employee of the Company since 1980
New York, NY 10017
</TABLE>
B-6
<PAGE> 54
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATIONS DURING THE
NAME, ADDRESS AND AGE WITH THE COMPANY PAST FIVE YEARS AND CURRENT AFFILIATIONS
- --------------------- ---------------- ----------------------------------------
<S> <C> <C>
Carole Anne Clementi* (51)........... Secretary Secretary of the Company since October
450 Lexington Avenue 1994; prior thereto, Assistant Secretary
New York, NY 10017 from July 1993; employee of the Company
since 1982
</TABLE>
- ---------------
* 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.
------------------------
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 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.
B-7
<PAGE> 55
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
RETIREMENT
NAME OF INDIVIDUAL OR AGGREGATE BENEFITS ACCRUED
NUMBER OF PERSONS IN GROUP CAPACITIES IN WHICH SERVED COMPENSATION DURING 1997(1)
-------------------------- -------------------------- ------------ ----------------
<S> <C> <C> <C>
Spencer Davidson........................ President and Chief $ 685,000 $ 52,200
Executive Officer
Victoria Hamilton....................... Executive Vice-President 325,000 36,000
and 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)
</TABLE>
- ---------------
(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.
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
B-8
<PAGE> 56
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 -------------------------------------------
EARNINGS 10 20 30 40
- ------------- ------- -------- -------- --------
<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.
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:
<TABLE>
<CAPTION>
TYPE AND PERCENTAGE OF
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------------------
<S> <C> <C>
Depository Trust Company.................................... Of record only 71.8%
Cede & Co
P.O. Box 20, Bowling Green Station
New York, New York 10274
</TABLE>
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.
B-9
<PAGE> 57
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.
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.
B-10
<PAGE> 58
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 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.
B-11
<PAGE> 59
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 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
B-12
<PAGE> 60
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 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.
B-13
<PAGE> 61
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 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.
B-14
<PAGE> 62
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 facilities 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, 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.
B-15
<PAGE> 63
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-16
<PAGE> 64
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C> <C>
(1) Financial Statements*
(2) (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
</TABLE>
- ---------------
* 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.
+ Filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit 2(h) to this Registration Statement.
C-1
<PAGE> 65
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
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):
<TABLE>
<CAPTION>
NATURE OF EXPENSES AMOUNT
- ------------------ --------
<S> <C>
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
========
</TABLE>
- ---------------
(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:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
<S> <C>
Common Stock, par value $1.00 per share..................... 5,903
</TABLE>
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.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF ADVISER
Not applicable.
C-2
<PAGE> 66
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 Center, 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> 67
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. 2 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 9th day of June, 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 9th day of June, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President and Chief Executive Officer and
- --------------------------------------------------- Director (Principal Executive Officer)
(Spencer Davidson)
* Executive Vice-President, Chief Operating Officer
- --------------------------------------------------- and Director
(Victoria Hamilton)
/s/ EUGENE L. DESTAEBLER, JR. Vice-President, Administration
- --------------------------------------------------- (Principal Financial Officer and Principal
(Eugene L. DeStaebler, Jr.) 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)
* Director
- ---------------------------------------------------
(Anthony M. Frank)
* Director
- ---------------------------------------------------
(John D. Gordan, III)
</TABLE>
C-4
<PAGE> 68
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Director
- ---------------------------------------------------
(Bill Green)
* Director
- ---------------------------------------------------
(Sidney R. Knafel)
* Director
- ---------------------------------------------------
(Richard R. Pivirotto)
* Director
- ---------------------------------------------------
(Joseph T. Stewart, Jr.)
* Director
- ---------------------------------------------------
(Raymond S. Troubh)
/s/ EUGENE L. DESTAEBLER, JR.
- ---------------------------------------------------
Attorney-in-Fact
</TABLE>
C-5
<PAGE> 69
SCHEDULE OF EXHIBITS TO FORM N-2
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ------
<S> <C> <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..............................................
</TABLE>
- ---------------
** Previously filed.
+ Filed herewith.
<PAGE> 1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
of
___% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK, SERIES A
($25.00 LIQUIDATION PREFERENCE)
of
GENERAL AMERICAN INVESTORS COMPANY, INC.
GENERAL AMERICAN INVESTORS COMPANY, INC., a Delaware corporation
(the "Corporation"), DOES HEREBY CERTIFY:
1. That the following resolutions authorizing a pricing committee
(the "Pricing Committee") of the Board of Directors of the Corporation (the
"Board of Directors") to act on behalf of the Board of Directors in connection
with the issuance of a new issue of preferred stock were adopted by the Board of
Directors at a meeting duly convened and held on March 11, 1998 pursuant to
authority conferred upon the Board of Directors by the provisions of the
Corporation's Restated Certificate of Incorporation that authorize the issuance
of up to 10,000,000 shares of preferred stock, par value of one dollar per share
(the "Preferred Stock"), and in accordance with the provisions of Sections 151
and 141(c) of the General Corporation Law of the State of Delaware and Section
3.1 of the By-Laws of the Corporation:
"BE IT RESOLVED, that the Pricing Committee (the "Committee") of the
Board of Directors be, and hereby is, authorized to fix the designation and
number of shares of a series of Preferred Stock and the voting powers,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof, of such shares, to
authorize any increase or decrease in the number of shares of such series and to
take such other action as the Committee deems necessary or desirable to effect
the issuance of such series."
2. That on June __, 1998 the Committee, pursuant to the authority
conferred upon it by Section 141(c) of the General Corporation Law of the State
of Delaware, Section 3.1 of the By-Laws of the Corporation and the resolutions
of the Board of Directors adopted on March 11, 1998, duly adopted the following
resolution:
-1-
<PAGE> 2
"BE IT RESOLVED, that pursuant to a resolution of the Board of Directors,
(the "Board of Directors") of General American Investors Company, Inc. (the
"Corporation") adopted on March 11, 1998, the issuance of a series of Preferred
Stock of the Corporation is hereby authorized and the designation, voting
powers, preferences and relative, participating optional and other special
rights, and qualifications, limitations and restrictions thereof, of the shares
of such series, in addition to those set forth in the Restated Certificate of
Incorporation of the Corporation, are hereby fixed as follows:
1. Designation: The shares of such series shall be designated as "___%
Tax-Advantaged Cumulative Preferred Stock" (the "Cumulative Preferred Stock").
Each share of Cumulative Preferred Stock shall be identical in all respects with
all other shares of Cumulative Preferred Stock except as to the dates from and
after which dividends thereon shall be cumulative.
2. Number of Shares: The number of shares of Cumulative Preferred Stock
shall initially be 6,000,000, which number may from time to time be increased or
decreased (but not in excess of the total number of authorized shares of
Preferred Stock and not below the number then outstanding) by the Board of
Directors. Shares of Cumulative Preferred Stock that are redeemed, purchased or
otherwise acquired by the Corporation shall be canceled and shall revert to
authorized but unissued shares of Preferred Stock undesignated as to series.
3. Definitions: Unless the context or use indicates another or different
meaning or intent, the following terms when used in this Certificate of
Designations shall have the meanings set forth below, whether such terms are
used in the singular or plural and regardless of their tense:
"Accountant's Confirmation" means a letter from an Independent
Accountant delivered to Moody's with respect to certain Basic Maintenance
Reports substantially to the effect that:
(i) the Independent Accountant has read the Basic Maintenance
Report for the current Quarterly Valuation Date and a randomly
selected Basic Maintenance Report prepared by the Corporation during
the quarter ending on such Quarterly Valuation Date (the "Reports");
(ii) with respect to the issue size compliance, issuer
diversification and industry diversification calculations, such
calculations and the resulting Market Value of Moody's Eligible
Assets and Portfolio Calculation are numerically correct;
-2-
<PAGE> 3
(iii) with respect to the calculation of the Basic Maintenance
Amount, such calculation has been compared with the definition of
Basic Maintenance Amount in this Certificate of Designations and is
calculated in accordance with such definition and the results of
such calculation have been recalculated and are numerically correct;
(iv) with respect to the excess or deficiency of the Portfolio
Calculation when compared to the Basic Maintenance Amount calculated
for Moody's, the results of the calculation set forth in the Reports
have been recalculated and are numerically correct;
(v) with respect to the Moody's and S&P ratings on corporate
bonds, convertible corporate bonds and preferred stock, issuer name,
issue size and coupon or dividend rate listed in the Reports, that
information has been traced and agrees with the information listed
in the applicable guides of the respective rating agencies (in the
event such information does not agree or such information is not
listed in the applicable guides of the respective rating agencies,
the Independent Accountant will inquire of the rating agencies what
such information is, and provide a listing in its letter of such
differences, if any);
(vi) with respect to the lower of two bid prices (or
alternative permissible factors used in calculating the Market Value
as provided by this Certificate of Designations) provided by the
custodian of the Corporation's assets for purposes of valuing
securities in the portfolio, the Independent Accountant has traced
the price used in the Reports to the lower of the two bid prices
listed in the report provided by such custodian and verified that
such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its
letter of such differences); and
(vii) with respect to the description of each security
included in the Reports, the description of Moody's Eligible Assets
has been compared to the definition of Moody's Eligible Assets
contained in this Certificate of Designations, and the description
as appearing in the Reports agrees with the definition of Moody's
Eligible Assets as described in this Certificate of Designations.
Each such letter may state: such Independent Accountant has
made no independent verification of the accuracy of the description
of the investment securities listed in the Reports or the Market
Value of those securities nor have they performed any procedures
other than those
-3-
<PAGE> 4
specifically outlined above for the purposes of issuing such letter;
unless otherwise stated in the letter, the procedures specified
therein were limited to a comparison of numbers or a verification of
specified computations applicable to numbers appearing in the
Reports and the schedule(s) thereto; the foregoing procedures do not
constitute an examination in accordance with generally accepted
auditing standards and the Reports discussed in the letter do not
extend to any of the Corporation's financial statements taken as a
whole; such Independent Accountant does not express an opinion as to
whether such procedures would enable such Independent Accountant to
determine that the methods followed in the preparation of the
Reports would correctly determine the Market Value or Discounted
Value of the investment portfolio; accordingly, such Independent
Accountant expresses no opinion as to the information set forth in
the Reports or in the schedule(s) thereto and make no representation
as to the sufficiency of the procedures performed for the purposes
of this Certificate of Designations.
Such letter shall also state that the Independent Accountant
is an "independent accountant" with respect to the Corporation
within the meaning of the Securities Act of 1933, as amended, and
the related published rules and regulations thereunder.
"Accrued Dividends" means, with respect to any share of Cumulative
Preferred Stock, an amount computed at the annual dividend rate for
Cumulative Preferred Stock, from the date on which dividends on such share
became cumulative to and including the date to which such dividends are to
be accrued, less the aggregate amount of all dividends theretofore paid
thereon.
"Asset Coverage" means asset coverage, as defined in Section 18(h)
of the 1940 Act, 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 Corporation which are stock, including all outstanding
shares of Cumulative Preferred Stock.
"Asset Coverage Cure Date" means, with respect to the failure by the
Corporation to maintain the Asset Coverage (as required by Section 8(a)(i)
hereof) as of the last Business Day of each March, June, September and
December of each year, 60 days following such Business Day.
"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
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<PAGE> 5
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 Corporation's other liabilities due and
payable as of such Valuation Date (except that dividends and other
distributions payable by the Corporation by the issuance of Common Stock
will not be included as a liability) and such liabilities projected to
become due and payable by the Corporation 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 Corporation 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 Corporation 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 Corporation's
assets and/or (B) the face value of any of the Corporation's assets if, in
the 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
Corporation's custodian bank in a segregated account or deposited by the
Corporation 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 Corporation 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
Corporation may deduct 100% of the Liquidation Preference of such
Cumulative Preferred Stock to be repurchased from (i) above.
"Basic Maintenance Amount Cure Date" * means 14 calendar days
following a Valuation Date, such date being the last day upon which the
Corporation's failure to comply with Section 8(a)(ii)(A) hereof could be
cured.
"Basic Maintenance Report" * means a report signed by the President,
Treasurer or any Vice President of the Corporation which sets forth, as of
the
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<PAGE> 6
related Valuation Date, the assets of the Corporation, the Market Value
and Discounted Value thereof (seriatim and in the aggregate) and the Basic
Maintenance Amount.
"Board of Directors" means the Board of Directors of the
Corporation.
"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.
"Common Stock" means the Common Stock, par value $1.00 per share, of
the Corporation.
"Corporation" means General American Investors Company, Inc., a
Delaware corporation.
"Cumulative Preferred Stock" means the ___% Tax-Advantaged
Cumulative Preferred Stock, par value $1.00 per share, of the Corporation.
"Date of Original Issue" shall have the meaning set forth in Section
4(b) hereof.
"Deposit Securities" means cash, Short-Term Money Market Instruments
and U.S. Government Obligations. Except for determining whether the
Corporation 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, with respect to a Moody's Eligible
Asset, 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 Corporation.
-6-
<PAGE> 7
"Dividend Payment Date" with respect to the Cumulative Preferred
Stock, means any date on which dividends are payable thereon pursuant to
the provisions of Section 4(a) hereof.
"Dividend Period" shall have the meaning set forth in Section 4(a)
hereof.
"Independent Accountant" * means a nationally recognized accountant,
or firm of accountants, that is with respect to the Corporation an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended.
"Junior Stock" shall mean the Common Stock and any other class or
series of stock of the Corporation hereafter authorized over which
Cumulative Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Liquidation Preference" shall have the meaning set forth in Section
5(a) hereof.
"Market Value" * means the amount determined by ChaseMellon
Shareholder Services L.L.C. (so long as prices are provided to it by
Telekurs N.A., Inc. or another pricing service approved by Moody's in
writing), or, if Moody's agrees in writing, the then bank custodian of the
Corporation's assets or such other party approved by Moody's in writing,
with respect to specific Moody's Eligible Assets of the Corporation, as
follows: Securities listed on an exchange or on the NASDAQ System shall be
valued on the basis of the last reported sale on the Valuation Date or, if
no sale is reported for such Valuation Date, then at their
electronically-reported bid price for such day or exchange-listed
securities and at the average of their electronically-reported bid and
asked prices for such Valuation Date for NASDAQ System securities.
Quotations shall be taken from the market where the security is primarily
traded. Bonds and other fixed income securities may be valued by reference
to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
Notwithstanding the foregoing, "Market Value" may, at the option of
the Corporation, mean the amount determined with respect to specific
Moody's Eligible Assets of the Corporation in the manner set forth below:
(a) as to any corporate bond or convertible corporate bond
which is a Moody's Eligible Asset, (i) the product of (A) the unpaid
principal balance of such bond as of the Valuation Date and (B)(1)
if the bond is
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<PAGE> 8
traded on a national securities exchange or quoted on the NASDAQ
System, the last sales price reported on the Valuation Date or (2)
if there was no reported sales price on the Valuation Date or if the
bond is not traded on a national securities exchange or quoted on
the NASDAQ System, the lower of two bid prices for such bond
provided by two recognized securities dealers with a minimum
capitalization of $25,000,000 (or otherwise approved for such
purpose by Moody's) or by one such securities dealer and any other
source (provided that the utilization of such source would not
adversely affect Moody's then-current rating of the Cumulative
Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to
the Corporation by any such means by such custodian, plus (ii)
accrued interest on such bond or, if two bid prices cannot be
obtained, such Moody's Eligible Asset shall have a Market Value of
zero;
(b) as to any common or preferred stock which is a Moody's
Eligible Asset, (i) if the stock is traded on a national securities
exchange or quoted on the NASDAQ System, the last sales price
reported on the Valuation Date or (ii) if there was no reported
sales price on the Valuation Date, the lower of two bid prices for
such stock provided by two recognized securities dealers with a
minimum capitalization of $25,000,000 (or otherwise approved for
such purpose by Moody's) or by one such securities dealer and any
other source (provided that the utilization of such source would not
adversely affect Moody's then-current rating of the Cumulative
Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to
the Corporation by any such means by such custodian, or, if two bid
prices cannot be obtained, such Moody's Eligible Asset shall have a
Market Value of zero;
(c) the product of (i) as to U.S. Government Obligations,
Short-Term Money Market Instruments (other than demand deposits,
federal funds, bankers' acceptances and next Business Day's
repurchase agreements) and commercial paper, the face amount or
aggregate principal amount of such U.S. Government Obligations or
Short Term Money Market Instruments, as the case may be, and (ii)
the lower of the bid prices for the same kind of securities or
instruments, as the case may be, having, as nearly as practicable,
comparable interest rates and maturities provided
-8-
<PAGE> 9
by two recognized securities dealers having minimum capitalization
of $25,000,000 (or otherwise approved for such purpose by Moody's)
or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's
then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at lease one of which shall
be provided in writing or by telecopy, telex, other electronic
transcription, computer obtained quotation reducible to written form
or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be
obtained, such Moody's Eligible Asset will have a Market Value of
zero;
(d) as to cash, demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements included
in Short-Term Money Market Instruments, the face value thereof.
"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 rate 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
<CAPTION>
Discount Factor
applicable to
Other repurchase obligations......................................................... underlying assets
<S> <C>
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:
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset Discount Factor
- ------------------------------- ---------------
<S> <C>
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:
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
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset Discount Factor
- ------------------------------- ---------------
<S> <C>
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
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);
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<PAGE> 12
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 Corporation'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
Corporation; provided, however, that (1) common stock which, while a
Moody's Eligible Asset owned by the Corporation, 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 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 Corporation's holdings of the common stock of
any issuer will not exceed 4% in the case of utility common stock
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<PAGE> 13
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
Depository 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
Corporation'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
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<PAGE> 14
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 Corporation'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:
Issuer:
<TABLE>
<CAPTION>
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%
"a", A.................... 10% 10%
CS/CB, "Baa", Baa(5)...... 6% 4%
Ba........................ 4% 4%
B1/B2..................... 3% 3%
B3 (Caa subordinate)...... 2% 2%
Industry and State:
<CAPTION>
Non-Utility Utility Maximum
Maximum Single Sub- Utility Maximum
Moody's Rating (1)(2) Single Issuer(3) Industry(3)(6) Single State(3)
- --------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
"aaa", "Aaa............... 100% 100% 100%
"aa", Aa.................. 60% 60% 20%
"a", A.................... 40% 50% 10%(7)
CS/CB, "baa", Baa (5)..... 20% 50% 7%(7)
Ba........................ 12% 12% N/A
B1/B2..................... 8% 8% N/A
B3 (Caa Subordinate)...... 5% 5% N/A
</TABLE>
- ----------
(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.
-14-
<PAGE> 15
(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;
and provided, further, that the Corporation'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
Corporation'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 Corporation 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.
"Moody's Industry and Sub-Industry Categories" * means as set forth
below:
Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit, Small
Loan, Agency, Factoring, Receivables
-15-
<PAGE> 16
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill
Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products,
Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum,
Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate,
Real Estate Development, REITs, Land Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution, Mining and Sales
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
Disposal
Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, Tvs, Tape Machines, Speakers,
Printers, Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Product; Agricultural
Chemicals, Agricultural Equipment, Fertilizers
-16-
<PAGE> 17
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary
Drugs, Research, Health Care Centers, Nursing Homes, HMOs,
Hospitals, Hospital Supplies, Medical Equipment
Home and Office Furnishings, Housewares, and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agents Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating,
Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment,
Records, Tapes, Sports, Outdoor Equipment (Camping), Tourism,
Resorts, Games, Toy Manufacturing, Motion Picture Production
Theaters, Motion Picture Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-Car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
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<PAGE> 18
Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel
Manufacturer, Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national
agencies
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notice of Redemption" has the meaning set forth in Section 6(c)
hereof.
"Officers Certificate" means a certificate signed by any two of the
President, a Vice President, an Executive Vice President, the Treasurer or
the Secretary of the Corporation or by any one of the foregoing and the
Treasurer or the Secretary or Assistant Treasurer or Assistant Secretary
of the Corporation.
"Parity Stock" shall mean any other class or series of stock of the
Corporation hereafter authorized which ranks on a parity with Cumulative
Preferred Stock in the payment of dividends or in the distribution of
assets on any liquidation, dissolution or winding up of the Corporation.
"Portfolio Calculation" * means the aggregate Discounted Value of
all Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $1.00 per
share, of the Corporation, 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.
"Redemption Price" has the meaning set forth in Section 6(a) hereof.
"Restated Certificate of Incorporation" means the Certificate of
Incorporation, as amended and restated (including this Certificate of
Designations), of the Corporation.
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<PAGE> 19
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by
the Corporation (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 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
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<PAGE> 20
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.
"S&P" means Standard & Poor's Ratings Services or its successors.
"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.
Those of the foregoing definitions which are marked with an asterisk
[*] have been adopted by the Board of Directors of the Corporation in
order to obtain a "aaa" rating from Moody's on the shares of Cumulative
Preferred Stock on their Date of Original Issue; and the Board of
Directors of the Corporation shall have the authority, without stockholder
approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and guidelines set forth thereunder if
Moody's advises the Corporation in writing that such amendment, alteration
or repeal will not adversely affect their then current rating on the
Cumulative Preferred Stock. Furthermore, if the Board of Directors
determines not to continue to comply with the provisions of Sections
8(a)(ii) and 8(c) hereof as provided in Section 9 hereof, then such
definitions marked with an asterisk, unless the context otherwise
requires, shall have no meaning for this Certificate of Designations.
4. Dividends:
(a) The holders of Cumulative Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, but only out
of funds legally available therefor, cumulative cash dividends at the
annual rate of __% of the Liquidation Preference (as defined in Section
(5)) per share, and no more, payable
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<PAGE> 21
quarterly on March 23, June 23,September 23 and December 23 in each year
(each, a "Dividend Payment Date") commencing on ______, 1998, (or, if any
such date is not a Business Day, on the next succeeding Business Day) with
respect to the quarterly dividend period (or portion thereof) ending on
the day preceding such respective dividend payment date, to shareholders
of record on the preceding March 6, June 6, September 6 and December 6
respectively (or, if such date is not a Business Day, then on the next
succeeding Business Day), as the case may be, in preference to dividends
on shares of Common Stock and any other capital stock of the Corporation
ranking junior to the Cumulative Preferred Stock in payment of dividends.
Dividends on shares of Cumulative Preferred Stock shall accumulate from
the date on which the first such shares of Cumulative Preferred Stock are
originally issued ("Date of Original Issue"). Each period beginning on and
including a Dividend Payment Date (or the Date of Original Issue, in the
case of the first dividend period after issuance of such shares) and
ending on but excluding the next succeeding Dividend Payment Date is
referred to herein as a "Dividend Period." The dividends payable per share
of Cumulative Preferred Stock for each quarterly Dividend Period shall be
computed by dividing the annual dividend rate by four.
(b)(i) No dividends shall be declared or paid or set apart for
payment on any 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 Date
therefor. If full cumulative dividends are not declared and paid on the
shares of Cumulative Preferred Stock, any dividends on the shares of
Cumulative Preferred Stock shall be declared and paid pro rata on all
outstanding shares of Cumulative Preferred Stock. No holders of shares of
Cumulative Preferred Stock shall be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends
as provided in this paragraph 4(b)(i) on shares of Cumulative Preferred
Stock. No interest or sum of money in lieu of interest shall be payable in
respect of any dividend payments on any shares of Cumulative Preferred
Stock that may be in arrears.
(ii) For so long as shares of Cumulative Preferred Stock are
outstanding, the Corporation shall 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
Corporation ranking junior to or on 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 Common Stock
or
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<PAGE> 22
any other stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends or upon liquidation (except by conversion
into or exchange for stock of the Corporation ranking to or on parity with
the Cumulative Preferred Stock as to dividends and upon liquidation),
unless, in each case, (A) immediately thereafter, the Corporation shall
have a Portfolio Calculation at least equal to the Basic Maintenance
Amount and the Corporation shall maintain the Asset Coverage, (B) full
cumulative dividends on all shares of Cumulative Preferred Stock due on or
prior to the date of the transaction have been declared and paid (or shall
have been declared and sufficient funds for the payment thereof deposited
with the Dividend-Paying Agent) and (C) the Corporation has redeemed the
full number of shares of Cumulative Preferred Stock required to be
redeemed by any provision contained herein for mandatory redemption.
(iii) Any dividend payment made on the shares of Cumulative
Preferred Stock shall first be credited against the dividends accumulated
with respect to the earliest Dividend Period for which dividends have not
been paid.
(c) Not later than the Business Day next preceding each Dividend
Payment Date, the Corporation shall deposit with the Dividend-Paying Agent
Deposit Securities having an initial combined value sufficient to pay the
dividends that are payable on such Dividend Payment Date, which Deposit
Securities shall mature on or prior to such Dividend Payment Date. The
Corporation may direct the Dividend-Paying Agent with respect to the
investment of any such Deposit Securities, provided that such investment
consists exclusively of Deposit Securities and provided further that the
proceeds of any such investment will be available at the opening of
business on such Dividend Payment Date.
5. Liquidation Rights:
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation then, after
satisfying claims of creditors but before any distribution or payment out
of the assets of the Corporation shall be made or set aside for the
holders of shares of any Junior Stock, the holders of shares of Cumulative
Preferred Stock shall be entitled to receive, the amount of $25.00 per
share, together with the amount of any accrued dividends to such
distribution or payment date whether or not earned or declared, but
excluding interest thereon (the "Liquidation Preference"), and after such
payment the holders of the Cumulative Preferred Stock shall have no right
or claim to any of the remaining assets of the Corporation.
(b) If the assets of the Corporation available for distribution to
the holders of shares of Cumulative Preferred Stock and any Parity Stock
upon liquidation,
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<PAGE> 23
dissolution or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which
such holders are entitled pursuant to the first paragraph of this Section
(5), the amounts paid to holders of shares of Cumulative Preferred Stock
and holders of shares of all Parity Stock shall be pro rata in accordance
with the respective aggregate liquidation preferences of the Cumulative
Preferred Stock and all such Parity Stock.
(c) If such amounts shall have been paid in full to the holders of
shares of the Cumulative Preferred Stock, the remaining assets of the
Corporation shall be distributed among the holders of Junior Stock,
according to their respective rights and preferences and in each case
according to their respective numbers of shares.
(d) For the purposes of this Section (5), a consolidation or merger
of the Corporation with or into another corporation or corporations, or a
sale, lease or conveyance, whether for cash, shares of stock, securities
or properties, of all or substantially all or any part of the assets of
the Corporation, shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Corporation.
6. Redemption: Shares of the Cumulative Preferred Stock shall be redeemed
or redeemable by the Corporation as provided below.
(a) Optional Redemption: Prior to June 23, 2003, the Corporation
may, to the extent permitted by the 1940 Act, Delaware law and any other
agreements relating to indebtedness of the Corporation, at its option,
redeem in whole or in part shares of Cumulative Preferred Stock then
outstanding, upon notice given as hereinafter specified, at the Redemption
Price provided for in this Section 6(a) only if and to the extent that any
such redemption is necessary, in the judgment of the Board of Directors,
to maintain the Corporation's status as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended.
Commencing June 6, 2003, and at any time and from time to time thereafter,
on any quarterly Dividend Payment Date, the Corporation may, to the extent
permitted by the 1940 Act, Delaware law and any other agreement relating
to the indebtedness of the Corporation, at the option of the Board of
Directors, redeem in whole or in part the shares of Cumulative Preferred
Stock then outstanding, upon notice given as hereinafter specified, at the
Redemption Price provided for in this Section 6(a).
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<PAGE> 24
The redemption price for shares of Cumulative Preferred Stock shall be
$25.00 per share plus accumulated but unpaid dividends thereon (whether or
not earned or declared by the Corporation) through the date of redemption
(the "Redemption Price").
(b) Mandatory Redemption: If the Corporation is required to redeem
any shares of Cumulative Preferred Stock pursuant to Sections 8(b) and (c)
hereof, then the Corporation shall, to the extent permitted by the 1940
Act, Delaware law and any agreement in respect of indebtedness of the
Corporation to which it may be a party or by which it may be bound, by the
close of business on such Asset Coverage Cure Date or Basic Maintenance
Amount Cure Date (herein collectively referred to as a "Cure Date"), as
the case may be, fix a redemption date and proceed to redeem shares as set
forth in Sections 6(c) and (d) hereof. On such redemption date, subject to
the Corporation's determination to terminate compliance with Moody's
rating agency guidelines as provided in Section 10 hereof, the Corporation
shall redeem, out of funds legally available therefor, the number of
shares of Cumulative Preferred Stock equal to the minimum number of shares
the redemption of which, if such redemption had occurred immediately prior
to the opening of business on such Cure Date, would have resulted in the
Asset Coverage having been satisfied or the Corporation having a Portfolio
Calculation equal to or greater than the Basic Maintenance Amount, as the
case may be, immediately prior to the opening of business 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 pursuant to Section 8(b) hereof, the Corporation may, but
shall not be required to, redeem a sufficient number of shares of
Cumulative Preferred Stock pursuant to this Section 6(b) hereof in order
that the "asset coverage" of a class of senior security which is stock, as
defined in Section 18(h) of the 1940 Act, of the remaining outstanding
shares of Cumulative Preferred Stock and any other Preferred Stock after
redemption is up to 225%. The Corporation may also be required to redeem
the shares of Cumulative Preferred Stock, in whole or in part if the
Corporation's Board of Directors and holders of Common Stock authorize (a)
the dissolution of the Corporation; (b) any plan of reorganization (as
that term is defined in the 1940 Act) or (c) any action to change the
nature of the Corporation's business so as to cease to be an investment
company as provided in Section 13(a)(4) of the 1940 Act.
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<PAGE> 25
(c) Notice of every redemption of shares of Cumulative Preferred
Stock ("Notice of Redemption") shall be given by publication at least once
in a newspaper printed in the English language and customarily published
on each business day and of general circulation in the Borough of
Manhattan, the City of New York, such publication to be at least 30 days
and not more than 60 days prior to the date fixed for redemption. Notice
of every such redemption shall also be mailed first class by the
Corporation, postage prepaid, addressed to the holders of record of the
shares to be redeemed at their respective last addresses as they shall
appear on the books of the Corporation. Such mailing shall be at least 30
days and not more than 60 days prior to the date fixed for redemption. Any
notice which is mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder receives
such notice, but failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the proceeding for
the redemption of any shares so to be redeemed. Each such Notice of
Redemption shall 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 the
certificate(s) for such shares (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment in respect of
such redemption, (vi) that dividends on the shares to be redeemed will
cease to accumulate on such redemption date, and (vii) the provisions of
this Section 6 under which such 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.
(d)(i) If the Corporation shall give a Notice of Redemption, then by
the close of business on the Business Day preceding the redemption date
specified in the Notice of Redemption the Corporation shall (A) deposit
with the Dividend-Paying Agent Deposit Securities having an initial
combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, which Deposit Securities shall
mature on or prior to such redemption date, and (B) give the
Dividend-Paying Agent irrevocable instructions and authority to pay the
Redemption Price to the holders of the shares of Cumulative Preferred
Stock called for redemption on the redemption date. The Corporation may
direct the Dividend-Paying Agent with respect to the investment of any
Deposit Securities so deposited, provided that the proceeds of any such
investment will be available at the opening of business on such redemption
date. Upon the date of such deposit (unless the Corporation shall default
in making payment of the Redemption Price), all rights of the holders of
the shares of Cumulative Preferred Stock so called for redemption shall
cease and terminate except the right of the
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<PAGE> 26
holders thereof to receive the Redemption Price thereof, and such shares
shall no longer be deemed outstanding for any purpose. The Corporation
shall be entitled to receive, promptly after the date fixed for
redemption, any cash in excess of the aggregate Redemption Price of the
shares of Cumulative Preferred Stock called for redemption on such date
and any remaining Deposit Securities. Any assets so deposited that are
unclaimed at the end of two years from such redemption date shall, to the
extent permitted by law, be repaid to the Corporation, after which the
holders of the shares of Cumulative Preferred Stock so called for
redemption shall look only to the Corporation for payment thereof. The
Corporation shall be entitled to receive, from time to time after the date
fixed for redemption, any interest on Deposit Securities so deposited.
(ii) On or after the redemption date, each holder of shares of
Cumulative Preferred Stock that are subject to redemption shall surrender
the certificate evidencing such shares to the Corporation at the place
designated in the Notice of Redemption and shall then be entitled to
receive the cash Redemption Price, without interest.
(iii) In case of redemption of only a part of the shares of
Cumulative Preferred Stock at the time outstanding, such redemption shall
be made pro rata from each holder of shares of Cumulative Preferred Stock
in accordance with the respective number of shares held by each such
holder on the record date for such redemption. The Board of Directors
shall have full power and authority, subject to the provisions herein
contained, to prescribe the terms and conditions upon which shares of the
Cumulative Preferred Stock shall be redeemed from time to time.
(iv) Notwithstanding the other provisions of this Section 6, the
Corporation shall not redeem shares of Cumulative Preferred Stock unless
all accumulated and unpaid dividends on all outstanding shares of
Cumulative Preferred Stock for all applicable past Dividend Periods
(whether or not earned or declared by the Corporation) shall have been or
are contemporaneously paid or declared and Deposit Securities for the
payment of such dividends shall have been deposited with the
Dividend-Paying Agent as set forth in Section 4(c) hereof.
(v) If the Corporation shall not have funds legally available for
the redemption of, or is otherwise unable to redeem, all the shares of the
Cumulative Preferred Stock to be redeemed on any redemption date, the
Corporation shall redeem on such redemption date the number of shares of
Cumulative Preferred Stock as it shall have 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 of the Cumulative Preferred
Stock required to be redeemed shall be
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<PAGE> 27
redeemed on the earliest practicable date on which the Corporation shall
have funds legally available for the redemption of, or is otherwise able
to redeem, such shares.
7. Voting Rights:
(a) General. Except as expressly provided hereinafter in this
Section 7 the holders of shares of Cumulative Preferred Stock shall be
entitled to one vote per share and shall vote together with the holders of
Common Stock (and any other class or series which may be similarly
entitled to vote with the holders of Common Stock) and of any Preferred
Stock as a single class on all matters in which holders of Common Stock
are entitled to vote.
(b) Right to Elect a Majority of Directors. In connection with the
election of the Corporation's directors, holders of shares of Cumulative
Preferred Stock and any other Preferred Stock, voting as a separate class,
shall be entitled at all times to elect two of the Corporation's
directors, and the remaining directors shall 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
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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.
(c) So long as any shares of Cumulative Preferred Stock are
outstanding, in addition to any other vote or consent of shareholders
required by law or by the Restated Certificate of Incorporation, the vote
or consent of the holders of at least a majority of the shares of
Cumulative Preferred Stock and of all other series of the Preferred Stock
similarly entitled to vote upon the matters specified in this paragraph,
at the time outstanding, voting separately as a single class regardless of
series, given in person or by proxy, either in writing without a meeting
or by vote at any meeting called for the purpose, shall be necessary for
effecting or validating:
(1) Any amendment, alteration or repeal (including by merger,
consolidation or otherwise) of any of the provisions of the Restated
Certificate of Incorporation, or of the by-laws, of the Corporation,
which amend, alter or change the voting powers, preferences or
special rights set forth in the Restated Certificate of
Incorporation of the holders of shares of Cumulative Preferred Stock
so as to affect them adversely; provided, however, that the
amendment of the provisions of the Restated Certificate of
Incorporation so as to authorize or create, or to increase the
authorized amount of, any Junior Stock or any shares of any class or
series ranking on a parity with the Cumulative Preferred Stock and
all such other series of the Preferred Stock in the payment of
dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation shall not be deemed to
affect adversely the voting powers, rights or preferences of the
holders of Preferred Stock; and provided further, however, that if
any such amendment, alteration or appeal would affect adversely any
voting powers, preferences or special rights of the holders of
shares of Cumulative Preferred Stock that are not enjoyed by some or
all of the holders of other series otherwise entitled to vote in
accordance with this paragraph, the vote or consent of the holders
of at least a majority of the shares of Cumulative Preferred Stock
and of all other series similarly affected, similarly given, shall
be required in lieu of the vote or consent of the holders of at
least a majority of the shares of Cumulative Preferred Stock and of
all other series of the Preferred Stock otherwise entitled to vote
in accordance with this paragraph; and provided further, that the
Corporation shall notify Moody's ten Business Days prior to any such
vote described in this paragraph;
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<PAGE> 29
(2) The merger or consolidation of the Corporation with or
into any other corporation, unless the surviving or resulting
corporation will thereafter have no class or series of shares and no
other securities either authorized or outstanding ranking prior to
Cumulative Preferred Stock in the distribution of its assets on
liquidation, dissolution or winding up or in the payment of
dividends, except the same number of shares and the same amount of
other securities with the same voting powers, preferences and
special rights as the shares and securities of the Corporation
respectively authorized and outstanding immediately preceding such
merger or consolidation, and each holder of shares of Cumulative
Preferred Stock immediately preceding such merger or consolidation
shall receive the same number of shares, with the same voting
powers, preferences and special rights, of the surviving or
resulting corporation;
provided, however, that no such consent of the holders of shares of
Cumulative Preferred Stock shall be required if, at or prior to the time
when such amendment, alteration or repeal is to take effect or when such
authorization, creation or increase in the authorized amount of any such
prior shares of convertible securities is to be made or when such
consolidation or merger is to take effect, provision is made for the
redemption of all shares of Cumulative Preferred Stock at the time
outstanding.
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<PAGE> 30
(d) Right to Vote with Respect to Certain Other Matters: (i) Unless
a higher percentage is provided for under the Restated Certificate of
Incorporation, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including Cumulative Preferred
Stock, voting together as a single 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.
For purposes of the preceding sentence, the phrase "vote of the holders of
a majority of the outstanding shares of Preferred Stock" shall have the
meaning set forth in the 1940 Act.
(ii) Notwithstanding the foregoing, and except as otherwise required
by the 1940 Act, (i) holders of outstanding shares of the Cumulative
Preferred Stock will be entitled as a class, to the exclusion of the
holders of all other securities, including other Preferred Stock, Common
Stock and other classes of capital stock of the Corporation, to vote on
matters affecting the Cumulative Preferred Stock that do not materially
adversely affect any of the rights of holders of such other securities,
including other Preferred Stock, Common Stock and other classes of capital
stock and (ii) holders of outstanding shares of Cumulative Preferred Stock
will not be entitled to vote on matters affecting any other Preferred
Stock that do not materially adversely affect any of the rights of holders
of the Cumulative Preferred Stock.
(e) The class vote of holders of shares of Preferred Stock,
including Cumulative Preferred Stock, described above will be in addition
to a separate vote of the requisite percentage of shares of Common Stock
and shares of Preferred Stock, including Cumulative Preferred Stock,
voting together as a single class, necessary to authorize the action in
question.
(f) In the event a vote of holders of shares of Cumulative Preferred
Stock is required pursuant to the provisions of Section 13(a) of the 1940
Act, as long as the Cumulative Preferred Stock is rated by Moody's, the
Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to
be taken and, not later than ten Business Days after the date on which
such vote is taken, notify Moody's of the result of such vote.
(g) 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.
8. Coverage Tests:
(a) Determination of Compliance: For so long as any shares of
Cumulative Preferred Stock are outstanding, the Corporation shall make the
following determinations:
-30-
<PAGE> 31
(i) Asset Coverage: The Corporation shall maintain, as of the
last Business Day of each March, June, September and December of
each year in which any shares of Cumulative Preferred Stock are
outstanding, the Asset Coverage.
(ii) Basic Maintenance Amount Requirement:
(A) For so long as any shares of Cumulative Preferred
Stock are outstanding, the Corporation shall maintain, on each
Valuation Date, a Portfolio Calculation at least equal to the
Basic Maintenance Amount, each as of such Valuation Date. Upon
any failure to maintain the required Portfolio Calculation,
the Corporation shall use its best efforts to reattain a
Portfolio Calculation at least equal to the Basic Maintenance
Amount on or prior to the Basic Maintenance Amount Cure Date,
by altering the composition of its portfolio or otherwise.
(B) The Corporation shall prepare a Basic Maintenance
Report relating to each Valuation Date. On or before 5:00
p.m., New York City time, on the fifth Business Day after the
first Valuation Date following the Date of Original Issue of
the Cumulative Preferred Stock and after such (A) Quarterly
Valuation Date, (B) Valuation Date on which the Corporation
fails to satisfy the requirements of Section 8(a)(ii)(A)
above, (C) Basic Maintenance Amount Cure Date following a
Valuation Date on which the Corporation fails to satisfy the
requirements of Section 8(a)(ii)(A) above and (D) Valuation
Date and any immediately succeeding Business Day on which the
Portfolio Calculation exceeds the Basic Maintenance Amount by
5% or less, the Corporation shall complete and deliver to
Moody's a Basic Maintenance Report, which will be deemed to
have been delivered to Moody's if Moody's receives a copy or
telecopy, telex or other electronic transcription setting
forth at least the Portfolio Calculation and the Basic
Maintenance Amount each as of the relevant Valuation Date and
on the same day the Corporation mails to Moody's for delivery
on the next Business Day the full Basic Maintenance Report.
The Corporation also shall provide Moody's with a Basic
Maintenance Report relating to any other Valuation Date on
Moody's specific request. A failure by the Corporation to
deliver a Basic Maintenance Report under this Section
8(a)(ii)(B) shall be deemed to be delivery of a Basic
Maintenance Report
-31-
<PAGE> 32
indicating a Portfolio Calculation less than the Basic
Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery
to Moody's of a Basic Maintenance Report in accordance with
Section 8(a)(ii)(B) above relating to a Quarterly Valuation
Date, the Corporation shall deliver to Moody's an Accountant's
Confirmation relating to such Basic Maintenance Report and any
other Basic Maintenance Report, randomly selected by the
Independent Accountants, that was prepared by the Corporation
during the quarter ending on such Quarterly Valuation Date.
Also, within ten Business Days after the date of delivery to
Moody's of a Basic Maintenance Report in accordance with
Section 8(a)(ii)(B) above relating to a Valuation Date on
which the Corporation fails to satisfy the requirements of
Section 8(a)(ii)(A) and any Basic Maintenance Amount Cure
Date, the Corporation shall deliver to Moody's an Accountant's
Confirmation relating to such Basic Maintenance Report. If any
Accountant's Confirmation delivered pursuant to this Section
8(a)(ii)(C) shows that an error was made in the Basic
Maintenance Report for such Quarterly Valuation Date, or shows
that a lower Portfolio Calculation was determined by the
Independent Accountants, the calculation or determination made
by such Independent Accountants shall be final and conclusive
and shall be binding on the Corporation, and the Corporation
shall accordingly amend the Basic Maintenance Report to
Moody's promptly following Moody's receipt of such
Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any
Basic Maintenance Report prepared pursuant to Section
8(a)(ii)(B) above is less than the applicable Basic
Maintenance Amount, the Corporation shall have until the Basic
Maintenance Amount Cure Date to achieve a Portfolio
Calculation at least equal to the Basic Maintenance Amount,
and upon such achievement (and not later than such Basic
Maintenance Amount Cure Date) the Corporation shall inform
Moody's of such achievement in writing by delivery of a
revised Basic Maintenance Report showing a Portfolio
Calculation at least equal to the Basic Maintenance Amount as
of the date of such revised Basic Maintenance Report, together
with an Officers' Certificate to such effect.
-32-
<PAGE> 33
(E) On or before 5:00 p.m., New York City time, on the
third Business Day after 100,000 shares of Common Stock are
repurchased by the Corporation, the Corporation shall complete
and deliver to Moody's a Basic Maintenance Report as of the
close of business on such date that Common Stock is
repurchased. A Basic Maintenance Report delivered as provided
Section 8(a)(ii)(B) above also shall be deemed to have been
delivered pursuant to this Section 8(a)(ii)(E).
(b) Failure to Meet Asset Coverage: If the Asset Coverage is not
satisfied as provided in Section 8(a)(i) hereof and such failure is not
cured as of the related Asset Coverage Cure Date, the Corporation shall
give a Notice of Redemption as described in Section 6 hereof with respect
to the redemption of a sufficient number of shares of Cumulative Preferred
Stock to enable it to meet the requirements of Section 8(a)(i) above, and,
at the Corporation's discretion, such additional number of shares of
Cumulative Preferred Stock in order that the "asset coverage" of a class
of senior security which is stock, as defined in Section 18(h) of the 1940
Act, of the remaining outstanding shares of Cumulative Preferred Stock and
any other Preferred Stock is up to 225%, and deposit with the
Dividend-Paying Agent Deposit Securities having an initial combined value
sufficient to effect the redemption of the shares of Cumulative Preferred
Stock to be redeemed, as contemplated by Section 6(b) hereof.
(c) Failure to Maintain a Portfolio Calculation At Least Equal to
the Basic Maintenance Amount: If a Portfolio Calculation for Moody's at
least equal to the Basic Maintenance Amount is not maintained as provided
in Section 8(a)(ii)(A) above and such failure is not cured by the related
Basic Maintenance Amount Cure Date, the Corporation shall give a Notice of
Redemption as described in Section 6 hereof with respect to the redemption
of a sufficient number of shares of Cumulative Preferred Stock to enable
it to meet the requirements of Section 8(a)(ii)(A) above, and, at the
Corporation's discretion, such additional 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%, and deposit
with the Dividend-Paying Agent Deposit Securities having an initial
combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by Section 6(b)
hereof.
(d) Status of Shares Called for Redemption: For purposes of
determining whether the requirements of Sections 8(a)(i) and 8(a)(ii)(A)
hereof are satisfied, (i) no share of the Cumulative Preferred Stock shall
be deemed to be
-33-
<PAGE> 34
outstanding for purposes of any computation if, prior to or concurrently
with such determination, sufficient Deposit Securities to pay the full
Redemption Price for such share shall have been deposited in trust with
the Dividend-Paying Agent and the requisite Notice of Redemption shall
have been given, and (ii) such Deposit Securities deposited with the
Dividend-Paying Agent shall not be included in determining whether the
requirements of Sections 8(a)(i) and 8(a)(ii)(A) hereof are satisfied.
9. Certain Other Restrictions:
(a) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation will not (i) knowingly and willfully purchase or
sell a portfolio security for the specific purpose of causing, and with
the actual knowledge that the effect of such purchase or sale will be to
cause, the Portfolio Calculation as of the date of the purchase or sale to
be less than the Basic Maintenance Amount as of such date, (ii) in the
event that, as of the immediately preceding Valuation Date, the Portfolio
Calculation exceeded the Basic Maintenance Amount by 5% or less, alter the
composition of the Corporation's portfolio securities in a manner
reasonably expected to reduce the Portfolio Calculation, unless the
Corporation shall have confirmed that, after giving effect to such
alteration, the Portfolio Calculation exceeded the Basic Maintenance
Amount or (iii) declare or pay any dividend or other distribution on any
shares of Common Stock or repurchase any shares of Common Stock, unless
the Corporation shall have confirmed that, after giving effect to such
declaration, other distribution or repurchase, the Corporation continues
to satisfy the requirements of Section 8(a)(ii)(A) hereof.
(b) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation shall not (a) acquire or otherwise invest in (i)
future contracts or (ii) options on futures contracts, (b) engage in
reverse repurchase agreements, (c) engage in short sales, (d) overdraw any
bank account, (e) write options on portfolio securities other than call
options on securities held in the Corporation's portfolio or that the
Corporation has an immediate right to acquire through conversion or
exchange of securities held in its portfolio, or (f) borrow money, except
for the purpose of clearing and/or settling transactions in portfolio
securities (which borrowings shall under any circumstances be limited to
the lesser of $50,000,000 and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which
borrowings shall be repaid within 60 days and not be extended or renewed),
unless in any such case, the Corporation shall have received written
confirmation from Moody's that such investment activity will not adversely
affect Moody's then current rating of the Cumulative Preferred Stock.
Furthermore, for so long as the Cumulative Preferred Stock is rated by
Moody's, unless the Corporation shall have received
-34-
<PAGE> 35
the written confirmation from Moody's referred to in the preceding
sentence, the Corporation may engage in the lending of its portfolio
securities only in an amount of up to 5% of the Corporation's total
assets, provided that the Corporation receives cash collateral for such
loaned securities which is maintained at all times in an amount equal to
at least 100% of the current Market Value of the loaned securities and, if
invested, is invested only in money market mutual funds meeting the
requirements of Rule 2a-7 under the 1940 Act that maintain a constant
$1.00 per share net asset value. In determining the Portfolio Calculation,
the Corporation shall use the Moody's Discount Factor applicable to the
loaned securities rather than the Moody's Discount Factor applicable to
the collateral.
(c) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation shall not consolidate the Corporation with, merge
the Corporation into, sell or otherwise transfer all or substantially all
of the Corporation's assets to another entity or adopt a plan of
liquidation of the Corporation, in each case without providing prior
written notification to Moody's.
10. Termination of Rating Agency Guidelines:
(a) The Board of Directors may determine that it is not in the best
interests of the Corporation to continue to comply with the provisions of
Sections 8(a)(ii) and 8(c) hereof with respect to Moody's, in which case
the Corporation will no longer be required to comply with any of the
provisions of Sections 8(a)(ii) and 8(c) hereof with respect to Moody's,
provided that (i) the Corporation 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
Corporation is in compliance with the provisions of Sections 8(a)(i),
8(a)(ii) and 8(c) hereof at the time the notice required in clause (i)
hereof is given and at the time of the termination of compliance with the
provisions of Sections 8(a)(ii) and 8(c) with respect to Moody's, (iii) at
the time the notice required in clause (i) hereof is given and at the time
of termination of compliance with the provisions of Sections 8(a)(ii) and
8(c) hereof with respect to Moody's the Cumulative Preferred Stock is
listed on The New York Stock Exchange or on another exchange registered
with the Securities and Exchange Commission as a national securities
exchange and (iv) at the time of termination of compliance with the
provisions of Sections 8(a)(ii) and 8(c) hereof with respect to Moody's,
the cumulative cash dividend rate payable on a share of the Cumulative
Preferred Stock pursuant to Section 4 hereof shall be increased by .375%
per annum.
(b) On the date that the notice is given in Section 10(a) above and
on the date that compliance with the provisions of Sections 8(a)(ii) and
8(c) hereof
-35-
<PAGE> 36
with respect to Moody's is terminated, the Corporation shall provide the
Dividend-Paying Agent and Moody's with an Officers' Certificate as to the
compliance with the provisions of Section 10(a) hereof, and the provisions
of Sections 8(a)(ii) and 8(c) hereof with respect to Moody's shall
terminate on such later date and thereafter have no force or effect.
11. Other Rights: The shares of Cumulative Preferred Stock shall not have
any voting powers, preferences or relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, other
than as set forth herein or in the Restated Certificate of Incorporation of the
Corporation.
12. Restatement of Certificate: Upon any further restatement of the
Restated Certificate of Incorporation of the Corporation, Sections 1 through 11
of this Certificate of Designations shall be included in Article Fourth of the
Restated Certificate of Incorporation, immediately after the third full
paragraph, and this Section 12 may be omitted. If the Board of Directors so
determines, the numbering of Sections 1 through 11 may be changed for
convenience of reference or for any other proper purpose."
-36-
<PAGE> 37
IN WITNESS WHEREOF, GENERAL AMERICAN INVESTORS COMPANY, INC. has
caused this certificate to be signed by Eugene DeStaebler, Jr., its
Vice-President, Administration, this __ day of June, 1998.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By:
--------------------------
-37-
<PAGE> 1
EXHIBIT
EXHIBIT TO AMENDMENT NO. 1 TO FORM N-2
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, 1928
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 % TAX-ADVANTAGED 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> 2
GENERAL AMERICAN INVESTORS COMPANY, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO A STOCKHOLDER UPON REQUEST
A STATEMENT OF THE DESIGNATIONS, PREFERENCE 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
Custodian
UNIF GIFT MIN ACT -- .............................
(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.
<PAGE> 1
GENERAL AMERICAN INVESTORS COMPANY, INC.
(a Delaware corporation)
6,000,000 Shares
-% Cumulative Preferred Stock
(liquidation preference $25 per share)
PURCHASE AGREEMENT
Dated: -, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PURCHASE AGREEMENT................................................................................................1
SECTION 1. Representations and Warranties................................................2
(a) Representations and Warranties by the Company.................................2
(i) Compliance with Registration Requirements.....................................2
(ii) Incorporated Documents.......................................................3
(iii) Distribution of Offering Material.............................................3
(iv) Registration of the Company...................................................4
(v) Investment Advisers Act.......................................................4
(vi) Agreements and Obligations....................................................4
(vii) Independent Accountants.......................................................4
(viii) Financial Statements..........................................................4
(ix) No Material Adverse Change in Business........................................4
(x) Good Standing of the Company..................................................5
(xi) No Significant Subsidiary.....................................................5
(xii) Capitalization................................................................5
(xiii) Authorization of Agreement....................................................5
(xiv) Authorization and Description of Common Stock.................................5
(xv) Authorization and Description of Securities...................................5
(xvi) Absence of Defaults and Conflicts.............................................6
(xvii) Absence of Proceedings........................................................6
(xviii) Accuracy of Exhibits..........................................................7
(xix) Possession of Intellectual Property...........................................7
(xx) Absence of Further Requirements...............................................7
(xxi) Possession of Licenses and Permits............................................7
(xxii) Maintenance of Accounting Controls............................................8
(xxiii) Title to Property.............................................................8
(xxiv) Compliance with Cuba Act......................................................8
(xxv) Registration Rights...........................................................8
(xxvi) Interested Persons and Affiliated Persons.....................................8
(xxvii) Portfolio Management..........................................................8
(b) Officer's Certificates........................................................9
SECTION 2. Sale and Delivery to Underwriters; Closing....................................9
(a) Securities....................................................................9
(b) Payment.......................................................................9
(c) Denominations; Registration...................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 3. Covenants of the Company.....................................................10
(a) Compliance with Securities Regulations and Commission
Requests.....................................................................10
(b) Filing of Amendments.........................................................10
(c) Delivery of Registration Statements..........................................10
(d) Delivery of Prospectuses.....................................................11
(e) Continued Compliance with Securities Laws....................................11
(f) Rule 158.....................................................................11
(g) Use of Proceeds..............................................................11
(h) Listing......................................................................11
(k) Reporting Requirements.......................................................12
(l) .............................................................................12
(m) .............................................................................12
SECTION 4. Payment of Expenses..........................................................12
(a) Expenses.....................................................................12
(b) Termination of Agreement.....................................................13
SECTION 5. Conditions of Underwriters' Obligations......................................13
(a) Effectiveness of Registration Statement......................................13
(b) Opinion and Letter of Counsel for Company....................................13
(c) Opinion of Counsel for Underwriters..........................................13
(d) Officers' Certificate........................................................14
(e) Accountant's Comfort Letter..................................................14
(f) Bring-down Comfort Letter....................................................14
(g) Maintenance of Rating........................................................14
(h) Basic Maintenance Report.....................................................14
(i) Approval of Listing..........................................................15
(j) Additional Documents.........................................................15
(k) Termination of Agreement.....................................................15
SECTION 6. Indemnification..............................................................15
(a) Indemnification of Underwriters..............................................15
(b) Indemnification of Company, Directors and Officers...........................16
(c) Actions against Parties; Notification........................................16
(d) Settlement without Consent if Failure to Reimburse...........................17
SECTION 7. Contribution.................................................................17
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.....................................................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9. Termination of Agreement.....................................................19
(a) Termination; General.........................................................19
(b) Liabilities. ................................................................19
SECTION 10. Default by One or More of the Underwriters...................................19
SECTION 11. Notices......................................................................20
SECTION 12. Parties......................................................................20
SECTION 13. GOVERNING LAW AND TIME.......................................................20
SECTION 14. Effect of Headings...........................................................20
SCHEDULES
Schedule A - List of Underwriters..................................................................Sch A-1
Schedule B - Pricing Information...................................................................Sch B-1
EXHIBITS
Exhibit A- Form of Opinion of Company's Counsel........................................................A-1
</TABLE>
iii
<PAGE> 5
GENERAL AMERICAN INVESTORS COMPANY, INC.
(a Delaware corporation)
6,000,000 Shares
-% Cumulative Preferred Stock
(liquidation preference $25 per share)
PURCHASE AGREEMENT
-, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Smith Barney Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
General American Investors Company, Inc., a Delaware
corporation (the "Company"), confirms its agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Salomon
Smith Barney Inc. and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch and Salomon Smith Barney Inc. are acting as representatives (in such
capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of the Company's -% Cumulative Preferred
Stock, liquidation preference $25 per share, set forth in said Schedule A. The
aforesaid shares of preferred stock to be purchased by the Underwriters are
hereinafter called the "Securities".
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives deem
advisable after this Agreement has been executed and delivered.
<PAGE> 6
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form N-2 (Securities
Act File No. 333-48431 and Investment Company Act File No. 811-00041) covering
the registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), including the related preliminary prospectus or prospectuses. The Company
has also filed with the Commission a notification of registration of the Company
as an investment company under the 1940 Act on Form N-8A (the "1940 Act
Notification"). Promptly after execution and delivery of this Agreement, the
Company will prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the
1933 Act (the "1933 Act Regulations") and paragraph (h) of Rule 497 ("Rule
497(h)") of the 1933 Act Regulations. The information included in such
prospectus that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information." Each form of prospectus used before such
registration statement became effective, and any prospectus that omitted the
Rule 430A Information that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The final prospectus in the form first furnished to the Underwriters
for use in connection with the offering of the Securities is herein called the
"Prospectus." For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and agrees with each
Underwriter, as follows:
(i) Compliance with Registration Requirements. Each
of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and the 1940
Act and no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act or the 1940 Act
and no proceedings for that purpose have been instituted or
are pending or, to the knowledge of the Company, are
contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied
with.
At the respective times the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective
amendments thereto became effective
2
<PAGE> 7
and at the Closing Time, the Registration Statement, the Rule
462(b) Registration Statement and any post-effective
amendments and supplements thereto complied and will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and the 1940 Act and the rules
and regulations of the Commission under the 1940 Act (the
"1940 Act Regulations") and did not and will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the
time the Prospectus or any such amendment or supplement
thereto was issued and at the Closing Time, included or will
include an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading.
Each preliminary prospectus and the prospectus filed
as part of the Registration Statement as originally filed or
as part of any amendment thereto, or filed pursuant to Rule
497 under the 1933 Act, complied when so filed in all material
respects with the 1933 Act Regulations and the 1940 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this
offering was identical in all material respects to the
electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T. The representations and warranties in this
subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus made in reliance upon
and in conformity with information furnished to the Company in
writing by any Underwriter through Merrill Lynch expressly for
use in the Registration Statement or Prospectus.
(ii) Incorporated Documents. The documents
incorporated or deemed to be incorporated by reference in the
Registration Statement and the Prospectus, at the time they
were or hereafter are filed with the Commission, complied and
will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations, the 1934 Act and
the rules and regulations of the Commission thereunder (the
"1934 Act Regulations") or the 1940 Act and the 1940 Act
Regulations, and, when read together with the other
information in the Prospectus, at the time the Registration
Statement became effective, at the time the Prospectus was
issued and at the Closing Time, did not and will not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(iii) Distribution of Offering Material. The Company
has not distributed and, prior to the later to occur of (A)
Closing Time and (B) completion of the distribution of the
Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other
than the Registration Statement or
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other materials, if any, permitted by the 1933 Act, the 1933
Act Regulations, the 1940 Act or the 1940 Act Regulations.
(iv) Registration of the Company. The Company is
registered under the 1940 Act as a closed-end diversified
management investment company and the 1940 Act Notification
has been duly filed with the Commission and, at the time of
filing thereof and any amendment or supplement thereto,
conformed in all material respects with all applicable
provisions of the 1940 Act and the 1940 Act Regulations. The
Company is, and at all times through the completion of the
transactions contemplated hereby, will be, in compliance in
all material respects with the terms and conditions of the
1933 Act and the 1940 Act.
(v) Investment Advisers Act. No person is serving or
acting as an officer, director or investment adviser of the
Company except in accordance with the provisions of the 1940
Act and the 1940 Act Regulations.
(vi) Agreements and Obligations. Each of the
Company's contracts with its custodian, transfer agent,
registrar and dividend paying agent (the "Company Agreements")
comply in all material respects with the applicable provisions
of the 1940 Act and the 1940 Act Regulations.
(vii) Independent Accountants. The accountants who
certified the financial statements incorporated by reference
in the Registration Statement are independent public
accountants as required by the 1933 Act and the 1933 Act
Regulations.
(viii) Financial Statements. The financial statements
incorporated by reference in the Registration Statement and
the Prospectus, together with the related notes, present
fairly the financial position of the Company at the dates
indicated and the statement of operations, stockholders'
equity and cash flows of the Company for the periods
specified; said financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods
involved. The financial highlights included in the Prospectus
present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited
financial statements incorporated by reference in the
Registration Statement.
(ix) No Material Adverse Change in Business. Since
the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether
or not arising in the ordinary course of business
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(a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company, other than those in
the ordinary course of business, which are material with
respect to the Company, and (C) except for dividends on the
Company's Common Stock, par value $1.00 per share (the "Common
Stock") in amounts per share that are consistent with past
practice, there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its
capital stock.
(x) Good Standing of the Company. The Company has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of
Delaware and has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect.
(xi) No Significant Subsidiary. The Company does not
have any "significant subsidiary" as such term is defined in
Rule 1-02 of Regulation S-X.
(xii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in
the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). The
shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully
paid and non-assessable. The Company is not a party or
otherwise subject to any agreement or arrangement pursuant to
which it is or may be obligated to issue any equity securities
other than this Agreement.
(xiii) Authorization of Agreement. This Agreement has
been duly authorized, executed and delivered by the Company.
(xiv) Authorization and Description of Common Stock.
The Common Stock conforms to all statements relating thereto
contained or incorporated by reference in the Prospectus and
such description conforms to the rights set forth in the
instruments defining the same.
(xv) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth herein, will be
validly issued and fully paid
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and non-assessable; the Securities will conform in all
material respects to the description thereof contained in the
Prospectus and such description conforms in all material
respects to the rights set forth in the instruments defining
the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(xvi) Absence of Defaults and Conflicts. The Company
is not in violation of its Restated Certificate of
Incorporation or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or
instrument to which the Company is a party or by which it may
be bound, or to which any of the property or assets of the
Company is subject (collectively, "Agreements and
Instruments") except for such violations or defaults that
would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and in
the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company with
its obligations hereunder have been duly authorized by all
necessary corporate action and do not and will not, whether
with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the
provisions of the Restated Certificate of Incorporation or
by-laws of the Company or, to the best of the Company's
knowledge, any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its assets, properties
or operations.
(xvii) Absence of Proceedings. There is no action,
suit, proceeding, inquiry or investigation before or brought
by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company, which is
required to be disclosed in the Registration Statement (other
than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely
affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder; the
aggregate of all pending legal or governmental proceedings to
which the Company is a party or of which any of its property
or assets is the subject which are not described in the
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Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.
(xviii) Accuracy of Exhibits. There are no contracts
or documents which are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as
required.
(xix) Possession of Intellectual Property. The
Company does not own or possess any intellectual property that
is material to its business.
(xx) Absence of Further Requirements. No filing with,
or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for
the performance by the Company of its obligations hereunder,
in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act and
the 1940 Act or the 1933 Act Regulations and the 1940 Act
Regulations.
(xxi) Possession of Licenses and Permits. Except as
disclosed in the Registration Statement or as would not have a
Material Adverse Effect, (i) the Company possesses such
permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now
operated by it; and (ii) the Company is in compliance with the
terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and the
Company has not received any notice of proceedings relating to
the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xxii) Maintenance of Accounting Controls. The
Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's
general or specific authorization and with applicable
requirements of the 1940 Act, the 1940 Act Regulations and the
Internal Revenue Code of 1986, as amended (the "Code"); (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets and to maintain compliance with the books and records
requirements under the 1940 Act and the 1940 Act Regulations;
(C) access
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<PAGE> 12
to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with
respect to any difference.
(xxiii) Title to Property. The Company owns no real
property. All of the leases and subleases material to the
business of the Company and under which the Company holds
properties described in the Prospectus, are in full force and
effect, and the Company has no notice of any material claim of
any sort that has been asserted by anyone adverse to the
rights of the Company under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the
Company to the continued possession of the leased or subleased
premises under any such lease or sublease except such as could
not reasonably be expected to have a Material Adverse Effect.
(xxiv) Compliance with Cuba Act. The Company has
complied with, and is and will be in compliance with, the
provisions of that certain Florida act relating to disclosure
of doing business with Cuba, codified as Section 517.075 of
the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxv) Registration Rights. There are no persons with
registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement
or otherwise registered by the Company under the 1933 Act.
(xxvi) Interested Persons and Affiliated Persons.
Except as disclosed in the Registration Statement and the
Prospectus, no director of the Company is an "interested
person" (as defined in the 1940 Act) of the Company.
(xxvii) Portfolio Management. Spencer Davidson is the
validly appointed President and Chief Executive Officer of the
Company and the manager of the Company's portfolio; Mr.
Davidson has not given notice nor made known his intention to
give notice of termination of his employment and the Company
knows of no reason why Mr. Davidson should be unable to manage
the Company's portfolio.
(b) Officer's Certificates. Any certificate signed by any
officer of the Company delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby and no personal liability
therefor shall attach to the officer providing any such certificate.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each
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Underwriter, severally and not jointly, and each Underwriter, severally and not
jointly, agrees to purchase from the Company, at the price per share set forth
in Schedule B, the number of Securities set forth in Schedule A opposite the
name of such Underwriter, plus any additional number of Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery
of certificates for, the Securities shall be made at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York, or at
such other place as shall be agreed upon by the Representatives and the Company,
at 9:00 A.M. (Eastern time) on the third business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives and the Company (such time and date of payment and
delivery being herein called "Closing Time").
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the Company, against
delivery to the Representatives for the respective accounts of the Underwriters
of certificates for the Securities to be purchased by them. It is understood
that each Underwriter has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities, if any, which it has agreed to purchase. Merrill Lynch, individually
and not as representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(c) Denominations; Registration. One or more certificates in
global form representing the Securities shall be registered in the name of Cede
& Co., as nominee of DTC. The global certificate or certificates representing
the Securities will be made available for examination by the Representatives in
The City of New York not later than 10:00 A.M. (Eastern Time) on the business
day prior to the Closing Time. Delivery of the Securities by the Company shall
be made by book-entry transfer to an account or accounts specified by the
Representatives in such respective portions as the Representatives may
designate, upon notice given to the Company prior to 10:00 am (Eastern time) on
the business day prior to the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants
with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and
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(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to 497(c) or Rule
497(h), whichever is applicable, or if applicable the certification permitted by
Rule 497(j); and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule 497(c)
or 497(h), whichever is applicable, or if applicable the certification permitted
by Rule 497(j); was received for filing by the Commission and, in the event that
it was not, it will promptly file such prospectus or certification. The Company
will make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents in a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file or use any such document to which the Representatives or
counsel for the Underwriters shall object promptly after it receives copies
thereof.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriters will be identical in all material respects
to the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act and the 1940 Act. The
Company will furnish to each Underwriter, without charge, during the period when
the Prospectus is required to be delivered under the 1933 Act, such number of
copies of the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical in all material respects to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1940 Act and the 1933 Act Regulations and
the 1940 Act Regulations so as to
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permit the completion of the distribution of the Securities as contemplated in
this Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations and the 1940 Act and the 1940 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(h) Listing. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of -
days from the date of the Prospectus, the Company will not, without the prior
written consent of the Representatives, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Cumulative Preferred
Stock or any securities convertible into or exercisable or exchangeable for
Cumulative Preferred Stock or file any registration statement under the 1933 Act
or the 1940 Act with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Cumulative
Preferred Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Cumulative Preferred Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to the Securities to be sold hereunder.
(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or the 1940
Act, will file all documents required to be filed with the Commission pursuant
to the 1940 Act within the time periods required by the 1940 Act and the rules
and regulations of the Commission thereunder.
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(l) The Company will use its best efforts to cause the
Securities prior to Closing Time, to be assigned a rating of "aaa" by Moody's
Investors Services, Inc. ("Moody's").
(m) The Company will furnish to the Representatives, on the
date delivery is made to Moody's, the Accountant's Confirmation (as defined in
the Certificate of Designations) corresponding to the Basic Maintenance Report
(as defined in the Certificate of Designations) for the first Valuation Date (as
defined in the Certificate of Designations) following Closing Time.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will
pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus and of the
Prospectus and any amendments or supplements thereto, (vii) the fees and
expenses of any transfer agent or registrar for the Securities, (viii) any fees
charged by securities rating services for rating the Securities and (ix) the
fees and expenses incurred in connection with the listing of the Securities on
the New York Stock Exchange. It is understood, however, that except as provided
in this Section, Section 6 and Section 7, the Underwriters will pay all of their
own costs and expenses, including the fees and expenses of their counsel,
transfer taxes on resale of any of the securities, and any advertising expenses
connected with any offers they make.
(b) Termination of Agreement. If this Agreement is terminated
by the Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company contained in Section 1 hereof
or in certificates of any officer of the Company delivered pursuant to the
provisions hereof, to the performance by the Company of its covenants and other
obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act
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or proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 497(h) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).
(b) Opinion and Letter of Counsel for Company. At Closing Time,
the Representatives shall have received the favorable opinion and letter, each
dated as of Closing Time, of Sullivan & Cromwell, counsel for the Company,
inform and substance reasonably satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit A hereto. In giving such opinion
such counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware, upon the
opinions of counsel satisfactory to the Representatives. Such counsel may also
state that, insofar as such opinion involves factual matters, they have relied,
to the extent they deem proper, upon certificates of officers of the Company and
certificates of public officials.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii), (vi),
(vii), (xi) (solely as to the Purchase Agreement) and the penultimate paragraph
of Exhibit A hereto (provided, however, that with respect to the penultimate
sentence of such penultimate paragraph, such opinion shall be solely with
respect to the information in the Prospectus under "Description of Cumulative
Preferred Stock"). In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State of
New York, the federal law of the United States and the General Corporation Law
of the State of Delaware, upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company, whether or not arising in the ordinary course
of business, and the Representatives shall have received a certificate of the
President or a Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or are
contemplated by the Commission.
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(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from Ernst & Young
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.
(g) Maintenance of Rating. At Closing Time, the Securities
shall be rated at least "aaa" by Moody's Investors Service, Inc., and the
Company shall have delivered to the Representatives a letter dated the Closing
Time, from such rating agency, or other evidence satisfactory to the
Representatives, confirming that the Securities have such rating; and since the
date of this Agreement, there shall not have occurred a downgrading in the
rating assigned to the Securities or any of the Company's other securities by
any "nationally recognized statistical rating agency", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and no such
organization shall have publicly announced that it has under surveillance or
review its rating of the Securities or any of the Company's other securities.
(h) Basic Maintenance Report. At Closing Time, the Company
shall have delivered to the Representatives a report showing compliance with the
Asset coverage requirements of the 1940 Act and a Basic Maintenance Report (as
defined in the Certificate of Designations), in form and substance satisfactory
to the Representatives. Such report may use portfolio holdings and valuations as
of the close of business of the [sixth] business day preceding Closing Time;
provided, however, that the Company represents in such report that its total net
assets as of Closing Time have not declined by 5% or more from such valuation
date.
(i) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
(j) Additional Documents. At Closing Time, counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained.
(k) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the
14
<PAGE> 19
Representatives by notice to the Company at any time at or prior to Closing Time
and such termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall
survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. (1) The Company
agrees to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information or the omission
or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject
to Section 6(d) below) any such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof, the fees
and disbursements of counsel chosen by the Representatives),
reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that
15
<PAGE> 20
the Company will not be liable to an Underwriter with respect to any preliminary
prospectus to the extent that the Company shall have sustained the burden of
proving that any such loss, liability, claim, damage or expense resulted from
the fact that such Underwriter in contravention of a requirement of this
Agreement or applicable law, sold Securities to a person to whom such
Underwriter failed to send or give, at or prior to the Closing Time, a copy of
the Prospectus as then amended or supplemented if the Company has previously
furnished copies thereof (sufficiently in advance of Closing Time to allow for
distribution by Closing Time) to the Underwriter and the loss, liability, claim,
damage or expense of such Underwriter resulted from an untrue statement or
omission or alleged untrue statement or omission of a material fact contained in
or omitted from the preliminary prospectus which was corrected in the Prospectus
as, if applicable, amended or supplemented prior to the Closing Time.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representatives expressly for use
in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
the Representatives, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the indemnified parties shall be selected by the Company.
An indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or
16
<PAGE> 21
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a) (ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for
in Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand
and the Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters, in
each case as set forth on the cover of the Prospectus.
The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which
17
<PAGE> 22
does not take account of the equitable considerations referred to above in this
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such
18
<PAGE> 23
as to make it, in the judgment of the Representatives, impracticable to market
the Securities or to enforce contracts for the sale of the Securities, or (iii)
if trading in any securities of the Company has been suspended or materially
limited by the Commission or the New York Stock Exchange, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or in
the Nasdaq National Market has been suspended or materially limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representatives shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement either the Representatives or the Company shall
have the right to postpone Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
19
<PAGE> 24
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at Merrill Lynch & Co.,
North Tower, World Financial Center, New York, New York 10281-1201, attention of
Mr. Rick Doyle and at Salomon Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, attention of Mr. Robert F. Bush, Jr.; and notices to the Company
shall be directed to it at 450 Lexington Avenue, Suite 3300, New York, New York
10017, attention of Eugene L. DeStaebler, Jr.
SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters and the Company and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
20
<PAGE> 25
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its terms.
Very truly yours,
GENERAL AMERICAN INVESTORS COMPANY, INC.
By:
------------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
--------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
21
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
- ------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
----------
Total
==========
</TABLE>
Sch A1
<PAGE> 27
SCHEDULE B
GENERAL AMERICAN INVESTORS COMPANY, INC.
- Shares
__% Cumulative Preferred Stock
(liquidation preference $25 per share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $25.00.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $- [, being an amount equal to the initial public
offering price set forth above less $- per share].
3. The dividend rate on the Securities will be ___% per annum.
Sch B1
<PAGE> 28
Exhibit A
COMBINED FORM OF OPINION AND LETTER OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the State of New York
(which is the only jurisdiction identified by management of the Company
to such counsel in which the Company owns property, has operations or
conducts business).
(iv) The Company does not have any "significant subsidiary"
as such term is defined in Rule 1-02 of Regulation S-X.
(v) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to the Purchase Agreement or pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable. The Company is
not a party or otherwise subject to any agreement or arrangement
pursuant to which it is or may be obligated to issue any equity
securities other than this Agreement.
(vi) The Securities have been duly authorized for issuance
and sale to the Underwriters pursuant to the Purchase Agreement and,
when issued and delivered by the Company pursuant to the Purchase
Agreement against payment of the consideration set forth in the
Purchase Agreement, will be validly issued and fully paid and
non-assessable; no holder of the Securities is or will be subject to
personal liability by reason of being such a holder; the Securities
conform to the provisions of the Certificate Designations; and the
relative rights, preferences, interests and powers of the Securities
are as set forth in the Restated Certificate of Incorporation relating
thereto, and all such provisions are valid under the Delaware General
Corporation Law.
A1
<PAGE> 29
(vii) The Company is registered under the 1940 Act as a
closed-end diversified management investment company and the 1940 Act
Notification has been duly filed with the Commission.
(viii) The Company is in compliance in all material respects
with the terms and conditions of the 1940 Act.
(ix) No person is serving or acting as an officer or
director of the Company except in accordance with the provisions of the
1940 Act and the 1940 Act Regulations.
(x) Each of the Company Agreements and the Company's
obligations under each of the Company Agreements comply as to form in
all material respects with the applicable provisions of the 1940 Act
and the 1940 Act Regulations.
(xi) The Purchase Agreement and each of the Company
Agreements has been duly authorized, executed and delivered by the
Company.
(xii) If the Company operates as described in the Prospectus,
and based upon appropriate factual assumptions and factual
representations of the company described in or accompanying such
opinion, the Company will qualify as a regulated investment company
under the Code.
(xiii) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
A2
<PAGE> 30
(xiv) The form of certificate used to evidence the
Securities complies in all material respects with all applicable
statutory requirements, with any applicable requirements of the
Restated Certificate of Incorporation and by-laws of the Company and
the requirements of the New York Stock Exchange.
(xv) To the best of our knowledge, the Company is not in
violation of its Restated Certificate of Incorporation or by-laws and
no default by the Company exists in the due performance or observance
of any material obligation, agreement, covenant or condition contained
in any of the Company Agreements.
(xvi) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the 1933 Act and the 1933 Act Regulations and the 1940 Act and the 1940
Act Regulations, which have been obtained, or as may be required under
the securities or blue sky laws of the various states, as to which we
need express no opinion) is necessary or required in connection with
the due authorization, execution and delivery of the Purchase Agreement
or for the offering, issuance, sale or delivery of the Securities.
(xvii) The execution, delivery and performance of the
Purchase Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration
Statement (including the issuance and sale of the Securities and the
use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds" and compliance by the
Company with its obligations under the Purchase Agreement do not and
will not, whether with or without the giving of notice or lapse of time
or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to any of the
Company Agreements (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the Restated Certificate of
A3
<PAGE> 31
Incorporation or by-laws of the Company, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to
us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its properties,
assets or operations.
(xviii) To the best of our knowledge, there are no persons
with registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
In addition, such counsel shall state that on the basis of the
information that it gained in the course of its review of the Registration
Statement and the Prospectus, its participation in discussions with the
representatives of the Company and its accountants, considered in light of its
understanding of the applicable law and the experience it has gained through its
practice under the Act and the 1940 Act, in such counsel's opinion, the
Registration Statement as of its effective date, and the Prospectus, as of the
date of the Prospectus, appeared on their face to be appropriately responsive in
all material respects to the requirements of the Act and the 1940 Act and the
applicable rules and regulations of the Commission thereunder. Further, nothing
that came to our attention in the course of such review has caused us to believe
that the Registration Statement, as of its effective date, and as of the Closing
Time, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of the date of the Prospectus,
and as of the Closing Time, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. In addition, such counsel shall state that they do not know of any
litigation or any governmental proceeding instituted or threatened against the
Company that would be required to be disclosed in the Prospectus and is not so
disclosed nor do they know of any documents that are required to be filed as
exhibits to the Registration Statement and are not so filed or of any documents
that are required to be summarized in the Prospectus and are not so summarized.
Such counsel shall not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus except for those made under the captions "Description of Cumulative
Preferred Stock", "Description of Capital Stock and Other Securities" and
"Taxation" in the Prospectus insofar as they relate to provisions of documents
therein described. Also, such counsel shall not express any opinion or belief
as to the financial statements or other financial data contained in the
Registration Statement or the Prospectus.
In rendering such opinion, such counsel may rely as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A4
<PAGE> 1
Revised October 29, 1990
MASTER AGREEMENT AMONG UNDERWRITERS
April 15, 1985
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1305
Dear Sirs:
We understand that from time to time you may act as Representative or as
one of the Representatives of the several underwriters of offerings of
securities of various issuers. This Agreement shall apply to any offering of
securities in which we elect to act as an underwriter after receipt of an
invitation from you which shall identify the issuer, contain information
regarding certain terms of the securities to be offered and specify the amount
of our proposed participation and the names of the other Representatives, if
any, and that our participation as an underwriter in the offering shall be
subject to the provisions of this Agreement. Your invitation will include
instructions for our acceptance of such invitation. At or prior to the time of
an offering, you will advise us, to the extent applicable, as to the expected
offering date, the expected closing date, the initial offering price, the
interest or dividend rate (or the method by which such rate is to be
determined), the conversion price, the underwriting discount, the management
fee, the selling concession and the reallowance, except that if the offering
price of the securities is to be determined as contemplated by Rule 430A under
the Securities Act of 1933 (such procedure being hereinafter referred to as
"430A Pricing"), you shall so advise us and shall specify the maximum
underwriting discount, management fee and selling concession. Such information
may be conveyed by you in one or more communications (such communications
received by us with respect to the offering are hereinafter collectively
referred to as the "Invitation"). If the Purchase Agreement (as hereinafter
defined) provides for the granting of an option to purchase additional
securities to cover over-allotments or otherwise (an "over-allotment option"),
you will notify us, in the Invitation, of such option and of our maximum
obligation upon exercise of such option.
This Agreement, as amended or supplemented by the Invitation, shall become
effective with respect to our participation in an offering of securities if you
receive our oral or written acceptance and you do not receive a written
communication revoking our acceptance prior to the time and date specified in
the Invitation (our unrevoked acceptance after expiration of such time and date
being hereinafter referred to as our "Acceptance"). Our Acceptance will
constitute our confirmation that, except as otherwise stated in such Acceptance,
each statement included in the Master Underwriters' Questionnaire set forth as
Exhibit A hereto (or otherwise furnished to us) is correct. The issuer of the
securities in any offering of securities made pursuant to this Agreement is
hereinafter referred to as the "Issuer". If the Purchase Agreement does not
provide for an over-allotment option, the securities to be purchased are
hereinafter referred to as the "Securities"; if the Purchase Agreement provides
for an over-allotment option, the securities the Underwriters (as hereinafter
defined) are initially obligated to purchase pursuant to the Purchase Agreement
are hereinafter called the "Initial Securities" and any additional securities
which may be purchased upon exercise of the over-allotment option are
hereinafter called the "Option Securities", with the Initial Securities and all
or any part of the Option Securities being hereinafter collectively referred to
as the "Securities". Any underwriters of Securities under this Agreement,
including the Representatives (as hereinafter defined), are hereinafter
collectively referred to as the "Underwriters". All references herein to "you"
or the to the "Representatives" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated and the other firms, if any, which are named as Representatives in
the Invitation. The Securities to be offered may, but need not, be registered
for a delayed or continuous offering pursuant to Rule 415 under the Securities
Act of 1933 (the "1933 Act").
The following provisions of this Agreement shall apply separately to each
individual offering of Securities. This Agreement may be supplemented or amended
by you by written notice to us and, except for supplements or amendments set
forth in an Invitation relating to a particular offering of Securities,
<PAGE> 2
any such supplement or amendment to this Agreement shall be effective with
respect to any offering of Securities to which this Agreement applies after this
Agreement is so amended or supplemented.
Section 1. Purchase Agreement; Authority of Representatives. We authorize
you to execute and deliver a purchase agreement and any amendment or supplement
thereto and any associated Terms Agreement or other similar agreement
(collectively, the "Purchase Agreement") on our behalf with the Issuer and/or
any selling securityholder with respect to the Securities in such form as you
determine. We will be bound by all terms of the Purchase Agreement as executed.
We understand that changes may be made in those who are to be Underwriters, and
in the amount of Securities to be purchased by them, but the amount of
Securities to be purchased by us in accordance with the terms of this Agreement,
including the maximum amount of Option Securities, if any, which we may become
obligated to purchase by reason of the exercise of any over-allotment option
provided in the Purchase Agreement, shall not be changed without our consent
except as provided in the Purchase Agreement.
As Representatives of the Underwriters, you are authorized to take such
action as you deem necessary or advisable to carry out this Agreement, the
Purchase Agreement, and the purchase and sale of the Securities, and to agree to
any waiver or modification of any provision of the Purchase Agreement. To the
extent applicable, you are also authorized to determine (i) the amount of Option
Securities, if any, to be purchased by the Underwriters pursuant to any
over-allotment option and (ii) with respect to offerings using 430A Pricing, the
initial offering price and the price at which the Securities are to be purchased
in accordance with the Purchase Agreement. It is understood and agreed that
Merrill Lynch, Pierce, Fenner & Smith Incorporated may act on behalf of all
Representatives.
It is understood that, if so specified in the Invitation, arrangements may
be made for the sale of Securities by the Issuer pursuant to delayed delivery
contracts (hereinafter referred to as "Delayed Delivery Contracts"). References
herein to delayed delivery and Delayed Delivery Contracts apply only to
offerings to which delayed delivery is applicable. The term "underwriting
obligation", as used in this Agreement with respect to any Underwriter, shall
refer to the amount of Securities, including any Option Securities (plus such
additional Securities as may be required by the Purchase Agreement in the event
of a default by one or more of the Underwriters) which such Underwriter is
obligated to purchase pursuant to the provisions of the Purchase Agreement,
without regard to any reduction in such obligation as a result of Delayed
Delivery Contracts which may be entered into by the Issuer.
If the Securities consist in whole or in part of debt obligations maturing
serially, the serial Securities being purchased by each Underwriter pursuant to
the Purchase Agreement will consist, subject to adjustment as provided in the
Purchase Agreement, of serial Securities of each maturity in a principal amount
which bears the same proportion to the aggregate principal amount of the serial
Securities of such maturity to be purchased by all the Underwriters as the
respective principal amount of serial Securities set forth opposite such
Underwriter's name in the Purchase Agreement bears to the aggregate principal
amount of the serial Securities to be purchased by all the Underwriters.
Section 2. Registration Statement and Prospectus; Offering Circular. In the
case of an Invitation regarding an offer of Securities registered under the 1933
Act (a "Registered Offering"), you will furnish to us, to the extent made
available to you by the Issuer, copies of any registration statement or
registration statements relating to the Securities which may be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the 1933 Act
and of each amendment thereto (excluding exhibits but including any documents
incorporated by reference therein). Such registration statement(s) as amended,
and the prospectus(es) relating to the sale of Securities by the Issuer
constituting a part thereof, including all documents incorporated therein by
reference, as from time to time amended or supplemented by the filing of
documents pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), the
1933 Act or otherwise, are referred to herein as the "Registration Statement"
and the "Prospectus", respectively; provided however, that a supplement to the
Prospectus filed with the Commission pursuant to Rule 424 under the 1933 Act
with respect to an offering of Securities (a "Prospectus Supplement") shall be
deemed to have supplemented the Prospectus only with respect to the offering of
Securities to which it relates.
With respect to Securities for which no Registration Statement is filed
with the Commission, you will furnish to us, to the extent made available to you
by the Issuer, copies of any private placement
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<PAGE> 3
memorandum, offering circular or other offering materials to be used in
connection with the offering of the Securities and of each amendment thereto
(the ""Offering Circular").
Section 3. Offering. The sale of the securities to the public shall
commence as soon as you deem advisable. We will not sell any Securities until
they are released by you for that purpose. When notified by you that the
Securities are released for sale, we will offer in conformity with the terms of
the offering set forth in the Prospectus or Offering Circular, such of the
Securities to be purchased by us as are not reserved for our account for sale
to Selected Dealers and others pursuant to Section 5. After the initial
offering, the offering price and the concession and discount therefrom may be
changed by you by notice to the Underwriters, and we agree to be bound by any
such change.
If, in accordance with the terms of offering set forth in the Prospectus
or Offering Circular, the offering of the Securities is not at a fixed price
but at varying prices set by individual Underwriters based on market prices or
at negotiated prices, the provisions above relating to your right to change the
offering price and concession and discount to dealers shall not apply, and other
references in this Section and elsewhere in this Agreement to the offering price
or Selected Dealers' concession shall be deemed to mean the prices and
concessions determined by you from time to time in your discretion.
Unless otherwise permitted in the Invitation, we will not sell any
Securities to any account over which we have discretionary authority. We will
also comply with any other restrictions which may be set forth in the
Invitation.
The initial public advertisement, if any, with respect to the Securities
shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine.
Section 4. Delayed Delivery Arrangements. We authorize you to act on our
behalf in making all arrangements for the solicitation of offers to purchase
Securities from the Issuer pursuant to Delayed Delivery Contracts, and we agree
that all such arrangements will be made only through you (directly or through
Underwriters or Selected Dealers). You may allow to Selected Dealers in respect
to such Securities a commission equal to the concession allowed to Selected
Dealers pursuant to Section 5.
The obligations of the Underwriters shall be reduced in the aggregate by
the principal amount of Securities covered by Delayed Delivery Contracts made
by the Issuer, the obligation of each Underwriter to be reduced by the
principal amount of such Securities, if any, allocated by you to such
Underwriter. Your determination of the allocation of Securities covered by
Delayed Delivery Contracts among the several Underwriters shall be final and
conclusive, and we agree to be bound by any notice delivered by you to the
Issuer setting forth the amount of the reduction in our obligation as a result
of Delayed Delivery Contracts.
Upon receiving payment from the Issuer of the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated to
us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts
allocated to us.
Section 5. Offering to Selected Dealers and Others; Management of
Offering. We authorize you, for our account, to reserve for sale and sell to
dealers ("Selected Dealers"), among whom any of the Underwriters may be
included, such amount of Securities to be purchased by us as you shall
determine. Reservations for sales to Selected Dealers for our account need not
be in proportion to our underwriting obligation, but sales of Securities
reserved for our account for sale to Selected Dealers shall be made as nearly
as practicable in the ratio which the amount of Securities reserved for our
account bears to the aggregate amount of Securities reserved for the account of
all Underwriters, as calculated from day to day. Sales to Selected Dealers may
be made under the Merrill Lynch, Pierce, Fenner & Smith Incorporated Standard
Dealer Agreement, or otherwise. The price to Selected Dealers initially shall
be the offering price less a concession not in excess of the Selected Dealers
concession set forth in the Invitation. Selected Dealers shall be actually
engaged in the investment banking or securities business and shall be either
(i) members in good standing of the National Association of Securities Dealers,
Inc. (the "NASD") or (ii) dealers with their principal place of business
located outside the United States, its territories and its possessions and
not registered under the 1934 Act who agree to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein
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<PAGE> 4
or (iii) banks that are not eligible for membership in the NASD. Each Selected
Dealer shall agree to comply with the provisions of Section 24 of Article III
of the Rules of Fair Practice of the NASD, and each foreign Selected Dealer or
bank who is not a member of the NASD also shall agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
it were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank.
With your consent, the Underwriters may allow, and Selected Dealers may
reallow, a discount on sales to any dealer who meets the above NASD
requirements in an amount not in excess of the amount set forth in the
Invitation. Upon your request, we will advise you of the identity of any dealer
to whom we allow such a discount and any Underwriter or Selected Dealer from
whom we receive such a discount.
We also authorize you, for our account, to reserve for sale and to sell
Securities to be purchased by us at the offering price to others, including
institutions and retail purchasers. Except for such sales which are designated
by a purchaser to be for the account of a particular Underwriter, such
reservations and sales shall be made as nearly as practicable in proportion to
our underwriting obligation, unless you agree to a smaller proportion at our
request.
At or before the time the Securities are released for sale, you shall
notify us of the amount of Securities which have not been reserved for our
account for sale to Selected Dealers and others and which is to be retained by
us for direct sale.
We will from time to time, upon your request, report to you the amount of
Securities retained by us for direct sale which remains unsold and, upon your
request, deliver to you for our account, or sell to you for the account of one
or more of the Underwriters, such amount of unsold Securities as you may
designate at the offering price less an amount determined by you not in excess
of the concession to Selected Dealers. You may also repurchase Securities from
other Underwriters and Selected Dealers, for the account of one or more of the
Underwriters, at prices determined by you not in excess of the offering price
less the concession to Selected Dealers.
You may from time to time deliver to any Underwriter, for carrying
purposes or for sale by such Underwriter, any of the Securities then reserved
for sale to, but not purchased and paid for by, Selected Dealers or others as
above provided, but to the extent that Securities are so delivered for sale by
such Underwriter, the amount of Securities then reserved for the account of
such Underwriter shall be correspondingly reduced. Securities delivered for
carrying purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your consent, purchase
Securities from and sell Securities to each other at the offering price less a
concession not in excess of the concession to Selected Dealers.
Section 6. Repurchase of Securities Not Effectively Placed. In recognition
of the importance of distributing the Securities to bona fide investors, we
agree to repurchase on demand any Securities sold by us, except through you,
which are purchased by you in the open market or otherwise during a period
terminating as provided in Section 16, at a price equal to the cost of such
purchase, including accrued interest, amortization of original issue discount
or dividends, commissions and transfer and other taxes, if any, on redelivery.
The certificates delivered to us need not be identical certificates delivered
to you in respect of the Securities purchased. In lieu of requiring repurchase,
you may, in your discretion, sell such Securities for our account at such
prices, upon such terms and to such persons, including any of the other
Underwriters, as you may determine, charging the amount of any loss and
expense, or crediting the amount of any net profit, resulting from such sale,
to our account, or you may charge our account with an amount determined by you
not in excess of the concession to Selected Dealers.
Section 7. Stabilization and Over-Allotment. In order to facilitate the
sale of the Securities, we authorize you, in your discretion, to purchase and
sell Securities or any other securities of the Issuer or any guarantor of the
Securities specified in the Invitation in the open market or otherwise, for
long or
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<PAGE> 5
short account, at such prices as you may determine, and, in arranging for sales
to Selected Dealers or others, to over-allot. You may liquidate any long
position or cover any short position incurred pursuant to this Section at such
prices as you may determine. You shall make such purchases and sales (including
over-allotments) for the accounts of the Underwriters as nearly as practicable
in proportion to their respective underwriting obligations. It is understood
that, in connection with any particular offering of Securities to which this
Agreement applies, you may have made purchases of securities of the Issuer or
securities of any guarantor of the Securities for stabilizing purposes prior to
the time when we become an Underwriter, and we agree that any such securities
so purchased shall be treated as having been purchased for the respective
accounts of the Underwriters pursuant to the foregoing authorization. At the
close of business on any day our net commitment, either for long or short
account, resulting from such purchases or sales (including over-allotments)
shall not exceed 20% (or such other amount as may be specified in the
Invitation) of our underwriting obligation, except that such percentage may be
increased with the approval of a majority in interest of the Underwriters. We
will take up at cost on demand any Securities or other securities of the Issuer
or any securities of any guarantor of the Securities so sold or over-alloted
for our account, including accrued interest, amortization of original issue
discount or dividends, and we will pay to you on demand the amount of any
losses or expenses incurred for our account pursuant to this Section. In the
event of default by any Underwriter in respect of its obligations under this
Section, each non-defaulting Underwriter shall assume its share of the
obligations of such defaulting Underwriter in the proportion that its
underwriting obligation bears to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of
its liability hereunder.
If you effect any stabilizing purchase pursuant to this Section, you shall
promptly notify us of the date and time of the first stabilizing purchase and
the date and time when stabilizing was terminated. You shall prepare and
maintain such records as are required to be maintained by you as manager
pursuant to Rule 17a-2 under the 1934 Act.
Section 8. Open Market Transactions. We represent and agree in connection
with the offering of Securities we have complied and will comply with the
provisions of Rule 10b-6 under the 1934 Act with regard to trading in the
Securities. For purposes of the foregoing sentence, we agree that, in addition
to the Securities, other securities of the Issuer or securities of any
guarantor of the Securities or the right or option to purchase or otherwise
acquire any securities of the Issuer or any securities of any guarantor of the
Securities specified in the Invitation shall be considered securities of the
same class and series as the Securities.
Section 9. Payment and Delivery. At or before such time, on such dates and
at such places as you may specify in the Invitation, we will deliver to you a
certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (unless otherwise specified in the Invitation) in an amount equal
to, as you direct, either (i) the offering price or prices plus accrued
interest, amortization of original issue discount or dividends, if any, set
forth in the Prospectus or Offering Circular less the concession to Selected
Dealers in respect of the amount of Securities to be purchased by us in
accordance with the terms of this Agreement, or (ii) the amount set forth in
the Invitation with respect to the Securities to be purchased by us. We
authorize you to make payment for our account of the purchase price for the
Securities to be purchased by us against delivery to you of such Securities
(which may be in temporary form), and the difference between such purchase
price of the Securities and the amount of our funds delivered to you therefor
shall be credited to our account.
Delivery to us of Securities retained by us for direct sale shall be made
by you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in Section 16, you
shall deliver to us any Securities reserved for our account for sale to
Selected Dealers and others which remain unsold at that time.
You are authorized to make appropriate arrangements for payment for and/or
delivery through the facilities of The Depository Trust Company or any such
other depository or similar facility, the Securities to be purchased by us, or,
if we are not a member, settlement may be made through a correspondent that is
a member pursuant to our timely instructions to you.
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<PAGE> 6
Upon receiving payment for Securities sold for our account to Selected
Dealers and others, you shall remit to us an amount equal to the amount paid by
us to you in respect of such Securities and credit or charge our account with
the difference, if any, between such amount and the price at which such
Securities were sold.
In the event that the Purchase Agreement for an offering provides for the
payment of a commission or other compensation to the Underwriters, we authorize
you to receive such commission or other compensation for our account.
Section 10. Management Compensation. As compensation for your services in
the management of the offering, we will pay you an amount equal to the
management fee specified in the Invitation in respect of the Securities to be
purchased by us pursuant to the Purchase Agreement, and we authorize you to
charge our account with such amount. If there is more than one Representative,
such compensation shall be divided among the Representatives in such
proportions as they may determine.
Section 11. Authority to Borrow. We authorize you to advance your own
funds for our account, charging current interest rates, or to arrange loans for
our account or the account of the Underwriters, as you may deem necessary or
advisable for the purchase, carrying, sale and distribution of the Securities.
You may execute and deliver any notes or other instruments required in
connection therewith and may hold or pledge as security therefor all or any part
of the Securities which we or such Underwriters have agreed to purchase. The
obligations of the Underwriters under loans arranged on their behalf shall be
several in proportion to their respective participations in such loans, and not
joint. Any lender is authorized to accept your instructions as to the
disposition of the proceeds of any such loans. You shall credit each
Underwriter with the proceeds of any loans made for its account.
Section 12. Legal Qualifications. You shall inform us, upon request, of
the states and other jurisdictions of the United States in which it is believed
that the Securities are qualified for sale under, or are exempt from the
requirements of, their respective securities laws, but you assume no
responsibility with respect to our right to sell Securities in any
jurisdiction. You are authorized to file with the Department of State of the
State of New York a Further State Notice with respect to the Securities, if
necessary.
If we propose to offer Securities outside the United States, its
territories or its possessions, we will take, at our own expense, such action,
if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which we propose to offer Securities.
Section 13. Membership in National Association of Securities Dealers,
Foreign Underwriters and Banks. We understand that you are a member in good
standing of the NASD. We confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing of
the NASD of (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered under
the 1934 Act who hereby agrees to make no sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (except that we may participate in sales to Selected Dealers
and others under Section 5 of this Agreement) or (iii) a bank not eligible for
membership in the NASD. We hereby agree to comply with Section 24 of Article III
of the Rules of Fair Practice of the NASD and if we are a foreign dealer or bank
and not a member of the NASD we also hereby agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank.
Section 14. Distribution of Prospectuses; Offering Circulars. We are
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under
the 1934 Act, relating to the distribution of preliminary and final
prospectuses, and we confirm that we will comply therewith, to the extent
applicable, in connection with any sale of Securities. You shall cause to be
made available to us, to the extent made available to you by the Issuer, such
number of copies of the Prospectus as we may reasonably request for purposes
contemplated by the 1933 Act, the 1934 Act and the rules and regulations
thereunder.
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Our Acceptance of an Invitation relating to an offering made pursuant to an
Offering Circular shall constitute our agreement that, if requested by you, we
will furnish a copy of any amendment to a preliminary or final Offering
Circular to each person to whom we shall have furnished a previous preliminary
or final Offering Circular. Our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars required for compliance with the applicable federal
and state laws and the applicable rules and regulations of any regulatory body
promulgated thereunder governing the use and distribution of offering circulars
by underwriters and any additional instructions contained in the Invitation and,
to the extent consistent with such laws, rules and regulations, our Acceptance
shall constitute our confirmation that we have delivered and our agreement that
we will deliver all preliminary and final Offering Circulars which would be
required if the provisions of Rule 15c2-8 (or any successor provision) under the
1934 Act applied to such offering.
Section 15. Net Capital. The incurrence by us of our obligations hereunder
and under the Purchase Agreement in connection with the offering of the
Securities will not place us in violation of the net capital requirements of
Rule 15c3-1 under the 1934 Act, or, if we are a financial institution subject
to regulation by the Board of Governors of the Federal Reserve System, the
Comptroller of the Currency or the Federal Deposit Insurance Corporation, will
not place us in violation of the capital requirements of such regulator or any
other regulator to which we are subject.
Section 16. Termination. With respect to each offering of Securities
pursuant to this Agreement, all limitations in this Agreement on the price at
which the Securities may be sold, the period of time referred to in Section 6,
the authority granted by the first sentence of Section 7, and the restrictions
contained in Section 8 shall terminate at the close of business on the 45th day
after the commencement of the offering of such Securities. You may terminate
any or all of such provisions at any time prior thereto by notice to the
Underwriters. All other provisions of this Agreement shall remain operative and
in full force and effect with respect to such offering.
Section 17. Expenses and Settlement. You may charge our account with any
transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect to
each offering of Securities pursuant to this Agreement, the respective accounts
of the Underwriters shall be settled as promptly as practicable after the
termination of all the provisions of this Agreement as provided in Section 16,
but you may reserve such amounts as you may deem advisable for additional
expenses. Your determination of the amount to be paid to or by us shall be
conclusive. You may at any time make partial distributions of credit balances
or call for payment of debit balances. Any of our funds in your hands may be
held with your general funds without accountability for interest.
Notwithstanding any settlement, we will remain liable for any taxes on
transfers for our account and for our proportionate share (based upon our
underwriting obligation) of all expenses and liabilities which may be incurred
by or for the accounts of the Underwriters with respect to each offering of
Securities pursuant to this Agreement.
Section 18. Indemnification. With respect to each offering of Securities
pursuant to this Agreement, we will indemnify and hold harmless each other
Underwriter and each person, if any, who controls each other Underwriter within
the meaning of Section 15 of the 1933 Act, to the extent that and on the terms
upon which we agree to indemnify and hold harmless the Issuer and other
specified persons as set forth in the Purchase Agreement.
Section 19. Claims Against Underwriters. With respect to each offering of
Securities pursuant to this Agreement, if at any time any person other than an
Underwriter asserts a claim (including any commenced or threatened investigation
or proceeding by any governmental agency or body) against one or more of the
Underwriters or against you as Representatives of the Underwriters arising out
of an alleged untrue statement or omission in the Registration Statement (or
any amendment thereto) or in any preliminary prospectus or the Prospectus or
any amendment or supplement thereto, or in any preliminary or final Offering
Circular, or relating to any transaction contemplated by this Agreement, we
authorize
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you to make such investigation, to retain such counsel for the Underwriters and
to take such action in the defense of such claim as you may deem necessary or
advisable. You may settle such claim with the approval of a majority in
interest of the Underwriters. We will pay our proportionate share (based upon
our underwriting obligation) of all expenses incurred by you (including the
fees and expenses of counsel for the Underwriters) as incurred, in
investigating and defending against such claim and our proportionate share of
the aggregate liability incurred by all Underwriters in respect to such claim
(after deducting any contribution or indemnification obtained pursuant to the
Purchase Agreement, or otherwise, from persons other than Underwriters),
whether such liability is the result of a judgment against one or more of the
Underwriters or the result of any such settlement. Any Underwriter may retain
separate counsel at its own expense. A claim against or liability incurred by
a person who controls an Underwriter shall be deemed to have been made against
or incurred by such Underwriter. In the event of default by any Underwriter in
respect of its obligations under this Section, the non-defaulting Underwriters
shall be obligated to pay the full amount thereof in the proportions that their
respective underwriting obligations bear to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of
its liability hereunder.
Section 20. Default by Underwriters. Default by any Underwriter in respect
of its obligations hereunder or under the Purchase Agreement shall not release
us from any of our obligations or in any way affect the liability of such
defaulting Underwriter to the other Underwriters for damages resulting from such
default. If one or more Underwriters default under the Purchase Agreement, if
provided in such Purchase Agreement you may (but shall not be obligated to)
arrange for the purchase by others, which may include yourselves or other
non-defaulting Underwriters, of all or a portion of the Securities not taken up
by the defaulting Underwriters.
In the event that such arrangements are made, the respective underwriting
obligations of the non-defaulting Underwriters and the amounts of the Securities
to be purchased by others, if any, shall be taken as the basis for all rights
and obligations hereunder; but this shall not in any way affect the liability of
any defaulting Underwriter to the other Underwriters for damages resulting from
its default, nor shall any such default relieve any other Underwriter of any of
its obligations hereunder or under the Purchase Agreement except as herein or
therein provided. In addition, in the event of default by one or more
Underwriters in respect of their obligations under the Purchase Agreement to
purchase the Securities agreed to be purchased by them thereunder and, to the
extent that arrangements shall not have been made by you for any person to
assume the obligations of such defaulting Underwriter or Underwriters, we agree,
if provided in the Purchase Agreement, to assume our proportionate share, based
upon our underwriting obligation, of the obligations of each such defaulting
Underwriter (subject to the limitations contained in the Purchase Agreement)
without relieving such defaulting Underwriter of its liability therefor.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or over-alloted, by you for the
respective accounts of the Underwriters, or to bear their proportion of expenses
or liabilities pursuant to this Agreement, and to the extent that arrangements
shall not have been made by you for any persons to assume the obligations of
such defaulting Underwriter or Underwriters, we agree to assume our
proportionate share, based upon our respective underwriting obligation, of the
obligations of each defaulting Underwriter without relieving any such defaulting
Underwriter of its liability therefor.
Section 21. Legal Responsibility. As Representatives of the Underwriters,
you shall have no liability to us, except for your lack of good faith and for
obligations assumed by you in this Agreement and except that we do not waive any
rights that we may have under the 1933 Act or the 1934 Act or the rules and
regulations thereunder. No obligations not expressly assumed by you in this
Agreement shall be implied herefrom.
8
<PAGE> 9
Nothing herein contained shall constitute the Underwriters an association,
or partners, with you, or with each other, or, except as otherwise provided
herein or in the Purchase Agreement, render any Underwriter liable for the
obligations of any other Underwriter; and the rights, obligations and
liabilities of the Underwriters are several in accordance with their respective
underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership for federal
income tax purposes, we elect to be excluded from the application of Subchapter
K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended, and
agree not to take any position inconsistent with such election, and you, as
Representatives, are authorized, in your discretion, to execute on behalf of the
Underwriters such evidence of such election as may be required by the Internal
Revenue Service.
Unless we have promptly notified you in writing otherwise, our name as it
should appear in the Prospectus or Offering Circular and our address are set
forth on the signature pages hereof.
Section 22. Notices. Any notice from you shall be deemed to have been duly
given if mailed or transmitted to us at our address appearing below.
Section 23. Governing Law. This Agreement shall be governed by the laws of
the State of New York applicable to agreements made and to be performed in said
State.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By:
--------------------------------
Authorized Officer or Partner
Address:
------------------------------------
------------------------------------
------------------------------------
Confirmed as of the date
first above written.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred F. Hessinger
-----------------------------------
Name: Fred F. Hessinger
9
<PAGE> 10
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to the Merrill
Lynch, Pierce, Fenner & Smith Incorporated Master Agreement Among Underwriters,
dated April 15, 1985 (the "Agreement"), each Underwriter confirms the following
information, except as indicated in such Underwriter's Acceptance or other
written communication furnished to Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Defined terms used herein have the same meaning as defined terms
in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or
partners have any material (as defined in Regulation C under the 1933 Act)
relationship with the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the Merrill
Lynch, Pierce, Fenner & Smith Incorporated Standard Dealer Agreement, the
Purchase Agreement or the Invitation, such Underwriter does not know: (i) of any
discounts or commissions to be allowed or paid to dealers, including all cash,
securities, contracts, or other consideration to be received by any dealer in
connection with the sale of the Securities, or of any other discounts or
commissions to be allowed or paid to the Underwriters or of any other items that
would be deemed by the NASD to constitute underwriting compensation for purposes
of the NASD's Rules of Fair Practice, (ii) of any intention to over-allot, or
(iii) that the price of any security may be stabilized to facilitate the
offering of the Securities.
(c) No report or memorandum has been prepared for external use (i.e.,
outside such Underwriter's organization) by such Underwriter in connection with
the proposed offering of Securities and, in the case of a Registered Offering,
where the Registration Statement is on Form S-1, such Underwriter has not
prepared or had prepared for it any engineering, management or similar report
or memorandum relating to the broad aspects of the business, operations or
products of the Issuer, its parent (if any) or any guarantor of the Securities
within the past twelve months (except for reports solely comprised of
recommendations to buy, sell or hold the securities of the Issuer, its parent
(if any) or any guarantor of the Securities, unless such recommendations have
changed within the past six months). If any such report or memorandum has been
prepared, furnish to Merrill Lynch, Pierce, Fenner & Smith Incorporated three
copies thereof, together with a statement as to the actual or proposed use,
identifying each class of persons who have received or will receive the report
or memorandum, the number of copies distributed to each class and the period of
distribution.
(d) If the Securities are debt securities to be issued under an indenture
to be qualified under the Trust Indenture Act of 1939, neither such Underwriter
nor any of its directors, officers or partners is an "affiliate", as that term
is defined under the Trust Indenture Act of 1939, of the Trustee for the
Securities as specified in the Invitation, or of its parent (if any); neither
the Trustee nor its parent (if any) nor any of their directors or executive
officers is a director, officer, partner, employee, appointee or representative
of such Underwriter as those terms are defined in the Trust Indenture Act of
1939 or in the relevant instructions to Form T-1; neither such Underwriter nor
any of its directors, partners or executive officers, separately or as a group,
owns beneficially 1% or more of the shares of any class of voting securities of
the Trustee or of its parent (if any); and if such Underwriter is a
corporation, it does not have outstanding nor has it assumed or guaranteed any
securities issued otherwise than in its present corporate name, and neither the
Trustee nor its parent (if any) is a holder of any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company" or
of a "public utility company", each as defined in the Public Utility Holding
Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is defined in
Section 13(d)(3) of the 1934 Act) of which it is a member is the beneficial
owner (determined in accordance with Rule 13d-3 under the 1934 Act) of more
than 5% of any class of voting securities of the Issuer, its parent (if any),
any other seller of the Securities or any guarantor of the Securities nor does
it have any knowledge that more than 5% of any class of voting securities of
the Issuer is held or to be held subject to any voting trust or other similar
agreement.
<PAGE> 11
Please complete and return with one executed copy of the contract.
Firm Name: ____________________________________________________________
Address: ____________________________________________________________
Street
_____________________________________________________________
City State Zip Code
Phone Number: _____________________________________________________________
Fax Number: _____________________________________________________________
Contact Person: _____________________________________________________________
Tax I.D.#: _____________________________________________________________
DTC #: _____________________________________________________________
ABA #: _____________________________________________________________
Corporate
Delivery
Instructions: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Government
Delivery
Instructions: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
<PAGE> 1
June 10, 1998
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017.
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act") of 6,000,000 shares of __% Tax-Advantaged Cumulative
Preferred Stock, par value $1.00 per share (the "Securities"), of General
American Investors Company, Inc. (the "Company"), we, as your counsel, have
examined such corporate records, certificates and other documents, and such
questions of law, as we have considered necessary or appropriate for the
purposes of this opinion. Upon the basis of such examination, we advise you
that, in our opinion, when the registration statement relating to the Securities
has become effective under the Act, a certificate of designations with respect
to the Securities, substantially in the form filed as an exhibit to the
registration statement, has been duly filed with the Secretary of the State of
Delaware, the terms of the Securities and of their issue and sale have been duly
established in conformity with the Company's Restated Certificate of
Incorporation, the Securities have been duly issued and sold as contemplated by
the registration statement, the Securities will be validly issued, fully paid
and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Law of the State of Delaware, and we are expressing
no opinion as to the effect of the laws of any other jurisdiction.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to
be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the reference to us under the heading "Validity
of Cumulative Preferred Stock" in the Prospectus. In giving such consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE> 1
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
June 8, 1998
