AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
Security Act File No. 333- ___
Investment Company Act File No. 811- ___
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. ________________
|_| Post-Effective Amendment No. _______________
and/or
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
(Check appropriate box or boxes)
-----------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
-----------------------------
450 Lexington Avenue
Suite 3300
New York, New York 10017
(Address of Principal Executive Offices)
-----------------------------
Eugene L. DeStaebler, Jr.
450 Lexington Avenue
Suite 3300
New York, New York 10017
(212) 916-8400
(Name and Address of Agent for Service)
-----------------------------
Copies to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
-----------------------------
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 |_|
---------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED SHARE PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
__% Cumulative Preferred Stock,
par value $1.00 per share 4,000,000 $25.00 $100,000,000 $29,500
==================================== ============ ================== ================== =================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
---------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
N-2 Item Number Location in Part A (Caption)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
PART A
1. OUTSIDE FRONT COVER.................................OUTSIDE FRONT COVER PAGE
2. INSIDE FRONT AND OUTSIDE BACK COVER PAGE............OUTSIDE FRONT COVER PAGE; INSIDE FRONT COVER PAGE; OUTSIDE
BACK COVER PAGE
3. FEE TABLE AND SYNOPSIS..............................NOT APPLICABLE
4. FINANCIAL HIGHLIGHTS................................FINANCIAL HIGHLIGHTS
5. PLAN OF DISTRIBUTION................................OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY; UNDERWRITING
6. SELLING SHAREHOLDERS................................NOT APPLICABLE
7. USE OF PROCEEDS.....................................PROSPECTUS SUMMARY; USE OF PROCEEDS; INVESTMENT OBJECTIVES
AND POLICIES
8. GENERAL DESCRIPTION OF THE REGISTRANT...............OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY; THE
COMPANY; INVESTMENT OBJECTIVES AND POLICIES; RISK FACTORS;
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
9. MANAGEMENT..........................................PROSPECTUS SUMMARY; MANAGEMENT; CUSTODIAN, TRANSFER
AGENT, REGISTRAR AND DIVIDEND-PAYING AGENT
10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES..OUTSIDE FRONT COVER PAGE; PROSPECTUS SUMMARY;
CAPITALIZATION; INVESTMENT OBJECTIVES AND POLICIES; DESCRIPTION
OF CUMULATIVE PREFERRED STOCK; DESCRIPTION OF CAPITAL STOCK
AND OTHER SECURITIES; TAXATION
11. DEFAULTS AND ARREARS ON SENIOR SECURITIES............NOT APPLICABLE
12. LEGAL PROCEEDINGS....................................NOT APPLICABLE
13. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
INFORMATION
PART B LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
14. COVER PAGE...........................................OUTSIDE FRONT COVER PAGE
15. TABLE OF CONTENTS....................................OUTSIDE FRONT COVER PAGE
16. GENERAL INFORMATION AND HISTORY......................GENERAL INFORMATION AND HISTORY
17. INVESTMENT OBJECTIVES AND POLICIES...................INVESTMENT OBJECTIVES AND POLICIES
18. MANAGEMENT...........................................MANAGEMENT OF THE COMPANY
19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..MANAGEMENT OF THE COMPANY; PRINCIPAL STOCKHOLDERS
20. INVESTMENT ADVISORY AND OTHER SERVICES...............INVESTMENT ADVISORY AND OTHER SERVICES
21. BROKERAGE ALLOCATION AND OTHER PRACTICES.............BROKERAGE ALLOCATION AND OTHER PRACTICES
22. TAX STATUS...........................................TAXATION
23. FINANCIAL STATEMENTS.................................FINANCIAL STATEMENTS
</TABLE>
PART C
INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE
APPROPRIATE ITEM, SO NUMBERED, IN PART C TO THIS REGISTRATION STATEMENT.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
================================================================================
SUBJECT TO COMPLETION, DATED __________, 1998
PROSPECTUS
___________ SHARES
GENERAL AMERICAN INVESTORS COMPANY, INC.
__% CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
The shares of __% Cumulative Preferred Stock, liquidation preference
$25 per share (the "Cumulative Preferred Stock"), to be issued by General
American Investors Company, Inc. (the "Company") will be senior securities of
the Company. Prior to the offering, there has been no public market for the
Cumulative Preferred Stock. The Company is a closed-end diversified management
investment company. The Company's principal investment objective is long-term
capital appreciation. Lesser emphasis is placed on current income. No assurance
can be given, however, that the Company's investment objectives will be
achieved.
Dividends on the Cumulative Preferred Stock offered hereby will be
cumulative from _________, 1998 and will be payable quarterly commencing
___________, 1998, at the annual rate of __% of the liquidation preference of
$25 per share.
Dividends paid on the Cumulative Preferred Stock are expected to consist of
varying proportions of long-term capital gains (i.e., capital gains from the
sale of assets held longer than 12 months), short-term capital gains, net
investment income and, in unusual circumstances, return of capital. During the
past one, three and five fiscal years ended December 31, long-term capital gains
comprised 93%, 93% and 95%, respectively, of distributions paid by the Company
on its Common Stock. It is currently expected that dividends paid on the
Cumulative Preferred Stock will also consist primarily of 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, which are generally taxed at lower rates for individuals than
short-term capital gains and net investment income, which are generally taxed at
ordinary income rates.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated "aaa" by Moody's Investors Service, Inc. ("Moody's"). In connection with
the receipt of such rating, the composition of the Company's portfolio must
reflect the guidelines established by Moody's, and the Company will be required
to maintain a minimum discounted asset coverage ratio with respect to the
Cumulative Preferred Stock. See "Description of Rating Agency Guidelines-Rating
Agency Guidelines."
(continued on next page)
---------------
Application will be made to list the Cumulative Preferred Stock on the New
York Stock Exchange. Trading of the Cumulative Preferred Stock on the New York
Stock Exchange is expected to commence within 30 days of this Prospectus. See
"Underwriting."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 19 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.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
-------- ---------------------- -----------
<S> <C> <C> <C>
Per Share................
Total(2).................
<FN>
(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 $_______ payable by the Company.
</FN>
</TABLE>
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 in New York, New York on or about ________,
1998 against payment therefor in immediately available funds.
---------------
[Names of Underwriters]
The date of this Prospectus is __________, 1998.
<PAGE>
(continued from cover page)
Subject to the Company's determination to terminate compliance with the
Rating Agency Guidelines (as defined herein), 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. Commencing __________, 2003 and
thereafter, the Company at its option may redeem the Cumulative Preferred Stock
in whole or in part for cash at a price equal to the Redemption Price. Prior to
__________, 2003, the Cumulative Preferred Stock will be redeemable, at the
option of the Company, for cash at a price equal to the Redemption Price, only
to the extent necessary for the Company to continue to qualify for tax purposes
as a regulated investment company. See "Description of Cumulative Preferred
Stock--Redemption" and "Description of Rating Agency Guidelines--Redemption."
If the Company voluntarily terminates compliance with the Rating Agency
Guidelines, the dividend rate payable on the Cumulative Preferred Stock will be
increased by .25% 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 pages 33 to 34 of this
Prospectus.
---------------
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................................................... 4
Tax Attributes of Preferred Stock Dividends................................ 11
Financial Highlights....................................................... 13
The Company................................................................ 15
Use of Proceeds............................................................ 15
Capitalization............................................................. 15
Portfolio Composition...................................................... 16
Investment Objectives and Policies......................................... 17
Management................................................................. 19
Risk Factors............................................................... 19
Description of Cumulative Preferred Stock.................................. 20
Description of Rating Agency Guidelines.................................... 25
Description of Capital Stock and Other Securities.......................... 28
Taxation................................................................... 29
Certain Provisions of the Restated Certificate of Incorporation and
By-Laws; Anti-takeover Provisions........................................ 31
Custodian, Transfer Agent, Registrar and Dividend-Paying
Agent.................................................................... 31
Underwriting............................................................... 31
Validity of Cumulative Preferred Stock..................................... 33
Experts.................................................................... 33
Additional Information..................................................... 33
Table of Contents of the Statement of Additional Information............... 33
Glossary................................................................... 34
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CUMULATIVE
PREFERRED STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE
COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information included elsewhere in
this Prospectus and the Statement of Additional Information. Capitalized terms
not defined in this Prospectus are defined in the Glossary that appears at the
end of this Prospectus.
The Company..................... General American Investors Company, Inc., a
Delaware corporation (the "Company"), has
been engaged in business as a closed-end
diversified management investment company
since October 15, 1928. The Company
succeeded to a similar business established
in 1927. The Company's outstanding common
stock, par value $1.00 per share (the
"Common Stock"), is listed and traded on
the New York Stock Exchange, Inc. ("NYSE")
under the symbol "GAM." As of December 31,
1997, the net assets of the Company were
$702,597,000.
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."
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 _______ shares of
___% Cumulative Preferred Stock, par value
$1.00 per share, liquidation preference $25
per share (the "Cumulative Preferred
Stock"), at a purchase price of $__ per
share.
Dividends....................... Dividends on the Cumulative Preferred Stock
at the annual rate of ___% of the
liquidation preference of $25 per share,
when, as and if declared by the Board of
Directors, will be cumulative from
________, 1998 and will be payable, out of
the Company's legally available funds
therefor, quarterly on _____, _____, _____
and _____ in each year, commencing on
___________,1998 to the holders of record
on the preceding _____, _____, _____ and
_____, respectively. See "Description of
Cumulative Preferred Stock--Dividends."
Potential Tax Benefit to
Certain Investors............. Pursuant to legislation enacted in 1997,
gain on assets held longer than 18 months
is taxed to individuals at a maximum
Federal tax rate of 20% ("20% Rate Gain")
and gain on assets held longer than 12
months but not longer than 18 months is
taxed to individuals at a maximum Federal
tax rate of 28% ("28% Rate
4
<PAGE>
Gain"). For individual taxpayers in the 15%
marginal Federal income tax bracket, the
Federal tax rate on 20% Rate Gain is 10%
and on 28% Gain is 15%. See "Tax Attributes
of Preferred Stock Dividends" and
"Taxation."
The Company intends to allocate net long-
term capital gain and other types of income
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, short-term capital gains, net
investment income and, in unusual
circumstances, return of capital.
Distributions from net investment income
and short-term capital gains are generally
taxed to individuals at ordinary income
rates. During the past one, three and five
fiscal years ended December 31, long-term
capital gains (i.e., capital gains from the
sale of assets held longer than 12 months)
comprised 93%, 93% and 95%, respectively,
of distributions paid by the Company on its
Common Stock. It is currently expected that
dividends paid on the Cumulative Preferred
Stock will also consist primarily of
long-term capital gains. Accordingly,
investors in the Cumulative Preferred Stock
who are individuals may realize a tax
benefit to the extent that dividends paid
by the Company on those shares are
comprised of the less highly taxed
long-term capital gains. No assurance can
be given, however, as to what percentage,
if any, of the dividends paid on the
Cumulative Preferred Stock will consist of
long-term capital gains. To the extent that
dividends on the Cumulative Preferred Stock
are not paid from such capital gains, they
generally will be paid from net investment
income and short-term capital gains and
will be taxed at ordinary income rates.
See "Tax Attributes of Preferred Stock
Dividends."
Rating........................ It is a condition to their issuance that
the Cumulative Preferred Stock be issued
with a rating of "aaa" from Moody's
Investors Service, Inc. ("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." Although it is the Company's
present intention to comply with the Rating
Agency Guidelines, 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
5
<PAGE>
rate payable on the Cumulative Preferred
Stock will be increased by .25% per annum.
See "Description of Rating Agency
Guidelines--Termination of Rating Agency
Guidelines."
Asset Coverage................. The Company will be required to maintain,
as of the last Business Day of March, June,
September and December of each year, asset
coverage of at least 200% with respect to
the Cumulative Preferred Stock, which is
the asset coverage required by Section 18
of the Investment Company Act of 1940, as
amended (the "1940 Act"). If the Company
had issued and sold the shares of
Cumulative Preferred Stock offered hereby
as of December 31, 1997, the asset coverage
would have been __%. 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 other Preferred
Stock as a single class. See "Description
of Cumulative Preferred Stock--Voting
Rights."
6
<PAGE>
Mandatory Redemption........... Subject to the Company's determination to
terminate compliance with the Rating Agency
Guidelines, the Cumulative Preferred Stock
is subject to mandatory redemption in whole
or in part by the Company in the event that
the Company fails to maintain the quarterly
asset coverage or to maintain a Portfolio
Calculation at least equal to the Basic
Maintenance Amount required by Moody's and
does not cure such failure by the
applicable Cure Date (as defined herein).
Any such redemption will be made for cash
at a price equal to $25 per share plus
accumulated and unpaid dividends (whether
or not earned or declared) to the
redemption date (the "Redemption Price").
In the event that shares are redeemed due
to a failure to maintain the quarterly
asset coverage, the Company may redeem a
sufficient number of shares of Cumulative
Preferred Stock in order that the Asset
Coverage, as defined in the 1940 Act, of
the remaining outstanding shares of
Cumulative Preferred Stock and any other
Preferred Stock after redemption is up to
225%. In the event that shares are redeemed
due to a failure to maintain a Portfolio
Calculation at least equal to the Basic
Maintenance Amount, the Company may redeem
a sufficient number of shares of Cumulative
Preferred Stock in order that the Portfolio
Calculation exceeds the Basic Maintenance
Amount of the remaining outstanding shares
of Cumulative Preferred Stock and any other
Preferred Stock by up to 10%. See
"Description of Cumulative Preferred
Stock--Redemption--Mandatory Redemption"
and "Description of Rating Agency
Guidelines--Redemption."
Optional Redemption............ Commencing ____, 2003 and thereafter, the
Company at its option may redeem the
Cumulative Preferred Stock, in whole or in
part, for cash at a price equal to the
Redemption Price. Prior to ____, 2003 the
Cumulative Preferred Stock will be
redeemable at the option of the Company at
the Redemption Price only to the extent
necessary for the Company to continue to
qualify for tax purposes as a regulated
investment company. See "Description of
Cumulative Preferred Stock--Redemption--
Optional Redemption."
Liquidation Preference......... The liquidation preference of each share of
Cumulative Preferred Stock is $25 plus an
amount equal to accumulated and unpaid
dividends (whether or not earned or
declared) to the date of distribution. See
"Description of Cumulative Preferred
Stock--Liquidation Rights."
Use of Proceeds................ The Company will use the net proceeds from
the offering of the Cumulative Preferred
Stock to purchase additional portfolio
securities in accordance with its
investment objectives and policies. See
"Use of Proceeds."
7
<PAGE>
Listing........................ Prior to this offering, there has been no
public market for the Cumulative Preferred
Stock. Application will be made to list the
shares of Cumulative Preferred Stock on the
NYSE. However, during an initial period
which is not expected to exceed 30 days
from the date of this Prospectus, the
Cumulative Preferred Stock may not be
listed on such securities exchange. During
such period, it is expected that the
Underwriters intend to make a market in the
Cumulative Preferred Stock; however, they
have no obligation to do so. Consequently,
an investment in the Cumulative Preferred
Stock may be illiquid during such period.
See "Underwriting."
Risk Factors................... The market price for the Cumulative
Preferred Stock will be influenced by
changes in interest rates, the perceived
credit quality of the Cumulative Preferred
Stock and other factors, and may be
influenced by the portion of the Company's
assets consisting of unrealized
appreciation, the relative percentage of
dividends on the Cumulative Preferred Stock
consisting of net investment income and net
realized long-term capital gains and other
factors.
As indicated above, the Cumulative
Preferred Stock is subject to redemption
under specified circumstances. Subject to
such circumstances, the Cumulative
Preferred Stock is perpetual. To the extent
that the Company experiences a substantial
decline in the value of its net assets, it
may be required to redeem Cumulative
Preferred Stock to restore compliance with
the applicable asset coverage requirements.
The credit rating on the Cumulative
Preferred Stock could be reduced or
withdrawn while an investor holds shares
either as a result of the Company's
termination of compliance with the Rating
Agency Guidelines or otherwise, and the
credit rating does not eliminate or
mitigate the risks of investing in the
Cumulative Preferred Stock. A reduction or
withdrawal of the credit rating may have an
adverse effect on the market value of the
Cumulative Preferred Stock.
The Cumulative Preferred Stock is not a
debt obligation of the Company. The
Cumulative Preferred Stock will be junior
in respect of dividends and liquidation
preferences to any indebtedness incurred by
the Company.
Although not anticipated, precipitous
declines in the value of the Company's
assets could result in the Company having
insufficient assets to redeem all of the
Cumulative Preferred Stock for the full
Redemption Price. See "Risk Factors--
Preferred Stock."
The Company may invest its assets in
foreign securities. Investing in securities
of foreign companies and foreign
governments,
8
<PAGE>
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."
9
<PAGE>
Custodian, Transfer Agent, Registrar
and Dividend-Paying Agent..... Bankers Trust Company serves as the
Company's custodian. ChaseMellon
Shareholder Services, L.L.C. serves as the
Company's stock transfer agent, registrar
and dividend-paying agent. See "Custodian,
Transfer Agent, Registrar and Dividend-
Paying Agent."
10
<PAGE>
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS
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 of short-term capital gains are taxed at
ordinary income rates. 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.
Capital gain on assets held longer than 18 months by the Company ("20%
Rate Gain") generally is currently taxable to individuals at a maximum Federal
tax rate of 20%. Capital gain on assets held longer than 12 months but not
longer than 18 months by the Company ("28% Rate Gain") generally is currently
taxable to individuals at a maximum Federal tax rate of 28%. Net investment
income and short-term capital gains of the Company ("Ordinary Income") generally
are taxable to individuals at a maximum Federal tax rate of 39.6%.
Although the Company is not managed utilizing a tax-focused investment
strategy and does not seek to achieve any particular distribution composition,
individual investors in the Cumulative Preferred Stock would, under current
Federal income tax law, realize a tax advantage to the extent that distributions
by the Company to its stockholders are composed of the less highly taxed 20%
Rate Gain and 28% Rate Gain. In contrast, preferred stock dividends distributed
by corporations that are not RICs are generally taxed at ordinary income rates.
Dividends paid by the Company on the Cumulative Preferred Stock are
expected to consist of 20% Rate Gain, 28% Rate Gain and Ordinary Income. During
the past one, three and five fiscal years ended December 31, long-term capital
gains (i.e., capital gains from the sale of assets held longer than 12 months
and thus constituting either 20% Rate Gain or 28% Rate Gain) comprised 93%, 93%
and 95%, respectively, of distributions paid by the Company on its Common Stock.
It is currently expected that dividends paid on the Cumulative Preferred Stock
will also consist primarily of 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."
ASSUMPTIONS
The following table shows examples of the pure Ordinary Income
equivalent yield that would be generated by the stated dividend rate on the
Cumulative Preferred Stock, assuming distributions for Federal income tax
purposes consisting of six different proportions of 20% Rate Gain, 28% Rate Gain
and Ordinary Income for an individual in the 31% Federal marginal income tax
bracket. Both this table and the following table assume the indicated
proportions of 20% Rate Gain and 28% Rate Gain. In reading these tables,
prospective investors should understand that a number of actions could affect
the actual composition for Federal income tax purposes of the Company's
distributions each year. Such factors include (i) the Company's investment
performance for any particular year, which may result in varying proportions of
20% Rate Gain, 28% Rate Gain, Ordinary Income and/or return of capital in the
year's distributions, and (ii) revocation or revision of the IRS revenue ruling
requiring the proportionate allocation of 20% Rate Gain and 28% Rate Gain among
holders of various classes of a closed-end RIC's capital stock.
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.
11
<PAGE>
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED
DIVIDEND RATE OF
----------------------
PERCENTAGE OF CUMULATIVE PREFERRED STOCK 7.0% 7.125% 7.25%
STATED ANNUAL DIVIDEND COMPRISED OF
LONG-TERM CAPITAL GAINS ORDINARY
20% RATE 28% RATE INCOME IS EQUIVALENT FOR AN INDIVIDUAL IN THE 31% FEDERAL
- -------- -------- -------- INCOME TAX BRACKET TO AN ORDINARY INCOME YIELD
GAIN GAIN --------------------------------------------------
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 a stated Cumulative Preferred Stock dividend consisting of
equal portions of 20% Rate Gain, 28% Rate Gain and Ordinary Income, 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.
A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
----------------------------
7.0% 7.125% 7.25%
IS EQUIVALENT TO AN
FEDERAL TAX BRACKET(1) ORDINARY INCOME YIELD OF
- --------------------------- --------------------------
39.6%............................. 8.21% 8.36% 8.50%
36.0%............................. 7.88% 8.02% 8.16%
31.0%............................. 7.48% 7.61% 7.74%
28.0%............................. 7.26% 7.39% 7.52%
15.0%(2).......................... 7.14% 7.27% 7.39%
The tax characteristics of the Company are described more fully under
"Taxation." Consult your tax adviser for further details.
The charts above are for illustrative purposes only and cannot be taken
as an indication of the composition of future distributions by the Company.
- ---------------
(1) Annual taxable income levels corresponding to the 1998 Federal marginal
tax brackets are as follows:
1998 FEDERAL INCOME
TAX BRACKET SINGLE JOINT
- ------------------- ------ -----
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
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) Assumes 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.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The selected financial data set forth below is for shares of Common
Stock outstanding 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 for the years presented 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>
Year Ended December 31,
----------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................. $25.24 $23.94 $22.31 $24.75 $28.56
------ ------ ------ ------ ------
Net investment income............................ .21 .22 .08 .05 .03
Net gain (loss) on securities-realized and
unrealized..................................... 7.15 3.86 4.54 (.94) (.80)
------ ------ ------ ------ ------
Total from investment operations................... 7.36 4.08 4.62 (.89) (.77)
------ ------ ------ ------ ------
Less distributions
Dividends from net investment income(1).......... (.26) (.20) (.11) (.05) (.04)
Distributions from capital gains................. (3.19) (2.58) (2.87) (1.49) (2.98)
In excess of net income.......................... -- -- (.01) (.01) (.02)
------ ------ ------ ------ ------
Total distributions................................ (3.45) (2.78) (2.99) (1.55) (3.04)
------ ------ ------ ------ ------
Net asset value, end of year....................... $29.15 $25.24 $23.94 $22.31 $24.75
====== ====== ====== ====== ======
Per share market value, end of year................ $26.19 $21.00 $20.00 $19.00 $22.25
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:
Stockholder Return based on market price per
share............................................ 42.58% 19.48% 21.22% -7.86% -15.92%
RATIOS AND SUPPLEMENTAL DATA:
Total net assets, end of year (000's omitted)...... $702,597 $597,597 $573,693 $519,722 $553,898
Ratio of expenses to average net assets............ 0.98% 1.05% 1.25% 1.17% 1.16%
Ratio of net income to average net assets.......... 0.80% 0.88% 0.36% 0.21% 0.14%
Portfolio turnover rate............................ 32.45% 33.40% 29.14% 17.69% 19.50%
Average commission rate paid per share(2).......... $.0504 $.0500
Shares outstanding, end of year
(000's omitted).................................... 24,105 23,679 23,963 23,292 22,379
(continued on next page)
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988
------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................. $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 year....................... $28.56 $30.60 $20.60 $21.41 $17.03
====== ====== ====== ====== ======
Per share market value, end of year................ $30.00 $29.00 $17.00 $18.1 $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 year (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 year (000's omitted).... 20,534 19,187 18,559 17,843 17,725
<FN>
(1) Includes short-term capital gains in the amount of $.05 per share for
1997, $.03 per share for 1995 and $.02 per share for 1989.
(2) Beginning with the year ended December 31, 1996, the Company is required to
disclose its average commission rate paid per share for purchases and sales
of investment securities.
</FN>
</TABLE>
14
<PAGE>
THE COMPANY
General American Investors Company, Inc. (the "Company") is a closed-end
diversified management investment company, incorporated under the laws of the
State of Delaware on October 15, 1928, and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Company succeeded to a
similar business established in 1927. As of December 31, 1997, the Company had
24,104,678 shares of Common Stock issued and outstanding with an aggregate net
asset value of $702,597,000. 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
$_____________ (after deducting the underwriting discounts and 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
December 31, 1997 on an actual basis and as adjusted to give effect to the
consummation of the offering.
December 31, 1997
----------------------------
Actual As Adjusted(1)
---------- --------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value:
Authorized 10,000,000 shares; outstanding
0 shares; as adjusted, ______ shares of ___%
Cumulative Preferred Stock outstanding........ $ -- $
============ ==============
Common Stock, $1 par value:
Authorized 30,000,000 shares; outstanding
24,104,678 shares (exclusive of 43,300 shares
held in Treasury)............................. $24,104,678
Paid-in capital............................... 347,975,543
Undistributed realized gain on securities
sold...................................... 4,464,264
Distributions in excess of net
income.................................... (353,341)
Unrealized appreciation on investments...... 326,405,856
------------ --------------
Net Assets applicable to Common Stock..... $702,597,000 $
============ ==============
- ---------------
(1) After deducting the underwriting discounts and offering expenses of
$__________.
15
<PAGE>
PORTFOLIO COMPOSITION
The following tables set forth certain information with respect to the
Company's investment portfolio as of December 31, 1997.
VALUE PERCENTAGE
----- ----------
Common stocks................................ $592,696,605 84.4%
Corporate discount notes..................... 97,665,722 13.9
Convertible corporate note................... 9,080,000 1.3
Cash and other assets less liabilities....... 3,154,673 0.4
------------ ------
Total net assets.................... $702,597,000 100.0%
============ ======
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO: VALUE PERCENTAGE
----- ----------
Finance and insurance....................... $185,024,546 26.3%
Pharmaceuticals and health care............. 114,129,905 16.3
Retail trade................................ 96,286,688 13.7
Consumer products and services.............. 66,251,200 9.4
Communications and information services..... 39,985,936 5.7
Computer software and systems............... 25,191,813 3.6
Oil and natural gas (including services).... 25,103,750 3.6
Environment control (including services).... 18,565,250 2.6
Miscellaneous............................... 10,013,750 1.4
Semiconductors.............................. 6,932,813 1.0
Special holdings............................ 5,210,954 0.8
------------ ------
$592,696,605 84.4%
============ ======
16
<PAGE>
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.
17
<PAGE>
8. Invest in companies for the purpose of exercising control of
management, unless it becomes necessary to do so to conserve
any investment.
If a percentage restriction is met at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or amount of total assets will not be considered a
violation of any of the above restrictions.
Within the limits of these fundamental policies the Company has
reserved freedom of action.
FOREIGN SECURITIES
The Company may invest its assets in foreign securities, which may
include securities issued by companies in developing countries. As of December
31, 1997, 8.8% of the Company's assets were invested in securities of companies
domiciled in foreign countries. Of this amount, 4.8% represented direct foreign
investment in foreign companies and 4.0% 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 years ended December 31, 1997 and
1996, the portfolio turnover of the Company was 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).
18
<PAGE>
MANAGEMENT
Under the Company's Restated Certificate of Incorporation and Delaware
General Corporation Law, the Company's business and affairs are managed by or
under the direction of its Board of Directors. The Company's portfolio is
internally managed by the officers of the Company, without an investment
adviser. Information about the directors and officers of the Company is included
in the Statement of Additional Information.
PORTFOLIO MANAGEMENT
Spencer Davidson, President and Chief Executive Officer of the Company,
has been responsible for the management of the Company's portfolio since August
1995. Mr. Davidson joined the Company in 1994 as senior investment counselor.
Prior thereto, he was the general partner of a private investment partnership.
He has spent his entire business career on "Wall Street" since first joining an
investment and banking firm in 1966.
Mr. Davidson supervises and coordinates the Company's investment
operations and provides overall guidance with respect to industry developments
and the economic outlook. He is assisted by four individuals who have ongoing
responsibility for monitoring and evaluating developments in industries in which
they specialize. This internal effort is supplemented by the use of consultants,
two of whom are currently on retainer. The essential function of the investment
staff is to assess social, economic and technological changes and to evaluate
whether such changes give rise to investment opportunities.
EXPENSES
The Company pays all of its own expenses, including, without
limitation, salaries and benefits of its officers and employees; rent for office
space; other investment research, administration and office operations costs;
non-affiliated directors' fees; transfer agent, registrar and custodian fees;
preparation, printing and distribution of its proxy statements, stockholder
reports and notices; auditing and legal fees; Federal registration fees; stock
exchange listing fees and expenses; Federal, state and local taxes; brokerage
commissions; and the cost of issue and sale of its securities.
The Company has taken steps that it believes are reasonably designed to
address the potential failure of computer systems used by the Company and the
Company's service providers to address the Year 2000 issue. There can be no
assurance that these steps will be sufficient to avoid any adverse impact.
RISK FACTORS
Prospective investors should consider carefully the following risk
factors in addition to other information set forth in this Prospectus and the
Statement of Additional Information prior to making an investment in the
Cumulative Preferred Stock.
PREFERRED STOCK
There are a number of risks associated with an investment in Cumulative
Preferred Stock. The market price for the Cumulative Preferred Stock will be
influenced by changes in interest rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors, and may be influenced by the
portion of the Company's assets consisting of unrealized appreciation, the
relative percentage of dividends on the Cumulative Preferred Stock consisting of
net investment income and net realized long-term capital gains and other
factors. The Cumulative Preferred Stock is subject to redemption under specified
circumstances and investors may not be able to reinvest the proceeds of any such
redemption in an investment providing the same or a better rate of return than
that of the Cumulative Preferred Stock. Unless the Company is required to redeem
the Cumulative Preferred Stock in the circumstances described in "Description of
Preferred Stock--Redemption--Mandatory Redemption" and "Description of Rating
Agency Guidelines--Redemption" or elects to do so voluntarily, the Cumulative
Preferred Stock is perpetual. The credit rating on the Cumulative Preferred
Stock could be reduced or withdrawn while an investor holds shares, and the
credit rating does
19
<PAGE>
not eliminate or mitigate the risks of investing in the Cumulative
Preferred Stock. A reduction or withdrawal of the credit rating would
likely have an adverse effect on the market value of the Cumulative Preferred
Stock. The Cumulative Preferred Stock is not a debt obligation of the Company.
The Cumulative Preferred Stock would be junior in respect of dividends and
liquidation preference to any indebtedness incurred by the Company. Although not
anticipated, precipitous declines in the value of the Company's assets could
result in the Company having insufficient assets to redeem all of the Cumulative
Preferred Stock for the full Redemption Price.
FOREIGN SECURITIES
The Company may invest its assets in foreign securities. Investing in
securities of foreign companies and foreign governments, which generally are
denominated in foreign currencies, may involve certain risk and opportunity
considerations not typically associated with investing in domestic companies and
could cause the Company to be affected favorably or unfavorably by changes in
currency exchange rates and revaluations of currencies. In addition, less
information may be available about foreign companies and foreign governments
than about domestic companies and foreign companies and foreign governments
generally are not subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to domestic companies. Foreign securities and their markets
may not be as liquid as U.S. securities and their markets. Securities of some
foreign companies may involve greater market risk than securities of U.S.
companies. Investing in foreign securities may result in higher expenses than
investing in domestic securities because of the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. Investment in foreign securities may also be
subject to local economic risks, including instability of some foreign
governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the expertise of Mr. Spencer Davidson in
providing portfolio management services with respect to the Company's
investments. If the Company were to lose the services of Mr. Davidson, its
investment decisions could be adversely affected to the extent the Company could
not appoint a successor in a timely manner. There can be no assurance that a
suitable replacement could be found for Mr. Davidson in a timely manner in the
event of his death, resignation, retirement or inability to act on behalf of the
Company.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Certificate of Designations, the form of which is
filed as an exhibit to this Registration Statement. Certain of the capitalized
terms used herein are defined in the Glossary that appears at the end of this
Prospectus.
GENERAL
On March 11, 1998, the shareholders of the Company approved an
amendment to the Company's Restated Certificate of Incorporation to increase the
Company's total authorized capitalization to 40,000,000 shares, consisting of
30,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. In
addition, such amendment granted the Board of Directors the authority to
establish by resolution or resolutions, the designations and the powers,
preferences and rights of the shares of each series of Preferred Stock, if
applicable, and the qualifications, limitations or restrictions of such shares
of Preferred Stock. As of the date of this Prospectus, there are no shares of
Cumulative Preferred Stock or any other Preferred Stock of the Company
outstanding.
20
<PAGE>
Under the Certificate of Designations, the Company will be authorized
to issue up to _______ shares of Cumulative Preferred Stock. No fractional
shares of Cumulative Preferred Stock will be issued. The Board of Directors
reserves the right to issue additional shares of Cumulative Preferred Stock,
from time to time, subject to the restrictions set forth in the Certificate of
Designations. The shares of Cumulative Preferred Stock will, upon issuance, be
fully paid and nonassessable and will have no preemptive, exchange or conversion
rights. Any shares of Cumulative Preferred Stock repurchased or redeemed by the
Company will be cancelled and will revert to authorized but unissued Preferred
Stock undesignated as to series. The Board of Directors may by resolution
classify or reclassify any authorized but unissued Preferred Stock from time to
time by setting or changing the preferences, rights, voting powers,
restrictions, limitations or terms of redemption. The Company will not issue any
class of stock senior to the shares of Cumulative Preferred Stock.
Payments to the holders of Cumulative Preferred Stock of dividends or
upon redemption or in liquidation will be subject to the prior payments of
interest and repayment of principal then due on any other indebtedness of the
Company.
DIVIDENDS
Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company out
of funds legally available therefor, cumulative cash dividends at the annual
rate of __% per share of the liquidation preference of $25 per share and no
more, payable quarterly on ____, ____, ____ and ____, in each year (or, if such
date is not a Business Day, on the next succeeding Business Day) (each, a
"Dividend Payment Date"), commencing on __________, to the persons in whose
names the shares of Cumulative Preferred Stock are registered at the close of
business on the preceding ____, ____, ____ and ____, respectively. Dividends on
the shares of Cumulative Preferred Stock will accumulate from the date of
issuance thereof (the "Date of Original Issue").
No dividends will be declared or paid or set apart for payment on
shares of Cumulative Preferred Stock for any dividend period or part thereof
unless full cumulative dividends have been or contemporaneously are declared and
paid on all outstanding shares of Cumulative Preferred Stock through the most
recent Dividend Payment Dates thereof. If full cumulative dividends are not
declared and paid (or a sum sufficient is set apart) on the Cumulative Preferred
Stock, all dividends declared on the shares of Cumulative Preferred Stock will
be paid pro rata to the holders of the outstanding shares. Holders of shares of
Cumulative Preferred Stock will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends. No
interest, or sum of money in lieu of interest, will be payable in respect of any
dividend payment that may be in arrears.
For so long as any shares of Cumulative Preferred Stock are
outstanding, the Company will not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock or other stock, if any, ranking junior to the Cumulative
Preferred Stock as to dividends or upon liquidation) in respect of the Common
Stock or any other stock of the Company ranking junior to or on a parity with
the Cumulative Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any shares
of its Common Stock or any other junior stock (except by conversion into or
exchange for stock of the Company ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends and upon liquidation), unless, in
each case, (i) immediately after such transaction, the Company will have a
Portfolio Calculation for Moody's at least equal to the Basic Maintenance Amount
and the Company will maintain the Asset Coverage (see "Description of Rating
Agency Guidelines--Asset Maintenance" and "--Redemption"), (ii) full cumulative
dividends on shares of Cumulative Preferred Stock due on or prior to the date of
the transactions have been declared and paid (or sufficient Deposit Securities
to cover such payment have been deposited with the Dividend-Paying Agent) and
(iii) the Company has redeemed the full number of shares of Cumulative Preferred
Stock required to be redeemed by any provision for mandatory redemption
contained in the Certificate of Designations.
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<PAGE>
REDEMPTION
Mandatory Redemption. Subject to the Company's determination to
terminate compliance with the Rating Agency Guidelines discussed under
"Description of Rating Agency Guidelines," 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. See "Description of
Rating Agency Guidelines--Redemption."
The Cumulative Preferred Stock is also subject to mandatory redemption
in whole by the Company at the Redemption Price if the Company's Board of
Directors and holders of Common Stock authorize (a) the dissolution of the
Company; (b) any plan of reorganization (as that term is defined in the 1940
Act) adversely affecting the Cumulative Preferred Stock or (c) any action to
change the nature of the Company business so as to cease to be an investment
company as provided in Section 13(a)(4) of the 1940 Act.
Optional Redemption. Prior to _________, 2003, the Company may, at its
option, redeem shares of Cumulative Preferred Stock at the Redemption Price per
share only to the extent that any such redemption is necessary, in the judgment
of the Company, to maintain the Company's status as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"). Commencing _______, 2003, and at any time and from time to time
thereafter, the Company may, at its option, redeem shares of Cumulative
Preferred Stock in whole or in part at the Redemption Price. Such redemptions
are subject to the limitations of the 1940 Act, Delaware law and any other
agreement relating to indebtedness of the Company.
Redemption Procedures. A Notice of Redemption will be given to the
holders of record of Cumulative Preferred Stock selected for redemption not less
than 30 or more than 60 days prior to the date fixed for the redemption. Each
Notice of Redemption will state (i) the redemption date, (ii) the number of
shares of Cumulative Preferred Stock to be redeemed, (iii) the CUSIP number(s)
of such shares, (iv) the Redemption Price, (v) the place or places where such
shares are to be redeemed, (vi) that dividends on the shares to be redeemed will
cease to accrue on such redemption date, and (vii) the provision of the
Certificate of Designations under which the redemption is being made. No defect
in the Notice of Redemption or in the mailing thereof will affect the validity
of the redemption proceedings, except as required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution or winding up of the affairs of the
Company (whether voluntary or involuntary), holders of shares of Cumulative
Preferred Stock then outstanding will be entitled to receive out of the assets
of the Company available for distribution to stockholders, after satisfying
claims of creditors but before any distribution or payment of assets is made to
holders of the Common Stock or any other class of stock of the Company ranking
junior to the Cumulative Preferred Stock as to liquidation payments, a
liquidation distribution in the amount of $25 per share plus an amount equal to
all unpaid dividends accumulated thereon up to and including the date fixed for
such distribution or payment (whether or not earned or declared by the Company,
but excluding interest thereon) (the "Liquidation Preference"), and such holders
will be entitled to no further right or claim to any of the remaining assets of
the company. If, upon any liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or involuntary, the assets of the Company
available for distribution among the holders of all outstanding shares of
Cumulative Preferred Stock and any other outstanding Preferred Stock of the
Company ranking on a parity with the Cumulative Preferred Stock as to payment
upon liquidation, will be insufficient to permit the payment in full to such
holders of Cumulative Preferred Stock of the Liquidation Preference and the
amounts due upon liquidation with respect to such other Preferred Stock, then
such available assets will be distributed among the holders of Cumulative
Preferred Stock and such other Preferred Stock ratably in proportion to the
respective preferential amounts to which they are entitled. Unless and until the
Liquidation Preference has been paid in full to the holders of Cumulative
Preferred Stock, no dividends or distributions will be made to holders of the
Common Stock or any other stock of the Company ranking junior to the Cumulative
Preferred Stock as to liquidation.
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<PAGE>
VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of Cumulative Preferred Stock will be
entitled to one vote per share on each matter submitted to a vote of
stockholders and will vote together with holders of shares of Common Stock and
of any other Preferred Stock of the Company then outstanding as a single class.
In connection with the election of the Company's directors, holders of
shares of Cumulative Preferred Stock and any other Preferred Stock, voting as a
separate class, will be entitled at all times to elect two of the Company's
directors, and the remaining directors will be elected by holders of shares of
Common Stock and holders of shares of Cumulative Preferred Stock and any other
Preferred Stock, voting together as a single class. In addition, if at any time
dividends on outstanding shares of Cumulative Preferred Stock and/or any other
Preferred Stock are unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any shares of Preferred Stock are
entitled, together with the holders of shares of Cumulative Preferred Stock, to
elect a majority of the directors of the Company under the 1940 Act, then the
number of directors constituting the Board of Directors automatically will be
increased by the smallest number that, when added to the two directors elected
exclusively by the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock as described above, would constitute a majority of the Board of
Directors as so increased by such smallest number. Such additional directors
will be elected at a special meeting of stockholders which will be called and
held as soon as practicable, and at all subsequent meetings at which directors
are to be elected, the holders of shares of Cumulative Preferred Stock and any
other Preferred Stock, voting as a separate class, will be entitled to elect the
smallest number of additional directors that, together with the two directors
which such holders in any event will be entitled to elect, constitutes a
majority of the total number of directors of the Company as so increased. The
terms of office of the persons who are directors at the time of that election
will continue. If the Company thereafter pays, or declares and sets apart for
payment in full, all dividends payable on all outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock for all past dividend periods, the
additional voting rights of the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock as described above will cease, and the terms of
office of all of the additional directors elected by the holders of shares of
Cumulative Preferred Stock and any other Preferred Stock (but not of the
directors with respect to whose election the holders of shares of Common Stock
were entitled to vote or the two directors the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock have the right to elect in any
event) will terminate immediately and automatically.
So long as the shares of Cumulative Preferred Stock are outstanding,
the Company will not, without the affirmative vote of the holders of a majority
of the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Restated
Certificate of Incorporation, whether by merger, consolidation or otherwise, so
as to materially adversely affect any of the rights set forth in the Restated
Certificate of Incorporation of holders of the shares of Cumulative Preferred
Stock. The Board of Directors, however, without stockholder approval, may amend,
alter or repeal the Rating Agency Guidelines in the event the Company receives
confirmation from Moody's that any such amendment, alteration or repeal would
not impair the rating then assigned to the Cumulative Preferred Stock.
Furthermore, under certain circumstances, without the vote of stockholders, the
Board of Directors of the Company may determine that it is not in the best
interests of the Company to continue to comply with the Rating Agency
Guidelines. See "Description of Rating Agency Guidelines--Termination of Rating
Agency Guidelines." The affirmative vote of a majority of the votes entitled to
be cast by holders of outstanding shares of the Cumulative Preferred Stock and
any other Preferred Stock, voting as a separate class, will be required to
approve any plan of reorganization adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the 1940 Act,
including, among other things, any action to change the subclassification from a
closed-end investment company to an open-end investment company and changes in
the Company's investment objective or changes in the investment restrictions
described as fundamental policies under "Investment Objectives and Policies,"
each to the extent shareholder authorization is required. The class vote of
holders of shares of the Cumulative Preferred Stock and any other Preferred
Stock described above will be in addition to a separate vote of the requisite
percentage of shares of Common Stock and Cumulative Preferred Stock and any
other Preferred Stock, voting together as a single class, necessary to authorize
the action in question.
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<PAGE>
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 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
24
<PAGE>
liquidation rights. Purchasers of Cumulative Preferred Stock may obtain
registered certificates by contacting the Transfer Agent (as defined below).
DESCRIPTION OF RATING AGENCY GUIDELINES
RATING AGENCY GUIDELINES
Certain of the capitalized terms used herein are defined in the
Glossary that appears at the end of this Prospectus.
The Cumulative Preferred Stock will be rated by Moody's. Moody's has
established guidelines in connection with the Company's receipt of a rating for
the Cumulative Preferred Stock on their Date of Original Issue of "aaa" by
Moody's. Moody's, a nationally recognized securities rating organization, issues
ratings for various securities reflecting the perceived creditworthiness of such
securities. The guidelines have been developed by Moody's in connection with
issuances of asset-backed and similar securities, including debt obligations and
various preferred stocks, generally on a case-by-case basis through discussions
with the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be sufficiently
varied and will be of sufficient quality and amount to justify investment-grade
ratings. The guidelines do not have the force of law but are being adopted by
the Company in order to satisfy current requirements necessary for Moody's to
issue the above-described rating for the Cumulative Preferred Stock, which
rating is generally relied upon by investors in purchasing such securities. The
guidelines provide a set of tests for portfolio composition and discounted asset
coverage that supplements (and in some cases is more restrictive than) the
applicable requirements of Section 18 of the 1940 Act. Moody's guidelines are
included in the Certificate of Designations and are referred to in this
Prospectus as the "Rating Agency Guidelines."
The Company intends to maintain a Portfolio Calculation at least equal
to the Basic Maintenance Amount. If the Company fails to meet such requirement
and such failure is not cured, the Company will be required to redeem some or
all of the Cumulative Preferred Stock. See "--Redemption." The Rating Agency
Guidelines also exclude from Moody's Eligible Assets and, therefore, from the
Portfolio Calculation, certain types of securities in which the Company may
invest and also limit the Company's acquisition of futures contracts or options
on futures contracts, limit reverse repurchase agreements, limit the writing of
options on portfolio securities and limit the lending of portfolio securities to
5% of the Company's total assets. The Company historically has either not
acquired these instruments or has engaged in investment strategies requiring
these instruments to only a limited degree. As a result, the Company does not
believe that compliance with the Rating Agency Guidelines will have an adverse
effect on its portfolio or on the achievement of its investment objectives.
The Company may, but is not required to, adopt any modifications to the
Rating Agency Guidelines that may hereafter be established by Moody's. Failure
to adopt such modifications, however, may result in a change in Moody's rating
or a withdrawal of a rating altogether. In addition, Moody's may, at any time,
change or withdraw such rating. As set forth in the Certificate of Designations,
the Board of Directors of the Company may, without stockholder approval, adjust,
modify, alter or change the Rating Agency Guidelines if Moody's advises the
Company in writing that such adjustment, modification, alteration or change will
not adversely affect its then current rating on the Cumulative Preferred Stock.
Furthermore, under certain circumstances, the Board of Directors of the Company
may determine that it is not in the best interests of the Company to continue to
comply with the Rating Agency Guidelines. If the Company terminates compliance
with the Rating Agency Guidelines, it is likely that Moody's will change its
rating on the Cumulative Preferred Stock or withdraw its rating altogether,
which may have an adverse effect on the market value of the Cumulative Preferred
Stock. It is the Company's present intention to continue to comply with the
Rating Agency Guidelines.
As recently described by Moody's, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the Cumulative Preferred Stock is not a
recommendation to purchase, hold or sell such shares, inasmuch as the rating
does not comment as to market price or suitability for a particular investor.
Nor do the Rating Agency Guidelines address the likelihood that a holder of
Cumulative Preferred
25
<PAGE>
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 ________, 1998, the asset coverage immediately following
such issuance and sale (after giving effect to the deduction of the underwriting
discounts and estimated offering expenses of $______) would have been computed
as follows:
Value of Company assets less $
liabilities not constituting
senior securities
----------------------------- -------------
Senior securities representing $ = ____%
indebtedness
plus liquidation
preference of the
Cumulative Preferred
Stock
Basic Maintenance Amount. The Company will be required under the
Certificate of Designations to maintain, as of each Valuation Date, portfolio
holdings meeting specified guidelines of Moody's, as described under "--Rating
Agency Guidelines," having an aggregate discounted value (a "Portfolio
Calculation") at least equal to the Basic Maintenance Amount. If the Company
fails to meet such requirement as to any Valuation Date and such failure is not
cured within 14 days after such Valuation Date, the Company will be required to
redeem certain of the shares of Cumulative Preferred Stock. See "--Redemption."
Any security not in compliance with the Rating Agency Guidelines
described under "--Rating Agency Guidelines" will be excluded from the Portfolio
Calculation.
The Moody's Discount Factors and guidelines for determining the market
value of the Company's portfolio holdings have been based on criteria
established in connection with the rating of the Cumulative Preferred Stock.
These factors include, but are not limited to, the sensitivity of the market
value of the relevant asset to changes in interest rates, the liquidity and
depth of the market for the relevant asset, the credit quality of the relevant
asset (for example, the lower the rating of a corporate debt obligation, the
higher the related discount factor) and the frequency with which the relevant
asset is marked to market. The Moody's Discount Factor relating to any asset of
the Company and the Basic Maintenance Amount, the assets eligible for inclusion
in the calculation of the discounted value of the Company's portfolio and
certain definitions and methods of calculation relating thereto may be changed
from time to time by the Board of Directors, provided that, among other things,
such changes will not impair the rating then assigned to the Cumulative
Preferred Stock by Moody's.
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<PAGE>
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
Subject to the Company's determination to terminate compliance with the
Rating Agency Guidelines discussed under "--Termination of Rating Agency
Guidelines," 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) in the event that:
(i) the Company fails to maintain the quarterly asset coverage of at
least 200% and such failure is not cured on or before 60 days following
such failure (a "Cure Date"); or
(ii) the Company fails to maintain a Portfolio Calculation at least
equal to the Basic Maintenance Amount as of any Valuation Date, and such
failure is not cured on or before the 14th day after such Valuation Date
(also, a "Cure Date").
The amount of such mandatory redemption will equal the minimum number
of outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on a
Cure Date, would have resulted in the asset coverage having been satisfied or
the Company having a Portfolio Calculation equal to or greater than the Basic
Maintenance Amount on such Cure Date or, if the asset coverage or a Portfolio
Calculation equal to or greater than the Basic Maintenance Amount, as the case
may be, cannot be so restored, all of the shares of Cumulative Preferred Stock,
at the Redemption Price. In the event that shares of Cumulative Preferred Stock
are redeemed due to the occurrence of (i) above, the Company may, but is not
required to, redeem a sufficient number of shares of Cumulative Preferred Stock
in order to increase the "asset coverage" of a class of senior security which is
stock, as defined in the 1940 Act, of the remaining outstanding shares of
Cumulative Preferred Stock and any other Preferred Stock after redemption up to
225%. In the event that shares of Cumulative Preferred Stock are redeemed due to
the occurrence of (ii) above, the Company may, but is not required to, redeem a
sufficient number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%.
If the Company does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the shares of Cumulative Preferred
Stock to be redeemed on any redemption date, the Company will redeem on such
redemption date that number of shares for which it has legally available funds,
or is otherwise able, to redeem ratably from each holder whose shares are to be
redeemed, and the remainder of the shares required to be redeemed will be
redeemed on the earliest practicable date on which the Company will have funds
legally available for the redemption of, or is otherwise able to redeem, such
shares upon written notice of redemption ("Notice of Redemption").
If fewer than all shares of Cumulative Preferred Stock are to be
redeemed, such redemption will be made pro rata from each holder of shares in
accordance with the respective number of shares held by each such holder on the
record date for such redemption. If fewer than all shares of Cumulative
Preferred Stock held by any holder are to be redeemed, the Notice of Redemption
mailed to such holder will specify the number of shares to be redeemed from such
holder. Unless all accumulated and unpaid dividends for all past dividend
periods will have been or are contemporaneously paid or declared and Deposit
Securities for the payment thereof deposited with the Dividend-Paying Agent, no
redemptions of Cumulative Preferred Stock may be made.
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<PAGE>
TERMINATION OF RATING AGENCY GUIDELINES
The Certificate of Designations provides that the Board of Directors of
the Company may determine that it is not in the best interests of the Company to
continue to comply with the Rating Agency Guidelines, in which case the Company
will no longer be required to comply with such guidelines, provided that (i) the
Company has given the Dividend-Paying Agent, Moody's and holders of the
Cumulative Preferred Stock at least 20 calendar days' written notice of such
termination of compliance, (ii) the Company is in compliance with the Rating
Agency Guidelines at the time the notice required in clause (i) above is given
and at the time of termination of compliance with the Rating Agency Guidelines,
(iii) at the time the notice required in clause (i) above is given and at the
time of termination of compliance with the Rating Agency Guidelines, the
Cumulative Preferred Stock is listed on the NYSE or on another exchange
registered with the Commission as a national securities exchange and (iv) at the
time of termination of compliance with the Rating Agency Guidelines, the
cumulative cash dividend rate payable on a share of the Cumulative Preferred
Stock is increased by .25% per annum.
If the Company voluntarily terminates compliance with the Rating Agency
Guidelines, Moody's may change its rating on the Cumulative Preferred Stock or
withdraw its rating altogether, which may have an adverse effect on the market
value of the Cumulative Preferred Stock. It is the Company's present intention
to continue to comply with the Rating Agency Guidelines.
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
CAPITAL STOCK
Common Stock. The Company is authorized to issue 30,000,000 shares of
Common Stock, par value $1.00 per share. Each share of Common Stock has equal
voting, dividend, distribution and liquidation rights. The shares of Common
Stock outstanding are fully paid and nonassessable. The shares of Common Stock
are not redeemable and have no preemptive, conversion or cumulative voting
rights. As a NYSE-listed company, the Company is required to hold annual
meetings of its stockholders.
Preferred Stock. The Company's Board of Directors has the authority to
cause the Company to issue and sell up to 10,000,000 shares of Preferred Stock,
par value $1.00 per share. The terms of such Preferred Stock would be fixed by
the Board of Directors and could materially limit and/or qualify the rights of
the holders of the Company's Common Stock. The Board of Directors has designated
______ 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 13, 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..................... 30,000,000 193,800 23,954,178
Preferred Stock.................. 10,000,000 0 0
</TABLE>
28
<PAGE>
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.
Qualification as a RIC requires, among other things, that the Company:
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies and (b)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the market value of the Company's assets is represented by
cash, cash items, U.S. government securities, securities of other RICs and other
securities with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Company's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other RICs).
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Company must distribute during each calendar
year an amount equal to, at the minimum, the sum of (1) 98% of its ordinary
income for the calendar year, (2) 98% of its capital gain net income, generally
for the one year period ending on October 31 of such year, and (3) all ordinary
income and capital gain net income for previous years that were not previously
distributed. While the Company intends to distribute its ordinary income and
capital gain net income in the manner necessary to minimize imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of the Company's
ordinary income and capital gain net income will be distributed to avoid
entirely the imposition of the tax. In such event, the Company will be liable
for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
If the Company does not meet the asset coverage requirements of the
1940 Act or the Certificate of Designations, the Company will be required to
suspend distributions to the holders of the Cumulative Preferred Stock and
Common Stock until the asset coverage is restored. See "Description of
Cumulative Preferred Stock -- Dividends." Such a suspension of distributions
might prevent the Company from distributing 90% of its investment company
taxable income, as is required to qualify as a RIC, or might prevent it from
distributing enough ordinary income and capital gain net income to avoid
completely the imposition of the excise tax. Upon any failure to meet the asset
coverage requirements, the Company may, and in certain circumstances will, be
required to redeem shares of Cumulative Preferred Stock in order to restore the
requisite asset coverage and avoid the adverse consequences to the Company and
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.
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TAXATION OF STOCKHOLDERS
Dividends are paid by the Company in cash and are taxable to
stockholders. Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
("Ordinary Income Dividends") are taxable to stockholders as ordinary income.
Dividends paid from an excess of net long-term capital gains over net short-term
capital losses (including gains or losses from certain transactions in warrants,
rights, futures and options) and properly designated by the Company ("Capital
Gain Dividends") are taxable to stockholders as long-term capital gains,
regardless of the length of time the stockholder has owned Company shares. Any
loss upon the sale or exchange of Company shares held for six months or less
will be treated as long-term capital loss to the extent of any Capital Gain
Dividends received by the stockholder. Distributions in excess of the Company's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gain to such holder (assuming the shares are held as capital assets).
Capital Gain Dividends may be taxed at a lower rate than Ordinary
Income Dividends for certain non-corporate taxpayers. Recent legislation has
introduced additional categories of gain, taxable at different rates for
individual taxpayers. These categories include 20% Rate Gain and 28% Rate Gain.
The amount of 28% Rate Gain on assets held longer than 12 months but not longer
than 18 months is taxed at the taxpayer's marginal Federal income tax rate, but
not higher than 28%. The amount of 20% Rate Gain on assets held longer than 18
months is taxed at a maximum rate of 20%. Not later than 60 days after the close
of its taxable year, the Company will provide its stockholders with a written
notice designating the amounts of any Ordinary Income Dividends or Capital Gain
Dividends as well as the portions of its Capital Gain Dividends that constitute
28% Rate Gain and 20% Rate Gain.
Stockholders may be entitled to offset their Capital Gain Dividends
with capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.
Gain or loss, if any, recognized on the sale or other disposition of
shares of Cumulative Preferred Stock, including, without limitation, a
redemption by the Company, will be taxed as a capital gain or loss if the shares
are capital assets in the stockholder's hands. Capital gain of an
individual is generally subject to a maximum rate of 28% in respect of property
held longer than 12 months but not longer than 18 months and a maximum rate of
20% in respect of property held longer than 18 months.
Ordinary Income Dividends (but not Capital Gain Dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject to
a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under an applicable treaty.
Non-resident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
At the time of a stockholder's purchase, the market price of the
Cumulative Preferred Stock may reflect undistributed net investment income or
net realized capital gains. A subsequent distribution of these amounts by the
Company will be taxable to the stockholder even though the distribution
economically is a return of part of the stockholder's investment. Investors
should carefully consider the tax implications of acquiring shares just prior to
a distribution, as they will receive a distribution that would nevertheless be
taxable to them.
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
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by the IRS that he or she is subject to backup withholding, (ii) has been
notified by the IRS that he or she is no longer subject to backup withholding,
or (iii) is exempt from backup withholding. Corporate stockholders and certain
other stockholders are exempt from backup withholding. Backup withholding is not
an additional tax. Any amounts withheld under the backup withholding rules may
be credited against such stockholder's Federal income tax liability.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. ADDITIONAL
DISCUSSION OF THE TAX RULES APPLICABLE TO THE COMPANY CAN BE FOUND IN THE
STATEMENT OF ADDITIONAL INFORMATION WHICH IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. FOR THE COMPLETE PROVISIONS APPLICABLE TO BOTH STOCKHOLDERS AND THE
COMPANY, REFERENCE SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND THE
TREASURY REGULATIONS PROMULGATED THEREUNDER. THE CODE AND THE TREASURY
REGULATIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE
ACTION, EITHER PROSPECTIVELY OR RETROACTIVELY.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS; ANTI-TAKEOVER PROVISIONS
The Company presently has provisions in its Restated Certificate of
Incorporation and By-Laws (together, in each case, its "Governing Documents")
which could have the effect of rendering more difficult the accomplishment of a
proposal to convert the Company's status to an open-end investment company. The
affirmative vote of the holders of 66 2/3% of the outstanding shares of capital
stock of the Company is required to authorize the conversion of the Company from
a closed-end to an open-end investment company and to authorize a merger or
consolidation of the Company with an open-end investment company. These and
other provisions of the Governing Documents of the Company may be regarded as
"anti-takeover" provisions. In addition, the affirmative vote of 66 2/3% of the
outstanding shares of capital stock of 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:
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NAME NUMBER OF SHARES
========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Cumulative
Preferred Stock offered hereby are subject to the terms and conditions set forth
herein. The Underwriters are committed to take and pay for all of the shares of
Cumulative Preferred Stock offered hereby if any are taken.
The Underwriters initially propose to offer part of the shares of
Cumulative Preferred Stock offered hereby directly to the public at the public
offering price set forth on the cover page hereof and part to certain dealers at
a price that represents a concession not in excess of $________ per share. Any
Underwriter may allow, and such dealers may allow, a concession not in excess of
$_____ per share to certain other dealers. After the initial offering of the
Cumulative Preferred Stock, the offering price and other selling terms may from
time to time be varied by the Underwriters named on the cover page of this
Prospectus. The underwriting discount of $_____ per share is equal to ___% of
the initial public offering price. Investors must pay for any shares of
Cumulative Preferred Stock purchased on or before __________, 1998.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters have advised the Company that, pursuant to Regulation
M under the 1933 Act, certain persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Cumulative Preferred Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of shares of Cumulative Preferred Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of shares of
Cumulative Preferred Stock. A "syndicate covering transaction" is a bid for or
purchase of Cumulative Preferred Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Underwriters to
reclaim the selling concession otherwise accruing to an Underwriter or selling
group member in connection with the offering if any of the shares of Cumulative
Preferred Stock originally sold by such Underwriter or selling group member is
purchased in a syndicate covering transaction and has therefore not been
effectively placed by such Underwriter or selling group member. The Underwriters
have advised the Company that such transactions may be effected on the NYSE
otherwise and, if commenced, may be discontinued at any time.
The Company anticipates that the Underwriters may, subsequent to the
completion of the offering of Cumulative Preferred Stock hereunder, from time to
time act as brokers or dealers in connection with the execution of portfolio
transactions for the Company. The Underwriters may also, during the pendency of
the offering of Cumulative Preferred Stock hereunder, act as brokers with
respect to such transactions. See "Brokerage Allocation and Other Practices" in
the Statement of Additional Information.
Prior to this offering, there has been no market for the Cumulative
Preferred Stock. Application will be made to list the Cumulative Preferred
Stock on the NYSE. However, during an initial period which is not expected to
exceed 30 days from the date of this Prospectus, the Cumulative Preferred Stock
may not be listed on such securities exchange. During such period, the
Underwriters intend to make a market in the Cumulative Preferred Stock; however,
they have no obligation to do so. Consequently, an investment in the Cumulative
Preferred Stock may be illiquid during such period. The Underwriters have
undertaken to sell shares to a minimum of 100 beneficial owners.
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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 _____________, ____________, counsel to the
Underwriters.
EXPERTS
Ernst & Young LLP are the independent auditors of the Company. The
audited financial statements of the Company and certain of the information
appearing under the caption "Financial Highlights" included in this Prospectus
have been audited by Ernst & Young LLP. Ernst & Young LLP has an office at 787
Seventh Avenue, New York, New York 10019, and also performs tax and other
professional services for the Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
files reports and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of such Acts can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Northeast Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048; Pacific Regional
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648;
and Midwest Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and copies of such material
can be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with it.
The Company's Common Stock is listed on the New York Stock Exchange,
and reports, proxy statements and other information concerning the Company and
filed with the SEC by the Company can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement filed by
the Company with the SEC under the Securities Act of 1933 and the 1940 Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Company and the
Cumulative Preferred Stock offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such
statement is qualified in its entirety by such reference. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by its rules and regulations.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information dated the date hereof has been
filed with the SEC and is incorporated by reference in this Prospectus. A copy
of the Statement of Additional Information may be obtained by writing to the
Company at its address at 450 Lexington Avenue, Suite 3300, New York, New York
10017, or calling the Company at (212) 916-8400 or toll-free at (800) 436-8401.
The Table of Contents of the Statement of Additional Information is as follows:
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PAGE
----
General Information and History............................................B-2
Investment Objectives and Policies.........................................B-2
Management of the Company..................................................B-3
Principal Stockholders.....................................................B-9
Code of Ethics and Related Matters.........................................B-9
Investment Advisory and Other Services.................................... B-10
Brokerage Allocation and Other Practices.................................. B-10
Net Asset Value........................................................... B-10
Financial Statements...................................................... B-11
Taxation.................................................................. B-11
General Information....................................................... B-14
Counsel and Independent Auditors.......................................... B-15
GLOSSARY
"Asset Coverage" means, asset coverage, as defined in Section 18(h) of
the 1940 Act, of at least 200%, or such other percentage as may be required
under the 1940 Act, with respect to all outstanding senior securities of the
Company constituting stock, including all outstanding shares of Cumulative
Preferred Stock.
"Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
Preferred Stock, then from the Date of Original Issue) through the Valuation
Date plus all dividends to accumulate on the Cumulative Preferred Stock then
outstanding during the 70 days following such Valuation Date; (C) the Company's
other liabilities due and payable as of such Valuation Date (except that
dividends and other distributions payable by the Company by the issuance of
Common Stock will not be included as a liability) and such liabilities projected
to become due and payable by the Company during the 90 days following such
Valuation Date (excluding liabilities for investments to be purchased and for
dividends and other distributions not declared as of such Valuation Date); (D)
any current liabilities of the Company as of such Valuation Date to the extent
not reflected in any of (i)(A) through (i)(C) (including, without limitation,
and immediately upon determination, any amounts due and payable by the Company
pursuant to reverse repurchase agreements and any payables for assets purchased
as of such Valuation Date) less (ii) (A) the Discounted Value of any of the
Company's assets and/or (B) the face value of any of the Company's assets if, in
the case of both (ii)(A) and (ii)(B), such assets are either cash or securities
which mature prior to or on the date of redemption or repurchase of Cumulative
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or securities which have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-l+ or A-1+, in both
cases irrevocably held by the Company's custodian bank in a segregated account
or deposited by the Company with the Dividend-Paying Agent for the payment of
the amounts needed to redeem or repurchase Cumulative Preferred Stock subject to
redemption or repurchase or any of (i)(B) through (i)(D) and provided that in
the event the Company has repurchased Cumulative Preferred Stock at a price of
less than the Liquidation Preference thereof and irrevocably segregated or
deposited assets as described above with its custodian bank or the
Dividend-Paying Agent for the payment of the repurchase price the Company may
deduct 100% of the Liquidation Preference of such Cumulative Preferred Stock to
be repurchased from (i) above.
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"Basic Maintenance Report" means a report signed by the President,
Treasurer or any Vice President of the Company which sets forth, as of the
related Valuation Date, the assets of the Company, the market value and
Discounted Value thereof (seriatim and in the aggregate) and the Basic
Maintenance Amount.
"Business Day" means a day on which the New York Stock Exchange is open
for trading and that is neither a Saturday, Sunday nor any other day on which
banks in the City of New York are authorized by law to close.
"Certificate of Designations" means the Company's Certificate of
Designations, Preferences and Rights creating and fixing the rights and
limitations of the Cumulative Preferred Stock.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $1.00 per share, of
the Company.
"Company" means General American Investors Company, Inc., a Delaware
corporation.
"Cumulative Preferred Stock" means the __% Cumulative Preferred Stock,
par value $1.00 per share, of the Company.
"Cure Date" has the meanings set forth on page 27 of this Prospectus.
"Date of Original Issue" has the meaning set forth on page 21 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 21 of this
Prospectus.
"Governing Documents" has the meaning set forth on page 31 of this
Prospectus.
"Liquidation Preference" has the meaning set forth on page 22 of
this Prospectus.
"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:
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MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
Moody's Short-Term Money Market Instruments (other
than U.S. Government
Obligations set forth below) and other commercial paper:
Demand or time deposits, certificates of deposit and
bankers' acceptances includible in Moody's Short-Term
Money Market Instruments................................. 1.00
Commercial paper rated P-1 by Moody's maturing in
30 days or less........................................ 1.00
Commercial paper rated P-1 by Moody's maturing in more
than 30 days but in 270 days or less................... 1.15
Commercial paper rated A-1+ by S&P maturing in
270 days or less....................................... 1.25
Repurchase obligations includible in Moody's
Short-Term Money Market Instruments if term is
less than 30 days and counterparty is rated at
least A2............................................... 1.00
Discount Factor
applicable to
Other repurchase obligations............................underlying assets
Common stocks................................................. 3.00
Preferred Stocks:
Auction rate preferred stocks............................ 3.50
Other preferred stocks issued by issuers in the financial
and industrial industries 2.35
Other preferred stocks issued by issuers in the
utilities industry 1.60
U.S. Government Obligations (other than U.S. Treasury Securities
Strips set forth below) with remaining terms to maturity of:
1 year or less........................................... 1.08
2 years or less.......................................... 1.15
3 years or less.......................................... 1.20
4 years or less.......................................... 1.26
5 years or less.......................................... 1.31
7 years or less.......................................... 1.40
10 years or less......................................... 1.48
15 years or less......................................... 1.54
20 years or less......................................... 1.61
30 years or less......................................... 1.63
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less........................................... 1.08
2 years or less.......................................... 1.16
3 years or less.......................................... 1.23
4 years or less.......................................... 1.30
5 years or less.......................................... 1.37
7 years or less.......................................... 1.51
10 years or less......................................... 1.69
15 years or less......................................... 1.99
20 years or less......................................... 2.28
30 years or less......................................... 2.56
Corporate bonds:
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
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MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
5 years or less.......................................... 1.38
7 years or less.......................................... 1.47
10 years or less......................................... 1.55
15 years or less......................................... 1.62
20 years or less......................................... 1.69
30 years or less........................................ 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less.......................................... 1.19
2 years or less......................................... 1.26
3 years or less......................................... 1.32
4 years or less......................................... 1.38
5 years or less......................................... 1.44
7 years or less......................................... 1.54
10 years or less........................................ 1.63
15 years or less........................................ 1.69
20 years or less........................................ 1.77
30 years or less........................................ 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less.......................................... 1.24
2 years or less......................................... 1.32
3 years or less......................................... 1.38
4 years or less......................................... 1.45
5 years or less......................................... 1.51
7 years or less......................................... 1.61
10 years or less........................................ 1.70
15 years or less........................................ 1.77
20 years or less........................................ 1.85
30 years or less........................................ 1.87
Convertible corporate bonds with senior debt securities rated
Aa issued by the following type of issuers:
Utility................................................. 1.80
Industrial.............................................. 2.97
Financial............................................... 2.92
Transportation.......................................... 4.27
Convertible corporate bonds with senior debt securities rated
A issued by the following type of issuers:
Utility................................................. 1.85
Industrial.............................................. 3.02
Financial............................................... 2.97
Transportation.......................................... 4.32
Convertible corporate bonds with senior debt securities rated
Baa issued by the following type of issuers:
Utility.................................................. 2.02
Industrial............................................... 3.18
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
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MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- ------------------------------- ---------------
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
"Moody's Eligible Assets" means:
i. cash (including, for this purpose, receivables for investments
sold to a counterparty whose senior debt securities are rated at least Baa3
by Moody's or a counterparty approved by Moody's and payable within five
Business Days following such Valuation Date and dividends and interest
receivable within 70 days on investments);
ii. Short-Term Money Market Instruments;
iii. commercial paper that is not includible as a Short-Term Money
Market Instrument having on the Valuation Date a rating from Moody's of at
least P-1 and maturing within 270 days;
iv. preferred stocks (A) which either (1) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (2) are rated
at least "baa3" by Moody's (or in the event an issuer's senior debt
securities or preferred stock is not rated by Moody's, which either (1) are
issued by an issuer whose senior debt securities are rated at least A by
S&P or (2) are rated at least A by S&P and for this purpose have been
assigned a Moody's equivalent rating of at least "baa3"), (B) of issuers
which have (or, in the case of issuers which are special purpose
corporations, whose parent companies have) common stock listed on the New
York Stock Exchange or the American Stock Exchange, (C) which have a
minimum issue size (when taken together with other of the issuer's issues
of similar tenor) of $50,000,000, (D) which have paid cash dividends
consistently during the preceding three-year period (or, in the case of new
issues without a dividend history, are rated at least "A1" by Moody's or,
if not rated by Moody's, are rated at least AA by S&P), (E) which pay
cumulative cash dividends in U.S. dollars, (F) which are not convertible
into any other class of stock and do not have warrants attached, (G) which
are not issued by issuers in the transportation industry and (H) in the
case of auction rate preferred stocks, which are rated at least "aa" by
Moody's, or if not rated by Moody's, AAA by S&P or are otherwise approved
in writing by Moody's and have never had a failed auction; provided,
however, that for this purpose the aggregate market value of the Company's
holdings of any issue of preferred stock will not be less than $500,000 nor
more than $5,000,000;
v. common stocks (A)(i) which are traded in the United States on a
national securities exchange or in the over-the-counter market, (ii) which,
if cash dividend paying, pay cash dividends in U.S. dollars, and (iii)
which may be sold without restriction by the Company; provided, however,
that (1) common stock which, while a Moody's Eligible Asset owned by the
Company, ceases paying any regular cash dividend will no longer be
considered a Moody's Eligible Asset until 71 days after the date of the
announcement of such 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
38
<PAGE>
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;
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:
NON-UTILITY UTILITY MAXIMUM
MOODY'S RATING (1) (2) MAXIMUM SINGLE ISSUER (3) (4)
- ---------------------- SINGLE ISSUER (3)(4) ---------------------
--------------------
"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%
39
<PAGE>
INDUSTRY AND STATE:
<TABLE>
<CAPTION>
NON-UTILITY
MAXIMUM UTILITY MAXIMUM UTILITY MAXIMUM
MOODY'S RATING (1) (2) SINGLE ISSUER (3) SINGLE STATE (3)(6) SINGLE STATE (3)
- ---------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
"aaa", "Aaa"....................... 100% 100% 100%
"aa", Aa........................... 60% 20% 20%
"a", A............................. 40% 10% 10%(7)
CS/CB, "baa", Baa (5).............. 20% 4% 7%(7)
Ba................................. 12% 3% N/A
B1/B2.............................. 8% 2% N/A
B3 (Caa Subordinate)............... 5% 5% N/A
- ----------
<FN>
(1) The equivalent Moody's rating must be lowered one full rating category
for preferred stocks, corporate bonds and convertible corporate bonds
rated by S&P but not by Moody's.
(2) Corporate bonds from issues ranging from $50,000,000 to $100,000,000 are
limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for
the related Moody's rating category and each lower Moody's rating
category.
(4) Issuers subject to common ownership of 25% or more are considered as
one name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility
bonds and utility convertible bonds, the definition of industry refers
to sub-industries (electric, water, hydro power, gas, diversified).
Investments in other sub-industries are eligible only to the extent
that the combined sum represents a percentage position of Moody's
Eligible Assets less than or equal to the percentage limits in the
diversification tables above.
(7) Such percentage will be 15% in the case of utilities regulated by
California, New York and Texas;
and provided, further, that the Company's investments in auction rate
preferred stocks described in clause (iv) above will be included in the
Moody's Eligible Assets only to the extent that the aggregate market
value of such stocks does not exceed 10% of the aggregate market value
of all of the Company's investments meeting the criteria set forth in
clauses (i) through (viii) above less the aggregate market value of
those investments excluded from Moody's Eligible Assets pursuant to the
immediately preceding proviso; and
</FN>
</TABLE>
(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 27 of this
Prospectus.
40
<PAGE>
"Portfolio Calculation" means the aggregate Discounted Value of all of
Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $1.00 per share,
of the Company, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date" means the last Valuation Date in March,
June, September and December of each year, commencing ___________, 1998.
"Rating Agency Guidelines" has the meaning set forth on page 25 of this
Prospectus.
"Redemption Price" has the meaning set forth on page 27 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 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);
41
<PAGE>
(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.
42
<PAGE>
===================================== =====================================
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 _________ SHARES
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 GENERAL AMERICAN
CIRCUMSTANCES, CREATE ANY IMPLICATION INVESTORS COMPANY, INC.
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.
______% CUMULATIVE PREFERRED STOCK
---------------------------
(LIQUIDATION PREFERENCE $25 PER SHARE)
TABLE OF CONTENTS
PAGE
Prospectus Summary...................4
Tax Attributes of Preferred Stock
Dividends.........................11
Financial Highlights................13
The Company.........................15 ---------------
Use of Proceeds.....................15
Capitalization......................15
Portfolio Composition...............16 PROSPECTUS
Investment Objectives and Policies..17
Management..........................19
Risk Factors .......................19 ________, 1998
Description of Cumulative Preferred
Stock.............................20
Description of Rating Agency
Guidelines........................25 ---------------
Description of Capital Stock and
Other Securities..................28
Taxation............................29
Certain Provisions of the Restated
Certificate of Incorporation and
By-Laws; Anti-Takeover
Provisions........................31
Custodian, Transfer Agent, Registrar
and Dividend-Paying Agent..........31
Underwriting........................31
Validity of Cumulative Preferred
Stock.............................33
Experts.............................33
Additional Information..............33
Table of Contents of
Statement of Additional
Information.......................33
Glossary............................34
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, [NAMES OF UNDERWRITERS]
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.
===================================== =====================================
<PAGE>
SUBJECT TO COMPLETION DATED ____________, 1998
GENERAL AMERICAN INVESTORS COMPANY, INC.
-----------------------
STATEMENT OF ADDITIONAL INFORMATION
General American Investors Company, Inc. (the "Company") is a
diversified closed-end management investment company that seeks long-term
capital appreciation by investing primarily in a portfolio of equity securities.
Lesser emphasis is placed on current income.
This Statement of Additional Information ("SAI") is not a prospectus,
but should be read in conjunction with the Prospectus of the Company dated
___________, 1998 (the "Prospectus"). This SAI does not include all information
that a prospective investor should consider before purchasing shares of
Cumulative Preferred Stock, and investors should obtain and read the Prospectus
prior to purchasing shares of Cumulative Preferred Stock. A copy of the
Prospectus may be obtained without charge, by calling the Company at (212)
916-8400 or toll free at (800) 436-8401. This SAI incorporates by reference the
entire Prospectus.
------------------------------
TABLE OF CONTENTS
PAGE
General Information and History.................................. B-2
Investment Objectives and Policies............................... B-2
Management of the Company........................................ B-3
Principal Stockholders........................................... B-9
Code of Ethics and Related Matters............................... B-9
Investment Advisory and Other Services........................... B-10
Brokerage Allocation and Other Practices......................... B-10
Net Asset Value.................................................. B-10
Financial Statements............................................. B-11
Taxation......................................................... B-11
General Information.............................................. B-14
Counsel and Independent Auditors................................. B-15
The Prospectus and this SAI omit certain of the information contained
in the registration statement of Form N-2 (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission"), Washington, D.C.
The Registration Statement may be obtained from the Commission upon payment of
the fee prescribed, or inspected at the Commission's office at no charge.
This Statement of Additional Information is dated _______________,
1998.
B-1
<PAGE>
GENERAL INFORMATION AND HISTORY
General American Investors Company, Inc. (the "Company") was organized
as a Delaware corporation on October 15, 1928 and succeeded to a similar
business established in 1927. The Company is a diversified closed-end investment
company, and is an internally-managed independent organization. Total net assets
of the Company were $702,597,000 as of December 31, 1997.
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 provides
investment advisory services to an outside client account whose investment
objectives are compatible with those of the Company. In addition, the Company
provides investment advisory services to the Company's Employees' Retirement
Plan trust.
Shares of the Company's Common Stock, $1.00 par value, are listed and
traded on The New York Stock Exchange, Inc. (under the symbol "GAM").
INVESTMENT OBJECTIVES AND POLICIES
The Company's principal investment objective is long-term capital
appreciation. Lesser emphasis is placed on current income. These objectives may
not be changed without the affirmative vote of the holders of a majority of the
Company's outstanding voting securities.
FUNDAMENTAL POLICIES
Except for the information set forth in items (2) and (5) below, the
following are fundamental policies which may not be changed without a vote of
the holders of a majority of the Company's voting securities:
(1) The Company may issue debt and senior equity securities to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940
Act").
(2) The Company has no policy with respect to short sales, purchases on
margin or the writing of put and call options. While the Company has
not engaged in transactions of this nature, it has complete freedom of
action to do so in the future.
(3) The Company may not borrow money in excess of 25% of its gross assets,
except for the purchase or redemption of outstanding senior securities.
(4) The Company may not underwrite securities in excess of 20% of its gross
assets.
(5) The Company has no policy restricting the acquisition of restricted
securities (securities that must be registered under the Securities Act
of 1933, as amended (the "Act") before they may be offered or sold to
the public).
(6) The Company's holdings in a particular industry may not be increased by
additional investment in that industry beyond 50% of the value of the
Company's gross assets.
(7) The Company does not purchase or sell real estate.
B-2
<PAGE>
(8) The Company may not trade in commodities and commodity contracts in
excess of 20% of its gross assets.
(9) The Company may not make loans (other than through the purchase of a
portion of an issue of bonds, debentures or other securities issued by
another person) to other persons in an amount exceeding 10% to any one
person or exceeding in the aggregate 20% of its gross assets.
(10) The Company does not make investments for the purpose of participating
in management, although it maintains the freedom to do so if it should
become necessary to conserve any investment.
Other than as set forth above and subject to the requirements of the
1940 Act relating to diversified investment companies, the Company's investment
policy is flexible, as its charter permits investment in all forms of securities
without limiting the portion of its assets which may be invested in any one
type.
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 December 31, 1997.
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE COMPANY DURING THE PAST FIVE YEARS
- --------------------- ------------------ --------------------------------------------
<S> <C> <C>
Arthur G. Altschul, Jr. (33).... Director Co-chairman and managing member of Diaz &
745 Fifth Avenue, Suite 3001 Altschul Group, LLC (investments and securities)
New York, NY 10151 which was founded in May 1996; from 1992 to
May 1996, employed by SUGEN, Inc.
(biopharmaceuticals), most recently as senior
director of corporate affairs; assistant secretary
of SUGEN from May 1992 to May 1996; managing
general partner of Altschul Investment Group, L.P.
(a private investment partnership) since 1988;
director of Delta Opportunity Company, Ltd.,
Medicis Pharmaceutical Corporation, the New York
Council for the Humanities, and several privately
owned companies
Lawrence B. Buttenwieser (66)... Director, Chairman of Chairman of the Board of Directors of the
575 Madison Avenue the Board Company since May 1995 and a director of the
New York, NY 10022 Company since 1967; partner of Rosenman &
Colin LLP (lawyers)
Lewis B. Cullman (79).......... Director President of Cullman Ventures, Inc. (calendars
767 Third Avenue and catalogs and formerly solely a holding
New York, NY 10017 company) since 1968; chairman and a director of
Chess-in-the-Schools (charitable foundation); vice
chairman of the international council and an
honorary trustee of the Museum of Modern Art
B-3
<PAGE>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE COMPANY DURING THE PAST FIVE YEARS
- --------------------- ------------------ --------------------------------------------
Spencer Davidson* (55)......... Director, President President and Chief Executive Officer of the
450 Lexington Avenue and Chief Executive Company since August 1995; prior thereto, senior
New York, NY 10017 Officer investment counselor since joining the Company
in 1994; prior thereto, general partner of The
Hudson Partnership (a private investment
partnership); trustee of the Innisfree Foundation,
Inc. (not-for-profit foundation) and of the
Neurosciences Research Foundation (scientific
research foundation)
Gerald M. Edelman (68)........ Director Member and the chairman of the Department of
10666 North Torrey Pines Rd. Neurobiology of The Scripps Research Institute
LaJolla, CA 92037 since July 1992; prior thereto, Vincent Astor
Professor of The Rockefeller University; director
and president of the Neurosciences Institute of the
Neurosciences Research Foundation (scientific
research foundation); president and a director of
the Neurosciences Support Corporation (scientific
research support foundation); director of Becton,
Dickinson and Company; and member emeritus of the
board of governors of the Weizmann Institute of
Science
Anthony M. Frank (66)......... Director Chairman of Belvedere Capital Partners (private
101 California Street, Suite 2050 financial consulting) since 1994; chairman of
San Francisco, CA 941 Acrogen Inc. (biotechnology company) since
March 1992; prior thereto, The Postmaster General
of the United States from March 1988; director of
Bedford Properties, Cotelligent Group, Inc.,
Crescent Real Estate Equities, Inc., Financial
Security Assurance Holdings Ltd., Irvine Apartment
Communities, Inc., The Schwab (Charles)
Corporation, and Temple-Inland, Inc.
John D. Gordan, III (52)...... Director Partner of Morgan, Lewis and Bockius LLP
101 Park Avenue (lawyers) since October 1994; prior thereto,
New York, NY 10178 partner of Lord Day & Lord, Barrett Smith and
predecessor firm from 1979
Bill Green (68)............... Director Represented the 15th New York Congressional
14 East 60th Street - Suite 702 District (east side of Manhattan) in the U.S. House
New York, NY 10022 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
B-4
<PAGE>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE COMPANY DURING THE PAST FIVE YEARS
- --------------------- ------------------ --------------------------------------------
Victoria Hamilton* (44)........ Director, Executive Executive Vice-President and Chief Operating
450 Lexington Avenue Vice-President and Officer of the Company since August 1995; prior
New York, NY 10017 Chief Operating thereto, Vice-President from the time she joined
Officer the Company in February 1992; director of
BioReliance Corporation
Sidney R. Knafel (67).......... Director Managing partner of SRK Management Company
126 East 56th Street (private investment company) since 1981;
New York, NY 10022 chairman of the board of directors of BioReliance
Corporation and Insight Communications, Inc;
director of Cellular Communications International,
Inc., CoreComm Incorporated, IGENE Biotechnology,
Inc., NTL Incorporated, and several privately owned
companies
Richard R. Pivirotto (67)...... Director President of Richard R. Pivirotto Co., Inc. (self-
111 Clapboard Ridge Road employed consultant); director of CBS Inc., The
Greenwich, CT 06830 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
Joseph T. Stewart, Jr. (68)... Director Executive consultant to Johnson & Johnson, since
147 Rolling Hill Road September 1990; director of Liposome Co., Inc.;
Skillman, NJ 08558 trustee of the Foundation of the University of
Medicine and Dentistry of New Jersey; trustee of
the New School for Social Research; member of the
advisory council to the Marine Biological
Laboratory
Raymond S. Troubh (71)........ Director Financial consultant since 1974; director of
10 Rockefeller Plaza - Suite 712 America West Airlines, Inc., Ariad
New York, NY 10020 Pharmaceuticals, Inc., 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 Company
450 Lexington Avenue Administration since 1978
New York, NY 10017
B-5
<PAGE>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE COMPANY DURING THE PAST FIVE YEARS
- --------------------- ------------------ --------------------------------------------
Peter P. Donnelly* (49)....... Vice-President Vice-President of the Company since 1991 and
450 Lexington Avenue securities trader for the Company since 1974
New York, NY 10017
Andrew V. Vindigni* (38)...... Vice-President Vice-President of the Company since September
450 Lexington Avenue 1995; prior thereto, Assistant Vice-President of
New York, NY 10017 the Company from 1991; security analyst for the
Company since 1988
Diane G. Radosti* (45)........ Treasurer Treasurer of the Company since 1990; employee
450 Lexington Avenue of the Company since 1980
New York, NY 10017
Carole Anne Clementi* (51).... Secretary Secretary of the Company since October 1994;
450 Lexington Avenue prior thereto, Assistant Secretary from July 1993;
New York, NY 10017 employee of the Company since 1982
<FN>
* An "interested person" of the Company as defined under Section 2(a)(19) of the 1940 Act by reason of being
an officer of the Company.
</FN>
</TABLE>
--------------------
Normally, holders of shares of Preferred Stock of the Company,
including the Cumulative Preferred Stock, voting as a separate class, will elect
two members of the Company's Board of Directors, and holders of Preferred Stock,
including the Cumulative Preferred Stock, and Common Stock, voting as a single
class, will elect the remaining directors. See "Description of Cumulative
Preferred Stock--Voting Rights" in the Prospectus. Messrs. ______and ______ 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
B-6
<PAGE>
compensation for the ensuing year, reviews comparable operating and compensation
data of other companies in the investment industry and makes recommendations on
matters of compensation to the Board of Directors.
The Board of Directors has an Executive Committee/Nominating Committee
comprised of the following directors: Mr. Richard R. Pivirotto, Chairman, Mr.
Lawrence B. Buttenwieser, Mr. Spencer Davidson, Dr. Gerald M. Edelman, Ms.
Victoria Hamilton and Mr. Joseph T. Stewart, Jr. Mr. John D. Gordan III and Mr.
Bill Green serve as alternate members of the Executive Committee/Nominating
Committee. In addition to functioning as an Executive Committee with authority
to exercise the powers of the Board of Directors in the management of the
business and affairs of the Company when the Board of Directors is not in
session, the Executive Committee/Nominating Committee is responsible for
identifying individuals who may be nominated to serve as directors of the
Company, responding to inquiries relating to nominations to the Board and making
recommendations to the Board of Directors with respect to individuals to be
nominated to serve as directors.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation received from the
Company by its executive officers and directors for the fiscal year ended
December 31, 1997.
<TABLE>
Pension or
Name of Individual Capacities retirement
or number of persons in which Aggregate benefits accrued
in group served compensation during 1997(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Spencer Davidson President and $ 685,000 $ 52,200
Chief Executive Officer
Victoria Hamilton Executive Vice-President and 325,000 36,000
Chief Operating Officer
Andrew V. Vindigni Vice-President 575,000 32,994
7 executive officers as a group 2,437,000 200,615
13 directors as a group 170,000(2)
<FN>
- ---------------
(1) The amounts shown in this column represent the Company's payments made
during 1997 to the trustee of the Company's Employees' Thrift Plan, as described
below, or accounting reserves established during 1997 under the Company's Excess
Contribution Plan, as described below, on behalf of the respective individuals
or group members.
(2) Each director who is not a paid officer of the Company received a fee of
$10,000 as an annual retainer, a fee of $500 for attendance at each Directors'
meeting and $500 for each Committee meeting which he attended in his capacity as
a Director.
</FN>
</TABLE>
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
B-7
<PAGE>
costs and amortization of prior service costs. Retirement benefits are based on
final average earnings (basic salary, exclusive of overtime, bonuses,
commissions, pension, retainer fees, fees under contracts or any other forms of
additional or special compensation, for the five consecutive years in which the
participant had the highest basic salary during the last ten years of service)
and years of credited service, less an offset for social security covered
compensation, plus an additional amount equal to $50 for each year of credited
service. All employees, including officers, over age 21 commence participation
in the plan after one year of service and are fully vested after six years of
service. Partial vesting begins after two years of service. Participants are
eligible to receive normal retirement benefits at age 65. In certain instances,
a reduced benefit may begin upon retirement between ages 55 and 65.
The following table shows the estimated annual retirement benefits
(including amounts attributable to the Company's Excess Benefit Plan, as
described below), which are subject to a deduction based on a portion of social
security covered compensation, payable on a straight life annuity basis, at
normal retirement date to all eligible employees, including officers, in
specified compensation and years-of-service classifications:
Estimated Annual Benefits Based Upon Years of Credited Service
---------------------------------------------------------------
Final Average 10 20 30 40
Earnings
$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
For those officers of the Company listed in the compensation table on
page B-7, the following indicates his or her years of credited services in the
Company's Retirement Plan and basic salary for 1997: Spencer Davidson (3)
$435,000, Victoria Hamilton (5) $300,000 and Andrew V. Vindigni (9) $275,000.
The Company also has Excess Contribution and Excess Benefit Plans.
Under such plans, the Company may establish accounting reserves and make
payments directly to selected participants in the Company's Thrift and
Retirement Plans, respectively, to the extent the levels of contributions or
benefits for such participants under such plans are limited by Sections 415, 416
and/or 401(a)(17) of the Internal Revenue Code. Such benefits commence at the
time benefits commence under the related tax-qualified plan. Mr. Davidson, Ms.
Hamilton and Mr. Vindigni are participants in both the Excess Contribution and
Excess Benefit Plans.
B-8
<PAGE>
PRINCIPAL STOCKHOLDERS
As of February 28, 1998, the following person owned of record or was
known by the Company to have owned beneficially 5% or more of the 23,970,878
shares of its Common Stock then outstanding:
NAME AND ADDRESS TYPE AND PERCENTAGE OF OWNERSHIP
---------------- --------------------------------
Depository Trust Company Of record only 70.78%
Cede & Co
P.O. Box 20, Bowling Green Station
New York, New York 10274
All officers and directors of the Company as a group owned
approximately 6.9% of the Company's outstanding shares of Common Stock as of
such date. In addition, approximately 1.3% of the Company's outstanding shares
of Common Stock were held as of such date by the trustee for the Company's
Employees' Thrift Plan with respect to which the Company has the power to vote.
CODE OF ETHICS AND RELATED MATTERS
The Company has had a written code of ethics since 1981, which was
amended most recently on December 13, 1995, with respect to trading in
securities by its directors, officers and employees. It generally provides that
such persons are not to take personal advantage of any information which they
may have concerning the Company's current investment decisions or programs. It
also requires preclearance of all personal securities transactions and, with
respect to disinterested directors, preclearance of personal securities
transactions in securities held by the Company and/or any of its advisory client
accounts.
In order to enforce the foregoing policy, the Company follows the
practice of maintaining "restricted lists" which show securities being
considered for purchase or sale or securities in process of being purchased or
sold for its portfolio or for the portfolio of any of its clients. All
employees, officers and directors are expected to check the lists before they
make individual investment decisions and to preclear their intentions with the
Company's trader or compliance personnel. At the end of each quarter, the
Company obtains from each of its employees, officers and interested directors a
sealed report of his or her security transactions during the quarter and, with
respect to each of its disinterested directors, a limited report, relating only
to the securities held in the Company's portfolio or in any of the client
accounts, of his security transactions during the quarter. In addition, since
January 1, 1995, each of its employees, officers and interested directors have
been required to have their brokers provide the Company with duplicate copies of
trade confirmations and monthly statements.
The Company provides the transaction reports, duplicate confirmations
and month-end statements to its independent public auditors, together with a
copy of the "restricted lists" for the period. The auditors compare the reports
and brokerage material with the restricted lists and report their findings to
the Company. Any transactions in a "restricted" security by individuals during
the period would be investigated thoroughly and appropriate action taken. The
individual reports, brokerage material and restricted lists are returned to the
Company by the auditors in a sealed envelope together with their report; these
are maintained in the Company's files.
B-9
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
CUSTODIAN
Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006, is
the custodian for the assets of the Company. The custodian is responsible for
holding all cash and securities of the Company, directly or through a book-entry
system, delivering and receiving payment for securities sold by the Company,
receiving and paying for securities purchased by the Company, collecting income
from investments of the Company and performing other duties, all as directed by
an authorized person of the Company. The custodian does not exercise any
supervisory functions in such matters as the purchase and sale of securities by
the Company, payment of dividends or payment of expenses of the Company. During
1997, 1996 and 1995, the Company paid $28,500, $33,000 and $25,500,
respectively, in fees to Bankers Trust Company for its custodial services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Company's general policy regarding the execution of securities
transactions is to select brokers and dealers on the basis of the most favorable
markets, prices and execution of orders. A certain amount of the Company's
securities transactions are placed with brokers and dealers who provide
brokerage and research services and in these circumstances the commissions paid
may be higher than those which might otherwise have been paid to another broker
or dealer if those services had not been provided.
Research services generally include receipt of written reports,
attendance at meetings or participation in discussions with respect to specific
subjects, such as a company, an industry or the economic outlook. Block
availability is also a consideration in determining the selection of brokers.
The Company seeks to utilize services obtained from brokers and dealers fairly
with respect to all accounts under its management. To the extent that the
ability to direct brokerage enhances its access to such services, the benefits
are fairly shared.
In negotiating brokerage commissions on securities transactions, the
Company's trader, with his awareness of competitive rates, negotiates the most
favorable commission to effect a particular transaction. Size of order and
difficulty of execution are considerations in the negotiation. All transactions,
including the commission factor, are subject to supervision and review by the
Company's officers.
During the year ended December 31, 1997, the Company did not acquire
any securities of any of its regular brokers or dealers (as defined in Rule
10b-1 under the 1940 Act) or of any of their parents.
Brokerage commissions paid by the Company during 1997, 1996 and 1995
were $362,483, $425,409 and $609,368, respectively. Such amounts included
$59,904 (16.53%), $45,077 (10.60%) and $124,075 (20.36%), respectively, which
were paid to Goldman, Sachs & Co. The Chairman Emeritus of the Company is a
limited partner of The Goldman Sachs Group, L.P. which is an affiliate of
Goldman, Sachs & Co. Of the aggregate dollar amount of the Company's
transactions involving brokerage commissions during 1997, 13.29% were effected
through Goldman, Sachs & Co.
One or more of the Underwriters may have effected purchases and sales
of the portfolio securities of the Company and of the account managed by the
Company and may be chosen to effect future transactions for the Company and such
other account.
NET ASSET VALUE
The Company calculates the net asset value of its shares of Common
Stock daily and makes that information available daily by telephone at (212)
916-8400 or, toll free, (800) 436-8401 and weekly for publication. Currently,
The Wall Street Journal, The New York Times and Barron's publish net asset
values for closed-end investment companies
B-10
<PAGE>
weekly. Net asset value per share of Common Stock is determined at the close of
regular trading on the New York Stock Exchange (currently 4:00 P.M., Eastern
time) on each day on which the Exchange is open. The net asset value of the
Company's Common Stock is calculated by dividing the current value of the
Company's total assets less the sum of all of its liabilities and the aggregate
liquidation preference of its outstanding shares of Preferred Stock, by the
total number of shares of the Common Stock outstanding.
In determining net asset value, securities listed on an exchange or on
the National Association of Securities Dealers Automated Quotation System are
valued on the basis of the last reported sale prior to the time the valuation is
made or, if no sale is reported for such day, at their electronically-reported
bid price. Quotations are taken from the market where the security is primarily
traded. Other over-the-counter securities for which market quotations are
readily available are valued at their electronically-reported bid price or, if
there is no such price, then at their representative bid price. Securities
traded primarily on foreign exchanges are valued at the closing values of such
securities on their respective exchanges as of the day the securities are being
valued. Corporate discount notes are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at their fair value under procedures established
and supervised by the Company's Board of Directors.
The underwriting discount associated with the Cumulative Preferred
Stock will be charged to paid-in capital, whereas, the expenses of issuance and
distribution will be charged to the operations of the Company.
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, are incorporated herein by
reference.
TAXATION
The following discussion is a brief summary of certain tax
considerations affecting the Company and its stockholders. No attempt is made to
present a detailed explanation of all U.S. Federal, state, local and foreign tax
concerns, and the discussions set forth herein and in the Prospectus do not
constitute tax advice. The discussion reflects applicable Federal tax laws of
the United States as of the date of this SAI, which tax laws may be changed or
subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively. INVESTORS ARE URGED TO CONSULT THEIR
OWN TAX ADVISERS WITH ANY SPECIFIC QUESTIONS RELATING TO FEDERAL, STATE, LOCAL
AND FOREIGN TAXES.
TAXATION OF THE COMPANY
The Company has qualified as and intends to continue to qualify as, a
regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Company
(but not its stockholders) will not be subject to U.S. Federal income tax on the
portion of its net investment income (i.e., its investment company taxable
income as defined in the Code without regard to the deduction for dividends
paid) and its net realized capital gains (i.e., the excess of its net realized
long-term capital gains over its net realized short-term capital loss) which it
distributes to its stockholders in each taxable year.
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
B-11
<PAGE>
Company's assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other RICs).
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Company must distribute during each calendar
year, an amount equal to, at the minimum, the sum of (1) 98% of its ordinary
income for the calendar year, (2) 98% of its capital gain net income generally
for the one-year period ending on October 31 of such year, and (3) all ordinary
income and capital gain net income for previous years that were not previously
distributed. A distribution will be treated as paid during the calendar year if
it is paid during the calendar year or declared by the Company in October,
November or December of the year, payable to stockholders of record on a date
during such month and paid by the Company during January of the following year.
Any such distributions paid during January of the following year will be deemed
to be received by stockholders of the Company on December 31 of the year the
distributions are declared, rather than when the distributions are received.
While the Company intends to distribute its ordinary income and capital gain net
income in the manner necessary to minimize imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Company's ordinary
income and capital gain net income will be distributed to avoid entirely the
imposition of the tax. In such event, the Company will be liable for the tax
only on the amount by which it does not meet the foregoing distribution
requirements.
As a result of investing in certain types of securities which produce
income for tax purposes that is not matched by a corresponding cash distribution
to the Company, the Company could be required to include in current income
amounts it has not yet received. Any such income would be subject to the
distribution requirements of the Code. This might prevent the Company from
distributing 90% of its net investment company taxable income, as is required to
qualify as a RIC, or might prevent it from distributing enough ordinary income
and capital gain net income to avoid completely the imposition of the excise
tax. To avoid this result, the Company may be required to borrow money or
dispose of other securities to be able to make distributions to its investors.
If the Company does not meet the asset coverage requirements of the
1940 Act or the Certificate of Designations, the Company will be required to
suspend distributions to the holders of the Cumulative Preferred Stock and
Common Stock until the asset coverage is restored. See "Description of
Cumulative Preferred Stock -- Dividends" in the Prospectus. Such a suspension of
distributions might prevent the Company from distributing 90% of its net
investment company taxable income, as is required to qualify as a RIC, or might
prevent it from distributing enough ordinary income and capital gain net income
to avoid completely the imposition of the excise tax. Upon any failure to meet
the asset coverage requirements, the Company may, and in certain circumstances
will, be required to redeem shares of Cumulative Preferred Stock in order to
restore the requisite asset coverage and avoid the adverse consequences to the
Company and its stockholders of failing to qualify as a RIC. If asset coverage
were restored, the Company would again be able to pay dividends and might be
able to avoid Company-level taxation.
TAXATION OF STOCKHOLDERS
Dividends are paid by the Company in cash and are taxable to
stockholders. Dividends paid by the Company from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
("Ordinary Income Dividends") are taxable to stockholders as ordinary income.
Dividends paid from an excess of net long-term capital gains over net short-term
capital losses (including gains or losses from certain transactions in warrants,
rights, futures and options) and properly designated by the Company ("Capital
Gain Dividends") are taxable to stockholders as long-term capital gains,
regardless of the length of time the stockholder has owned Company shares. Any
loss upon the sale or exchange of Company shares held for six months or less
will be treated as long-term capital loss to the extent of any Capital Gain
Dividends received by the stockholder. Distributions in excess of the Company's
earnings and 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).
B-12
<PAGE>
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" (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" (gain on assets held longer than 18 months) is taxed at a
maximum rate of 20%. Not later than 60 days after the close of its taxable year,
the Company will provide its stockholders with a written notice designating the
amounts of any Ordinary Income Dividends or Capital Gain Dividends as well as
the portions of its Capital Gain Dividends that constitute 28% Rate Gain and 20%
Rate Gain.
Stockholders may be entitled to offset their Capital Gain Dividends
with capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Cumulative Preferred Stock including, without limitation, a
redemption, by the Company, will be taxed as a capital gain or loss if the
shares are capital assets in the stockholder's hands. Capital gain of an
individual is generally subject to a maximum rate of 28% in respect of property
held longer than 12 months but not longer than 18 months and a maximum rate of
20% in respect of property held longer than 18 months. A loss realized on a sale
or exchange of shares of the Company will be disallowed if other Company shares
of the same class are acquired within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Ordinary Income Dividends (but not Capital Gain Dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject to
a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under an applicable treaty.
Non-resident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
At the time of a stockholder's purchase, the market price of the
Cumulative Preferred Stock may reflect undistributed net investment income or
net realized capital gains. A subsequent distribution of these amounts by the
Company will be taxable to the stockholder even though the distribution
economically is a return of part of the stockholder's investment. Investors
should carefully consider the tax implications of acquiring shares just prior to
a distribution, as they will receive a distribution that would nevertheless be
taxable to them.
Designation of Capital Gain Dividends to Cumulative Preferred Stock.
The IRS has taken the position in Revenue Ruling 89-81 that if a RIC has two
classes of shares, it may designate distributions made to each class 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. A class's proportionate share
of a particular type of income is determined according to the percentage of
total dividends paid by the RIC during such year that was paid to such class.
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 realized capital gains to holders of
Common Stock, holders of Cumulative Preferred Stock and any other Preferred
Stock. The amount of net realized capital gains and other types of income
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 realized by and taxes paid by the Company 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.
B-13
<PAGE>
BACKUP WITHHOLDING
Under certain provisions of the Code, some stockholders may be subject
to 31% withholding on Ordinary Income Dividends, Capital Gain Dividends and
redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
stockholder maintains his or her account), certifying under penalties of perjury
that such stockholder's taxpayer identification number is correct and that such
stockholder (i) has never been notified by the IRS that he or she is subject to
backup withholding, (ii) has been notified by the IRS that he or she is no
longer subject to backup withholding, or (iii) is exempt from backup
withholding. Corporate stockholders and certain other stockholders are exempt
from backup withholding. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be credited against such
stockholder's Federal income tax liability.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. FOR THE
COMPLETE PROVISIONS APPLICABLE TO BOTH STOCKHOLDERS AND THE COMPANY, REFERENCE
SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND THE TREASURY REGULATIONS
PROMULGATED THEREUNDER. THE CODE AND THE TREASURY REGULATIONS ARE SUBJECT TO
CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE ACTION, EITHER PROSPECTIVELY
OR RETROACTIVELY.
GENERAL INFORMATION
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the shares of Cumulative Preferred Stock offered
pursuant to the Prospectus (the "Securities"). The information in this section
concerning DTC and DTC's book-entry system is based upon information obtained
from DTC. The Securities initially will be issued only as fully-registered
securities registered in the name of Cede & Co. (as nominee for DTC). One or
more fully-registered global Security certificate or certificates initially will
be issued, representing in the aggregate the total number of Securities, and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also 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.
B-14
<PAGE>
Beneficial Owners will not receive certificates representing their ownership
interests in Securities, except as provided herein.
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
securities are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant.
Payments on the Securities will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Company, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Furthermore, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
Beneficial Owners may obtain certificates representing the Securities
by contacting ChaseMellon Shareholder Services, L.L.C., which acts as transfer
agent for the Company's capital stock.
DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depository is not obtained, certificates representing the Securities will be
printed and delivered. The Company may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor securities depository). In
that event, Security certificates will be printed and delivered.
COUNSEL AND INDEPENDENT AUDITORS
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, is
counsel to the Company in connection with the offering of the Cumulative
Preferred Stock.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been selected as independent auditors for the Company.
B-15
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements*
(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
- -----------------
* 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.
** To be filed by amendment.
+ Filed herewith.
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution(1)
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):
C-1
<PAGE>
Nature of Expenses Amount
- ------------------ ------
SEC Registration fees.......................................... $29,500
NYSE listing fee............................................... *
NASD Filing Fee................................................ *
Rating Agency fee.............................................. *
Printing expenses.............................................. *
Auditing fees and expenses..................................... *
Legal fees and expenses........................................ *
Consulting fees and expenses................................... *
Blue Sky Qualification fees and expenses....................... *
Registrar and Transfer Agent's fees............................ *
Miscellaneous.................................................. *
------
Total................................................. $
======
(1) The amounts set forth above, except for the SEC, NYSE and NASD fees, are in
each case estimated.
* To be completed by amendment.
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
December 31, 1997:
Number of
Title of Class Record Holders
- -------------- --------------
Common Stock, par value $1.00 per share................... 6,048
Item 29. Indemnification
Under the Company's Restated Certificate of Incorporation and By-Laws,
the directors and officers of the Company will not be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that the foregoing shall not eliminate or limit liability of
a director (i) for any breach of such director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct, gross negligence or reckless disregard of the
duties involved in the conduct of such director's office, or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which such director derived an improper personal benefit.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the directors and officers, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Company by the directors or officers
in connection with the Shares, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
C-2
<PAGE>
Item 30. Business and Other Connections of Adviser
Not applicable.
Item 31. Location of Accounts and Records
The Company's accounts and records are maintained at the Company's
principal executive offices located at 450 Lexington Avenue, Suite 3300, New
York, New York 10017. In addition, Bankers Trust Company, which is located at
One Bankers Trust Plaza, New York, NY 10006, acts as the custodian of the
securities, cash and other assets of the Company and maintains certain accounts
and records of the Company. ChaseMellon Shareholder Services, L.L.C., which is
located at Overpeck 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 as of the effective date of the Registration
Statement or (2) its net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that (a) for the purpose of determining any
liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule
497(h) will be deemed to be a part of the Registration Statement
as of the time it was declared effective; and (b) for the purpose
of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus will be
deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time will be deemed to be the initial bona fide offering
thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two Business
Days of receipt of a written or oral request, any Statement of
Additional Information constituting Part B of this Registration
Statement.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this 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 11th day of March, 1998.
GENERAL AMERICAN INVESTORS COMPANY, INC.
By: /s/ EUGENE L. DESTAEBLER, JR.
-------------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President, Administration
POWER OF ATTORNEY
We, the undersigned officers and directors of General American
Investors Company, Inc., hereby severally constitute and appoint Spencer
Davidson, Victoria Hamilton and Eugene L. DeStaebler, Jr. (with full power to
each of them to act alone) his or her true and lawful attorney-in-fact and
agent, for him or her and on his or her behalf and in his or her place and stead
in any and all capacities, to make, execute and sign all amendments and
supplements to the Registration Statement on Form N-2 and any and all
registration statements relating to said Registration Statement that are to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, and to file with
the Securities and Exchange Commission, and any other regulatory authority
having jurisdiction over the offer and the sale of shares of Cumulative
Preferred Stock of the Company, any and all amendments and supplements to such
Registration Statement, and any and all exhibits and other documents requisite
in connection therewith, granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as the undersigned officers and directors themselves might or could do.
IN WITNESS WHEREOF, the undersigned officers and directors have
hereunto set their hands this 11th day of March, 1998.
Signature Title
--------- -----
/s/ SPENCER DAVIDSON
- ----------------------------- President and Chief Executive Officer
(Spencer Davidson) and Director (Principal Executive Officer)
/s/ VICTORIA HAMILTON
- ----------------------------- Executive Vice-President, Chief Operating
(Victoria Hamilton) Officer and Director
/s/ EUGENE L. DESTAEBLER, JR.
- ------------------------------ Vice-President, Administration
(Eugene L. DeStaebler, Jr.) (Principal Financial Officer and Principal
Accounting Officer)
C-4
<PAGE>
Signature Title
--------- -----
/S/ LAWRENCE B. BUTTENWIESER
- ------------------------------- Chairman of the Board of Directors
(Lawrence B. Buttenwieser) and Director
/S/ ARTHUR G. ALTSCHUL, JR.
- ------------------------------- Director
(Arthur G. Altschul, Jr.)
/S/ LEWIS B. CULLMAN
- ------------------------------- Director
(Lewis B. Cullman)
/S/ GERALD M. EDELMAN
- ------------------------------- Director
(Gerald M. Edelman)
/S/ ANTHONY M. FRANK
- ------------------------------- Director
(Anthony M. Frank)
/S/ JOHN D. GORDAN, III
- ------------------------------- Director
(John D. Gordan, III)
/S/ BILL GREEN
- ------------------------------- Director
(Bill Green)
/S/ SIDNEY R. KNAFEL
- ------------------------------- Director
(Sidney R. Knafel)
/S/ RICHARD R. PIVIROTTO
- ------------------------------- Director
(Richard R. Pivirotto)
/S/ JOSEPH T. STEWART, JR.
- ------------------------------- Director
(Joseph T. Stewart, Jr.)
/S/ RAYMOND S. TROUBH
- ------------------------------- Director
(Raymond S. Troubh)
C-5
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
- ------ ------- ------
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...............................................
** To be filed by amendment.
+ Filed herewith.
C-6
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL AMERICAN INVESTORS COMPANY, INC.
GENERAL AMERICAN INVESTORS COMPANY, INC., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Corporation was originally incorporated under the name of
"SECOND GENERAL AMERICAN INVESTORS COMPANY, INC."; and the date of filing of the
Corporation's original Certificate of Incorporation was October 15, 1928.
SECOND: The Board of Directors of the Corporation duly adopted a
resolution restating and integrating and further amending the Corporation's
certificate of incorporation, as amended to date, so that, as so amended and
restated, the Corporation's certificate of incorporation shall read as follows:
ARTICLE FIRST: The name of the Corporation is "General American
Investors Company, Inc.".
ARTICLE SECOND: The address of the Corporation's registered office in
the State of Delaware is No. 100 West Tenth Street in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be formed under the General
Corporation Law of Delaware.
ARTICLE FOURTH: The total authorized capital stock of the Corporation
shall be 30,000,000 shares of Common Stock of the par value of One Dollar ($1)
per share.
The Corporation, acting by its Board of Directors, without action by
the stockholders, may from time to time create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the Corporation, rights or options entitling the bearer or registered owner or
holder of each thereof to purchase from
<PAGE>
the Corporation, any shares of its capital stock, such rights or options to be
evidenced by or in such warrant or warrants, or purchase certificate or purchase
certificates, or other instrument or instruments as shall be approved by its
Board of Directors. The terms upon which, the time or times, which may be
limited or unlimited in duration, at or within which and the price or prices at
which, or the other consideration or considerations for which, such shares may
be purchased from the Corporation upon the exercise of any such right or option
shall be as fixed or stated or provided in a resolution or resolutions adopted
by the Board of Directors of the Corporation providing for the creation and
issue of such rights or options, and in every case, set forth or incorporated by
reference in the warrant or warrants, or purchase certificate or purchase
certificates, or other instrument or instruments evidencing such rights or
options; provided, however, that, in case the shares of stock of the Corporation
to be purchased upon the exercise of such rights or options shall be originally
issued upon such exercise, the price or prices to be received therefor shall not
be less than the par value thereof. Any shares so issued for which the price or
consideration fixed as aforesaid shall have been paid, shall be deemed full-paid
stock and shall not be liable to any further call or assessment thereon. Without
limitation of the foregoing, the Corporation may, during any period fixed by it,
limit the right to exercise any such rights or options to the owners of
specified certificates for shares of stock or other securities of the
Corporation.
No holder of capital stock shall be entitled as such, as a matter of
right, to subscribe for or purchase any part of any new or additional issue of
stock of any class whatsoever or of securities convertible into stock of any
class whatsoever, whether now or hereafter authorized, or whether issued for
cash, property or services or by way of dividend, and all such rights are waived
by each holder of the capital stock.
ARTICLE FIFTH: If so determined by the Board of Directors, and to the
extent and in the manner permitted by law, the Corporation may from time to time
receive money and/or other property and credit the amount or value thereof to
reserve or surplus, and such money or other property may be an undivided part of
money, and/or other property for another part of which stock, bonds, debentures
and/or other obligations of the Corporation are issued. Against any reserve or
surplus so established there may be charged losses at any time incurred by the
Corporation, and also dividends or other distributions upon stock. Such reserve
or surplus may be reduced from time to time by the Board of
-2-
<PAGE>
Directors for the purposes above specified or by transfer from such reserve or
surplus to capital account.
ARTICLE SIXTH: The number of Directors of the Corporation shall be as
fixed from time to time in the By-Laws, but not less than three, and the number
may be increased or decreased as may be provided in the By-Laws. In case of
any increase in the number of Directors, the additional Directors shall be
elected by the Board of Directors as in the case of a vacancy.
ARTICLE SEVENTH: In furtherance and not in limitation of the powers
conferred by law, the Board of Directors is expressly authorized:
(a) to make, alter, amend and repeal the By-Laws of the
Corporation subject to the power of the holders of the capital stock to
alter, amend or repeal the By-Laws made by the Board of Directors;
(b) to designate by resolution passed by a majority of the whole
Board two or more of their number to constitute an Executive Committee,
who, to the extent provided in said resolution or in the By-Laws of the
Corporation, shall have and exercise the powers of the Board of
Directors in the management of the business and affairs of the
Corporation, with power to authorize the seal of the Corporation to be
affixed to all papers which may require it;
(c) to appoint from the Directors or otherwise such other
committees as they may deem judicious, and to such extent as may be
provided in their resolutions or in the By-Laws to delegate to such
committees all or any of the powers of the Board of Directors which may
be lawfully delegated;
(d) to determine conclusively at the time of such acquisition,
what initial valuation shall be placed upon the property, rights and
interests acquired by the Corporation in exchange for or in payment of
its shares of stock;
(e) to fix from time to time, and to vary, the amount of the
profits to be reserved as working capital or for any other
-3-
<PAGE>
lawful purposes and to increase, decrease or make any disposition of
any fund so reserved;
(f) subject to the provisions of this Restated Certificate of
Incorporation, to determine whether any, and if any, what part, of the
surplus of the Corporation or of the net profits arising from its
business shall be declared in dividends and paid to the stockholders
and to direct and determine the use and disposition of any such surplus
or net profits;
(g) to determine from time to time whether and to what extent and
at what times and places and under what conditions and regulations the
accounts and books of the Corporation, or any of them, shall be open to
the inspection of the stockholders; and no stockholder shall have any
right to inspect any account or book or document of the Corporation,
except as conferred by the laws of the State of Delaware, unless and
until authorized so to do by resolution of the Board of Directors or of
the stockholders;
(h) to remove at any time any officer elected or appointed by the
Board of Directors, but only by the affirmative vote of a majority of
the members of the Board then in office, and to remove or to confer on
any committee or officer the power to remove any other officer or
employee of the Corporation. Any such removal may be for cause or
without cause.
ARTICLE EIGHTH: Any contract, transaction or act of the Corporation or
of the Directors, which shall be ratified by a majority of a quorum of the
stockholders having voting power at any annual meeting, or at any special
meeting called for such purpose, shall, except as otherwise specifically
provided by law, or by this Restated Certificate of Incorporation, be as valid
and as binding as though ratified by every stockholders of the Corporation;
provided, however, that any failure of the stockholders to approve or ratify
such contract, transaction or act, when and if submitted, shall not of itself be
deemed in any way to render the same invalid, nor deprive their Directors of
their right to proceed with such contract, transaction or act.
-4-
<PAGE>
ARTICLE NINTH: The Corporation reserves the right to amend, alter,
change or repeal any provisions contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute in the case
of a certificate of incorporation, and all rights conferred upon the
stockholders herein are granted subject to this reservation. The vote of
two-thirds of the outstanding shares of capital stock of the Corporation shall
be necessary to authorize any of the following actions: (i) a merger or
consolidation of the Corporation with an open-end investment company, (ii) the
dissolution of the Corporation, (iii) the sale of all or substantially all of
the assets of the Corporation, (iv) any amendment to the certificate of
incorporation of the Corporation which makes the Common Stock a redeemable
security (as such term is defined in the Investment Company Act of 1940) or
reduces the two-thirds vote required to authorize the actions listed in this
paragraph.
---------------------------------------
THIRD: This Restated Certificate of Incorporation has been duly adopted
by the favorable vote of the holders of a majority of the outstanding stock
entitled to vote thereon in accordance with the provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, GENERAL AMERICAN INVESTORS COMPANY, INC. has caused
this certificate to be signed by Malcolm B. Smith, its President, and attested
by R. Kim Kiley, its Secretary, on the 23rd day of March, 1984.
GENERAL AMERICAN INVESTORS COMPANY, INC.
By /s/ Malcolm B. Smith
-------------------------------------
Malcolm B. Smith,
President
Attest:
By /s/ R. Kim Kiley
------------------
R. Kim Kiley,
Secretary
-5-
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL AMERICAN INVESTORS COMPANY, INC.
GENERAL AMERICAN INVESTORS COMPANY, INC., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution amending the Corporation's Restated Certificate of Incorporation by
adding a new Article Tenth that reads as follows:
ARTICLE TENTH: No director of the corporation shall be liable to
the corporation 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 corporation 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.
SECOND: This Certificate of Amendment has been duly adopted by the
favorable vote of the holders of a majority of the outstanding stock entitled to
vote thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, GENERAL AMERICAN INVESTORS COMPANY, INC. has caused
this Certificate to be signed by Malcolm B. Smith, its President, and attested
by John J. Smith, its Secretary, on the 28th day of April, 1987.
GENERAL AMERICAN INVESTORS COMPANY, INC.
By /s/ Malcolm B. Smith
[SEAL] -------------------------------------
Malcolm B. Smith,
President
Attest:
By /s/ John J. Smith
--------------------
John J. Smith
Secretary
Certificate of Amendment
of
Restated Certificate of Incorporation
of
General American Investors Company, Inc.
General American Investors Company, Inc. a Delaware corporation (the
"Corporation") hereby certifies as follows:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution amending the Corporation's Restated Certificate of Incorporation by
amending the first paragraph of ARTICLE FOURTH in its entirety to read as
follows:
"The total authorized capital stock of the Corporation
shall be 30,000,000 shares of Common Stock of the par value of one
Dollar ($1) per share."
SECOND: This Certificate of Amendment has been duly adopted by the
favorable vote of the holders of a majority of the outstanding stock entitled to
vote thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, General American Investors Company, Inc. has caused
this Certificate to be signed by William J. Gedale, its President, and attested
by Dolores P. Sovern, its Secretary on the 19th day of March, 1992.
GENERAL AMERICAN INVESTORS COMPANY, INC.
By /s/ William J. Gedale
-------------------------------------
William J. Gedale
President
Attested:
By: /s/ Dolores P. Sovern
------------------------
Dolores P. Sovern
Secretary
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL AMERICAN INVESTORS COMPANY, INC.
General American Investors Company, Inc., a Delaware corporation,
hereby certifies as follows:
FIRST. The Board of Directors of said corporation duly adopted a
resolution setting forth and declaring advisable the amendment of Article Fourth
of the restated certificate of incorporation of said corporation to increase the
total number of shares of capital stock which the corporation shall have
authority to issue from 30,000,000 shares of capital stock to 40,000,000 shares,
consisting of 30,000,000 shares of Common Stock of the par value of one Dollar
($1) per share and 10,000,000 shares of Preferred Stock of the par value of one
Dollar ($1) per share so that, as amended, the first paragraph of said Article
shall read as follows:
"ARTICLE FOURTH: The total authorized capital stock of the Corporation
shall be 40,000,000 shares, consisting of 30,000,000 shares of Common Stock
of the par value of one Dollar ($1) per share and 10,000,000
<PAGE>
shares of Preferred Stock of the par value of one Dollar ($1) per share.
Shares of Preferred Stock may be issued in one or more series from time to
time by the Corporation, acting by its Board of Directors, without action
by the stockholders, and the Board of Directors is expressly authorized to
fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and
restrictions thereof, of the shares of each series of Preferred Stock,
including without limitation the following:
(1) The distinctive serial designation of such series which shall
distinguish it from other series;
(2) The number of shares included in such series;
(3) The dividend rate (or method of determining such rate) payable to
holders of the shares of such series, and conditions upon which such
dividends shall be paid and the date or dates upon which such dividends
shall be payable;
(4) Whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or
holders thereof or at the option of the Corporation or
-2-
<PAGE>
upon the happening of a specified event or events, into shares of any
other class or any other series of the same or any other class of stock
of the Corporation, and the price or prices or rate or rates of
exchange or conversion and any adjustments applicable thereto;
(5) The price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may
be redeemed at the option of the Corporation or at the option of the
holder or holders thereof or upon the happening of a specified event or
events;
(6) The obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the period or periods within which and the
terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such
obligation;
(7) The amount or amounts which shall be payable out of the assets of
the Corporation to the holders of the shares of such series upon
voluntary or involuntary liquidation, dissolution,
-3-
<PAGE>
or winding up of the Corporation, and the relative rights of priority,
if any, of payment on shares of such series; and
(8) Any other relative rights, preferences, and limitations of the
shares of the series not inconsistent herewith or with applicable law.
Subject to the rights of the holders of any series of Preferred Stock,
the number of authorized shares of any class or series of Preferred
Stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of such class or series, voting
together as a single class, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware or any
corresponding provision hereafter enacted."
SECOND. The foregoing amendment has been duly adopted by the favorable
vote of the holders of a majority of the outstanding stock entitled to vote
thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
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<PAGE>
IN WITNESS WHEREOF, General American Investors Company, Inc. has caused
this certificate to be signed by Spencer Davidson, its President and Chief
Executive Officer, on the 11th day of March, 1998.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By /s/ Spencer Davidson
----------------------------------
Name: Spencer Davidson
Title: President and Chief
Executive Officer
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CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL AMERICAN INVESTORS COMPANY, INC.
General American Investors Company, Inc., a Delaware corporation,
acting pursuant to Section 103 of the Delaware General Corporation Law (the
"DGCL"), hereby certifies that:
1. The first sentence of paragraph FIRST of the Certificate of
Amendment of the Restated Certificate of Incorporation of General American
Investors Company, Inc. as filed on March 11, 1998, which provides that Article
Fourth of the Restated Certificate of Incorporation shall be amended in its
entirety, is incorrect.
2. The first sentence of paragraph FIRST of the Certificate of
Amendment of the Restated Certificate of Incorporation of General American
Investors Company, Inc. shall be corrected to provide:
"FIRST. The Board of Directors of said corporation duly adopted a
resolution setting forth and declaring advisable the amendment of Article Fourth
of the restated certificate of incorporation of said corporation to increase the
total number of shares of capital stock which the corporation shall have
authority to issue from 30,000,000 shares of capital stock to 40,000,000 shares,
consisting of 30,000,000 shares of Common Stock of the par value of one Dollar
($1) per share and 10,000,000 shares of Preferred Stock of the par value of one
Dollar ($1) per share so that, as amended, the first paragraph of said Article
shall read as follows:"
<PAGE>
IN WITNESS WHEREOF, this Certificate of Correction has been duly
executed as of the 20th day of March, 1998 and is being filed in accordance with
Section 103 of the DGCL by an authorized person of the corporation.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By /s/ Eugene L. DeStaebler, Jr.
--------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President,
Administration
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BY-LAWS
OF
GENERAL AMERICAN INVESTORS COMPANY, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meeting. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting. A special meeting of stockholders shall be
called by the Secretary upon the written request, stating the purpose of the
meeting, of stockholders who together own of record a majority of the
outstanding shares of each class of stock entitled to vote at such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original
<PAGE>
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. In the absence of a quorum of the holders of any class of
stock entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.4 of these by-laws until a quorum of
such class shall be so present or represented. Shares of its own capital stock
belonging on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in the absence of the President
by a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by
a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
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<PAGE>
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power, regardless
of whether the interest with which it is coupled is an interest in the stock
itself or an interest in the Corporation generally. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation. Voting at
meetings of stockholders need not be by written ballot and need not be conducted
by inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or represented by
proxy at such meeting shall so determine. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. In all other
matters, unless otherwise provided by law or by the certificate of incorporation
or these by-laws, the affirmative vote of the holders of a majority of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the stockholders.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
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<PAGE>
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, in the office of the Corporation. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof and may
be inspected by any stockholder who is present.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by the Board. Directors need
not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.
Each director shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. Any
director or the entire Board of Directors may be removed, with cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors. Unless otherwise provided in the certificate of incorporation or
these by-laws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class or from any other cause
may be filled by a majority of the directors then in office, although less than
a quorum, or by the sole remaining director.
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<PAGE>
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors one-third of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall be present.
Section 2.7. Organization. The Board of Directors may, if it so
determines, elect from its members a Chairman of the Board and a Vice Chairman
of the Board. Meetings of the Board of Directors shall be presided over by the
Chairman of the Board, if any, or in the absence of the Chairman of the Board by
the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman
of the Board by the President, or in their absence by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting. The Chairman of the Board and the
Vice Chairman of the Board shall have such duties as may be delegated by the
Board of Directors but shall not otherwise have any authority to act for or on
behalf of the Corporation or be deemed an officer thereof.
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<PAGE>
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these by-laws, the Board of Directors shall
have the authority to fix the compensation of directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors or in these by-laws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's
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<PAGE>
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, removing or indemnifying directors
or amending these by-laws; and, unless the resolution, these by-laws or the
certificate of incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of stock
or to adopt a certificate of ownership and merger.
Section 3.2. Executive Committee. In accordance with the procedures
specified in and subject to Section 3.1., the Board of Directors may designate
an Executive Committee which shall consist of the Chairman of the Board, a
Vice-Chairman of the Board, if there is one, the President and such number of
other directors as the Board may from time to time determine such that a
majority of the members of the Committee shall be directors who are not
interested persons of the Corporation. (For this purpose, directors who are
interested persons of the Corporation shall mean directors who are also officers
of the Corporation and who participate in the day-to-day operations of the
Corporation, who own more than 5% of the outstanding shares of the Corporation
and who may otherwise be defined as such under Section 2(a)(19) of The
Investment Company Act of 1940.) The Board may designate one or more directors
as alternate members of the Executive Committee.
The Board of Directors may at any time, in its discretion, by
resolution passed by a majority of the whole Board, increase or reduce the
number of members of the Executive Committee, change the existing membership of
the Committee or the alternate membership thereof, fill vacancies in such
membership or alternate membership, or dissolve the Committee.
Subject to such limitations as may be prescribed in the certificate of
incorporation or these by-laws or by the Board of Directors, the Executive
Committee shall have, and may exercise when the Board is not in session, the
powers of the Board of Directors in the management of the business and affairs
of the Corporation.
In addition, the Executive Committee shall function as a Nominating
Committee and, as such, shall be responsible for identifying individuals who
may be nominated to serve as directors of the Corporation (whether to fill
vacancies or otherwise), responding to inquiries relating to nominations for the
Board of Directors and, at least annually, making recommendations to the Board
with respect to individuals to be nominated to serve as directors.
Any action taken by the Executive Committee shall be validly taken only
upon the affirmative vote of a majority of the
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<PAGE>
directors present who are not interested persons of the Corporation.
Section 3.3. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary. The Board may also elect one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers and such other
officers as the Board may deem desirable or appropriate and may give any of them
such further designations or alternative titles as it considers desirable. Any
number of offices may be held by the same person unless the certificate of
incorporation or these bylaws otherwise provide.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. The Board may remove any
officer with or without cause at any time. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
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<PAGE>
Section 4.3. President. In the absence of the Chairman of the Board and
Vice Chairman of the Board, the President shall preside at all meetings of the
Board of Directors and of the stockholders at which he or she shall be present.
The President shall be the chief executive officer and shall have general charge
and supervision of the business of the Corporation and, in general, shall
perform all duties incident to the office of president of a corporation and such
other duties as may, from time to time, be assigned to him or her by the Board
or as may be provided by law. The President shall inform the Chairman about any
questions of policy which may arise concerning the affairs of the Corporation.
Section 4.4. Secretary. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors and any
committees in a book to be kept for that purpose, shall see that all notices are
duly given in accordance with the provisions of these by-laws or as required by
law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation is duly authorized, and when so affixed may attest the same, and, in
general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.5. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.6. Vice Presidents and Other Officers. Any Executive Vice
President, Senior Vice President, Vice President or other officer of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally
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<PAGE>
pertain to their respective offices, subject to the control of the Board. The
Board may require any officer, agent or employee to give security for the
faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1. Stock Certificates and Uncertificated Shares. The shares
of stock in the Corporation shall be represented by certificates, provided that
the Board of Directors may provide by resolution or resolutions that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate theretofore issued until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board,
every holder of stock represented by certificates, and upon request every holder
of uncertificated shares, shall be entitled to have a certificate signed by or
in the name of the Corporation by the Chairman or Vice Chairman of the Board, if
any, or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock registered in certificate form owned
by such holder. If such certificate is manually signed by one officer or
manually countersigned by a transfer agent or by a registrar, any other
signature on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated shares and the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or such owner's legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be
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<PAGE>
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the fullest extent permitted by law (including
the Investment Company Act of 1940) any person made or threatened to be made a
party to any action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person or such person's
testator or intestate is or was a director, officer or employee of the
Corporation or serves or served at the request of the Corporation any other
enterprise as a director, officer or employee. To the fullest extent permitted
by law (including the Investment Company Act of 1940), expenses incurred by any
such person in defending any such action, suit or proceeding shall be paid or
reimbursed by the Corporation promptly upon receipt by it of an undertaking of
such person to repay such expenses if it shall ultimately be determined that
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<PAGE>
such person is not entitled to be indemnified by the Corporation. The rights
provided to any person by this by-law shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer or employee as provided
above. No amendment of this by-law shall impair the rights of any person arising
at any time with respect to events occurring prior to such amendment. For
purposes of this by-law, the term "Corporation" shall include any predecessor of
the Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprise" shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Corporation"
shall include service as a director, officer or employee of the Corporation
which imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to be indemnifiable expenses; and action by a
person with respect to an employee benefit plan which such person reasonably
believes to be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests of the
Corporation.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of
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<PAGE>
a committee which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
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GENERAL AMERICAN INVESTORS COMPANY, INC.
-------------------
Employees' Retirement Plan*
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As Amended as of December 19, 1994
================================================================================
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* Working copy including amendments through December 19, 1994.
<PAGE>
GENERAL AMERICAN INVESTORS
COMPANY, INC.
---------------------
EMPLOYEES' RETIREMENT PLAN
SECTION I - Definitions
For the purposes of this Plan, the following words and phrases shall
have the following meanings:
1. "Act" shall mean the Employee Retirement Income Security Act of
1974.
2. "Actuarial Equivalent" shall mean any amount of approximate
equivalent value when computed at a rate of six (6%) percent interest and the
TPF&C Forecast Mortality Table with employee ages set back one year and
contingent annuitant ages set back five years.
3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
4. "Company" shall mean General American Investors Company, Inc. and
its subsidiary, General American Advisers, Inc.
5. "Covered Compensation Level" shall mean with respect to the calendar
year in which a Participant retires or otherwise terminates Service, the average
of the taxable wage bases under Title II of the Social Security Act for the 35
calendar years ending with the year the Participant attains social security
retirement age. In determining a
<PAGE>
Participant's Covered Compensation Level for any Plan Year prior to attaining
social security retirement age, it is assumed that the taxable wage base at the
beginning of the Plan Year will remain the same for all future years.
6. "Credited Service" shall mean the Years of Service of a Participant
recognized for the purpose of computing benefits under the terms of the Plan.
Credited Service includes all Years of Service extending from his eligibility
for Plan participation to the date of his Early, Normal, or Deferred Retirement
Date, or vested termination of Service.
7. "Disability" shall mean a physical or mental condition which, in the
opinion of the Pension Committee based on medical evidence satisfactory to it,
is believed to be permanent and renders the Participant unfit to perform the
duties of an Employee. The Participant must also be eligible for and receiving
benefits under the Federal Social Security Act.
8. "Earnings" shall mean regular annual basic salary or wages received
by an employee for Service with the Company and shall not include overtime,
bonuses, commissions, pensions, retainer fees, fees under contracts or any other
form of additional or special compensation. For the purpose of determining such
an employee's Earnings during a period of authorized leave of absence, he shall
be deemed to have received salary or wages in an amount equal to that which he
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was receiving immediately prior to the commencement of such leave. In no event
shall Earnings for purposes of the Plan for any Plan Year beginning after
December 31, 1993 exceed $150,000 as adjusted to reflect increases in the cost
of living pursuant to Section 401(a)(17) of the Code.
9. "Effective Date" shall mean January 1, 1956, the effective date of
this Plan.
10. "Employee" shall mean any person who is in the Service of the
Company, and shall not include a Director as such.
11. "Final Average Earnings" shall mean the average of an Employee's
Earnings for the five consecutive years in which he had the highest Earnings
during the last ten Years of Service.
12. "Investment Manager" shall mean a person (A) who has the power to
manage, acquire, or dispose of any asset of the Plan; (B) who is registered as
an investment adviser under the Investment Advisers Act of 1940; and (C) has
acknowledged in writing that he is a fiduciary with respect to the Plan. The
Company may be appointed as the Investment Manager.
13. "Married Participant" shall mean, for purposes of the "Joint and
Survivor Annuity", a Participant who is married on the annuity starting date and
who has been married throughout the one-year period preceding his death.
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<PAGE>
14. "Participant" shall mean any employee who participates in the Plan
as provided in Section II.
15. "Pension Committee" shall mean the committee described in Section
XII of the Plan.
16. "Plan" shall mean this Employees' Retirement Plan.
17. "Plan Year" shall mean the calendar year.
18. "Retirement Date" shall mean a Participant's Normal, Early,
Deferred or Disability Retirement Date, whichever is applicable to him under
Section III.
19. "Service" shall mean all Years of Service. Each Employee will be
credited with an hour of Service for each hour for which he is directly or
indirectly paid or entitled to payment by the Company for the performance of
duties; and each hour for which back pay, irrespective of mitigation of damages,
has been either awarded or agreed to by the Company. For purposes of crediting
hours of Service for nonperformance of duties, such hours shall be credited in
accordance with Department of Labor Regulation ss.2530.200(b) 2(b) and (c).
Each Employee will be credited with hours of Service at his normally scheduled
work hours per day during (i) periods while on authorized leave of absence,
which shall be granted without discrimination in favor of shareholders, officers
or highly compensated participants, including military service, provided that no
approved leave of absence other than for military service shall exceed two years
for
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<PAGE>
purposes of this Plan and the Employee returns to active employment with the
Company within the time specified by then applicable laws and (ii) periods of
disability for which disability payments under Section 223 of the Social
Security Act are payable.
20. "Spouse" shall mean any person who has been married to the
Participant throughout the one-year period ending on the date of either a) the
Participant's death, if such death occurs prior to the annuity starting date or
b) the annuity starting date.
21. "Trust Fund" shall mean the assets held by the Trustee in the Trust
created under a Trust Agreement effective as of the date of its signing,
substantially in the form annexed hereto.
22. "Year of Service" shall mean each 12 consecutive month period
beginning on the Employee's employment commencement date and each anniversary
thereof in which an Employee completes at least 400 hours of Service.
23. The masculine pronoun, wherever used, shall include the feminine.
Wherever any words are used herein in the singular, they shall be construed as
though they were also used in the plural in all cases where they shall so apply.
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<PAGE>
SECTION II - Participation in the Plan
1. Each Employee who was a Participant in the Plan on December 31, 1973
automatically shall continue as a Participant after December 31, 1973.
2. Each Employee who was not a Participant in the Plan on December 31,
1973 shall become a Participant on the first day of the month after which:
(a) he has one or more Years of Service with the Company, and
(b) he has reached age 21.
SECTION III - Retirement Date
1. The Normal Retirement Date of any Participant shall be the first day
of the month coincident or next following his 65th birthday.
2. The Early Retirement Date of a Participant shall be the first day of
the month coincident with or next following the date of termination of Service,
other than for reason of death, if earlier than the Normal Retirement Date;
provided the Participant has completed at least 15 years of Service and has
attained at least age 55.
3. The Deferred Retirement Date of a Participant shall be the first day
of the month coincident with or next following the date of termination of
Service, if later than the Normal Retirement Date.
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<PAGE>
4. The Disability Retirement Date of a Participant shall be the same as
his Normal Retirement Date as specified in Section III.1 above.
SECTION IV - The Amount of Normal, Early and Deferred Retirement Income
1. Upon reaching his Normal Retirement Date, the Participant's accrued
benefits will be fully vested and non-forfeitable. If a Participant retires on
his Normal Retirement Date, the amount of annual Normal Retirement Income
payable to him shall be equal to the sum of the amounts determined under clauses
(a), (b) and (c), reduced by the amount determined under clause (d) below, but
in no event will such Normal Retirement Income be less than the greater of the
amounts determined under clauses (e) or (f) below:
(a) 1.5% times the Participant's Final Average Earnings multiplied
by the Participant's number of years of Credited Service not in excess
of 35 years;
(b) .5% times the Participant's number of years of Credited
Service above 35 years;
(c) $50 times the Participant's number of years of Credited
Service;
(d) .59% multiplied by the Participant's number of years of
Credited Service not in excess of 35 years times the lesser of (i) the
Participant's Covered Compensation Level, or (ii) the average of the
Participant's annual Earnings during the three
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<PAGE>
consecutive Plan Years ending with the current Plan Year; provided,
that in no event shall the amount determined under this clause (d) be
greater than .75% times the Participant's years of Credited Service not
in excess of 35 years times the Participant's Final Average Earnings;
(e) The greatest Early Retirement Income payable to such
Participant had he chosen to retire on an Early Retirement Date; and
(f) The amount of Normal Retirement Income to which he was
entitled (i) on December 31, 1988 under the terms of the Plan as in
effect on that date with respect to each Participant who was then a
highly-compensated employee described in Section 414(q)(1)(A) or (B) of
the Code, or (ii) on December 31, 1989 under the terms of the Plan as
in effect on that date with respect to each other Participant.
The Normal Retirement Income of each Participant who retired prior to January 1,
1990 shall be increased, effective as of January 1, 1992, by the result of
multiplying $50 times the Participant's number of years of Credited Service.
Unless provided otherwise under the Plan, each "TRA 86 Participant's"
accrued benefit under the Plan will be the greater of:
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<PAGE>
(i) the Participant's Normal Retirement Income determined under
this Section IV.1. with respect to all of the Participant's years of
Credited Service, or
(ii) the sum of:
(A) the Participant's accrued benefit as of December 31,
1988, frozen in accordance with Section 1.401(a)(4)-13 of the
Income Tax Regulations promulgated under the Code, and
(B) the Participant's Normal Retirement Income determined
under this Section IV.1. with respect to the Participant's years
of Credited Service credited to the Participant for Plan Years
beginning on or after January 1, 1989.
For purposes of this Section IV.1., a "TRA 86 Participant" means a
Participant whose Normal Retirement Income as of a date on or after the first
day of the Plan Year beginning on January 1, 1989, is based on compensation for
a year beginning prior to the Plan Year beginning on January 1, 1989, that
exceeded $200,000.
Unless provided otherwise under the Plan, each "OBRA 93 Participant's"
accrued benefit under the Plan will be the greater of:
(i) the Participant's Normal Retirement Income determined under
this Section IV.1. with respect to all of the Participant's years of
Credited Service, or
(ii) the sum of:
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<PAGE>
(A) the Participant's accrued benefit as of December 31,
1993, frozen in accordance with Section 1.401(a)(4)-13 of the
Income Tax Regulations, and
(B) the Participant's Normal Retirement Income determined
under this Section IV.1. with respect to the Participant's years
of Credited Service credited to the Participant for Plan Years
beginning on or after January 1, 1994.
For purposes of this paragraph, an "OBRA 93 Participant" means a
Participant whose Normal Retirement Income as of a date on or after the first
day of the Plan Year beginning on January 1, 1994, is based on compensation for
a year beginning prior to the Plan Year beginning on January 1, 1994, that
exceeded $150,000.
2. If a Participant retires on an Early Retirement Date he shall be
entitled to receive the amount of annual Normal Retirement Income as accrued to
the Early Retirement Date, but if payment is commenced prior to the Normal
Retirement Date, such amount shall be reduced by 1/15 for each year not in
excess of five that commencement of payment precedes Normal Retirement Date, and
by 1/30 for each succeeding year.
3. If a Participant retires on a Deferred Retirement Date, the amount
of annual Deferred Retirement Income shall be his Normal Retirement Income as
accrued to his
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<PAGE>
Deferred Retirement Date, including Years of Credited Service and Earnings after
Normal Retirement Date.
4. If the employment of a Participant is terminated prior to his
Retirement Date because of his total and permanent physical or mental
disability, as determined by the Pension Committee, the Participant shall, until
his Normal Retirement Date, continue to accrue all pension benefits based upon
his annualized Earnings at the time of disability.
5. If a Participant's Retirement Date occurred on or after January 1,
1973 but prior to January 1, 1974, his Retirement Income shall be recomputed as
of January 1, 1974 under this Section.
6. Retirement Income payment shall be paid not later than 60 days following the
later of the Participant's Retirement Date or his termination of employment.
Notwithstanding anything contained herein to the contrary, benefits shall
commence no later than April 1 of the calendar year following the calendar year
in which the Participant attains age 70 1/2, even if he continues in employment
with the Employer.
7. If a Participant (a) who retired on an Early Retirement Date and (b)
whose Pension commenced to be paid prior to his Normal Retirement Date resumes
his status as an Employee prior to his Normal Retirement Date, payment of his
Pension shall be suspended, he shall resume participation in the Plan
immediately and his credit for Service before
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<PAGE>
retirement shall be reinstated for all purposes of the Plan (including the
computation of his accrued benefit) as though such retirement had not occurred.
The benefits payable to him upon his subsequent retirement shall be reduced by
an amount equal in actuarial value to the benefit payments made to him prior to
his re-employment.
If a Participant (a) retired on any Retirement Date and (b) whose
Pension commenced to be paid resumes his status as an Employee after his Normal
Retirement Date, the payment of his Pension shall be suspended for each month in
which such Participant receives payment from the Company for an hour of Service
performed on each of 8 or more days in such month. When such Participant
subsequently retires, payment of his Pension shall resume in the form he
previously received, without any increase in amount. The Pension Committee, in
accordance with regulations prescribed by the Department of Labor, may deduct
from the amount of the payment of a Participant's Pension when such Participant
subsequently retires the amount of benefit payments made to the Participant for
each month in which he received payment from the Company for an hour of Service
performed on each of 8 or more days in such month. Such deductions shall be made
pursuant to rules prescribed by the Pension Committee which shall be applied in
a uniform and non-discriminatory manner.
8. The Retirement Income currently being paid to Participants (or to
the Spouses or beneficiaries of such
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<PAGE>
Participants) who retired prior to January 1, 1985, shall be increased,
effective as of January 1, 1985, by the following adjustment:
Percentage Increase in Retire-
Year of Commencement ment Income for Each Calendar
of Retirement Income Year Service Commencement
-------------------- ------------------------------
Before 1980 10
After 1979 5
9. The Retirement Income currently being paid to Participants (or to
the spouses or beneficiaries of such Participants) who retired prior to January
1, 1988, shall be increased, effective as of January 1, 1988, by 2% for each
year since retirement.
SECTION V - Forms of Retirement Income
1. (a) The normal form of Retirement Income for a Married Participant
shall be the "50% Joint and Survivor Annuity", which provides a life income,
paid in equal monthly installments, for the life of the Participant payable upon
his Normal, Early or Deferred Retirement Date, with a survivor annuity for the
life of his Spouse, paid in equal monthly installments, of one-half the value of
the installments paid to the participant. The amount payable under this form
depends upon the age and sex of the Participant and his Spouse. In the event of
death of the Participant after retiring on his Early Retirement Date and prior
to the date on which he has elected to receive his
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<PAGE>
benefits, his Spouse shall receive the survivor annuity as though the
Participant's benefits commenced as of the date of death.
(b) The normal form of Retirement Income for a single Participant is a
"Straight Life Annuity", which provides a life income to the Participant ceasing
upon his death.
2. Instead of a normal form of Retirement Income specified in either
subsection 1(a) or 1(b) above, a Participant may elect to receive (or revoke a
previous election) an optional form of life income payment from the following
list of options, at any time during the 90-day period ending on the date payment
of Retirement Income is to commence. If a Married Participant elects not to
receive the "50% Joint and Survivor Annuity", the Pension Committee shall give
such Participant a statement describing the nature and effect of his election.
Notwithstanding the foregoing, in no event shall a married Participant have less
than 90 days to elect, or revoke a previous election of, a form of Retirement
Income following the date on which he has been furnished with written
information of the terms and conditions of the "50% Joint and Survivor Annuity"
and the financial effects of electing an optional form of Retirement Income.
(a) A "10 Years Certain and Continuous" annuity basis, which means that
if the Participant dies before he has received 120 monthly payments (10 years),
such payments will
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<PAGE>
be continued to his designated beneficiary until a total of 120 payments have
been made. In any event, the monthly payments will continue for the entire life
of the Participant. The amount payable under this form depends upon the age and
sex of the Participant. Generally, this form provides a larger monthly income to
the Participant than would be payable under Section 1(a) above because it does
not provide income to the end of the longer of two lives.
(b) A "Life Income" to the Participant as described in Section 1(b)
above. This benefit is available to both Married and Single Participants. The
form of the benefit provides a somewhat higher amount of retirement income than
would be payable under option 2(a) above because the Trust is not obligated to
continue the payments if the Participant does die before 10 years have elapsed
since his retirement.
(c) A "Contingent Annuitant Option", which is a life income to the end
of the longer of two lives. Upon the death of the Participant, the payments
which continue to the contingent annuitant may be 100%, 66 2/3% or 50% of the
payments made while both lives were living. This form provides a smaller monthly
income to the Participant than does option 2(a) above because it provides a life
income to the end of the longer of two lives. The amount payable under this form
depends upon the age and sex of the Participant and
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<PAGE>
the "Joint Annuitant", and the proportion of retirement income continued to the
survivor.
(d) A "Level Income Benefit" on a 10-Year Certain and Continuous basis.
This is a benefit which is the actuarial equivalent of the Participant's
Retirement Income (whether Normal, Early or Deferred) but is adjusted such that
the sum of the Retirement Income and Social Security Benefits, when payable, is
a constant.
3. All forms of Retirement Income, other than the optional form
provided in subsection 2(a) above, shall be in an amount equal to the Actuarial
Equivalent of a "10 Year Certain and Continuous" annuity. If a Participant
elects a Retirement Income form which provides an annuity to the Participant's
beneficiary other than his Spouse, the present value of the payments to be made
to the Participant shall be more than 50% of the present value of the total
payments to be made to the Participant and his beneficiary and the period of
payment of such form must not exceed the lives or life expectancy, as applicable
of the Participant and such beneficiary.
4. Notwithstanding anything contained herein to the contrary, unless
the Participant's spouse consents in writing in a manner approved by the
Committee, the Participant may not elect not to receive the 50% Joint and
Survivor Annuity.
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<PAGE>
SECTION VI - Spouse's Benefit
1. If the Participant dies while in Service after having attained age
50 and having completed at least 10 years of Service with the Company, there
shall be a Spouse's Benefit payable in an amount equal to 50% of the Normal
Retirement Income accrued to the date of death. The Spouse's Benefit shall be
payable in equal monthly installments, ceasing upon the death of the Spouse.
2. In the event of the death of a Participant on or after August 22,
1984 who is not eligible for the benefit provided in Subsection VI(1), whether
or not he is then in service with the Company, and who is (or would have been
had he terminated service with the Company immediately prior to his death)
entitled to Retirement Income under Section IV and who is survived by the Spouse
to whom he has been married throughout the one-year period ending on his date of
death, the surviving Spouse shall receive a monthly survivor's income for life,
commencing on the first day of the month in which the Participant would have
attained age 55 (if he had not already done so), in an amount equal to 50% of
the monthly income which would have been payable to the Participant under
Section VII(2) had he separated from service on the date of death (if he had not
already done so), survived to age 55 (if he had not already done so), and
elected to have his benefit commence on the later of the date of his death or
the date he attained age 55.
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<PAGE>
3. A Spouse of a former Participant who terminated service with the
Company prior to August 22, 1984, will receive the benefit available under
Section VI(2) if (i) the Participant had at least one hour of Service on or
after January 1, 1976; (ii) when the Participant separated from Service, the
Participant had at least 10 Years of Service; and (iii) as of August 22, 1984,
the Participant was alive and his Retirement Income had not commenced.
SECTION VII - Termination of Service
1. If the Service of a Participant is terminated other than by reason
of death or retirement on a Retirement Date he shall be entitled to receive,
commencing on his Normal Retirement Date, that percentage of the Normal
Retirement Income under Section IV(1) specified in the table set forth below
corresponding to the Years of Service, if any, satisfied by the Employee as of
the date of his termination of Service.
Percentage of
Retirement Income Under
Years of Service Section IV(1) Payable
---------------- -----------------------
2 20%
3 40%
4 60%
5 80%
6 100%
2. In lieu of the benefit provided in Section VII(1), the Participant
may elect to receive an actuarially reduced benefit to commence at any time
after termination of
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<PAGE>
Service, but not prior to his attainment of age 55. In computing the benefit
payable under this Section VII(2) and under Sections IV(2) and VI(1), his
Primary Social Security Benefit shall be calculated according to then applicable
laws on the assumption that he received no Earnings during the period from his
vested termination of Service, early retirement, or death to his Normal
Retirement Date.
3. A lump-sum cash payment shall be paid in lieu of such annuity
provided such lump-sum cash payment does not exceed $3,500. The lump-sum cash
payment shall be an amount equal to the actuarial present value of the monthly
benefit which would otherwise be payable at the Participant's Normal Retirement
Date in the normal form of Retirement Income. For the purpose of calculating the
actuarial present value, the interest rate used shall not exceed the interest
rate which would be used (as of the date of such distribution) by the Pension
Benefit Guaranty Corporation for purposes of determining the present value of a
lump sum distribution on plan termination.
A Participant (i) who upon his termination of employment received a
lump-sum cash payment in lieu of a Vested Deferred Benefit that was less than
100% vested in accordance with the schedule in Section VII(1) and (ii) who is
re-employed as an Employee of the Company shall have his Credited Service at his
date of termination reinstated to his credit provided he repays prior to
incurring five consecutive
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<PAGE>
one-year breaks in service as defined in paragraph (4) the lump-sum cash
payment, plus interest at 5% compounded per annum, from the date payment was
made to the date of repayment.
4. For purposes of paragraph (3) of this Section, "one-year break in
service" means each 12 consecutive month period beginning on the Employee's
employment commencement date and each anniversary thereof in which an Employee
completes less than 201 hours of Service. For purposes of determining whether a
one-year break in service has occurred, an Employee who is absent from work (a)
by reason of (i) the pregnancy of the Employee, (ii) the birth of a child of the
Employee, or (iii) the placement of a child with the Employee in connection with
the Employee's adoption of such child, or (b) for purposes of caring for a child
of the Employee immediately following birth or placement in connection with
adoption, shall be credited with the hours of Service which would otherwise
normally have been credited to the Employee but for such absence (or if such
hours of Service cannot be determined, 8 hours of Service for each normal
workday of absence) up to a maximum of 201 hours of Service. The hours of
Service specified in this paragraph shall be credited to the computation period
(A) in which the absence from work begins if an Employee would incur a one-year
break in service if such hours of Service were not credited to such
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computation period, or otherwise (B) immediately following the computation
period in which the absence from work begins.
SECTION VIII - Service of Rehired Employees
1. If a former Employee returns to the employment of the Company, his
prior Years of Service shall be aggregated with his Years of Service after he
returns to employment.
2. If a former Employee is rehired by the Company, such Employee will
be a Participant immediately if he has previously satisfied the eligibility
requirements of Section II. Otherwise, he will become a Participant upon
satisfying such requirements after he returns to employment.
SECTION IX - No Right to Employment
1. Nothing contained in this Plan shall confer on any Participant or
Employee the right to be retained in the service of the Company, nor shall it
interfere with the right of the Company to discharge or otherwise deal with him
without regard to the existence of the Plan.
2. No employee, Participant, retired Participant or beneficiary shall
have any right or claim to any benefit under the Plan unless such benefit has
become vested under the express terms of the Plan, and then such rights shall be
solely against the Trust Fund and not against the Company.
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SECTION X - Non-Alienation of Benefits
No benefit under the Plan shall be subject in any manner to
anticipation, alienation, assignment, pledge, sale or encumbrance. If any
Participant or other person shall attempt to assign, pledge, or otherwise
transfer or dispose of any such benefit, or should such benefit be subject to
judgment, execution, garnishment, sequestration or other seizure under any
legal, equitable or other process, it shall pass and be transferred to such one
or more persons as may be appointed by the Pension Committee from among the
Spouse and blood relatives of such Participant or beneficiary, as the case may
be, in such manner as the Pension Committee may direct; provided however, that
the Pension Committee in its sole discretion may at any time reappoint such
Participant or beneficiary to receive any payments thereafter becoming due
either in whole or in part. The foregoing shall not prohibit the payment of
benefits in accordance with the applicable requirements of a qualified domestic
relations order as defined in Section 414(p) of the Code.
SECTION XI - Contributions
1. All contributions to provide the benefits under the Plan are to be
made by the Company and no contributions are to be required of Participants.
Contributions by the Company will be made to the Trustee. Forfeitures, if any,
will be applied to reduce future Company contributions.
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2. The Company intends to make contributions each year in amounts
sufficient to fund in full the current costs of the Plan attributable to such
year as they accrue; however, all contributions are voluntary and the Company
reserves the right to terminate the Plan or suspend or change the rate and
amount of any and all contributions, to the extent permitted by Section 412 of
the Code.
3. All expenses incurred in the administration of the Plan will be paid
by the Company.
SECTION XII - Administration of the Plan
1. The Pension Committee shall have the responsibility for the general
administration of the Plan. The Pension Committee shall establish and carry out
a funding policy and method consistent with the objectives of the Plan and the
requirements of applicable law.
2. The Pension Committee shall consist of not less than 3 persons
appointed from time to time by, and to serve at the pleasure of, the Board of
Directors of General American Investors Company, Inc., and each person upon
becoming a member of the Committee shall file an acceptance thereof in writing
with the Company and the Secretary of the Committee. Any member of the Pension
Committee may resign by delivering his written resignation to the Company and
the Secretary of the Committee, and such resignation shall become effective on
the date specified therein.
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3. The members of the Pension Committee shall elect one of their number
as Chairman and shall appoint a Secretary and such other officers, who may but
need not be members of the Pension Committee, as they deem necessary and may
authorize one or more of their number to execute or deliver any instrument or
make any payment in their behalf. The Committee may employ agents and such
clerical and medical services and, with the approval of the Directors, such
counsel, accountants, investment advisors and actuaries as they may require in
carrying out the provisions of this Plan.
4. The majority of the members of the Pension Committee at the time in
office shall constitute a quorum for the transaction of business. Any
determination or action of the Pension Committee may be made or taken by a
majority of the members present at any meeting thereof, or without a meeting by
a resolution or written memorandum signed by all the members then in office.
5. No member of the Pension Committee who is an Employee of the Company
shall receive any compensation for his services as a member of the Committee.
6. Subject to the limitations hereof and to such restrictions as the
Company may from time to time make, the Pension Committee may establish rules
for the transactions of its business and the administration of the Plan. Except
as may be otherwise provided by resolution of the Directors, the Pension
Committee shall have the exclusive right to
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interpret the terms and provisions of the Plan and to determine any and all
questions arising thereunder or in connection with the administration thereof,
including the right to remedy possible ambiguities, inconsistencies or
omissions, and in so doing it shall act in such a way as not to discriminate in
favor of any class of Employees or Participants. Except as provided in Section
XIII, all interpretations and decisions of the Pension Committee in respect to
any matter or question hereunder shall be finally conclusive and binding on all
persons affected thereby.
7. The Pension Committee shall have the authority to appoint an
Investment Manager who shall direct the investments to be made by the Trustee
with the assets of the Trust Fund.
8. No member of the Pension Committee shall be personally liable by
virtue of any contract, agreement or other instrument made or executed by him or
on his behalf as a member of the Committee.
SECTION XIII - Claims Procedure
1. A Participant or his beneficiary may request a benefit provided by
this Plan by filing a written claim with the Pension Committee. Delivery to a
member of the Pension Committee shall constitute filing. Delivery may be made by
hand or by posting in the mail.
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<PAGE>
2. The claim shall state the benefit requested and the reason for the
belief that such benefit is due.
3. Within sixty (60) days of its actual receipt a member of the Pension
Committee shall by written notice accept or reject the claim. If the sixtieth
(60th) day is a Saturday, Sunday or holiday, acceptance or rejection of a claim
may occur on the next business day thereafter.
4. Rejection of a claim shall be effected by the giving of written
notice to the claimant setting forth in a manner calculated to be understood by
the claimant:
(a) the specific reason or reasons for the denial;
(b) specific reference to pertinent Plan provisions on which the
denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
Notice shall be deemed given upon delivery by hand, if not sent by mail, or
upon posting, if sent by mail.
5. If a claim is rejected, the claimant or his duly authorized
representative within sixty (60) days of the actual receipt of notice of
rejection may request a review of the claim by the full Pension Committee. A
request for review shall be effected by delivery of a written request for
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<PAGE>
review. Delivery shall be to any member of the Pension Committee. The claim
rejected shall be identified in the request for review either by description or
by attaching a copy of the notice of rejection. Delivery shall be deemed made
upon delivery by hand, if not mailed or upon posting if mailed. If the sixtieth
(60th) day is a Saturday, Sunday or holiday delivery may occur on the next
business day.
6. Not later than sixty (60) days after actual receipt by a member of
the Pension Committee of the request for review, the Pension Committee shall
accept or reject the claim. The member of the Pension Committee who originally
rejected the claim may not take part in the deliberation nor may he vote. If the
sixtieth (60th) day falls on a Saturday, Sunday or holiday the Pension Committee
may accept or reject the claim on the next business day.
7. Not later than ten (10) days after review of the claim by the
Pension Committee written notice of its decision to accept or reject the claim
shall be delivered to the claimant and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant and
shall include specific reference to the pertinent Plan provisions on which the
decision is based. Delivery shall occur upon delivery by hand, if not sent by
mail, or upon posting, if sent by mail. If the tenth (10th) day falls on a
Saturday, Sunday or holiday delivery may be made on the next business day.
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<PAGE>
SECTION XIV - The Trust
1. All assets of the Plan shall be held as a special trust for the
benefit of Participants, retired Participants and their beneficiaries and in no
event shall it be possible, at any time prior to the satisfaction of all
liabilities with respect to such individuals, for any part of the assets of the
Plan to be used for or diverted to purposes other than for the exclusive benefit
of such Participants, retired Participants and their beneficiaries. No person
shall have any interest in or right to any of the assets or earnings of the
Trustee except as expressly provided in this Plan. Notwithstanding anything
contained herein to the contrary, expenses incurred in the administration of the
Plan, including actuarial, accounting, trustee and legal fees, and Pension
Benefit Guaranty Corporation premiums, shall be paid by the Plan to the extent
not paid by the Company.
2. Notwithstanding the provisions of Section XIV(1), all Company
contributions to the Plan are expressly conditioned on their deductibility under
Section 404 of the Code and the continued qualification of the Plan under
Section 401(a) of the Code. If and to the extent that Company contributions to
the Trust are made by or under mistake of fact, a deduction is disallowed for a
contribution, or a determination is made that the Plan does not continue to be
qualified under Section 401(a) of the Code,
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<PAGE>
the same shall be repaid to the Company upon demand within one year after (a)
payment of a contribution made due to a mistake of fact, (b) disallowance of
such deduction or (c) the determination of lack of continued qualification.
SECTION XV - Right to Amend or Terminate the Plan
1. Although it is the intention of the Company to continue the Plan
indefinitely and to make contributions thereto regularly each year, the Company
does not guarantee to do so and the Board of Directors of General American
Investors Company, Inc. may, at any time and for any reason, discontinue, change
the rate of or suspend such contributions.
2. The Plan may be modified or amended in whole or in part by the Board
of Directors of General American Investors Company, Inc. at any time; provided,
however, that no such modification or amendment shall retroactively reduce the
rights of Participants nor make it possible for any part of the assets of the
Plan to be used for purposes other than for the exclusive benefit of
Participants, retired Participants and their beneficiaries.
3. The Plan, and the Trust created thereunder may be terminated at any
time by the Board of Directors of General American Investors Company, Inc. In
the event of the termination or partial termination of the Plan, the accrued
benefits of Participants affected by the termination or
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<PAGE>
partial termination shall be fully vested and non-forfeitable, provided,
however, that Participants shall have no recourse for payment of such benefits
from other than the assets of the Trust Fund, or, if applicable, the Pension
Benefit Guaranty Corporation. Except as provided in Section XVI, if the Plan is
terminated amounts in the Trust Fund available after payment of, or provision
for payment of, all expenses of final liquidation or termination which are not
paid by the Company shall be allocated, to the extent of the sufficiency of such
assets, for the purposes of providing benefits accumulated under the Plan to the
date of termination of the Plan for Participants, their joint annuitants and
beneficiaries as of the date of termination of the Plan. Such allocation shall
be in the manner and order described in the following paragraphs. If a complete
allocation shall have been made in accordance with one of the following
paragraphs (A) through (D), and if the assets remaining after such complete
allocation shall be insufficient for a complete allocation in accordance with
the paragraph next following, such remaining assets shall be allocated in a
uniform manner to all persons in the group mentioned in such paragraph next
following.
(A) First, equally among benefits of individuals in the following
two sub-categories:
1. In the case of benefits in pay status 3 years prior to
termination (at the lowest benefit
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<PAGE>
level under the Plan during the 5 years prior to termination), and
2. In the case of benefits which would have been in pay
status 3 years prior to termination had the Participant been
retired (and his benefits commenced then, at the lowest benefit
level under the Plan during the 5 years prior to termination),
(B) Second, among all other benefits (if any) of individuals under
the Plan guaranteed under the termination insurance provisions of the
Act, determined without regard to Sections 4022(b)(5) and 4022(b)(6)
(relating to owner-employees);
(C) Third, among all other nonforfeitable (i.e., uninsured vested)
benefits under the Plan;
(D) Fourth, among all other benefits under the Plan.
(E) If any assets remain after complete allocation for the
purposes of (A) through (D), above, such assets shall revert to the
Company.
Assets allocated in accordance with paragraphs (A) through (D) above
may be applied, in the discretion of the Pension Committee, to provide benefits
through the purchase of paid-up annuities on an individual or group basis,
through allocation of reserves within the then existing Trust Fund or through a
new trust instrument, or by a combination of these media.
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<PAGE>
4. The interests of Participants under the Plan shall fully vest upon
the termination of the Plan, and upon the suspension of contributions where such
suspension causes unfunded past service cost to exceed unfunded past service
cost as of the date of establishment of the Plan, plus any additional unfunded
cost on account of any subsequent amendment to the Plan on a Commencement Date.
SECTION XVI - Certain Limitations on Benefits
1. Notwithstanding any other provisions contained in the Plan, in the
event of the termination of the Plan, the retirement income of (a) each
Participant who is a highly compensated employee, as defined in Section 414(q)
of the Code, in the Plan Year in which the Plan is terminated, and (b) each
Participant who was a highly compensated employee during (i) the Plan Year in
which the Participant retired or otherwise terminated service with the Company,
or (ii) any Plan Year ending on or after his attainment of age 55, shall be
limited so that such retirement income is nondiscriminatory under Section
401(a)(4) of the Code.
2. Notwithstanding any other provisions contained in the Plan, the
annual retirement income which may be paid to any Participant in any Plan Year
who (A) is a highly compensated employee, as defined in Section 414(q) of the
Code, for such Plan Year or (B) was a highly compensated employee during (i) the
Plan Year in which the Participant
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<PAGE>
retired or otherwise terminated service with the Company, or (ii) any Plan Year
ending on or after his attainment of age 55, shall be limited to an amount equal
to the payments that would be made on behalf of the Participant under a straight
life annuity which is the Actuarial Equivalent of the accrued benefit and other
benefits to which the Participant is entitled under the Plan. The restrictions
of this paragraph shall only be applicable if the Participant is in the group of
25 highly compensated employees with the greatest total compensation in the
current or any prior Plan Year. In addition, the restrictions of this paragraph
shall not apply if
(A) after payment to such Participant of all retirement income
payable to the Participant under the Plan, the value of the Plan's
assets equals or exceeds 110 percent of the value of the Plan's current
liabilities within the meaning of Section 412(l)(7) of the Code;
(B) the present value of all retirement income payable to the
Participant under the Plan is less than one percent of the value of the
Plan's current liabilities (as determined prior to the distribution of
the Participant's retirement income);
(C) the present value of all retirement income payable to the
Participant under the Plan does not exceed $3,500;
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<PAGE>
(D) the Participant ceases to be in the group of 25 highly
compensated employees described in the preceding sentence;
(E) the Participant (i) enters into an agreement with the
Committee, in a form satisfactory to the Committee, which provides for
the repayment of amounts received in excess of such restrictions and
(ii) adequately secures such repayment obligation, in accordance with
Internal Revenue Service Revenue Ruling 92-76, through the pledge of an
individual retirement account, the establishment of an escrow account
or by posting a bond from an insurance company or letter of credit from
a bank; or
(F) the Plan has terminated and all Participants have received
distributions of their accrued benefits under the Plan.
3. The provisions of this Section XVI are intended to comply with the
requirements of Section 1.401(a)(4)-5(b) of the Income Tax Regulations and shall
cease to be applicable if the Internal Revenue Service determines that such
provisions are not necessary to prevent the prohibited discrimination that may
occur in the event of an early termination of the Plan.
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<PAGE>
SECTION XVII - Merger, Consolidation, Transfer of Plan Assets
In the case of any merger or consolidation of this Plan with, or
transfer of assets or liabilities of this Plan to any other plan, each
Participant of this Plan shall receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation, or transfer.
SECTION XVIII - Maximum Benefits
1. In no event shall a Participant's Retirement Income exceed the
greater of:
(a) the lesser of $90,000 or 100% of the average of the
Participant's total compensation during the highest three consecutive
Plan Years in which he was a Participant, provided that the $90,000
limit (or, if applicable, the $90,000 limit adjusted as provided in
subsection (d), below) shall be adjusted annually for increases in the
cost of living in accordance with government regulation; and provided
further that in the event the Retirement Income payable to a
Participant in pay status has been reduced as a result of applying this
limit, annual payments shall increase as this limit is increased for
cost of living adjustments, but in no event shall those increases cause
annual payments to
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<PAGE>
increase above the annual payment provided under this Plan without
the application of this limit; or
(b) in the case of a person who was a Participant before January
1, 1983, the lesser of:
(i) the Participant's Retirement Income as of December 31,
1982, disregarding any change in the terms and conditions of the
Plan after July 1, 1982; or
(ii) $136,425; or
(iii) 100% of the average of the Participant's total
compensation during the highest three consecutive Plan years
(excluding any Plan Year beginning after December 31, 1982) in
which he was a Participant.
(c) The foregoing limitations shall be adjusted (i) on a pro rata
basis in the case of a Participant who has less than 10 years of
participation in the Plan, except that the adjustments (X) with respect
to 100% of the average of the Participant's total compensation during
his highest three consecutive Plan Years, and (Y) pursuant to
subsection (b)(iii) above, shall be made with respect to Years of
Service; or (ii) if the Retirement Income is payable other than under
the form of a life annuity or a qualified joint and survivor annuity as
defined in Section 401(a)(11) of the Code.
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<PAGE>
(d) If a Participant's Retirement Income begins to be paid before
the social security retirement age, the $90,000 limitation in paragraph
(a) of this Section (as adjusted) shall be reduced to the Actuarial
Equivalent (with no mortality assumption) of a $90,000 annual benefit
(as adjusted) beginning at the social security retirement age. Such
reduction shall be made in such manner as shall be prescribed by the
Secretary of the Treasury which is consistent with the reduction for
old-age insurance benefits under the Social Security Act commencing
before the social security retirement age. For purposes of this
Section, "social security retirement age" means the age used as the
retirement age for the Participant under Section 216(1) of the Social
Security Act, except that such Section shall be applied (i) without
regard to the age increase factor, and (ii) as if the early retirement
age under Section 216(1)(2) thereof was age 62. If a Participant's
Retirement Income begins to be paid after the social security
retirement age, the $90,000 limit in paragraph (a) of this Section (as
adjusted) shall be increased to the Actuarial Equivalent of a $90,000
annual benefit (as adjusted) beginning at the social security
retirement age.
(e) In the case of a Participant who was an active member of the
Plan on January 1, 1987, if such
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Participant's current accrued benefit under the Plan exceeds the
limitations of Section 415(b) of the Code, as amended by the Tax Reform
Act of 1986, then the $90,000 limitation with respect to such
Participant shall be equal to such current accrued benefit. For
purposes of the preceding sentence, the term "current accrued benefit"
means the Participant's accrued benefit (at the close of the last Plan
Year) beginning before January 1, 1987 when expressed as an annual
benefit (within the meaning of Section 415(b)(2) of the Code as in
effect prior to the amendments made by the Tax Reform Act of 1986),
disregarding (i) any changes in the terms and conditions of the Plan
after May 5, 1986 and (ii) any cost-of-living adjustments occurring
after May 5, 1986.
For purposes of this paragraph (1), "total compensation" means a Participant's
wages as reported on Internal Revenue Service Form W-2, other than (i)
contributions made by the Company to a simplified employee pension described in
Section 408(k) of the Code, (ii) distributions from a plan of deferred
compensation, (iii) amounts realized from the exercise of a stock option, or
when restricted stock or property held by the Participant becomes freely
transferable or is no longer subject to a substantial risk of forfeiture, (iv)
amounts realized from the sale, exchange or other disposition of stock acquired
under and incentive stock option
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<PAGE>
described in Section 422A of the Code, or (v) other amounts which receive
special tax benefits as described in Treasury Regulation Section
1.415-2(d)(2)(iv).
2. In addition, if a Participant is also a participant in a defined
contribution plan maintained by the Company, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any year may not exceed
1.0.
For purposes of this paragraph 2 the defined benefit fraction for any
year is a fraction --
(a) the numerator of which is the projected annual Retirement
Income of the Participant under the Plan (determined as of the close of
the Plan Year), and
(b) the denominator of which is the lesser of (i) the product of
1.25 multiplied by the applicable dollar limitation under Section
415(b)(1)(A) of the Code, or (ii) the product of 1.4 multiplied by 100%
of the Participant's average compensation for his highest three
consecutive years in which he was a Participant.
The defined contribution plan fraction for any year is a fraction --
(a) the numerator of which is the sum of annual additions to the
Participant's account as of the close of the year, and
(b) the denominator of which is the sum of the following amounts
for such year and for each prior year
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<PAGE>
of service with the Company: (i) the product of 1.4 multiplied by 25%
of the Participant's total compensation, or (ii) the product of 1.25
multiplied by the applicable dollar limitation under Section
415(c)(1)(A) of the Code. Notwithstanding the foregoing, there shall be
subtracted from the numerator of the defined contribution plan fraction
for each Employee who was a Participant prior to January 1, 1984, the
amount prescribed in regulations issued pursuant to Section 235(g)(3)
of the Tax Equity and Fiscal Responsibility Act of 1982.
In the event that the Plan is "Top Heavy" for any Plan Year as provided in
Section XIX(1), "1.0" shall be substituted for "1.25" in (b) of each of the
above fractions if the Plan would be "Top Heavy" for such Plan Year if "ninety
percent (90%)" were substituted for "sixty percent (60%)".
For purposes of this paragraph 2, annual additions are the sum for any
year of (a) Company contributions on behalf of a Participant, (b) forfeitures,
if any, allocated to the Participant's account, (c) for Plan Years commencing
before January 1, 1987, the lesser of (i) the amount by which a Participant's
after-tax contributions to any defined contribution plan is in excess of 6% of
his total compensation, or (ii) one-half of such after-tax contributions, and
for Plan Years commencing after December 31, 1986, a Participant's after-tax
contributions to any defined
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<PAGE>
contribution plan, and (d) any amount attributable to post-retirement medical
benefits for a Key Employee (as defined in Section XIX) allocated to an account
established pursuant to Section 419A(d)(1) of the Code. For purposes of this
paragraph 2, a Participant's projected annual Retirement Income is the Normal
Retirement Income payable to the Participant assuming that (a) the Participant
continues as an Employee until Normal Retirement Date, (b) the Participant's
Earnings for the Plan Year will remain constant in future Plan Years until
Normal Retirement Date, and (c) all other relevant factors used to determine
Normal Retirement Income will remain constant for all future Plan Years.
An amount shall be subtracted from the numerator of the defined
contribution plan fraction (not exceeding such numerator) as shall be prescribed
by the Secretary of the Treasury so that the sum of the defined benefit plan
fraction and defined contribution plan fraction for any Participant as of
December 31, 1986 does not exceed 1.0 for any Plan Year commencing after
December 31, 1986.
SECTION XIX - Minimum Contributions in Top Heavy Plan Years
1. Definitions. For purposes of determining whether the Plan is Top
Heavy, the following definitions shall be applicable:
(a) "Key Employee" means an Employee who at any time during the
Plan Year ending on the Determination
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<PAGE>
Date or any of the preceding four Plan Years (i) is (or was) one of the
officers of the Company who had the greatest annual compensation during
such five Plan Years (limited to (A) those officers whose annual
compensation exceeds $45,000, and (B) the lesser of 50 or ten (10%)
percent of all Employees), or (ii) owns (or owned) one of the ten
largest interests in the Company, more than five (5%) percent of the
Stock of the Company, or more than one (1%) percent of the Stock of the
Company and has (or had) Compensation in excess of $150,000.
(b) "Stock" means the outstanding stock of the Company or stock
possessing more than five (5%) percent of the total combined voting
power of all stock of the Company.
(c) "Non-Key Employee" means any Employee who is not a Key
Employee.
(d) "Determination Date" and "Valuation Date" mean for any Plan
Year, the last day of the preceding Plan Year.
(e) "Qualified Plan" means any plan, whether or not terminated,
maintained by the Company (or any member of the controlled group in
which the Company is a member or trade or business under common control
with the Company) which satisfies the qualification requirements of
Section 401(a) of the Code.
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<PAGE>
(f) "Aggregation Group" means each Qualified Plan in which one or
more Key Employees are participants, each Qualified Plan that enables a
Qualified Plan in which one or more Key Employees are participants to
satisfy the requirements of Section 401(a)(4) or Section 410 of the
Code, and each Qualified Plan that the Company designates as part of
the Aggregation Group, provided that the resulting Aggregation Group
satisfies the requirements of Section 401(a)(4) and Section 410 of the
Code.
The Plan will be Top Heavy for any Plan Year beginning on or after
January 1, 1984, if as of the Determination Date for such Plan Year, the sum of
(1) the aggregate of the present value of accrued benefits for Key Employees
under each defined benefit plan (as defined in Section 414(j) of the Code) in
the Aggregation Group and (2) the aggregate of the value of the accounts for Key
Employees under each defined contribution plan (as defined in Section 414(i) of
the Code) in the Aggregation Group, exceeds sixty (60%) percent of the sum of
the present value of accrued benefits and the value of accounts for Key
Employees and Non-Key Employees under each Qualified Plan in the Aggregation
Group.
In determining the present value of accrued benefits and the value of
accounts there shall be included any distributions made from the Qualified Plan
with respect to the Key Employee or Non-Key Employee during the five-year
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<PAGE>
period ending on the Determination Date. In addition, the present value of
accrued benefits shall be determined by using an interest rate of 6% per year
and the TPF&C Forecast Mortality Table with employee ages set back one year.
2. Minimum Benefit Accrual. The Retirement Income of each Participant
who is a Non-Key Employee, determined on the basis of a single life annuity
commencing at age 65, shall not be less than the applicable percentage of his
average compensation for each Plan Year (not in excess of 10) (a) in which the
Plan was Top Heavy and (b) included in its entirety in his Years of Service.
For purposes of this Section,
(i) "applicable percentage" means the percentage determined by the
table set forth below based on the Company contribution (as a
percentage of compensation for the Plan Year in which the Plan is Top
Heavy) credited to the Participant's account for such Plan Year under
all defined contribution plans maintained by the Company, excluding for
Plan Years beginning before January 1, 1985 any contributions made
pursuant to a reduction of the Participant's compensation under a
qualified cash or deferred arrangement described in Section 401(k) of
the Code:
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<PAGE>
Company Contribution as
a Percent of Compensation Applicable Percentage
------------------------- ---------------------
0% 3%
2-1/2 2
5 1
7-1/2 0
(ii) "average compensation" means 100% of the average of the
Participant's Compensation from the Company during the five consecutive
Plan Years (a) in which he earned the greatest amount of total compen-
sation while a Participant, (b) in which the Plan was Top Heavy, and
(c) included in its entirety in his Years of Service.
SECTION XX - Direct Rollovers
This Section XX applies to all distributions made under the Plan on or
after January 1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of any eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
For purposes of this Section, the following terms shall have the
meanings set forth below:
(1) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any
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<PAGE>
portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution to
the extent such distribution is required under Section 401(a)(9) of the Code;
and the portion of any distribution that is not includible in gross income.
2. Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or an individual retirement annuity.
3. Distributee: A distributee includes a Participant or former
Participant. In addition, the surviving spouse of a Participant and the spouse
or former spouse of a Participant or former Participant who is the
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alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
4. Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
-47-
AMENDMENT
OF THE
GENERAL AMERICAN INVESTORS COMPANY, INC.
EMPLOYEES' RETIREMENT PLAN
WHEREAS, General American Investors Company, Inc. (the "Company")
adopted the General American Investors Company, Inc. Employees' Retirement Plan
(the "Plan"), effective as of January 1, 1956; and
WHEREAS, the Plan was amended and restated on April 14, 1976, effective
as of December 31, 1975; and
WHEREAS, the Plan was further amended on April 13, 1977, April 12,
1978, December 8, 1982, December 12, 1984, February 13, 1985, September 11,
1985, December 1, 1987, May 2, 1988, December 19, 1989, December 11, 1991 and
December 19, 1994; and
WHEREAS, Section XV.2 provides that the Board of Directors of the
Company may amend the Plan in whole or in part at any time, except in certain
respects not material hereto; and
WHEREAS, the Board of Directors desires to make certain amendments to
the Plan.
NOW, THEREFORE, the Plan is hereby amended in the following respects,
effective January 1, 1995:
1. Section IV.2 is amended by adding the following at the end of such
Section:
Notwithstanding the previous sentence, if a "1995 Window Participant"
retires on an Early Retirement Date after December 31, 1994 and on or before
December 31, 1995,
<PAGE>
there shall be no reduction to such Participant's Normal Retirement Income if
payment is commenced prior to such Participant's Normal Retirement Date. For the
purposes of the previous sentence, a "1995 Window Participant" means a
Participant who, as of January 1, 1995, (i) has attained age 58, and (ii) has
completed 20 Years of Service.
IN WITNESS WHEREOF, General American Investors Company, Inc. has caused
this Amendment to be executed by its duly authorized officers on the 14th day of
February, 1995.
ATTEST:
/s/ Carole Anne Clementi /s/ Eugene L. DeStaebler, Jr.
- --------------------------- ------------------------------
Secretary Vice-President, Administration
-2-
- -------------------------------------------------------------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
***
EMPLOYEES' THRIFT PLAN
As Amended as of December 30, 1996
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 - Definitions.................................................... 1
SECTION 2 - Participation in the Plan...................................... 6
SECTION 3 - Participant Contributions...................................... 6
SECTION 4 - Company Contributions.......................................... 7
SECTION 5 - Investment of Contributions.................................... 10
SECTION 6 - Suspension of Contributions.................................... 12
SECTION 7 - Withdrawals.................................................... 13
SECTION 8 - General Provisions............................................. 31
SECTION 9 - Administration................................................. 35
SECTION 10 - Non-Assignability............................................. 38
SECTION 11 - Merger, Consolidation, Transfer of Assets..................... 38
SECTION 12 - Maximum Allocation............................................ 39
SECTION 13 - Limitation on Contributions................................... 41
SECTION 14 - Minimum Contributions in Top Heavy Plan Years................. 49
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GENERAL AMERICAN INVESTORS COMPANY, INC.
EMPLOYEES' THRIFT PLAN
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SECTION 1 - Definitions
For the purposes of this Plan, unless otherwise required by the
context, the following words shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the committee appointed by the Board of
Directors of General American Investors Company, Inc. to administer the Plan as
provided in Section 9.
(d) "Company" shall mean General American Investors Company, Inc., a
Delaware corporation, and its subsidiary, General American Advisers, Inc.
(e) "Company Contributions" shall mean the contributions made by the
Company on behalf of the Participant under subsection 1 of Section 4.
(f) "Company Matching Contributions" shall mean the contributions made
by the Company under subsection 3 of Section 4.
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(g) "Effective date" shall mean July 1, 1959, the effective date of
this Plan.
(h) "Employee" shall mean any individual employed by the Company, but
shall not include a Director as such. An employee who is absent from active
service on an approved leave of absence, including absence for military service,
shall be deemed to be an Employee during the period of such approved leave of
absence; provided that no approved leave of absence other than for military
service shall exceed two years for the purposes of the Plan.
(i) "Hour of Service" means (a) each hour for which an Employee is
directly or indirectly paid or entitled to payment by the Company, whether for
the performance of services or for other reasons such as vacation, sickness or
disability; and (b) each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by the Company (these hours shall
be credited to the Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period in which the
award, agreement, or payment was made). For the purposes of crediting Hours of
Service for nonperformance of duties, such hours shall be credited in accordance
with Department of Labor Regulation ss.2530.200(b)-2(b) and (c).
(j) "Investment Funds" shall mean the Investment Funds defined in
subsection 1 of Section 5.
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(k) "Month" shall mean a full calendar month.
(l) "One-Year Break in Service" shall mean the completion of less than
201 Hours of Service in any 12 consecutive month period beginning on the
Employee's employment commencement date and each anniversary thereof.
For purposes of determining whether a One-Year Break in Service has
occurred, an Employee who is absent from work (a) by reason of (i) the pregnancy
of the Employee, (ii) the birth of a child of the Employee or (iii) the
placement of a child with the Employee in connection with the Employee's
adoption of such child, or (b) for purposes of caring for a child of the
Employee immediately following birth or placement in connection with adoption,
shall be credited with the Hours of Service which would otherwise normally have
been credited to the Employee but for such absence (or if such Hours of Service
cannot be determined, eight Hours of Service for each normal workday of absence)
up to a maximum of 201 Hours of Service. The Hours of service specified in the
paragraph shall be credited to the Plan Year (a) in which the absence from work
begins if a Participant would incur a one-Year Break in Service if such Hours of
service were not credited to such Plan Year, or otherwise (b) immediately
following the Plan Year in which the absence from work begins.
(m) "Other Investment Funds" shall mean the Other Investment Funds
defined in subsection 1 of Section 5.
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(n) "Participant" shall mean an Employee who is participating in the
Plan as provided in Section 2.
(o) "Participant Contributions" shall mean the amounts contributed by
the Participant under Section 3.
(p) "Plan" shall mean this Employees' Thrift Plan. The Plan is intended
to be a profit-sharing plan for purposes of the qualification requirements of
Section 401(a) of the Code.
(q) "Plan Year" shall mean the calendar year.
(r) "Qualified Nonelective Contributions" shall mean the amounts
contributed by the Company under subsection 5 of Section 4.
(s) "Regular Compensation" shall mean regular basic salary or wages
payable to an Employee for service with the Company, prior to any reduction
under paragraph 1 of Section 4, and shall not include overtime, bonuses,
commissions, pensions, retainer fees, fees under contracts or any other form of
additional or special compensation. In no event shall Regular Compensation for
purposes of the Plan for any Plan Year after December 31, 1993 exceed $150,000
as adjusted for increases in the cost of living pursuant to Section 401(a)(17)
of the Code.
(t) "Retirement" shall mean termination of employment of an Employee on
or after the January 1 nearest his 65th birthday.
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(u) "Securities" shall mean the assets of the Short Term Investment
Fund and the Other Investment Funds, and the Common Stock of General American
Investors Company, Inc.
(v) "Short Term Investment Fund" shall mean the Short Term Investment
Fund defined in Section 5.1 below.
(w) "Stock Fund" shall mean the Stock Fund defined in Section 5.1
below.
(x) "Total and Permanent Disability" shall mean a physical or mental
disability which renders a Participant incapable of continuing to render regular
active service with the Company, in the written opinion of a physician
designated by the Company.
(y) "Trustee" shall mean the Trustee of the Trust provided for in the
Plan.
(z) "Unit" shall mean the unit of measure of a Participant's
proportionate interest in the Stock Fund and the Other Investment Funds
maintained by the Trustee as provided for in the Plan.
(aa) "Value Determination Date" shall mean the last business day of any
month.
(bb) "Year of Service" shall mean each 12 consecutive month period
beginning on the Employee's employment commencement date and each anniversary
thereof in which an Employee completes at least 400 Hours of Service.
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(cc) Masculine pronouns shall refer to both males and females, and
nouns referring to the singular or plural shall include the plural or singular,
as the case may be.
SECTION 2 - Participation in the Plan
1. Participation in the Plan shall be entirely voluntary.
2. An Employee who has at any time completed the lesser of (i) 1,000
Hours of Service in any 12 consecutive month period beginning on his employment
commencement date or any anniversary date thereof or (ii) six consecutive months
of employment with the Company shall be eligible to participate in the Plan,
except to the extent that his eligibility shall be suspended pursuant to the
provisions of Section 7 by reason of withdrawal.
3. An Employee may commence his participation in the Plan as of the
first day of any month on or after the effective date of the Plan, provided he
will be eligible on such day, by filing an application with the Committee at
least ten and not more than thirty days prior to such day.
SECTION 3 - Participant Contributions
1. Each Participant may make monthly Participant Contributions which
will be effected by payroll deductions, and the amounts so deducted shall be
paid each month to the Trustee for the Participant's account. Where a
Participant is paid more frequently than once a month, the frequency of the
payroll deductions shall be determined by the Company.
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2. The amount of Participant Contributions for each month shall be such
as the Participant may elect, but shall be not less than 2% and not more than 8%
of the Participant's monthly Regular Compensation, computed to the nearest even
dollar amount; provided, that the total amount of Participant Contributions and
Company Contributions elected shall not exceed 8% of the Participant's Regular
Compensation.
SECTION 4 - Company Contributions
1. Each Participant may elect to have the Company contribute to the
Plan on his behalf in each Plan Year an amount not less than 2% and not more
than 8% of the Regular Compensation that would otherwise be payable to him;
provided, that the total amount of Participant Contributions and Company
Contributions elected shall not exceed 8% of the Participant's Regular
Compensation. Company Contributions shall be paid to the Trust by the Company no
later than the end of the month following the month in which such Regular
Compensation would otherwise have been paid to the Participant.
2. Notwithstanding the provisions of Subsection 1 of this Section,
Company Contributions shall be subject to the limitations of this Subsection 2.
In no event may the Company Contributions for the account of a Participant in
any Plan Year exceed $9,500, adjusted for increases in the cost of living
pursuant to Section
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402(g)(5) of the Code. If, with respect to the portion of the Plan Year prior to
a Participant's participation in the Plan, elective deferrals (as defined in
Section 402(g)(3) of the Code) were made on the Participant's behalf to another
plan qualified under Section 401(a) of the Code, within ten days after
commencing participation in the Plan such Participant shall submit a written
statement to the Committee stating the amount of such elective deferrals, and
the limitation set forth in the preceding sentence for such Plan Year with
respect to such Participant shall be reduced by the amount of such elective
deferrals. If a Participant, not later than the March 1 following the end of a
Plan Year, submits a written statement to the Committee which (i) sets forth
that the sum of (A) the Company Contributions for such Plan Year and (B) the
Participant's other elective deferrals (as defined in Section 402(g)(3) of the
Code) for such Plan Year exceeds the amount provided for in the preceding
sentence and (ii) sets forth the amount of Company Contributions which are to be
treated as excess elective deferrals, then not later than the April 15 following
the end of such Plan Year there shall be distributed to the Participant such
amount of Company Contributions, adjusted for any gain or loss allocable thereto
for such Plan Year.
3. Concurrently with the payment to the Trustee of the Participant
Contributions and Company Contributions, the Company shall contribute and pay to
the Trustee for the
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Participant's account, Company Matching Contributions in an amount equal to 150%
of such contributions by or on behalf of the Participant; provided, however,
that Company Matching Contributions shall (i) not be made with respect to the
sum of Participant Contributions and Company Contributions in excess of 8% of
the Participant's Regular Compensation, and (ii) with respect to a Participant
for any Plan Year, not exceed $18,000 or such other amount as determined by the
Company in its discretion prior to April 1 of each year.
4. No part of Company Matching Contributions shall be recoverable by
the Company, except that any amount forfeited by a Participant upon withdrawal
from the Plan shall be credited against future Company Matching Contributions as
provided by Section 7.
5. The Company may also contribute and pay to the Trustee Qualified
Nonelective Contributions on behalf of some or all of the Group of Non-Highly
Compensated Employees (as such term is defined in Section 13); provided,
however, that such Qualified Nonelective Contributions shall be made solely for
the purposes of ensuring that the Plan satisfies the requirements of Code
Section 401(k) or 401(m). Qualified Nonelective Contributions made pursuant to
this subsection shall be designated as such upon payment to the Trustee. Each
Participant shall be 100% vested in all Qualified Nonelective Contributions made
on such Participant's behalf by the Company.
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SECTION 5 - Investment of Contributions
1. The Trustee shall maintain the assets of the Plan. The Committee
shall maintain records to show the segregation of the assets into the "Short
Term Investment Fund", the "Stock Fund", or such other investment funds ("Other
Investment Funds") as the Committee shall establish from time to time
(collectively referred to as the "Funds"). The Short Term Investment Fund shall
be invested in a short term liquid money securities commingled employee benefit
trust managed by the Trustee. The Stock Fund shall be invested in Common Stock
of the Company. The Other Investment Funds shall be invested in such types of
investments as determined by the Committee. The Committee shall also maintain
records reflecting each Participant's individual interest in each Fund.
2. A Participant shall direct the allocation of Participant
Contributions and Company Contributions among the Funds in multiples of 10%. The
Company Matching Contributions and Qualified Nonelective Contributions shall be
invested entirely in the Stock Fund.
3. Any investment direction given by a Participant shall be deemed to
be a continuing direction until changed. A Participant may change his investment
direction with respect to future contributions at any time, but not more often
than once each calendar quarter, by filing notice with the Committee. At any
time, but not more
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than once each calendar quarter, by filing notice with the Committee, a
Participant may direct that all or any part of his interest in one or more of
the Funds (exclusive of his interest in Company Matching Contributions and
Qualified Nonelective Contributions) be converted into an interest in one or
more of the other Funds as of the first Value Determination Date following the
date of filing such notice with the Committee. The amount of his interest in any
of the Funds to be so converted may not be less than $1,000 unless such amount
represents his entire interest in the Fund.
4. Notwithstanding subsections 2 and 3 of this Section, if the total
annual compensation of a Participant in a Plan Year (the "Base Year") exceeds
the limitation imposed by Code Section 401(a)(17) as adjusted for increases in
the cost of living (the "401(a)(17) Limitation"), the following investment
requirements shall be applicable: (a) all Participant Contributions, Company
Contributions, and Company Matching Contributions which are contributed for each
Plan Year following the Base Year must be invested in the Stock Fund; and (b)
the value of the Participant's interest in both the Short Term Investment Fund
and the Other Investment Funds (the "Base Amount") shall be transferred by the
Trustee to the Stock Fund in three annual installments on March 31 of the three
succeeding Plan Years following the Base Year.
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5. The Trustee may in its discretion, invest and reinvest the assets in
the respective Funds and may purchase and sell securities in the respective
Funds in such manner, at such times and on such terms and conditions as it may
deem best, within the limitations herein placed upon the nature of the
investments in each Fund.
6. Income from investments in each Fund will be reinvested in the same
Fund.
7. The Trustee may request instructions from the Company with respect
to the handling of any stock rights, warrants or options.
SECTION 6 - Suspension of Contributions
1. A Participant may suspend the making of Participant Contributions
and Company Contributions to the Plan as of the first day of any month by filing
notice with the Committee prior to such day, but no such suspension shall be for
a period of less than three months. The Participant may resume the making of
Participant Contributions and Company Contributions as of the first day of any
month, following the third month of suspension, by filing notice with the
Committee prior to such day.
2. Participant Contributions and Company Contributions shall be
automatically suspended for the period of any approved leave of absence from the
employment of the Company without pay, including absence for military service.
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3. During any period in which Participant Contributions and Company
Contributions are suspended, no Company Matching Contributions shall be made by
the Company. However, periods of suspension shall be counted for participation
and vesting purposes. A Participant shall not be permitted to make up any
suspended contributions.
SECTION 7 - Withdrawals
(A) Valuation of Participant's Interests.
The value of a Participant's account in the Short Term Investment Fund
shall be the balance of his account.
The value of a Participant's account in the Stock Fund or the Other
Investment Funds shall be determined by multiplying the number of Units to the
credit of such Participant in the Stock Fund or the Other Investment Funds by
the value of a Unit in such Fund. The number of Units credited to a Participant
and the value of each Unit shall be determined as follows:
1. For the month in which the Plan is put into effect there shall be
credited to each Participant one Unit in the Stock Fund for each dollar of
Participant Contributions and Company Contributions for such month which he has
directed to be invested in the Stock Fund and one Unit in the Stock Fund for
each dollar of Company Matching Contributions and Qualified Nonelective
Contributions made for his account for such month.
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2. For each month after the month in which the Plan is put into effect,
there shall be credited to each Participant prior to the Value Determination
Date in that month the number of Units calculated by dividing the portion of
Participant Contributions, Company Contributions, Company Matching Contributions
and Qualified Nonelective Contributions for such month invested in the Stock
Fund or the Other Investment Funds, by the value of a Unit in such Fund on the
Value Determination Date in the preceding month.
3. The value of a Unit in the Stock Fund or the Other Investment Funds
on the Value Determination Date of any month shall be determined by dividing the
sum of the cash and the fair market value of the securities, as determined by
the Company, in such Fund by the total number of Units to the credit of all
Participants therein as of such date, except that there shall be deducted from
the sum of the cash and the fair market value of the securities therein the
aggregate of all credits against future contributions to which the Company is
entitled on the Value Determination Date as a result of forfeitures by
Participants upon withdrawal from the Plan.
In the event of a withdrawal or a forfeiture by a Participant, the
number of Units to the credit of such Participant in the Stock Fund or the Other
Investment Funds, or the value of the Participant's account in the Short Term
Investment Fund, as appropriate, depending on the Fund from
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which the withdrawal or forfeiture is made, shall be appropriately reduced. The
amount of the reduction in the Stock Fund or the Other Investment Funds shall be
computed on the basis of the value of a Unit in such Fund on the Value
Determination Date as of which the value of the withdrawal or forfeiture was
determined and the reduction shall be made in the Participant's account prior to
the next following Value Determination Date.
(B) Complete Withdrawal from the Plan.
1. In the event of the termination of a Participant's employment with
the Company (a) after attaining age 65, (b) as a result of retirement, total and
permanent disability, death or dismissal by the Company, or (c) after six
cumulative Years of Service with the Company, the Company shall direct the
Trustee to pay to the Participant, or in a proper case, to his legal
representative or designated beneficiary, an amount equal to the value of his
accounts in the Funds as of the first Value Determination Date after such
termination, and his participation in the Plan shall thereupon terminate.
2. In the event of termination of a Participant's employment with the
Company (i) by reason of retirement or disability or (ii) for any reason after
ten cumulative Years of Service with the Company, such Participant may elect, by
written notice to the Committee not later than thirty days prior to such
termination, that
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in lieu of the benefits provided in subsection (1) above, his interest in all
Funds shall be paid in ten annual installments, commencing as of the first Value
Determination Date next following such termination, each such installment to
consist of the Value of 1/10 of the Units standing to his credit in each Fund at
the date of termination, such value to be determined as of the Value
Determination Date coinciding with the date each such installment becomes
payable. In the event that a Participant shall die prior to the time his entire
interest in all Funds shall have been distributed to him, the then value of his
interest, determined as of the first Value Determination Date next following
such Participant's death, shall be paid to his legal representative or
designated beneficiary in a single sum.
3. In the event of the termination of a Participant's employment with
the Company under circumstances other than those described in subsection (1)
above, the Committee shall direct the Trustee to pay to the Participant, or in a
proper case to his legal representative or designated beneficiary, the value of
his accounts in the Funds under subsection (1), except that, subject to
subsection (5) below, there shall be forfeited the unvested portion of the value
of the Participant's account in the Stock Fund which is attributable to Company
Matching Contributions, including any dividends or other income
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derived from, or accretions to securities attributable to such Company Matching
Contributions. See subsection (5) below with regard to the treatment of
forfeitures. A Participant shall be vested in the portion of the value of his
account in the Stock Fund which is attributable to Company Matching
Contributions in accordance with the table set forth below corresponding to the
cumulative Years of Service, if any, satisfied by the Participant as of the date
of such termination of employment or filing of notice of complete withdrawal.
Cumulative Years of Service Vested Percentage
--------------------------- -----------------
2 20%
3 40%
4 60%
5 80%
6 100%
4. A Participant who completely withdraws from the Plan shall not be
eligible again to become a Participant during the period of one year following
his withdrawal. A Participant who completely withdraws from the Plan but who
continues to accrue Years of Service and who reenters the Plan shall be given
credit for the number of his Years of Service without regard to the withdrawal.
A nonvested Participant who completely withdraws from the Plan and who fails,
thereafter, to accrue a Year of Service shall be given credit upon his later
reentry into the Plan for his Years of Service accrued prior to the withdrawal,
but only if the number of consecutive One-Year Breaks in Service is
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less than five, and, then, only after he has accrued an additional Year of
Service after his reentry into the Plan.
5. (i) If a Participant who has fewer than six cumulative Years of
Service completely withdraws from the Plan but thereafter continues to accrue
Years of Service, the number of Units attributable to Company Matching
Contributions which are not vested at the time of such withdrawal shall be
credited to a forfeiture account for him. If, by the earlier of two years after
(i) the date of such withdrawal or (ii) the date upon which he fails to continue
to accrue a Year of Service (the "Time of Forfeiture"), the Participant repays
the amount of such withdrawal, then the repaid amount and the forfeiture account
shall thereupon become the beginning balance in his new account. If a forfeiture
account is not reinstated under the preceding sentence, then, at the Time of
Forfeiture, that portion of his forfeiture account determined pursuant to the
following formula shall be paid, in a lump sum, to him, and the remainder of his
forfeiture account shall thereafter be forfeited by him and reallocated pursuant
to subsection (6). The formula, referred to above is:
X = P(AB + (RxD)) - (RxD)
Where X is the portion to be paid to the Participant; P is the vested percentage
at the Time of Forfeiture; AB is the balance in his forfeiture account at the
Time of Forfeiture;
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D is the amount previously withdrawn; and R is the ratio of the account balance
at the Time of Forfeiture to the account balance after the withdrawal.
(ii) Notwithstanding the foregoing, if, prior to the accrual of five
consecutive One-Year Breaks in Service, the Participant resumes employment with
the Company, and if the amount forfeited under the provisions of paragraph
7(B)(5)(i) above is not otherwise restored, then the amount forfeited will be
contributed and paid by the Company to the Plan under the provisions of Section
4 and the Participant's beginning balance in his new account will be the amount
thus contributed and paid.
6. The value of a Participant's account which has been forfeited in
accordance with the provisions of subsection (5) shall be applied to reduce
subsequent Company Matching Contributions under the Plan. The value shall be the
value as of the Valuation Date used in calculating the Distribution or
Withdrawal, as the case may be, with respect to which the forfeiture occurs.
Upon termination of the Trust, forfeited Units not previously so applied shall
be credited pro rata to the accounts of all Participants in proportion to the
value of their respective accounts.
7. Notwithstanding anything contained herein to the contrary, if upon
termination of a Participant's employment the value of the vested portion of a
Participant's account is in excess of $3,500, payment of
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such vested portion may not be made prior to the date the Participant attains
age 65 without his written consent.
8. If a distribution is one to which Section 401(a)(11) and 417 of the
Code do not apply, such distribution may be made or commenced less than 30 days
after the notice required under Section 1.411(a)-11(c) of the Treasury
Regulations promulgated under the Code is given, provided that: (1) the
Committee clearly informs the Participant that the Participant has a right to a
period of at least 30 days after receiving the notice to consider the decision
of whether or not to elect a distribution (and, if applicable, a particular
distribution option), and (2) the Participant, after receiving the notice,
affirmatively elects a distribution.
(C) Partial Withdrawal from the Plan.
1. By filing a notice of partial withdrawal with the Committee, a
Participant [who has continuously participated in the Plan for at least 36
months] may withdraw up to the full value of his accounts in the Funds (other
than amounts attributable to Company Contributions or Qualified Nonelective
Contributions) as of the first Value Determination Date following the date of
filing of such notice of partial withdrawal. [Both Participant Contributions
and Company Contributions shall be suspended for one year following the month in
which he files notice of partial
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withdrawal.] A Participant may make a partial withdrawal only once during any
calendar year.
2. By filing a notice of partial withdrawal with the Committee, a
Participant who has continuously participated in the Plan for at least 36 months
may withdraw up to one-half of the value of his account in the Short Term
Investment Fund and the Other Investment Funds, attributable to Participant
Contributions and up to one-half of the value of that portion of his account in
the Stock Fund which is attributable to Participant Contributions, computed as
of the first Value Determination Date following the date of filing of such
notice of partial withdrawal. Both Participant Contributions and Company
Contributions shall be suspended for six months following the month in which he
files notice of partial withdrawal. A Participant may make a partial withdrawal
only once during any calendar year.
3. By filing a notice of partial withdrawal with the Committee and
establishing to the Committee's satisfaction that the amount to be withdrawn is
required in order to pay tuition or other educational expenses incurred by the
Participant or his dependents or to pay medical expenses incurred by the
Participant or his dependents, or to pay for all or a part of the cost of the
purchase of a residence by the Participants, a Participant who has continuously
participated in the Plan at least 36 months may, with the Committee's consent
and without suspension
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from the Plan, withdraw up to the full value of his account in the Short Term
Investment Fund and the Other Investment Funds attributable to Participant
Contributions, and the full value of the portion of his account in the Stock
Fund which is attributable to Participant Contributions, less the portion of his
accounts in such Funds attributable to Participant Contributions for the 24
months preceding the date of such withdrawal, all computed as of the first Value
Determination Date following the date of filing such notice of partial
withdrawal. In no event shall the amount withdrawn exceed the amount of the
Participant Contributions under the Plan.
4. By filing a notice of partial withdrawal with the Committee and
establishing special hardship to the Committee's satisfaction, a Participant
may, with the Committee's consent and without suspension from the Plan, withdraw
up to the full value of his account attributable to Company Contributions,
computed as of the first Value Determination Date following the date of filing
such notice of partial withdrawal; provided, however, that in no event shall the
amount withdrawn consist of investment earnings attributable to Company
Contributions. For purposes of this subsection, "special hardship" shall mean a
withdrawal which is on account of an immediate and heavy financial need of the
Participant and is necessary to satisfy such financial need. For this purpose,
"immediate and heavy financial
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need" means (i) expenses for medical care (as described in Section 213(d) of the
Code) incurred by the Participant, the spouse of the Participant, or any of the
Participant's dependents (as defined in Section 152 of the Code) or necessary
for such persons to obtain medical care, (ii) purchase (excluding mortgage
payments) of a principal residence for the Participant, (iii) payment of tuition
and related educational fees for the next twelve months of post-secondary
education for the Participant, the spouse of the Participant, or any of the
Participant's children or dependents, or (iv) the need to prevent the eviction
of the Participant from his principal residence or foreclosure on the mortgage
of the Participant's principal residence. No such special hardship withdrawal
may be made unless the Participant has obtained (or simultaneously will obtain)
all distributions, other than special hardship distributions, and all
non-taxable loans currently available under the Plan and all other plans
maintained by the Company, and no such special hardship withdrawal may exceed
the amount of the Participant's immediate and heavy financial need (reduced by
any funds received pursuant to the Plan in connection with such immediate and
heavy financial need), which may include any amounts necessary to pay all income
taxes or penalties reasonably anticipated to result from such withdrawal.
5. By filing a notice of partial withdrawal with the Committee, a
Participant may withdraw a part of his
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account in the Stock Fund which is attributable to Company Matching
Contributions, computed as of the first Value Determination Date following the
date of filing of such notice of partial withdrawal. The maximum of such
withdrawal shall be: (a) one-half of the value of such account attributable to
Company Matching Contributions if the Participant has more than six cumulative
Years of Service with the Company; or (b) one-half of the value of such account
attributable to Company Matching Contributions which would have been payable to
the Participant if his employment terminated under Section 7(B)(3), if the
Participant has six or fewer cumulative Years of Service with the Company. Both
Participant Contributions and Company Contributions shall be suspended for
twelve months following the month in which he files such notice of partial
withdrawal. A Participant may make such a partial withdrawal only once during
any calendar year.
6. A Participant who has not continuously participated in the Plan for
at least 36 months may not make a partial withdrawal pursuant to subsections 1,
2, 3 or 5 of this Section 7(C).
(D) Loans.
Subject to uniform and non-discriminatory rules established by the
Committee, the Committee may, on application from a Participant who is an
employee, provide for a loan to the Participant in an amount (to be determined
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as of the Valuation Date coinciding with or next preceding the date of the loan)
not in excess of 50% of the value of the vested portion of the Participant's
account on such Valuation Date. In no event may the amount of any loan be less
than $500. No more than one loan may be outstanding to a Participant at any time
and no loan may be made to a Participant within 30 days of the repayment of a
prior loan to such Participant.
As a condition to the making of such loan, the Participant shall
execute and deliver to the Committee a promissory note payable to the Trustee of
the Trust Fund in the amount of such loan. A loan shall be made from the amount
credited to the Participant's account on a pro rata basis from each Fund, and a
Participant's account shall not share in the gain or loss of a Fund to the
extent of the amount of the loan. Loans made pursuant to this Section shall:
(a) be available to all Participants on a reasonably equivalent
basis;
(b) not be made available to highly compensated Employees in a
percentage amount greater than the percentage amount made available to
other Employees;
(c) bear a reasonable rate of interest, as determined by the
Committee commensurate with the prevailing interest rate charged by
persons in the business of lending money for loans which would be made
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under similar circumstances, which shall accrue ratably
over the period of the loan;
(d) be secured by the Participant's pledge of 50% of his vested
interest in the Plan and such additional security as the Committee may
require;
(e) mature not later than four years from the date of execution or
earlier upon the prior termination of service of the Participant for
any reason, unless the loan is in connection with the purchase of the
Participant's primary residence, in which event the loan will mature
not later than 20 years from the date of execution or earlier upon the
prior termination of service of the Participant for any reason; and
(f) not exceed an amount which, when added to the outstanding
balance of any loan to the Participant from the Plan and any other plan
maintained by the Company which is qualified under Section 401(a) of
the Code, equals $50,000, reduced by the excess, if any, of (1) the
highest outstanding balance of all such loans during the one-year
period ending on the day before the date of the loan, over (2) the
outstanding balance of all such loans on the date of the loan.
The principal amount of such promissory note plus accrued interest
thereon shall be deducted in determining the amount payable to any Participant
under the provisions
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of Section 7. All payments of interest on a loan to a Participant shall be
credited to his account.
In determining whether to approve an application for a loan, the
Committee will take into account only those factors which would be considered in
a normal commercial setting by an entity in the business of making similar types
of loans. Such factors shall include whether the loan will be repaid by payroll
deductions or by direct payment by the Participant.
If a Participant defaults in the repayment of a loan, the outstanding
principal amount shall become due and payable immediately. If the default
continues after appropriate efforts have been made to enforce payment of the
loan, the Plan may satisfy the amount due to the Plan by reducing the value of
the Participant's account under the Plan which is pledged as security for the
loan; provided, however, that no such reduction shall be made from the portion
of the account which is attributable to Company Contributions or Qualified
Nonelective Contributions until a distribution of such amount could have been
made pursuant to this Section 7.
(E) Discontinuance of the Plan.
If the Plan is terminated or if there is a complete discontinuance of
the Company Matching Contributions, the account of each Participant shall become
fully vested
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and the Committee shall direct the Trustee to transfer and pay to each
Participant, or in a proper case to his legal representative or designated
beneficiary, the value of his accounts in the Funds, as determined by the
Committee, as of a date as near as practicable to the effective date of such
discontinuance. If the Plan is partially terminated, to the extent thereof, the
accounts of all affected Participants shall become fully vested and
nonforfeitable including Company Matching Contributions to such accounts and the
Committee shall direct the Trustee to transfer and pay to each such Participant,
or in the proper case to his legal representative or designated beneficiary, the
value of their accounts in the Funds, as determined by the Committee, as of a
date as near as practicable to the effective date of such partial termination.
For this purpose there shall be included in the determination of the value of
accounts of Participants in the Stock Fund the aggregate of all credits against
future contributions to which the Company is then entitled as a result of
forfeitures by Participants.
(F) Form of Payments.
Payments made by reason of withdrawals from all Funds may be made in
cash, in securities held in the Fund from which the payment is made, or part in
cash and part in securities, all as the Committee may determine. In the event
securities are to be delivered, their number or amount shall be determined by
reference to their value on the last
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Value Determination Date preceding the date of delivery and the amount of the
payment as otherwise computed shall be reduced by the amount of any transfer
taxes which will be incurred in connection with the transfer of the securities.
Payments shall be made not later than 60 days following the later of the
Participant's retirement or his termination of employment. Notwithstanding
anything contained herein to the contrary, distributions shall commence no later
than the April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2, even if he continues in employment with the
Company.
(G) Direct Rollovers.
This Section 7(F) applies to all distributions made under the Plan on
or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of any eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
For purposes of this Section, the following terms shall have the
meanings set forth below:
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(1) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income.
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(3) Distributee: A distributee includes a Participant or former
Participant. In addition, the surviving spouse of a Participant and the spouse
or former
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spouse of a Participant or former Participant who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p) of the Code,
are distributees with regard to the interest of the spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
SECTION 8 - General Provisions
(A) Expenses.
1. Brokerage commissions and transfer taxes incurred in connection
with the purchase or sale of securities shall be added to the cost thereof or
deducted from the proceeds thereof, as the case may be.
2. All other costs and expenses, including all expenses incurred in the
administration of the Plan, shall be borne by the Company.
(B) Participant's Annual Statement.
1. The Committee shall as soon as practicable each year deliver to each
Participant a statement setting forth his interest in the Plan as of December 31
of the preceding year.
2. At the time of any withdrawal payment pursuant to Section 7 the
Committee shall deliver to the person receiving such payment a statement setting
forth the computation of the amount of such payment.
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3. Each such statement shall be deemed correct unless notice to the
contrary is given to the Committee within ninety days after the statement shall
have been delivered to the Participant or the person receiving such payment, as
the case may be.
(C) Beneficiaries in the Event of Death.
1. A Participant may file with the Committee a designation of a
beneficiary or beneficiaries to receive the value of his interest on his death,
and the Participant may from time to time change or revoke any such designation.
The last such designation received by the Committee shall be controlling,
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt.
2. Upon the death of a Participant, the value of his account (including
Company Matching Contributions), to the extent permitted by law, shall be paid
to the beneficiary or beneficiaries, if any, designated by him or, if the
Participant is not survived by any such designated beneficiary, then to the
Participant's estate. If there is doubt as to the right of any beneficiary to
receive any amount, the Trustee may retain such amount, without liability for
any interest thereon, until the rights thereto are determined, or the Trustee
may pay such amount into any
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court of appropriate jurisdiction, in either of which events neither the Trustee
nor the Company shall be under any further liability to anyone.
Payment under this Section 8(C)(2) will be made in a single sum within
one year of the Participant's death.
3. Notwithstanding anything contained herein to the contrary, the
Participant's beneficiary shall be the Participant's spouse, unless such spouse
has consented in writing in a manner approved by the Committee to the
designation of another beneficiary.
(D) Employment.
Nothing in the Plan shall be deemed or construed to impair or affect in
any manner whatsoever the rights of the Company with respect to termination of
employment of any person, whether or not a Participant, all of which rights
shall remain as if the Plan had not been established.
(E) Change or Discontinuance.
1. It is the expectation of the Company that the Plan will continue
indefinitely, but the Company reserves the right to change or discontinue the
Plan at any time. Any such change or discontinuance shall be effective at such
date as the Company may determine, except that no change shall retroactively
reduce the rights of a Participant, and no change or discontinuance shall be
effective until the date on which the Company shall give notice of such change
or discontinuance to the Trustee.
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2. No change or discontinuance of this Plan shall allow the return to
the Company of any part of the funds held by the Trustee nor their use for any
purpose other than for the exclusive benefit of Participants and their
beneficiaries.
3. No change shall impair any right of withdrawal under Section 7 which
a Participant would have had if such change had not been made, with respect to
contributions made by the Participant or by the Company prior to such change.
(F) Voting Rights.
Voting rights with respect to securities in the respective Funds may be
exercised by the Trustee or by such proxy as the Trustee may select.
(G) Possession of Assets and Registration.
1. Securities and cash in the respective Funds shall be held in the
possession of the Trustee.
2. Securities in the respective Funds may be registered in the name of
the Trustee or its nominee or held in such form that they will pass by delivery.
(H) Construction and Interpretation.
The Plan shall be governed by and construed in accordance with the laws
of the State of New York and the Employee Retirement Income Security Act of
1974.
(I) Return of Contributions.
Notwithstanding anything contained herein to the contrary, all Company
Matching Contributions and Qualified
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Nonelective Contributions to the Plan are expressly conditioned on their
deductibility under Section 404 of the Code and the continued qualification of
the Plan under Section 401(a) of the Code. If and to the extent that Company
Matching Contributions and Qualified Nonelective Contributions to the Trust are
made by or under mistake of fact, a deduction is disallowed for a contribution,
or a determination is made that the Plan does not continue to be qualified under
Section 401(a) of the Code, the same shall be repaid to the Company upon demand
within one year after (a) payment of a contribution made due to a mistake of
fact, (b) disallowance of such deduction or (c) the determination of lack of
continued qualification.
SECTION 9 - Administration
1. There shall at all times be a Trustee under the Plan which shall be
a bank or trust company having a combined capital and surplus of not less than
$10,000,000. The Company may from time to time, without reference to or action
by any Participant, (a) enter into such agreements with the Trustee and effect
such amendments to such agreements as the Company or the Trustee may deem
necessary or desirable to carry out the Plan; (b) remove the Trustee and upon
removal or resignation of the Trustee designate a successor Trustee; and (c)
take such other steps and execute such other instruments as the Company may deem
necessary or desirable.
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2. The Company and the Trustee may by agreement in writing arrange for
the Company to perform any of the Trustee's functions other than the custody of
assets, the voting with respect to securities held by the Trustee and the
purchase and sale of securities.
3. The Board of Directors of General American Investors Company, Inc.
will appoint a special Committee to administer the Plan for the Company, which
may consist of persons other than directors and which may exercise whatever
powers are delegated to it by the Board of Directors.
4. The Committee will operate and administer the Plan and will
determine all questions arising under or in connection therewith, and may from
time to time prescribe and amend regulations for such operation and
administration. All interpretations or decisions made by the Committee with
regard to any matter or question arising under the Plan shall be binding and
conclusive on all persons affected thereby. In addition, the Committee shall:
(1) provide adequate notice in writing to any Participant or beneficiary whose
claim for benefits under the Plan has been denied, setting forth the specific
reasons for such denial, written in a manner calculated to be understood by the
Participant and (2) afford a reasonable opportunity to any Participant whose
claim for benefits has been denied for a full and fair review by the Committee
of the decision denying the claim.
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5. Each notice, report, remittance, statement and other communication
directed to an Employee shall be in writing and may be delivered in person or by
mail, in which latter event it shall be deemed to have been delivered and
received by him when deposited in the United States mail with postage prepaid
addressed to the Employee at his last address of record with the Committee.
6. All applications, notices, designations and other communications
from Employees to the Committee shall be in writing, on forms prescribed by the
Committee, and shall be mailed by first-class mail or delivered to the office
from which the Employee is paid, and shall be deemed to have been given when
received by the Committee.
7. In the event a Participant shall have been denied a claim for
benefits under the Plan, such Participant shall be provided by the Committee
with adequate notice in writing setting forth the specific reasons for such
denial. Such notice shall be written in a manner calculated to be understood by
the Participant. The Participant shall also be afforded reasonable opportunity
for a full and fair review of the decision denying the claim by the Committee.
8. The Trustee, may in its sole discretion:
(a) for the purpose of reducing brokerage commissions and other
expenses, defer the purchase of securities until it shall have
accumulated
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sufficient funds to purchase the quantities which will effect such
reductions;
(b) limit the daily volume of its purchases of securities to the
extent that such action is deemed by it to be in the best interests of
the Participants;
(c) match purchases and sales being made at prices determined by
the Trustee to be as near as practicable to the prices that would have
been obtained in the open market.
SECTION 10 - Non-Assignability
It is a condition of the Plan, and all rights of each Participant shall
be subject thereto, that no right or interest of any Participant under the Plan
shall be assignable or transferable in whole or in part, either directly or by
operation of law or otherwise, including, without limitation, by execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner, but
excluding devolution by death or mental incompetency, and no right or interest
of any Participant in the Plan shall be liable for or subject to any obligation
or liability of such Participant. The foregoing shall not prohibit the payment
of benefits in accordance with the applicable requirements of a qualified
domestic relations order as defined in Section 414(p) of the Code.
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SECTION 11 - Merger, Consolidation, Transfer of Assets
In the case of any merger or consolidation of this Plan with, or
transfer of any assets or liability of this Plan to any other Plan, each
Participant of this Plan shall receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation, or transfer.
SECTION 12 - Maximum Allocation
In no event shall contributions by or on behalf of a Participant be
made to the Plan to the extent it would cause the Annual Addition (as defined
below) in respect of such Participant to exceed the lesser of (i) $30,000,
adjusted for each year to take into account any cost-of-living increase
adjustment provided under Section 415(d) of the Code, or (ii) 25% of the
Participant's total compensation.
If such contributions exceed the limitation, the Participant
Contributions for the Plan Year which cause the excess shall be returned to the
Participant. If after returning such Participant Contributions the limitation
would still be exceeded and the Participant was a Participant at the end of the
Plan Year, the amount of such excess shall be used to reduce the Company
Matching Contributions for the Participant for the next Plan Year. If after
returning such Participant Contributions the
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limitation would still be exceeded and the Participant was not a Participant at
the end of the Plan Year, the amount of such excess shall be placed in a
suspense account and in the next Plan Year (i) shall be allocated to each
Participant on the last day of the next Plan Year in the same proportion as the
sum of the Participant Contributions and Company Contributions for such
Participant for the next Plan Year bears to the total contributions by or on
behalf of all such Participants for the next Plan Year, and (ii) shall be used
to reduce the Company Matching Contributions for such Participants for the next
Plan Year.
For the purposes of this Section, "Annual Addition" means with respect
to a Participant, the sum for any year of (a) Participant Contributions, (b)
Company Contributions, (c) Company Matching Contributions, (d) Qualified
Nonelective Contributions, and (e) any amount attributable to post-retirement
medical benefits for a Key Employee (as defined in Section 13) allocated to an
account established pursuant to Section 419A(d)(1) of the Code. For purposes of
this Section, "total compensation" means a Participant's wages as reported on
Internal Revenue Service Form W-2, other than (i) contributions made by the
Company to a simplified employee pension described in Section 408(k) of the
Code, (ii) distributions from a plan of deferred compensation, (iii) amounts
realized from the exercise of a stock option, or when restricted stock or
property held by
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the Participant becomes freely transferable or is no longer subject to a
substantial risk of forfeiture, (iv) amounts realized from the sale, exchange or
other disposition of stock acquired under an incentive stock option described in
Section 422 of the Code, or (v) other amounts which receive special tax benefits
as described in Treasury Regulation Section 1.415-2(d)(3)(iv).
In addition, in the event a Participant is also a participant in a
defined benefit plan maintained by the Company, any adjustments required to
satisfy the limitations of Section 415(e) of the Code shall be made to the
Participant's benefit under such defined benefit plan.
SECTION 13 - Limitation on Contributions
(A) Limitation on Participant Contributions and
Company Matching Contributions.
Notwithstanding anything in Section 3 or Section 4 to the contrary,
Participant Contributions and Company Matching Contributions shall be subject to
the limitations of this Section. The Contribution Percentage for the Group of
Highly Compensated Employees for any Plan Year shall not exceed the greater of:
(i) the Contribution Percentage for the Group of Non-Highly
Compensated Employees multiplied by 1.25, or
(ii) the Contribution Percentage for the Group of Non-Highly
Compensated Employees multiplied by 2.0, provided that the Contribution
Percentage for the Group
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of Highly Compensated Employees does not exceed the Contribution
Percentage for the Group of Non-Highly Compensated Employees by more
than two (2) percentage points.
For purposes of this Section,
(a) the "Contribution Percentage" for the Group of Highly
Compensated Employees and the Group of Non- Highly Compensated
Employees for a Plan Year shall be the average of the ratios
(calculated separately for each Employee in such Group) of:
(i) the amount of Participant Contributions and Company
Matching Contributions (which, for purposes of this Section, shall
be deemed to include any Qualified Nonelective Contributions
treated as Company contributions for purposes of Code Section
401(m)), to
(ii) the Employee's total compensation for such Plan Year;
provided that for any Plan Year after December 31, 1993, for
purposes of this Section, total compensation shall not exceed
$150,000 as adjusted for increases in the cost of living pursuant
to Section 401(a)(17) of the Code.
(b) The "Group of Highly Compensated Employees" shall include each
Employee who is eligible to become a Participant pursuant to Section 2
and who, during the Plan Year or the preceding Plan Year, (1) owned at
any
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time more than 5% of the stock of the Company, (2) had total
compensation in excess of $75,000 (as adjusted for increases in the
cost of living pursuant to Section 414(q) of the Code), (3) had total
compensation in excess of $50,000 (as adjusted for increases in the
cost of living pursuant to Section 414(q) of the Code) and was in the
top-paid group of Employees, or (4) was at any time one of the 50
officers of the Company who had the greatest total compensation and had
total compensation in excess of 150% of the amount in effect under
Section 415(c)(1)(A) of the Code for such Plan Year. For purposes of
clauses (2), (3) and (4), an Employee not described therein for the
preceding Plan Year shall not be treated as described therein during
the current Plan Year unless such Employee is a member of the group
consisting of the 100 Employees who had the greatest total compensation
for the Plan Year for which such determination is made.
(c) An Employee's "total compensation" is the total compensation
payable to an Employee by the Company in any Plan Year.
(d) The "top-paid group of Employees" for any Plan Year are those
Employees in the top 20% of Employees when ranked on the basis of total
compensation for such Plan Year.
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(e) The "Group of Non-Highly Compensated Employees" shall include
those Employees who are eligible to become Participants pursuant to
Section 2 and who are not included in the Group of Highly Compensated
Employees.
(f) No more than 50 employees (or, if lesser, 10% of all
Employees) shall be treated as officers for any Plan Year.
(g) For purposes of determining the Contribution Percentage of a
highly compensated Employee who is in the group of the ten highly
compensated Employees paid the greatest compensation during the Plan
Year, the Participant Contributions, Company Matching Contributions,
and total compensation of a member of such Employee's "family" (as
defined in Section 414(q)(6)(B) of the Code) shall be treated as
Participant Contributions, Company Matching Contributions, and total
compensation of the highly compensated Employee.
If the Contribution Percentage tests of this Section would not be satisfied in
any Plan Year, the Employee Benefits Committee shall make the following
adjustments, proportionately for each Participant in the Group of Highly
Compensated Employees, to the extent necessary so that one of the tests will be
satisfied:
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(i) first, by reducing the Participant Contributions with respect
to the balance of the Regular Compensation payable to the Participant
for the Plan Year;
(ii) second, by paying to the Participant in cash a portion of his
Participant Contributions, adjusted for any gain or loss allocable
thereto for the Plan Year;
(iii) third, by paying to the Participant in cash a portion of the
Company Matching Contributions, adjusted for any gain or loss allocable
thereto for the Plan Year, to the extent that the Participant is vested
in his Company Matching Contributions; and
(iv) fourth, by forfeiting a portion of the Company Matching
Contributions, adjusted for any gain or loss allocable thereto for the
Plan Year, to the extent the Participant is not vested in his Company
Matching Contributions;
provided, however, that such adjustments will be made in a manner that does not
result in any Highly Compensated Employee receiving with respect to Participant
Contributions a higher effective rate of Company Matching Contributions than the
rate received by any Non-Highly Compensated Employee with respect to Participant
Contributions. The Employee Benefits Committee may in its discretion make the
foregoing adjustments only for each Participant in the Group
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of Highly Compensated Employees whose ratio for the Plan Year of the sum of the
Participant Contributions and Company Matching Contributions to total
compensation does not satisfy the tests of this Section, determined as if such
Participant were the only Employee in the Group of Highly Compensated Employees.
(B) Limitation on Company Contributions.
Notwithstanding anything in Section 4 to the contrary, in each Plan
Year, the actual deferral percentage for the Group of Highly Compensated
Employees must bear a relationship to the actual deferral percentage for the
Group of Non-Highly Compensated Employees which meets either of the following
tests:
(i) the actual deferral percentage for the Group of Highly
Compensated Employees is not more than the actual deferral percentage
for the Group of Non-Highly Compensated Employees multiplied by 1.25,
or
(ii) (A) the actual deferral percentage for the Group of Highly
Compensated Employees is not more than the actual deferral percentage
for the Group of Non- Highly Compensated Employees multiplied by 2.0,
and (B) the contribution percentage for Group of Highly Compensated
Employees does not exceed the actual deferral percentage for the Group
of Non-Highly Compensated Employees by more than two percentage points.
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For purposes of this paragraph (B),
(a) The "actual deferral percentage" for the Group of Highly
Compensated Employees and the Group of Non-Highly Compensated Employees
for a Plan Year shall be the average of the ratios (calculated
separately for each Employee in such Group) of: (i) the Company
Contributions (which, for purposes of this Section, shall be deemed to
include any Qualified Nonelective Contributions treated as Company
Contributions for purposes of Code Section 401(k)), to (ii) the total
compensation payable to the Employee for the Plan Year (provided that
for any Plan Year after December 31, 1993, for purposes of this
paragraph (B), total compensation shall not exceed $150,000 as adjusted
for increases in the cost of living pursuant to Section 401(a)(17) of
the Code).
(b) The "Group of Highly Compensated Employees", the "top-paid
group of Employees" and the "Group of Non-Highly Compensated Employees"
shall each have the same meaning as the corresponding term is defined
in paragraph (A) of this Section 13.
(c) For purposes of determining the actual deferral percentage of
a highly compensated Employee who is in the group of the 10 highly
compensated Employees who had the greatest total compensation during
the Plan Year, the Company Contributions and the
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total compensation of a member of such Employee's "family" (as defined
in Section 414(q)(6)(B) of the Code) shall be treated as Company
Contributions and total compensation of the highly compensated
Employee.
If the actual deferral percentage tests of this Section would not be satisfied
in any Plan Year, the Employee Benefits Committee shall make the following
adjustments, proportionately for each Participant in the Group of Highly
Compensated Employees, to the extent necessary so that one of the tests will be
satisfied:
(i) first, by reducing the Company Contributions with respect to
the balance of the total compensation of the Participant for the Plan
Year; and
(ii) second, by paying to the Participant in cash a portion of his
Company Contributions, adjusted for any gain or loss allocable thereto
for the Plan Year.
The Employee Benefits Committee may in its discretion make the foregoing
adjustments only for each Participant in the Group of Highly Compensated
Employees whose ratio for the Plan Year of Company Contributions to total
compensation does not satisfy the tests of this paragraph (B) of this Section
13, determined as if such Participant were the only Employee in the Group of
Highly Compensated Employees.
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(C) Limitations on Multiple Use of Alternative
Limitation.
Notwithstanding the provisions of paragraphs (A) and (B) of this
Section, in no event shall the sum of (i) the actual deferral percentage for the
Group of Highly Compensated Employees and (ii) the contribution percentage for
the Group of Highly Compensated Employees, after applying the provisions of
paragraphs (A) and (B) of this Section, exceed the "aggregate limit" as such
term is defined under regulations prescribed by the Secretary of the Treasury or
his delegate under Section 401(m) of the Code. In the event the aggregate limit
is exceeded for any Plan Year, the contribution percentages of the Group of
Highly Compensated Employees shall be reduced to the extent necessary to satisfy
the aggregate limit in accordance with the procedure set forth in paragraph (A)
of this Section. For purposes of this paragraph (C), "actual deferral
percentage", "contribution percentage" and "Group of Highly Compensated
Employees" shall each have the same meaning as the corresponding term is defined
in paragraphs (A) or (B) of this Section.
SECTION 14 - Minimum Contributions in Top Heavy Plan Years
1. Definitions. For purposes of determining whether the Plan is Top
Heavy, the following definitions shall be applicable:
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(a) "Key Employee" means an Employee who at any time during the
Plan Year ending on the Determination Date or any of the preceding four
Plan Years (i) is (or was) one of the officers of the Company who had
the greatest annual compensation during such five Plan Years (limited
to (A) those officers whose annual compensation exceeds $45,000, and
(B) the lesser of 50 or ten (10%) percent of all Employees), or (ii)
owns (or owned) one of the ten largest interests in the Company, more
than five (5%) percent of the Stock of the Company, or more than one
(1%) percent of the Stock of the Company and has (or had) Compensation
in excess of $150,000.
(b) "Stock" means the outstanding stock of the Company or stock
possessing more than five (5%) percent of the total combined voting
power of all stock of the Company.
(c) "Non-Key Employee" means any Employee who is not a Key
Employee.
(d) "Determination Date" and "Valuation Date" mean, for any Plan
Year, the last day of the preceding Plan Year.
(e) "Qualified Plan" means any plan, whether or not terminated,
maintained by the Company (or any member of the controlled group in
which the Company is a member or trade or business under common control
with
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the Company) which satisfies the qualification requirements of Section
401(a) of the Code.
(f) "Aggregation Group" means each Qualified Plan in which one or
more Key Employees are participants, each Qualified Plan that enables a
Qualified Plan in which one or more Key Employees are participants to
satisfy the requirements of Section 401(a)(4) or Section 410 of the
Code, and each Qualified Plan that the Company designates as part of
the Aggregation Group, provided that the resulting Aggregation Group
satisfies the requirements of Section 401(a)(4) and Section 410 of the
Code.
The Plan will be Top Heavy for any Plan Year beginning on or after
January 1, 1984 if as of the Determination Date for such Plan Year, the sum of
(1) the aggregate of the present value of accrued benefits for Key Employees
under each defined benefit plan (as defined in Section 414(j) of the Code) in
the Aggregation Group and (2) the aggregate of the value of the accounts for Key
Employees under each defined contribution plan (as defined in Section 414(i) of
the Code) in the Aggregation Group, exceeds sixty (60%) percent of the sum of
the present value of accrued benefits and the value of accounts for Key
Employees and Non-Key Employees under each Qualified Plan in the Aggregation
Group.
-51-
<PAGE>
In determining the present value of accrued benefits and the aggregate
value of accounts there shall be included any distributions made from the
Qualified Plan with respect to the Key Employee or Non-Key Employee during the
five-year period ending on the Determination Date. In addition, the present
value of accrued benefits shall be determined by using an interest rate of 6%
and the TPF&C Forecast Mortality Table with employee ages set back one year.
2. Minimum Contributions. If the Plan is Top Heavy in any Plan Year,
each Non-Key Employee who is eligible to participate in the Plan shall receive a
minimum contribution from the Company of 5% of his total compensation for such
Plan Year, regardless of whether the Non-Key Employee (i) terminated employment
during the Plan Year, (ii) made contributions to the plan during such Plan Year
pursuant to Section 3, or (iii) had contributions made on his behalf by the
Company during such Plan Year pursuant to subsection 1 of Section 4.
Notwithstanding the foregoing, the minimum contribution percentage under this
Section shall in no event exceed the highest percentage of total compensation at
which contributions are made by the Company for such Plan Year to the account of
any Key Employee. In determining the minimum contribution required under this
subsection, Company Matching Contributions and/or Qualified Nonelective
Contributions made during such Plan
-52-
<PAGE>
Year shall be taken into account; provided, however, that (x) any Company
Matching Contributions used for purposes of satisfying the requirements of Code
Section 416 shall not be treated as Company Matching Contributions for purposes
of Section 13, and (y) the use of any Qualified Nonelective Contributions to
satisfy the requirements of Code Section 416 shall not cause the Plan to fail to
continue to be qualified under Code Section 401(a).
-53-
GENERAL AMERICAN INVESTORS COMPANY, INC.
EXCESS BENEFIT PLAN
1. Purpose. The purpose of the General American Investors Company, Inc.
Excess Benefit Plan (the "Plan") is to provide selected employees of General
American Investors Company, Inc. and its subsidiary, General American Advisers,
Inc. (hereinafter referred to collectively as the "Company"), with retirement
benefits which would have been provided under the General American Investors
Company, Inc. Employees' Retirement Plan (the "Retirement Plan") except for the
limitations imposed by Sections 415, 416 and/or 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Definitions. The following words and phrases as used herein shall
have the following meanings:
(a) "Actuarial Equivalent" means the term "Actuarial Equivalent"
as defined in the Retirement Plan.
(b) "Effective Date" means January 1, 1989.
(c) "Excess Benefit" means the benefit payable to a Participant or
his designated beneficiary in accordance with the provisions of the
Plan.
(d) "Participant" means an employee of the Company who has been
selected to participate in the Plan.
<PAGE>
(e) "Pension Committee" means the committee appointed to
administer the Plan as provided in Paragraph 7.
3. Eligibility to Participate. The Pension Committee shall select those
employees of the Company who shall be eligible to participate in the Plan. Any
employee who is so selected by the Pension Committee shall become a Participant
as of the first day of the month coinciding with or next following his
selection.
4. Excess Benefit. In the event that any retirement benefit payable to
a Participant or his beneficiary under the Retirement Plan is limited by
Sections 415, 416 and/or 401(a)(17) of the Code (or any successor thereto) or
any provision of the Retirement Plan implementing such limitations, the Company
shall pay to such Participant, or to his beneficiary after his death, an Excess
Benefit equal to the difference between (i) the monthly benefit the Participant
or his beneficiary would have received under the Retirement Plan if Sections
415, 416 and/or 401(a)(17) of the Code or any provisions of the Retirement Plan
implementing such Sections were disregarded, and (ii) the monthly benefit which
the Participant is entitled to receive under the provisions of the Retirement
Plan, each expressed as a hypothetical straight life annuity for the life of the
Participant beginning on the Normal Retirement Date.
-2-
<PAGE>
Payment of an Excess Benefit to a Participant or his beneficiary shall
be made in a form determined by the Pension Committee, and shall commence when
benefit payments under the Retirement Plan commence. The amount of the Excess
Benefit payable to the Participant shall be the Actuarial Equivalent of the
Excess Benefit determined in the immediately preceding paragraph.
5. Source of Payment of Excess Benefit. The Excess Benefit provided
under the Plan shall be paid by the Company from its general assets at the time
and in the manner provided herein. The Excess Benefit shall not be subject to
assignment, pledge, alienation or anticipation by a Participant or his
beneficiary.
6. Conditions of Payment of Excess Benefit. Notwithstanding any
provision of the Plan to the contrary, the payment of the Excess Benefit to any
Participant or his beneficiary, or the right of a Participant or his beneficiary
to receive the Excess Benefit, shall cease upon the occurrence (either prior to
or after the Participant's termination of employment) of any one or more of the
following events:
(a) discharge from employment with the Company for acts which, in
the Pension Committee's opinion, constitute fraud, embezzlement,
disclosure of confidential information or dishonesty;
-3-
<PAGE>
(b) the entering into a business or employment which the Pension
Committee determines to be detrimentally competitive with the business
of the Company; or
(c) conduct by a Participant which, in the Pension Committee's
opinion, is inimical or in any way contrary to the best interests of
the Company.
7. Administration. The Pension Committee shall consist of at least
three members who shall be appointed by the Board of Directors of General
American Investors Company, Inc. The Pension Committee shall administer the
Plan, resolve any ambiguities or inconsistencies, and decide all questions
arising in its administration, interpretation or application. Any decision of
the Pension Committee shall be conclusive and binding upon all Participants or
other persons having or claiming an interest in the Plan.
8. Designation of Beneficiary. A Participant may at any time designate
in writing to the Pension Committee the beneficiary to receive the benefits to
which any such beneficiary may be entitled under the terms of the Plan. Such
designation may be changed by the Participant at any time prior to the
commencement of benefits by written notice to the Pension Committee.
9. Amendment and Termination. The Board of Directors of General
American Investors Company, Inc. may cause the Plan to be amended at any time
and from time to
-4-
<PAGE>
time, prospectively or retroactively, and may terminate the Plan in its entirety
at any time. Notwithstanding the foregoing provisions of this Paragraph 9, the
Plan may not be amended or terminated with respect to an Excess Benefit that
became payable prior to such amendment or termination except with the written
consent of the Participant or other person then receiving such Excess Benefit.
10. Withholding. The Company shall have the right to deduct from any
payment of an Excess Benefit any amount required to satisfy its obligation to
withhold federal, state and local taxes.
11. Effective Date. The Plan, as amended and restated, shall be
effective as of the Effective Date.
-5-
GENERAL AMERICAN INVESTORS COMPANY, INC.
EXCESS CONTRIBUTION PLAN
1. Purpose. The purpose of the General American Investors Company, Inc.
Excess Contribution Plan (the "Plan") is to provide selected employees of
General American Investors Company, Inc. and its subsidiary, General American
Advisers, Inc. (hereinafter referred to collectively as the "Company"), with
retirement benefits which would have been provided under the General American
Investors Company, Inc. Employees' Thrift Plan (the "Thrift Plan") except for
the limitations imposed by Sections 415, 416 and/or 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Definitions. The following words and phrases as used herein shall
have the following meanings:
(a) "Account" means the account established for each Participant
under the terms of the Plan.
(b) "Benefit" means the benefit payable to a Participant or his
designated beneficiary under the Plan.
(c) "Committee" means the committee appointed to administer the
Plan as provided in Paragraph 7.
(d) "Effective Date" means January 1, 1989.
<PAGE>
(e) "Excess Contribution" means the amount or amounts credited to
a Participant's Account under the terms of the Plan.
(f) "Participant" means an employee of the Company who has been
selected to participate in the Plan.
3. Eligibility to Participate. The Committee shall select those
employees of the Company who shall be eligible to participate in the Plan. Any
employee who is so selected by the Committee shall become a Participant as of
the first day of the month coinciding with or next following his selection.
4. Excess Contribution Credits. With respect to any year in which a
Participant and/or the Company were precluded from making the maximum
contribution to the Thrift Plan by Section(s) 415, 416 and/or 401(a)(17) of the
Code (or any successor thereto), or any provisions of the Thrift Plan
implementing such Sections of the Code, the Company shall credit as of December
31 of such year to the Participant's Account on his behalf, or for his
beneficiary after his death, an Excess Contribution. Such Excess Contribution
shall be equal to the difference between (i) the amount of the contributions
which would have been allocated to the account of the Participant for such year
under Sections 3 and 4 of the Thrift Plan had no effect been given to the
limitations of Code Sections 415, 416 and/or
-2-
<PAGE>
401(a)(17) and (ii) the amount actually allocated to the account of the
Participant for such year under Sections 3 and 4 of the Thrift Plan; provided,
however, that if the Participant has not made the maximum contributions for such
year under Section 3 of the Thrift Plan, then notwithstanding the previous
sentence, no compensation in excess of the limitation imposed by Section
401(a)(17) shall be recognized in determining the amount under clause (i) of the
previous sentence.
5. Additional Credits to Account. An additional amount ("Earnings
Credit") shall be credited to a Participant's Account as of December 31 of each
year commencing with the year following the year in which the initial Excess
Contribution on or after the Effective Date is credited to such Account. Such
Earnings Credit shall be equal to the product of (i) the balance of the Account
as of January 1 of such year, and (ii) the average rate of return of the Stock
Fund (as defined under Section 1(q) of the Thrift Plan) during such year. For
purposes of determining the Earnings Credit for the year in which the Benefit is
distributed, the period used to determine the average rate of return of the
Stock Fund shall begin on January 1 of such year and end on the last day of the
month preceding the month of distribution.
6. Payment of the Benefit. The Benefit provided under the Plan shall
consist of the balance credited to the
-3-
<PAGE>
Participant's Account as of the date benefit payments commence. Payment of the
Benefit to a Participant or his beneficiary shall be made in one lump sum
payment, and shall be distributed when benefit payments under the Thrift Plan
commence.
7. Source of Payment of the Benefit. The Benefit provided under the
Plan shall be paid by the Company from its general assets at the time and in the
manner provided herein. The Benefit shall not be subject to assignment, pledge,
alienation or anticipation by a Participant or his beneficiary.
8. Conditions of Payment of the Benefit. Notwithstanding any provision
of the Plan to the contrary, the payment of the Benefit to any Participant or
his beneficiary, or the right of a Participant or his beneficiary to receive the
Benefit, shall cease upon the occurrence (either prior to or after the
Participant's termination of employment) of any one or more of the following
events:
(a) discharge from employment with the Company for acts which, in
the Committee's opinion, constitute fraud, embezzlement, disclosure of
confidential information or dishonesty;
(b) the entering into a business or employment which the Committee
determines to be detrimentally competitive with the business of the
Company; or
-4-
<PAGE>
(c) conduct by a Participant which, in the Committee's opinion, is
inimical or in any way contrary to the best interests of the Company.
9. Administration. The Committee shall consist of at least three
members who shall be appointed by the Board of Directors of General American
Investors Company, Inc. The Committee shall administer the Plan, resolve any
ambiguities or inconsistencies, and decide all questions arising in its
administration, interpretation or application. Any decision of the Committee
shall be conclusive and binding upon all Participants or other persons having or
claiming an interest in the Plan.
10. Designation of Beneficiary. A Participant may at any time designate
in writing to the Committee the beneficiary to receive the benefits to which any
such beneficiary may be entitled under the terms of the Plan. Such designation
may be changed by the Participant at any time prior to the commencement of
benefits by written notice to the Committee.
11. Amendment and Termination. The Board of Directors of General
American Investors Company, Inc. may cause the Plan to be amended at any time
and from time to time, prospectively or retroactively, and may terminate the
Plan in its entirety at any time. Notwithstanding the foregoing provisions of
this Paragraph 11, the Plan may not be amended or terminated with respect to a
Benefit that
-5-
<PAGE>
became payable prior to such amendment or termination except with the written
consent of the Participant or other person then receiving such Benefit.
12. Withholding. The Company shall have the right to deduct from any
payment of a Benefit any amount required to satisfy its obligation to withhold
federal, state and local taxes.
13. Effective Date. The Plan, as amended and restated, shall be
effective as of the Effective Date.
-6-
BANKERS TRUST COMPANY
One Bankers Trust Plaza, New York, New York 10006
Mailing Address:
P.O. Box 318, Church Street Station
New York, New York 10008
CUSTODIAN AGREEMENT
AGREEMENT, dated as of May 14, 1997, between BANKERS TRUST COMPANY (the
"Custodian") and GENERAL AMERICAN INVESTORS COMPANY, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of the Customer which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of the Customer held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Custodian shall have the
right, in its sole discretion, to refuse to accept any Property that is not in
proper form for deposit for any reason. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. The Custodian may deliver securities of the same class in place of
those deposited in the Account.
-1-
<PAGE>
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions, except that until the Custodian receives Instructions to the
contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
the Account, endeavor to receive Instructions, provided that
if such Instructions are not received in time for the
Custodian to take timely action, no action shall be taken with
respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in the Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
-2-
<PAGE>
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in the Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, "Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions; provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities Systems; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian in the custody of a Subcustodian employed
pursuant to Section 4:
-3-
<PAGE>
(a) The Custodian will identify on its books as belonging to the
Customer, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim
of any kind in favor of such Subcustodian or its creditors
except a claim for payment in accordance with such agreement
for their safe custody or administration and expenses related
thereto, (iii) beneficial ownership of such Securities be
freely transferable without the payment of money or value
other than for safe custody or administration and expenses
related thereto, (iv) adequate records will be maintained
identifying the Property held pursuant to such Agreement as
belonging to the Custodian, on behalf of its customers and (v)
to the extent permitted by applicable law, officers of or
auditors employed by, or other representatives of or
designated by, the Custodian, including the independent public
accountants of or designated by, the Customer be given access
to the books and records of such Subcustodian relating to its
actions under its agreement pertaining to any Property held by
it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct;
-4-
<PAGE>
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the Account and not for the Custodian's own interest. The
Custodian shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for the Account. All accounts,
books and records of the Custodian relating thereto shall be open to inspection
and audit at all reasonable times during normal business hours by any person
designated by the Customer. All such accounts shall be maintained and preserved
in the form reasonably requested by the Customer. The Custodian will supply to
the Customer from time to time, as mutually agreed upon, a statement in respect
to any Property in the Account held by the Custodian or by a Subcustodian. In
the absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-2 and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications offered by the Custodian which can provide
the Customer, on a daily basis, with the ability to view on-line or to print on
hard copy various reports of Account activity and of Securities and/or Cash
being held in the Account. To the extent that such service shall include market
values of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are held by the Custodian or any Subcustodian may be held by such entity
in the name of the Customer, in the Custodian's or Subcustodian's name, in the
name of the Custodian's or Subcustodian's nominee, or in bearer form. Securities
that are held by a Subcustodian or which are eligible for deposit in a
Securities System as
-5-
<PAGE>
provided above may be maintained with the Subcustodian or the Securities System
in an account for the Custodian's or Subcustodian's customers, unless prohibited
by law, rule, or regulation. The Custodian or Subcustodian, as the case may be,
may combine certificates representing Securities held in the Account with
certificates of the same issue held by it as fiduciary or as a custodian. In the
event that any Securities in the name of the Custodian or its nominee or held by
a Subcustodian and registered in the name of such Subcustodian or its nominee
are called for partial redemption by the issuer of such Security, the Custodian
may, subject to the rules or regulations pertaining to allocation of any
Securities System in which such Securities have been deposited, allot or cause
to be allotted, the called portion of the respective beneficial holders of such
class of security in any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for the Account and delivery of Securities
out of the Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the Global Guide provided to the Customer by the Custodian, the Custodian
may, at its sole option, reverse such credits or debits to the Account in the
event that the transaction does not settle, or the income is not received in a
timely manner, and the Customer agrees to hold the Custodian harmless from any
losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for the Account unless there is sufficient
-6-
<PAGE>
Cash in such Account at the time or to settle the sale of any Securities in the
Account unless such Securities are in deliverable form. Notwithstanding the
foregoing, if the purchase price of such securities exceeds the amount of Cash
in the Account at the time of settlement of such purchase, the Custodian may, in
its sole discretion, but in no way shall have any obligation to, permit an
overdraft in the Account in the amount of the difference solely for the purpose
of facilitating the settlement of such purchase of securities for prompt
delivery for the Account. The Customer agrees to immediately repay the amount of
any such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance with Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc., relating to compliance with the rules of The Options
Clearing Corporation, the Commodities Future Trading Commission and of any
registered national securities exchange, or of any similar or on or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer.
-7-
<PAGE>
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more as the Customer shall have from time to time authorized to give
the particular class of Instructions in question and whose name has been filed
with the Custodian; or (iv) upon receipt of such other form of instructions as
the Customer may from time to time authorize in writing and which the Custodian
has agreed in writing to accept. Instructions in the form of oral communications
shall be confirmed by the Customer by tested telex or writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral instructions
prior to the Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions, and may be in
the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care (i.e., act without
negligence or willful misconduct) with respect to the safekeeping of Property in
the Account and, except as otherwise expressly provided herein, in carrying out
its obligations under this Agreement. So long as and to the extent that it has
exercised reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any or other property or evidence of title thereto
received by it or delivered by it pursuant to this
-8-
<PAGE>
Agreement and shall be held harmless in acting upon, and may conclusively rely
on, without liability for any loss resulting therefrom, any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed or furnished by the proper party or parties, including, without
limitation, Instructions, and shall be indemnified by the Customer for any
losses, damages, costs and expenses (including, without limitation, the fees and
expenses of counsel) incurred by the Custodian and arising out of action taken
or omitted with reasonable care by the Custodian hereunder or under any
Instructions. The Custodian shall be liable to the Customer for any act or
omission to act of any Subcustodian to the same extent as if the Custodian
committed such act itself. With respect to a Securities System, the Custodian
shall only be responsible or liable for losses arising from employment of such
Securities System caused by the Custodian's own failure to exercise reasonable
care. In the event of any loss to the Customer by reason of the failure of the
Custodian or a Subcustodian to utilize reasonable care, the Custodian shall be
liable to the Customer to the extent of the Customer's actual damages at the
time such loss was discovered without reference to any special conditions or
circumstances. In no event shall the Custodian be liable for any consequential
or special damages. The Custodian shall be entitled to rely, and may act, on
advice of counsel (who may be counsel for the Customer) on all matters and shall
be without liability for any action reasonably taken or omitted pursuant to such
advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency transactions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, quake, volcanic eruption, nuclear
fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian to the Custodian's employment.
The provisions of this Section shall survive termination of this
Agreement.
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<PAGE>
16. Investment Limitations and Legal Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer pursuant to any contract or any law or regulation.
The provisions of this Section shall survive termination of this Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) reasonable legal fees (other than
those arising from routine questions of interpretation which arise in the normal
course of providing services hereunder) as described herein and/or deemed
necessary in the judgment of the Custodian to keep safe or protect the Property
in the Account. The initial fee schedule is attached hereto as Exhibit B. The
Customer hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the Account for any
amount payable to the Custodian under this Agreement including but not limited
to amounts payable pursuant to the last paragraph of Section 12 and pursuant to
indemnities granted by the Customer under this Agreement. The provisions of this
Section shall survive the termination of this Agreement
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names of the persons to
whom the Custodian shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid. In either case, the Custodian will deliver
such Securities and Cash to the persons so specified, after deducting therefrom
any amounts which the Custodian determines to be owed to it under Sections 12,
17, and 22. In addition, the Custodian may in its discretion withhold from such
delivery such Cash and Securities as may be necessary to settle transactions
pending at the time of such delivery. The Customer grants to the Custodian a
lien and right of setoff against the Account and all Property held from time to
time in the full amount of the foregoing obligations. If within ninety (90) days
following the giving of a notice of termination by the Custodian, the Custodian
does not receive from the Customer a
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<PAGE>
written notice specifying the names of the persons to whom the Custodian shall
deliver the Securities in the Account and to whom the Cash in the Account shall
be paid, the Custodian, at its election, may deliver such Securities and pay
such Cash to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement or may
continue to hold such Securities and Cash until a written notice as aforesaid is
delivered to the Custodian, provided that the Custodian's obligations shall be
limited to safekeeping.
21. Notices. Except as otherwise provided in this Agreement all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
22. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, Custodian shall be
entitled to use available Cash in the Account and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, Custodian shall be entitled to take such other action(s) or exercise
such other options, powers and rights as Custodian now or hereafter has as a
secured creditor under the New York Uniform Commercial Code or any other
applicable law.
23. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of fees,
expenses and other charges to the Account as herein provided, is not prohibited
by law or any governing documents or contracts to which the Customer is subject;
(ii) the terms of this Agreement do not violate any obligation by
which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer in
accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence of
such authorization as the Custodian may reasonably require, whether by way of a
certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation by
which the Custodian is bound, whether arising by contract, operation of law or
otherwise;
(ii) this Agreement has been duly authorized by appropriate action
and when executed and delivered will be binding upon the Custodian in accordance
with its terms;
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<PAGE>
(iii) the Custodian will deliver to the Customer such evidence of
such authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a) of
the 1940 Act and warrants that it will remain so qualified or upon ceasing to be
so qualified shall promptly notify the Customer in writing.
24. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
25. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
26. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
27. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
28. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or office by applicable law or regulation.
29. Severabilitv. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
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<PAGE>
30. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By: /s/ Eugene L. DeStaebler, Jr.
------------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President, Administration
BANKERS TRUST COMPANY
By: /s/ Richard Quintal
------------------------------------
Name: Richard Quintal
Title: Managing Director
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<PAGE>
EXHIBIT A
To Custodian Agreement dated as of May 14, 1997, between Bankers Trust
Company and General American Investors Company, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in Section
10 of the above referred to Custodian Agreement. Terms used herein as defined
terms shall have the meanings ascribed to them therein unless otherwise defined
below.
The Custodian provides a service, described below, for the transmission of
corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting agendas
will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official
language of the country in which the related security is held, the
Custodian will as soon as practicable after receipt of the original
meeting agenda by a Subcustodian provide an English translation
prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the local
language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor any
Subcustodian will be liable or held responsible for the accuracy thereof or any
direct or indirect consequences arising therefrom including without limitation
arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis, endeavor
to obtain any additional corporate communications such as annual or interim
reports, proxy statements, meeting circulars, or local language agendas, and
provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon receipt
by the Custodian of notice from a Subcustodian, the Custodian will provide a
notice to the Customer indicating the deadline for receipt of its instructions
to enable the voting process to take place effectively and efficiently. As
voting procedures will vary from market to market, attention to any required
procedures will be very important. Upon timely receipt of voting instructions,
the Custodian will promptly forward such instructions to the
<PAGE>
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless other
arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to include
jurisdictions which are not currently included as set forth in the second
paragraph hereof. The Custodian will notify the Customer as to the inclusion of
additional countries or deletion of existing countries after their inclusion or
deletion and this Exhibit A will be deemed to be automatically amended to
include or delete such countries as the case may be.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By: /s/ Eugene L. DeStaebler, Jr.
------------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President, Administration
BANKERS TRUST COMPANY
By: /s/ Richard Quintal
------------------------------------
Name: Richard Quintal
Title: Managing Director
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<PAGE>
EXHIBIT B
To Custodian Agreement dated as of May 14, 1997, between Bankers Trust
Company and General American Investors Company, Inc.
CUSTODY FEE SCHEDULE
I. DOMESTIC PORTFOLIOS
MONTHLY MAINTENANCE $375.00
- -------------------
MONTHLY SAFEKEEPING
- -------------------
DEP Bond Issues 4.50
Vault Bond Issues 5.50
DEP Stock Issues 4.50
Vault Stock Issues 5.50
Euro CD Asset Value .0033
TRANSACTIONS
- ------------
FBE Automated 20.00
FBE Manual 25.00
DTC Automated 20.00
DTC Manual 25.00
DTC ID 13.00
PTC Automated 25.00
PTC Manual 35.00
Physical Automated 30.00
Physical Manual 35.00
Reorganizations 40.00
Maturities 10.00
Euro CD 50.00
Money Movements 15.00
POL*ARIS REPORTING
- ------------------
Monthly Maintenance 200.00
Confirms (per record) 1.00
Assets With Pricing (per record) .45
Assets Without Pricing (per record) .40
<PAGE>
II. GLOBAL PORTFOLIOS
MONTHLY MAINTENANCE $100.00
- -------------------
MONTHLY MARKET FEES:
- --------------------
TIER I. 3 BASIS POINTS $50.00 PER TRANSACTION
Canada Cedel Euroclear
TIER II. 6 BASIS POINTS $100.00 PER TRANSACTION
England Germany Portugal
Switzerland Australia New Zealand
Spain France Italy
Belgium Austria Japan
GLOBE*VIEW REPORTING No Charge
REIMBURSABLES (i.e., couriers, tapes, legal fees) At Cost
NOTES Global Custody service includes: asset safekeeping, trade settlement,
income collection, corporate action processing (including proxy voting)
and tax reclaims (where appropriate refer to policy statements for
further clarification)
All income receipts and tax reclaim refunds are credited to Customer
accounts net of agents collection fees (where applicable)
The Customer will be responsible for all registration and stamp duty
charges where applicable, i.e. Spain, Indonesia, and etc.
Third-party FX transactions and other cash movements with no associated
security transaction (e.g., free payments/receipts) are charged at $15
per U.S. wire and $50 per non-U.S. wire. No fee is levied for FX
transactions executed with Bankers Trust.
Any country not quoted on this fee proposal will be negotiated
separately.
GENERAL AMERICAN INVESTORS BANKERS TRUST COMPANY
COMPANY, INC. PREPARED BY:
ACCEPTED BY:
/s/ Eugene L. DeStaebler, Jr. /s/ Richard Quintal
- ----------------------------- ------------------------------------
Eugene L. DeStaebler, Jr.
Vice-President, Administration Richard Quintal - Managing Director
- -----------------------------
Name and Title of Signer
-2-
<PAGE>
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
-3-
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of May 14, 1997, between Bankers Trust
Company and General American Investors Company, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement, the
Custodian shall perform the following services with respect to withholding taxes
imposed or which may be imposed on income from Property in the Account. Terms
used herein as defined terms shall unless otherwise defined have the meanings
ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall be
entitled to apply categorical treatment of the Customer according to the
Customer's's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may also
rely on professional tax services published by a major international accounting
firm and/or advice received from a Subcustodian in the jurisdictions in
question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
<PAGE>
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
By: /s/ Eugene L. DeStaebler, Jr.
--------------------------------------------
Name: Eugene L. DeStaebler, Jr.
Title: Vice-President, Administration
BANKERS TRUST COMPANY
By: /s/ Richard Quintal
--------------------------------------------
Name: Richard Quintal
Title: Managing Director
-2-
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
March 17, 1998
