The Dillon herald. (Dillon, S.C.) 1894-????, September 30, 1920, Image 2
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. ? ONE
~ ADVANTAGE
_ The Corporation pays the normal
Fll Income tax for the stockholder, so
Bthat 8 per cent preferred stock dividend
means as much as 8.70 per cent
@ interest to a person whose income is
subject to 8 per cent normal tax, and
{+] 8 35 per cent cent to a person subject
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Bomj iu me * i?ci vcm uviw?> ???tax.
Sin comparing yields of different securities
it is important to bear this in
g] mind.
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g| SOME PROVISIONS
|H INTERPRETED
|^| No. 2.
? CALLABLE AT $110.00 PER
SHARE: On any dividend date 30
(or 60) days after notice, the com|?|
pany, at its option, may call the preg]
ferred stock as a whole at $110.00
Hper share and cumulative dividends.
This provision is to recompense the
rxi investor for having his investment
taken away from him. If the comjZ
pany decides that it wants to recall
~~ its preferred stock and part com] !
pany with its preferred stockholders,
? it is usual to insert some provision
like this. The premium at which the
? stock Is to be called varies more or
less from 15.00 to $20.00 per share,
$10.00 per share being more usual
1?1 than any other amount.
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? AN INVESTMENT IN C03IS?
Ml'NT TV SUCCESS.
Only the most prosperous concerus
S have a right aud will receive any en_
courageinent from a prudent investW
meut banker to invite the public into
Seven a limited and preferred partnership
with them. To purchase the
H senior securities of concerns eligible,
lo co-operate as one of the public by
investing as explained above is to line
ZZT one's self up behind the aggressive,
Q3 successful men of the community and
?to throw one's weight on their side,
encouraging them not only with the
(2 material support of the investment,
but by adding one's self to the list of
a LbeLr fellow-citizens who have gone
I?- on record in a substantial way as been
lieving in them, and wishing to share
Bin their anticipated continued success.
The moral effect of such supCD
pert in stimulating our leaders to the
' utmost can hardly be overestimated.
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? The Stock of the Charles
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A SERIES
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PREFERRED AS TO WHAT?
A preferred Stock that is RJSALLY
preferred, is a safe and desirable investment
if the Company is managed
with honesty and efficiency.
Preferred as to what?
Is there a Sinking Fund?
Is there a reserve for a Sinking
Fund?
Is there a requirement that the
profits of the business be used to
strengthen and retire the preferred
stock, and to prevent an undue share
of the profits from being distributed
to the common stockholders?
SOME PROVISIONS
INTERPRETED
No. 3.
SINKING FUND: Once a year,
sometimes twice a year( a definite
percentage of the preferred stock issued
is required to be paid to the
registrar or other agent of the banking
house sponsoring the security
for the purchase of such of the preferred
stock as may be obtained at
th6 call price per share or less. If
sufficient stock cannot be obtained
by tender there are various provisions
to give the preferred stockholders
the benefit of the Sinking Fund.
Sometimes the shares are callable by
lot, sometimes the money in the Sinking
Fund is to be invested in other
securities. Whatever its disposition,
a Sinking Fund is a tremendous protection
to a preferred stock issue or
to any issue of securities. It not only
tends to insure the gradual liquidation
oi the issue but is a powerful
influence in maintaining tne price,
and in helping to provide a satisfactory
market.
AX ASSOCIATION WITH
LEADERS
Only the outstanding men of the
community become heads of concerns
with sufficient prestige and success
for a conservative investment banker
to invite his clients to join them on
a preferred partnership basis. Ask
the contemporaries of the men at the
head of companies successfully
financed in this way and you will find
that one by one mey win iucm
up and discuss with enthusiasm their
character, intelligence and efficiency.
Those who grew up with them are the
strongest and most effective as well
as the most competent witnesses as
to the fitness of these leaders.
CHARLESTO
ton Security Company is helc
rleston Security Company ar
rleston, 5. C.
3? ??@??????E?S
OF 16 DISC
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THE
SPONSOR
Those bought from brokers or
bankers less careful of the interest of
their clients than of their own, often
lack many provisions which responsible
bankers require. All companies
would take their offerings to responsible
bankers if they could meet the
requirements, because it is so much
more to the company's advantage to
have the constan t and consistent
moral support arising from such a
connection, which can be obtained
almost in no other way.
Incidently, it Is much less costly to
sell an issue through a banker of the
highest standing, because it is easier
and, therefore, less expensive for such
a house to resell it to the public.
SOME PROVISIONS
INTERPRETED
Vrt A
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SPECIAL RESERVE FOR SINKING
FUND: This provision, while
by no means unknown, is a protection
with which the investor is often
compelled to dispense. It is, in effect,
a sort of special surplus fund
created out of the undivided profits
to provide additional safety for the
preferred stock issue at all times, to
be used only in those periods when
current earnings, together with other
undivided profits, are insufficient to
take care of the Sinking Fun requirements.
If the Special Reserve Fund
is encroached upon for this purpose,
it is usually to require drastic reduction
or discontinuance of the dividends
on the Common Stock until it
is restored. It is a provision which
appeals strongly to us as a most desirable
protection to the investor, and
itc /?roatir?n hv a comDany raising
money is a good test of the sincerity
of its desire to give the investor every
protection and to dedicate the major
part of the profits of the business to
its upbuilding as an institution rather
than to their distribution as dividends
to holders of the Common Stock.
ONE FOR ALL AND
ALL FOR ONE
A community that wisely concentrates
its resources behind its principal
industries not only helps to
maintain and develop them, but insures
a lively concern on the part of
a great number of citizens in everything
affecting the slightest interest
of the business so supported and provides
a body of friendly partisans who
observe every move and every transaction
of the representatives of the
industry so supported; thus there
will be many to help the management
keep themselves posted about
errors and omissions; and of the
many, somQ will doubtless make fruitful
suggestions for profit.
The whole policy of the management
of a company cannot but be influenced
by the sense of responsibility
to the community created by a wide
nuhlio nartnershiri in its securities.
N SECURITY
I by Trustees for the benefit to
e the same as the Directors of
BBSSEE?????ESSE
a us is is si? ssessse
:ussions
THE COMPANY
AS VENDOR
Oftern a company will undertake ,
to sell its own preferred stock and,
in considering such offerings, it is
well to recall that probably in the
preparation of the covenant under
which thin stock is issued, only the
company's interest was considered.
In many cases neither the lawyer
nor the executive of the company doing
the financing gave definite thought
to the stock from the standpoint of
the investor and, indeed, it is questionable
whether in most cases of this
sort the knowledge and experience
are possessed by the people preparing
the issue, to give to the investor
tVio aHvantaee
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which it is desired he should have.
Frequently the attorney preparee
the draft of the Charter authorizing
the preferred stock in the interest
of his client, the company, except in
so far as he is instructed otherwise.
The prospective investor has no
representative at the gathering. Retirement,
sinking funds, restriction
of common dividends, ' restrictions
against mortgaging, are usually not
considered.
It is the investment banker's business
to prepare securities according
to certain recognized principles of
investment banking. While nothing
human is absolutely sure, a careful
following of these investment rules
has proved their worth in eleminating
the majority of the more usual
investment hazards.
nnAinarAvu
su.nij riw * wn/.i j
INTERPRETED
No. 5.
MAINTENANCE NET QUICK ASSETS:
This is to maintain net quick
assets at some reasonable percentage
of preferred stock. The usual minimum
is 100 per cent and the maximum
POO per cent. A requirement
of IE. per cent Is very good. Net
quick assets means the amount the
company would have left in cash provided
it stopped business, sold out its
goods, collected its accounts, after
having paid from the amount so realized
all of its debts. It would have
left in addition all real estate, investments,
and fixed assets, thus furnishing
additional excess protection for
the preferred stockholders. It is
usual to provide that the penalty for
letting net quick assets fall below
the agreed minimum is a suspension
of dividends on the Common Stock
until this agreed minimum has been
restored.
CHARACTER
The character of the individual
managers of the company offering
preferred stock is subject to the
whjte light of publicity and if all is
not as it should be, it will not be possible
to sell the securities. Public
participation in the ownership of a
business can be brought about only
through public confidence.
EFFICIENCY
"Seest thou a man dilligent in his
business, he shall stand before
kings," is true only if to diligence is
added efficiency. The reputation of
the managers of a company offering
its securities to the public for any
degree of efficiency less than highly
excellent, would almost certainly
cause the issue to be a complete
failure.
f COMPANY
the Stockholders of the Bant
the Bank of Charleston, N. I
- CAPITAL $100,000
ass??? ????s??[
8000000000000
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SOME PROVISION'S gg
INTERPRETED g]
No.1. g]
PREFERRED AS TO CUMULA- (21
TIVE DIVIDENDS: The first profits
made by the company go to the pre- |+
ferred stockholders and to the ex- ^
tent that the full amount payable |Z
every year is unpaid In any year, the nr
deficiency must be made up in later X
years before any profits may be dis- jj
tributed to the common stock, which m ?
usually represents the ownership of IS
the people who built up the business. [Z
PREFERRED AS TO ASSETS: In athe
event of dissolution or liqulda- +
tion of the company, the preferred ?
stock is entitled to be paid in full and [ J <
often to be paid at a premium, say rr
$110.00 per share, before any dis- IX
tribution may be made to the holders S
of the common stock.
NO MORTGAGE: It is usual to pro- [
vide that no mortgage or lien, to pay rr
which the company is liable, may be IX
placed on its property while the pre- Z
ferred stock is outstanding without ~
the consent of a substantial majority [+]
of the preferred stockholders, at least ?.
75 per cent. Such a lien or mort- |2|
gage is a debt which may mature at nri
a time when its payment may em- IXI
barrass the company, and therefore Z]
this provision is created so that the bq
preferred stockholders may not be [+]
confronted by such a situation without
having in advance been asked for [ ]
and consent granted thereto. gj
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SOME PROVISIONS ?
INTERPRETED ?
no. e. a
MANAGEMENT: One often reads IS .
the following: "The present officers Z] ^
of the company are as follows: J~
Th0 board of directors is composed [<?]
of to which board will be ?.
elected of the Bankers." |2l VI
The object of this is not to require nri H
or hold out any representation that IXI
the bankers are expected by any one Z] jJD
to take an aggressive or even an ac- bd \
tive part in the management of the H?] i
company, especially while it continues j?, J
piosperou3; but it gives the banker
the right to receive, first hand, as m
fast as it develops, news of the com- IXI
pany's progress. It offers an oppor- Z1
tunity for the bankers to assist with bq
advice and otherwise as circum- [ ]
stances may indicate to be desirable, r?
ANNUAL AUDIT: An annual au- [ ]
Hit is tn hp made hv an independent ixi
public accountant to be approved by IS
the bankers. This provision is gen- SI
erally unnecessary, but is inserted so i==|
that the bankers may have the right
to require it should such audit be rri
not voluntarily provided. IS
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LIliEliAL YIELD [+1
An assured liberal yield (free of pi
normal income taxi can well be of- [ J
fered and paid a preferred slock r^i
holder because, after all, a preferred 12J
stockholder is a preferred partner and m
not a creditor, and his entering the ^
business enables it to expand not
only because of the new money
brought in from the preferred stock, |2J
but because of the even larger rg-i
amount of credit obtainable for tern- 121
porary period* by ieason of having rx]
a larger capital. ?J
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- SURPLUS $100,000 ?
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