UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00041
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GENERAL AMERICAN INVESTORS COMPANY, INC.
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(Exact name of registrant as specified in charter)
450 Lexington Avenue, Suite 3300, New York, New York 10017-3911
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(Address of principal executive offices) (Zip code)
Eugene L. DeStaebler, Jr.
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017-3911
(Name and address of agent for service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Registrant's telephone number, including area code: 212-916-8400
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2003
ANNUAL
REPORT
3
GENERAL AMERICAN INVESTORS COMPANY, INC.
Established in 1927, the Company is a closed-end investment company listed on
the New York Stock Exchange. Its objective is long-term capital appreciation
through investment in companies with above average growth potential.
FINANCIAL SUMMARY (unaudited)
--------------------------------------------------------------------------------
2003 2002
-----------------------------------
Net assets applicable to Common Stock -
December 31 $986,335,111 $809,192,127
Net investment income 855,551 5,238,632
Net realized gain 28,144,510 17,039,043
Net increase (decrease) in unrealized
appreciation 200,469,430 (264,293,395)
Distributions to Preferred Stockholders (11,075,000) (10,800,000)
Per Common Share-December 31
Net asset value $33.11 $26.48
Market price $29.73 $23.85
Discount from net asset value -10.2% -9.9%
Common Shares outstanding-Dec. 31 29,789,263 30,561,356
Common stockholders of record-Dec. 31 4,500 4,700
Market price range* (high-low) $29.78-$21.95 $34.89-$22.17
Market volume-shares 6,280,700 6,978,900
*Unadjusted for dividend payments.
DIVIDEND SUMMARY (per share) (unaudited)
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Ordinary Long-Term
Record Date Payment Date Income Capital Gain Total
----------- ------------ -------- ------------ -----
Common Stock
Nov. 14, 2003 Dec. 23, 2003 $.00761 $.49239 $.50
Jan. 26, 2004 Feb. 9, 2004 .013 .097 .11
------- ------- ----
Total from 2003 earnings $.02061 $.58939 $.61
======= ======= ====
Nov. 14, 2002 Dec. 23, 2002 $.022 $.298 $.32
Jan. 27, 2003 Feb. 10, 2003 .01 .03 .04
----- ------ ----
Total from 2002 earnings $.032 $.328 $.36
======= ======= ====
Preferred Stock
Mar. 6, 2003 Mar. 24, 2003 $.01485 $.43515 $.45
Jun. 6, 2003 Jun. 23, 2003 .01485 .43515 .45
Sep. 8, 2003 Sep. 23, 2003 .01485 .43515 .45
Dec. 8, 2003 Dec. 24, 2003 .012272 .359603 .371875
-------- --------- ---------
Total for 2003 $.056822 $1.665053 $1.721875
======== ========= =========
Mar. 6, 2002 Mar. 25, 2002 $.15525 $.29475 $ .45
Jun. 6, 2002 Jun. 24, 2002 .15525 .29475 .45
Sep. 6, 2002 Sep. 23, 2002 .15525 .29475 .45
Dec. 6, 2002 Dec. 23, 2002 .15525 .29475 .45
------- -------- ------
Total for 2002 $.621 $1.179 $1.80
======= ======== ======
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
4
1 TO THE STOCKHOLDERS
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General American Investors
Following three down years, the U.S. securities market rallied meaningfully,
gaining 28.6% in the year ended December 31, 2003, as measured by our benchmark,
the Standard & Poor's 500 Stock Index (including income). General American
Investors' net asset value (NAV) per common share (assuming reinvestment of all
dividends) increased 27.4%. The return to our common shareholders was 27% as the
discount at which our shares trade widened slightly to 10.2% at year-end.
The table that follows, which compares our returns on an annualized basis with
the S&P 500, illustrates that over many years General American has produced
superior investment results.
Years Stockholder Return S&P 500
-------------------------------------------
3 - 1.2% -4.1%
5 9.8 -0.6
10 14.9 11.0
20 14.3 13.0
30 15.7 12.2
40 13.1 10.6
During 2003, the Company purchased 1,106,600 of its common shares in the open
market at an average discount to NAV of 9.7%. The Board of Directors has
authorized repurchases of common shares when they are trading at a discount in
excess of 8% of NAV.
The cumulative return for our stockholders, as illustrated on pages 4 and 5, is
close to the peak reached during the last 20 years. Total assets, meanwhile, are
near $1.2 billion, reflecting, in part, the redemption of $150 million
liquidation value of 7.20% Cumulative Preferred Stock and its replacement with
$200 million of 5.95% Cumulative Preferred Stock. The costs attending this
refinancing were fully absorbed in the year just ended.
In the first half of last year, investor concerns were centered on the war in
Iraq and on economic weakness and deflation, with the yield on 10-year treasury
notes falling to near 3% as investors sought safety. By the end of the third
quarter, spurred by the conclusion of the conventional war and aggressive
monetary and fiscal policy, the economy was growing at a rapid 7% annualized
pace and investors bid up share prices. Despite the sheltering effects of sharp
gains in manufacturing productivity and low cost imports, inflation had become a
focus of investor anxiety.
In 2004, an election year, it appears that the monetary authorities will retain
their aggressive stance and that the economy will continue to grow with
attendant gains in capital spending and employment. America's sizeable trade and
budget deficits may continue to weigh on the dollar, however, leading to rising
inflationary expectations and interest rates. Although inflation has increased
at a rate of only around 2% as measured by the Consumer Price Index, other
indicators of inflation like housing prices, energy and other commodity costs
have risen more rapidly. Longer term, of course, chronically unbalanced finances
cannot endure. With almost 80 million "baby boomers" scheduled to start
collecting Social Security within the next five years and Medicare benefits
within the next eight, a solution short of selling more bonds or printing money
must be found.
The market has moved broadly higher accompanied by the emergence of extremely
high valuations centered on technology stocks. Its future course should be
determined by the sustainability of the economy's recovery and, while the equity
markets are not likely to generate gains of the magnitude experienced last year,
we are encouraged by the presence, currently, of select opportunities to invest
in high quality companies at reasonable prices.
Information about the Company, including our investment objective, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, etc. is available on our website which can
be accessed at www.generalamericaninvestors.com.
By Order of the Board of Directors,
Spencer Davidson
President and Chief Executive Officer
January 14, 2004
5
2 THE COMPANY
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General American Investors
Corporate Overview
General American Investors, established in 1927, is one of the nation's oldest
closed-end investment companies. It is an independent organization, internally
managed. For regulatory purposes, the Company is classified as a diversified,
closed-end management investment company; it is registered under and subject to
the regulatory provisions of the Investment Company Act of 1940.
Investment Policy
The primary objective of the Company is long-term capital appreciation. Lesser
emphasis is placed on current income. In seeking to achieve its primary
objective, the Company invests principally in common stocks believed by its
management to have better than average growth potential.
The Company's investment approach focuses on the selection of individual stocks,
each of which is expected to meet a clearly defined portfolio objective. A
continuous investment research program, which stresses fundamental security
analysis, is carried on by the officers and staff of the Company under the
oversight of the Board of Directors. A listing of the directors with their
principal affiliations, showing a broad range of experience in business and
financial affairs, is on page 16 of this report.
Portfolio Manager
Mr. Spencer Davidson has been responsible for the management of General
American's portfolio since he was elected President and Chief Executive Officer
of the Company in August 1995. Mr. Davidson, who joined the Company in 1994 as
senior investment counselor, has spent his entire business career on Wall Street
since first joining an investment and banking firm in 1966.
"GAM" Common Stock
As a closed-end investment company, General American Investors does not offer
its shares continuously. The Common Stock is listed on The New York Stock
Exchange (symbol, GAM) and can be bought or sold with commissions determined in
the same manner as all listed stocks. Net asset value is computed daily (on an
unaudited basis) and is furnished upon request. It is also available on most
electronic quotation services using the symbol "XGAMX." The figure for net asset
value per share, together with the market price and the percentage discount or
premium from net asset value as of the close of each week, is published in The
New York Times, The Wall Street Journal and Barron's.
The ratio of market price to net asset value has shown considerable variation
over a long period of time. While shares of GAM usually sell at a discount from
their underlying net asset value, as do the shares of most other domestic equity
closed-end investment companies, they, periodically, sell at a premium over net
asset value. The last time the Company's shares sold at a premium for a
prolonged period was the year-long period from March 1992 through April 1993.
During 2003, the stock sold at discounts from net asset value which ranged from
8.1% (January 7 and April 24) to 10.9% (November 6). At December 31, the price
of the stock was at a discount of 10.2% as compared with a discount of 9.9% a
year earlier.
"GAM Pr B" Preferred Stock
On September 24, 2003, the Company issued and sold in an underwritten offering
8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a
liquidation preference of $25 per share ($200,000,000 in the aggregate).
The Preferred Shares are noncallable for 5 years, are rated "aaa" by Moody's
Investors Service, Inc. and are listed and traded on The New York Stock Exchange
(symbol, GAM Pr B).
6
3 THE COMPANY
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General American Investors
The preferred capital is available to leverage the investment performance of the
Common Stockholders. As is the case for leverage in general, it may also result
in higher market volatility for the Common Stockholders.
Dividend Policy
The Company's dividend policy is to distribute to stockholders before year-end
substantially all ordinary income estimated for the full year and capital gains
realized during the ten-month period ending October 31 of that year. If any
additional capital gains are realized or ordinary income is earned during the
last two months of the year, a "spill-over" distribution of these amounts will
be paid early in the following year to Common Stockholders. Dividends on shares
of Preferred Stock are paid quarterly. Distributions from capital gains and
ordinary income are allocated proportionately among holders of shares of Common
Stock and Preferred Stock.
Dividends from income have been paid continuously on the Common Stock since 1939
and capital gain dividends in varying amounts have been paid for each of the
years 1943-2003 (except for the year 1974). (A table listing dividends paid
during the 20-year period 1984-2003 is shown at the bottom of page 6.) To the
extent that shares can be issued, dividends are paid to Common Stockholders in
additional shares of Common Stock unless the stockholder specifically requests
payment in cash. Spill-over dividends of nominal amounts are paid in cash only.
Proxy Voting Policies and Procedures
The policies and procedures used by General American Investors to determine how
to vote proxies relating to portfolio securities are available: 1) without
charge, upon request, by calling the Company at its toll-free number
(1-800-436-8401), (2) on the Company's website at
http://www.generalamericaninvestors.com and (3) on the Securities and Exchange
Commission's website at http://www.sec.gov.
Direct Registration
In December 2002, the Company initiated Direct Registration ("DR") for its
Common Shareholders. DR is a system that allows for book-entry ownership and the
electronic transfer of our Common Shares. Accordingly, when Common Shareholders,
who hold their shares directly, receive new shares resulting from a purchase,
transfer or dividend payment, they will receive a statement showing the credit
of the new shares as well as their book-entry and certificated share balances. A
brochure which describes the features and benefits of Direct Registration,
including the ability of shareholders to deposit certificates with our transfer
agent, is located at our Website - www.generalamericaninvestors.com - under
Additional Information - Transfer Agent Services. The brochure can also be
obtained by contacting our Corporate Secretary at 1-800-436-8401.
Privacy Policy and Practices
General American Investors collects nonpublic personal information about its
customers (stockholders) with respect to their transactions in shares of the
Company's securities but only for those stockholders whose shares are registered
in their names. This information includes the stockholder's address, tax
identification or Social Security number and dividend elections. We do not have
knowledge of, nor do we collect personal information about, stockholders who
hold the Company's securities at financial institutions such as brokers or banks
in "street name" registration.
We do not disclose any nonpublic personal information about our stockholders or
former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders to
those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
7
4 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
"Total return on $10,000 investment 20 years ended December 31, 2003"
The investment return for a common stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2003 is shown in the table below and
in the accompanying chart. The return based on GAM's net asset value (NAV) per
common share in comparison to the change in the Standard & Poor's 500 Stock
Index (S&P 500) is also displayed. Each illustration assumes an investment of
$10,000 at the beginning of 1984.
The Stockholder Return is the return a common stock holder of GAM would have
achieved assuming reinvestment of all optional dividends at the actual
reinvestment price and reinvestment of all cash dividends at the average (mean
between high and low) market price on the ex-dividend date.
The GAM Net Asset Value (NAV) Return is the return on shares of the Company's
common stock based on the NAV per share, including the reinvestment of all
dividends.
The S&P 500 Return is the time-weighted total rate of return on this
widely-recognized, unmanaged index which is a measure of general stock market
performance, including dividend income.
The results illustrated are a record of past performance and may not be
indicative of future results.
GENERAL AMERICAN INVESTORS
---------------------------------------------------------------------- STANDARD & POOR'S 500
STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN
------------------------------------------------------------------------------------------------
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
INVESTMENT RETURN INVESTMENT RETURN INVESTMENT RETURN
------------------------------------------------------------------------------------------------
1984 $9,284 -7.16% $9,291 -7.09% $10,628 6.28%
1985 11,587 24.81 12,543 35.00 14,005 31.77
1986 12,882 11.17 13,944 11.17 16,622 18.69
1987 10,806 -16.11 14,297 2.53 17,493 5.24
1988 13,104 21.26 16,809 17.57 20,385 16.53
1989 19,472 48.60 23,172 37.86 26,830 31.62
1990 20,251 4.00 24,723 6.69 26,001 -3.09
1991 37,465 85.00 39,826 61.09 33,905 30.40
1992 43,002 14.78 41,239 3.55 36,479 7.59
1993 36,156 -15.92 40,518 -1.75 40,170 10.12
1994 33,314 -7.86 39,407 -2.74 40,681 1.27
1995 40,384 21.22 48,700 23.58 55,936 37.50
1996 48,250 19.48 58,425 19.97 68,751 22.91
1997 68,795 42.58 77,150 32.05 91,665 33.33
1998 90,335 31.31 104,261 35.14 117,836 28.55
1999 125,765 39.22 142,212 36.40 142,534 20.96
2000 149,786 19.10 167,298 17.64 129,578 -9.09
2001 156,271 4.33 165,291 -1.20 114,171 -11.89
2002 113,750 -27.21 127,241 -23.02 88,894 -22.14
2003 144,474 27.01 162,105 27.40 114,282 28.56
8
5 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
[CAPTION]
[Line graph with heading "20-YEAR INVESTMENT RESULTS ASSUMING AN INITIAL
INVESTMENT OF $10,000" at top left hand side. The vertical axis is to the right
side of the page and is labeled "CUMULATIVE VALUE OF INVESTMENT." The axis range
is from $0 to $200,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1984 through 2003 in one year increments.
Within the graph are three lines. The first line represents GAM Stockholder
Return. The second line represents GAM Net Asset Value, and the third line
represents the S&P 500 Stock Index. The data points for the lines are derived
from the columns labeled "Cumulative Investment" from the table on the preceding
page. Also, embedded in upper left portion of the graph is a table which appears
as follows:]
COMPARATIVE ANNUALIZED INVESTMENT RESULTS
-----------------------------------------
YEARS ENDED STOCKHOLDER GAM NET S&P 500
DECEMBER 31, 2003 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------
1 year 27.0 % 27.4 % 28.6 %
5 years 9.8 9.2 -0.6
10 years 14.9 14.9 11.0
15 years 17.4 16.3 12.2
20 years 14.3 14.9 13.0
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED)
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General American Investors
SHARES HELD
INCREASES SHARES DECEMBER 31,2003
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NEW POSITIONS
Bank of America Corporation 100,000 100,000
CEMEX, S.A. de C.V. 463,500 463,500
Devon Energy Corporation 370,700 650,000 (a)
FleetBoston Financial Corporation 150,000 150,000
MFA Mortgage Investments, Inc. 575,000 575,000
ADDITIONS
Annaly Mortgage Management, Inc. 250,000 825,000
MedImmune, Inc. 221,000 455,000
Medtronic, Inc. 160,000 450,000
Pfizer Inc 225,000 1,325,000
Wal-Mart Stores, Inc. 105,000 675,000
DECREASES
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ELIMINATIONS
The Boeing Company 20,000 -
Max Re Capital Ltd. 110,000 -
Zarlink Semiconductor Inc. 250,000 -
REDUCTIONS
American International Group, Inc. 10,000 325,000
Everest Re Group, Ltd. 40,000 650,000
Genentech, Inc. 20,000 315,000
Golden West Financial Corporation 65,000 335,000
John Hancock Financial Services, Inc. 95,000 330,000
The Home Depot, Inc. 25,000 1,920,000
OSI Pharmaceuticals, Inc. 45,000 30,000
SunTrust Banks, Inc. 20,000 205,000
* Excludes transactions in Stocks-Miscellaneous-Other.
(a) Includes shares purchased in prior period and previously carried under
Stocks-Miscellaneous-Other.
DIVIDENDS PER COMMON SHARE (1984-2003) (UNAUDITED)
--------------------------------------------------------------------------------
The following table shows aggregate dividends paid per share on the Company's
Common Stock for each year during the 20-year period 1984-2003. Amounts shown
include payments made after year-end attributable to income and gain in each
respective year.
DIVIDEND FROM
--------------------------
LONG-TERM
YEAR INCOME# CAPITAL GAINS
-------------------------------------------
1984 $.28 $1.35
1985 .47 1.07
1986 .36 2.15
1987 .35 1.54
1988 .29 1.69
1989 .23 1.56
1990 .21 1.65
1991 .09 3.07
1992 .03 2.93
1993 .06 2.34
1994 .06 1.59
1995 .13 2.77
1996 .25 2.71
1997 .21 2.95
1998 .47 4.40
1999 1.04 4.05
2000 2.03 6.16
2001 1.01 1.37
2002 .03 .33
2003 .02 .59
#Includes short-term capital gains per share which amounted to $.12 in 1985,
$.02 in 1989, $.03 in 1995, $.05 in 1996, $.62 in 1999, $1.55 in 2000 and $.64
in 2001.
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
The statement of investments as of December 31, 2003, shown on pages 10 and 11
includes 58 security issues. Listed here are the ten largest holdings on that
date.
% COMMON
SHARES VALUE NET ASSETS*
----------------------------------------------------------------------------------------------------------
THE HOME DEPOT, INC. 1,920,000 $68,140,800 6.9%
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.
----------------------------------------------------------------------------------------------------------
THE TJX COMPANIES, INC. 2,500,000 55,125,000 5.6
Through its T.J. Maxx and Marshalls divisions, TJX is a leading
off-price retailer. The continued growth of these divisions,
along with expansion into related U.S. and foreign off-price
formats, provide ongoing opportunities.
----------------------------------------------------------------------------------------------------------
EVEREST RE GROUP, LTD. 650,000 54,990,000 5.6
The largest independent U.S. property/casualty reinsurer which
generates annual premiums of approximately $4.5 billion and has
a high quality, well-reserved AA balance sheet. This Bermuda
domiciled company has a strong management team that exercises
prudent underwriting discipline and efficient expense control,
resulting in above-average earnings progress.
----------------------------------------------------------------------------------------------------------
PFIZER INC 1,325,000 46,812,250 4.7
Well established as a leader in the pharmaceutical industry, Pfizer
continues to reap the benefits of its commitment to research
and development and its ability to effectively market products.
With the acquisition of Pharmacia now complete, Pfizer continues
to optimize its corporate structure and is streamlining the
company for optimal growth and success as a transforming force
in global healthcare.
----------------------------------------------------------------------------------------------------------
DEVON ENERGY CORPORATION 650,000 37,219,000 3.8
One of the largest independent oil and gas exploration and
production companies, Devon operates both domestically and
internationally. Recent opportunistic acquisitions enhanced
production volumes and improved the company's exploration
profile.
----------------------------------------------------------------------------------------------------------
WAL-MART STORES, INC. 675,000 35,808,750 3.6
A policy of serving the mass market with everyday low prices,
supported by the lowest cost structure has made Wal-Mart the
world's largest retailer with ongoing growth opportunities in
the U.S. and overseas.
----------------------------------------------------------------------------------------------------------
GOLDEN WEST FINANCIAL CORPORATION 335,000 34,568,650 3.5
A savings and loan holding company with over $80 billion in
assets headquartered in Oakland, CA. It has a strong, conservative
management with a high level of insider ownership. Excellent
asset quality, tight expense control and efficient capital manage-
ment help produce above-average earnings increases.
----------------------------------------------------------------------------------------------------------
M & T BANK CORPORATION 310,000 30,473,000 3.1
A bank holding company with over $50 billion in assets head-
quartered in Buffalo, NY. It has strong, opportunistic management
with a high level of ownership and a history of enhancing share-
holder value. High asset quality, excellent expense control, share
repurchases and adroit acquisitions help generate above-average
earnings growth.
----------------------------------------------------------------------------------------------------------
REPUBLIC SERVICES, INC. 1,175,000 30,115,250 3.1
A leading provider of non-hazardous solid waste collection and
disposal services through 141 collection companies in 22 states.
The efficient operation of its routes and facilities combined with
appropriate pricing enable the company to generate significant
free cash flow. Republic Services' share price should benefit from
additional contracts, a pick up in waste volumes with improved
economic activity and share repurchases by the company.
----------------------------------------------------------------------------------------------------------
GENENTECH, INC. 315,000 29,474,550 3.0
A leading biotechnology company focused on the development
and production of biotherapeutics for medical needs. With a
strong product portfolio, recent FDA drug approvals and a broad
pipeline of product opportunities, Genentech is positioned for
continued success.
----------------------------------------------------------------------------------------------------------
$422,727,250 42.9%
============ =====
*Net assets applicable to the Company's Common Stock.
11
8 STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
General American Investors
DECEMBER 31,
--------------------------------
ASSETS 2003 2002
---------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks
(cost $512,775,431 and $417,614,713, respectively) $927,510,131 $629,812,240
Convertible corporate notes (cost $9,714,002 and
$11,464,420, respectively) 10,250,000 11,450,000
Corporate discount notes
(cost $149,931,413 and $222,859,450, respectively) 149,931,413 222,859,450
U.S. Treasury bills (cost $99,546,882 and $98,645,315,
respectively) 99,546,882 98,645,315
------------- ------------
Total investments (cost $771,967,728 and $750,583,898,
respectively) 1,187,238,426 962,767,005
CASH, RECEIVABLES AND OTHER ASSETS
Cash (including margin account balance of
$3,455 for 2002) 54,695 68,413
Receivable for securities sold 2,731,429 1,394,958
Deposit with broker for securities sold short 13,684,582 5,710,669
Dividends, interest and other receivables 2,093,543 1,534,495
Prepaid expenses 6,979,584 6,474,097
Other 321,045 455,687
------------- ------------
TOTAL ASSETS 1,213,103,304 978,405,324
------------- ------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased 1,480,264 5,905,815
Preferred dividend accrued but not yet declared 231,389 240,000
Securities sold short, at value (proceeds $13,684,582
and $5,710,669, respectively) (note 1a) 15,307,245 4,715,171
Accrued expenses and other liabilities 9,749,295 8,352,211
------------- ------------
TOTAL LIABILITIES 26,768,193 19,213,197
------------- ------------
CUMULATIVE PREFERRED STOCK -
5.95% Series B, 8,000,000 shares and
7.20% Tax-Advantaged, 6,000,000 shares,
respectively, at a liquidation value of $25 per share (note 2) 200,000,000 150,000,000
------------- ------------
NET ASSETS APPLICABLE TO COMMON STOCK -
29,789,263 and 30,561,356 shares, respectively (note 2) $986,335,111 $809,192,127
============= ============
NET ASSET VALUE PER COMMON SHARE $33.11 $26.48
====== ======
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 29,789,263 and 30,561,356 shares at par
value, respectively (note 2) $29,789,263 $30,561,356
Additional paid-in capital (note 2) 538,866,532 563,709,764
Undistributed realized gain on investments (note 2) 2,951,398 1,089,200
Undistributed net income (note 2) 1,311,272 893,202
Unallocated distributions on Preferred Stock (231,389) (240,000)
Unrealized appreciation on investments and securities
sold short (including aggregate gross unrealized appreciation
of $459,535,751 and $303,127,054, respectively) 413,648,035 213,178,605
------------- ------------
NET ASSETS APPLICABLE TO COMMON STOCK $986,335,111 $809,192,127
============= ============
(see notes to financial statements)
12
9 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------
INCOME 2003 2002
------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $21,770 in 2002) $7,810,852 $8,131,252
Interest 4,168,048 6,259,873
------------ -------------
TOTAL INCOME 11,978,900 14,391,125
------------ -------------
EXPENSES
------------------------------------------------------------------------------------------------
Investment research 6,977,145 5,353,349
Administration and operations 2,862,224 2,423,028
Office space and general 554,237 594,154
Auditing and legal fees 188,250 211,000
Transfer agent, custodian and registrar fees and expenses 176,626 208,974
Directors' fees and expenses 160,213 152,486
Stockholders' meeting and reports 118,874 127,208
Miscellaneous taxes 85,780 82,294
------------ -------------
TOTAL EXPENSES 11,123,349 9,152,493
------------ -------------
NET INVESTMENT INCOME 855,551 5,238,632
------------ -------------
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4)
------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 28,586,216 6,036,466
Short sale transactions (note 1b) (441,706) 11,002,577
------------ -------------
Net realized gain on investments (long-term) 28,144,510 17,039,043
Net increase (decrease) in unrealized appreciation 200,469,430 (264,293,395)
------------ -------------
NET GAIN (LOSS) ON INVESTMENTS 228,613,940 (247,254,352)
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,075,000) (10,800,000)
------------ -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 218,394,491 (252,815,720)
------------ -------------
OTHER COMPREHENSIVE INCOME (NOTE 1d) 283,689 459,565
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS $218,678,180 ($252,356,155)
============ =============
------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------
OPERATIONS 2003 2002
------------------------------------------------------------------------------------------------
Net investment income $855,551 $5,238,632
Net realized gain on investments 28,144,510 17,039,043
Net increase (decrease) in unrealized appreciation 200,469,430 (264,293,395)
Distributions to Preferred Stockholders:
From net income (365,476) (3,726,000)
From long-term capital gains (10,709,524) (7,074,000)
------------ -------------
Decrease in net assets from preferred distributions (11,075,000) (10,800,000)
------------ -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 218,394,491 (252,815,720)
------------ -------------
OTHER COMPREHENSIVE INCOME 283,689 459,565
------------ -------------
------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------
From net income, including short-term capital gains in 2002 (531,570) (6,606,164)
From long-term capital gains (15,572,788) (12,540,285)
------------ -------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (16,104,358) (19,146,449)
------------ -------------
CAPITAL SHARE TRANSACTIONS
------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) 9,724,118 6,410,677
Cost of Common Shares purchased (note 2) (28,454,956) (23,245,666)
Underwriting discount and other expenses associated with
the issuance of Preferred Stock (note 2) (6,700,000) -
------------ -------------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (25,430,838) (16,834,989)
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS 177,142,984 (288,337,593)
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 809,192,127 1,097,529,720
------------ -------------
END OF YEAR (including undistributed net income of $1,311,272
and $893,202, respectively) $986,335,111 $809,192,127
============ =============
(see notes to financial statements)
13
10 STATEMENT OF INVESTMENTS: DECEMBER 31, 2003
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS
--------------------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
-------------------------------------------------------------------------------------------------------------------------
BUILDING AND 463,500 CEMEX, S.A. de C.V. (COST $11,394,095) $12,143,700
REAL ESTATE (1.2%) -----------
--------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 550,000 CIENA Corporation (a) 3,608,000
INFORMATION SERVICES 900,000 Cisco Systems, Inc. (a) 21,807,000
(5.6%) 620,000 Cox Communications, Inc. Class A (a) 21,359,000
450,000 Juniper Networks, Inc. (a) 8,406,000
-----------
(COST $31,949,019) 55,180,000
-----------
--------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 300,000 EMC Corporation (a) 3,876,000
AND SYSTEMS (1.0%) 350,000 VeriSign, Inc. (a) 5,705,000
-----------
(COST $4,111,632) 9,581,000
-----------
--------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 275,000 Coca-Cola Enterprises Inc. 6,014,250
AND SERVICES (2.8%) 275,000 Ethan Allen Interiors Inc. 11,517,000
125,000 Newell Rubbermaid Inc. 2,846,250
150,000 PepsiCo, Inc. 6,993,000
-----------
(COST $17,111,384) 27,370,500
-----------
--------------------------------------------------------------------------------------------------------------------------
ELECTRONICS (2.1%) 692,500 Molex Incorporated Class A (COST $14,877,393) 20,297,175
-----------
--------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 1,175,000 Republic Services, Inc. (COST $26,227,380) 30,115,250
(INCLUDING SERVICES) (3.0%) -----------
--------------------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (9.5%)
(31.5%) ----------------------------------------------------------------------------------------------
100,000 Bank of America Corporation 8,043,000
150,000 FleetBoston Financial Corporation 6,547,500
335,000 Golden West Financial Corporation 34,568,650
310,000 M&T Bank Corporation 30,473,000
205,000 SunTrust Banks, Inc. 14,657,500
-----------
(COST $21,970,548) 94,289,650
-----------
INSURANCE (19.7%)
----------------------------------------------------------------------------------------------
325,000 American International Group, Inc. 21,541,000
1,000,000 Annuity and Life Re (Holdings), Ltd. 1,380,000
300 Berkshire Hathaway Inc. Class A (a) 25,275,000
650,000 Everest Re Group, Ltd. 54,990,000
330,000 John Hancock Financial Services, Inc. 12,375,000
435,000 MetLife, Inc. 14,646,450
500,000 PartnerRe Ltd. 29,025,000
425,000 Reinsurance Group of America, Incorporated 16,426,250
230,000 Transatlantic Holdings, Inc. 18,584,000
-----------
(COST $94,253,080) 194,242,700
-----------
OTHER (2.3%)
----------------------------------------------------------------------------------------------
825,000 Annaly Mortgage Management, Inc. 15,180,000
90,184 Central Securities Corporation 1,883,944
575,000 MFA Mortgage Investments, Inc. 5,606,250
-----------
(COST $17,830,051) 22,670,194
-----------
(COST $134,053,679) 311,202,544
-----------
--------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (19.3%) PHARMACEUTICALS (14.8%)
----------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) 4,590,000
900,000 Baxter International Inc. 27,468,000
275,000 Biogen Idec Inc. (a) 10,092,500
300,000 Bristol-Myers Squibb Company 8,580,000
270,000 Genaera Corporation (a) 882,900
315,000 Genentech, Inc. (a) 29,474,550
375,000 Genta Incorporated (a) 3,911,250
455,000 MedImmune, Inc. (a) 11,547,900
120,000 Millennium Pharmaceuticals, Inc. (a) 2,238,000
30,000 OSI Pharmaceuticals, Inc. (a) 967,500
1,325,000 Pfizer Inc 46,812,250
-----------
(COST $103,936,515) 146,564,850
-----------
MEDICAL INSTRUMENTS AND DEVICES (2.2%)
----------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 21,874,500
-----------
HEALTH CARE SERVICES (2.3%)
----------------------------------------------------------------------------------------------
695,000 Health Net, Inc. (a) (COST $15,334,735) 22,726,500
-----------
(COST $129,754,966) 191,165,850
-----------
14
11 STATEMENT OF INVESTMENTS: DECEMBER 31, 2003 - continued
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS (Continued)
---------------------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
---------------------------------------------------------------------------------------------------
MISCELLANEOUS (0.7%) Other (COST $5,672,944) $6,577,461
------------
--------------------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 650,000 Devon Energy Corporation 37,219,000
(INCLUDING SERVICES) 650,000 Halliburton Company 16,900,000
(5.5%) ------------
(COST $39,828,119) 54,119,000
------------
--------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE (18.8%) 700,000 Costco Wholesale Corporation (a) 26,026,000
1,920,000 The Home Depot, Inc. (b) 68,140,800
2,500,000 The TJX Companies, Inc. 55,125,000
675,000 Wal-Mart Stores, Inc. 35,808,750
------------
(COST $68,036,225) 185,100,550
------------
--------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (2.3%) 200,000 Applied Materials, Inc. (a) 4,488,000
250,000 ASM International N.V. (a) 5,060,000
491,500 Brooks Automation, Inc. (a) 11,668,210
197,000 EMCORE Corporation (a) 927,870
1,644,900 IQE plc (a) 477,021
------------
(COST $21,748,875) 22,621,101
------------
--------------------------------------------------------------------------------------------------------------------------
SPECIAL HOLDINGS 400,000 Cytokinetics, Incorporated Series E Preferred 2,000,000
(a)(c) 144,000 Silicon Genesis Corporation 36,000
(NOTE 5)(0.2%) 546,000 Standard MEMS, Inc. Series A Convertible Preferred -
------------
(COST $8,009,720) 2,036,000(d)
------------
--------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (94.0%) (COST $512,775,431) 927,510,131
------------
--------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE NOTE
----------------------------------------------------------------------------------------------
HEALTH CARE (1.0%) $10,000,000 MedImmune Vaccines, Inc. 5 1/4% due 2/1/08 (COST $9,714,002) 10,250,000
------------
--------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES AND OTHER ASSETS
----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
--------------------------------------------------------------------------------------------------------------------------
$8,800,000 AIG Funding, Inc. note due 2/2/04; 1.01% 8,789,877
29,700,000 American Express Credit Corporation notes due 1/5-1/27/04; 1.05% 29,668,398
15,300,000 American General Finance Corporation note due 2/5/04; 1.03% 15,283,497
25,400,000 General Electric Capital Corporation notes due 1/8-2/3/04; 1.05%-1.08% 25,373,541
14,000,000 General Motors Acceptance Corporation notes due 1/6-1/30/04; 1.36%-1.38% 13,979,499
34,400,000 Prudential Funding, LLC notes due 1/2-1/22/04; 1.02%-1.06% 34,364,830
22,500,000 Sears Roebuck Acceptance Corp. notes due 1/12-1/26/04; 1.10%-1.15% 22,471,771
100,000,000 U.S. Treasury bills due 2/26-3/18/04; 0.98%-1.00% 99,546,882
------------
TOTAL SHORT-TERM SECURITIES (25.3%) (COST $249,478,295) 249,478,295
Liabilities in excess of cash, receivables and other assets (903,315)
------------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (25.2%) 248,574,980
------------
PREFERRED STOCK (-20.2%) (200,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $986,335,111
============
(a) Non-income producing security.
(b) 1,000,000 shares held by custodian in a segregated custodian account as collateral for open short positions.
(c) Restricted security.
(d) Fair value of each holding in the opinion of the Directors.
--------------------------------------------------------------------------------------------------------------------------
STATEMENT OF SECURITIES SOLD SHORT: DECEMBER 31, 2003
----------------------------------------------------------------------------------------------
General American Investors
COMMON STOCKS
SHARES VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------------------
72,000 Electronic Arts Inc. $3,432,960
300,000 NASDAQ - 100 Trust, Series 1 10,938,000
24,100 Southwest Bancorporation of Texas, Inc. 936,285
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $13,684,582) $15,307,245
============
(see notes to financial statements)
15
12 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
General American Investors Company, Inc. (the "Company"), established in 1927,
is registered under the Investment Company Act of 1940 as a closed-end,
diversified management investment company. It is internally managed by its
officers under the direction of the Board of Directors.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain prior year financial statement items have been reclassified to conform
to the current year presentation.
a. SECURITY VALUATION Securities traded on securities exchanges or on the NASDAQ
National Market System are valued at the last reported sales price on the last
business day of the period. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price (asked price for open short positions) on the
valuation date. Corporate discount notes and U.S. Treasury bills are valued at
amortized cost, which approximates market value. Special holdings are valued at
fair value in the opinion of the Directors. In determining fair value, in the
case of restricted shares, consideration is given to cost, operating and other
financial data and, where applicable, subsequent private offerings or market
price of the issuer's unrestricted shares (to which a 30 percent discount would
be applied).
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
d. OTHER COMPREHENSIVE INCOME Pursuant to FAS 87, the Company recognizes on an
amortized basis the excess of the fair value of its pension plan assets over the
present value of accumulated plan benefits.
e. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
--------------------------------------------------------------------------------
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value, of which 29,789,263 shares and 8,000,000 shares, respectively, were
outstanding at December 31, 2003.
On September 23, 2003, the Company redeemed all of its then outstanding
6,000,000 shares of 7.20% Tax-Advantaged Cumulative Preferred Stock, Series A,
at a redemption price of $25.00 per share. The Series A Preferred Shares were
issued originally on June 19,1998.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its
5.95% Cumulative Preferred Stock, Series B in an underwritten offering. The
Preferred Shares are noncallable for 5 years and have a liquidation preference
of $25.00 per share plus an amount equal to accumulated and unpaid dividends to
the date of redemption. The underwriting discount and other expenses associated
with the Preferred Stock offering amounted to $6,700,000 and were charged to
paid-in capital.
The Company is required to allocate distributions from long-term capital
gains and other types of income proportionately among holders of shares of
Common Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines, the Company is required to
maintain a certain discounted asset coverage for its portfolio that equals or
exceeds the Basic Maintenance Amount under the guidelines established by Moody's
Investors Service, Inc. The Company has met these requirements since the
issuance of the Preferred Stock. If the Company fails to meet these requirements
in the future and does not cure such failure, the Company may be required to
redeem in whole or in part, shares of Preferred Stock at a redemption price of
$25.00 per share plus accumulated and unpaid dividends (whether or not earned or
declared). In addition, the Company's failure to meet the foregoing asset
coverage requirements could restrict its ability to pay dividends on shares of
Common Stock and could lead to sales of portfolio securities at inopportune
times.
The holders of Preferred Stock have voting rights equivalent to those of
the holders of Common Stock (one vote per share) and, generally, vote together
with the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the
Company's Board of Directors and the holders of Preferred and Common Stock,
voting as a single class, will elect the remaining directors. If the Company
fails to pay dividends on the Preferred Stock in an amount equal to two full
years' dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
16
13 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from bottom of previous
page.)
The Company classifies its Preferred Stock pursuant to the requirements of
EITF D-98, Classification and Measurement of Redeemable Securities, which
require that preferred stock for which its redemption is outside of the
Company's control should be presented outside of net assets in the statement of
assets and liabilities.
Transactions in Common Stock during 2003 and 2002 were as follows:
SHARES AMOUNT
---------------------------------------------------------
2003 2002 2003 2002
--------- --------- -------------- --------------
Shares issued in payment of dividends
(includes 334,507 and 251,893 shares
issued from treasury, respectively) 334,507 251,893 $334,507 $251,893
Increase in paid-in capital 9,389,611 6,158,784
------------ ------------
Total increase 9,724,118 6,410,677
------------ ------------
Shares purchased (at an average
discount from net asset value of
9.7% and 9.1%, respectively) 1,106,600 922,100 (1,106,600) (922,100)
Decrease in paid-in capital (27,348,356) (22,323,566)
------------ ------------
Total decrease (28,454,956) (23,245,666)
------------ ------------
Net decrease ($18,730,838) ($16,834,989)
============ ============
At December 31, 2003, the Company held in its treasury 1,442,300 shares of Common Stock with an
aggregate cost in the amount of $28,752,939.
Distributions for tax and book purposes are substantially the same.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income $359,332
Undistributed long-term gains 2,876,071
Unrealized appreciation 413,648,035
------------
$416,883,438
============
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during 2003 and 2002 to its
officers amounted to $4,994,000 and $4,419,000, respectively.
The Company has non-contributory retirement plans and a contributory thrift plan
which cover substantially all employees. The costs to the Company and the assets
and liabilities of the plans are not material. Costs of the plans are funded
currently.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities) during 2003 amounted to on long transactions $205,428,471
and $140,604,387, respectively, and on short sale transactions $5,283,161 and
$12,815,368, respectively.
At December 31, 2003, the cost of investments for Federal income tax purposes
was the same as the cost for financial reporting purposes.
--------------------------------------------------------------------------------
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
---------- ------------ ------------
Cytokinetics, Incorporated Series E Preferred 3/21/03 $2,000,000 $2,000,000
Silicon Genesis Corporation 2/16/01 3,006,720 36,000
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
---------- ----------
Total $8,009,720 $2,036,000
========== ==========
--------------------------------------------------------------------------------
6. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expires in 2007 and provides for future rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contains a
clause whereby the Company received twenty months of free rent beginning in
December 1992 and escalation clauses relating to operating costs and real
property taxes.
Rental expense approximated $304,600 for 2003. Minimum rental commitments under
the operating lease are approximately $505,000 per annum in 2004 through 2007.
In January 2003, the Company extended a sublease agreement (originally entered
into in March 1996) which expires in 2007 and provides for future rental
receipts. Minimum rental receipts under the sublease are approximately $254,000
per annum in 2004 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENT
On January 14, 2004, the Board of Directors declared on the Common Stock a
dividend of $2,878,743 from net long-term capital gains and a dividend of
$385,811 from ordinary income. These dividends are payable in cash on February
9, 2004.
Unaudited
--------------------------------------------------------------------------------
In addition to purchases of the Company's Common Stock as set forth in Note 2
above, purchases of Common Stock may be made at such times, at such prices, in
such amounts and in such manner as the Board of Directors may deem advisable.
17
14 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for each year in the five-year period ended
December 31, 2003. This information has been derived from information contained
in the financial statements and market price data for the Company's shares.
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $26.48 $35.14 $39.91 $41.74 $34.87
------ ------ ------ ------ ------
Net investment income .02 .17 .39 .51 .44
Net gain (loss) on securities - realized
and unrealized 7.72 (7.88) (.66) 6.12 11.32
------ ------ ------ ------ ------
Distributions on Preferred Stock:
Dividends from investment income (.01) (.12) (.07)(a) (.11)(b) (.07)(c)
Distributions from capital gains (.35) (.23) (.29) (.29) (.35)
------ ------ ------ ------ ------
(.36) (.35) (.36) (.40) (.42)
------ ------ ------ ------ ------
Total from investment operations 7.38 (8.06) (.63) 6.23 11.34
------ ------ ------ ------ ------
Other comprehensive income .01 .02 .02 .02 .01
------ ------ ------ ------ ------
Less distributions on Common Stock:
Dividends from investment income (.02) (.21)(d) (.88)(e) (2.30)(f) (.71)(g)
Distributions from capital gains (.52) (.41) (3.28) (5.78) (3.77)
------ ------ ------ ------ ------
(.54) (.62) (4.16) (8.08) (4.48)
------ ------ ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering (.22) - - - -
------ ------ ------ ------ ------
Net asset value, end of year $33.11 $26.48 $35.14 $39.91 $41.74
====== ====== ====== ====== ======
Per share market value, end of year $29.73 $23.85 $33.47 $36.00 $37.19
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 27.01% (27.21)% 4.33% 19.10% 39.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $986,335 $809,192 $1,097,530 $1,155,039 $1,094,519
Ratio of expenses to average net assets
applicable to Common Stock 1.26% 0.97% 1.02% 1.09% 1.01%
Ratio of net income to average net assets
applicable to Common Stock 0.10% 0.56% 1.10% 1.20% 1.22%
Portfolio turnover rate 18.62% 22.67% 23.81% 40.61% 33.68%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $200,000 $150,000 $150,000 $150,000 $150,000
Asset coverage 593% 639% 832% 870% 830%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $25.04 $25.85 $25.90 $24.25 $21.75
(a) Includes short-term capital gain in the amount of $.04 per share.
(b) Includes short-term capital gain in the amount of $.09 per share.
(c) Includes short-term capital gain in the amount of $.03 per share.
(d) Includes short-term capital gain in the amount of $.19 per share.
(e) Includes short-term capital gain in the amount of $.51 per share.
(f) Includes short-term capital gain in the amount of $1.82 per share.
(g) Includes short-term capital gain in the amount of $.29 per share.
18
15 REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
General American Investors
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GENERAL AMERICAN INVESTORS
COMPANY, INC.
We have audited the accompanying statement of assets and liabilities, including
the statements of investments and securities sold short, of General American
Investors Company, Inc. as of December 31, 2003, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2003, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
General American Investors Company, Inc. at December 31, 2003, the results of
its operations and the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
New York, New York
January 14, 2004
OFFICERS
--------------------------------------------------------------------------------
NAME (AGE) POSITION WITH COMPANY NAME (AGE) POSITION WITH COMPANY
EMPLOYEE SINCE SINCE EMPLOYEE SINCE SINCE
--------------------------- ------------------------- --------------------- ------------------------
Spencer Davidson (61) President and Chief Peter P. Donnelly (55) Vice-President 1991
1994 Executive Officer 1974 securities trader
1995
Andrew V. Vindigni (44) Vice-President 1995 Diane G. Radosti (51) Treasurer 1990
1988 security analyst 1980 Principal Accounting
(financial services Officer 2003
industry)
Eugene L. DeStaebler, Jr. (65) Vice-President, Carole Anne Clementi (57) Secretary 1994
1975 Administration 1978 1982 shareholder relations
Principal Financial and office management
Officer 2002
All officers serve for a term of one year and are elected by the Board of
Directors at the time of its annual organization meeting on the second Wednesday
in April. The address for each officer is the Company's office. Other
directorships and affiliations for Mr. Davidson are shown in the listing of
Directors on page 16.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
1-800-413-5499
www.mellon-investor.com
19
16 DIRECTORS (UNAUDITED)
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General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
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INDEPENDENT ("DISINTERESTED") DIRECTORS
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Lawrence B. Buttenwieser (72) Counsel 2002-present
Chairman of the Partner 1966-2002
Board of Directors Katten Muchin Zavis Rosenman
1967 and predecessor firms (lawyers)
Arthur G. Altschul, Jr. (39) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Medicis Pharmaceutical Corporation, Director
Management, LLC Neurosciences Research Foundation, Trustee
(investments and securities)
Lewis B. Cullman (85) Managing Member Chess-in-the-Schools, Chairman, Board of Trustees
1961 Cullman Ventures LLC Metropolitan Museum of Art, Honorary Trustee
(formerly Cullman Ventures, Inc.) Museum of Modern Art, Vice Chairman,
International Council and Honorary Trustee
Neurosciences Research Foundation, Vice Chairman,
Board of Trustees
The New York Botanical Garden, Senior Vice
Chairman, Board of Managers
Gerald M. Edelman (74) Member and Chairman of the Neurosciences Institute of the
1976 Department of Neurobiology Neurosciences Research Foundation,
The Scripps Research Institute Director and President
John D. Gordan, III (58) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (73) Managing Partner BioReliance Corporation, Chairman, Board of Directors
1994 SRK Management Company IGENE Biotechnology, Inc., Director
(private investment company) Insight Communications Company, Inc.,
Chairman, Board of Directors
Richard R. Pivirotto (73) President General Theological Seminary, Trustee
1971 Richard R. Pivirotto Co., Inc. The Greenwich Bank and Trust Company, Director
(self-employed consultant) Greenwich Hospital Corporation, Trustee
Immunomedics, Inc., Director
New York Life Insurance Company, Director
Princeton University, Charter Trustee Emeritus
Joseph T. Stewart, Jr. (74) Corporate director and trustee Foundation of the University of
1987 Executive Consultant Medicine and Dentistry of New Jersey, Trustee
Johnson & Johnson (1990-1999) Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Trustee,
Board of Advisors
Raymond S. Troubh (77) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Enron Corp., Chairman, Board of Directors
Gentiva Health Services, Inc., Director
Petrie Stores Liquidating Trust, Trustee
Triarc Companies, Inc., Director
WHX Corporation, Director
INSIDE ("INTERESTED") DIRECTOR
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Spencer Davidson (61) President and Chief Executive Officer Medicis Pharmaceutical Corporation, Director
1995 General American Investors Neurosciences Research Foundation, Trustee
Company, Inc. since 1995
All Directors serve for a term of one year and are elected by stockholders at the time of the annual meeting on the second
Wednesday in April. The address for each Director is the Company's office.
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William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
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General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail:InvestorRelations@gainv.com
www.generalamericaninvestors.com
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ITEM 2. CODE OF ETHICS.
On July 9, 2003, the Board of Directors adopted a code of ethics that applies to
registrant's principal executive and senior financial officers. The code of
ethics is available on registrant's Internet website at
http://www.generalamericaninvestors.com. Since the code of ethics was adopted
there have been no amendments to the code nor have there been granted any
waivers from any provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The board of directors has determined that none of the members of registrant's
audit committee meets the definition of "audit committee financial expert" as
the term has been defined by the U.S. Securities and Exchange Commission (the
"Commission"). In addition, the board of directors has determined that the
members of the audit committee have sufficient expertise to perform the duties
and responsibilities of the audit committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES The aggregate fees paid and accrued by the registrant for
professional services rendered by its independent auditors, Ernst & Young LLP,
for the audit of the registrant's annual financial statements and the review of
the registrant's semi-annual financial statements for 2003 and 2002 were $64,500
and $57,500, respectively.
(b) AUDIT RELATED FEES The aggregate fees paid or accrued by the registrant for
audit-related professional services rendered by Ernst & Young LLP for 2003 and
2002 were $49,400 and $31,500, respectively. Such services and related fees for
2003 and 2002 included: review of registration statement related to preferred
stock offering and provision of comfort letter and consent ($21,150 in 2003),
performance of agreed upon procedures relating to the preferred stock basic
maintenance reports ($12,750 and $16,000, respectively), review of quarterly
employee security transactions and issuance of report thereon ($12,000 in each
year) and other audit-related services ($3,500 in each year).
(c) TAX FEES The aggregate fees paid or accrued by the registrant for
professional services rendered by Ernst & Young LLP for the review of the
registrant's federal, state and city income tax returns and excise tax
calculations for 2003 and 2002 were $12,000 and $11,000, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2003 or 2002.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY All services to be performed for the
registrant by Ernst & Young LLP must be pre-approved by the audit committee. All
services performed during 2003 and 2002 were pre-approved by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees paid or accrued by the registrant for non-audit
professional services rendered by Ernst & Young LLP to the registrant for 2003
and 2002 were $61,400 and $42,500, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of audit committee are: Sidney R. Knafel, chairman,
Arthur G. Altschul, Jr., Lawrence B. Buttenwieser, Lewis B. Cullman and John D.
Gordan, III.
(b) Not applicable.
ITEM 6. [RESERVED BY SEC FOR FUTURE USE.]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
General American Investors Company, Inc.
PROXY VOTING POLICIES AND PROCEDURES
General American Investors Company, Inc. (the "Company") is uniquely
structured as an internally managed closed-end investment company. Our research
efforts, including the receipt and analysis of proxy material, are focused on
the securities in the Company's portfolio, as well as alternative investment
opportunities. We vote proxies relating to our portfolio securities in the best
long-term interests of the Company.
Our investment approach stresses fundamental security analysis, which
includes an evaluation of the integrity, as well as the effectiveness of
management personnel. In proxy material, we review management proposals and
management recommendations relating to shareholder proposals in order to, among
other things, gain assurance that management's positions are consistent with its
integrity and the long-term interests of the company. We generally find this to
be the case and, accordingly, give significant weight to the views of management
when we vote proxies.
Proposals that may have an impact on the rights or privileges of the
securities held by the Company would be reviewed very carefully. The explanation
for a negative impact could justify the proposal; however, if such justification
were not present, we would vote against a significant reduction in the rights or
privileges associated with any of our holdings.
Proposals relating to corporate governance matters are reviewed on a
case-by-case basis. When they involve changes in the state of incorporation,
mergers or other restructuring, we would, if necessary, complete our review of
the rationale for the proposal by contacting company representatives and, with
few exceptions, vote in favor of management's recommendations. Proposals
relating to anti-takeover provisions, such as staggered boards, poison pills and
supermajorities could be more problematic. They would be considered in light of
our assessment of the capability of current management, the duration of the
proposal, the negative impact it might have on the attractiveness of the company
to future "investors," among other factors. We can envision circumstances under
which we would vote against an anti-takeover provision.
Generally, we would vote with management on proposals relating to changes
to the company's capital structure, including increases and decreases of capital
and issuances of preferred stock; however, we would review the facts and
circumstances associated with each proposal before finalizing our decision.
Well-structured stock option plans and management compensation programs are
essential for companies to attract and retain high caliber management personnel.
We generally vote in favor of proposals relating to these issues; however, there
could be an occasion on which we viewed such a proposal as over reaching on the
part of management or having the potential for excessive dilution when we would
vote against the proposal.
Corporations should act in a responsible manner toward their employees, the
communities in which they are located, the customers they serve and the world at
large. We have observed that most stockholder proposals relating to social
issues focus on a narrow issue and the corporate position set forth in the proxy
material provides a well-considered response demonstrating an appropriate and
responsible action or position. Accordingly, we generally support management
recommendations on these types of proposals; however, we would consider each
proposal on a case-by-case basis.
We take voting proxies of securities held in our portfolio very seriously.
As indicated above, it is an integral part of the analytical process at General
American Investors. Each proposal and any competing interests are reviewed
carefully on a case-by-case basis. Generally, we support and vote in accordance
with the recommendations of management; however, the overriding basis for the
votes we cast is the best long-term interests of the Company.
Date: July 9, 2003
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 10. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of February 3, 2004, an evaluation was performed under the supervision
and with the participation of the officers of General American Investors
Company, Inc. (the "Company"), including the principal executive officer ("PEO")
and principal financial officer ("PFO"), of the effectiveness of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
officers, including the PEO and PFO, concluded that, as of February 3, 2004, the
Company's disclosure controls and procedures were reasonably designed so as to
ensure that material information relating to the Company is made known to the
PEO and PFO.
(b) There have been no significant changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the registrant's
last fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS
(a)(1) As indicated in Item 2., the code of ethics is posted on the registrant's
Internet website.
(2) The certifications of the principal executive officer and principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company
Act of 1940 are attached hereto as Exhibit 99 CERT.
(b) The certifications of the principal executive officer and principal
financial officer pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 are attached hereto as Exhibit 99.906 CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
General American Investors Company, Inc.
By: /s/Eugene L. DeStaebler, Jr.
Eugene L. DeStaebler, Jr.
Vice-President, Administration
Date: February 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Spencer Davidson
Spencer Davidson
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 5, 2004
By: /s/Eugene L. DeStaebler, Jr.
Eugene L. DeStaebler, Jr.
Vice-President, Administration
(Principal Financial Officer)
Date: February 5, 2004