GENERAL AMERICAN INVESTORS
COMPANY, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 2003
A Closed-End Investment Company
listed on the New York Stock Exchange
450 Lexington Avenue
New York, N.Y. 10017
212-916-8400 1-800-436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
TO THE STOCKHOLDERS
For the nine months ended September 30, 2003, the investment return to our
stockholders was 15.5% (assuming reinvestment of all dividends). The net asset
value per Common Share increased 15.4%. By comparison, the rate of return
(including income) for our benchmark, the Standard & Poor's 500 Stock Index, was
14.7%. For the twelve months ended September 30, 2003, the return to our
stockholders was 18.6% and the return on the net asset value per Common Share
was 20.1%; these compare with a return of 24.3% for the S&P 500. During each
period, the discount at which our shares traded fluctuated moderately and at
September 30, 2003, it was 9.9%.
As set forth in the accompanying financial statements (unaudited), as of
September 30, 2003, the net assets applicable to the Company's Common Stock were
$909,167,385, equal to $30.51 per Common Share.
The increase in net assets resulting from operations for the nine months ended
September 30, 2003 was $126,543,696. During this period, the net realized loss
on securities sold was $6,981,962 and the increase in unrealized appreciation
was $141,234,927. Net investment income for the nine months was $382,120 and
distributions to preferred stockholders amounted to $8,091,389.
During the nine months, 764,000 shares of the Company's Common Stock were
repurchased for $18,548,308 at an average discount from net asset value of 9.6%.
The economy appears to be strengthening in response to continuing monetary
accommodation and fiscal stimulus. The recovery may not achieve historical
norms, however, since job creation and average hourly wage gains, essential
elements for sustained consumer spending, remain weak.
The market has moved broadly higher, with the biggest gains, by far, having
accrued to the lowest priced, lowest quality and riskiest stocks. While
speculative leadership may propel the market for some time, our record suggests
that superior long-term performance generally results from holding companies of
high quality with strong financials and powerful positions in their respective
industries.
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, have a liquidation preference of $25.00 per
share plus accrued dividends and are listed on the New York Stock Exchange,
symbol GAM Pr B. Trading of the shares on the NYSE is expected to begin later
this month. The net proceeds from the offering were $193.2 million. The
underwriting discount and other expenses associated with the offering amounted
to $6.8 million and were charged to paid-in capital.
The information about the Company, including our investment objective, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, contained at our website has been updated
through September 30, 2003. It can be accessed on the Internet at
www.generalamericaninvestors.com.
By Order of the Board of Directors,
General American Investors Company, Inc.
Spencer Davidson
President and Chief Executive Officer
October 8, 2003
2 STATEMENT OF ASSETS AND LIABILITIES September 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $416,586,158) $771,095,881
Convertible corporate note (cost $9,698,828) 10,050,000
Corporate discount notes (cost $183,111,243) 183,111,243
U.S. Treasury bills (cost $149,380,194) 149,380,194
-------------
Total investments (cost $758,776,423) 1,113,637,318
CASH, RECEIVABLES AND OTHER ASSETS
Cash $67,500
Receivable for securities sold 1,898,909
Deposit with broker for securities sold short 10,158,047
Dividends, interest and other receivables 400,352
Prepaid expenses 6,854,766
Other 353,715 19,733,289
---------- -------------
TOTAL ASSETS 1,133,370,607
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 5,092,726
Preferred dividend accrued but not yet declared 231,389
Securities sold short, at value (proceeds $10,158,047) (note 1a) 10,605,409
Accrued expenses and other liabilities 8,273,698
-----------
TOTAL LIABILITIES 24,203,222
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000
------------
NET ASSETS APPLICABLE TO COMMON STOCK - 29,797,356 shares (note 2) $909,167,385
============
NET ASSET VALUE PER COMMON SHARE $30.51
============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 29,797,356 shares at par value (note 2) $29,797,356
Additional paid-in capital (note 2) 538,665,891
Accumulated realized loss on investments (6,807,860)
Undistributed net income 1,429,854
Unallocated distributions on Preferred Stock (8,331,389)
Unrealized appreciation on investments and securities sold short
(including aggregate gross unrealized
appreciation of $402,965,679) 354,413,533
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $909,167,385
============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Nine Months Ended September 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends $4,573,293
Interest 3,264,251
Other income 212,767 $8,050,311
----------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment research 4,624,412
Administration and operations 2,076,945
Office space and general 394,744
Transfer agent, custodian and registrar fees and expenses 144,378
Auditing and legal fees 143,250
Directors' fees and expenses 115,982
Stockholders' meeting and reports 103,275
Miscellaneous taxes 65,205 7,668,191
--------- ----------
NET INVESTMENT INCOME 382,120
REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized loss on investments:
Long transactions (6,540,256)
Short sale transactions (note 1b) (441,706)
-----------
Net realized loss on investments (6,981,962)
Net increase in unrealized appreciation 141,234,927
-----------
NET GAIN ON INVESTMENTS 134,252,965
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (8,091,389)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $126,543,696
============
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
Nine Months
Ended Year Ended
September 30, 2003 December 31,
(Unaudited) 2002
------------------ -----------
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $382,120 $5,698,197
Net realized gain (loss) on investments (6,981,962) 17,039,043
Net increase (decrease) in unrealized appreciation 141,234,927 (264,293,395)
----------- ------------
Distributions to Preferred Stockholders:
From net income - (3,726,000)
From long-term capital gains - (7,074,000)
Unallocated distributions on Preferred Stock (8,091,389) -
----------- -----------
Decrease In Net Assets From Preferred Distributions (8,091,389) (10,800,000)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 126,543,696 (252,356,155)
----------- ------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net income, including short-term capital gains in 2002 (305,033) (6,606,164)
From long-term capital gains (915,098) (12,540,285)
----------- ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (1,220,131) (19,146,449)
----------- ------------
CAPITAL SHARE TRANSACTIONS
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) - 6,410,677
Cost of Common Shares purchased (note 2) (18,548,307) (23,245,666)
Underwriting discount and other expenses associated with the issuance
of Preferred Stock (note 2) (6,800,000) -
----------- ------------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (25,348,307) (16,834,989)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS 99,975,258 (288,337,593)
Net Assets Applicable to Common Stock
------------------------------------------------------------------------------------------------------------------------------------
BEGINNING OF PERIOD 809,192,127 1,097,529,720
----------- -------------
END OF PERIOD (including undistributed net income of $1,429,854 and
$1,352,767, respectively) $909,167,385 $809,192,127
============ =============
(see notes to financial statements)
5 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the nine months ended September 30,
2003 and for each year in the five-year period ended December 31, 2002. This
information has been derived from information contained in the financial
statements and market price data for the Company's shares.
Nine Months
Ended Year Ended December 31,
September 30, 2003 --------------------------------------------------------
(Unaudited) 2002 2001 2000 1999 1998
----------- --------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $26.48 $35.14 $39.91 $41.74 $34.87 $29.15
------- ------ ------ ------ ------ ------
Net investment income .01 .19 .41 .53 .45 .47
Net gain (loss) on securities -
realized and unrealized 4.56 (7.88) (.66) 6.12 11.32 9.44
------- ------ ------ ------ ------ ------
Distributions on Preferred Stock:
Dividends from investment income - (.12) (.07)(a) (.11)(b) (.07)(c) (.03)
Distributions from capital gains - (.23) (.29) (.29) (.35) (.20)
Unallocated (.27) - - - - (.01)
------- ------ ------ ------ ------ ------
(.27) (.35) (.36) (.40) (.42) (.24)
------- ------ ------ ------ ------ ------
Total from investment operations 4.30 (8.04) (.61) 6.25 11.35 9.67
------- ------ ------ ------ ------ ------
Less distributions on Common Stock:
Dividends from investment income (.01) (.21)(d) (.88)(e) (2.30)(f) (.71)(g) (.48)
Distributions from capital gains (.03) (.41) (3.28) (5.78) (3.77) (3.24)
------- ------ ------ ------ ------ ------
(.04) (.62) (4.16) (8.08) (4.48) (3.72)
------- ------ ------ ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering (.23) - - - - (.23)
------- ------ ------ ------ ------ ------
Net asset value, end of period $30.51 $26.48 $35.14 $39.91 $41.74 $34.87
======= ====== ====== ====== ====== ======
Per share market value, end of period $27.49 $23.85 $33.47 $36.00 $37.19 $30.44
======= ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 15.45%* (27.21)% 4.33% 19.10% 39.22% 31.31%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $909,167 $809,192 $1,097,530 $1,155,039 $1,094,519 $868,933
Ratio of expenses to average net assets
applicable to Common Stock 0.90%* 0.97% 1.02% 1.09% 1.01% 0.95%
Ratio of net income to average net assets
applicable to Common Stock 0.04%* 0.61% 1.15% 1.24% 1.23% 1.50%
Portfolio turnover rate 13.15%* 22.67% 23.81% 40.61% 33.68% 34.42%
PREFERRED STOCK
Liquidation value, end of period
(000's omitted) $200,000 $150,000 $150,000 $150,000 $150,000 $150,000
Asset coverage 555% 639% 832% 870% 830% 679%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $25.38 $25.85 $25.90 $24.25 $21.75 $25.88
(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.
*Not annualized
6 STATEMENT OF INVESTMENTS September 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Shares or Value
Principal Amount COMMON STOCKS (note 1a)
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AEROSPACE/DEFENSE (0.1%)
------------------------------------------------------------------------------------------------------------------------------------
20,000 The Boeing Company (COST $614,000) $686,600
---------
COMMUNICATIONS AND INFORMATION SERVICES (5.2%)
------------------------------------------------------------------------------------------------------------------------------------
550,000 CIENA Corporation (a) 3,223,000
900,000 Cisco Systems, Inc. (a) 17,631,000
620,000 Cox Communications, Inc. Class A (a) 19,604,400
450,000 Juniper Networks, Inc.(a) 6,750,000
----------
(COST $31,949,018) 47,208,400
----------
COMPUTER SOFTWARE AND SYSTEMS (0.9%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 EMC Corporation (a) 3,789,000
350,000 VeriSign, Inc. (a) 4,711,000
---------
(COST $4,111,632) 8,500,000
---------
CONSUMER PRODUCTS AND SERVICES (2.7%)
------------------------------------------------------------------------------------------------------------------------------------
275,000 Coca-Cola Enterprises Inc. 5,241,500
275,000 Ethan Allen Interiors Inc. 9,900,000
125,000 Newell Rubbermaid Inc. 2,708,750
150,000 PepsiCo, Inc. 6,874,500
----------
(COST $17,111,384) 24,724,750
----------
ELECTRONICS (1.9%)
------------------------------------------------------------------------------------------------------------------------------------
692,500 Molex Incorporated Class A (COST $14,877,393) 16,945,475
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (2.9%)
------------------------------------------------------------------------------------------------------------------------------------
1,175,000 Republic Services, Inc. (COST $26,227,380) 26,602,000
----------
FINANCE AND INSURANCE (29.6%)
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BANKING (9.4%)
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575,000 Annaly Mortgage Management, Inc. 9,441,500
400,000 Golden West Financial Corporation 35,804,000
310,000 M&T Bank Corporation 27,063,000
225,000 SunTrust Banks, Inc. 13,583,250
----------
(COST $16,010,583) 85,891,750
----------
INSURANCE (20.0%)
------------------------------------------------------------------------------------------------------------------------------------
335,000 American International Group, Inc. 19,329,500
1,000,000 Annuity and Life Re (Holdings), Ltd. (a) 1,140,000
300 Berkshire Hathaway Inc. Class A (a) 22,500,000
690,000 Everest Re Group, Ltd. 51,860,400
425,000 John Hancock Financial Services, Inc. 14,365,000
110,000 Max Re Capital Ltd. 1,872,200
435,000 MetLife, Inc. 12,201,750
500,000 PartnerRe Ltd. 25,335,000
425,000 Reinsurance Group of America, Incorporated 17,318,750
230,000 Transatlantic Holdings, Inc. 16,357,600
-----------
(COST $98,680,833) 182,280,200
-----------
OTHER (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
84,548 Central Securities Corporation (COST $2,132,865) 1,662,214
-----------
(COST $116,824,281) 269,834,164
-----------
7 STATEMENT OF INVESTMENTS September 30, 2003 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Shares or Value
Principal Amount COMMON STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (17.8%)
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (13.9%)
--------------------------------------------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $4,664,800
900,000 Baxter International Inc. 26,154,000
300,000 Bristol-Myers Squibb Company 7,698,000
270,000 Genaera Corporation (a) 1,277,100
335,000 Genentech, Inc. (a) 26,846,900
375,000 Genta Incorporated (a) 4,751,250
275,000 IDEC Pharmaceuticals Corporation (a) 9,154,750
234,000 MedImmune, Inc. (a) 7,729,020
120,000 Millennium Pharmaceuticals, Inc.(a) 1,854,000
75,000 OSI Pharmaceuticals, Inc. (a) 2,448,750
1,100,000 Pfizer Inc 33,418,000
-----------
(COST $84,542,077) 125,996,570
-----------
MEDICAL INSTRUMENTS AND DEVICES (1.5%)
------------------------------------------------------------------------------------------------------------------------------------
290,000 Medtronic, Inc. (COST $862,614) 13,606,800
----------
HEALTH CARE SERVICES (2.4%)
------------------------------------------------------------------------------------------------------------------------------------
695,000 Health Net, Inc. (a) (COST $15,334,735) 22,010,650
----------
(COST $100,739,426) 161,614,020
-----------
MISCELLANEOUS (1.5%)
------------------------------------------------------------------------------------------------------------------------------------
Other (COST $13,475,009) 13,459,467
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (1.7%)
------------------------------------------------------------------------------------------------------------------------------------
650,000 Halliburton Company (COST $8,512,693) 15,762,500
----------
RETAIL TRADE (18.1%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation (a) 21,805,000
1,945,000 The Home Depot, Inc. (b) 61,948,250
2,500,000 The TJX Companies, Inc. 48,550,000
570,000 Wal-Mart Stores, Inc. 31,834,500
-----------
(COST $49,944,422) 164,137,750
-----------
SEMICONDUCTORS (2.2%)
------------------------------------------------------------------------------------------------------------------------------------
200,000 Applied Materials, Inc. (a) 3,626,000
250,000 ASM International N.V. (a) 3,682,500
491,500 Brooks Automation, Inc. (a) 10,272,350
197,000 EMCORE Corporation (a) 579,180
1,644,900 IQE plc (a) 411,225
250,000 Zarlink Semiconductor Inc. (a) 977,500
----------
(COST $24,189,800) 19,548,755
----------
SPECIAL HOLDINGS (a) (c) (NOTE 5) (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
400,000 Cytokinetics, Incorporated Series E Preferred 2,000,000
432,000 Silicon Genesis Corporation Series C Preferred 72,000
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
---------
(COST $8,009,720) 2,072,000 (d)
---------
TOTAL COMMON STOCKS (84.8%) (COST $416,586,158) 771,095,881
-----------
CONVERTIBLE CORPORATE NOTE
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (1.1%)
------------------------------------------------------------------------------------------------------------------------------------
$10,000,000 MedImmune Vaccines, Inc. 5 1/4% due 2/1/08 (COST $9,698,828) 10,050,000
----------
8 STATEMENT OF INVESTMENTS September 30, 2003 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$30,000,000 AIG Funding, Inc. notes due 10/6-11/4/03; 1.01%-1.03% $29,971,540
38,900,000 American Express Credit Corporation notes due 10/7-11/17/03; 1.02%-1.04% 38,861,663
14,600,000 Ford Motor Credit Company notes due 10/21-11/13/03; 1.24%-1.28% 14,579,394
32,100,000 General Electric Capital Corporation notes due 10/6-10/27/03; 1.03%-1.04% 32,069,113
26,100,000 General Motors Acceptance Corporation notes due 10/2-11/6/03; 1.24%-1.28% 26,063,278
28,700,000 Prudential Funding, LLC notes due 10/1-10/16/03; 1.02%-1.03% 28,681,932
12,900,000 Sears Roebuck Acceptance Corp. note due 10/28/03; 1.25% 12,884,323
150,000,000 U.S. Treasury bills due 1/29-3/18/04; 0.95%-1.00% 149,380,194
-----------
TOTAL SHORT-TERM SECURITIES (36.6%) (COST $332,491,437) 332,491,437
Liabilities in excess of cash, receivables and other assets (4,469,933)
-----------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (36.1%) 328,021,504
-----------
PREFERRED STOCK (-22.0%) (200,000,000)
-----------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $909,167,385
===========
(a) Non-income producing security. (c) Restricted security.
(b) 1,000,000 shares held by custodian in a segregated (d) Fair value of each holding in the opinion of the directors.
custodian account as collateral for open short positions.
--------------------------------------------------------------------------------
STATEMENT OF SECURITIES SOLD SHORT September 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
300,000 NASDAQ-100 Trust, Series 1 $9,726,000
24,100 Southwest Bancorporation of Texas Inc. 879,409
-----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $10,158,047) $10,605,409
===========
(see notes to financial statements)
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
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.
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 is
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 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 29,797,356 shares and 8,000,000 shares, respectively, were
outstanding at September 30, 2003.
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 $6,800,000 and were charged to paid-in
capital.
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.
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.
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.
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
Transactions in Common Stock during the nine months ended September 30, 2003 and
the year ended December 31, 2002 were as follows:
SHARES AMOUNT
----------------------- -------------------------
2003 2002 2003 2002
----------------------- -------------------------
Shares issued in payment of dividends (includes 251,893
shares issued from treasury) - 251,893 - $251,893
Increase in paid-in capital - 6,158,784
---------- ----------
Total increase - 6,410,677
---------- ----------
Shares purchased (at an average discount from net
asset value of 9.6% and 9.1%, respectively) 764,000 922,100 ($764,000) (922,100)
Decrease in paid-in capital (17,784,308) (22,323,566)
----------- ----------
Total decrease (18,548,308) (23,245,666)
----------- ----------
Net decrease ($18,548,308)($16,834,989)
=========== ===========
Distributions for tax and book purposes are substantially the same.
At September 30, 2003, the Company held in its treasury 1,434,207 shares of
Common Stock with an aggregate cost in the amount of $34,825,681.
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during the nine months ended
September 30, 2003 to its officers amounted to $3,323,000.
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) for the nine months ended September 30, 2003 amounted to
on long transactions $97,357,646 and $93,611,537, respectively, and on short
sale transactions $5,283,160 and $9,288,832, respectively.
At September 30, 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 Series C Preferred 2/16/01 3,006,720 72,000
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
----------- ----------
Total $8,009,720 $2,072,000
=========== ==========
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 $251,000 for the nine months ended September 30,
2003. Minimum rental commitments under the operating lease are approximately
$505,000 per annum in 2003 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 2003 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
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.
11 MAJOR STOCK CHANGES* Three Months Ended September 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Shares Held
INCREASES Shares September 30, 2003
----------------------------------------------------------------------------------------
NEW POSITIONS
Applied Materials, Inc. - 200,000 (a)
Coca-Cola Enterprises Inc. 275,000 275,000
EMC Corporation - 300,000 (a)
VeriSign, Inc. - 350,000 (a)
ADDITIONS
Annaly Mortgage Management, Inc. 75,000 575,000
Baxter International Inc. 250,000 900,000
Health Net, Inc. 95,000 695,000
PartnerRe Ltd. 10,000 500,000
Pfizer Inc 75,000 1,100,000
Republic Services, Inc. 300,000 1,175,000
The TJX Companies, Inc. 75,000 2,500,000
DECREASES
----------------------------------------------------------------------------------------
ELIMINATIONS
Baxter International Inc.
7% Convertible Preferred Equity Units 114,500 -
Waste Management, Inc. 409,000 -
Wind River Systems, Inc. 339,500 -
REDUCTIONS
American International Group, Inc. 40,000 335,000
The Boeing Company 180,000 20,000
Genentech, Inc. 150,000 335,000
Genta Incorporated 25,000 375,000
Golden West Financial Corporation 10,000 400,000
Max Re Capital Ltd. 50,000 110,000
OSI Pharmaceuticals, Inc. 50,000 75,000
Reinsurance Group of America, Incorporated 25,000 425,000
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) Shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
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PROXY VOTING POLICIES AND PROCEDURES (Unaudited)
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General American Investors
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities are available: (1) without charge, upon
request, by calling us at our toll-free telephone 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.
DIRECTORS
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Lawrence B. Buttenwieser, Chairman
Arthur G. Altschul, Jr. John D. Gordan, III
Lewis B. Cullman Sidney R. Knafel
Spencer Davidson Richard R. Pivirotto
Gerald M. Edelman Joseph T. Stewart, Jr.
Raymond S. Troubh
William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
OFFICERS
--------------------------------------------------------------------------------
Spencer Davidson, President & Chief Executive Officer
Andrew V. Vindigni, Vice-President
Eugene L. DeStaebler, Jr., Vice-President, Administration
Peter P. Donnelly, Vice-President & Trader
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
SERVICE COMPANIES
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COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
Deutsche Bank Trust
Company Americas
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