GENERAL AMERICAN INVESTORS
COMPANY, INC
THIRD QUARTER REPORT
SEPTEMBER 30, 2002
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, 2002, our stockholders experienced a
decrease of 29.2% on their investment in our Common Shares (assuming
reinvestment of all dividends). The net asset value per Common Share decreased
26%. By comparison, our benchmark, the Standard & Poor's 500 Stock Index
(including income), declined 28.2%. For the twelve months ended September 30,
2002, the results were negative as well. Our stockholders experienced a decrease
of 20.1% and the net asset value per Common Share decreased 18%; these compare
with a decline of 20.5% for the S&P 500. During each period, the discount at
which our shares traded increased moderately and at September 30, 2002, it was
8.8%.
As set forth in the accompanying financial statements (unaudited), as of
September 30, 2002, the net assets applicable to the Company's Common Stock were
$790,002,176, equal to $25.77 per Common Share.
The decrease in net assets resulting from operations for the nine months ended
September 30, 2002 was $283,168,974. During this period, net realized gain on
securities sold was $6,517,576, of which approximately $830,000 ($.03 per share)
is applicable to the Common Stock, and the decrease in unrealized appreciation
was $284,006,500. Net investment income for the nine months was $2,419,950 and
distributions to preferred stockholders amounted to $8,100,000.
During the nine months, 580,900 shares of the Company's Common Stock were
repurchased for $14,989,101 at an average discount from net asset value of 9.2%.
The bear market that began some twenty-five months ago intensified in the period
just ended. It now rivals the 1973-74 span for worst bear market since the Great
Depression. Despite the fact that our portfolio holdings are characterized by
their strong balance sheets, high earnings visibility and valuations which we
believe to be attractive, we have not escaped the carnage - bear markets tend
not to discriminate between companies, qualitatively, with respect to their
destructive impulse.
We held historically high levels of cash at the market's peak and, today, these
balances are even higher in relation to our total assets. As others rediscover
the truth of the adage "you can't buy stock with stock," we look forward to
employing our reserves and investing at valuations that have become much more
reasonable.
Pursuant to authorization granted on October 9, 2002 by the Board of Directors,
we have commenced the process of implementing Direct Registration ("DR") for our
stockholders. DR is a system that allows for book-entry ownership and the
electronic transfer of our shares. Holders of certificates will be able to
deposit them with our transfer agent and receive periodic statements showing
their book-entry share balances. We are planning to implement DR at the time of
our year-end dividend payment in late December. A brochure describing all of its
features and benefits will be distributed at that time.
A wealth of information about the Company, including current NAV and market
price data as well as historical dividend payments, financial reports, notices
and press releases, can be obtained from the Company's Web site, which 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 9, 2002
STATEMENT OF ASSETS AND LIABILITIES September 30, 2002 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Assets
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $436,420,768) $629,573,611
Corporate discount notes (cost $312,767,506) 312,767,506
------------
Total investments (cost $749,188,274) 942,341,117
CASH, RECEIVABLES AND OTHER ASSETS
Cash, including margin account balance of $22,669 $138,603
Receivable for securities sold 1,456,981
Receivable from broker for proceeds on securities sold short 5,247,257
Dividends, interest and other receivables 802,085
Prepaid expenses 6,288,999
Other 479,949 14,413,874
---------- ------------
TOTAL ASSETS 956,754,991
Liablilities
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 2,746,603
Preferred dividend accrued but not yet declared 240,000
Securities sold short, at value (proceeds $5,247,257) (note 1a) 4,934,600
Accrued expenses and other liabilities 8,831,612
----------
16,752,815
TOTAL LIABILITIES
7.20% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK -
6,000,000 shares at a liquidation value of $25 per share (note 2) 150,000,000
------------
NET ASSETS APPLICABLE TO COMMON STOCK - 30,650,663 shares (note 2) $790,002,176
============
NET ASSET VALUE PER COMMON SHARE $25.77
============
Net Assets Applicable to Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 30,650,663 shares at par value (note 2) $30,650,663
Additional paid-in capital (note 2) 565,006,780
Undistributed realized gain on investments 6,746,546
Undistributed net income 2,472,687
Unallocated distributions on Preferred Stock (8,340,000)
Unrealized appreciation on investments and securities sold short
(including aggregate gross unrealized appreciation of
$289,958,123) 193,465,500
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $790,002,176
===========
(see notes to financial statements)
STATEMENT OF OPERATIONS Nine Months Ended September 30, 2002 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Income
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $21,770) $5,418,749
Interest 4,746,627
Other Income 344,673 $10,510,049
----------
Expenses
------------------------------------------------------------------------------------------------------------------------------------
Investment research 5,164,040
Administration and operations 1,882,547
Office space and general 435,242
Auditing and legal fees 167,500
Transfer agent, custodian and registrar fees and expenses 165,096
Stockholders' meeting and reports 108,832
Directors' fees and expenses 104,048
Miscellaneous taxes 62,794 8,090,099
---------- -----------
NET INVESTMENT INCOME 2,419,950
Realized Gain and Change in Unrealized Appreciation on Investments (notes 1d and 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments:
Long transactions (3,345,550)
Short sale transactions (note 1b) 9,863,126
-----------
Net realized gain on investments (long-term, except for $199,404) 6,517,576
Net decrease in unrealized appreciation (284,006,500)
-----------
NET LOSS ON INVESTMENTS (277,488,924)
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (8,100,000)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($283,168,974)
===========
(see notes to financial statements)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
Nine Months
Ended Year Ended
September 30, 2002 December 31,
(Unaudited) 2001
-------------- ------------
Operations
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $2,419,950 $12,512,405
Net realized gain on investments 6,517,576 70,720,822
Net decrease in unrealized appreciation (284,006,500) (87,697,439)
------------ ------------
Distributions to Preferred Stockholders:
From net income, including short-term capital gain - (2,311,200)
From long-term capital gain - (8,488,800)
Unallocated distributions on Preferred Stock (8,100,000) -
------------ ------------
Decrease In Net Assets From Preferred Distributions (8,100,000) (10,800,000)
------------ ------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (283,168,974) (15,264,212)
------------ ------------
Distributions to Common Stockholders
------------------------------------------------------------------------------------------------------------------------------------
From net income, including short-term capital gain (5,933,997) (26,369,696)
From long-term capital gain (3,435,472) (96,274,382)
---------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (9,369,469) (122,644,078)
---------- -----------
Capital Share Transactions
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) - 81,091,222
Cost of Common Shares purchased (note 2) (14,989,101) (692,675)
----------- ------------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (14,989,101) 80,398,547
----------- ------------
NET DECREASE IN NET ASSETS (307,527,544) (57,509,743)
Net Assets Applicable to Common Stock
------------------------------------------------------------------------------------------------------------------------------------
BEGINNING OF PERIOD 1,097,529,720 1,155,039,463
------------- --------------
END OF PERIOD (including undistributed net income of
$2,472,687 and $52,737, respectively) $790,002,176 $1,097,529,720
============ ==============
(see notes to financial statements)
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,
2002 and for each year in the five-year period ended December 31, 2001. 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, 2002 ---------------------------------------------------------
(Unaudited) 2001 2000 1999 1998 1997
--------- ---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $35.14 $39.91 $41.74 $34.87 $29.15 $25.24
--------- ------- ------- ------- ------- -------
Net investment income .08 .41 .53 .45 .47 .21
Net gain (loss) on securities -
realized and unrealized (8.89) (.66) 6.12 11.32 9.44 7.15
--------- ------- ------- ------- ------- -------
Distributions on Preferred Stock:
Dividends from investment income - (.07)(a) (.11)(b) (.07)(c) (.03) -
Distributions from capital gains - (.29) (.29) (.35) (.20) -
Unallocated (.26) - - - (.01) -
--------- ------- ------- ------- ------- -------
(.26) (.36) (.40) (.42) (.24) -
--------- ------- ------- ------- ------- -------
Total from investment operations (9.07) (.61) 6.25 11.35 9.67 7.36
--------- ------- ------- ------- ------- -------
Less distributions on Common Stock:
Dividends from investment income (.19)(d) (.88)(e) (2.30)(f) (.71)(g) (.48) (.26)(h)
Distributions from capital gains (.11) (3.28) (5.78) (3.77) (3.24) (3.19)
--------- ------- ------- ------- ------- -------
(.30) (4.16) (8.08) (4.48) (3.72) (3.45)
--------- ------- ------- ------- ------- -------
Capital Stock transaction -
effect of Preferred Stock offering - - - - (.23) -
--------- ------- ------- ------- ------- -------
Net asset value, end of period $25.77 $35.14 $39.91 $41.74 $34.87 $29.15
========= ======= ======= ======= ======= =======
Per share market value, end of period $23.50 $33.47 $36.00 $37.19 $30.44 $26.19
========= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share (29.17)%* 4.33% 19.10% 39.22% 31.31% 42.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $790,002 $1,097,530 $1,155,039 $1,094,519 $868,933 $702,597
Ratio of expenses to average net assets
applicable to Common Stock 0.83%* 1.02% 1.09% 1.01% 0.95% 0.98%
Ratio of net income to average net assets
applicable to Common Stock 0.25%* 1.15% 1.24% 1.23% 1.50% 0.80%
Portfolio turnover rate 17.33%* 23.81% 40.61% 33.68% 34.42% 32.45%
PREFERRED STOCK
Liquidation value, end of period
(000's omitted) $150,000 $150,000 $150,000 $150,000 $150,000 -
Asset coverage 627% 832% 870% 830% 679% -
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 -
Market value per share $26.02 $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) Represents short-term capital gain.
(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.
(h) Includes short-term capital gain in the amount of $.05 per share.
*Not annualized
STATEMENT OF INVESTMENTS September 30, 2002 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE (2.2%)
------------------------------------------------------------------------------------------------------------------------------------
500,000 The Boeing Company (COST $15,978,443) $17,065,000
----------
COMMUNICATIONS AND INFORMATION SERVICES (3.3%)
------------------------------------------------------------------------------------------------------------------------------------
655,000 Cisco Systems, Inc. (a) 6,864,400
775,000 Cox Communications, Inc. Class A (a) 19,057,250
180,000 NTL Incorporated (a) 2,340
----------
(COST $20,856,878) 25,923,990
----------
COMPUTER SOFTWARE AND SYSTEMS (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
175,000 Oberthur Card Systems S.A. (a) 246,750
339,500 Wind River Systems, Inc. (a) 1,093,190
----------
(COST $8,061,069) 1,339,940
----------
CONSUMER PRODUCTS AND SERVICES (3.2%)
------------------------------------------------------------------------------------------------------------------------------------
275,000 Ethan Allen Interiors Inc. 8,899,000
765,000 Ford Motor Company 7,497,000
100,000 Newell Rubbermaid Inc. 3,087,000
150,000 PepsiCo, Inc. 5,542,500
----------
(COST $21,713,581) 25,025,500
----------
ELECTRONICS (1.8%)
------------------------------------------------------------------------------------------------------------------------------------
692,500 Molex Incorporated Class A (COST $14,877,393) 14,541,807
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (1.7%)
------------------------------------------------------------------------------------------------------------------------------------
589,000 Waste Management, Inc. (COST $11,654,199) 13,735,480
----------
FINANCE AND INSURANCE (30.3%)
------------------------------------------------------------------------------------------------------------------------------------
275,000 American International Group, Inc. 15,042,500
108,000 AmerUs Group Co. 3,062,880
500,000 Annaly Mortgage Management, Inc. 9,225,000
1,000,000 Annuity and Life Re (Holdings), Ltd. 4,200,000
300 Berkshire Hathaway Inc. Class A (a) 22,170,000
78,912 Central Securities Corporation 1,321,776
700,000 Everest Re Group, Ltd. 38,402,000
465,000 Golden West Financial Corporation 28,913,700
435,000 John Hancock Financial Services, Inc. 12,093,000
335,000 M&T Bank Corporation 26,401,350
425,000 MetLife, Inc. 9,673,000
530,000 PartnerRe Ltd. 25,535,400
545,000 Reinsurance Group of America, Incorporated 14,082,800
235,000 SunTrust Banks, Inc. 14,447,800
225,000 Transatlantic Holdings, Inc. 14,951,250
----------
(COST $120,469,965) 239,522,456
----------
STATEMENT OF INVESTMENTS September 30, 2002 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (13.0%)
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (10.2%)
------------------------------------------------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $2,682,600
300,000 Bristol-Myers Squibb Company 7,140,000
270,000 Genaera Corporation (a) 175,500
650,000 Genentech, Inc. (a) 21,209,500
250,000 IDEC Pharmaceuticals Corporation (a) 10,380,000
264,000 MedImmune, Inc. (a) 5,522,880
140,000 Millennium Pharmaceuticals, Inc.(a) 1,304,800
125,000 OSI Pharmaceuticals, Inc. (a) 2,121,250
1,025,000 Pfizer Inc 29,745,500
----------
(COST $70,595,058) 80,282,030
----------
MEDICAL INSTRUMENTS AND DEVICES (1.5%)
------------------------------------------------------------------------------------------------------------------------------------
290,000 Medtronic, Inc. (COST $862,614) 12,214,800
----------
HEALTH CARE SERVICES (1.3%)
------------------------------------------------------------------------------------------------------------------------------------
475,000 Health Net, Inc. (a) (COST $9,394,993) 10,188,750
------------
(COST $80,852,665) 102,685,580
------------
MISCELLANEOUS (1.1%)
------------------------------------------------------------------------------------------------------------------------------------
Other (COST $24,471,152) 8,501,330
-----------
OIL & NATURAL GAS (INCLUDING SERVICES) (3.3%)
------------------------------------------------------------------------------------------------------------------------------------
1,175,000 El Paso Corporation 9,717,250
1,300,000 Halliburton Company 16,783,000
-----------
(COST $40,013,062) 26,500,250
-----------
RETAIL TRADE (18.8%)
------------------------------------------------------------------------------------------------------------------------------------
675,000 Costco Wholesale Corporation (a) 21,849,750
2,045,000 The Home Depot, Inc. (b) 53,374,500
2,650,000 The TJX Companies, Inc. 45,050,000
570,000 Wal-Mart Stores, Inc. 28,066,800
------------
(COST $49,514,414) 148,341,050
------------
SEMICONDUCTORS (0.6%)
------------------------------------------------------------------------------------------------------------------------------------
337,000 Brooks- PRI Automation, Inc. (a) 3,848,540
197,000 EMCORE Corporation (a) 299,440
1,644,900 IQE plc (a) 197,388
250,000 Zarlink Semiconductor Inc. (a) 540,000
------------
(COST $21,061,820) 4,885,368
------------
SPECIAL HOLDINGS (a) (c) (NOTE 5) (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
(d) Sequoia Capital IV 2,500
432,000 Silicon Genesis Corporation Series C Preferred 1,503,360
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
------------
(COST $6,896,127) 1,505,860(e)
------------
TOTAL COMMON STOCKS (79.7%) (COST $436,420,768) 629,573,611
------------
STATEMENT OF INVESTMENTS September 30, 2002 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$82,700,000 American Express Credit Corporation notes due 10/01-11/12/02; 1.74%-1.75% $82,526,899
49,200,000 Ford Motor Credit Company notes due 10/15-11/18/02; 2.03%-2.04% 49,074,055
84,000,000 General Electric Capital Corp. notes due 10/7-11/4/02; 1.75%-1.76% 83,809,293
60,500,000 General Motors Acceptance Corp. notes due 10/3-11/14/02; 2.03%-2.04% 60,348,074
37,100,000 Sears Roebuck Acceptance Corp. notes due 10/22-11/7/02; 2.00%-2.05% 37,009,185
-----------
(COST $312,767,506) 312,767,506
Liabilities in excess of cash, receivables and other assets (2,338,941)
-----------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (39.3%) 310,428,565
------------
PREFERRED STOCK (-19.0%) (150,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $790,002,176
============
(a) Non-income producing security. (d) A limited partnership interest.
(b) 1,000,000 shares held by custodian in a segregated (e) Fair value of each holding in the opinion of the Directors.
custodian account as collateral for open short positions.
(c) Restricted security.
--------------------------------------------------------------------------------
STATEMENT OF SECURITIES SOLD SHORT September 30, 2002 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
55,000 Molex Incorporated $1,293,600
100,000 Southwest Bancorporation of Texas Inc. 3,641,000
----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $5,247,257) $4,934,600
==========
(see notes to financial statements)
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.
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 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); for limited
partnership interests, fair value is based upon an evaluation of the
partnership's net assets.
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.
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 30,650,663 shares and 6,000,000 shares, respectively, were
outstanding at September 30, 2002.
On June 19, 1998, the Company issued and sold 6,000,000 shares of its 7.20%
Tax-Advantaged Cumulative Preferred Stock. 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 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.
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.
In accordance with Emerging Issues Task Force Topic No. D-98, "Classification
and Measurement of Redeemable Securities," effective for the current period, the
Company has reclassified its Preferred Stock outside of permanent equity in the
Statement of Assets and Liabilities. In addition, distributions to Preferred
Stockholders are now classified as a component of the "Increase (Decrease) in
Net Assets Resulting from Operations" in the Statements of Operations and of
Changes in Net Assets and as a component of the "Total from Investment
Operations" in the Financial Highlights. This change has no impact on the Net
Assets Applicable to the Common Stock of the Company.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. Capital Stock and Dividend Distributions - continued
Transactions in Common Stock during the nine months ended September 30, 2002 and
the year ended December 31, 2001 were as follows:
Shares Amount
-------------------- --------------------------
2002 2001 2002 2001
-------------------- --------------------------
Shares issued in payment of dividends (includes 28,400
shares issued from treasury) - 2,310,019 - $2,310,019
Increase in paid-in capital - 78,781,203
------------ ------------
Total increase - 81,091,222
------------ ------------
Shares purchased (at an average discount from net
asset value of 9.2% and 9.0%, respectively) 580,900 19,000 ($580,900) (19,000)
Decrease in paid-in capital (14,408,201) (673,675)
------------ ------------
Total decrease (14,989,101) (692,675)
------------ ------------
Net increase (decrease) ($14,989,101) $80,398,547
============ ============
At September 30, 2002, the Company held in its treasury 580,900 shares of Common
Stock with an aggregate cost in the amount of $14,989,101.
3. Officers' Compensation and Retirement and Thrift Plans
The aggregate compensation paid by the Company during the nine months ended
September 30, 2002 to its officers amounted to $4,067,200.
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 investment securities and securities sold short (other
than short-term securities) for the nine months ended September 30, 2002 were as
follows:
Purchases Sales
------------- ------------
Long transactions $131,219,370 $152,583,474
Short sale transactions 14,152,372 5,928,301
------------- ------------
Total $145,371,742 $158,511,775
============= ============
At September 30, 2002, 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)
------------ ----------- -----------
Sequoia Capital IV* 1/31/84 $886,407 $2,500
Silicon Genesis Corporation Series C Preferred 2/16/01 3,006,720 1,503,360
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
----------- -----------
Total $6,896,127 $1,505,860
=========== ===========
* The amounts shown are net of distributions from this limited partnership
interest which, in the aggregate, amounted to $4,806,404. The initial investment
in the limited partnership was $2,000,000.
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 $235,700 for the nine months ended September 30,
2002. Minimum rental commitments under the operating lease are approximately
$403,000 in 2002 and $504,000 per annum in 2003 through 2007.
In March 1996, the Company entered into a sublease agreement which expires in
2003 and provides for future rental receipts. Minimum rental receipts under the
sublease are approximately $203,000 in 2002 and $64,000 in 2003. The Company
will also receive its proportionate share of operating expenses and real
property taxes under the sublease.
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In addition to purchases of the Company's Common Stock as set forth in Note 2 on
page 9, 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.
MAJOR STOCK CHANGES* Three Months Ended September 30, 2002 (Unaudited)
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General American Investors
Shares Held
Increases Shares September 30, 2002
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Additions
Alkermes, Inc. 100,000 340,000
Annuity and Life Re (Holdings), Ltd. 300,000 1,000,000
Cisco Systems, Inc. 120,000 655,000
Cox Communications, Inc. Class A 46,300 775,000
El Paso Corporation 325,000 1,175,000
Everest Re Group, Ltd. 75,000 700,000
Genentech, Inc. 50,000 650,000
Halliburton Company 50,000 1,300,000
Health Net, Inc. 25,000 475,000
MetLife, Inc. 125,000 425,000
Pfizer Inc 25,000 1,025,000
Decreases
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Eliminations
BioReliance Corporation 74,000 -
Reductions
American International Group, Inc. 25,000 275,000
AmerUs Group Co. 167,000 108,000
Berkshire Hathaway Inc. Class A 15 300
Ford Motor Company 110,500 765,000
Golden West Financial Corporation 35,000 465,000
John Hancock Financial Services, Inc. 5,000 435,000
IDEC Pharmaceuticals Corporation 245,000 250,000
M&T Bank Corporation 15,000 335,000
Newell Rubbermaid Inc. 50,000 100,000
OSI Pharmaceuticals, Inc. 25,000 125,000
PartnerRe Ltd. 20,000 530,000
Reinsurance Group of America, Incorporated 55,000 545,000
SunTrust Banks, Inc. 25,000 235,000
Waste Management, Inc. 11,000 589,000
* Excludes transactions in Stocks - Miscellaneous - Other.
DIRECTORS
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Lawrence B. Buttenwieser, Chairman
Arthur G. Altschul, Jr. Bill Green
Lewis B. Cullman Sidney R. Knafel
Spencer Davidson Richard R. Pivirotto
Gerald M. Edelman Joseph T. Stewart, Jr.
John D. Gordan, III Raymond S. Troubh
William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
OFFICERS
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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
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