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
---------------------------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
--------------------------------------------------------------------------------
(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: June 30, 2003
2
ITEM 1. REPORTS TO STOCKHOLDERS.
[N-30D]
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 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
3
TO THE STOCKHOLDERS
For the six months ended June 30, 2003, the investment return to our
stockholders was 15.2% (assuming reinvestment of all dividends). The net asset
value per Common Share increased 14%. By comparison, the rate of return
(including income) for our benchmark, the Standard & Poor's 500 Stock Index, was
11.8%. For the twelve months ended June 30, 2003, the return to our stockholders
was 0.5% and the return on the net asset value per Common Share was 1.7%; these
compare with a return of 0.2% for the S&P 500. During each period, the discount
at which our shares traded fluctuated moderately and at June 30, 2003, it was
9%.
As set forth in the accompanying financial statements (unaudited), as of
June 30, 2003, the net assets applicable to the Company's Common Stock were
$900,995,376, equal to $30.15 per Common Share.
The increase in net assets resulting from operations for the six months
ended June 30, 2003 was $109,190,824. During this period, the net realized loss
on securities sold was $14,548,958 and the increase in unrealized appreciation
was $128,580,315. Net investment income for the six months was $559,467 and
distributions to preferred stockholders amounted to $5,400,000.
During the six months, 679,300 shares of the Company's Common Stock were
repurchased for $16,167,444 at an average discount from net asset value of 9.5%.
Our portfolio performed well during the period just ended, reflecting the
outsized gains in a number of our core holdings. The reduction and equalization
of the rate of taxation on capital gains and dividends appears to have buoyed
investor confidence. The stock market may be anticipating an imminent step-up in
the rate of economic activity moreover, resulting from the massive monetary and
fiscal stimulus in place beforehand. At current valuations, however, some
measure of recovery and consequent growth in earnings may be reflected in the
market.
On July 9, 2003, the Board of Directors authorized the redemption on
September 23, 2003 of all of the shares of 7.20% Tax-Advantaged Cumulative
Preferred Stock then outstanding at the redemption price of $25.00 per share. In
addition, the directors authorized the filing of a registration statement with
the U.S. Securities and Exchange Commission for the public offering and sale of
shares of a new series of preferred stock. The amount of capital to be raised,
the dividend rate and the timing of the offering have not been determined at the
present time.
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 June 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
July 9, 2003
4
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
---------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $412,901,894) $753,824,719
Convertible corporate note (cost $9,683,654) 10,400,000
Corporate discount notes (cost $191,556,642) 191,556,642
U.S. Treasury bills (cost $95,732,612) 95,732,612
------------
Total investments (cost $709,874,802) 1,051,513,973
CASH, RECEIVABLES AND OTHER ASSETS
Cash, including margin account balance of $70,471 $126,099
Deposit with broker for securities sold short 3,898,240
Dividends, interest and other receivables 1,018,761
Prepaid expenses 6,742,910
Other 387,668 12,173,678
--------- -------------
TOTAL ASSETS 1,063,687,651
LIABILITIES
---------------------------------------------------------------------------------------------------------------
Payable for securities purchased 1,779,020
Preferred dividend accrued but not yet declared 240,000
Securities sold short, at value (proceeds $3,898,240) (note 1a) 3,778,491
Accrued expenses and other liabilities 6,894,764
---------
TOTAL LIABILITIES 12,692,275
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 - 29,882,056 shares (note 2) $900,995,376
============
NET ASSET VALUE PER COMMON SHARE $30.15
============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------
Common Stock, 29,882,056 shares at par value (note 2) $29,882,056
Additional paid-in capital (note 2) 547,762,055
Accumulated realized loss on investments (14,374,856)
Undistributed net income 1,607,201
Unallocated distributions on Preferred Stock (5,640,000)
Unrealized appreciation on investments and securities sold short
(including aggregate gross unrealized appreciation of $398,757,748) 341,758,920
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $900,995,376
============
(see notes to financial statements)
5
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)
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General American Investors
INCOME
------------------------------------------------------------------------------------------------------------
Dividends $3,186,743
Interest 2,307,064
Other income 141,844 $5,635,651
----------
EXPENSES
------------------------------------------------------------------------------------------------------------
Investment research 3,055,018
Administration and operations 1,388,840
Office space and general 265,546
Transfer agent, custodian and registrar fees and expenses 94,002
Auditing and legal fees 86,250
Directors' fees and expenses 73,462
Stockholders' meeting and reports 68,850
Miscellaneous taxes 44,216 5,076,184
---------- ------------
NET INVESTMENT INCOME 559,467
REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4)
------------------------------------------------------------------------------------------------------------
Net realized loss on investments:
Long transactions (14,107,252)
Short sale transactions (note 1b) (441,706)
------------
Net realized loss on investments (14,548,958)
Net increase in unrealized appreciation 128,580,315
------------
NET GAIN ON INVESTMENTS 114,031,357
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,400,000)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $109,190,824
============
(see notes to financial statements)
6
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Six Months
Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
-------------- -----------
OPERATIONS
------------------------------------------------------------------------------------------------------------
Net investment income $559,467 $5,698,197
Net realized gains (losses) on investments (14,548,958) 17,039,043
Net increase (decrease) in unrealized appreciation 128,580,315 (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 (5,400,000) -
----------- ------------
Decrease In Net Assets From Preferred Distributions (5,400,000) (10,800,000)
----------- ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 109,190,824 (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) (16,167,444) (23,245,666)
----------- ------------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (16,167,444) (16,834,989)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS 91,803,249 (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 $1,607,201
and $1,352,767, respectively) $900,995,376 $809,192,127
============ ============
(see notes to financial statements)
7
5 FINANCIAL HIGHLIGHTS
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General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the six months ended June 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.
Six Months
Ended Year Ended December 31,
June 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 .02 .19 .41 .53 .45 .47
Net gain (loss) on securities -
realized and unrealized 3.87 (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 (.18) - - - - (.01)
------- ------- ------- ------- ------- -------
(.18) (.35) (.36) (.40) (.42) (.24)
------- ------- ------- ------- ------- -------
Total from investment operations 3.71 (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)
------- ------- ------- ------- ------- -------
Net asset value, end of period $30.15 $26.48 $35.14 $39.91 $41.74 $34.87
======= ======= ======= ======= ======= =======
Per share market value, end of period $27.44 $23.85 $33.47 $36.00 $37.19 $30.44
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 15.24%* (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) $900,995 $809,192 $1,097,530 $1,155,039 $1,094,519 $868,933
Ratio of expenses to average net assets
applicable to Common Stock 0.61%* 0.97% 1.02% 1.09% 1.01% 0.95%
Ratio of net income to average net assets
applicable to Common Stock 0.07%* 0.61% 1.15% 1.24% 1.23% 1.50%
Portfolio turnover rate 7.15%* 22.67% 23.81% 40.61% 33.68% 34.42%
PREFERRED STOCK
Liquidation value, end of
period (000's omitted) $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
Asset coverage 701% 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 $25.70 $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
8
6 STATEMENT OF INVESTMENTS June 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Shares or Value
Principal Amount COMMON STOCKS (note 1a)
-------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE (0.8%)
-------------------------------------------------------------------------------------------------------------------
200,000 The Boeing Company (COST $6,176,763) $6,864,000
----------
COMMUNICATIONS AND INFORMATION SERVICES (4.8%)
-------------------------------------------------------------------------------------------------------------------
550,000 CIENA Corporation (a) 2,843,500
900,000 Cisco Systems, Inc. (a) 15,111,000
620,000 Cox Communications, Inc. Class A (a) 19,778,000
450,000 Juniper Networks, Inc.(a) 5,611,500
----------
(COST $31,949,018) 43,344,000
----------
COMPUTER SOFTWARE AND SYSTEMS (0.1%)
-------------------------------------------------------------------------------------------------------------------
339,500 Wind River Systems, Inc. (a) (COST $6,490,307) 1,293,495
----------
CONSUMER PRODUCTS AND SERVICES (2.2%)
-------------------------------------------------------------------------------------------------------------------
275,000 Ethan Allen Interiors Inc. 9,669,000
125,000 Newell Rubbermaid Inc. 3,500,000
150,000 PepsiCo, Inc. 6,675,000
----------
(COST $12,312,784) 19,844,000
----------
ELECTRONICS (1.8%)
-------------------------------------------------------------------------------------------------------------------
692,500 Molex Incorporated Class A (COST $14,877,393) 16,031,375
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.3%)
-------------------------------------------------------------------------------------------------------------------
875,000 Republic Services, Inc. (a) 19,836,250
409,000 Waste Management, Inc. 9,852,810
----------
(COST $28,643,171) 29,689,060
----------
FINANCE AND INSURANCE (29.2%)
-------------------------------------------------------------------------------------------------------------------
BANKING (9.1%)
---------------------------------------------------------------------------------------------------------------
500,000 Annaly Mortgage Management, Inc. 9,955,000
410,000 Golden West Financial Corporation 32,804,100
310,000 M&T Bank Corporation 26,108,200
225,000 SunTrust Banks, Inc. 13,351,500
----------
(COST $14,902,962) 82,218,800
----------
INSURANCE (19.9%)
----------------------------------------------------------------------------------------------------------------
375,000 American International Group, Inc. 20,692,500
1,000,000 Annuity and Life Re (Holdings), Ltd. (a) 1,240,000
300 Berkshire Hathaway Inc. Class A (a) 21,750,000
690,000 Everest Re Group, Ltd. 52,785,000
425,000 John Hancock Financial Services, Inc. 13,060,250
160,000 Max Re Capital Ltd. 2,376,000
435,000 MetLife, Inc. 12,319,200
490,000 PartnerRe Ltd. 25,043,900
450,000 Reinsurance Group of America, Incorporated 14,445,000
230,000 Transatlantic Holdings, Inc. 15,904,500
-----------
(COST $102,251,527) 179,616,350
-----------
OTHER (0.2%)
----------------------------------------------------------------------------------------------------------------
84,548 Central Securities Corporation (COST $2,132,865) 1,599,648
-----------
(COST $119,287,354) 263,434,798
-----------
9
7 STATEMENT OF INVESTMENTS June 30, 2003 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Shares or Value
Principal Amount COMMON STOCKS (continued) (note 1a)
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE (18.6%)
-------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (14.9%)
----------------------------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $3,610,800
650,000 Baxter International Inc. 16,900,000
114,500 Baxter International Inc. 7% Convertible Preferred Equity Units 5,612,790
300,000 Bristol-Myers Squibb Company 8,145,000
270,000 Genaera Corporation (a) 456,300
485,000 Genentech, Inc. (a) 34,978,200
400,000 Genta Incorporated (a) 5,320,000
275,000 IDEC Pharmaceuticals Corporation (a) 9,339,000
234,000 MedImmune, Inc. (a) 8,510,580
120,000 Millennium Pharmaceuticals, Inc.(a) 1,887,600
125,000 OSI Pharmaceuticals, Inc. (a) 4,025,000
1,025,000 Pfizer Inc 35,003,750
-----------
(COST $86,577,159) 133,789,020
-----------
MEDICAL INSTRUMENTS AND DEVICES (1.5%)
----------------------------------------------------------------------------------------------------------------
290,000 Medtronic, Inc. (COST $862,614) 13,911,300
----------
HEALTH CARE SERVICES (2.2%)
----------------------------------------------------------------------------------------------------------------
600,000 Health Net, Inc. (a) (COST $12,334,248) 19,770,000
-----------
(COST $99,774,021) 167,470,320
-----------
MISCELLANEOUS (1.2%)
-------------------------------------------------------------------------------------------------------------------
Other (COST $6,515,132) 11,135,500
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (1.7%)
-------------------------------------------------------------------------------------------------------------------
650,000 Halliburton Company (COST $8,512,693) 14,950,000
----------
RETAIL TRADE (18.5%)
700,000 Costco Wholesale Corporation (a) 25,620,000
1,945,000 The Home Depot, Inc. (b) 64,418,400
2,425,000 The TJX Companies, Inc. 45,687,000
570,000 Wal-Mart Stores, Inc. 30,591,900
-----------
(COST $48,567,238) 166,317,300
-----------
SEMICONDUCTORS (1.3%)
-------------------------------------------------------------------------------------------------------------------
250,000 ASM International N.V. (a) 3,717,500
491,500 Brooks Automation, Inc. (a) 5,573,610
197,000 EMCORE Corporation (a) 642,220
1,644,900 IQE plc (a) 148,041
250,000 Zarlink Semiconductor Inc. (a) 1,297,500
----------
(COST $21,786,300) 11,378,871
----------
SPECIAL HOLDINGS (a) (c) (NOTE 5) (0.2%)
-------------------------------------------------------------------------------------------------------------------
400,000 Cytokinetics, Incorporated Series E Preferred (a) 2,000,000
432,000 Silicon Genesis Corporation Series C Preferred (a) 72,000
546,000 Standard MEMS, Inc. Series A Convertible Preferred (a) -
----------
(COST $8,009,720) 2,072,000(d)
----------
TOTAL COMMON STOCKS (83.7%) (COST $412,901,894) 753,824,719
-----------
CONVERTIBLE CORPORATE NOTE
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE (1.2%)
-------------------------------------------------------------------------------------------------------------------
$10,000,000 MedImmune Vaccines, Inc. 5 1/4% due 2/1/08 (COST $9,683,654) 10,400,000
----------
10
8 STATEMENT OF INVESTMENTS June 30, 2003 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
-------------------------------------------------------------------------------------------------------------------
$17,000,000 AIG Funding, Inc. notes due 7/7-7/28/03; 0.94%-1.18% $16,979,559
46,800,000 American Express Credit Corporation notes due 7/8-8/7/03; 1.00%-1.23% 46,745,807
14,500,000 Ford Motor Credit Company note due 8/4/03; 1.23% 14,477,211
45,200,000 General Electric Capital Corp. notes due 7/10-8/5/03; 0.96%-1.24% 45,145,573
33,300,000 General Motors Acceptance Corp. notes due 7/1-7/21/03; 1.27%-1.47% 33,250,302
27,700,000 Prudential Funding, LLC notes due 7/3-7/31/03; 1.01%-1.23% 27,670,661
7,300,000 Sears Roebuck Acceptance Corp. note due 7/14/03; 1.50% 7,287,529
96,000,000 U.S. Treasury bills due 7/24-8/14/03; 1.06%-1.15% 95,732,612
-----------
TOTAL SHORT-TERM SECURITIES (31.9%) (COST $287,289,254) 287,289,254
Liabilities in excess of cash, receivables and other assets (518,597)
-----------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETs, net (31.8%) 286,770,657
------------
PREFERRED STOCK (-16.7%) (150,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $900,995,376
============
(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 June 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
-------------------------------------------------------------------------------------------------------------------
100,000 NASDAQ-100 Trust, Series 1 $2,995,000
24,100 Southwest Bancorporation of Texas Inc. 783,491
----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $3,898,240) $3,778,491
==========
(see notes to financial statements)
11
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 29,882,056 shares and 6,000,000 shares, respectively, were
outstanding at June 30, 2003.
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.
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.
On July 9, 2003, the Board of Directors authorized the redemption on September
23, 2003 of all of the shares of 7.20% Tax-Advantaged Cumulative Preferred Stock
then outstanding at the redemption price of $25.00 per share. In addition, the
directors authorized the filing of a registration statement with the U.S.
Securities and Exchange Commission for the public offering and sale of shares of
a new series of preferred stock. The amount of capital to be raised, the
dividend rate and the timing of the offering have not been determined as of July
9, 2003.
12
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 six months ended June 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 9.5% and 9.1%, respectively) 679,300 922,100 ($679,300) (922,100)
Decrease in paid-in capital (15,488,144) (22,323,566)
----------- -----------
Total decrease (16,167,444) (23,245,666)
----------- -----------
Net decrease ($16,167,444) ($16,834,989)
=========== ===========
Distributions for tax and book purposes are substantially the same.
At June 30, 2003, the Company held in its treasury 1,349,507 shares of Common
Stock with an aggregate cost in the amount of $32,444,819.
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during the six months ended June
30, 2003 to its officers amounted to $2,215,000.
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 six months ended June 30, 2003 amounted to on
long transactions $56,190,609 and $48,576,942, respectively, and on short sale
transactions $5,283,160 and $3,029,025, respectively.
At June 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 $167,000 for the six months ended June 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.
13
11 MAJOR STOCK CHANGES* Three Months Ended June 30, 2003 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Shares Held
INCREASES Shares June 30, 2003
---------------------------------------------------------------------------------------------
NEW POSITIONS
Baxter International Inc. 650,000 650,000
Baxter International Inc.
7% Convertible Preferred Equity Units 114,500 114,500
Republic Services, Inc. 875,000 875,000
ADDITIONS
Brooks Automation, Inc. 323,000 491,500
IDEC Pharmaceuticals Corporation 25,000 275,000
DECREASES
---------------------------------------------------------------------------------------------
ELIMINATIONS
El Paso Corporation 475,000 -
Lucent Technologies Inc. 712,500 -
Oberthur Card Systems S.A. 175,000 -
Sequoia Capital IV (a) -
REDUCTIONS
American International Group, Inc. 40,000 375,000
The Boeing Company 300,000 200,000
Everest Re Group, Ltd. 10,000 690,000
Genentech, Inc. 165,000 485,000
Golden West Financial Corporation 15,000 410,000
John Hancock Financial Services, Inc. 10,000 425,000
Halliburton Company 50,000 650,000
M&T Bank Corporation 10,000 310,000
Max Re Capital Ltd. 40,000 160,000(b)
MedImmune, Inc. 5,000 234,000
MetLife, Inc. 5,000 435,000
PartnerRe Ltd. 35,000 490,000
Reinsurance Group of America, Incorporated 25,000 450,000
SunTrust Banks, Inc. 5,000 225,000
Waste Management, Inc. 200,000 409,000
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) A limited partnership interest.
(b) Includes shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED)
--------------------------------------------------------------------------------
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.
14
DIRECTORS
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
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
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
GENERAL AMERICAN INVESTORS COMPANY, INC.
We have reviewed the accompanying statement of assets and liabilities of
General American Investors Company, Inc., including the statements of
investments and securities sold short, as of June 30, 2003, and the related
statements of operations and changes in net assets and financial highlights for
the six month period ended June 30, 2003. These financial statements and
financial highlights are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the statement of changes in net assets for the
year ended December 31, 2002 and financial highlights for each of the five years
in the period then ended and in our report, dated January 14, 2003, we expressed
an unqualified opinion on such financial statements and financial highlights.
New York, New York ERNST & YOUNG LLP
July 11, 2003
15
ITEM 2. CODE OF ETHICS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
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. [RESERVED BY SEC FOR FUTURE USE.]
ITEM 9. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of July 23, 2003, 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 July 23, 2003, 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 Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation and until the filing of this report, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 10. EXHIBITS
(a) Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached hereto.
16
SIGNATURES
Pursuant to the requirements of the Securities and 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: July 29, 2003
Pursuant to the requirements of the Securities and 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: July 29, 2003
By: /s/Eugene L. DeStaebler, Jr.
Eugene L. DeStaebler, Jr.
Vice-President, Administration
(Principal Financial Officer)
Date: July 29, 2003