GENERAL AMERICAN INVESTORS
COMPANY, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 2004
A Closed-End Investment Company
listed on the New York Stock Exchange
450 Lexington Avenue
New York, NY 10017
212-916-8400
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
TO THE STOCKHOLDERS
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For the nine months ended September 30, 2004, our stockholders experienced a
decrease of 0.3% on their investment in our Common Stock (assuming reinvestment
of all dividends). The net asset value per Common Share increased 0.8%. By
comparison, the rate of return (including income) for our benchmark, the
Standard & Poor's 500 Stock Index, was 1.5%. For the twelve months ended
September 30, 2004, the return to our stockholders was 9.7% and the return on
the net asset value per Common Share was 11.3%; these compare with a return of
13.7% for the S&P 500. During each period, the discount at which our shares
traded increased slightly and at September 30, 2004, it was 11.2%.
As set forth in the accompanying financial statements (unaudited), as of
September 30, 2004, the net assets applicable to the Company's Common Stock were
$962,775,917, equal to $33.25 per Common Share.
The increase in net assets resulting from operations for the nine months ended
September 30, 2004 was $4,672,132. During this period, the net realized gain on
securities sold was $13,296,001 and the decrease in unrealized appreciation was
$3,420,819. Net investment income for the nine months was $3,721,950 and
distributions to Preferred Stockholders amounted to $8,925,000.
During the nine months, 831,900 shares of the Company's Common Stock were
repurchased for $24,966,772 at an average discount from net asset value of 10%.
While equity markets continue to trade in a narrow range, recent results suggest
that investors will be rewarded for holding the kind of quality companies, with
strong earnings growth, that characterize General American's portfolio. There
are, of course, serious impediments to a smooth advance. These include,
conspicuously, the war in Iraq and elevated energy prices, as well as more
conceptual issues such as too little savings and too much debt, all exacerbated
by the current political campaign. Nonetheless, profits are continuing to grow,
albeit at a decelerating rate, and, in our view, stocks remain attractive
relative to bonds.
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, 2004. 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 13, 2004
2 STATEMENT OF ASSETS AND LIABILITIES September 30, 2004 (Unaudited)
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General American Investors
ASSETS
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INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $627,356,685) $1,037,119,556
Convertible corporate notes (cost $13,273,334) 13,946,865
Corporate discount notes (cost $114,871,173) 114,871,173
--------------
Total investments (cost $755,501,192) 1,165,937,594
CASH, RECEIVABLES AND OTHER ASSETS
Cash, including margin account balance of $71,930 $123,848
Receivable for securities sold 1,680,046
Deposit with broker for securities sold short 1,501,230
Deposit with broker for options written 384,084
Dividends, interest and other receivables 1,454,172
Prepaid expenses 7,376,169
Other 287,291 12,806,840
--------- -------------
TOTAL ASSETS 1,178,744,434
LIABILITIES
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Payable for securities purchased 4,963,187
Preferred dividend accrued but not yet declared 231,389
Securities sold short, at value (proceeds $1,501,230) (note 1a) 1,757,000
Outstanding options written, at value
(premiums received $384,084) (note 1a) 337,500
Accrued expenses and other liabilities 8,679,441
----------
15,968,517
TOTAL LIABILITIES
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 - 28,957,363 shares (note 2) $962,775,917
============
NET ASSET VALUE PER COMMON SHARE $33.25
============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 28,957,363 shares at par value (note 2) $28,957,363
Additional paid-in capital (note 2) 514,731,660
Undistributed realized gain on investments 13,368,656
Undistributed net investment income 4,647,411
Unallocated distributions on Preferred Stock (9,156,389)
Unrealized appreciation on investments,
securities sold short and options 410,227,216
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $962,775,917
============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Nine Months Ended September 30, 2004 (Unaudited)
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General American Investors
INCOME
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Dividends (net of foreign withholding taxes of $108,915) $9,686,143
Interest 1,915,500 $11,601,643
----------
EXPENSES
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Investment research 4,992,600
Administration and operations 1,879,029
Office space and general 397,571
Directors' fees and expenses 148,285
Auditing and legal fees 131,400
Transfer agent, custodian and registrar fees and expenses 129,220
Stockholders' meeting and reports 114,304
Miscellaneous taxes 87,284 7,879,693
---------- -----------
NET INVESTMENT INCOME 3,721,950
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1f AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 15,224,341
Short sale transactions (note 1b) (1,999,588)
Option transactions (note 1c) 71,248
----------
Net realized gain on investments (long-term) 13,296,001
Net decrease in unrealized appreciation (3,420,819)
----------
NET GAIN ON INVESTMENTS 9,875,182
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (8,925,000)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,672,132
============
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Nine Months
Ended Year Ended
September 30, 2004 December 31,
(Unaudited) 2003
--------------- -----------
OPERATIONS
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Net investment income $3,721,950 $1,139,240
Net realized gain on investments 13,296,001 28,144,510
Net increase (decrease) in unrealized appreciation (3,420,819) 200,469,430
----------- ------------
Distributions to Preferred Stockholders:
From net income - (365,476)
From long-term capital gains - (10,709,524)
Unallocated distributions on Preferred Stock (8,925,000) -
----------- ------------
Decrease in net assets from Preferred distributions (8,925,000) (11,075,000)
----------- ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 4,672,132 218,678,180
----------- ------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net income (385,811) (531,570)
From long-term capital gains (2,878,743) (15,572,788)
---------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (3,264,554) (16,104,358)
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CAPITAL SHARE TRANSACTIONS
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Value of Common Shares issued in payment of dividends (note 2) - 9,724,118
Cost of Common Shares purchased (note 2) (24,966,772) (28,454,956)
Underwriting discount and other expenses associated with the issuance
of Preferred Stock (note 2) - (6,700,000)
---------- -----------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (24,966,772) (25,430,838)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (23,559,194) 177,142,984
NET ASSETS APPLICABLE TO COMMON STOCK
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BEGINNING OF PERIOD 986,335,111 809,192,127
----------- ------------
END OF PERIOD (including undistributed net investment income of
$4,647,411 and $1,311,272, respectively) $962,775,917 $986,335,111
============ ============
(see notes to financial statements)
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 nine months ended September 30,
2004 and for each year in the five-year period ended December 31, 2003. This
information has been derived from information contained in the financial
statements and market price data for the Company's shares.
Nine Months
Ended Year Ended December 31,
June 30, 2004 ------------------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
------------ ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $33.11 $26.48 $35.14 $39.91 $41.74 $34.87
------ ------ ------- ------ ------ ------
Net investment income .13 .03 .19 .41 .53 .45
Net gain (loss) on securities -
realized and unrealized .43 7.72 (7.88) (.66) 6.12 11.32
------ ------ ------- ------ ------ ------
Distributions on Preferred Stock:
Dividends from investment income - (.01) (.12) (.07) (a) (.11) (b) (.07) (c)
Distributions from capital gains - (.35) (.23) (.29) (.29) (.35)
Unallocated (.31) - - - - -
------ ------ ------- ------ ------ ------
(.31) (.36) (.35) (.36) (.40) (.42)
------ ------ ------- ------ ------ ------
Total from investment operations .25 7.39 (8.04) (.61) 6.25 11.35
------ ------ ------- ------ ------ ------
Less distributions on Common Stock:
Dividends from investment income (.01) (.02) (.21) (d) (.88) (e) (2.30) (f) (.71) (g)
Distributions from capital gains (.10) (.52) (.41) (3.28) (5.78) (3.77)
------ ------ ------- ------ ------ ------
(.11) (.54) (.62) (4.16) (8.08) (4.48)
------ ------ ------- ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering - (.22) - - - -
------ ------ ------- ------ ------ ------
Net asset value, end of period $33.25 $33.11 $26.48 $35.14 $39.91 $41.74
====== ====== ======= ====== ====== ======
Per share market value, end of period $29.53 $29.73 $23.85 $33.47 $36.00 $37.19
====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share (0.32)%* 27.01% (27.21)% 4.33% 19.10% 39.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $962,776 $986,335 $809,192 $1,097,530 $1,155,039 $1,094,519
Ratio of expenses to average net assets
applicable to Common Stock 0.81%* 1.23% 0.92% 0.97% 1.05% 1.01%
Ratio of net income to average net assets
applicable to Common Stock 0.38%* 0.13% 0.61% 1.15% 1.24% 1.23%
Portfolio turnover rate 9.86%* 18.62% 22.67% 23.81% 40.61% 33.68%
PREFERRED STOCK
Liquidation value, end of
period (000's omitted) $200,000 $200,000 $150,000 $150,000 $150,000 $150,000
Asset coverage 581% 593% 639% 832% 870% 830%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $24.75 $25.04 $25.85 $25.90 $24.25 $21.75
(a) Includes short-term capital gain in the amount of $.04 per share.
(b) Includes short-term capital gain in the amount of $.09 per share.
(c) Includes short-term capital gain in the amount of $.03 per share.
(d) Includes short-term capital gain in the amount of $.19 per share.
(e) Includes short-term capital gain in the amount of $.51 per share.
(f) Includes short-term capital gain in the amount of $1.82 per share.
(g) Includes short-term capital gain in the amount of $.29 per share.
*Not annualized
6 STATEMENT OF INVESTMENTS September 30, 2004 (Unaudited)
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General American Investors
Shares or Value
Principal Amount COMMON STOCKS (note 1a)
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BUILDING AND REAL ESTATE (2.8%)
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950,000 CEMEX, S.A. de C.V. (COST $24,846,539) $26,733,000
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COMMUNICATIONS AND INFORMATION SERVICES (7.3%)
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550,000 American Tower Corporation (a) 8,442,500
550,000 CIENA Corporation (a) 1,089,000
900,000 Cisco Systems, Inc. (a) 16,290,000
620,000 Cox Communications, Inc. Class A (a) 20,540,600
150,000 Juniper Networks, Inc. (a) 3,540,000
500,000 Lamar Advertising Company Class A (a) 20,805,000
----------
(COST $58,318,248) 70,707,100
----------
COMPUTER SOFTWARE AND SYSTEMS (5.9%)
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300,000 EMC Corporation (a) 3,462,000
1,525,000 Microsoft Corporation 42,166,250
623,000 NetIQ Corporation (a) 6,666,100
233,500 VeriSign, Inc. (a) 4,641,980
----------
(COST $54,544,667) 56,936,330
----------
CONSUMER PRODUCTS AND SERVICES (3.6%)
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350,000 Diageo plc 17,650,500
275,000 Ethan Allen Interiors Inc. 9,556,250
150,000 PepsiCo, Inc. 7,297,500
----------
(COST $28,303,579) 34,504,250
----------
ELECTRONICS (1.9%)
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715,000 Molex Incorporated Class A (COST $15,450,691) 18,818,800
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.6%)
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1,175,000 Republic Services, Inc. (COST $26,227,380) 34,968,000
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FINANCE AND INSURANCE (31.0%)
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BANKING (10.2%)
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368,000 Bank of America Corporation 15,945,440
325,000 Golden West Financial Corporation 36,058,750
330,000 M&T Bank Corporation 31,581,000
205,000 SunTrust Banks, Inc. 14,434,050
----------
(COST $23,599,570) 98,019,240
----------
INSURANCE (18.4%)
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265,000 American International Group, Inc. 18,017,350
625,000 Annuity and Life Re (Holdings), Ltd. (a) 250,000
300 Berkshire Hathaway Inc. Class A (a) 25,995,000
650,000 Everest Re Group, Ltd. 48,314,500
435,000 MetLife, Inc. 16,812,750
175,000 Montpelier Re Holdings Ltd. 6,419,000
500,000 PartnerRe Ltd. 27,345,000
445,000 Reinsurance Group of America, Incorporated 18,334,000
281,250 Transatlantic Holdings, Inc. 15,285,937
-----------
(COST $84,976,740) 176,773,537
-----------
OTHER (2.4%)
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775,000 Annaly Mortgage Management, Inc. 13,275,750
90,184 Central Securities Corporation 2,006,594
850,000 MFA Mortgage Investments, Inc. 7,828,500
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(COST $19,609,426) 23,110,844
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(COST $128,185,736) 297,903,621
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7 STATEMENT OF INVESTMENTS September 30, 2004 (Unaudited) - continued
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General American Investors
Shares or Value
Principal Amount COMMON STOCKS (continued) (note 1a)
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HEALTH CARE (16.8%)
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PHARMACEUTICALS (14.4%)
340,000 Alkermes, Inc. (a) $3,923,600
825,000 Baxter International Inc. 26,532,000
250,000 Biogen Idec Inc. (a) 15,292,500
300,000 Bristol-Myers Squibb Company 7,101,000
75,000 Cytokinetics, Incorporated (a) 997,500
270,000 Genaera Corporation (a) 1,055,700
560,000 Genentech, Inc. (a) 29,355,200
375,000 Genta Incorporated (a) 1,008,750
455,000 MedImmune, Inc. (a) 10,783,500
120,000 Millennium Pharmaceuticals, Inc.(a) 1,640,400
1,325,000 Pfizer Inc 40,545,000
-----------
(COST $100,333,012) 138,235,150
-----------
MEDICAL INSTRUMENTS AND DEVICES (2.4%)
------------------------------------------------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 23,355,000
-----------
(COST $110,816,728) 161,590,150
-----------
MISCELLANEOUS (0.9%)
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Other (b) (COST $8,337,168) 8,600,000
---------
OIL & NATURAL GAS (INCLUDING SERVICES) (12.6%)
------------------------------------------------------------------------------------------------------------------------------------
390,000 Apache Corporation 19,542,900
800,000 Devon Energy Corporation 56,808,000
600,000 Halliburton Company 20,214,000
247,000 Total S.A. ADR 25,235,990
----------
(COST $86,389,860) 121,800,890
-----------
RETAIL TRADE (20.3%)
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700,000 Costco Wholesale Corporation 29,057,000
1,920,000 The Home Depot, Inc. (c) 75,264,000
2,500,000 The TJX Companies, Inc. 55,100,000
675,000 Wal-Mart Stores, Inc. 35,910,000
----------
(COST $68,036,225) 195,331,000
-----------
SEMICONDUCTORS (0.8%)
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491,500 Brooks Automation, Inc. (a) 6,954,725
197,000 EMCORE Corporation (a) 388,090
---------
(COST $9,890,144) 7,342,815
---------
SPECIAL HOLDINGS (a) (d) (NOTE 5) (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
200,000 Cytokinetics, Incorporated 1,862,000
144,000 Silicon Genesis Corporation 21,600
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
---------
(COST $8,009,720) 1,883,600(e)
---------
TOTAL COMMON STOCKS (107.7%) (COST $627,356,685) 1,037,119,556
-------------
CONVERTIBLE CORPORATE NOTES
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COMMUNICATIONS AND INFORMATION SERVICES (0.3%)
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$2,321,000 American Tower Corporation 9 3/8% due 2/1/09 (COST $2,451,141) 2,471,865
---------
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OIL & NATURAL GAS (INCLUDING SERVICES) (1.2%)
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$22,500,000 El Paso Corporation 0% due 2/28/21 (COST $10,822,193) 11,475,000
----------
TOTAL CONVERTIBLE CORPORATE NOTES (1.5%) (COST $13,273,334) 13,946,865
----------
8 STATEMENT OF INVESTMENTS September 30, 2004 (Unaudited) - continued
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General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
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$20,900,000 American Express Credit Corporation notes due 10/7-10/28/04; 1.51%-1.66% $20,861,326
26,600,000 American General Finance Corporation notes due 10/5-11/4/04; 1.55%-1.76% 26,549,092
24,600,000 General Electric Capital Corporation notes due 10/14-11/1/04; 1.59%-1.68% 24,548,067
18,900,000 General Motors Acceptance Corporation notes due 10/1-10/26/04; 1.66%-1.76% 18,861,067
13,900,000 Prudential Funding, LLC notes due 10/18-11/2/04; 1.62%-1.76% 13,871,684
10,200,000 Sears Roebuck Acceptance Corp. notes due 10/4-10/21/04;1.70%-1.75% 10,179,937
-----------
Total Short-Term Securities (11.9%) (COST $114,871,173) 114,871,173
-------------
TOTAL INVESTMENTS (f) (121.1%) (COST $755,501,192) 1,165,937,594
Liabilities in excess of cash, receivables and other assets (-0.3%) (3,161,677)
-------------
1,162,775,917
-------------
PREFERRED STOCK (-20.8%) (200,000,000)
-------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $962,775,917
=============
(a) Non-income producing security.
(b) Securities which have been held for less than one year and in which the Company is in the process of accumulating a position.
(c) 1,000,000 shares held by custodian in a segregated custodian account as collateral for open short positions.
(d) Restricted security.
(e) Fair value of each holding in the opinion of the directors.
(f) At September 30, 2004:
(1) the cost of investments for Federal income tax purposes was the same as the cost for financial
reporting purposes,
(2) aggregate gross unrealized appreciation was $456,004,746,
(3) aggregate gross unrealized depreciation was $45,568,344, and
(4) net unrealized appreciation was $410,436,402.
STATEMENT OF SECURITIES SOLD SHORT September 30, 2004 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
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50,000 NASDAQ-100 Trust, Series 1 (PROCEEDS $1,501,230) $1,757,000
==========
STATEMENT OF OPTIONS WRITTEN September 30, 2004 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Contracts Value
(100 shares each) COMMON STOCKS/EXPIRATION DATE/EXERCISE PRICE (note 1a)
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CALL OPTIONS
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COMMUNICATIONS AND INFORMATION SERVICES
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1,225 Cox Communications, Inc. Class A/January 05/$32.50 (PREMIUMS RECEIVED $206,188) $220,500
--------
PHARMACEUTICALS
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200 Genentech, Inc./January 05/$55 (PREMIUMS RECEIVED $79,398) 62,000
------
PUT OPTIONS
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OIL & NATURAL GAS (INCLUDING SERVICES)
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500 Apache Corporation/January 05/$45 (PREMIUMS RECEIVED $98,498) 55,000
------
TOTAL OPTIONS (PREMIUMS RECEIVED $384,084) $337,500
========
(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.
Certain prior year financial statement items have been reclassified, from Other
Comprehensive Income to a reduction of Expenses and an increase in Net
Investment Income, to conform to the current year presentation.
a. SECURITY VALUATION Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Securities reported on the NASDAQ national market are valued at the official
closing price on that day. Listed and NASDAQ securities for which no sales or
prices 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 and written options) 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).
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. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
d. 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.
e. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
f. 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 28,957,363 shares and 8,000,000 shares, respectively, were
outstanding at September 30, 2004.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95%
Cumulative Preferred Stock, Series B in an underwritten offering. The Preferred
Shares are noncallable for 5 years and have a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of redemption. The underwriting discount and other expenses associated with the
Preferred Stock offering amounted to $6,700,000 and were charged to paid-in
capital.
The Company is required to allocate distributions from long-term capital gains
and other types of income proportionately among holders of shares of Common
Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an
asset coverage of at least 200% for the Preferred Stock. In addition, pursuant
to the Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds the Basic
Maintenance Amount under the guidelines established by Moody's Investors
Service, Inc. The Company has met these requirements since the issuance of the
Preferred Stock. If the Company fails to meet these requirements in the future
and does not cure such failure, the Company may be required to redeem in whole
or in part, shares of Preferred Stock at a redemption price of $25.00 per share
plus accumulated and unpaid dividends (whether or not earned or declared). In
addition, the Company's failure to meet the foregoing asset coverage
requirements could restrict its ability to pay dividends on shares of Common
Stock and could lead to sales of portfolio securities at inopportune times.
The holders of Preferred Stock have voting rights equivalent to those of the
holders of Common Stock (one vote per share) and, generally, vote together with
the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the Company's
Board of Directors and the holders of Preferred and Common Stock, voting as a
single class, will elect the remaining directors. If the Company fails to pay
dividends on the Preferred Stock in an amount equal to two full years'
dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
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.
Transactions in Common Stock during the nine months ended September 30, 2004 and
the year ended December 31, 2003 were as follows:
SHARES AMOUNT
----------------------- ---------------------
2004 2003 2004 2003
-------- -------- ------- --------
Shares issued in payment of dividends (includes 334,507
shares issued from treasury) - 334,507 - $334,507
Increase in paid-in capital - 9,389,611
------- ----------
Total increase - 9,724,118
------- ----------
Shares purchased (at an average discount from net
asset value of 10.0% and 9.7%, respectively) 831,900 1,106,600 ($831,900) (1,106,600)
Decrease in paid-in capital (24,134,872) (27,348,356)
------------ ------------
Total decrease (24,966,772) (28,454,956)
------------ ------------
Net decrease ($24,966,772) ($18,730,838)
============ ============
Distributions for tax and book purposes are substantially the same.
At September 30, 2004, the Company held in its treasury 2,274,200 shares of
Common Stock with an aggregate cost in the amount of $53,719,711.
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during the nine months ended
September 30, 2004 to its officers amounted to $3,675,750.
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.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (other than short-term securities and options)
for the nine months ended September 30, 2004 amounted to on long transactions
$203,715,685 and $100,799,440, respectively, and, with respect to short sale
transactions, purchases for the nine months amounted to $14,182,940.
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
----------- ----------- -----------
Cytokinetics, Incorporated 3/21/03 $2,000,000 $1,862,000
Silicon Genesis Corporation 2/16/01 3,006,720 21,600
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
----------- ----------
Total $8,009,720 $1,883,600
=========== ==========
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 $240,600 for the nine months ended September 30,
2004. Minimum rental commitments under the operating lease are approximately
$505,000 per annum in 2004 through 2007.
In January 2003, the Company extended a sublease agreement (originally entered
into in March 1996) which expires in 2007 and provides for future rental
receipts. Minimum rental receipts under the sublease are approximately $254,000
per annum in 2004 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
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, 2004 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES OR
PRINCIPAL AMOUNT
INCREASES SHARES HELD SEPTEMBER 30, 2004
-----------------------------------------------------------------------------------------
NEW POSITIONS
American Tower Corporation - 550,000 (a)
American Tower Corporation 9 3/8% due 2/1/09 - $2,321,000 (a)
Lamar Advertising Company Class A 225,000 500,000 (b)
ADDITIONS
Apache Corporation 50,000 390,000 (b)
CEMEX, S.A. de C.V. 400,000 950,000
NetIQ Corporation 20,000 623,000
DECREASES
-----------------------------------------------------------------------------------------
ELIMINATIONS
Applied Materials, Inc. 133,000 -
IQE plc 1,644,900 -
REDUCTIONS
Baxter International Inc. 75,000 825,000
Halliburton Company 25,000 600,000
Juniper Networks, Inc. 300,000 150,000
M&T Bank Corporation 10,000 330,000
VeriSign, Inc. 116,500 233,500
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) Securities purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
(b) Includes shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
Proxy Voting Policies and Procedures
and Proxy Voting record (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities and the Company's proxy voting record for the
twelve-month period ended June 30, 2004 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
--------------------------------------------------------------------------------
Lawrence B. Buttenwieser, Chairman
Arthur G. Altschul, Jr. Sidney R. Knafel
Lewis B. Cullman Richard R. Pivirotto
Spencer Davidson D. Ellen Shuman
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
--------------------------------------------------------------------------------
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
State Street Bank and
Trust Company
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust
Company
59 Maiden Lane
New York, NY 10038
1-800-413-5499
www.amstock.com