GENERAL AMERICAN INVESTORS
COMPANY, INC.
FIRST QUARTER REPORT
MARCH 31, 2004
A Closed-End Investment Company
listed on the New York Stock Exchange
450 Lexington Avenue
New York, New York 10017
212-916-8400
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
TO THE STOCKHOLDERS
--------------------------------------------------------------------------------
For the three months ended March 31, 2004, the investment return to our
stockholders was 2.5% (assuming reinvestment of all dividends). The net asset
value per Common Share increased by the same amount, 2.5%. By comparison, the
rate of return (including income) for our benchmark, the Standard & Poor's 500
Stock Index, was 1.7%. For the twelve months ended March 31, 2004, the return to
our stockholders was 33.3% and the return on the net asset value per Common
Share was 33.1%; these compare with a return of 35% for the S&P 500. During each
period, the discount at which our shares traded fluctuated moderately and at
March 31, 2004, it was 10.2%.
As set forth in the accompanying financial statements (unaudited), as of March
31, 2004, the net assets applicable to the Company's Common Stock were
$995,994,179, equal to $33.81 per Common Share.
The increase in net assets resulting from operations for the three months ended
March 31, 2004 was $22,969,210. During this period, the net realized gain on
securities sold was $10,542,000 and the increase in unrealized appreciation was
$15,389,666. Net investment income for the three months was $12,544 and
distributions to preferred stockholders amounted to $2,975,000.
During the three months, 331,900 shares of the Company's Common Stock were
repurchased for $10,116,510 at an average discount from net asset value of 9.6%.
Our portfolio continues to perform well, benefiting from continuing gains in
equity markets generally and the productive employment of our liquid assets. For
the most part, corporate profits have exceeded earlier estimates while inflation
and interest rates remain in constructive ranges. The appearance of price
stability, however, has been influenced by the importation of Asian goods and
the outsourcing of services, to some degree, with the attendant consequence of
slower than average recovery in our jobs market. Should interest rates rise
precipitously, of course, stocks are likely to be impacted adversely. We remain
focused on longer-term trends and practice our discipline with the patience that
we believe will continue to reward our shareholders.
We are pleased to report that on April 14, 2004, at the Company's annual
meeting, the Stockholders (1) elected ten directors, including two directors who
were elected by the holders of the Company's Preferred Stock, and (2) ratified
the selection of Ernst & Young LLP as auditors of the Company for the year 2004.
At its meeting on April 14, 2004, the Board of Directors appointed American
Stock Transfer & Trust Company the transfer agent and registrar for the Company,
effective June 1, 2004.
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 March 31, 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
April 14, 2004
2 STATEMENT OF ASSETS AND LIABILITIES March 31, 2004 (Unaudited)
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General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $603,360,389) $1,032,688,861
Corporate discount notes (cost $153,152,290) 153,152,290
-------------
Total investments (cost $756,512,679) 1,185,841,151
CASH, RECEIVABLES AND OTHER ASSETS
Cash $50,819
Receivable for securities sold 10,738,948
Deposit with broker for securities sold short 1,501,229
Dividends, interest and other receivables 1,071,242
Prepaid expenses 7,107,362
Other 326,135 20,795,735
---------- -------------
TOTAL ASSETS 1,206,636,886
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 2,057,983
Preferred dividend accrued but not yet declared 231,389
Securities sold short, at value (proceeds $1,501,229) (note 1a) 1,792,000
Accrued expenses and other liabilities 6,561,335
-----------
10,642,707
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 - 29,457,363 shares (note 2) $995,994,179
============
NET ASSET VALUE PER COMMON SHARE $33.81
============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 29,457,363 shares at par value (note 2) $29,457,363
Additional paid-in capital (note 2) 529,152,844
Undistributed realized gain on investments 10,614,655
Undistributed net income 938,005
Unallocated distributions on Preferred Stock (3,206,389)
Unrealized appreciation on investments and securities sold short
(including aggregate gross unrealized appreciation
of $481,319,797) 429,037,701
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $995,994,179
============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Three Months Ended March 31, 2004 (Unaudited)
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General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends $2,135,747
Interest 697,980 $2,833,727
----------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment research 1,796,247
Administration and operations 696,610
Office space and general 131,408
Directors' fees and expenses 49,428
Transfer agent, custodian and registrar fees and expenses 45,032
Auditing and legal fees 43,800
Stockholders' meeting and reports 34,718
Miscellaneous taxes 23,940 2,821,183
--------- ---------
NET INVESTMENT INCOME 12,544
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 12,541,588
Short sale transactions (note 1b) (1,999,588)
-----------
Net realized gain on investments (long term, except for $1,247,117) 10,542,000
Net increase in unrealized appreciation 15,389,666
-----------
NET GAIN ON INVESTMENTS 25,931,666
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (2,975,000)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 22,969,210
OTHER COMPREHENSIVE INCOME (NOTE 1d) 70,922
-----------
NET INCREASE IN NET ASSETS $23,040,132
============
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Three Months
Ended Year Ended
March 31, 2004 December 31,
(Unaudited) 2003
-------------- ------------
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $12,544 $855,551
Net realized gain on investments 10,542,000 28,144,510
Net increase in unrealized appreciation 15,389,666 200,469,430
----------- -----------
Distributions to Preferred Stockholders:
From net income - (365,476)
From long-term capital gains - (10,709,524)
Unallocated distributions on Preferred Stock (2,975,000) -
----------- -----------
Decrease in net assets from Preferred distributions (2,975,000) (11,075,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 22,969,210 218,394,491
----------- -----------
OTHER COMPREHENSIVE INCOME 70,922 283,689
----------- -----------
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)
----------- -----------
CAPITAL SHARE TRANSACTIONS
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) - 9,724,118
Cost of Common Shares purchased (note 2) (10,116,510) (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 (10,116,510) (25,430,838)
---------- -----------
NET INCREASE IN NET ASSETS 9,659,068 177,142,984
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 income of
$938,005 and $1,311,272, respectively) $995,994,179 $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 three months ended March 31, 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.
Three Months
Ended Year Ended December 31,
March 31, 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 .00 .02 .17 .39 .51 .44
Net gain (loss) on securities -
realized and unrealized .91 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 (.10) - - - - -
------- ------ ------ ------ ------ ------
(.10) (.36) (.35) (.36) (.40) (.42)
------- ------ ------ ------ ------ ------
Total from investment operations .81 7.38 (8.06) (.63) 6.23 11.34
------- ------ ------ ------ ------ ------
Other comprehensive income .00 .01 .02 .02 .02 .01
------- ------ ------ ------ ------ ------
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 $33.81 $33.11 $26.48 $35.14 $39.91 $41.74
======= ====== ====== ====== ====== ======
Per share market value, end of period $30.35 $29.73 $23.85 $33.47 $36.00 $37.19
======= ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 2.45%* 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) $995,994 $986,335 $809,192 $1,097,530 $1,155,039 $1,094,519
Ratio of expenses to average net assets
applicable to Common Stock 0.28%* 1.26% 0.97% 1.02% 1.09% 1.01%
Ratio of net income to average net assets
applicable to Common Stock 0.00%* 0.10% 0.56% 1.10% 1.20% 1.22%
Portfolio turnover rate 4.05%* 18.62% 22.67% 23.81% 40.61% 33.68%
PREFERRED STOCK
Liquidation value, end of period $200,000 $200,000 $150,000 $150,000 $150,000 $150,000
(000's omitted)
Asset coverage 598% 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 $25.40 $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 March 31, 2004 (Unaudited)
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General American Investors
Value
Shares COMMON STOCKS (note 1a)
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BUILDING AND REAL ESTATE (1.5%)
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513,500 CEMEX, S.A. de C.V. (COST $12,749,095) $15,312,570
-----------
COMMUNICATIONS AND INFORMATION SERVICES (5.5%)
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550,000 CIENA Corporation (a) 2,733,500
900,000 Cisco Systems, Inc. (a) 21,213,000
620,000 Cox Communications, Inc. Class A (a) 19,592,000
450,000 Juniper Networks, Inc. (a) 11,709,000
----------
(COST $31,949,019) 55,247,500
----------
COMPUTER SOFTWARE AND SYSTEMS (4.8%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 EMC Corporation (a) 4,083,000
1,525,000 Microsoft Corporation 38,018,250
350,000 VeriSign, Inc. (a) 5,806,500
----------
(COST $46,784,590) 47,907,750
----------
CONSUMER PRODUCTS AND SERVICES (2.0%)
------------------------------------------------------------------------------------------------------------------------------------
275,000 Ethan Allen Interiors Inc. 11,346,500
150,000 PepsiCo, Inc. 8,077,500
-----------
(COST $9,175,512) 19,424,000
-----------
ELECTRONICS (1.8%)
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692,500 Molex Incorporated Class A (COST $14,877,393) 18,039,625
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.2%)
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1,175,000 Republic Services, Inc. (COST $26,227,380) 31,807,250
----------
FINANCE AND INSURANCE (31.8%)
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BANKING (9.5%)
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100,000 Bank of America Corporation 8,098,000
150,000 FleetBoston Financial Corporation 6,735,000
325,000 Golden West Financial Corporation 36,383,750
320,000 M&T Bank Corporation 28,752,000
205,000 SunTrust Banks, Inc. 14,290,550
----------
(COST $22,737,927) 94,259,300
-----------
INSURANCE (19.9%)
------------------------------------------------------------------------------------------------------------------------------------
290,000 American International Group, Inc. 20,691,500
1,000,000 Annuity and Life Re (Holdings), Ltd. (a) 1,070,000
300 Berkshire Hathaway Inc. Class A (a) 27,990,000
650,000 Everest Re Group, Ltd. 55,536,000
265,000 John Hancock Financial Services, Inc. 11,577,850
435,000 MetLife, Inc. 15,520,800
500,000 PartnerRe Ltd. 28,225,000
425,000 Reinsurance Group of America, Incorporated 17,412,250
230,000 Transatlantic Holdings, Inc. 20,058,300
-----------
(COST $91,161,053) 198,081,700
------------
OTHER (2.4%)
------------------------------------------------------------------------------------------------------------------------------------
775,000 Annaly Mortgage Management, Inc. 15,151,250
90,184 Central Securities Corporation 1,934,447
700,000 MFA Mortgage Investments, Inc. 7,070,000
----------
(COST $18,269,271) 24,155,697
----------
(COST $132,168,251) 316,496,697
-----------
7 STATEMENT OF INVESTMENTS March 31, 2004 (Unaudited) - continued
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General American Investors
Value
Shares COMMON STOCKS (continued) (note 1a)
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HEALTH CARE (19.2%)
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PHARMACEUTICALS (15.0%)
------------------------------------------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $5,436,600
900,000 Baxter International Inc. 27,801,000
250,000 Biogen Idec Inc. (a) 13,900,000
300,000 Bristol-Myers Squibb Company 7,269,000
270,000 Genaera Corporation (a) 1,206,900
290,000 Genentech, Inc. (a) 30,687,800
375,000 Genta Incorporated (a) 3,937,500
455,000 MedImmune, Inc. (a) 10,501,400
120,000 Millennium Pharmaceuticals, Inc.(a) 2,028,000
1,325,000 Pfizer Inc 46,441,250
-----------
(COST $101,695,359) 149,209,450
-----------
MEDICAL INSTRUMENTS AND DEVICES (2.2%)
------------------------------------------------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 21,487,500
----------
HEALTH CARE SERVICES (2.0%)
------------------------------------------------------------------------------------------------------------------------------------
800,000 Health Net, Inc. (a) (COST $18,802,470) 19,944,000
----------
(COST $130,981,545) 190,640,950
-----------
MISCELLANEOUS (4.2%)
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Other (COST $43,090,461) 42,104,805
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (8.0%)
------------------------------------------------------------------------------------------------------------------------------------
650,000 Devon Energy Corporation 37,797,500
625,000 Halliburton Company 18,993,750
247,000 Total S.A. ADR 22,724,000
----------
(COST $61,415,424) 79,515,250
----------
RETAIL TRADE (20.1%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation (a) 26,327,000
1,920,000 The Home Depot, Inc. (b) 71,731,200
2,500,000 The TJX Companies, Inc. 61,400,000
675,000 Wal-Mart Stores, Inc. 40,290,750
----------
(COST $68,036,225) 199,748,950
----------
SEMICONDUCTORS (1.4%)
------------------------------------------------------------------------------------------------------------------------------------
133,000 Applied Materials, Inc. (a) 2,836,890
491,500 Brooks Automation, Inc. (a) 10,341,160
197,000 EMCORE Corporation (a) 801,790
1,644,900 IQE plc (a) 427,674
----------
(COST $17,895,774) 14,407,514
----------
SPECIAL HOLDINGS (a) (c) (NOTE 5) (0.2%)
------------------------------------------------------------------------------------------------------------------------------------
400,000 Cytokinetics, Incorporated Series E Preferred 2,000,000
144,000 Silicon Genesis Corporation 36,000
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
-----------
(COST $8,009,720) 2,036,000 (d)
-----------
TOTAL COMMON STOCKS (103.7%) (COST $603,360,389) 1,032,688,861
--------------
8 STATEMENT OF INVESTMENTS March 31, 2004 (Unaudited) - continued
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General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$34,600,000 American Express Credit Corporation notes due 4/5-5/6/04; 1.00%-1.01% $34,569,579
29,400,000 American General Finance Corporation notes due 4/7-4/19/04; 1.01%-1.02% 29,372,469
33,300,000 General Electric Capital Corporation notes due 4/13-5/3/04; 1.01% 33,266,314
13,400,000 General Motors Acceptance Corporation notes due 4/6-4/22/04; 1.23%-1.24% 13,384,454
26,400,000 Prudential Funding, LLC notes due 4/20-5/4/04; 0.99%-1.01% 26,375,498
16,200,000 Sears Roebuck Acceptance Corp. notes due 4/1-4/30/04; 1.05% 16,183,976
-----------
Total Short-Term Securities (15.4%) (COST $153,152,290) 153,152,290
Cash, receivables and other assets, less liabilities 10,153,028
-----------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (16.4%) 163,305,318
------------
PREFERRED STOCK (-20.1%) (200,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $995,994,179
=============
(a) Non-income producing security. (c) Restricted security.
(b) 1,000,000 shares held by custodian (d) Fair value of each holding in the opinion of the directors
in a segregated custodian account as
collateral for open short positions.
-------------------------------------------------------------------------------
STATEMENT OF SECURITIES SOLD SHORT March 31, 2004 (Unaudited)
-------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
50,000 NASDAQ-100 Trust, Series 1 (PROCEEDS $1,501,229) $1,792,000
==========
(see notes to financial statements)
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
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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 would be applied).
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
d. OTHER Comprehensive Income Pursuant to FAS 87, the Company recognizes on an
amortized basis the excess of the fair value of its pension plan assets over the
present value of accumulated plan benefits.
e. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value, of which 29,457,363 shares and 8,000,000 shares, respectively, were
outstanding at March 31, 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 addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of EITF
D-98, Classification and Measurement of Redeemable Securities, which require
that preferred stock for which its redemption is outside of the company's
control should be presented outside of net assets in the statement of assets and
liabilities.
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
Transactions in Common Stock during the three months ended March 31, 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 9.6% and 9.7%, respectively) 331,900 1,106,600 ($331,900) (1,106,600)
Decrease in paid-in capital (9,784,610) (27,348,356)
---------- ----------
Total decrease (10,116,510) (28,454,956)
---------- ----------
Net decrease ($10,116,510) ($18,730,838)
=========== ===========
Distributions for tax and book purposes are substantially the same.
At March 31, 2004, the Company held in its treasury 1,774,200 shares of Common
Stock with an aggregate cost in the amount of $38,869,449.
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during the three months ended
March 31, 2004 to its officers amounted to $1,225,250.
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 (other than short-term securities) for the
three months ended March 31, 2004 amounted to on long transactions $109,029,314
and $40,699,946, respectively, and, with respect to short sale transactions,
purchases for the three months amounted to $14,182,941.
At March 31, 2004, the cost of investments for Federal income tax purposes was
the same as the cost for financial reporting purposes.
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
-------- ---------- ----------
Cytokinetics, Incorporated Series E Preferred 3/21/03 $2,000,000 $2,000,000
Silicon Genesis Corporation 2/16/01 3,006,720 36,000
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
----------- ----------
Total $8,009,720 $2,036,000
=========== ==========
6. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expires in 2007 and provides for future rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contains a
clause whereby the Company received twenty months of free rent beginning in
December 1992 and escalation clauses relating to operating costs and real
property taxes.
Rental expense approximated $89,000 for the three months ended March 31, 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 March 31, 2004 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES OR SHARES HELD
INCREASES PRINCIPAL AMOUNT MARCH 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
NEW POSITIONS
Microsoft Corporation 1,525,000 1,525,000
Total S.A. ADR 175,900 247,000 (a)
ADDITIONS
CEMEX, S.A. de C.V. 50,000 513,500
Health Net, Inc. 105,000 800,000
M&T Bank Corporation 10,000 320,000
MFA Mortgage Investments, Inc. 125,000 700,000
DECREASES
--------------------------------------------------------------------------------
ELIMATIONS
ASM International N.V. 250,000 -
Coca-Cola Enterprises Inc. 275,000 -
MedImmune Vaccines, Inc.
5 1/4% Convertible Notes Due 2/1/08 $10,000,000 -
Newell Rubbermaid Inc. 125,000 -
OSI Pharmaceuticals, Inc. 30,000 -
REDUCTIONS
American International Group, Inc. 35,000 290,000
Annaly Mortgage Management, Inc. 50,000 775,000
Applied Materials, Inc. 67,000 133,000
Biogen Idec Inc. 25,000 250,000
Genentech, Inc. 25,000 290,000
Golden West Financial Corporation 10,000 325,000
Halliburton Company 25,000 625,000
John Hancock Financial Services, Inc. 65,000 265,000
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) Includes shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
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Proxy Voting Policies and Procedures ( Unaudited)
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General American Investors
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities are available: (1) without charge, upon
request, by calling us at our toll-free telephone number (1-800-436-8401), (2)
on the Company's website at http://www.generalamericaninvestors.com and (3) on
the Securities and Exchange Commission's website at http://www.sec.gov.
DIRECTORS
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Lawrence B. Buttenwieser, Chairman
Arthur G. Altschul, Jr. John D. Gordan, III
Lewis B. Cullman Sidney R. Knafel
Spencer Davidson Richard R. Pivirotto
Gerald M. Edelman Joseph T. Stewart, Jr.
Raymond S. Troubh
William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
OFFICERS
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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 LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and
Trust Company
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
1-800-413-5499
www.mellon-investor.com
RESULTS OF THE ANNUAL MEETING
OF STOCKHOLDERS
--------------------------------------------------------------------------------
The votes cast by stockholders at the Company's annual
meeting held on April 14, 2004 were as follows:
Election of Directors:
FOR WITHHELD
Lawrence B. Buttenwieser 31,462,773 1,995,988
Lewis B. Cullman 32,952,461 506,300
Spencer Davidson 33,055,799 402,962
Gerald M. Edelman 32,976,812 481,949
John D. Gordan, III 33,077,301 381,460
Richard R. Pivirotto 32,963,346 495,415
Joseph T. Stewart, Jr. 33,007,569 451,192
Raymond S. Troubh 32,922,189 536,572
Elected by holders of Preferred Stock:
Arthur G. Altschul, Jr. 7,643,792 130,615
Sidney R. Knafel 7,704,922 69,485
Ratification of the selection of Ernst & Young LLP as auditors of the Company
for the year 2004:
For - 33,071,765; Against - 198,502; Abstain - 188,494