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.
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(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
Date of reporting period: June 30, 2004
2
ITEM 1. REPORTS TO STOCKHOLDERS.
[N-30D]
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2004
A Closed-End Investment Company
listed on the New York Stock Exchange
450 Lexington Avenue
New York, NY 10017
212-916-8400 1-800-436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
TO THE STOCKHOLDERS
For the six months ended June 30, 2004, the investment return to our
stockholders was 1.7% (assuming reinvestment of all dividends). The net asset
value per Common Share increased 2%. By comparison, the rate of return
(including income) for our benchmark, the Standard & Poor's 500 Stock Index, was
3.4%. For the twelve months ended June 30, 2004, the return to our stockholders
was 12.1% and the return on the net asset value per Common Share was 13.9%;
these compare with a return of 19% for the S&P 500. During each period, the
discount at which our shares traded increased slightly and at June 30, 2004, it
was 10.4%.
As set forth in the accompanying financial statements (unaudited), as of June
30, 2004, the net assets applicable to the Company's Common Stock were
$982,924,500, equal to $33.65 per Common Share.
The increase in net assets resulting from operations for the six months ended
June 30, 2004 was $17,435,102. During this period, the net realized gain on
securities sold was $13,036,174 and the increase in unrealized appreciation was
$7,846,728. Net investment income for the six months was $2,502,200 and
distributions to Preferred Stockholders amounted to $5,950,000.
During the six months, 577,300 shares of the Company's Common Stock were
repurchased for $17,581,159 at an average discount from net asset value of 9.7%.
Equity markets continue to trade in a narrow range despite healthy economic
growth and robust corporate profits. Progress appears to be constrained by the
prospect of a less accommodating Federal Reserve and rising interest rates.
Further reductions in portfolio cash reflect increased investment in equities
centered, in the main, on natural resources.
We are pleased to report that, on July 14, 2004, Ms. D. Ellen Shuman was elected
to the Board of Directors. She is Vice President and Chief Investment Officer of
Carnegie Corporation of New York and serves as a director or trustee of a public
company and several educational organizations. Ms. Shuman's familiarity with the
investment management process and knowledge of the securities regulatory
environment will be of great value in the deliberations of our Board.
We are pleased to announce the Investors Choice Plan, a direct stock purchase
and sale plan sponsored and administered by our new transfer agent, American
Stock Transfer & Trust Company (AST). Under the Plan, Stockholders and first
time buyers will have the opportunity to purchase and sell shares of the
Company's Common Stock directly through AST. In addition, the Plan allows
participants to deposit their GAM Common Stock certificates for safekeeping or
sale. A booklet describing the provisions of the Investors Choice Plan,
including transaction fees and other expenses, can be obtained by calling AST at
1-800-413-5499, calling the Company at 1-800-436-8401 or visiting our website
shown below - click on Dividends & Reports then Report Downloads.
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, 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
July 14, 2004
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2004 (Unaudited)
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General American Investors
ASSETS
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INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $620,077,014) $1,041,862,532
Convertible corporate note (cost $10,704,985) 10,800,000
Corporate discount notes (cost $135,052,635) 135,052,635
-------------
Total investments (cost $765,834,634) 1,187,715,167
CASH, RECEIVABLES AND OTHER ASSETS
Cash $52,039
Deposit with broker for securities sold short 1,501,230
Dividends, interest and other receivables 1,009,149
Prepaid expenses 7,244,234
Other 302,720 10,109,372
---------- -------------
TOTAL ASSETS 1,197,824,539
LIABILITIES
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Payable for securities purchased 5,173,362
Preferred dividend accrued but not yet declared 231,389
Securities sold short, at value (proceeds $1,501,230) (note 1a) 1,887,000
Accrued expenses and other liabilities 7,608,288
----------
TOTAL LIABILITIES 14,900,039
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 - 29,211,963 shares (note 2) $982,924,500
=============
NET ASSET VALUE PER COMMON SHARE $33.65
=============
NET ASSETS APPLICABLE TO COMMON STOCK
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Common Stock, 29,211,963 shares at par value (note 2) $29,211,963
Additional paid-in capital (note 2) 521,862,673
Undistributed realized gain on investments 13,108,829
Undistributed net investment income 3,427,661
Unallocated distributions on Preferred Stock (6,181,389)
Unrealized appreciation on investments and securities sold short
(including aggregate gross unrealized appreciation of
$467,179,549) 421,494,763
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $982,924,500
============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2004 (Unaudited)
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General American Investors
INCOME
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Dividends (net of foreign withholding taxes of $4,953) $6,547,843
Interest 1,273,751 $7,821,594
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EXPENSES
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Investment research 3,367,193
Administration and operations 1,279,082
Office space and general 263,818
Directors' fees and expenses 98,857
Transfer agent, custodian and registrar fees and expenses 90,063
Auditing and legal fees 87,600
Stockholders' meeting and reports 69,437
Miscellaneous taxes 63,344 5,319,394
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NET INVESTMENT INCOME 2,502,200
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4)
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Net realized gain on investments:
Long transactions 15,035,762
Short sale transactions (note 1b) (1,999,588)
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Net realized gain on investments (long term) 13,036,174
Net increase in unrealized appreciation 7,846,728
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NET GAIN ON INVESTMENTS 20,882,902
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,950,000)
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INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,435,102
===========
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Six Months
Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
-------------- -----------
OPERATIONS
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Net investment income $2,502,200 $1,139,240
Net realized gain on investments 13,036,174 28,144,510
Net increase in unrealized appreciation 7,846,728 200,469,430
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Distributions to Preferred Stockholders:
From net income - (365,476)
From long-term capital gains - (10,709,524)
Unallocated distributions on Preferred Stock (5,950,000) -
---------- ------------
Decrease in net assets from Preferred distributions (5,950,000) (11,075,000)
---------- ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 17,435,102 218,678,180
---------- ------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
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From net income (385,811) (531,570)
From long-term capital gains (2,878,743) (15,572,788)
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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) (17,581,159) (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 (17,581,159) (25,430,838)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS (3,410,611) 177,142,984
NET ASSETS APPLICABLE TO COMMON STOCK
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BEGINNING OF PERIOD 986,335,111 809,192,127
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END OF PERIOD (including undistributed net investment income
of $3,427,661 and $1,311,272, respectively) $982,924,500 $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 six months ended June 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.
Six 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 .09 .03 .19 .41 .53 .45
Net gain (loss) on securities -
realized and unrealized .76 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 (.20) - - - - -
------ ------ ------- ------ ------ ------
(.20) (.36) (.35) (.36) (.40) (.42)
------ ------ ------- ------ ------ ------
Total from investment operations .65 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 $33.65 $33.11 $26.48 $35.14 $39.91 $41.74
====== ====== ======= ====== ====== ======
Per share market value, end of period $30.14 $29.73 $23.85 $33.47 $36.00 $37.19
====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 1.74%* 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) $982,925 $986,335 $809,192 $1,097,530 $1,155,039 $1,094,519
Ratio of expenses to average net assets
applicable to Common Stock 0.54%* 1.23% 0.92% 0.97% 1.05% 1.01%
Ratio of net income to average net assets
applicable to Common Stock 0.25%* 0.13% 0.61% 1.15% 1.24% 1.23%
Portfolio turnover rate 7.74%* 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 591% 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 $23.35 $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 June 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 (1.6%)
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550,000 CEMEX, S.A. de C.V. (COST $13,676,114) $16,005,000
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COMMUNICATIONS AND INFORMATION SERVICES (5.2%)
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550,000 CIENA Corporation (a) 2,035,000
900,000 Cisco Systems, Inc. (a) 21,330,000
620,000 Cox Communications, Inc. Class A (a) 17,229,800
450,000 Juniper Networks, Inc. (a) 11,056,500
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(COST $31,949,018) 51,651,300
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COMPUTER SOFTWARE AND SYSTEMS (6.3%)
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300,000 EMC Corporation (a) 3,420,000
1,525,000 Microsoft Corporation 43,554,000
603,000 NetIQ Corporation (a) 7,959,600
350,000 VeriSign, Inc. (a) 6,965,000
-----------
(COST $55,150,165) 61,898,600
-----------
CONSUMER PRODUCTS AND SERVICES (3.8%)
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350,000 Diageo plc 19,162,500
275,000 Ethan Allen Interiors Inc. 9,875,250
150,000 PepsiCo, Inc. 8,082,000
-----------
(COST $28,303,579) 37,119,750
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ELECTRONICS (2.0%)
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715,000 Molex Incorporated Class A (COST $15,450,691) 19,505,200
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ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.5%)
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1,175,000 Republic Services, Inc. (COST $26,227,380) 34,004,500
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FINANCE AND INSURANCE (30.6%)
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BANKING (9.5%)
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184,000 Bank of America Corporation 15,570,080
325,000 Golden West Financial Corporation 34,563,750
340,000 M&T Bank Corporation 29,682,000
205,000 SunTrust Banks, Inc. 13,322,950
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(COST $24,500,041) 93,138,780
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INSURANCE (18.8%)
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265,000 American International Group, Inc. 18,889,200
625,000 Annuity and Life Re (Holdings), Ltd. (a) 512,500
300 Berkshire Hathaway Inc. Class A (a) 26,685,000
650,000 Everest Re Group, Ltd. 52,234,000
435,000 MetLife, Inc. 15,594,750
175,000 Montpelier Re Holdings Ltd. 6,116,250
500,000 PartnerRe Ltd. 28,365,000
445,000 Reinsurance Group of America, Incorporated 18,089,250
225,000 Transatlantic Holdings, Inc. 18,222,750
------------
(COST $84,976,740) 184,708,700
------------
OTHER (2.3%)
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775,000 Annaly Mortgage Management, Inc. 13,144,000
90,184 Central Securities Corporation 2,096,778
850,000 MFA Mortgage Investments, Inc. 7,565,000
----------
(COST $19,609,426) 22,805,778
-----------
(COST $129,086,207) 300,653,258
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7 STATEMENT OF INVESTMENTS June 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 (17.6%)
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PHARMACEUTICALS (15.4%)
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340,000 Alkermes, Inc. (a) $4,624,000
900,000 Baxter International Inc. 31,059,000
250,000 Biogen Idec Inc. (a) 15,812,500
300,000 Bristol-Myers Squibb Company 7,350,000
75,000 Cytokinetics, Incorporated (a) 1,113,750
270,000 Genaera Corporation (a) 1,134,000
560,000 Genentech, Inc. (a) 31,472,000
375,000 Genta Incorporated (a) 937,500
455,000 MedImmune, Inc. (a) 10,642,450
120,000 Millennium Pharmaceuticals, Inc.(a) 1,656,000
1,325,000 Pfizer Inc 45,421,000
-----------
(COST $102,284,040) 151,222,200
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MEDICAL INSTRUMENTS AND DEVICES (2.2%)
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450,000 Medtronic, Inc. (COST $10,483,716) 21,924,000
-----------
(COST $112,767,756) 173,146,200
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MISCELLANEOUS (4.5%)
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Other (COST $43,111,330) 44,527,875
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OIL & NATURAL GAS (INCLUDING SERVICES) (9.7%)
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800,000 Devon Energy Corporation 52,800,000
625,000 Halliburton Company 18,912,500
247,000 Total S.A. ADR 23,731,760
-----------
(COST $70,413,055) 95,444,260
-----------
RETAIL TRADE (19.6%)
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700,000 Costco Wholesale Corporation 28,826,000
1,920,000 The Home Depot, Inc. (b) 67,584,000
2,500,000 The TJX Companies, Inc. 60,350,000
675,000 Wal-Mart Stores, Inc. 35,613,000
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(COST $68,036,225) 192,373,000
-----------
SEMICONDUCTORS (1.4%)
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133,000 Applied Materials, Inc. (a) 2,609,460
491,500 Brooks Automation, Inc. (a) 9,903,725
197,000 EMCORE Corporation (a) 642,220
1,644,900 IQE plc (a) 263,184
----------
(COST $17,895,774) 13,418,589
----------
SPECIAL HOLDINGS (a) (c) (NOTE 5) (0.2%)
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200,000 Cytokinetics, Incorporated 2,079,000
144,000 Silicon Genesis Corporation 36,000
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
----------
(COST $8,009,720) 2,115,000 (d)
----------
TOTAL COMMON STOCKS (106.0%) (COST $620,077,014) 1,041,862,532
-------------
CONVERTIBLE CORPORATE NOTE
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OIL AND GAS (1.1%)
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$22,500,000 El Paso Corporation 0% due 2/28/21 (COST $10,704,985) 10,800,000
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8 STATEMENT OF INVESTMENTS June 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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$28,700,000 American Express Credit Corporation notes due 7/19-8/5/04; 1.03%-1.13% $28,660,895
30,050,000 American General Finance Corporation notes due 7/1-8/12/04; 1.06%-1.25% 30,008,142
21,500,000 General Electric Capital Corporation notes due 7/15-7/28/04; 1.10%-1.17% 21,470,393
20,900,000 General Motors Acceptance Corporation notes due 7/6-7/22/04; 1.25%-1.35% 20,865,039
23,600,000 Prudential Funding, LLC notes due 7/8-8/9/04; 1.03%-1.22% 23,566,693
10,500,000 Sears Roebuck Acceptance Corp. notes due 7/30-8/16/04; 1.19%-1.40% 10,481,473
-----------
TOTAL SHORT-TERM SECURITIES (13.7%) (COST $135,052,63) 135,052,635
Liabilities in excess of cash, receivables and other assets (4,790,667)
-----------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (13.2%) 130,261,968
-----------
PREFERRED STOCK (-20.3%) (200,000,000)
-----------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $982,924,500
============
(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, 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) $1,887,000
==========
(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, 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) 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. 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. 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.
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 29,211,963 shares and 8,000,000 shares, respectively, were
outstanding at June 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 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 six months ended June 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 9.7% for each period) 577,300 1,106,600 ($577,300) (1,106,600)
Decrease in paid-in capital (17,003,859) (27,348,356)
----------- -----------
Total decrease (17,581,159) (28,454,956)
----------- -----------
Net decrease ($17,581,159) ($18,730,838)
=========== ===========
Distributions for tax and book purposes are substantially the same.
At June 30, 2004, the Company held in its treasury 2,019,600 shares of Common
Stock with an aggregate cost in the amount of $46,334,098.
3. Officers' Compensation and Retirement and Thrift Plans
The aggregate compensation paid by the Company during the six months ended June
30, 2004 to its officers amounted to $2,450,500.
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) for the six
months ended June 30, 2004 amounted to on long transactions $172,341,173 and
$79,084,369, respectively, and, with respect to short sale transactions,
purchases for the six months amounted to $14,182,940.
At June 30, 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 3/21/03 $2,000,000 $2,079,000
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 $2,115,000
========== ==========
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 $149,000 for the six months ended June 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 June 30, 2004 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES OR
PRINCIPAL AMOUNT
INCREASES SHARES HELD JUNE 30, 2004
---------------------------------------------------------------------------------------
NEW POSITIONS
Cytokinetics, Incorporated 75,000 75,000
Diageo plc 50,000 350,000 (a)
El Paso Corporation 0% Convertible Notes due 02/28/21 - $22,500,000 (b)
Montpelier Re Holdings Ltd. 75,000 175,000 (a)
NetIQ Corporation 171,000 603,000 (a)
ADDITIONS
Bank of America Corporation 84,000 (c) 184,000
CEMEX, S.A. de C.V. 36,500 550,000
Devon Energy Corporation 150,000 800,000
M & T Bank Corporation 20,000 340,000
MFA Mortgage Investments, Inc. 150,000 850,000
Molex Incorporated Class A 22,500 715,000
Reinsurance Group of America, Incorporated 20,000 445,000
DECREASES
---------------------------------------------------------------------------------------
ELIMINATIONS
FleetBoston Financial Corporation 150,000 (c) -
John Hancock Financial Services, Inc. 265,000 (d) -
Health Net, Inc. 800,000 -
Manulife Financial Corporation 225,207 (d) -
REDUCTIONS
American International Group, Inc. 25,000 265,000
Annuity and Life Re (Holdings), Ltd. 375,000 625,000
Genentech, Inc. 10,000 560,000 (e)
Transatlantic Holdings, Inc. 5,000 225,000
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) Includes shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
(b) Position purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
(c) 83,295 shares of Bank of America Corporation were received in exchange for 150,000 shares
of FleetBoston Financial Corporation in conjunction with a merger.
(d) 225,207 shares of Manulife Financial Corporation were received in exchange for 190,000 shares of John
Hancock Financial Services, Inc. in conjunction with a merger.
(e) Includes shares received in conjunction with a stock split.
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
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, 2004, and the related
statements of operations and changes in net assets and financial highlights for
the six-month period ended June 30, 2004. These financial statements and
financial highlights are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board,
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 the standards of the Public
Company Accounting Oversight Board, the statement of changes in net assets for
the year ended December 31, 2003 and financial highlights for each of the five
years in the period then ended and in our report, dated January 14, 2004, we
expressed an unqualified opinion on such financial statements and financial
highlights.
New York, New York ERNST & YOUNG LLP
July 16, 2004
15
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The schedule of investments in securities of unaffiliated issuers is included as
part of the report to stockholders filed under Item 1 of this form.
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
REGISTRANT PURCHASES OF EQUITY SECURITIES
(c) Total Number of Shares (d) Maximum Number (or Approximate
Period (a) Total Number (b) Average Price (or Units) Purchased as Part Dollar Value) of Shares (or Units)
of Shares Paid per Share of Publicly Announced that May Yet Be Purchased Under
2004 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01-01/31 157800 30.2451 157800 661304
02/01-02/29 71700 30.9123 71700 589604
03/01-03/31 102400 30.5413 102400 487204
04/01-04/30 107000 30.8641 107000 380204
05/01-05/31 71600 29.9383 71600 308604
06/01-06/30 66800 30.2187 66800 241804
------- -------- ------ ------
Total 577300 577300
======= ======
Note - On July 9, 2003, the Board of Directors authorized and the registrant announced the repurchase of up to 500,000
shares of the registrant's common stock when the shares are trading at a discount from the underlying net asset value
of at least 8%. As of the beginning of the period, January 1, 2004, there were 319,104 shares available for
repurchase under such authorization. On January 14, 2004, the Board of Directors authorized and the registrant
announced the repurchase of up to an additional 500,000 shares of common stock, representing a continuation of a
repurchases program which began in March 1995. As of the end of the period, June 30, 2004, there were 241,804 shares
available for repurchase under this program.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors as set forth in the
registrant's Proxy Statement, dated March 2,2004.
ITEM 10. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of July 19, 2004, an evaluation was performed under the supervision and
with the participation of the officers of General American Investors Company,
Inc. (the "Registrant"), including the principal executive officer ("PEO") and
principal financial officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures. Based on that evaluation, the
Registrant's officers, including the PEO and PFO, concluded that, as of July
19, 2004, the Registrant's disclosure controls and procedures were reasonably
designed so as to ensure:(1) that information required to be disclosed by the
Registrant on Form N-CSR is recorded, processed, summarized and reported within
the time periods specified by the rules and forms of the Securities and Exchange
Commission, and (2) that material information relating to the Registrant is made
known to the PEO and PFO as appropriate to allow timely discussions regarding
required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting that occurred during the Registrant's last fiscal
half-year (the Registrant's second fiscal half-year in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 11. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company Act of
1940.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
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: August 13, 2004
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: August 13, 2004
By: /s/Eugene L. DeStaebler, Jr.
Eugene L. DeStaebler, Jr.
Vice-President, Administration
(Principal Financial Officer)
Date: August 13, 2004