GENERAL
AMERICAN
INVESTORS
2002
ANNUAL
REPORT
GENERAL AMERICAN INVESTORS Company, Inc.
Established in 1927, the Company is a closed-end investment company listed on
the New York Stock Exchange. Its objective is long-term capital appreciation
through investment in companies with above average growth potential.
FINANCIAL SUMMARY
--------------------------------------------------------------------------------
2002 2001
-----------------------------------
Net assets applicable to Common Stock -
December 31 $809,192,127 $1,097,529,720
Net investment income 5,698,197 12,512,405
Net realized gain 17,039,043 70,720,822
Net decrease in unrealized appreciation (264,293,395) (87,697,439)
Distributions to Preferred Stockholders (10,800,000) (10,800,000)
Per Common Share-December 31
Net asset value $26.48 $35.14
Market price $23.85 $33.47
Discount from net asset value -9.9% -4.8%
Common Shares outstanding-Dec. 31 30,561,356 31,231,563
Common stockholders of record-Dec. 31 4,700 4,900
Market price range* (high-low) $34.89-$22.17 $39.70-$27.50
Market volume-shares 6,978,900 5,009,500
*Unadjusted for dividend payments.
DIVIDEND SUMMARY (per share)
--------------------------------------------------------------------------------
Ordinary Long-Term
Record Date Payment Date Income Capital Gain Total
----------- ------------ -------- ------------ -----
Common Stock
Nov. 14, 2002 Dec. 23, 2002 $0.022 $0.298 $0.32
Jan. 27, 2003 Feb. 10, 2003 0.01 0.03 0.04
------ ------ -----
Total from 2002 earnings $0.032 $0.328 $0.36
====== ====== =====
Nov. 15, 2001 Dec. 20, 2001 $0.82 (a) $1.26 $2.08
Jan. 28, 2002 Feb. 11, 2002 .19 (b) .11 .30
----- ----- -----
Total from 2001 earnings $1.01 $1.37 $2.38
===== ===== =====
(a) Includes short-term gain in the amount of $.45 per share.
(b) Represents short-term gain.
Preferred Stock
Mar. 6, 2002 Mar. 25, 2002 $ .15525 $.29475 $ .45
Jun. 6, 2002 Jun. 24, 2002 .15525 .29475 .45
Sep. 6, 2002 Sep. 23, 2002 .15525 .29475 .45
Dec. 6, 2002 Dec. 23, 2002 .15525 .29475 .45
------- --------- ------
Total for 2002 $.621 $1.179 $ 1.80
======= ========= ======
Mar. 6, 2001 Mar. 23, 2001 $ .0963 $ .3537 $ .45
Jun. 6, 2001 Jun. 25, 2001 .0963 .3537 .45
Sep. 6, 2001 Sep. 24, 2001 .0963 .3537 .45
Dec. 6, 2001 Dec. 24, 2001 .0963 .3537 .45
------- -------- ------
Total for 2001 $.3852 (c) $1.4148 $ 1.80
======= ======== ======
(c) Includes short-term gain in the amount of $.2224 per share ($.0556 per
quarter).
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
1 TO THE STOCKHOLDERS
--------------------------------------------------------------------------------
General American Investors
The year ended December 31, 2002 marked the third consecutive down year for the
U.S. securities market and the first year in the past five that General American
Investors failed to outperform its benchmark, the Standard & Poor's 500 Stock
Index, by a meaningful amount. Our net asset value per common share (assuming
reinvestment of all dividends) was down 23% whereas the S&P 500 (including
income) declined 22.1%. Because the discount at which our shares traded widened,
furthermore, the return to our shareholders was negative by 27.2%.
On a more positive note, the table that follows, which compares our returns on
an annualized basis with the S&P 500, illustrates that over many years General
American has produced superior investment results.
Years Stockholder Return S&P 500
-------------------------------------------
3 - 3.3% -14.6%
5 10.6 - 0.6
10 10.2 9.3
20 13.8 12.7
30 13.5 10.7
40 12.8 10.5
During 2002, the Company purchased 922,100 of its common shares in the open
market at an average discount to NAV of 9.1%. The Board of Directors has
authorized repurchases of common shares when they are trading at a discount in
excess of 8% of NAV.
It has been almost 3 years since the stock market reached its apogee and almost
2 years past the economy's trough, yet the pace of recovery remains anemic.
Unemployment continues to be stubbornly high and may even rise, excessive
capacity characterizes many sectors of the economy and pricing power is limited
despite massive monetary and fiscal stimulus. It would appear that more time
will be required to right the excesses of the last boom and to adjust to the new
realities of international commerce. By dint of its human resources and
controlled currency, China now seems to be the low cost producer of an
increasing number of goods, leaving other providers with no option but to
rationalize facilities and cut costs. The disinflationary consequences of these
actions are being felt broadly in Japan, Europe and North America.
Accommodative monetary policy has allowed consumers to keep spending while
American companies slash capital spending and restructure balance sheets. While
the stock market anticipates the future, and some improvement is evident,
progress is likely to be uneven and gains in corporate profits modest by
historical measures. Valuations have become more reasonable, but not compelling.
Our portfolio continues to feature companies with strong financial
characteristics, high earnings visibility and powerful positions in their
respective industries. We continue to retain abundant cash reserves and look
forward to their selective employment as opportunities present themselves.
On March 26, 2002, the Company launched a Web site which can be accessed on the
Internet at www.generalamericaninvestors.com. It contains a wealth of
information about the Company, including current NAV and market price data as
well as historical dividend payments, financial reports, notices and press
releases.
We record with deep sorrow the death on October 14, 2002 of Hon. Bill Green who
had served as a Director of the Company with great dedication for almost ten
years. His contributions to Board deliberations, based on broad knowledge and
experience gained from his distinguished career in legal and government service
and as a result of his significant commitment to educational, environmental and
human services organizations, have been greatly valued. His services will be
missed.
As mentioned in our first quarter report, Arthur G. Altschul, our esteemed
colleague and Chairman Emeritus, died on March 17, 2002. He served the Company
for 50 years and contributed to its success by giving the Company steady
leadership and guidance through many stock market cycles. His counsel and
support will be missed.
By Order of the Board of Directors,
Spencer Davidson
President and Chief Executive Officer
January 15, 2003
2 THE COMPANY
--------------------------------------------------------------------------------
General American Investors
CORPORATE OVERVIEW
General American Investors, established in 1927, is one of the nation's oldest
closed-end investment companies. It is an independent organization, internally
managed. For regulatory purposes, the Company is classified as a diversified,
closed-end management investment company; it is registered under and subject to
the regulatory provisions of the Investment Company Act of 1940.
INVESTMENT POLICY
The primary objective of the Company is long-term capital appreciation. Lesser
emphasis is placed on current income. In seeking to achieve its primary
objective, the Company invests principally in common stocks believed by its
management to have better than average growth potential.
The Company's investment approach focuses on the selection of individual stocks,
each of which is expected to meet a clearly defined portfolio objective. A
continuous investment research program, which stresses fundamental security
analysis, is carried on by the officers and staff of the Company under the
oversight of the Board of Directors. A listing of the directors with their
principal affiliations, showing a broad range of experience in business and
financial affairs, is on page 16 of this report.
PORTFOLIO MANAGER
Mr. Spencer Davidson has been responsible for the management of General
American's portfolio since he was elected President and Chief Executive Officer
of the Company in August 1995. Mr. Davidson, who joined the Company in 1994 as
senior investment counselor, has spent his entire business career on Wall Street
since first joining an investment and banking firm in 1966.
"GAM" COMMON STOCK
As a closed-end investment company, General American Investors does not offer
its shares continuously. The Common Stock is listed on The New York Stock
Exchange (symbol, GAM) and can be bought or sold with commissions determined in
the same manner as all listed stocks. Net asset value is computed daily (on an
unaudited basis) and is furnished upon request. It is also available on most
electronic quotation services using the symbol "XGAMX." The figure for net asset
value per share, together with the market price and the percentage discount or
premium from net asset value as of the close of each week, is published in The
New York Times, The Wall Street Journal and Barron's.
The ratio of market price to net asset value has shown considerable variation
over a long period of time. While shares of GAM usually sell at a discount from
their underlying net asset value, as do the shares of most other domestic equity
closed-end investment companies, they, periodically, sell at a premium over net
asset value. The last time the Company's shares sold at a premium for a
prolonged period was the year-long period from March 1992 through April 1993.
During 2002, the stock sold at premiums over and discounts from net asset value
which ranged from a premium of 2.8% (January 18) to a discount of 11.6% (July
25). At December 31, the price of the stock was at a discount of 9.9% as
compared with a discount of 4.8% a year earlier.
"GAM Pr" PREFERRED STOCK
On June 19, 1998, the Company issued and sold in an underwritten offering
6,000,000 shares of its 7.20% Tax-Advantaged Cumulative Preferred Stock with a
liquidation preference of $25 per share ($150,000,000 in the aggregate).
The Preferred Shares are noncallable for 5 years, are rated "aaa" by Moody's
Investors Service, Inc. and are listed and traded on The New York Stock Exchange
(symbol, GAM Pr).
3 THE COMPANY
--------------------------------------------------------------------------------
General American Investors
The preferred capital is available to leverage the investment performance of the
Common Stockholders. As is the case for leverage in general, it may also result
in higher market volatility for the Common Stockholders.
DIVIDEND POLICY
The Company's dividend policy is to distribute to stockholders before year-end
substantially all ordinary income estimated for the full year and capital gains
realized during the ten-month period ending October 31 of that year. If any
additional capital gains are realized or ordinary income is earned during the
last two months of the year, a "spill-over" distribution of these amounts will
be paid early in the following year to Common Stockholders. Dividends on shares
of Preferred Stock are paid quarterly. Distributions from capital gains and
ordinary income are allocated proportionately among holders of shares of Common
Stock and Preferred Stock.
Dividends from income have been paid continuously on the Common Stock since 1939
and capital gain dividends in varying amounts have been paid for each of the
years 1943-2002 (except for the year 1974). (A table listing dividends paid
during the 20-year period 1983-2002 is shown at the bottom of page 6.) To the
extent that full shares can be issued, dividends are paid to Common Stockholders
in additional shares of Common Stock unless the stockholder specifically
requests payment in cash. Spill-over dividends of nominal amounts are paid in
cash only.
DIRECT REGISTRATION
In December 2002, the Company initiated Direct Registration ("DR") for its
Common Shareholders. DR is a system that allows for book-entry ownership and the
electronic transfer of our Common Shares. Accordingly, when Common Shareholders,
who hold their shares directly, receive new shares resulting from a purchase,
transfer or dividend payment, they will receive a statement showing the credit
of the new shares as well as their book-entry and certificated share balances. A
brochure which describes the features and benefits of Direct Registration,
including the ability of shareholders to deposit certificates with our transfer
agent, is located at our Website - www.generalamericaninvestors.com - under
Additional Information - Transfer Agent Services. The brochure can also be
obtained by contacting our Corporate Secretary at 1-800-436-8401.
PRIVACY POLICY AND PRACTICES
General American Investors collects nonpublic personal information about its
customers (stockholders) with respect to their transactions in shares of the
Company's securities but only for those stockholders whose shares are registered
in their names. This information includes the stockholder's address, tax
identification or Social Security number and dividend elections. We do not have
knowledge of, nor do we collect personal information about, stockholders who
hold the Company's securities at financial institutions such as brokers or banks
in "street name" registration.
We do not disclose any nonpublic personal information about our stockholders or
former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders to
those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
4 INVESTMENT RESULTS (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
"Total return on $10,000 investment 20 years ended December 31, 2002"
The investment return for a common stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2002 is shown in the table below and
in the accompanying chart. The return based on GAM's net asset value (NAV) per
common share in comparison to the change in the Standard & Poor's 500 Stock
Index (S&P 500) is also displayed. Each illustration assumes an investment of
$10,000 at the beginning of 1983.
The Stockholder Return is the return a common stock holder of GAM would have
achieved assuming reinvestment of all optional dividends at the actual
reinvestment price and reinvestment of all cash dividends at the average (mean
between high and low) market price on the ex-dividend date.
The GAM Net Asset Value (NAV) Return is the return on shares of the Company's
common stock based on the NAV per share, including the reinvestment of all
dividends.
The S&P 500 Return is the time-weighted total rate of return on this
widely-recognized, unmanaged index which is a measure of general stock market
performance, including dividend income.
The results illustrated are a record of past performance and may not be
indicative of future results.
GENERAL AMERICAN INVESTORS
----------------------------------------------------- STANDARD & POOR'S 500
STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN
-------------------------------------------------------------------------------------------------
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
INVESTMENT RETURN INVESTMENT RETURN INVESTMENT RETURN
-------------------------------------------------------------------------------------------------
1983 $11,631 16.31% $12,301 23.01% $12,255 22.55%
1984 10,798 -7.16 11,429 -7.09 13,025 6.28
1985 13,477 24.81 15,429 35.00 17,163 31.77
1986 14,983 11.17 17,152 11.17 20,370 18.69
1987 12,569 -16.11 17,586 2.53 21,438 5.24
1988 15,241 21.26 20,676 17.57 24,981 16.53
1989 22,648 48.60 28,504 37.86 32,880 31.62
1990 23,554 4.00 30,411 6.69 31,864 -3.09
1991 43,575 85.00 48,989 61.09 41,551 30.40
1992 50,016 14.78 50,729 3.55 44,705 7.59
1993 42,053 -15.92 49,841 -1.75 49,229 10.12
1994 38,748 -7.86 48,475 -2.74 49,854 1.27
1995 46,970 21.22 59,906 23.58 68,549 37.50
1996 56,120 19.48 71,869 19.97 84,254 22.91
1997 80,016 42.58 94,903 32.05 112,336 33.33
1998 105,069 31.31 128,251 35.14 144,408 28.55
1999 146,277 39.22 174,935 36.40 174,676 20.96
2000 174,216 19.10 205,794 17.64 158,798 -9.09
2001 181,759 4.33 203,324 -1.20 139,917 -11.89
2002 132,303 -27.21 156,519 -23.02 108,939 -22.14
5 INVESTMENT RESULTS (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
[CAPTION]
[Line graph with heading "20-YEAR INVESTMENT RESULTS ASSUMING AN INITIAL
INVESTMENT OF $10,000" at top left hand side. The vertical axis is to the right
side of the page and is labeled "CUMULATIVE VALUE OF INVESTMENT." The axis range
is from $0 to $250,000 in $25,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1983 through 2002 in one year increments.
Within the graph are three lines. The first line represents GAM Stockholder
Return. The second line represents GAM Net Asset Value, and the third line
represents the S&P 500 Stock Index. The data points for the lines are derived
from the columns labeled "Cumulative Investment" from the table on the preceding
page. Also, embedded in upper left portion of the graph is a table which appears
as follows:]
COMPARATIVE ANNUALIZED INVESTMENT RESULTS
-----------------------------------------
YEARS ENDED STOCKHOLDER GAM NET S&P 500
DECEMBER 31, 2002 RETURN ASSET VALUE STOCK INDEX
-----------------------------------------------------
1 year -27.2 % -23.0 % -22.1 %
5 years 10.6 10.5 -0.6
10 years 10.2 11.9 9.3
15 years 17.0 15.7 11.4
20 years 13.8 14.7 12.7
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
SHARES OR SHARES OR PRINCIPAL AMOUNT HELD
INCREASES PRINCIPAL AMOUNT DECEMBER 31, 2002
----------------------------------------------------------------------------------------------
NEW POSITIONS
CIENA Corporation - 550,000 (a)
El Paso Corporation
0% Convertible Notes Due 2/28/21 - $ 5,000,000 (a)
Lucent Technologies Inc. - 712,500 (a)
MedImmune Vaccines, Inc.
5 1/4% Convertible Notes Due 2/1/08 $10,000,000 $10,000,000
ADDITIONS
American International Group, Inc. 70,000 345,000
Cisco Systems, Inc. 245,000 900,000
Costco Wholesale Corporation 25,000 700,000
Health Net, Inc. 75,000 550,000
MetLife Inc. 15,000 440,000
Transatlantic Holdings, Inc. 5,000 230,000
DECREASES
--------------------------------------------------------------------------------
ELIMINATIONS
AmerUs Group Co. 108,000 -
REDUCTIONS
Brooks-PRI Automation, Inc. 168,500 168,500
Cox Communications, Inc. Class A 155,000 620,000
El Paso Corporation 425,000 750,000
Everest Re Group, Ltd. 25,000 675,000
Ford Motor Company 540,000 225,000
Golden West Financial Corporation 40,000 425,000
Halliburton Company 450,000 850,000
The Home Depot, Inc. 100,000 1,945,000
M&T Bank Corporation 15,000 320,000
MedImmune, Inc. 25,000 239,000
Millennium Pharmaceuticals, Inc. 20,000 120,000
PartnerRe Ltd. 5,000 525,000
Reinsurance Group of America, Incorporated 55,000 490,000
SunTrust Banks, Inc. 5,000 230,000
The TJX Companies, Inc. 225,000 2,425,000
* Excludes transactions in Stocks-Miscellaneous-Other.
(a) Securities purchased in prior period and previously carried under
Stocks-Miscellaneous-Other.
DIVIDENDS PER COMMON SHARE (1983-2002) (UNAUDITED)
--------------------------------------------------------------------------------
The following table shows aggregate dividends paid per share on the Company's
Common Stock for each year during the 20-year period 1983-2002. Amounts shown
include payments made after year-end attributable to income and gain in each
respective year.
DIVIDEND FROM
-------------------------
LONG-TERM
YEAR INCOME# CAPITAL GAINS
-------------------------------------------
1983 $.67 $2.38
1984 .28 1.35
1985 .47 1.07
1986 .36 2.15
1987 .35 1.54
1988 .29 1.69
1989 .23 1.56
1990 .21 1.65
1991 .09 3.07
1992 .03 2.93
1993 .06 2.34
1994 .06 1.59
1995 .13 2.77
1996 .25 2.71
1997 .21 2.95
1998 .47 4.40
1999 1.04 4.05
2000 2.03 6.16
2001 1.01 1.37
2002 .03 .33
#Includes short-term capital gains per share which amounted to $.28 in 1983,
$.12 in 1985, $.02 in 1989, $.03 in 1995, $.05 in 1996, $.62 in 1999, $1.55 in
2000 and $.64 in 2001.
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
The statement of investments as of December 31, 2002, shown on pages 10 and 11
includes 54 security issues. Listed here are the ten largest holdings on that
date.
% COMMON
SHARES VALUE NET ASSETS*
--------------------------------------------------------------------------------------------------------------
THE TJX COMPANIES, INC. 2,425,000 $47,336,000 5.8%
Through its T.J. Maxx and Marshalls divisions, TJX is a leading
off-price retailer. The continued growth of these divisions,
along with expansion into related U.S. and foreign off-price
formats, provide ongoing opportunities.
--------------------------------------------------------------------------------------------------------------
THE HOME DEPOT, INC. 1,945,000 46,602,200 5.7
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.
--------------------------------------------------------------------------------------------------------------
EVEREST RE GROUP, LTD. 675,000 37,327,500 4.6
The largest independent U.S. property/casualty reinsurer which
generates annual premiums of approximately $2.5 billion and has
a high quality,well-reserved AA balance sheet. This Bermuda domiciled
company has a strong management team that exercises prudent
underwriting discipline and efficient expense control, resulting
in above-average earnings progress.
--------------------------------------------------------------------------------------------------------------
PFIZER INC 1,025,000 31,334,250 3.9
Well established as a leader in the pharmaceutical industry, Pfizer
continues to reap the benefits of its commitment to research
and development and its ability to effectively market products.
The recent launch of new products serving large markets and
development of a pipeline rich with many promising drug candidates
position Pfizer for strong long-term results.
--------------------------------------------------------------------------------------------------------------
GOLDEN WEST FINANCIAL CORPORATION 425,000 30,519,250 3.8
A savings and loan holding company with $60 billion in assets
headquartered in Oakland, CA. It has a strong, conservative
management with a high level of insider ownership. Excellent asset
quality, tight expense control and efficient capital management
help produce above-average earnings increases.
--------------------------------------------------------------------------------------------------------------
WAL-MART STORES, INC. 570,000 28,790,700 3.6
A policy of serving the mass market with everyday low prices,
supported by the lowest cost structure has made Wal-Mart the
world's largest retailer with ongoing growth opportunities in
the U.S. and overseas.
--------------------------------------------------------------------------------------------------------------
PARTNERRE LTD. 525,000 27,205,500 3.4
A leading global Bermuda-based multi-line reinsurer that generates
annual premiums of approximately $2.5 billion and has a well-
capitalized and conservatively reserved AA balance sheet.
PartnerRe has a deep and talented staff and is well positioned to
benefit from the current strong industry pricing cycle.
--------------------------------------------------------------------------------------------------------------
M & T BANK CORPORATION 320,000 25,392,000 3.1
A bank holding company with over $30 billion in assets headquartered
in Buffalo, NY. It has strong, opportunistic management with
a high level of ownership and a history of enhancing shareholder
value. High asset quality, excellent expense control, share
repurchases and adroit acquisitions help generate above-average
earnings growth.
--------------------------------------------------------------------------------------------------------------
BERKSHIRE HATHAWAY INC. CLASS A 300 21,825,000 2.7
A holding company engaged in diverse businesses, the most
important of which is the property and casualty insurance
business which is conducted through subsidiaries, including
GEICO - a major U.S. auto insurer - and General Re Corp. - a
significant global reinsurer.
--------------------------------------------------------------------------------------------------------------
GENENTECH, INC. 650,000 21,554,000 2.7
A leading biotechnology company focused on the development
and production of biotherapeutics for medical needs. With a
strong product portfolio and a broad pipeline of product
opportunities, Genentech is positioned for continued success.
--------------------------------------------------------------------------------------------------------------
$317,886,400 39.3%
============= =====
*Net assets applicable to the Company's Common Stock.
8 STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
General American Investors
DECEMBER 31,
-------------------------------
ASSETS 2002 2001
-------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks
(cost $417,614,713 and $461,130,422, respectively) $629,812,240 $931,026,318
Convertible corporate notes (cost $11,464,420) 11,450,000 -
Corporate discount notes
(cost $222,859,450 and $310,348,410, respectively) 222,859,450 310,348,410
U.S. Treasury bills (cost $98,645,315) 98,645,315 -
------------ ------------
Total investments (cost $750,583,898 and $771,478,832,
respectively) 962,767,005 1,241,374,728
CASH, RECEIVABLES AND OTHER ASSETS
Cash (including margin account balance of $3,455
and $20,966, respectively) 68,413 40,931
Receivable for securities sold 1,394,958 2,827,707
Receivable from broker for proceeds on securities sold
short 5,710,669 23,334,454
Dividends, interest and other receivables 1,534,495 1,261,862
Prepaid expenses 6,474,097 5,804,035
Other 455,687 513,446
------------ -------------
TOTAL ASSETS 978,405,324 1,275,157,163
------------ -------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased 5,905,815 1,318,500
Preferred dividend accrued but not yet declared 240,000 240,000
Securities sold short, at value (proceeds $5,710,669
and $23,334,454, respectively) (note 1a) 4,715,171 15,758,350
Accrued expenses and other liabilities 8,352,211 10,310,593
----------- ----------
TOTAL LIABILITIES 19,213,197 27,627,443
----------- ----------
7.20% TAX ADVANTAGED CUMULATIVE PREFERRED STOCK -
6,000,000 shares at a liquidation value of $25 per share
(note 2) 150,000,000 150,000,000
----------- -----------
NET ASSETS APPLICABLE TO COMMON STOCK -
30,561,356 and 31,231,563 shares, respectively (note 2) $809,192,127 $1,097,529,720
============ ==============
NET ASSET VALUE PER COMMON SHARE $26.48 $35.14
====== ======
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 30,561,356 and 31,231,563 shares at par
value, respectively (note 2) $30,561,356 $31,231,563
Additional paid-in capital (note 2) 563,250,199 579,414,981
Undistributed realized gain on investments (note 2) 1,089,200 9,598,439
Undistributed net income (note 2) 1,352,767 52,737
Unallocated distributions on Preferred Stock (240,000) (240,000)
Unrealized appreciation on investments and securities
sold short (including aggregate gross unrealized appreciation
of $303,127,054 and $520,141,071, respectively) 213,178,605 477,472,000
------------ -------------
NET ASSETS APPLICABLE TO COMMON STOCK $809,192,127 $1,097,529,720
============= ==============
(see notes to financial statements)
9 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------
INCOME 2002 2001
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $21,770 and $55,790, respectively) $8,131,252 $7,862,551
Interest 6,259,873 15,201,651
Other income 459,565 541,123
---------- ----------
TOTAL INCOME 14,850,690 23,605,325
---------- ----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 5,353,349 7,145,088
Administration and operations 2,423,028 2,656,023
Office space and general 594,154 534,127
Auditing and legal fees 211,000 152,700
Transfer agent, custodian and registrar fees and expenses 208,974 224,807
Directors' fees and expenses 152,486 167,907
Stockholders' meeting and reports 127,208 128,337
Miscellaneous taxes 82,294 83,931
---------- ----------
TOTAL EXPENSES 9,152,493 11,092,920
---------- ----------
NET INVESTMENT INCOME 5,698,197 12,512,405
========== ==========
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4)
---------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 6,036,466 52,639,769
Short sale transactions (note 1b) 11,002,577 18,081,053
----------- ----------
Net realized gain on investments (long-term, except for
$15,679,190 in 2001) 17,039,043 70,720,822
Net decrease in unrealized appreciation (264,293,395) (87,697,439)
------------ ----------
NET LOSS ON INVESTMENTS (247,254,352) (16,976,617)
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (10,800,000) (10,800,000)
------------ ----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($258,054,352) ($27,776,617)
============ ============
---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------
OPERATIONS 2002 2001
------------------------------------------------------------------------------------------------
Net investment income $5,698,197 $12,512,405
Net realized gain on investments 17,039,043 70,720,822
Net decrease in unrealized appreciation (264,293,395) (87,697,439)
------------ -----------
Distributions to Preferred Stockholders:
From net income, including short-term capital gain in 2001 (3,726,000) (2,311,200)
From long-term capital gain (7,074,000) (8,488,800)
----------- -----------
Decrease In Net Assets From Preferred Distributions (10,800,000) (10,800,000)
----------- -----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (252,356,155) (15,264,212)
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
--------------------------------------------------------------------------------------------------
From net income, including short-term capital gain (6,606,164) (26,369,696)
From long-term capital gain (12,540,285) (96,274,382)
----------- ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (19,146,449) (122,644,078)
------------ ------------
CAPITAL SHARE TRANSACTIONS
--------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) 6,410,677 81,091,222
Cost of Common Shares purchased (note 2) (23,245,666) (692,675)
---------- ----------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (16,834,989) 80,398,547
----------- ----------
NET DECREASE IN NET ASSETS (288,337,593) (57,509,743)
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 1,097,529,720 1,155,039,463
-------------- --------------
END OF YEAR (including undistributed net income of $1,352,767
and $52,737, respectively) $809,192,127 $1,097,529,720
============== ==============
(see notes to financial statements)
10 STATEMENT OF INVESTMENTS: DECEMBER 31, 2002
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS
-----------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE 500,000 The Boeing Company (COST $15,978,442) $16,495,000
(2.0%) -----------
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 550,000 CIENA Corporation (a) 2,827,000
INFORMATION SERVICES 900,000 Cisco Systems, Inc. (a) 11,790,000
(4.1%) 620,000 Cox Communications, Inc. Class A (a) 17,608,000
712,500 Lucent Technologies Inc. (a) 897,750
180,000 NTL Incorporated (a) 2,880
----------
(COST $35,837,826) 33,125,630
----------
--------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 175,000 Oberthur Card Systems S.A. (a) 385,000
AND SYSTEMS (0.2%) 339,500 Wind River Systems, Inc. (a) 1,391,950
----------
(COST $8,061,069) 1,776,950
----------
--------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 275,000 Ethan Allen Interiors, Inc. 9,451,750
AND SERVICES (2.6%) 225,000 Ford Motor Company 2,092,500
100,000 Newell Rubbermaid Inc. 3,033,000
150,000 PepsiCo, Inc. 6,333,000
----------
(COST $15,442,195) 20,910,250
----------
--------------------------------------------------------------------------------------------------------------
ELECTRONICS (1.7%) 692,500 Molex Incorporated Class A (COST $14,877,393) 13,773,825
----------
--------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 589,000 Waste Management, Inc. (COST $11,654,199) 13,499,880
(INCLUDING SERVICES)(1.7%) ----------
--------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE 345,000 American International Group, Inc. 19,958,250
(29.8%) 500,000 Annaly Mortgage Management, Inc. 9,400,000
1,000,000 Annuity and Life Re (Holdings), Ltd. 2,320,000
300 Berkshire Hathaway Inc. Class A (a) 21,825,000
84,548 Central Securities Corporation 1,376,441
675,000 Everest Re Group, Ltd. 37,327,500
425,000 Golden West Financial Corporation 30,519,250
435,000 John Hancock Financial Services, Inc. 12,136,500
320,000 M&T Bank Corporation 25,392,000
440,000 MetLife, Inc. 11,897,600
525,000 PartnerRe Ltd. 27,205,500
490,000 Reinsurance Group of America, Incorporated 13,269,200
230,000 SunTrust Banks, Inc. 13,091,600
230,000 Transatlantic Holdings, Inc. 15,341,000
-----------
(COST $118,978,387) 241,059,841
-----------
--------------------------------------------------------------------------------------------------------------
HEALTH CARE (13.3%) PHARMACEUTICALS (9.9%)
------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) 2,131,800
300,000 Bristol-Myers Squibb Company 6,945,000
270,000 Genaera Corporation (a) 172,800
650,000 Genentech, Inc. (a) 21,554,000
250,000 IDEC Pharmaceuticals Corporation (a) 8,292,500
239,000 MedImmune, Inc. (a) 6,493,630
120,000 Millennium Pharmaceuticals, Inc. (a) 952,800
125,000 OSI Pharmaceuticals, Inc. (a) 2,050,000
1,025,000 Pfizer Inc 31,334,250
----------
(COST $71,559,504) 79,926,780
----------
MEDICAL INSTRUMENTS AND DEVICES (1.6%)
------------------------------------------------------------------------------------
290,000 Medtronic, Inc. (COST $862,614) 13,224,000
-----------
HEALTH CARE SERVICES (1.8%)
------------------------------------------------------------------------------------
550,000 Health Net, Inc. (a) (COST $11,165,878) 14,520,000
-----------
(COST $83,587,996) 107,670,780
-----------
--------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (1.6%) Other (COST $15,813,836) 13,407,894
-----------
11 STATEMENT OF INVESTMENTS: DECEMBER 31, 2002 - CONTINUED
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS (Continued)
-------------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
-------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 750,000 El Paso Corporation $5,220,000
(INCLUDING SERVICES) 850,000 Halliburton Company 15,903,500
(2.6%) ----------
(COST $26,501,884) 21,123,500
----------
--------------------------------------------------------------------------------------------------------------
RETAIL TRADE(17.6%) 700,000 Costco Wholesale Corporation (a) 19,642,000
1,945,000 The Home Depot, Inc. (b) 46,602,200
2,425,000 The TJX Companies, Inc. 47,336,000
570,000 Wal-Mart Stores, Inc. 28,790,700
-----------
(COST$48,567,239) 142,370,900
-----------
--------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS(0.4%) 168,500 Brooks-PRI Automation, Inc. (a) 1,931,010
197,000 EMCORE Corporation (a) 431,430
1,644,900 IQE plc (a) 164,490
250,000 Zarlink Semiconductor Inc. (a) 565,000
----------
(COST $15,418,120) 3,091,930
----------
--------------------------------------------------------------------------------------------------------------
SPECIAL HOLDINGS (d) Sequoia Capital IV 2,500
(a)(c) 432,000 Silicon Genesis Corporation Series C Preferred 1,503,360
(NOTE 5)(0.2%) 546,000 Standard MEMS, Inc. Series A Convertible Preferred -
----------
(COST $6,896,127) 1,505,860(e)
----------
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (77.8%) (COST $417,614,713) 629,812,240
------------
--------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE NOTES
--------------------------------------------------------------------------------------
HEALTH CARE(1.2%) $10,000,000 MedImmune Vaccines, Inc. 5 1/4% due 2/1/08 9,900,000
OIL AND GAS(0.2%) $5,000,000 El Paso Corporation 0% due 2/28/21 1,550,000
-----------
TOTAL CONVERTIBLE CORPORATE NOTES (1.4%) (COST $11,464,420) 11,450,000
-----------
--------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES AND OTHER ASSETS
---------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
--------------------------------------------------------------------------------------------------------------
$26,300,000 AIG Funding, Inc. notes due 1/14-1/22/03; 1.26%-1.30% 26,260,225
42,000,000 American Express Credit Corporation notes due 1/7-2/10/03; 1.29%-1.32% 41,930,270
12,000,000 American General Finance Corporation note due 2/4/03; 1.31% 11,981,223
18,000,000 Ford Motor Credit Company notes due 1/2-2/11/03; 1.90%-1.93% 17,957,495
61,800,000 General Electric Capital Corp. notes due 1/9-1/28/03; 1.33%-1.36% 61,698,258
43,100,000 General Motors Acceptance Corp. notes due 1/6-2/3/03; 1.87%-1.95% 42,984,939
20,100,000 Sears Roebuck Acceptance Corp. notes due 1/21-2/6/03; 1.98% 20,047,040
99,000,000 U.S. Treasury bills due 1/23-2/13/03; 1.19%-1.65% 98,645,315
-----------
TOTAL SHORT-TERM SECURITIES (39.7%) (COST $321,504,765) 321,504,765
Liabilities in excess of cash, receivables and other assets (3,574,878)
------------
TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (39.3%) 317,929,887
------------
PREFERRED STOCK (-18.5%) (150,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $809,192,127
============
(a) Non-income producing security.
(b) 1,000,000 shares held by custodian in a segregated custodian account as
collateral for open short positions.
(c) Restricted security.
(d) A limited partnership interest.
(e) Fair value of each holding in the opinion of the Directors.
STATEMENT OF SECURITIES SOLD SHORT: DECEMBER 31, 2002
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS
SHARES VALUE (NOTE 1a)
---------------------------------------------------------------------------------------------------------------
75,000 Electronic Arts Inc. $3,732,750
34,100 Southwest Bancorporation of Texas, Inc. 982,421
---------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $5,710,669) $4,715,171
=========
(see notes to financial statements)
12 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
1. Significant Accounting Policies
General American Investors Company, Inc. (the "Company"), established in 1927,
is registered under the Investment Company Act of 1940 as a closed-end,
diversified management investment company. It is internally managed by its
officers under the direction of the Board of Directors.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
a. SECURITY VALUATION Securities traded on securities exchanges or on the NASDAQ
National Market System are valued at the last reported sales price on the last
business day of the period. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price (asked price for open short positions) on the
valuation date. Corporate discount notes and U.S. Treasury bills are valued at
amortized cost, which approximates market value. Special holdings are valued at
fair value in the opinion of the Directors. In determining fair value, in the
case of restricted shares, consideration is given to cost, operating and other
financial data and, where applicable, subsequent private offerings or market
price of the issuer's unrestricted shares (to which a 30 percent discount is
applied); for limited partnership interests, fair value is based upon an
evaluation of the partnership's net assets.
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
d. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. 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
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, of which 30,561,356 shares and 31,231,563 shares
were outstanding as of December 31, 2002 and 2001, respectively, and 10,000,000
shares of Preferred Stock, $1.00 par value, of which 6,000,000 shares were
outstanding at each date.
On June 19, 1998, the Company issued and sold 6,000,000 shares of its 7.20%
Tax-Advantaged Cumulative Preferred Stock. The Preferred Shares are noncallable
for 5 years and have a liquidation preference of $25.00 per share plus an amount
equal to accumulated and unpaid dividends to the date of redemption.
The Company is required to allocate distributions from long-term capital
gains and other types of income proportionately among holders of shares of
Common Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines, the Company is required to
maintain a certain discounted asset coverage for its portfolio that equals or
exceeds the Basic Maintenance Amount under the guidelines established by Moody's
Investors Service, Inc. The Company has met these requirements since the
issuance of the Preferred Stock.
The holders of Preferred Stock have voting rights equivalent to those of
the holders of Common Stock (one vote per share) and, generally, vote together
with the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the
Company's Board of Directors and the holders of Preferred and Common Stock,
voting as a single class, will elect the remaining directors. If the Company
fails to pay dividends on the Preferred Stock in an amount equal to two full
years' dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
Effective January 1, 2001, the Company adopted the classification
requirement of EITF D-98, Classification and Measurement of Redeemable
Securities. EITF D-98 requires 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. In adopting EITF D-98, the Company's
net assets as of January 1, 2001 in the statement of changes in net assets is
restated by excluding preferred stock valued at $150,000,000 at that date. The
adoption also resulted in distributions to preferred stockholders being
reclassified from distributions on the statement of changes in net assets to a
separate line item within the statement of operations. This resulted in an
increase of $10,800,000 in the net decrease in net assets resulting from
operations for the periods ended December 31, 2002 and 2001. As part of the
adoption, per share distributions on preferred stock were reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
13 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS (Continued from bottom of previous
page) Transactions in Common Stock during 2002 and 2001 were as follows:
SHARES AMOUNT
------------------------- -------------------------
2002 2001 2002 2001
------------------------- -------------------------
Shares issued in payment of dividends
(includes 251,893 and 28,400 shares
issued from treasury, respectively) 251,893 2,310,019 $ 251,893 $ 2,310,019
Increase in paid-in capital 6,158,784 78,781,203
--------- ----------
Total increase 6,410,677 81,091,222
--------- ----------
Shares purchased (at an average
discount from net asset value of
9.1% and 9.0%, respectively) 922,100 19,000 (922,100) (19,000)
Decrease in paid-in capital (22,323,566) (673,675)
----------- --------
Total decrease (23,245,666) (692,675)
----------- --------
Net increase (decrease) ($16,834,989) $80,398,547
=========== ===========
At December 31, 2002, the Company held in its treasury 670,207 shares of
Common Stock with an aggregate cost in the amount of $16,277,373.
Distributions for tax and book purposes are substantially the same.
Distributions in excess of net income for financial statement purposes result
primarily from transactions where tax treatment differs from book treatment.
As of December 31, 2002, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income $233,239
Undistributed long-term gain 865,252
Unrealized appreciation 213,178,605
-----------
$214,277,096
===========
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION AND RETIREMENT AND THRIFT PLANS
The aggregate compensation paid by the Company during 2002 and 2001 to its
officers amounted to $4,419,000 and $5,334,000, respectively.
The Company has non-contributory retirement plans and a contributory thrift plan
which cover substantially all employees. The costs to the Company and the assets
and liabilities of the plans are not material. Costs of the plans are funded
currently.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities) during 2002 amounted to on long transactions $164,794,270
and $202,882,025, respectively, and on short sale transactions $20,128,265 and
$13,507,057, respectively.
At December 31, 2002, the cost of investments for Federal income tax purposes
was the same as the cost for financial reporting purposes.
--------------------------------------------------------------------------------
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
------------- ----------------- --------------
Sequoia Capital IV* 1/31/84 $886,407 $2,500
Silicon Genesis Corporation Series C Preferred 2/16/01 3,006,720 1,503,360
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
---------- ----------
Total $6,896,127 $1,505,860
========== ==========
* The amounts shown are net of distributions from this limited partnership
interest which, in the aggregate, amounted to $4,806,404. The initial investment
in the limited partnership was $2,000,000.
--------------------------------------------------------------------------------
6. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expires in 2007 and provides for future rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contains a
clause whereby the Company received twenty months of free rent beginning in
December 1992 and escalation clauses relating to operating costs and real
property taxes.
Rental expense approximated $315,000 for 2002. Minimum rental commitments under
the operating lease are approximately $504,000 per annum in 2003 through 2007.
In March 1996, the Company entered into a sublease agreement which expires in
2003 and provides for future rental receipts. Minimum rental receipts under the
sublease are approximately $64,000 in 2003. The Company will also receive its
proportionate share of operating expenses and real property taxes under the
sublease.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENT On January 15, 2003, the Board of Directors declared on the
Common Stock a dividend of $915,098 from net long-term capital gains and a
dividend of $305,032 from ordinary income. These dividends are payable in cash
on February 10, 2003.
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.
14 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for each year in the five-year period ended
December 31, 2002. This information has been derived from information contained
in the financial statements and market price data for the Company's shares.
2002 2001 2000 1999 1998
------ -------- --------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 35.14 $ 39.91 $ 41.74 $ 34.87 $ 29.15
------- ------- ------- -------- -------
Net investment income .19 .41 .53 .45 .47
Net gain (loss) on securities - realized
and unrealized (7.88) (.66) 6.12 11.32 9.44
------- ------- ------- -------- -------
Distributions on Preferred Stock:
Dividends from investment income (.12) (.07)(a) (.11)(b) (.07)(c) (.03)
Distributions from capital gains (.23) (.29) (.29) (.35) (.20)
Unallocated - - - - (.01)
------- ------- ------- -------- -------
(.35) (.36) (.40) (.42) (.24)
------- ------- ------- -------- -------
Total from investment operations (8.04) (.61) 6.25 11.35 9.67
------- ------- ------- -------- -------
Less distributions on Common Stock:
Dividends from investment income (.21)(d) (.88)(e) (2.30)(f) (.71)(g) (.48)
Distributions from capital gains (.41) (3.28) (5.78) (3.77) (3.24)
------- ------- ------- -------- -------
(.62) (4.16) (8.08) (4.48) (3.72)
------- ------- ------- -------- -------
Capital Stock transaction -
effect of Preferred Stock offering - - - - (.23)
------- ------- ------- -------- -------
Net asset value, end of year $26.48 $35.14 $ 39.91 $ 41.74 $ 34.87
======= ======= ======= ======== =======
Per share market value, end of year $23.85 $33.47 $ 36.00 $ 37.19 $ 30.44
======= ======= ======= ======== =======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share (27.21)% 4.33% 19.10% 39.22% 31.31%
RATIOS AND SUPPLEMENTAL DATA
Net assets attributable to Common Stock,
end of year (000's omitted) $809,192 $1,097,530 $1,155,039 $1,094,519 $868,933
Ratio of expenses to average net assets
applicable to Common Stock 0.97% 1.02% 1.09% 1.01% 0.95%
Ratio of net income to average net assets
applicable to Common Stock 0.61% 1.15% 1.24% 1.23% 1.50%
Portfolio turnover rate 22.67% 23.81% 40.61% 33.68% 34.42%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $150,000 $150,000 $150,000 $150,000 $150,000
Asset coverage 639% 832% 870% 830% 679%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $25.85 $25.90 $24.25 $21.75 $25.88
(a) Includes short-term capital gain in the amount of $.04 per share.
(b) Includes short-term capital gain in the amount of $.09 per share.
(c) Includes short-term capital gain in the amount of $.03 per share.
(d) Includes short-term capital gain in the amount of $.19 per share.
(e) Includes short-term capital gain in the amount of $.51 per share.
(f) Includes short-term capital gain in the amount of $1.82 per share.
(g) Includes short-term capital gain in the amount of $.29 per share.
15 REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
General American Investors
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GENERAL AMERICAN INVESTORS
COMPANY, INC.
We have audited the accompanying statement of assets and liabilities, including
the statements of investments and securities sold short, of General American
Investors Company, Inc. as of December 31, 2002, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2002, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
General American Investors Company, Inc. at December 31, 2002, the results of
its operations and the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
New York, New York
January 14, 2003
OFFICERS
--------------------------------------------------------------------------------
NAME (AGE) POSITION WITH COMPANY NAME (AGE) POSITION WITH COMPANY
EMPLOYEE SINCE SINCE EMPLOYEE SINCE SINCE
-------------------- ------------------- --------------------- -------------------
Spencer Davidson (60) President and Chief Peter P. Donnelly (54) Vice-President 1991
1994 Executive Officer 1974 securities trader
1995
Andrew V. Vindigni (43) Vice-President 1995 Diane G. Radosti (50) Treasurer 1990
1988 security analyst 1980 corporate accounting
(financial services and financial reporting
industry)
Eugene L. DeStaebler, Jr.(64) Vice-President, Carole Anne Clementi(56) Secretary 1994
1975 Administration 1978 1982 shareholder relations
Principal Financial and office management
Officer 2002
All officers serve for a term of one year and are elected by the board of
directors at the time of its annual organization meeting on the second Wednesday
in April. The address for each officer is the Company's office. Other
directorships and affiliations for Mr. Davidson are shown in the listing of
Directors on page 16.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
Deutsche Bank Trust Company Americas
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
P.O. Box 3315 South Hackensack, NJ 07606-1915
1-800-413-5499
www.mellon-investor.com
16 DIRECTORS (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
---------------------- ---------------------------- ----------------------------------------------
INDEPENDENT ("DISINTERESTED") DIRECTORS
-----------------------------------------------------------------------------------------------------------------------
Lawrence B. Buttenwieser (71) Counsel 2002-present
Chairman of the Partner 1966-2002
Board of Directors Katten Muchin Zavis Rosenman
1967 and predecessor firms (lawyers)
Arthur G. Altschul, Jr. (38) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Medicis Pharmaceutical Corporation, Director
Management, LLC The Overbrook Foundation, Trustee
(investments and securities)
Lewis B. Cullman (84) President Chess-in-the-Schools, Chairman, Board of Trustees
1961 Cullman Ventures LLC Metropolitan Museum of Art, Honorary Trustee
(catalogs) Museum of Modern Art, Vice Chairman,
International Council and Honorary Trustee
Neurosciences Research Foundation, Vice Chairman,
Board of Trustees
The New York Botanical Garden, Senior Vice
Chairman, Board of Managers
Gerald M. Edelman (73) Member and Chairman of the Neurosciences Institute of the
1976 Department of Neurobiology Neurosciences Research Foundation,
The Scripps Research Institute Director and President
John D. Gordan, III (57) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (72) Managing Partner BioReliance Corporation, Chairman, Board of Directors
1994 SRK Management Company IGENE Biotechnology, Inc., Director
(private investment company) Insight Communications Company, Inc.,
Chairman, Board of Directors
Richard R. Pivirotto (72) President General Theological Seminary, Trustee
1971 Richard R. Pivirotto Co., Inc. The Gillette Company, Director
(self-employed consultant) The Greenwich Bank and Trust Company, Director
Greenwich Hospital Corporation, Trustee
Immunomedics, Inc., Director
New York Life Insurance Company, Director
Princeton University, Charter Trustee Emeritus
Joseph T. Stewart, Jr. (73) Corporate director and trustee Foundation of the University of
1987 Medicine and Dentistry of New Jersey, Trustee
Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Trustee,
Board of Advisors
Raymond S. Troubh (76) Financial Consultant Ariad Pharmaceuticals, Inc., Director
1989 Diamond Offshore Drilling, Inc., Director
Enron Corp., Chairman, Board of Directors
Gentiva Health Services, Inc., Director
Hercules Incorporated, Director
Petrie Stores Liquidating Trust, Trustee
Triarc Companies, Inc., Director
WHX Corporation, Director
INSIDE ("INTERESTED") DIRECTOR
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Spencer Davidson (60) President and Chief Executive Officer Medicis Pharmaceutical Corporation, Director
1995 General American Investors Neurosciences Research Foundation, Trustee
Company, Inc. since 1995
All directors serve for a term of one year and are elected by stockholders at
the time of the annual meeting on the second Wednesday in April. The address for
each director is the Company's office.
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William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
GENERAL AMERICAN INVESTORS COMPANY, INC.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com