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: December 31, 2004
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2004
ANNUAL
REPORT
3
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 (unaudited)
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2004 2003
------------- -------------
Net assets applicable to Common Stock -
December 31 $1,036,393,093 $986,335,111
Net investment income 9,253,481 1,139,240
Net realized gain 36,774,029 28,144,510
Net increase in unrealized appreciation 62,361,773 200,469,430
Distributions to Preferred Stockholders (11,900,000) (11,075,000)
Per Common Share-December 31
Net asset value $35.49 $33.11
Market price $31.32 $29.73
Discount from net asset value -11.7% -10.2%
Common Shares outstanding-Dec. 31 29,205,312 29,789,263
Common Stockholders of record-Dec. 31 4,300 4,500
Market price range* (high-low) $31.74-$27.88 $29.78-$21.95
Market volume-shares 6,206,400 6,280,700
*Unadjusted for dividend payments.
DIVIDEND SUMMARY (per share) (unaudited)
--------------------------------------------------------------------------------
Ordinary Long-Term
Record Date Payment Date Income Capital Gain Total
----------- ------------ -------- ----------- -----
Common Stock
Nov. 12, 2004 Dec. 23, 2004 $.215327 $.684673 $.90
Jan. 31, 2005 Mar. 10, 2005 .002 .272 .274
-------- -------- -----
Total from 2004 earnings $.217327 $.956673 $1.174
======== ======== =====
Nov. 14, 2003 Dec. 23, 2003 $.00761 $.49239 $.50
Jan. 26, 2004 Feb. 9, 2004 .013 .097 .11
------- ------- -----
Total from 2003 earnings $.02061 $.58939 $.61
======= ======= =====
Preferred Stock
Mar. 8, 2004 Mar. 24, 2004 $.083947 $.287928 $.371875
Jun. 7, 2004 Jun. 24, 2004 .083947 .287928 .371875
Sep. 7, 2004 Sep. 24, 2004 .083947 .287928 .371875
Dec. 7, 2004 Dec. 27, 2004 .083947 .287928 .371875
-------- -------- --------
Total for 2004 $.335788 $1.151712 $1.4875
======== ========= =========
Mar. 6, 2003 Mar. 24, 2003 $.01485 $.43515 $.45
Jun. 6, 2003 Jun. 23, 2003 .01485 .43515 .45
Sep. 8, 2003 Sep. 23, 2003 .01485 .43515 .45
Dec. 8, 2003 Dec. 24, 2003 .012272 .359603 .371875
-------- --------- ----------
Total for 2003 $.056822 $1.665053 $1.721875
======== ========= ==========
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
4
1 TO THE STOCKHOLDERS
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General American Investors
The U.S. stock market rose for the second consecutive year, gaining 10.8% in the
12 months ended December 31, 2004, as measured by our benchmark, the Standard &
Poor's 500 Stock Index (including income). General American Investors' net asset
value (NAV) per Common Share (assuming reinvestment of all dividends) increased
10.4%. The return to our Common Stockholders was 8.8%, reflecting a widening in
the discount at which our shares trade which, at year end, was 11.7%.
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 0.2% 3.5%
5 4.6 - 2.3
10 16.8 12.0
20 15.2 13.2
30 17.3 13.7
40 12.9 10.5
During 2004, the Company purchased 1,092,800 of its Common Shares in the open
market at an average discount to NAV of 10.3%. The Board of Directors has
authorized repurchases of Common Shares when they are trading at a discount in
excess of 8% of NAV.
While the market rallied last year, reflecting stronger profits than expected
and lower interest rates than feared, most of the gain came in the final two
months as the economy - along with labor markets - appeared to firm, signs of
pricing power at the corporate level emerged, and merger and acquisition
activity accelerated. Prior thereto, concerns regarding the twin deficits
(budget and trade), the weakened dollar, rising energy costs, and the struggle
in Iraq, among others, appeared to weigh on investor confidence. Unquestionably,
the deficits impart instability to the financial system. Should foreign entities
lose enthusiasm for holding the dollar-denominated assets that have come into
their possession as a result of deficit finance, the stock and bond markets
could be adversely affected. While we doubt that global imbalances can be
resolved in the near term, the ongoing orderly decline in the dollar may help in
that regard. It should increase exports and encourage American households to buy
U.S. sourced goods at the same time.
With respect to energy, prices of oil and natural gas, having risen
dramatically, may have peaked. Normalized future prices, however, could be
meaningfully higher than in the past decade notwithstanding the volatility that
attends, notably, unseasonable weather conditions. The world's consumption of
hydrocarbons is expected to continue to grow, having shown little sensitivity to
higher prices. Supply is constrained, meanwhile, by the need for greater capital
investment to sustain output from mature fields and to explore in areas
characterized by significant geopolitical uncertainty. Therefore, energy
securities have become an increasingly significant part of our portfolio with an
accompanying decline in cash reserves. Corporate cash flows, furthermore, and
their translation into dividends and share buybacks, have risen in importance as
a portfolio metric. Dividends have been advantaged by the law change reducing
the tax on them to 15% - the same rate as is applicable to long-term capital
gains.
We enter 2005 with economic expansion more securely in place and anticipate
modest, but healthy, growth in corporate results. Inflation remains subdued,
though dollar weakness, historically, has led to its acceleration. Since roughly
40% of corporate earnings come from abroad, however, measured advances in prices
can be beneficial thereto. Interest rates on long-dated bonds are not likely to
decline again as they did last year, in the face of the Fed's seemingly
inexorable march toward a 3% or higher Funds level. As rates increase, the
consumer's ability to sustain spending, based on rising household wealth in the
form of securities and real estate, may prove suspect in the context of low
savings and the threat of unemployment. However, the combination of constrained
capacity and pricing power should enable the corporate sector to importantly
augment if not replace the consumer as the chief engine of economic growth.
Congressional support for the Bush agenda is likely to be tempered by the record
budget deficit and Americans may become less tolerant of economic disparities,
moreover, in the face of growing income inequality. But the U.S. should remain
the destination of choice for capital and barring a dollar crisis the economy is
likely to keep growing. In this environment, companies with relatively high,
stable returns and low debt should continue to prosper, which augers well for
General American's future returns.
We are pleased to announce that, on December 8, 2004, Craig A. Grassi, who has
been an employee since 1991, was elected Assistant Vice-President of the Company
and Maureen E. LoBello, an employee since 1992, was elected Assistant Secretary
of the Company, both effective January 1, 2005.
We are also pleased to report that, on January 19, 2005, Peter E. de Svastich
was elected Vice-President of the Company. Prior to joining the Company in
November 2004, Mr. de Svastich had been a senior executive and/or chief
financial officer of several investment management and financial services
organizations over the past 35 years.
Information about the Company, including our investment objective, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, etc., is available on our website which
can be accessed at www.generalamericaninvestors.com.
By Order of the Board of Directors,
Spencer Davidson
President and Chief Executive Officer
January 19, 2005
5
2 THE COMPANY
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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 the inside back cover 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, occasionally, 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 2004, the stock sold at discounts from net asset value which ranged from
8.2% (March 11) to 12.6% (September 21). At December 31, the price of the stock
was at a discount of 11.7% as compared with a discount of 10.2% a year earlier.
"GAM Pr B" Preferred Stock
On September 24, 2003, the Company issued and sold in an underwritten offering
8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a
liquidation preference of $25 per share ($200,000,000 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 B).
6
3 THE COMPANY
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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 1943-2004 (except for the year 1974). (A table listing dividends paid
during the 20-year period 1985-2004 is shown at the bottom of page 6.) To the
extent that 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 very nominal amounts may be paid in
cash only.
Proxy Voting Policies, Procedures and Record
The policies and procedures used by General American Investors to determine how
to vote proxies relating to portfolio securities and the Company's proxy voting
record for the 12-month period ended June 30, 2004 are available: (1) without
charge, upon request, by calling the Company at its toll-free 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.
Direct Registration
In 2002, the Company implemented direct registration for its Common
Shareholders. Direct registration, which is an element of the Investors Choice
Plan administered by our transfer agent, 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 Plan account and
certificated share balances. A brochure which describes the features and
benefits of the Investors Choice Plan, including the ability of shareholders to
deposit certificates with our transfer agent, can be obtained by calling
American Stock Transfer & Trust Company at 1-800-413-5499, calling the Company
at 1-800-436-8401 or visiting our website: www.generalamericaninvestors.com -
click on Dividends & Reports, then Report Downloads.
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.
7
4 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
"Total return on $10,000 investment 20 years ended December 31, 2004"
The investment return for a Common Stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2004 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 1985.
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
------------------------------------------------------------------------------------------------------------------------------------
1985 $12,481 24.81% $13,500 35.00% $13,177 31.77%
1986 13,875 11.17 15,008 11.17 15,640 18.69
1987 11,640 -16.11 15,388 2.53 16,459 5.24
1988 14,114 21.26 18,091 17.57 19,180 16.53
1989 20,974 48.60 24,941 37.86 25,245 31.62
1990 21,813 4.00 26,609 6.69 24,465 -3.09
1991 40,354 85.00 42,865 61.09 31,902 30.40
1992 46,319 14.78 44,386 3.55 34,323 7.59
1993 38,945 -15.92 43,610 -1.75 37,797 10.12
1994 35,884 -7.86 42,415 -2.74 38,277 1.27
1995 43,498 21.22 52,416 23.58 52,631 37.50
1996 51,971 19.48 62,884 19.97 64,688 22.91
1997 74,101 42.58 83,038 32.05 86,249 33.33
1998 97,302 31.31 112,217 35.14 110,873 28.55
1999 135,464 39.22 153,064 36.40 134,112 20.96
2000 161,337 19.10 180,065 17.64 121,921 -9.09
2001 168,323 4.33 177,904 -1.20 107,425 -11.89
2002 122,523 -27.21 136,951 -23.02 83,641 -22.14
2003 155,616 27.01 174,475 27.40 107,529 28.56
2004 169,295 8.79 192,568 10.37 119,131 10.79
8
5 INVESTMENT RESULTS (UNAUDITED)
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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 $200,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1985 through 2004 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, 2004 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------------------
1 year 8.8 % 10.4 % 10.8 %
5 years 4.6 4.7 -2.3
10 years 16.8 16.3 12.0
15 years 14.9 14.6 10.9
20 years 15.2 15.9 13.2
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2004 (UNAUDITED)
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General American Investors
SHARES or
SHARES or PRINCIPAL AMOUNT HELD
INCREASES PRINCIPAL AMOUNT DECEMBER 31, 2004
---------------------------------------------------------------------------------------------------
NEW POSITIONS
Telecom Corporation of New Zealand Limited 4,600,000 4,600,000
Unocal Corporation 500,000 700,000 (a)
ADDITIONS
American International Group, Inc. 70,000 335,000
Apache Corporation 275,000 665,000
CEMEX, S.A. de C.V. ADR 150,000 1,100,000
Total S.A. ADR 28,000 275,000
DECREASES
---------------------------------------------------------------------------------------------------
ELIMINATIONS
Baxter International Inc. 825,000 -
Cox Communications, Inc. Class A 620,000 (b) -
REDUCTIONS
American Tower Corporation 9 3/8% due 2/1/09 $1,007,000 $1,314,000
Annaly Mortgage Management, Inc. 175,000 600,000
Annuity and Life Re (Holdings), Ltd. 125,000 500,000
Everest Re Group, Ltd. 25,000 625,000
Golden West Financial Corporation 15,000 620,000 (c)
Halliburton Company 75,000 525,000
M&T Bank Corporation 20,000 310,000
MetLife, Inc. 35,000 400,000
Montpelier Re Holdings Ltd. 15,000 160,000
PartnerRe Ltd. 25,000 475,000
Pfizer Inc 50,000 1,275,000
Reinsurance Group of America, Incorporated 60,000 385,000
Transatlantic Holdings, Inc. 6,250 275,000
Verisign, Inc. 100,000 133,500
* Excludes transactions in Stocks-Miscellaneous-Other.
(a) Includes shares purchased in prior period and previously carried under Stocks-Miscellaneous-Other.
(b) Includes shares disposed of in conjunction with a tender offer.
(c) Includes shares received in conjunction with a stock split.
DIVIDENDS PER COMMON SHARE (1985-2004) (UNAUDITED)
--------------------------------------------------------------------------------
The following table shows aggregate dividends paid per share on the Company's
Common Stock for each year during the 20-year period 1985-2004. 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
-------------------------------------------
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
2003 .02 .59
2004 .217 .957
#Includes short-term capital gains per share which amounted to $.12 in 1985, $.02 in 1989, $.03 in 1995, $.05 in 1996, $.62 in 1999,
$1.55 in 2000 and $.64 in 2001.
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
The statement of investments as of December 31, 2004, shown on pages 12, 13 and
14 includes 59 security issues. Listed here are the ten largest holdings on that
date.
% COMMON
SHARES VALUE NET ASSETS*
------------------------------------------------------------------------------------------------------------------------------------
THE HOME DEPOT, INC. 1,920,000 $82,060,800 7.9%
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.
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THE TJX COMPANIES, INC. 2,500,000 62,825,000 6.1
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.
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DEVON ENERGY CORPORATION 1,600,000 62,272,000 6.0
One of the largest independent oil and gas exploration and
production companies, Devon operates both domestically and
internationally. Recent opportunistic acquisitions enhanced
production volumes and improved the company's exploration
profile.
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EVEREST RE GROUP, LTD. 625,000 55,975,000 5.4
The largest independent U.S. property/casualty reinsurer which
generates annual premiums of approximately $4.7 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.
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MICROSOFT CORPORATION 1,525,000 40,748,000 3.9
The largest software company in the world, Microsoft has pricing
power, substantial financial resources and a commitment to research
and development, all of which provide significant competitive
advantages and support long-term growth.
------------------------------------------------------------------------------------------------------------------------------------
CEMEX, S.A. de C.V. ADR 1,100,000 40,062,000 3.9
Domiciled in Mexico, CEMEX is the third largest cement producer
in the world. With the expansion of its operations into related
construction materials and additional geographic areas, as well as
its focus on production cost containment, the company's free cash
flow should continue to increase supporting a positive long-term outlook.
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REPUBLIC SERVICES, INC. 1,175,000 39,409,500 3.8
A leading provider of non-hazardous solid waste collection and
disposal services in the U.S. The efficient operation of its routes and
facilities combined with appropriate pricing enable Republic Services
to generate significant free cash flow. The high probability of
additional contracts and the expectation that economic activity will
continue to improve should result in higher waste volumes for the
company.
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GOLDEN WEST FINANCIAL CORPORATION 620,000 38,080,400 3.7
A savings and loan holding company with approximately $106
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.
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WAL-MART STORES, INC. 675,000 35,653,500 3.4
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.
------------------------------------------------------------------------------------------------------------------------------------
PFIZER INC 1,275,000 34,284,750 3.3
Well established as a leader in the pharmaceutical industry, Pfizer
continues its commitment to research and development and its
ability to effectively market products. Pfizer remains dedicated to
optimizing its corporate structure and is streamlining the company.
------------------------------------------------------------------------------------------------------------------------------------
$491,370,950 47.4%
============ =====
*Net assets applicable to the Company's Common Stock.
11
8 PORTFOLIO DIVERSIFICATION (UNAUDITED)
--------------------------------------------------------------------------------
General American Investors
"The diversification of the Company's net assets applicable to its Common Stock
by industry group as of December 31, 2004 and 2003 is shown in the following
table."
PERCENT COMMON NET ASSETS*
DECEMBER 31, 2004 DECEMBER 31
-----------------------------------------------------------------------------------------------------------------
INDUSTRY CATEGORY COST(000) VALUE(000) 2004 2003
-----------------------------------------------------------------------------------------------------------------
Finance and Insurance
Banking $21,698 $103,949 10.1% 9.5%
Insurance 80,245 192,006 18.5 19.7
Other 16,846 21,444 2.1 2.3
------- ------- ---- ----
118,789 317,399 30.7 31.5
------- ------- ---- ----
Retail Trade 68,036 214,426 20.7 18.8
Oil and Natural Gas
(Including Services) 143,024 188,817 18.3 5.5
------- ------- ---- ----
Health Care
Pharmaceuticals 79,965 110,044 10.6 15.8
Medical Instruments
and Devices 10,484 22,352 2.1 2.2
Health Care Services - - - 2.3
------ ------- ---- ----
90,449 132,396 12.7 20.3
------ ------- ---- ----
Communications and
Information Services 69,016 76,576 7.3 5.6
Computer Software and Systems 53,801 57,301 5.5 1.0
Miscellaneous** 43,897 45,363 4.4 0.7
Building and Real Estate 29,122 40,062 3.9 1.2
Environmental Control
(Including Services) 26,227 39,409 3.8 3.0
Consumer Products and Services 28,303 39,094 3.8 2.8
Electronics 15,451 19,055 1.8 2.1
Semiconductors 9,890 9,151 0.9 2.3
Special Holdings 8,010 1,449 0.1 0.2
------- --------- ----- -----
704,015 1,180,498 113.9 95.0
Short-Term Securities 58,488 58,488 5.6 25.3
-------- --------- ----- -----
Total Investments $762,503 1,238,986 119.5 120.3
Liabilities in excess of Other ========
Assets - Net (2,593) (0.2) (0.1)
Preferred Stock (200,000) (19.3) (20.2)
Net Assets Applicable to ---------- ------ ------
Common Stock $1,036,393 100.0% 100.0%
========== ====== ======
* Net assets applicable to the Company's Common Stock.
** Securities which have been held for less than one year.
12
9 STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
General American Investors
DECEMBER 31,
------------------------------
ASSETS 2004 2003
---------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks
(cost $691,689,451 and $512,775,431, respectively) $1,167,272,723 $927,510,131
Convertible corporate notes (cost $12,326,060 and
$9,714,002, respectively) 13,225,252 10,250,000
Corporate discount notes
(cost $58,487,897 and $149,931,413, respectively) 58,487,897 149,931,413
U.S. Treasury bills (cost $99,546,882 for 2003) - 99,546,882
-------------- -------------
Total investments (cost $762,503,408 and $771,967,728,
respectively) 1,238,985,872 1,187,238,426
CASH, RECEIVABLES AND OTHER ASSETS
Cash (including margin account balance of
$681 for 2004) 176,980 54,695
Receivable for securities sold - 2,731,429
Deposit with broker for securities sold short 3,070,685 13,684,582
Deposit with broker for options written 188,519 -
Dividends, interest and other receivables 1,081,136 2,093,543
Prepaid expenses 7,511,301 6,979,584
Other 261,801 321,045
------------- -------------
TOTAL ASSETS 1,251,276,294 1,213,103,304
------------- -------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased 411,300 1,480,264
Preferred dividend accrued but not yet declared 231,389 231,389
Securities sold short, at value (proceeds $3,070,685
and $13,684,582, respectively) (note 1a) 3,608,280 15,307,245
Outstanding options written, at value (premiums
received $188,519 for 2004) (note 1a) 123,580 -
Accrued expenses and other liabilities 10,508,652 9,749,295
----------- ----------
TOTAL LIABILITIES 14,883,201 26,768,193
----------- ----------
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000 200,000,000
----------- ------------
NET ASSETS APPLICABLE TO COMMON STOCK - 29,205,312
and 29,789,263 shares, respectively (note 2) $1,036,393,093 $986,335,111
============== ============
NET ASSET VALUE PER COMMON SHARE $35.49 $33.11
====== ======
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 29,205,312 and 29,789,263 shares at par
value, respectively (note 2) $29,205,312 $29,789,263
Additional paid-in capital (note 2) 521,985,714 538,582,843
Undistributed realized gain on investments (note 2) 7,864,450 2,951,398
Undistributed net investment income (note 2) 1,559,198 1,594,961
Unallocated distributions on Preferred Stock (231,389) (231,389)
Unrealized appreciation on investments, securities
sold short and options 476,009,808 413,648,035
-------------- ------------
NET ASSETS APPLICABLE TO COMMON STOCK $1,036,393,093 $986,335,111
============== ============
(see notes to financial statements)
13
10 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
--------------------------
INCOME 2004 2003
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $222,175 in 2004) $18,010,297 $7,810,852
Interest 2,538,401 4,168,048
----------- ----------
TOTAL INCOME 20,548,698 11,978,900
----------- ----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 7,257,447 6,804,863
Administration and operations 2,685,811 2,750,817
Office space and general 535,685 554,237
Directors' fees and expenses 187,539 160,213
Transfer agent, custodian and registrar fees and expenses 179,102 176,626
Auditing and legal fees 172,200 188,250
Stockholders' meeting and reports 169,197 118,874
Miscellaneous taxes 108,236 85,780
---------- ----------
TOTAL EXPENSES 11,295,217 10,839,660
---------- ----------
NET INVESTMENT INCOME 9,253,481 1,139,240
---------- ----------
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1f AND 4)
---------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 39,187,387 28,586,216
Short sale transactions (note 1b) (2,512,348) (441,706)
Option transactions (note 1c) 98,990 -
---------- -----------
Net realized gain on investments (long-term) 36,774,029 28,144,510
Net increase in unrealized appreciation 62,361,773 200,469,430
----------- -----------
NET GAIN ON INVESTMENTS 99,135,802 228,613,940
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,900,000) (11,075,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $96,489,283 $218,678,180
=========== ============
(see notes to financial statements)
14
11 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATIONS 2004 2003
---------------------------------------------------------------------------------------------------
Net investment income $9,253,481 $1,139,240
Net realized gain on investments 36,774,029 28,144,510
Net increase in unrealized appreciation 62,361,773 200,469,430
---------- -----------
Distributions to Preferred Stockholders:
From net income (2,686,304) (365,476)
From long-term capital gains (9,213,696) (10,709,524)
----------- -----------
Decrease in net assets from Preferred distributions (11,900,000) (11,075,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 96,489,283 218,678,180
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
---------------------------------------------------------------------------------------------------
From net income (6,602,940) (531,570)
From long-term capital gains (22,647,281) (15,572,788)
----------- ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (29,250,221) (16,104,358)
----------- ------------
CAPITAL SHARE TRANSACTIONS
----------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends (note 2) 15,781,952 9,724,118
Cost of Common Shares purchased (note 2) (32,963,032) (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 (17,181,080) (25,430,838)
---------- ------------
NET INCREASE IN NET ASSETS 50,057,982 177,142,984
NET ASSETS APPLICABLE TO COMMON STOCK
----------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 986,335,111 809,192,127
----------- -----------
END OF YEAR (including undistributed net investment income of
$1,559,199 and $1,594,961, respectively) $1,036,393,093 $ 986,335,111
============== =============
(see notes to financial statements)
15
12 STATEMENT OF INVESTMENTS DECEMBER 31, 2004
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS
--------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------
BUILDING AND 1,100,000 CEMEX, S.A. de C.V. ADR (COST $29,121,764) $40,062,000
REAL ESTATE (3.9%) -----------
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 550,000 American Tower Corporation (a) 10,120,000
INFORMATION SERVICES 550,000 CIENA Corporation (a) 1,837,000
(7.2%) 900,000 Cisco Systems, Inc. (a) 17,388,000
150,000 Juniper Networks, Inc. (a) 4,078,500
500,000 Lamar Advertising Company Class A (a) 21,390,000
4,600,000 Telecom Corporation of New Zealand Limited 20,378,000
----------
(COST $67,633,399) 75,191,500
----------
--------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 300,000 EMC Corporation (a) 4,461,000
AND SYSTEMS (5.5%) 1,525,000 Microsoft Corporation 40,748,000
623,000 NetIQ Corporation (a) 7,606,830
133,500 VeriSign, Inc. (a) 4,485,600
----------
(COST $53,801,539) 57,301,430
----------
--------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 350,000 Diageo plc ADR 20,258,000
AND SERVICES (3.8%) 275,000 Ethan Allen Interiors Inc. 11,005,500
150,000 PepsiCo, Inc. 7,830,000
----------
(COST $28,303,579) 39,093,500
----------
--------------------------------------------------------------------------------------------------------------
ELECTRONICS (1.8%) 715,000 Molex Incorporated Class A (COST $15,450,691) 19,054,750
----------
--------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 1,175,000 Republic Services, Inc. (COST $26,227,380) 39,409,500
(INCLUDING SERVICES) ----------
(3.8%)
--------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (10.1%)
(30.7%) ------------------------------------------------------------------------------------
368,000 Bank of America Corporation 17,292,320
620,000 Golden West Financial Corporation 38,080,400
310,000 M&T Bank Corporation 33,430,400
205,000 SunTrust Banks, Inc. 15,145,400
-----------
(COST $21,697,463) 103,948,520
-----------
INSURANCE (18.5%)
------------------------------------------------------------------------------------
335,000 American International Group, Inc. 21,999,450
500,000 Annuity and Life Re (Holdings), Ltd. (a) 227,500
300 Berkshire Hathaway Inc. Class A (a) 26,370,000
625,000 Everest Re Group, Ltd. 55,975,000
400,000 MetLife, Inc. 16,204,000
160,000 Montpelier Re Holdings Ltd. 6,152,000
475,000 PartnerRe Ltd. 29,421,500
385,000 Reinsurance Group of America, Incorporated 18,653,250
275,000 Transatlantic Holdings, Inc. 17,003,250
-----------
(COST $80,245,273) 192,005,950
-----------
OTHER (2.1%)
-----------------------------------------------------------------------------------
600,000 Annaly Mortgage Management, Inc. 11,772,000
95,194 Central Securities Corporation 2,175,183
850,000 MFA Mortgage Investments, Inc. 7,497,000
-----------
(COST $16,846,447) 21,444,183
-----------
(COST $118,789,183) 317,398,653
-----------
16
13 STATEMENT OF INVESTMENTS DECEMBER 31, 2004 - continued
--------------------------------------------------------------------------------
General American Investors
COMMON STOCKS (Continued)
------------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------
HEALTH CARE (12.7%) PHARMACEUTICALS (10.6%)
------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $4,790,600
250,000 Biogen Idec Inc. (a) 16,652,500
300,000 Bristol-Myers Squibb Company 7,686,000
75,000 Cytokinetics, Incorporated (a) 768,750
270,000 Genaera Corporation (a) 923,400
560,000 Genentech, Inc. (a) 30,486,400
375,000 Genta Incorporated (a) 660,000
455,000 MedImmune, Inc. (a) 12,335,050
120,000 Millennium Pharmaceuticals, Inc. (a) 1,456,800
1,275,000 Pfizer Inc 34,284,750
-----------
(COST $79,964,902) 110,044,250
-----------
MEDICAL INSTRUMENTS AND DEVICES (2.1%)
------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 22,351,500
-----------
(COST $90,448,618) 132,395,750
-----------
--------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (4.4%) Other (b) (COST $43,896,672) 45,362,730
----------
--------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 665,000 Apache Corporation 33,629,050
(INCLUDING SERVICES) 1,600,000 Devon Energy Corporation 62,272,000
(17.1%) 525,000 Halliburton Company 20,601,000
275,000 Total S.A. ADR 30,206,000
700,000 Unocal Corporation 30,268,000
-----------
(COST $132,080,537) 176,976,050
-----------
--------------------------------------------------------------------------------------------------------------
RETAIL TRADE (20.7%) 700,000 Costco Wholesale Corporation 33,887,000
1,920,000 The Home Depot, Inc. (c) 82,060,800
2,500,000 The TJX Companies, Inc. 62,825,000
675,000 Wal-Mart Stores, Inc. 35,653,500
-----------
(COST $68,036,225) 214,426,300
-----------
--------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (0.9%) 491,500 Brooks Automation, Inc. (a) 8,463,630
197,000 EMCORE Corporation (a) 687,530
---------
(COST $9,890,144) 9,151,160
---------
--------------------------------------------------------------------------------------------------------------
SPECIAL HOLDINGS 200,000 Cytokinetics, Incorporated 1,435,000
(a)(d) 144,000 Silicon Genesis Corporation 14,400
(NOTE 5)(0.1%) 546,000 Standard MEMS, Inc. Series A Convertible Preferred -
-----------
(COST $8,009,720) 1,449,400 (e)
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (112.6%) (COST $691,689,451) 1,167,272,723
--------------
--------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE NOTES
------------------------------------------------------------------------------------------
COMMUNICATIONS AND $1,314,000 American Tower Corporation 9 3/8% due 2/1/09(COST $1,382,859) 1,384,627
INFORMATION SERVICES -----------
(0.1%)
OIL & NATURAL GAS $22,500,000 El Paso Corporation 0% due 2/28/21 (COST $10,943,201) 11,840,625
(INCLUDING SERVICES) -----------
(1.2%)
TOTAL CONVERTIBLE CORPORATE NOTES (1.3%) (COST $12,326,060) 13,225,252
-----------
17
14 STATEMENT OF INVESTMENTS DECEMBER 31, 2004 - continued
--------------------------------------------------------------------------------
General American Investors
SHORT-TERM SECURITIES AND OTHER ASSETS
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------------------------
$19,900,000 American Express Credit Corporation notes due 1/3-1/13/05; 2.09%-2.24% $19,861,908
18,200,000 American General Finance Corporation notes due 1/10-1/20/05; 2.28%-2.31% 18,163,437
12,500,000 General Electric Capital Corporation notes due 1/6-1/25/05; 2.13%-2.28% 12,478,979
8,000,000 Prudential Funding, LLC note due 1/18/05; 2.24% 7,983,573
--------------
TOTAL SHORT-TERM SECURITIES (5.6%) (COST $58,487,897) 58,487,897
--------------
TOTAL INVESTMENTS (f) (119.5%) (COST $762,503,408) 1,238,985,872
Liabilities in excess of cash, receivables and other assets (-0.2%) (2,592,779)
--------------
1,236,393,093
--------------
PREFERRED STOCK (-19.3%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,036,393,093
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year.
(c) 1,000,000 shares held by custodian in a segregated custodian account as collateral for open short positions.
(d) Restricted security.
(e) Fair value of each holding in the opinion of the directors.
(f) At December 31, 2004: (1) the cost of investments for Federal income tax purposes was the same as the cost for financial
reporting purposes, (2) aggregate gross unrealized appreciation was $515,997,743, (3) aggregate gross unrealized depreciation
was $39,515,279, and (4) net unrealized appreciation was $476,482,464.
--------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF SECURITIES SOLD SHORT DECEMBER 31, 2004
---------------------------------------------------------------------
General American Investors
COMMON STOCKS
---------------------------------------------------------------------------------------------------
SHARES VALUE(NOTE1a)
---------------------------------------------------------------------------------------------------
58,500 Electronic Arts Inc. (PROCEEDS $3,070,685) $3,608,280
===========
--------------------------------------------------------------------------------
STATEMENT OF OPTIONS WRITTEN DECEMBER 31, 2004
----------------------------------------------------------------------
General American Investors
CONTRACTS
(100 SHARES EACH) COMMON STOCKS/EXPIRATION DATE/EXERCISE PRICE VALUE (NOTE 1a)
---------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS
---------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND INFORMATION SERVICES
---------------------------------------------------------------------------------------------------------------------------
539 Cox Communications, Inc. Class A/January 05/$32.50(PREMIUMS RECEIVED $90,021) $118,580
--------
---------------------------------------------------------------------------------------------------------------------------
PUT OPTIONS
---------------------------------------------------------------------------------------------------------------------------
OIL & NATURAL GAS (INCLUDING SERVICES)
--------------------------------------------------------------------------------------------------------------------------
500 Apache Corporation/January 05/$45 (PREMIUMS RECEIVED $98,498) 5,000
-----
TOTAL OPTIONS (PREMIUMS RECEIVED $188,519) $123,580
========
(see notes to financial statements)
18
15 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.
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 are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price (asked price for open short positions and
options written) on the valuation date. Securities traded primarily in foreign
markets are generally valued at the preceding closing price of such securities
on their respective exchanges or markets. If, after the close of the foreign
market, conditions change significantly, the price of certain foreign securities
may be adjusted to reflect fair value as of the time of the valuation of the
portfolio. Corporate discount notes are valued at amortized cost, which
approximates market value. Special holdings (restricted securities) and other
securities for which quotations are not readily available are valued at fair
value determined in good faith pursuant to procedures established by and under
the general supervision of the Board of Directors.
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium received and
the amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
d. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
e. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
f. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
--------------------------------------------------------------------------------
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value, of which 29,205,312 shares and 8,000,000 shares, respectively, were
outstanding at December 31, 2004.
On September 23, 2003, the Company redeemed all of its then outstanding
6,000,000 shares of 7.20% Tax-Advantaged Cumulative Preferred Stock, Series A,
at a redemption price of $25.00 per share. The Series A Preferred Shares were
issued originally on June 19,1998.
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
19
16 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
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.
Transactions in Common Stock during 2004 and 2003 were as follows:
SHARES AMOUNT
--------------------------------------------------
2004 2003 2004 2003
---------------- ------------------------
Shares issued in payment of dividends
(includes 508,849 and 334,507 shares
issued from treasury, respectively) 508,849 334,507 $508,849 $334,507
Increase in paid-in capital 15,273,103 9,389,611
---------- ---------
Total increase 15,781,952 9,724,118
---------- ---------
Shares purchased (at an average
discount from net asset value of
10.3% and 9.7%, respectively) 1,092,800 1,106,600 (1,092,800) (1,106,600)
Decrease in paid-in capital (31,870,232) (27,348,356)
----------- ------------
Total decrease (32,963,032) (28,454,956)
----------- ------------
Net decrease ($17,181,080)($18,730,838)
=========== ============
At December 31, 2004, the Company held in its treasury 2,026,251 shares of Common Stock with an aggregate
cost in the amount of $49,417,395.
Distributions for tax and book purposes are substantially the same.
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $43,964
Undistributed long-term gains 7,897,333
Unrealized appreciation 476,009,808
-----------
$483,951,105
============
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during 2004 and 2003 to its
officers amounted to $4,872,000 and $4,994,000, respectively.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities and options) during 2004 amounted to on long transactions
$317,603,409 and $175,264,718, respectively, and on short sale transactions
$16,196,930 and $3,070,685, respectively.
--------------------------------------------------------------------------------
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
-----------------------------------------------
Cytokinetics, Incorporated 3/21/03 $2,000,000 $1,435,000
Silicon Genesis Corporation 2/16/01 3,006,720 14,400
Standard MEMS, Inc. Series A Convertible Preferred1 2/17/99 3,003,000 -
---------- ----------
Total $8,009,720 $1,449,400
========== ==========
--------------------------------------------------------------------------------
6. PENSION BENEFIT PLANS
The Company has both a funded (Qualified) and an unfunded (Supplemental)
noncontributory defined benefit pension plans that cover substantially all of
its employees. The plans provide defined benefits based on years of service and
final average salary with an offset for a portion of social security covered
compensation.
The Company also has funded and unfunded contributory defined contribution
thrift plans that cover substantially all employees. The aggregate cost of such
plans for 2004 and 2003 was $626,307 and $768,050, respectively. The unfunded
liability included in other liabilities at December 31, 2004 and 2003 was
$2,541,127 and $2,131,642, respectively.
20
17 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
6. PENSION BENEFIT PLANS - (Continued from bottom of previous page.)
OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:
2004 2003
------------------------------- -----------------------------------
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------- ------------ ------ --------- ------------ ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $6,793,866 $2,429,480 $9,223,346 $6,271,793 $2,194,060 $8,465,853
Service cost 151,059 91,900 242,959 126,315 80,159 206,474
Interest cost 420,507 153,455 573,962 416,776 149,129 565,905
Benefits Paid (427,238) (127,773) (555,011) (435,820) (127,773) (563,593)
Actuarial (gains)/losses 395,684 144,698 540,382 414,802 133,905 548,707
Plan amendments 153,737 (1,124) 152,613 - - -
---------- ---------- --------- ---------- ---------- ----------
Benefit obligation at end of year 7,487,615 2,690,636 10,178,251 6,793,866 2,429,480 9,223,346
---------- ---------- --------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year 13,029,458 - 13,029,458 10,005,449 - 10,005,449
Actual return on plan assets 2,023,352 - 2,023,352 3,459,829 - 3,459,829
Employer contributions - 127,773 127,773 - 127,773 127,773
Benefits paid (427,238) (127,773) (555,011) (435,820) (127,773) (563,593)
---------- ---------- --------- ---------- ---------- ----------
Fair value of plan assets at end of year 14,625,572 - 14,625,572 13,029,458 - 13,029,458
---------- ---------- --------- ---------- ---------- ----------
FUNDED STATUS 7,137,957 (2,690,636) 4,447,321 6,235,592 (2,429,480) 3,806,112
Unrecognized actuarial (gains)/losses 206,316 (352,908) (146,592) 753,634 (522,477) 231,157
Unrecognized prior service cost 134,662 99,896 234,558 (35,320) 129,585 94,265
---------- ---------- --------- ---------- ---------- ----------
Net amount recognized $7,478,935 ($2,943,648)$4,535,287 $6,953,906 ($2,822,372) $4,131,534
========== ========== ========= ========== ========== ==========
AMOUNTS RECOGNIZED IN THE STATEMENT OF
ASSETS AND LIABILITIES CONSIST OF:
Prepaid benefit cost $7,478,935 - $7,478,935 $6,953,906 - $6,953,906
Accrued benefit liability - ($2,943,648)(2,943,648) - ($2,822,372) (2,822,372)
---------- ---------- --------- ---------- ---------- ----------
Net amount recognized $7,478,935 ($2,943,648)$4,535,287 $6,953,906 ($2,822,372) $4,131,534
========== ========== ========= ========== ========== ==========
Accumulated Benefit Obligation $6,882,288 $2,295,334 $9,177,622 $6,264,441 $2,046,700 $8,311,141
Projected Benefit Obligation 7,487,615 2,690,636 10,178,251 6,793,866 2,429,480 9,223,346
Fair value of plan assets 14,625,572 - 14,625,572 13,029,458 - 13,029,458
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
END OF FISCAL YEAR
Discount rate 5.75% 5.75% 6.25% 6.25%
Expected return on plan assets 8.75% N/A 8.75% N/A
Salary scale assumption 4.25% 4.25% 4.25% 4.25%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $151,059 $91,900 $242,959 $126,315 $80,159 $206,474
Interest cost 420,507 153,455 573,962 416,776 149,129 565,905
Expected return on plan assets (1,080,350) - (1,080,350) (1,031,094) - (1,031,094)
Amortization of:
Prior service cost (16,245) 28,565 12,320 (16,244) 28,564 12,320
Recognized net actuarial loss (gain) - (24,871) (24,871) - (37,294) (37,294)
---------- ---------- --------- ---------- ---------- ----------
Net periodic benefit cost ($525,029) $249,049 ($275,980) ($504,247) $220,558 ($283,689)
========== ========== ========= ========== ========== ==========
WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET PERIODIC BENEFIT
COST FOR YEARS ENDED DECEMBER 31
Discount rate 6.25% 6.25% 6.75% 6.75%
Expected long-term rate of return
on plan assets 8.75% N/A 8.75% N/A
Rate of salary increase 4.25% 4.25% 4.25% 4.25%
The Company's Pension Committee, based on input from management and an outside
consultant, reviews and determines the reasonableness of plan assumptions and
the allocation of plan assets.
-------------------------------------------------------------------------------
PLAN ASSETS
The Company's qualified pension plan asset allocations
at December 31, 2004 and 2003, by asset category, are as follows:
December 31
---------------
Asset Category 2004 2003
---- ----
Equity securities 96.6% 96.5%
Debt securities 3.4 3.5
----- -----
Total 100.0% 100.0%
===== =====
--------------------------------------------------------------------------------
CASH FLOWS Qualified Supplemental
Plan Plan Total
---------- ------------- ---------
Expected Company Contributions for 2005
to Plan Participants/Total Contributions - $192,644 $192,644
========== ============= =========
Estimated Future Benefit Payments:
2005 $454,107 $192,644 $646,751
2006 456,027 214,642 670,669
2007 459,003 249,293 708,296
2008 462,980 290,589 753,569
2009 462,946 317,475 780,421
2010-2014 2,297,373 1,910,776 4,208,149
--------------------------------------------------------------------------------
7. CALL AND PUT OPTIONS
Transactions in written covered call and collateralized put options during
the year ended December 31, 2004 were as follows:
Covered Calls Collateralized Puts
-------------------------- -------------------------
Contracts Premiums Contracts Premiums
--------- -------- --------- --------
Options outstanding, December 31, 2003 - - - -
Options written 2,245 $444,998 750 $172,746
Options terminated in closing purchase transactions (971) (220,471) (250) (74,248)
Options exercised (735) (134,506) - -
--------- -------- -------- --------
Options outstanding, December 31,2004 539 $90,021 500 $98,498
========= ======== ======== ========
21
18 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
8. 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 $296,000 for 2004. Minimum rental commitments
under the operating lease are approximately $505,000 per annum in 2005 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 2005 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
--------------------------------------------------------------------------------
9. SUBSEQUENT EVENT
On January 19, 2005, the Board of Directors declared on the Common Stock a
dividend of $7,929,239 from net long-term capital gains and a dividend of
$58,303 from ordinary income. These dividends are payable in shares of Common
Stock, or in cash upon request, on March 10, 2005.
--------------------------------------------------------------------------------
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, 2004. This information has been derived from information contained
in the financial statements and market price data for the Company's shares.
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $33.11 $26.48 $35.14 $39.91 $41.74
------ ------ ------ ------ ------
Net investment income .32 .03 .19 .41 .53
Net gain (loss) on securities - realized
and unrealized 3.48 7.72 (7.88) (.66) 6.12
------ ------ ------ ------ ------
Distributions on Preferred Stock:
Dividends from investment income (.09) (.01) (.12) (.07)(a) (.11)(b)
Distributions from capital gains (.32) (.35) (.23) (.29) (.29)
------ ------ ------ ------ ------
(.41) (.36) (.35) (.36) (.40)
------ ------ ------ ------ ------
Total from investment operations 3.39 7.39 (8.04) (.61) 6.25
------ ------ ------ ------ ------
Less distributions on Common Stock:
Dividends from investment income (.23) (.02) (.21)(c) (.88)(d) (2.30)(e)
Distributions from capital gains (.78) (.52) (.41) (3.28) (5.78)
------ ------ ------ ------ ------
(1.01) (.54) (.62) (4.16) (8.08)
------ ------ ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering - (.22) - - -
------ ------ ------ ------ ------
Net asset value, end of year $35.49 $33.11 $26.48 $35.14 $39.91
====== ====== ====== ====== ======
Per share market value, end of year $31.32 $29.73 $23.85 $33.47 $36.00
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 8.79% 27.01% (27.21)% 4.33% 19.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $1,036,393 $986,335 $809,192 $1,097,530 $1,155,039
Ratio of expenses to average net assets
applicable to Common Stock 1.15% 1.23% 0.92% 0.97% 1.05%
Ratio of net income to average net assets
applicable to Common Stock 0.94% 0.13% 0.61% 1.15% 1.24%
Portfolio turnover rate 16.71% 18.62% 22.67% 23.81% 40.61%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $200,000 $200,000 $150,000 $150,000 $150,000
Asset coverage 618% 593% 639% 832% 870%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $24.97 $25.04 $25.85 $25.90 $24.25
(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 $.19 per share.
(d) Includes short-term capital gain in the amount of $.51 per share.
(e) Includes short-term capital gain in the amount of $1.82 per share.
22
19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
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, securities sold short and options written, of
General American Investors Company, Inc. as of December 31, 2004, 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 the standards of the Public Company
Accounting Oversight Board (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 amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, 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, 2004, 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 U.S. generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
January 19, 2005
23
20 OFFICERS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION NAME (AGE) PRINCIPAL OCCUPATION
EMPLOYEE SINCE DURING PAST 5 YEARS EMPLOYEE SINCE DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (62) President and Chief Peter P. Donnelly (56) Vice-President of the
1994 Executive Officer of the 1974 Company since 1991
Company since 1995 securities trader
Andrew V. Vindigni (45) Vice-President of the Diane G. Radosti (52) Treasurer of the
1988 Company since 1995 1980 Company since 1990
security analyst (financial Principal Accounting
services industry) Officer since 2003
Eugene L. DeStaebler, Jr.(66) Vice-President, Administration Carole Anne Clementi (58) Secretary of the Company
1975 of the Company since 1978 1982 since 1994
Principal Financial shareholder relations
Officer since 2002; and office management
Chief Compliance Officer
since 2004
Peter E. de Svastich (61) Vice-President of the Company Craig A. Grassi (36) Assistant Vice-President of
2004 since 2005 1991 the Company since 2005;
administration, finance and employee since 1991
operations information technology
Partner & CFO of Decision
Capital LLC (2002-2004); Maureen E. LoBello (54) Assistant Secretary of the
Partner & CFO of Hawkins 1992 Company since 2005;
McEntee LLC (2000-2001) employee since 1992
benefits administration
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 the inside back cover.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
In addition to purchases of the Company's Common Stock as set forth in Note 2,
on page 16, 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.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission (SEC) as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available on
the SEC's website: www.sec.gov. Also, Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A
copy of the Company's Form N-Q may be obtained by calling us at 1-800-436-8401.
The Company's Chief Executive Officer has submitted to the New York Stock
Exchange the required annual certification.
24
DIRECTORS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT ("DISINTERESTED") DIRECTORS
---------------------------------------------------------------------------------------------------------------------------------
Lawrence B. Buttenwieser (73) 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. (40) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Medicis Pharmaceutical Corporation, Director
Management, LLC Neurosciences Research Foundation, Trustee
(investments and securities)
Lewis B. Cullman (86) Managing Member Chess-in-the-Schools, Chairman, Board of Trustees
1961 Cullman Ventures LLC Metropolitan Museum of Art, Honorary Trustee
(formerly Cullman Ventures, Inc.) 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 (75) 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 (59) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (74) Managing Partner IGENE Biotechnology, Inc., Director
1994 SRK Management Company Insight Communications Company, Inc.,
(private investment company) Chairman, Board of Directors
Richard R. Pivirotto (74) President Associated Community Bancorp, Inc., Director
1971 Richard R. Pivirotto Co., Inc. General Theological Seminary, Trustee
(self-employed consultant) Greenwich Hospital Corporation, Trustee
Immunomedics, Inc., Director
New York Life Insurance Company, Director
Princeton University, Charter Trustee Emeritus
D. Ellen Shuman (49) Vice President and Bowdoin College, Trustee
2004 Chief Investment Officer The Investment Fund for Foundations, Director
Carnegie Corporation of New York Meristar Hospitality Corporation, Director
Edna McConnell Clark Foundation,
Investment Advisor
Joseph T. Stewart, Jr. (75) Corporate director and trustee Foundation of the University of
1987 Executive Consultant Medicine and Dentistry of New Jersey, Trustee
Johnson & Johnson (1990-1999) Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Trustee,
Board of Advisors
United States Merchant Marine Academy Foundation,
Trustee
Raymond S. Troubh (78) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Gentiva Health Services, Inc., Director
Petrie Stores Liquidating Trust, Trustee
Portland General Electric Company, Director
Triarc Companies, Inc., Director
WHX Corporation, Director
INSIDE ("INTERESTED") DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (62) 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.
-----------------------------------------
William O. Baker, DIRECTOR EMERITUS
William T. Golden, DIRECTOR EMERITUS
25
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
26
ITEM 2. CODE OF ETHICS.
On July 9, 2003, the Board of Directors adopted a code of ethics that applies to
registrant's principal executive and senior financial officers. The code of
ethics is available on registrant's Internet website at
http://www.generalamericaninvestors.com. Since the code of ethics was adopted
there have been no amendments to the code nor have there been granted any
waivers from any provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The board of directors has determined that none of the members of registrant's
audit committee meets the definition of "audit committee financial expert" as
the term has been defined by the U.S. Securities and Exchange Commission (the
"Commission"). In addition, the board of directors has determined that the
members of the audit committee have sufficient expertise to perform the duties
and responsibilities of the audit committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES The aggregate fees paid and accrued by the registrant for
professional services rendered by its independent auditors, Ernst & Young LLP,
for the audit of the registrant's annual financial statements and the review of
the registrant's semi-annual financial statements for 2004 and 2003 were $69,600
and $64,500, respectively.
(b) AUDIT RELATED FEES The aggregate fees paid or accrued by the registrant for
audit-related professional services rendered by Ernst & Young LLP for 2004 and
2003 were $20,500 and $49,400, respectively. Such services and related fees for
2004 and 2003 included: review of registration statement related to preferred
stock offering and provision of comfort letter and consent ($21,150 in 2003),
performance of agreed upon procedures relating to the preferred stock basic
maintenance reports ($5,000 and $12,750, respectively), review of quarterly
employee security transactions and issuance of report thereon ($12,000 in each
year) and other audit-related services ($3,500 in each year).
(c) TAX FEES The aggregate fees paid or accrued by the registrant for
professional services rendered by Ernst & Young LLP for the review of the
registrant's federal, state and city income tax returns and excise tax
calculations for 2004 and 2003 were $12,500 and $12,000, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2004 or 2003.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY All services to be performed for the
registrant by Ernst & Young LLP must be pre-approved by the audit committee. All
services performed during 2004 and 2003 were pre-approved by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees paid or accrued by the registrant for non-audit
professional services rendered by Ernst & Young LLP to the registrant for 2004
and 2003 were $33,000 and $61,400, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of the audit committee are: Sidney R. Knafel, chairman,
Arthur G. Altschul, Jr., Lawrence B. Buttenwieser, Lewis B. Cullman and John D.
Gordan, III.
(b) Not applicable.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 9. 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
------------------------------------------------------------------------------------------------------------------------------------
07/01-07/31 72500 29.4170 72500 669304
08/01-08/31 84500 28.5304 84500 584804
09/01-09/30 97600 29.1195 97600 487204
10/01-10/31 84400 29.9321 84400 402804
11/01-11/30 67600 30.6880 67600 335204
12/01-12/31 108900 31.1798 108900 226304
------- -------- ------- ------
Total 515500 515500
======= =======
Note - On January 14, 2004, 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, July 1, 2004, there were 241,804 shares available for
repurchase under such authorization. On July 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
repurchase program which began in March 1995. As of the end of the period, December 31, 2004, there were 226,304
shares available for repurchase under this program.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommmend nominees to the registrant's board of directors as set forth in the
registrant's Proxy Statement, dated March 2, 2004.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of January 25, 2005, 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
January 25,2005, 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 and on Form N-Q 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 decisions regarding required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the Registrant's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) As indicated in Item 2., the code of ethics is posted on the registrant's
Internet website.
(a)(2) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company
Act of 1940 are attached hereto as Exhibit 99 CERT.
(a)(3) There were no written solicitations to purchase securities under
the Rule 23c-1 under the Investment Company Act of 1940 during the
period covered by the report.
(b) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 are attached hereto as Exhibit 99.906 CERT.
27
SIGNATURES
Pursuant to the requirements of the Securities 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: February 8, 2005
Pursuant to the requirements of the Securities 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: February 8, 2005
By: /s/Eugene L. DeStaebler, Jr.
Eugene L. DeStaebler, Jr.
Vice-President, Administration
(Principal Financial Officer)
Date: February 8, 2005