GAM Holding AG
Annual Report 2000

Plain-text annual report

GENERAL AMERICAN INVESTORS COMPANY, INC. Established in 1927, the Company is a closed-end investment company listed on the New York Stock Exchange. Its objective is long-term capital appreciation through investment in companies with above average growth potential. FINANCIAL SUMMARY Net assets-December 31 Preferred Stock liquidation preference Common Stock Net investment income Net realized gain Net increase (decrease) in unrealized 2000 $ 1 , 3 0 5 , 0 3 9 , 4 6 3 150,000,000 1,155,039,463 13,805,530 217,372,941 1999 $ 1 , 2 4 4 , 5 1 9 , 1 2 4 150,000,000 1,094,519,124 11,168,875 129,187,204 appreciation (45,048,910) 164,358,438 Per Common Share-December 31 Net asset value Market price Discount from net asset value $39.91 $36.00 -9.8% Common Shares outstanding-Dec. 31 Common stockholders of record-Dec. 31 Market price range* (high-low) Market volume-shares 28,940,544 5,182 $44.00-$35.63 4,896,700 *Unadjusted for dividend payments. $41.74 $37.1875 -10.9% 26,219,377 5,452 $37.19-$30.19 4,884,500 DIVIDEND SUMMARY (per share) Record Date Payment Date Ordinary Income Capital Gain Total Common Stock Nov. 13, 2000 Jan. 29, 2001 Dec. 21, 2000 Mar. 14, 2001 Total from 2000 earnings $1.97(a) .06(b) $2.03 $4.14 2.02 $6.16 (a) Includes short-term gain in the amount of $1.49 per share. (b) Represents short-term gain. Nov. 15, 1999 Jan. 24, 2000 Dec. 21, 1999 Mar. 7, 2000 Total from 1999 earnings $0.71(c) .33(d) $1.04 $2.41 1.64 $4.05 (c) Includes short-term gain in the amount of $.29 per share. (d) Represents short-term gain. Preferred Stock Mar. 6, 2000 Jun. 6, 2000 Sep. 6, 2000 Dec. 6, 2000 Total for 2000 Mar. 23, 2000 Jun. 23, 2000 Sep. 25, 2000 Dec. 26, 2000 $.1281 .1281 .1281 .1281 $.5124(e) $ .3219 .3219 .3219 .3219 $1.2876 (e) Includes short-term gain in the amount of $.4056 per share ($.1014 per quarter). Mar. 8, 1999 Jun. 7, 1999 Sep. 7, 1999 Dec. 6, 1999 Total for 1999 Mar. 23, 1999 Jun. 23, 1999 Sep. 23, 1999 Dec. 23, 1999 $.0715 .0715 .0715 .0715 $.2860(f) $.3785 .3785 .3785 .3785 $1.5140 (f) Includes short-term gain in the amount of $.1164 per share ($.0291 per quarter). $6.11 2.08 $8.19 $3.12 1.97 $5.09 $ .45 .45 .45 .45 $1.80 $.45 .45 .45 .45 $1.80 General American Investors Company, Inc. 450 Lexington Avenue, New York, NY 10017 (212) 916-8400 (800) 436-8401 1 T O T H E S T O C K H O L D E R S G e n e r a l A m e r i c a n I n v e s t o r s General American Investors has had another exceptional year. For the twelve months ended December 31, 2000, the investment return to our common stockholders was 19.1%, consisting of a 17.6% increase in the net asset value per share (assuming reinvestment of all dividends) together with a slight decline in the dis- count at which our shares trade. By comparison, our benchmark, the Standard & Poor’s 500 Stock Index (including income), declined 9.1%. General American has been cited as the top performing US-listed, large-cap equity fund for the year 2000. Results for the past five years have been equally gratifying. Furthermore, the table that fol- lows, which compares our returns on an annualized basis with the S&P 500, illustrates that General American’s superior performance has been generational in nature. Y e a r s Stockholder Return S&P 500 3 5 10 20 30 40 29.6% 30.0 22.2 17.1 16.0 14.5 12.2% 18.3 17.4 15.7 13.2 11.9 Last year’s performance was driven by strong gains in financial services, health care and selected tech- nology shares. By contrast, two core retail holdings, Home Depot and Wal-Mart, declined meaningfully. Everest Re Group, a property and casualty reinsurer, appreciated dramatically, and is now among our largest holdings, as did Golden West Financial - the California savings and loan company. Other stand- outs include Pfizer which has been in the portfolio for a decade and retains its position within our top ten holdings. Total assets are now in excess of $1.3 billion includ- ing the capital raised in our $150 million preferred stock offering. By contrast, five years ago our assets were approximately $600 million. General American remains wholly independent and self-managed as it has been since its inception in 1927. The Company’s operating costs in relation to average net assets are well below the equity mutual fund industry norm and portfolio turnover remains modest. Long-term capital gain distributions for 2000 will total $6.16 per share, including $2.02 per share that will be distributed in March 2001. Because of tax requirements unique to our industry, gains re- alized in November and December are paid in the following calendar year. Total dividends attribut- able to 2000, including net income and short-term capital gains, amounted to $8.19 per share, or 20.5% of ending net asset value ("NAV"). This per- centage has averaged 11.6% over the past 20 years. The share repurchase program, a part of an ongoing effort to maximize NAV, continues apace. During 2000, 1,017,200 common shares were acquired at an average discount to NAV of 8.6%. The Board of Directors has authorized repurchases of common shares when they are trading at a discount in excess of 8% of NAV. As in past years, our investments are focused on companies with strong financial characteristics and powerful positions in growing industries. Our fundamental approach to research relies upon a highly skilled staff of professionals supported by the latest technology. In recent quarterly reports, we have described the effect that slowing economic activity together with rising costs can have on earnings and further, that we have employed certain hedging techniques to protect our own profits. It now seems evident that the economy is faltering as reflected in disappoint- ing Christmas retail sales, declining auto sales, slackening labor markets and a general slowdown in manufacturing. While the Federal Reserve has begun to ease its monetary policy aggressively, the economy and stock market may not respond with characteristic vigor. Abetted by the wealth effect of a long bull market, consumers have been spend- ing more than they make for some time. Corporations, likewise, have participated in a capi- tal spending boom, creating capacity that will require time to fill, at the very least. Finally, the Fed’s action is commencing with the market’s price-to-earnings multiple at twice the average of prior easings. While guarded with respect to the outlook for the market overall, we remain highly confident that the quality of our holdings and the flexibility imparted by abundant cash reserves leave us well positioned in the current environment. With regret, we report that Anthony M. Frank, a Director since 1992, resigned as a Director, to become effective at the time of the annual meeting in April. His wisdom and judgement have been highly regarded by the Board and his services to the Company greatly appreciated. He was always ready to make available his broad knowledge and experience gained as a prominent business and financial executive. We will miss him. By Order of the Board of Directors, Spencer Davidson President and Chief Executive Officer January 17, 2001 2 T H E C O M P A N Y G e n e r a l A m e r i c a n I n v e s t o r s Corporate Overview General American Investors, establish- ed 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 rear cover of this report. Portfolio Manager Mr. Spencer Davidson has been responsible for the man- agement 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 coun- selor, 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 deter- mined in the same manner as all listed stocks. Net asset value is computed daily (on an unau- dited basis) and is furnished upon request. It is also available on most electronic quotation services using the symbol "XGAMX." The fig- ure for net asset value per share, together with the market price and the percentage discount 3 T H E C O M P A N Y G e n e r a l A m e r i c a n I n v e s t o r s or premium from net asset value as of the close of each week, is published in The New York Times, The Wall Street Journal and Barron’s. The ratio of market price to net asset value has shown considerable variation over a long period of time. While shares of GAM usually sell at a discount from their underlying net asset value, as do the shares of most other domestic equity closed-end investment companies, they, periodically, have sold at a premium over net asset value. The last time the Company’s shares sold at a premium was the year-long period from March 1992 through April 1993. During 2000, the stock sold at discounts from net asset value which ranged from 0.3% (November 22) to 13.2% (March 3). At December 31, the price of the stock was at a discount of 9.8% as compared with a discount of 10.9 % a year earlier. “GAM Pr” Preferred Stock On June 19, 1998, the Company issued and sold in an underwritten offering 6,000,000 shares of its 7.20% Tax-Advantaged Cumulative Preferred Stock with a liquidation preference of $25 per share ($150,000,000 in the aggregate). The Preferred Shares are noncallable for 5 years, are rated "aaa" by Moody’s Investors Service, Inc. and are listed and traded on the New York Stock Exchange (symbol, GAM Pr). 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 poli- cy 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" distribu- tion 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 since1939 and capital gain dividends in varying amounts have been paid for each of the years 1943-2000 (except for the year 1974). (A table listing div- idends paid during the 20-year period 1981-2000 is shown at the bottom of page 6.) To the extent that full shares can be issued, dividends are paid to Common Stockholders in additional shares of Common Stock unless the stockholder specifically requests payment in cash. Spill-over dividends of nominal amounts are paid in cash only. Privacy Policy and Practices General American Investors collects nonpublic personal in- formation 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. We do not have knowledge of or collect personal information about stockhold- ers 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 in- formation about our stockholders or former stockholders to anyone, except as permitted by law. We restrict access to nonpublic personal infor- mation about our stockholders to those employees who need to know that information to provide services to our stockholders. We maintain physical, electron- ic and procedural safeguards that comply with federal standards to guard our stockholders’ nonpublic personal information. 4 I N V E S T M E N T R E S U L T S G e n e r a l A m e r i c a n I n v e s t o r s Total return on $10,000 investment 20 years ended December 31, 2000 T he investment return for a common stockholder of General American Investors (GAM) over the 20 years ended December 31, 2000 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 illustra- tion assumes an investment of $10,000 at the beginning of 1981. The Stockholder Return is the return a common stockholder 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 com- mon 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 STOCKHOLDER RETURN NET ASSET VALUE RETURN STANDARD & POOR’S 500 RETURN CUMULATIVE INVESTMENT ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN 1981 $ 11,322 1 3 . 2 2 % $ 10,110 1 . 1 0 % $ 9,503 - 4 . 9 7 % 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1 3 , 5 0 6 1 5 , 7 0 9 1 4 , 5 8 4 1 8 , 2 0 2 2 0 , 2 3 6 1 6 , 9 7 6 2 0 , 5 8 5 3 0 , 5 8 9 3 1 , 8 1 2 5 8 , 8 5 3 6 7 , 5 5 1 5 6 , 7 9 7 5 2 , 3 3 3 6 3 , 4 3 8 7 5 , 7 9 6 1997 1 0 8 , 0 7 0 1998 1 4 1 , 9 0 6 1 9 9 9 2 0 0 0 1 9 7 , 5 6 2 2 3 5 , 2 9 6 1 9 . 2 9 1 6 . 3 1 - 7 . 1 6 24.81 11.17 -16.11 21.26 48.60 4.00 85.00 14.78 -15.92 -7.86 21.22 19.48 4 2 . 5 8 3 1 . 3 1 3 9 . 2 2 1 9 . 1 0 1 1 , 9 7 2 1 4 , 7 2 7 1 3 , 6 8 3 1 8 , 4 7 2 2 0 , 5 3 5 2 1 , 0 5 5 2 4 , 7 5 4 3 4 , 1 2 6 3 6 , 4 0 9 5 8 , 6 5 1 6 0 , 7 3 4 5 9 , 6 7 1 5 8 , 0 3 6 7 1 , 7 2 1 8 6 , 0 4 3 1 1 3 , 6 2 0 1 5 3 , 5 4 6 2 0 9 , 4 3 7 2 4 6 , 3 8 1 1 8 . 4 2 2 3 . 0 1 - 7 . 0 9 3 5 . 0 0 1 1 . 1 7 2 . 5 3 1 7 . 5 7 3 7 . 8 6 6 . 6 9 6 1 . 0 9 3 . 5 5 - 1 . 7 5 - 2 . 7 4 2 3 . 5 8 1 9 . 9 7 3 2 . 0 5 3 5 . 1 4 3 6 . 4 0 1 7 . 6 4 1 1 , 5 5 1 1 4 , 1 5 6 1 5 , 0 4 5 1 9 , 8 2 4 2 3 , 5 2 9 2 4 , 7 6 2 2 8 , 8 5 6 3 7 , 9 8 0 3 6 , 8 0 6 4 7 , 9 9 5 5 1 , 6 3 8 5 6 , 8 6 4 5 7 , 5 8 6 7 9 , 1 8 1 9 7 , 3 2 1 1 2 9 , 7 5 8 1 6 6 , 8 0 4 2 0 1 , 7 6 6 1 8 3 , 4 2 6 2 1 . 5 5 2 2 . 5 5 6 . 2 8 3 1 . 7 7 1 8 . 6 9 5 . 2 4 1 6 . 5 3 3 1 . 6 2 - 3 . 0 9 3 0 . 4 0 7 . 5 9 1 0 . 1 2 1 . 2 7 3 7 . 5 0 2 2 . 9 1 3 3 . 3 3 2 8 . 5 5 2 0 . 9 6 - 9 . 0 9 5 I N V E S T M E N T R E S U L T S G e n e r a l A m e r i c a n I n v e s t o r s COMPARATIVE ANNUALIZED INVESTMENT RESULTS YEARS ENDED DECEMBER 31, 2000 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year 5 years 10 years 15 years 20 years 19.1 % 17.6 % -9.1 % 30.0 22.2 18.6 17.1 28.0 21.1 18.9 17.4 18.3 17.4 16.0 15.7 6 M A J O R S T O C K C H A N G E S * : T H R E E M O N T H S E N D E D D E C E M B E R 3 1 , 2 0 0 0 ( U N A U D I T E D ) G e n e r a l A m e r i c a n I n v e s t o r s ADDITIONS INCREASES Alkermes, Inc. Brooktrout, Inc. Coca-Cola Enterprises Inc. MedImmune, Inc. Molex Incorporated Class A Shaw Industries, Inc. SONICblue Incorporated (a) DECREASES Buffets, Inc. DuPont Photomasks, Inc. GelTex Pharmaceuticals, Inc. GPU, Inc. Huntingdon Life Sciences Group plc-ADR Nvest Companies, L.P. Smallworldwide plc Spherion Corporation ELIMINATIONS REDUCTIONS Cisco Systems, Inc. Everest Re Group, Ltd. Golden West Financial Corporation HNC Software Inc. IDEC Pharmaceuticals Corporation Lam Research Corporation Manugistics Group, Inc. Mitel Corporation National Commerce Bancorporation SPSS Inc. Uniroyal Technology Corporation Visteon Corporation Waste Management, Inc. XL Capital Ltd. * Excludes transactions in Stocks - Miscellaneous - Other. (a) Formerly named S3 Incorporated. (b) Shares disposed of in conjunction with a tender offer. (c) Shares disposed of in conjunction with a merger. (d) Excludes 150,000 shares sold short. SHARES DECEMBER 31, 2000 SHARES HELD 45,000 50,000 1,500 25,000 15,000 25,000 343,000 165,000 225,000 526,500 214,000 644,000 225,000 600,000 1,987,500 85,000 300,000 110,000 70,000 82,000 200,000 64,500 (b) (c) (b) (b) (b) 40,000 70,000 15,000 50,000 140,000 150,000 145,000 100,000 300,000 60,000 13,000 120,507 40,000 85,000 — — — — — — — — (d) (e) (f) 600,000 780,000 465,000 50,000 225,000 350,000 60,000 130,000 25,000 35,500 753,000 54,993 373,000 66,000 (e) Includes shares purchased in prior period and previously carried under Stocks-Miscellaneous-Other. (f) Includes shares received in conjunction with a stock split. D I V I D E N D S P E R C O M M O N S H A R E ( 1 9 8 1 - 2 0 0 0 ) The following table shows aggregate dividends paid per share on the Company’s Common Stock for each year during the 20-year period 1981-2000. Amounts shown include payments made after year-end attributable to income and gain in each respective year. YEAR 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 DIVIDEND FROM INCOME# CAPITAL GAINS $.63 .36 .67 .28 .47 .36 .35 .29 .23 .21 $3.63 1.15 2.38 1.35 1.07 2.15 1.54 1.69 1.56 1.65 YEAR 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 DIVIDEND FROM INCOME# CAPITAL GAINS $.09 .03 .06 .06 .13 .25 .21 .47 1.04 2.03 $3.07 2.93 2.34 1.59 2.77 2.71 2.95 4.40 4.05 6.16 #Includes short-term capital gains per share which amounted to $.08 in 1981, $.28 in 1983, $.12 in 1985, $.02 in 1989, $.03 in 1995, $.05 in 1996, $.62 in 1999 and $1.55 in 2000. 7 T E N L A R G E S T I N V E S T M E N T H O L D I N G S ( U N A U D I T E D ) G e n e r a l A m e r i c a n I n v e s t o r s The statement of investments as of December 31, 2000, shown on pages 10 and 11 includes 72 stock is- sues. Listed here are the ten largest stock holdings on that date. THE HOME DEPOT, INC. The dominant company in home center retailing, Home Depot’s innovative merchandising, strong balance sheet and excellent management has enabled the Company to continue to gain share in a fragmented industry. EVEREST RE GROUP, LTD. The largest independent U.S. property/casualty reinsurer which generates annual premiums of $1.3 billion and has a high quality, well-reserved AA balance sheet. This Bermuda domiciled company has a strong management team that exercises prudent under- writing discipline and efficient expense control, resulting in above-average earnings growth. IDEC PHARMACEUTICALS CORPORATION A biopharmaceutical company which is committed to develop- ing and commercializing effective treatments of selected cancers and autoimmune diseases. With proven products such as Rituxan and a broad pipeline of product opportunities, IDEC is positioned for continued success. FORD MOTOR COMPANY A global manufacturer of automobiles, trucks and related parts. The company provides financial services through its Ford Motor Credit subsidiary and owns 81% of Hertz, the top car rental firm in the U.S. THE TJX COMPANIES, INC. The leading off-price retailer of apparel and home fashions in the U.S. and worldwide. TJX has expanded through acquisitions and internal growth, has achieved financial strength and is positioned for sustainable growth. PFIZER INC. Well established as a leader in the pharmaceutical industry, Pfizer continues to reap the benefits of its commitment to research and development and its ability to effectively market products. The recent launch of several new products serving large markets and development of a pipeline rich with many promising drug candidates position Pfizer for strong long-term growth. GOLDEN WEST FINANCIAL CORPORATION A savings and loan holding company with $50 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 manage- ment help produce above-average earnings increases. AMR CORPORATION The holding company of American Airlines, AMR is a global market leader in air transportation and related information services. M & T BANK CORPORATION A bank holding company with $30 billion in assets headquarter- ed in Buffalo, NY. It has strong, opportunistic management with a high level of ownership and a history of enhancing shareholder value. High asset quality, excellent expense control, share repurchases and adroit acquisitions help generate above- average earnings growth. WAL-MART STORES, INC. 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. S H A R E S V A L U E % T O T A L N E T A S S E T S 2,145,000 $97,999,688 7.5 % 780,000 55,867,500 4.3 225,000 42,651,562 3.3 1,650,500 38,683,593 3.0 1,350,000 37,462,500 2.9 790,000 36,340,000 2.8 465,000 31,387,500 2.4 800,000 31,350,000 2.4 450,000 30,600,000 2.3 570,000 30,281,250 2.3 $432,623,593 33.2% 8 S T A T E M E N T O F A S S E T S A N D L I A B I L I T I E S G e n e r a l A m e r i c a n I n v e s t o r s A S S E T S INVESTMENTS, AT VALUE (NOTE 1a) Common Stocks DECEMBER 31, 2000 1999 (cost $457,376,112 and $400,200,912, respectively) $ 1,005,549,350 $ 1,010,419,262 Corporate discount notes (cost $285,169,722 and $233,018,638, respectively) CASH, RECEIVABLES AND OTHER ASSETS Cash (including margin account balance of $2,899,267 in 2000) Receivable for securities sold Receivable from broker for proceeds on securities sold short Dividends, interest and other receivables Prepaid Expenses Other TOTAL ASSETS L I A B I L I T I E S Payable for securities purchased Preferred dividend accrued but not yet declared Securities sold short, at value (proceeds $67,808,111) (note 1a) Accrued expenses and other liabilities TOTAL LIABILITIES NET ASSETS 285,169,722 1,290,719,072 233,018,638 1,243,437,900 3,112,551 434,736 67,808,111 2,754,152 5,078,299 557,437 92,743 4,352,729 — 2,613,692 4,423,775 580,184 1,370,464,358 1,255,501,023 3,921,101 240,000 50,811,910 10,451,884 65,424,895 2,781,760 240,000 — 7,960,139 10,981,899 $1,305,039,463 $1,244,519,124 NET ASSETS APPLICABLE TO PREFERRED STOCK AT A LIQUIDATION VALUE OF $25 PER SHARE $150,000,000 $150,000,000 NET ASSETS APPLICABLE TO COMMON STOCK $1,155,039,463 $1,094,519,124 NET ASSET VALUE PER COMMON SHARE $39.91 $41.74 N E T A S S E T S 7.20% Tax-Advantaged Cumulative Preferred Stock, $1 par value (note 2) Authorized 10,000,000 shares; outstanding 6,000,000 shares Common Stock, $1 par value (note 2) Authorized 50,000,000 shares; outstanding 28,940,544 and 26,219,377 shares, respectively (exclusive of 9,400 and 105,400 shares, respectively, held in Treasury) Additional paid-in capital ( note 2) Undistributed realized gain on securities sold (note 2) Distributions in excess of net income (note 2) Unallocated distributions on Preferred Stock Unrealized appreciation on investments (including aggregate gross unrealized appreciation of $604,311,705 and $638,728,297, respectively) TOTAL NET ASSETS (see notes to financial statements) $6,000,000 $6,000,000 28,940,544 645,307,453 60,229,372 (367,345) (240,000) 26,219,377 551,566,976 51,801,923 (1,047,502) (240,000) 565,169,439 610,218,350 $1,305,039,463 $1,244,519,124 9 S T A T E M E N T O F O P E R A T I O N S G e n e r a l A m e r i c a n I n v e s t o r s INCOME Dividends (net of foreign withholding taxes of $71,050 and $198,010, respectively) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Transfer agent, custodian and registrar fees and expenses Directors’ fees and expenses Stockholders’ meeting and reports Auditing and legal fees Miscellaneous taxes (note 1c) TOTAL EXPENSES NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 2000 1999 $7,646,236 17,819,536 $6,927,077 13,355,343 25,465,772 20,282,420 7,766,966 2,542,419 550,679 250,036 187,653 146,510 132,000 83,979 5,291,925 2,372,064 680,511 220,989 184,675 149,881 120,000 93,500 11,660,242 9,113,545 13,805,530 11,168,875 REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4) Net realized gain on investments: Long transactions Short sale transactions (note 1b) Net realized gain on investments (long-term, except for $43,284,041 and $16,905,418, respectively) Net increase (decrease) in unrealized appreciation NET GAIN ON INVESTMENTS INCREASE IN NET ASSETS RESULTING FROM OPERATIONS S T A T E M E N T O F C H A N G E S I N N E T A S S E T S OPERATIONS 213,312,192 4,060,749 129,187,204 — 217,372,941 (45,048,910) 129,187,204 164,358,438 172,324,031 293,545,642 $186,129,561 $304,714,517 YEAR ENDED DECEMBER 31, 2000 1999 Net investment income Net realized gain on sales of securities Net increase (decrease) in unrealized appreciation $ 13,805,530 $ 11,168,875 129,187,204 164,358,438 217,372,941 (45,048,910) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 186,129,561 304,714,517 DISTRIBUTIONS TO PREFERRED STOCKHOLDERS From net income, including short-term capital gain From long-term capital gain DECREASE IN NET ASSETS FROM PREFERRED DISTRIBUTIONS (3,074,400) (7,725,600) (1,716,000) (9,084,000) (10,800,000) (10,800,000) DISTRIBUTIONS TO COMMON STOCKHOLDERS From net income, including short-term capital gain From long-term capital gain DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (60,132,212) (151,138,654) (211,270,866) (17,730,368) (93,854,267) (111,584,635) CAPITAL SHARE TRANSACTIONS Value of Common Shares issued in payment of dividends (note 2) 136,477,203 Cost of Common Shares purchased (note 2) (40,015,559) (30,486,251) 73,742,396 INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE IN NET ASSETS 96,461,644 60,520,339 43,256,145 225,586,027 NET ASSETS BEGINNING OF YEAR 1,244,519,124 1,018,933,097 (see notes to financial statements) END OF YEAR (including distributions in excess of net income of $367,345 and $1,047,502, respectively) $1,305,039,463 $1,244,519,124 1 0 S T A T E M E N T O F I N V E S T M E N T S : D E C E M B E R 3 1 , 2 0 0 0 G e n e r a l A m e r i c a n I n v e s t o r s C O M M O N S T O C K S SHARES VALUE (NOTE 1a) 80,000 Union Carbide Corporation (COST $3,566,534) $ 4,315,000 CHEMICAL (INCLUDING INSTRUMENTATION ) (0.3%) COMMUNICATIONS AND INFORMATION SERVICES (4.9%) COMPUTER SOFTWARE AND SYSTEMS (3.3%) 75,000 Avanex Corporation (a) 225,000 Brooktrout, Inc. (a) 600,000 Cisco Systems, Inc. (a) 520,000 Cox Communications, Inc. Class A (a) 275,000 NTL Incorporated (a) 142,500 Wolters Kluwer NV-ADR 400,000 Allaire Corporation (a) 50,000 HNC Software Inc. (a) 60,000 Manugistics Group, Inc. (a) 200,000 NCR Corporation (a) 300,000 Parametric Technology Corporation (a) 35,500 SPSS Inc. (a) 600,000 SONICblue Incorporated (a) 275,000 Synopsys, Inc. (a) 230,000 Viewpoint Corporation (a) 150,000 Wind River Systems, Inc. (a) CONSUMER PRODUCTS AND SERVICES (5.8%) 526,500 Coca-Cola Enterprises Inc. 275,000 Ethan Allen Interiors, Inc. 1,650,500 Ford Motor Company 75,000 Keebler Foods Company 200,000 PepsiCo, Inc. 225,000 Shaw Industries, Inc. 54,993 Visteon Corporation 4,467,187 2,130,480 22,950,000 24,017,500 6,582,812 3,883,125 64,031,104 2,012,500 1,484,375 3,420,000 9,825,000 4,031,250 783,219 2,475,000 13,045,312 1,250,625 5,118,750 43,446,031 10,003,500 9,212,500 38,683,593 3,107,812 9,912,500 4,260,938 632,420 75,813,263 (COST $22,773,354) (COST $37,014,812) (COST $58,279,202) ELECTRONICS (1.3%) 644,000 Molex Incorporated Class A (COST $13,592,516) 16,381,750 ENVIRONMENTAL CONTROL (I N C L U D I N G S E R V I C E S ) (0.8%) FINANCE AND INSURANCE (23.6%) 373,000 Waste Management, Inc. (COST $5,272,841) 10,350,750 195,000 American International Group, Inc. 375,000 AmerUs Group Co. 550,000 Annaly Mortgage Management, Inc. 600,000 Annuity and Life Re (Holdings), Ltd. 315 Berkshire Hathaway Inc. Class A (a) 73,980 Central Securities Corporation 780,000 Everest Re Group, Ltd. 355,000 First Midwest Bancorp, Inc. 465,000 Golden West Financial Corporation 475,000 John Hancock Financial Services, Inc. 450,000 M&T Bank Corporation 250,000 MetLife, Inc. 25,000 National Commerce Bancorporation 300,000 PartnerRe Ltd. 350,000 Reinsurance Group of America, Incorporated 235,000 SunTrust Banks, Inc. 200,000 Transatlantic Holdings, Inc. 66,000 XL Capital Ltd (COST $107,887,625) 19,219,688 12,140,625 4,984,375 19,162,500 22,365,000 2,089,935 55,867,500 10,206,250 31,387,500 17,871,875 30,600,000 8,750,000 618,750 18,300,000 12,425,000 14,805,000 21,175,000 5,766,750 307,735,748 1 1 S T A T E M E N T O F I N V E S T M E N T S : D E C E M B E R 3 1 , 2 0 0 0 - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s C O M M O N S T O C K S (C o n t i n u e d) HEALTH CARE (11.3%) SHARES PHARMACEUTICALS (9.0%) 165,000 Alkermes, Inc. (a) 225,000 IDEC Pharmaceuticals Corporation (a) 77,500 Johnson & Johnson 270,000 Magainin Pharmaceuticals Inc. (a) 214,000 MedImmune, Inc. (a) 180,000 OSI Pharmaceuticals, Inc. (a) 790,000 Pfizer Inc. (COST $21,104,488) VALUE (NOTE 1a) $ 5,176,875 42,651,562 8,142,344 599,063 10,205,125 14,422,500 36,340,000 117,537,469 MEDICAL INSTRUMENTS AND DEVICES (1.3%) 290,000 Medtronic, Inc. (COST $862,614) 17,508,750 HEALTH CARE SERVICES (1.0%) 317,000 BioReliance Corporation (a) 750,000 Covance Inc. (a) (COST $8,080,420) (COST $30,047,522) 4,200,250 8,062,500 12,262,750 147,308,969 MISCELLANEOUS (3.0%) Other (COST $46,805,509) 39,469,660 700,000 Repsol, S.A.-ADR (COST $8,236,884) 11,287,500 OIL & NATURAL GAS (INCLUDING SERVICES ) (0.9%) RETAIL TRADE (14.6%) S E M I C O N D U C T O R S ( 4 . 3 % ) 600,000 Costco Companies, Inc. (a) 2,145,000 The Home Depot, Inc. (b) 1,350,000 The TJX Companies, Inc. 570,000 Wal-Mart Stores, Inc. 175,000 Brooks Automation, Inc. (a) 425,000 Cirrus Logic, Inc. (a) 400,000 EMCORE Corporation (a) 2,150,000 IQE plc (a) 350,000 Lam Research Corporation (a) 133,624 MIPS Technologies, Inc. Class B (a) 130,000 Mitel Corporation (a) 200,000 PRI Automation, Inc. (a) 753,000 Uniroyal Technology Corporation (a) (COST $47,869,734) (COST $49,934,011) 23,962,500 97,999,688 37,462,500 30,281,250 189,705,938 4,910,938 7,968,750 18,800,000 6,450,000 5,075,000 3,405,324 1,048,125 3,750,000 4,706,250 56,114,387 30,000 3,003,000 3,033,000(d) SPECIAL HOLDINGS (a)(c) (NOTE 6) (0.2%) (e) Sequoia Capital IV 546,000 Standard MEMS, Inc. Series A Convertible Preferred (COST $3,992,654) TECHNOLOGY (0.4%) 175,000 Thermo Electron Corporation (a) (COST $2,930,773) 5,206,250 TRANSPORTATION (2.4%) 800,000 AMR Corporation (COST $19,172,141) 31,350,000 TOTAL COMMON STOCKS (77.1%) (COST $457,376,112) 1,005,549,350 1 2 S T A T E M E N T O F I N V E S T M E N T S : D E C E M B E R 3 1 , 2 0 0 0 - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s S H O R T-T E R M S E C U R I T I E S A N D O T H E R A S S E T S PRINCIPAL AMOUNT $72,100,000 69,600,000 69,000,000 77,500,000 Ford Motor Credit Company notes due 1/5-2/6/01; 6.35%-6.57% General Electric Capital Corp. notes due 1/9-2/5/01; 6.41%-6.57% General Motors Acceptance Corp. notes due 1/2-1/26/01; 6.45%-6.58% Sears Roebuck Acceptance Corp. notes due 1/16-2/12/01; 6.25%-7.35% Cash, receivables and other assets, less liabilities TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (22.9%) NET ASSETS (COST $285,169,722) (COST $299,490,113) (COST $756,866,225) VALUE (NOTE 1a) $ 71,422,972 68,869,898 68,290,041 76,586,811 285,169,722 14,320,391 299,490,113 $1,305,039,463 (a) Non-income producing security. (b) 2,100,000 shares held by custodian in a segregated custodian account as collateral for open short positions. (c) Restricted security. (d) Fair value of each holding in the opinion of the Directors. (e) A limited partnership interest . S T A T E M E N T O F S E C U R I T I E S S O L D S H O R T : D E C E M B E R 3 1 , 2 0 0 0 G e n e r a l A m e r i c a n I n v e s t o r s SHARES 16,500 64,000 30,000 122,000 35,000 150,000 128,800 42,000 50,000 45,000 152,000 50,000 10,000 131,250 308,000 175,000 100,000 C O M M O N S T O C K S Ariba, Inc. ASM Lithography Holding N.V. Asyst Technologies, Inc. Atmel Corporation Chartered Semiconductor Manufacturing Ltd.-ADR Cisco Systems, Inc. The Dow Chemical Company General Electric Company INTERSHOP Communications AG i2 Technologies, Inc. Maxtor Corporation MBNA Corporation Micrel, Incorporated MIPS Technologies, Inc. Class A Molex Incorporated Southwest Bancorporation of Texas Inc. STMicroelectronics N.V. TOTAL SECURITIES SOLD SHORT (PROCEEDS $67,808,111) (see notes to financial statements) VALUE (NOTE 1a) $884,813 1,444,000 403,125 1,418,250 923,125 5,737,500 4,717,300 2,013,375 1,557,500 2,446,875 850,250 1,846,875 336,875 3,502,734 10,934,000 7,514,063 4,281,250 $50,811,910 1 3 N O T E S T O F I N A N C I A L S T A T E M E N T S G e n e r a l A m e r i c a n I n v e s t o r s 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 generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. a. SECURITY VALUATION Securities traded on securities exchanges or on the NASDAQ National Market System are valued at the last reported sales price on the last business day of the period. Listed and NASDAQ securities for which no sales are reported on that day and other securities traded in the over-the-counter market are valued at the last bid price (asked price for open short positions) on the valuation date. Corporate discount notes are valued at amortized cost, which approximates market value. Special holdings are valued at fair value in the opinion of the Directors. In determining fair value, in the case of restricted shares, consideration is given to cost, operating and other financial data and, where applicable, subsequent private offerings or market price of the issuer’s unrestricted shares (to which a 30 percent discount is applied); for limited partnership interests, fair value is based upon an evaluation of the part- nership’s net assets. b. SHORT SALES The Company may make short sales of securities for either speculative or hedging purposes. When the Company makes a short sale, it borrows the securities sold short from a broker; in addition, the Company places cash with that broker and securities in a segregated account with the custodian, both as collateral for the short posi- tion. The Company may be required to pay a fee to borrow the securities and may also be obligated to pay any divi- dends 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 sale and the date on which the Company replaces the borrowed securities. c. FEDERAL INCOME TAXES The Company’s policy is to fulfill the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal income taxes is required. d. OTHER As customary in the investment company industry, securities transactions are recorded as of the trade date. Dividend income and distributions to stockholders are recorded as of the ex-dividend dates. 2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS On June 19, 1998, the Company issued and sold 6,000,000 shares of its 7.20% Tax-Advantaged Cumulative Preferred Stock. The stock has a liquidation preference of $25.00 per share plus an amount equal to accumulated and unpaid dividends to the date of redemption. The Company is required to allocate distributions from long-term capital gains and other types of income propor- tionately among holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, they will be paid from ordinary income or net short- term capital gains or will represent a return of capital. Under the Investment Company Act of 1940, the Company is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines, the Company is required to maintain a certain discounted asset coverage for its portfolio that equals or exceeds the Basic Maintenance Amount under the guidelines established by Moody’s Investors Service, Inc. The Company has met these requirements since the issuance of the Preferred Stock. The holders of Preferred Stock have voting rights equivalent to those of the holders of Common Stock (one vote per share) and, generally, vote together with the holders of Common Stock as a single class. At all times, holders of Preferred Stock will elect two members of the Company’s Board of Directors and the hold- ers 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 sub- classification as a closed-end investment company or changes in its fundamental investment policies. On March 8, 2000, stockholders approved an increase in the number of authorized shares of Common Stock from 30,000,000 to 50,000,000. Transactions in Common Stock during 2000 and 1999 were as follows: SHARES AMOUNT 2000 1999 2000 1999 Shares issued in payment of dividends (includes 1,113,200 and 859,193 shares issued from Treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 8.6% and 9.5%, respectively) Decrease in paid-in capital Total decrease Net increase 3,738,367 2,231,251 $ 3,738,367 132,738,836 136,477,203 $ 2,231,251 71,511,145 73,742,396 1,017,200 928,593 (1,017,200) (38,998,359) (40,015,559) $96,461,644 (928,593) (29,557,658) (30,486,251) $43,256,145 1 4 N O T E S T O F I N A N C I A L S T A T E M E N T S - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s 2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS (Continued from bottom of previous page) The cost of the 9,400 shares of Common Stock held in Treasury at December 31, 2000 amounted to $345,039. Distributions in excess of net income for financial statement purposes result primarily from transactions where tax treatment differs from book treatment. 3. OFFICERS’ COMPENSATION AND RETIREMENT AND THRIFT PLANS The aggregate compensation paid by the Company during 2000 and 1999 to its officers amounted to $5,254,000 and $3,669,000, respectively. The Company has non-contributory retirement plans and a contributory thrift plan which cover substantially all employees. The costs to the Company and the assets and liabilities of the plans are not material. Costs of the plans are funded currently. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities and securities sold short (other than short-term securities) during 2000 were as fol- lows: Long transactions Short sale transactions Total PURCHASES $417,143,329 140,745,545 $557,888,874 SALES $573,280,321 212,614,405 $785,894,726 At December 31, 2000, the cost of investments for Federal income tax purposes was the same as the cost for finan- cial reporting purposes. 5. GENERAL INFORMATION Brokerage commissions during 2000 were $944,948. 6. RESTRICTED SECURITIES Sequoia Capital IV* Standard MEMS, Inc. Series A Convertible Preferred Total DATE ACQUIRED 1/31/84 12/17/99 COST $989,654 3,003,000 $3,992,654 VALUE (NOTE 1a) $30,000 3,003,000 $3,033,000 * The amounts shown are net of distributions from this limited partnership interest which, in the aggregate, amounted to $4,703,157. The initial investment in the limited partnership was $2,000,000. 7. 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 $314,000 for 2000. Minimum rental commitments under the operating lease are approximately $403,000 per annum in 2001 through 2002 and $504,000 per annum in 2003 through 2007. In March 1996, the Company entered into a sublease agreement which expires in 2003 and provides for future rental receipts. Minimum rental receipts under the sublease are approximately $203,000 per annum in 2001 through 2002 and $64,000 in 2003. The Company will also receive its proportionate share of operating expenses and real property taxes under the sublease. 8. SUBSEQUENT EVENT On January 17, 2001, the Board of Directors declared on the Common Stock a dividend of $60,156,812 from realized gains, incuding $58,421,519 from long-term capital gains and the balance from short-term gains (ordinary income). This dividend is payable in Common Stock, or in cash upon request, on March 14, 2001. Unaudited In addition to purchases of the Company’s Common Stock as set forth in Note 2 on page 13, 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. 1 5 F I N A N C I A L H I G H L I G H T S G e n e r a l A m e r i c a n I n v e s t o r s 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, 2000. This information has been derived from information contained in the financial statements and market price data for the Company’s shares. PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year Net investment income Net gain on securities - realized and unrealized Total from investment operations Less distributions on: Common Stock: 2000 1999 1998 1997 1996 $ 41.74 .53 $ 34.87 .45 $ 29.15 .47 $ 25.24 .21 $ 23.94 .22 6.12 6.65 11.32 11.77 9.44 9.91 7.15 7.36 3.86 4.08 Dividends from investment income Distributions from capital gains (2.30)(a) (5.78) (8.08) (.71)(b) (3.77) (4.48) (.48) (3.24) (3.72) (.26)(c) (3.19) (3.45) (.20) (2.58) (2.78) Preferred Stock: Dividends from investment income Distributions from capital gains Unallocated (.11)(d) (.29) — (.40) (.07)(e) (.35) — (.42) (.03) (.20) (.01) (.24) — — — — — — — — Total distributions (8.48) (4.90) (3.96) (3.45) (2.78) Capital Stock transaction - effect of Preferred Stock offering — — (.23) — — Net asset value, end of year Per share market value, end of year $39.91 $36.00 $ 41.74 $ 37.19 $ 34.87 $ 30.44 $ 29.15 $ 26.19 $ 25.24 $ 21.00 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share 19.10% 39.22% 31.31% 42.58% 19.48% RATIOS AND SUPPLEMENTAL DATA Total net assets, end of year (000’s omitted) Net assets attributable to Common Stock, end of year (000’s omitted) Ratio of expenses to average net assets $1,305,939 $1,244,519 $1,018,933 $702,597 $597,597 $1,155,039 $1,094,519 $868,933 $702,597 $597,597 applicable to Common Stock 1.05% 1.01% 0.95% 0.98% 1.05% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 1.24% 40.61% 1.23% 33.68% 1.50% 34.42% 0.80% 32.45% 0.88% 33.40% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share $150,000 870% $25.00 $24.25 $150,000 830% $25.00 $21.75 $150,000 679% $25.00 $25.88 — — — — — — — — (a) Includes short-term capital gain in the amount of $1.82 per share. (b) Includes short-term capital gain in the amount of $.29 per share. (c) Includes short-term capital gain in the amount of $.05 per share. (d) Includes short-term capital gain in the amount of $.09 per share. (e) Includes short-term capital gain in the amount of $.028 per share. 1 6 R E P O R T O F I N D E P E N D E N T A U D I T O R S G e n e r a l A m e r i c a n I n v e s t o r s TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GENERAL AMERICAN INVESTORS COMPANY, INC. We have audited the accompanying statement of assets and liabilities, including the statements of investments and securities sold short, of General American Investors Company, Inc. as of December 31, 2000, 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 state- ments and financial highlights are the responsi- bility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2000, by correspon- dence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by manage- ment, 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 posi- tion of General American Investors Company, Inc. at December 31, 2000, the results of its oper- ations and the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. New York, New York January 12, 2001 O F F I C E R S SPENCER DAVIDSON President and Chief Executive Officer ANDREW V. VINDIGNI Vice-President S E R V I C E C O M P A N I E S COUNSEL Sullivan & Cromwell INDEPENDENT AUDITORS Ernst & Young LLP CUSTODIAN Bankers Trust Company EUGENE L. DESTAEBLER, JR. Vice-President, Administration DIANE G. RADOSTI Treasurer PETER P. DONNELLY Vice-President and Trader CAROLE ANNE CLEMENTI Secretary TRANSFER AGENT AND REGISTRAR Mellon Investor Services LLC P.O. Box 3315 South Hackensack, NJ 07606-1915 1-800-413-5499 www.mellon-investor.com D I R E C T O R S G e n e r a l A m e r i c a n I n v e s t o r s LAWRENCE B. BUTTENWIESER, C HAIRMAN Rosenman & Colin LLP, Partner JOHN D. GORDAN, III Morgan, Lewis & Bockius LLP, Partner ARTHUR G. ALTSCHUL, JR. Diaz & Altschul Group, LLC, Managing Member Delta Opportunity Fund, Ltd., Director Medicis Pharmaceutical Corporation, Director The Overbrook Foundation, Trustee Soliloquy, Inc., Chairman LEWIS B. CULLMAN Cullman Ventures LLC, President Chess-in-the-Schools, Chairman, Board of Trustees Metropolitan Museum of Art, T r u s t e e Museum of Modern Art, Vice Chairman, International Council and Honorary Trustee Neurosciences Research Foundation, Trustee The New York Botanical Garden, Senior Vice Chairman, Board of Managers SPENCER DAVIDSON General American Investors Company, Inc., President and Chief Executive Officer BILL GREEN ClientSoft, Inc., Director Commercial Capital Corp., Director Energy Answers Corporation, Director New York City Housing Development Corporation, Member and Vice Chair SIDNEY R. KNAFEL SRK Management Company, Managing Partner BioReliance Corporation, Chairman Insight Communications Company, Inc., Chairman NTL Incorporated, Director RICHARD R. PIVIROTTO General Theological Seminary, Trustee The Gillette Company, Non-executive Chairman The Greenwich Bank and Trust Company, Director Greenwich Hospital Corporation, Trustee Immunomedics, Inc., Director New York Life Insurance Company, Director Princeton University, Charter Trustee Emeritus Medicis Pharmaceutical Corporation, Director Neurosciences Research Foundation, Trustee JOSEPH T. STEWART, JR. Foundation of the University of Medicine and GERALD M. EDELMAN Neurosciences Institute of the Neurosciences Research Foundation, Director and President The Scripps Research Institute, Chairman, Department of Neurobiology Becton, Dickinson and Company, Director ANTHONY M. FRANK Belvedere Capital Partners, Founding Chairman The Charles Schwab Corporation, Director Temple-Inland Inc., Director Dentistry of New Jersey, Trustee Marine Biological Laboratory, Member, Advisory Council RAYMOND S. TROUBH Diamond Offshore Drilling, Inc., Director HealthNet, Inc., Director Starwood Hotels & Resorts, Trustee Triarc Companies, Inc., Director ARTHUR G. ALTSCHUL, CHAIRMAN EMERITUS WILLIAM O. BAKER, DIRECTOR EMERITUS WILLIAM T. GOLDEN, DIRECTOR EMERITUS 

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