GAM Holding AG
Annual Report 2003

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 (unaudited) Net assets applicable to Common Stock - December 31 Net investment income Net realized gain Net increase (decrease) in unrealized appreciation Distributions to Preferred Stockholders Per Common Share-December 31 Net asset value Market price Discount from net asset value 2003 2002 $986,335,111 855,551 28,144,510 $809,192,127 5,238,632 17,039,043 200,469,430 (11,075,000) (264,293,395) (10,800,000) $33.11 $29.73 -10.2% $26.48 $23.85 -9.9% 30,561,356 4,700 $34.89-$22.17 6,978,900 Common Shares outstanding-Dec. 31 Common stockholders of record-Dec. 31 Market price range* (high-low) Market volume-shares 29,789,263 4,500 $29.78-$21.95 6,280,700 *Unadjusted for dividend payments. DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Total Common Stock Nov. 14, 2003 Jan. 26, 2004 Dec. 23, 2003 Feb. 9, 2004 Total from 2003 earnings Nov. 14, 2002 Jan. 27, 2003 Dec. 23, 2002 Feb. 10, 2003 Total from 2002 earnings Preferred Stock Mar. 6, 2003 Jun. 6, 2003 Sep. 8, 2003 Dec. 8, 2003 Total for 2003 Mar. 6, 2002 Jun. 6, 2002 Sep. 6, 2002 Dec. 6, 2002 Total for 2002 Mar. 24, 2003 Jun. 23, 2003 Sep. 23, 2003 Dec. 24, 2003 Mar. 25, 2002 Jun. 24, 2002 Sep. 23, 2002 Dec. 23, 2002 $.00761 .013 $.02061 $.022 .01 $.032 $.01485 .01485 .01485 .012272 $.056822 $.15525 .15525 .15525 .15525 $.621 $.49239 .097 $.58939 $.298 .03 $.328 $.50 .11 $.61 $.32 .04 $.36 $.43515 .43515 .43515 .359603 $1.665053 $.29475 .29475 .29475 .29475 $1.179 $.45 .45 .45 .371875 $1.721875 $ .45 .45 .45 .45 $1.80 General American Investors Company, Inc. 450 Lexington Avenue, New York, NY 10017 (212) 916-8400 (800) 436-8401 E-mail: InvestorRelations@gainv.com www.generalamericaninvestors.com 1 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 Following three down years, the U.S. securities market rallied meaningfully, gaining 28.6% in the year ended December 31, 2003, as measured by our benchmark, the Standard & Poor's 500 Stock Index (including income). General American Investors' net asset value (NAV) per com- mon share (assuming reinvestment of all dividends) increased 27.4%. The return to our common shareholders was 27% as the discount at which our shares trade widened slightly to 10.2% at year-end. 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 5 10 20 30 40 - 1.2% 9.8 14.9 14.3 15.7 13.1 -4.1% - 0.6 11.0 13.0 12.2 10.6 During 2003, the Company purchased 1,106,600 of its common shares in the open market at an average discount to NAV of 9.7%. The Board of Directors has authorized repurchases of common shares when they are trading at a discount in excess of 8% of NAV. The cumulative return for our stockholders, as illu- atrated on pages 4 and 5, is close to the peak reached during the last 20 years. Total assets, meanwhile, are near $1.2 billion, reflecting, in part, the redemption of $150 million liquidation value of 7.20% Cumulative Preferred Stock and its replacement with $200 million of 5.95% Cumulative Preferred Stock. The costs attending this refinancing were fully absorbed in the year just ended. In the first half of last year, investor concerns were centered on the war in Iraq and on economic weakness and deflation, with the yield on 10-year treasury notes falling to near 3% as investors sought safety. By the end of the third quarter, spurred by the conclusion of the conventional war and aggressive monetary and fiscal policy, the economy was growing at a rapid 7% annualized pace and investors bid up share prices. Despite the sheltering effects of sharp gains in manufacturing productivity and low cost imports, inflation had become a focus of investor anxiety. In 2004, an election year, it appears that the mone- tary authorities will retain their aggressive stance and that the economy will continue to grow with attendant gains in capital spending and employment. America's sizeable trade and budget deficits may continue to weigh on the dollar, how- ever, leading to rising inflationary expectations and interest rates. Although inflation has increased at a rate of only around 2% as measured by the Consumer Price Index, other indicators of inflation like housing prices, energy and other commodity costs have risen more rapidly. Longer term, of course, chronically unbalanced finances cannot endure. With almost 80 million "baby boomers" scheduled to start collecting Social Security within the next five years and Medicare benefits within the next eight, a solution short of selling more bonds or printing money must be found. The market has moved broadly higher accompanied by the emergence of extremely high valuations centered on technology stocks. Its future course should be determined by the sustainability of the economy's recovery and, while the equity markets are not likely to generate gains of the magnitude experienced last year, we are encouraged by the presence, currently, of select opportunities to invest in high quality companies at reasonable prices. 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 14, 2004 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, established in 1927, is one of the nation’s oldest closed-end investment com- panies. It is an independent organization, internally managed. For regu- latory 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 capi- tal 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 con- tinuous investment research program, which stresses fundamental security analy- sis, is carried on by the officers and staff of the Company under the oversight of the Board of Directors. A listing of the directors with their principal affiliations, showing a broad range of experience in business and financial affairs, is on page 16 of this report. Portfolio Manager Mr. Spencer Davidson has been responsible for the management of General American’s portfolio since he was elected President and Chief Executive Officer of the Company in August 1995. Mr. Davidson, who joined the Company in 1994 as senior investment counselor, has spent his entire business ca- reer 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 or premium from net asset value as of the close of each week, is published in The New York Times, The Wall Street Journal and Barron’s. The ratio of market price to net asset value has shown considerable variation over a long period of time. While shares of GAM usually sell at a discount from their underlying net asset value, as do the shares of most other domestic equity closed-end investment companies, they, periodically, sell at a premium over net asset value. The last time the Company’s shares sold at a premium for a prolonged period was the year-long period from March 1992 through April 1993. During 2003, the stock sold at discounts from net asset value which ranged from 8.1% (January 7 and April 24) to 10.9% (November 6). At December 31, the price of the stock was at a discount of 10.2% as compared with a discount of 9.9% 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). 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 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 stock- holders 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 1943-2003 (except for the year 1974). (A table listing dividends paid during the 20-year peri- od 1984-2003 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 nominal amounts are paid in cash only. Proxy Voting Policies and Procedures The policies and procedures used by General American Investors to determine how to vote proxies relating to port- folio securities 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 December 2002, the Company initiated Direct Registration (“DR”) for its Common Shareholders. DR is a system that allows for book- entry ownership and the electronic transfer of our Common Shares. Accordingly, when Common Shareholders, who hold their shares directly, receive new shares resulting from a purchase, transfer or dividend payment, they will receive a statement showing the credit of the new shares as well as their book-entry and certificated share balances. A brochure which describes the features and benefits of Direct Registration, including the ability of shareholders to deposit certificates with our transfer agent, is located at our Website - www.generalamericaninvestors.com - under Additional Information - Transfer Agent Services. The brochure can also be obtained by contacting our Corporate Secretary at 1-800- 436-8401. Privacy Policy and Practices General American Investors collects nonpublic personal 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. 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, 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 ( 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 Total return on $10,000 investment 20 years ended December 31, 2003 T he investment return for a common stockholder of General American Investors (GAM) over the 20 years ended December 31, 2003 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 1984. 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 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 $9,284 11,587 12,882 10,806 13,104 19,472 20,251 37,465 43,002 36,156 33,314 40,384 48,250 68,795 90,335 1999 125,765 2000 149,786 2001 2002 2003 156,271 113,750 144,474 -7.16% 24.81 11.17 -16.11 21.26 48.60 4.00 85.00 14.78 -15.92 -7.86 21.22 19.48 42.58 31.31 39.22 19.10 4.33 -27.21 27.01 $9,291 12,543 13,944 14,297 16,809 23,172 24,723 39,826 41,239 40,518 39,407 48,700 58,425 77,150 104,261 142,212 167,298 165,291 127,241 162,105 -7.09% $10,628 6.28% 35.00 11.17 2.53 17.57 37.86 6.69 61.09 3.55 -1.75 -2.74 23.58 19.97 32.05 35.14 36.40 17.64 -1.20 -23.02 27.40 14,005 16,622 17,493 20,385 26,830 26,001 33,905 36,479 40,170 40,681 55,936 68,751 91,665 117,836 142,534 129,578 114,171 88,894 114,282 31.77 18.69 5.24 16.53 31.62 -3.09 30.40 7.59 10.12 1.27 37.50 22.91 33.33 28.55 20.96 -9.09 -11.89 -22.14 28.56 5 I N V E S T M E N T R E S U L T 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 20-YEAR INVESTMENT RESULTS ASSUMING AN INITIAL INVESTMENT OF $10,000 CUMULATIVE VALUE OF INVESTMENT $200,000 COMPARATIVE ANNUALIZED INVESTMENT RESULTS YEARS ENDED DECEMBER 31, 2003 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year 5 years 10 years 15 years 20 years 27.0 % 27.4 % 28.6 % 9.8 14.9 17.4 14.3 9.2 14.9 16.3 14.9 -0.6 11.0 12.2 13.0 GAM STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 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 3 ( 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 NEW POSITIONS ADDITIONS INCREASES Bank of America Corporation CEMEX, S.A. de C.V. Devon Energy Corporation FleetBoston Financial Corporation MFA Mortgage Investments, Inc. Annaly Mortgage Management, Inc. MedImmune, Inc. Medtronic, Inc. Pfizer Inc Wal-Mart Stores, Inc. DECREASES ELIMINATIONS The Boeing Company Max Re Capital Ltd. Zarlink Semiconductor Inc. REDUCTIONS American International Group, Inc. Everest Re Group, Ltd. Genentech, Inc. Golden West Financial Corporation John Hancock Financial Services, Inc. The Home Depot, Inc. OSI Pharmaceuticals, Inc. SunTrust Banks, Inc. SHARES 100,000 463,500 370,700 150,000 575,000 250,000 221,000 160,000 225,000 105,000 20,000 110,000 250,000 10,000 40,000 20,000 65,000 95,000 25,000 45,000 20,000 SHARES HELD DECEMBER 31, 2003 100,000 463,500 650,000 150,000 575,000 (a) 825,000 455,000 450,000 1,325,000 675,000 — — — 325,000 650,000 315,000 335,000 330,000 1,920,000 30,000 205,000 * Excludes transactions in Stocks-Miscellaneous-Other. (a) Includes shares purchased in prior period and previously carried under Stocks-Miscellaneous-Other. 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 4 - 2 0 0 3 ) ( U N A U D I T E D ) The following table shows aggregate dividends paid per share on the Company’s Common Stock for each year during the 20-year period 1984-2003. Amounts shown include payments made after year-end attributable to income and gain in each respective year. YEAR 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 DIVIDEND FROM INCOME# LONG-TERM CAPITAL GAINS $.28 .47 .36 .35 .29 .23 .21 .09 .03 .06 $1.35 1.07 2.15 1.54 1.69 1.56 1.65 3.07 2.93 2.34 YEAR 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 DIVIDEND FROM INCOME# LONG-TERM CAPITAL GAINS $.06 .13 .25 .21 .47 1.04 2.03 1.01 .03 .02 $1.59 2.77 2.71 2.95 4.40 4.05 6.16 1.37 .33 .59 #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. 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, 2003, shown on pages 10 and 11 includes 58 security issues. Listed here are the ten largest holdings on that date. THE HOME DEPOT, INC. The largest company in home center retailing, Home Depot’s proven merchandising capabilities and strong financial structure should provide the basis for continuing growth. THE TJX COMPANIES, INC. 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. EVEREST RE GROUP, LTD. The largest independent U.S. property/casualty reinsurer which generates annual premiums of approximately $4.5 billion and has a high quality,well-reserved AA balance sheet. This Bermuda domiciled company has a strong management team that exercises prudent underwriting discipline and efficient expense control, resulting in above-average earnings progress. PFIZER INC 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. With the acquisition of Pharmacia now complete, Pfizer continues to optimize its corporate structure and is streamlining the company for optimal growth and success as a transforming force in global healthcare. DEVON ENERGY CORPORATION 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. 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. GOLDEN WEST FINANCIAL CORPORATION A savings and loan holding company with over $80 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. M & T BANK CORPORATION A bank holding company with over $50 billion in assets head- quartered in Buffalo, NY. It has strong, opportunistic management with a high level of ownership and a history of enhancing share- holder value. High asset quality, excellent expense control, share repurchases and adroit acquisitions help generate above-average earnings growth. REPUBLIC SERVICES, INC. A leading provider of non-hazardous solid waste collection and disposal services through 141 collection companies in 22 states. The efficient operation of its routes and facilities combined with appropriate pricing enable the company to generate significant free cash flow. Republic Services' share price should benefit from additional contracts, a pick up in waste volumes with improved economic activity and share repurchases by the company. GENENTECH, INC. A leading biotechnology company focused on the development and production of biotherapeutics for medical needs. With a strong product portfolio, recent FDA drug approvals and a broad pipeline of product opportunities, Genentech is positioned for continued success. *Net assets applicable to the Company’s Common Stock. SHARES VALUE 1,920,000 $68,140,800 % COMMON NET ASSETS* 6.9% 2,500,000 55,125,000 5.6 650,000 54,990,000 5.6 1,325,000 46,812,250 4.7 650,000 37,219,000 3.8 675,000 35,808,750 3.6 335,000 34,568,650 3.5 310,000 30,473,000 3.1 1,175,000 30,115,250 3.1 315,000 29,474,550 3.0 $422,727,250 42.9% 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 ASSETS INVESTMENTS, AT VALUE (NOTE 1a) Common stocks DECEMBER 31, 2003 2002 (cost $512,775,431 and $417,614,713, respectively) $927,510,131 $629,812,240 Convertible corporate notes (cost $9,714,002 and $11,464,420, respectively) Corporate discount notes (cost $149,931,413 and $222,859,450, respectively) U.S. Treasury bills (cost $99,546,882 and $98,645,315, respectively) Total investments (cost $771,967,728 and $750,583,898, 10,250,000 11,450,000 149,931,413 222,859,450 99,546,882 98,645,315 respectively) 1,187,238,426 962,767,005 CASH, RECEIVABLES AND OTHER ASSETS Cash (including margin account balance of $3,455 for 2002) Receivable for securities sold Deposit with broker for securities sold short Dividends, interest and other receivables Prepaid expenses Other TOTAL ASSETS LIABILITIES 54,695 2,731,429 13,684,582 2,093,543 6,979,584 321,045 68,413 1,394,958 5,710,669 1,534,495 6,474,097 455,687 1,213,103,304 978,405,324 Payable for securities purchased Preferred dividend accrued but not yet declared Securities sold short, at value (proceeds $13,684,582 and $5,710,669, respectively) (note 1a) Accrued expenses and other liabilities TOTAL LIABILITIES 1,480,264 231,389 15,307,245 9,749,295 26,768,193 5,905,815 240,000 4,715,171 8,352,211 19,213,197 CUMULATIVE PREFERRED STOCK - 5.95% Series B, 8,000,000 shares and 7.20% Tax-Advantaged, 6,000,000 shares, respectively, at a liquidation value of $25 per share (note 2) NET ASSETS APPLICABLE TO COMMON STOCK - 200,000,000 150,000,000 29,789,263 and 30,561,356 shares, respectively (note 2) $986,335,111 $809,192,127 NET ASSET VALUE PER COMMON SHARE $33.11 $26.48 NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 29,789,263 and 30,561,356 shares at par value, respectively (note 2) Additional paid-in capital (note 2) Undistributed realized gain on investments (note 2) Undistributed net income (note 2) Unallocated distributions on Preferred Stock Unrealized appreciation on investments and securities $29,789,263 538,866,532 2,951,398 1,311,272 (231,389) $30,561,356 563,709,764 1,089,200 893,202 (240,000) sold short (including aggregate gross unrealized appreciation of $459,535,751 and $303,127,054, respectively) 413,648,035 213,178,605 NET ASSETS APPLICABLE TO COMMON STOCK $986,335,111 $809,192,127 (see notes to financial statements) 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 $21,770 in 2002) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Auditing and legal fees Transfer agent, custodian and registrar fees and expenses Directors’ fees and expenses Stockholders’ meeting and reports Miscellaneous taxes TOTAL EXPENSES NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 2003 2002 $7,810,852 4,168,048 $8,131,252 6,259,873 11,978,900 14,391,125 6,977,145 2,862,224 554,237 188,250 176,626 160,213 118,874 85,780 5,353,349 2,423,028 594,154 211,000 208,974 152,486 127,208 82,294 11,123,349 9,152,493 855,551 5,238,632 REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4) Net realized gain on investments: Long transactions Short sale transactions (note 1b) Net realized gain on investments (long-term) Net increase (decrease) in unrealized appreciation NET GAIN (LOSS) ON INVESTMENTS DISTRIBUTIONS TO PREFERRED STOCKHOLDERS 28,586,216 (441,706) 28,144,510 200,469,430 6,036,466 11,002,577 17,039,043 (264,293,395) 228,613,940 (247,254,352) (11,075,000) (10,800,000) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 218,394,491 (252,815,720) OTHER COMPREHENSIVE INCOME (NOTE 1d) NET INCREASE (DECREASE) IN NET ASSETS 283,689 459,565 $218,678,180 ($252,356,155) 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 Net investment income Net realized gain on investments Net increase (decrease) in unrealized appreciation Distributions to Preferred Stockholders: From net income From long-term capital gains Decrease in net assets from preferred distributions YEAR ENDED DECEMBER 31, 2003 2002 $855,551 28,144,510 200,469,430 $5,238,632 17,039,043 (264,293,395) (365,476) (10,709,524) (11,075,000) (3,726,000) (7,074,000) (10,800,000) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER COMPREHENSIVE INCOME 218,394,491 (252,815,720) 459,565 283,689 DISTRIBUTIONS TO COMMON STOCKHOLDERS From net income, including short-term capital gains in 2002 From long-term capital gains DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (531,570) (15,572,788) (16,104,358) (6,606,164) (12,540,285) (19,146,449) CAPITAL SHARE TRANSACTIONS Value of Common Shares issued in payment of dividends (note 2) Cost of Common Shares purchased (note 2) Underwriting discount and other expenses associated with the issuance of Preferred Stock (note 2) DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE (DECREASE) IN NET ASSETS NET ASSETS APPLICABLE TO COMMON STOCK BEGINNING OF YEAR 9,724,118 6,410,677 (28,454,956) (23,245,666) (6,700,000) — (25,430,838) 177,142,984 (16,834,989) (288,337,593) 809,192,127 1,097,529,720 END OF YEAR (including undistributed net income of $1,311,272 and $893,202, respectively) $986,335,111 $809,192,127 (see notes to financial statements) 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 3 G e n e r a l A m e r i c a n I n v e s t o r s COMMON STOCKS SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a) 463,500 CEMEX, S.A. de C.V. (COST $11,394,095) $12,143,700 BUILDING AND REAL ESTATE (1.2%) COMMUNICATIONS AND INFORMATION SERVICES (5.6%) 550,000 CIENA Corporation (a) 900,000 Cisco Systems, Inc. (a) 620,000 Cox Communications, Inc. Class A (a) 450,000 Juniper Networks, Inc. (a) COMPUTER SOFTWARE AND SYSTEMS (1.0%) 300,000 EMC Corporation (a) 350,000 VeriSign, Inc. (a) CONSUMER PRODUCTS AND SERVICES (2.8%) 275,000 Coca-Cola Enterprises Inc. 275,000 Ethan Allen Interiors Inc. 125,000 Newell Rubbermaid Inc. 150,000 PepsiCo, Inc. 3,608,000 21,807,000 21,359,000 8,406,000 55,180,000 3,876,000 5,705,000 9,581,000 6,014,250 11,517,000 2,846,250 6,993,000 27,370,500 (COST $31,949,019) (COST $4,111,632) (COST $17,111,384) ELECTRONICS (2.1%) 692,500 Molex Incorporated Class A (COST $14,877,393) 20,297,175 1,175,000 Republic Services, Inc. (COST $26,227,380) 30,115,250 ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.0%) FINANCE AND INSURANCE (31.5%) BANKING (9.5%) 100,000 Bank of America Corporation 150,000 FleetBoston Financial Corporation 335,000 Golden West Financial Corporation 310,000 M&T Bank Corporation 205,000 SunTrust Banks, Inc. INSURANCE (19.7%) 325,000 American International Group, Inc. 1,000,000 Annuity and Life Re (Holdings), Ltd. 300 Berkshire Hathaway Inc. Class A (a) 650,000 Everest Re Group, Ltd. 330,000 John Hancock Financial Services, Inc. 435,000 MetLife, Inc. 500,000 PartnerRe Ltd. 425,000 Reinsurance Group of America, Incorporated 230,000 Transatlantic Holdings, Inc. OTHER (2.3%) 825,000 Annaly Mortgage Management, Inc. 90,184 Central Securities Corporation 575,000 MFA Mortgage Investments, Inc. (COST $21,970,548) (COST $94,253,080) (COST $17,830,051) (COST $134,053,679) HEALTH CARE (19.3%) PHARMACEUTICALS (14.8%) 340,000 Alkermes, Inc. (a) 900,000 Baxter International Inc. 275,000 Biogen Idec Inc. (a) 300,000 Bristol-Myers Squibb Company 270,000 Genaera Corporation (a) 315,000 Genentech, Inc. (a) 375,000 Genta Incorporated (a) 455,000 MedImmune, Inc. (a) 120,000 Millennium Pharmaceuticals, Inc. (a) 30,000 OSI Pharmaceuticals, Inc. (a) 1,325,000 Pfizer Inc MEDICAL INSTRUMENTS AND DEVICES (2.2%) 450,000 Medtronic, Inc. HEALTH CARE SERVICES (2.3%) 695,000 Health Net, Inc. (a) (COST $103,936,515) (COST $10,483,716) 21,874,500 (COST $15,334,735) (COST $129,754,966) 22,726,500 191,165,850 8,043,000 6,547,500 34,568,650 30,473,000 14,657,500 94,289,650 21,541,000 1,380,000 25,275,000 54,990,000 12,375,000 14,646,450 29,025,000 16,426,250 18,584,000 194,242,700 15,180,000 1,883,944 5,606,250 22,670,194 311,202,544 4,590,000 27,468,000 10,092,500 8,580,000 882,900 29,474,550 3,911,250 11,547,900 2,238,000 967,500 46,812,250 146,564,850 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 3 - 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 COMMON STOCKS (Continued) SHARES OR PRINCIPAL AMOUNT VALUE (NOTE 1a) MISCELLANEOUS (0.7%) Other (COST $5,672,944) $6,577,461 OIL AND NATURAL GAS (INCLUDING SERVICES) (5.5%) 650,000 Devon Energy Corporation 650,000 Halliburton Company (COST $39,828,119) RETAIL TRADE (18.8%) 700,000 Costco Wholesale Corporation (a) SEMICONDUCTORS (2.3%) 1,920,000 The Home Depot, Inc. (b) 2,500,000 The TJX Companies, Inc. 675,000 Wal-Mart Stores, Inc. 200,000 Applied Materials, Inc. (a) 250,000 ASM International N.V. (a) 491,500 Brooks Automation, Inc. (a) 197,000 EMCORE Corporation (a) 1,644,900 IQE plc (a) (COST $68,036,225) (COST $21,748,875) SPECIAL HOLDINGS (a)(c) (NOTE 5) (0.2%) 400,000 Cytokinetics, Incorporated Series E Preferred 144,000 Silicon Genesis Corporation 546,000 Standard MEMS, Inc. Series A Convertible Preferred (COST $8,009,720) 37,219,000 16,900,000 54,119,000 26,026,000 68,140,800 55,125,000 35,808,750 185,100,550 4,488,000 5,060,000 11,668,210 927,870 477,021 22,621,101 2,000,000 36,000 — 2,036,000(d) TOTAL COMMON STOCKS (94.0%) (COST $512,775,431) 927,510,131 HEALTH CARE (1.0%) $10,000,000 MedImmune Vaccines, Inc. 5 1/4% due 2/1/08 (COST $9,714,002) 10,250,000 CONVERTIBLE CORPORATE NOTE SHORT-TERM SECURITIES AND OTHER ASSETS PRINCIPAL AMOUNT $8,800,000 29,700,000 15,300,000 25,400,000 14,000,000 34,400,000 22,500,000 100,000,000 AIG Funding, Inc. note due 2/2/04; 1.01% American Express Credit Corporation notes due 1/5-1/27/04; 1.05% American General Finance Corporation note due 2/5/04; 1.03% General Electric Capital Corporation notes due 1/8-2/3/04; 1.05%-1.08% General Motors Acceptance Corporation notes due 1/6-1/30/04; 1.36%-1.38% Prudential Funding, LLC notes due 1/2-1/22/04; 1.02%-1.06% Sears Roebuck Acceptance Corp. notes due 1/12-1/26/04; 1.10%-1.15% U.S. Treasury bills due 2/26-3/18/04; 0.98%-1.00% TOTAL SHORT-TERM SECURITIES (25.3%) (COST $249,478,295) Liabilities in excess of cash, receivables and other assets TOTAL SHORT-TERM SECURITIES AND OTHER ASSETS, NET (25.2%) PREFERRED STOCK (-20.2%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) 8,789,877 29,668,398 15,283,497 25,373,541 13,979,499 34,364,830 22,471,771 99,546,882 249,478,295 (903,315) 248,574,980 (200,000,000) $986,335,111 (a) Non-income producing security. (b) 1,000,000 shares held by custodian in a segregated custodian account as collateral for open short positions. (c) Restricted security. (d) Fair value of each holding in the opinion of the Directors. 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 3 G e n e r a l A m e r i c a n I n v e s t o r s COMMON STOCKS SHARES 72,000 300,000 24,100 Electronic Arts Inc. NASDAQ - 100 Trust, Series 1 Southwest Bancorporation of Texas, Inc. TOTAL SECURITIES SOLD SHORT (PROCEEDS $13,684,582) (see notes to financial statements) VALUE (NOTE 1a) $3,432,960 10,938,000 936,285 $15,307,245 1 2 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior year financial statement items have been reclassified to conform to the current year presentation. a. SECURITY VALUATION Securities traded on securities exchanges or on the NASDAQ National Market System are valued at the last reported sales price on the last business day of the period. Listed and NASDAQ securities for which no sales are reported on that day and other securities traded in the over-the-counter market are valued at the last bid price (asked price for open short positions) on the valuation date. Corporate discount notes and U.S. Treasury bills are valued at amortized cost, which approximates market value. Special holdings are valued at fair value in the opin- ion of the Directors. In determining fair value, in the case of restricted shares, consideration is given to cost, operat- ing and other financial data and, where applicable, subsequent private offerings or market price of the issuer’s unrestricted shares (to which a 30 percent discount would be applied). b. SHORT SALES The Company may make short sales of securities for either speculative or hedging purposes. When the Company makes a short sale, it borrows the securities sold short from a broker; in addition, the Company places cash with that broker and securities in a segregated account with the custodian, both as collateral for the short 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 short sale and the date on which the Company replaces the borrowed securities. c. FEDERAL INCOME TAXES The Company’s policy is to fulfill the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal income taxes is required. d. OTHER COMPREHENSIVE INCOME Pursuant to FAS 87, the Company recognizes on an amortized basis the excess of the fair value of its pension plan assets over the present value of accumulated plan benefits. e. OTHER As customary in the investment company industry, securities transactions are recorded as of the trade date. Dividend income and distributions to stockholders are recorded as of the ex-dividend dates. Interest income, adjusted for amortization of discount and premium on investments, is earned from settlement date and is recognized on the accrual basis. Cost of short-term investments represents amortized cost. 2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00 par value, of which 29,789,263 shares and 8,000,000 shares, respectively, were outstanding at December 31, 2003. 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 prefer- ence 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 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. 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 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. 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 - 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 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 2003 and 2002 were as follows: SHARES AMOUNT 2003 2002 2003 2002 Shares issued in payment of dividends (includes 334,507 and 251,893 shares issued from treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 9.7% and 9.1%, respectively) Decrease in paid-in capital Total decrease Net decrease 334,507 251,893 $334,507 9,389,611 9,724,118 $251,893 6,158,784 6,410,677 1,106,600 922,100 (1,106,600) (27,348,356) (28,454,956) ($18,730,838) (922,100) (22,323,566) (23,245,666) ($16,834,989) At December 31, 2003, the Company held in its treasury 1,442,300 shares of Common Stock with an aggre- gate cost in the amount of $28,752,939. Distributions for tax and book purposes are substantially the same. As of December 31, 2003, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income Undistributed long-term gains Unrealized appreciation $359,332 2,876,071 413,648,035 $416,883,438 3. OFFICERS’ COMPENSATION AND RETIREMENT AND THRIFT PLANS The aggregate compensation paid by the Company during 2003 and 2002 to its officers amounted to $4,994,000 and $4,419,000, 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 2003 amounted to on long transactions $205,428,471 and $140,604,387, respectively, and on short sale transactions $5,283,161 and $12,815,368, respectively. At December 31, 2003, the cost of investments for Federal income tax purposes was the same as the cost for financial reporting purposes. 5. RESTRICTED SECURITIES Cytokinetics, Incorporated Series E Preferred Silicon Genesis Corporation Standard MEMS, Inc. Series A Convertible Preferred Total DATE ACQUIRED 3/21/03 2/16/01 12/17/99 COST $2,000,000 3,006,720 3,003,000 $8,009,720 VALUE (NOTE 1a) $2,000,000 36,000 — $2,036,000 6. OPERATING LEASE COMMITMENT In July 1992, the Company entered into an operating lease agreement for office space which expires in 2007 and provides for future rental payments in the aggregate amount of approximately $5.6 million. The lease agreement contains a clause whereby the Company received twenty months of free rent beginning in December 1992 and escalation clauses relating to operating costs and real property taxes. Rental expense approximated $304,600 for 2003. Minimum rental commitments under the operating lease are approximately $505,000 per annum in 2004 through 2007. In January 2003, the Company extended a sublease agreement (originally entered into in March 1996) which expires in 2007 and provides for future rental receipts. Minimum rental receipts under the sublease are approximately $254,000 per annum in 2004 through 2007. The Company will also receive its proportionate share of operating expenses and real property taxes under the sublease. 7. SUBSEQUENT EVENT On January 14, 2004, the Board of Directors declared on the Common Stock a dividend of $2,878,743 from net long-term capital gains and a dividend of $385,811 from ordinary income. These dividends are payable in cash on February 9, 2004. Unaudited In addition to purchases of the Company’s Common Stock as set forth in Note 2 above, purchases of Common Stock may be made at such times, at such prices, in such amounts and in such manner as the Board of Directors may deem advisable. 1 4 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, 2003. 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 (loss) on securities - realized 2003 2002 2001 2000 1999 $26.48 .02 $35.14 .17 $39.91 .39 $41.74 .51 $34.87 .44 and unrealized 7.72 (7.88) (.66) 6.12 11.32 Distributions on Preferred Stock: Dividends from investment income Distributions from capital gains Total from investment operations Other comprehensive income Less distributions on Common Stock: Dividends from investment income Distributions from capital gains (.01) (.35) (.36) 7.38 .01 (.02) (.52) (.54) (.12) (.23) (.35) (8.06) .02 (.07)(a) (.29) (.36) (.63) (.11)(b) (.29) (.40) 6.23 (.07)(c) (.35) (.42) 11.34 .02 .02 .01 (.21)(d) (.41) (.62) (.88)(e) (3.28) (4.16) (2.30)(f) (5.78) (8.08) (.71)(g) (3.77) (4.48) Capital Stock transaction - effect of Preferred Stock offering Net asset value, end of year Per share market value, end of year (.22) $33.11 $29.73 — $26.48 $23.85 — $35.14 $33.47 — $39.91 $36.00 — $41.74 $37.19 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share 27.01% (27.21)% 4.33% 19.10% 39.22% RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, end of year (000’s omitted) $986,335 $809,192 $1,097,530 $1,155,039 $1,094,519 Ratio of expenses to average net assets applicable to Common Stock 1.26% 0.97% 1.02% 1.09% 1.01% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 0.10% 18.62% 0.56% 22.67% 1.10% 23.81% 1.20% 40.61% 1.22% 33.68% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share $200,000 593% $150,000 639% $150,000 832% $150,000 870% $150,000 830% $25.00 $25.04 $25.00 $25.85 $25.00 $25.90 $25.00 $24.25 $25.00 $21.75 (a) Includes short-term capital gain in the amount of $.04 per share. (b) Includes short-term capital gain in the amount of $.09 per share. (c) Includes short-term capital gain in the amount of $.03 per share. (d) Includes short-term capital gain in the amount of $.19 per share. (e) Includes short-term capital gain in the amount of $.51 per share. (f) Includes short-term capital gain in the amount of $1.82 per share. (g) Includes short-term capital gain in the amount of $.29 per share. 1 5 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, 2003, 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, 2003, 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, 2003, 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 14, 2004 O F F I C E R S NAME (AGE) EMPLOYEE SINCE Spencer Davidson (61) 1994 Andrew V. Vindigni (44) 1988 POSITION WITH COMPANY NAME (AGE) POSITION WITH COMPANY SINCE President and Chief Executive Officer 1995 Vice-President 1995 security analyst (financial services industry) EMPLOYEE SINCE SINCE Peter P. Donnelly (55) 1974 Vice-President 1991 securities trader Diane G. Radosti (51) Treasurer 1990 1980 Principal Accounting Officer 2003 Eugene L. DeStaebler, Jr. (65) Vice-President, Carole Anne Clementi (57) Secretary 1994 1975 Administration 1978 Principal Financial Officer 2002 1982 shareholder relations and office management All officers serve for a term of one year and are elected by the Board of Directors at the time of its annual organiza- tion meeting on the second Wednesday in April. The address for each officer is the Company’s office. Other directorships and affiliations for Mr. Davidson are shown in the listing of Directors on page 16. S E R V I C E O R G A N I Z A T I O N S COUNSEL Sullivan & Cromwell LLP INDEPENDENT AUDITORS Ernst & Young LLP CUSTODIAN State Street Bank and Trust Company TRANSFER AGENT AND REGISTRAR Mellon Investor Services LLC P.O. Box 3315 South Hackensack, NJ 07606-1915 1-800-413-5499 www.mellon-investor.com 1 6 D I R E C T O R 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 NAME (AGE) DIRECTOR SINCE PRINCIPAL OCCUPATION DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS INDEPENDENT (“DISINTERESTED”) DIRECTORS Lawrence B. Buttenwieser (72) CHAIRMAN OF THE BOARD OF DIRECTORS 1967 Counsel 2002-present Partner 1966-2002 Katten Muchin Zavis Rosenman and predecessor firms (lawyers) Arthur G. Altschul, Jr. (39) 1995 Managing Member Diaz & Altschul Capital Management, LLC (investments and securities) Delta Opportunity Fund, Ltd., Director Medicis Pharmaceutical Corporation, Director Neurosciences Research Foundation, Trustee Lewis B. Cullman (85) 1961 Managing Member Cullman Ventures LLC (formerly Cullman Ventures, Inc.) Museum of Modern Art, Vice Chairman, Chess-in-the-Schools, Chairman, Board of Trustees Metropolitan Museum of Art, Honorary Trustee 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 (74) 1976 John D. Gordan, III (58) 1986 Sidney R. Knafel (73) 1994 Member and Chairman of the Department of Neurobiology The Scripps Research Institute Neurosciences Institute of the Neurosciences Research Foundation, Director and President Partner Morgan, Lewis & Bockius LLP (lawyers) Managing Partner SRK Management Company (private investment company) BioReliance Corporation, Chairman, Board of Directors IGENE Biotechnology, Inc., Director Insight Communications Company, Inc., Chairman, Board of Directors Richard R. Pivirotto (73) 1971 President Richard R. Pivirotto Co., Inc. (self-employed consultant) General Theological Seminary, Trustee The Greenwich Bank and Trust Company, Director Greenwich Hospital Corporation, Trustee Immunomedics, Inc., Director New York Life Insurance Company, Director Princeton University, Charter Trustee Emeritus Joseph T. Stewart, Jr. (74) 1987 Corporate director and trustee Executive Consultant Johnson & Johnson (1990-1999) Marine Biological Laboratory, Member, Foundation of the University of Medicine and Dentistry of New Jersey, Trustee Raymond S. Troubh (77) 1989 Financial Consultant Advisory Council United States Merchant Marine Academy, Trustee, Board of Advisors Diamond Offshore Drilling, Inc., Director Enron Corp., Chairman, Board of Directors Gentiva Health Services, Inc., Director Petrie Stores Liquidating Trust, Trustee Triarc Companies, Inc., Director WHX Corporation, Director INSIDE (“INTERESTED”) DIRECTOR Spencer Davidson (61) 1995 President and Chief Executive Officer Medicis Pharmaceutical Corporation, Director General American Investors Company, Inc. since 1995 Neurosciences Research Foundation, Trustee 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 

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