GENERAL AMERICAN INVESTORS
COMPANY, INC.
FIRST QUARTER REPORT
MARCH 31, 2007
A Closed-End Investment Company
listed on the New York Stock Exchange
450 LEXINGTON AVENUE
NEW YORK, NY 10017
212-916-8400 1-800-436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
TO THE STOCKHOLDERS
--------------------------------------------------------------------------------
For the three months ended March 31, 2007, the net asset value per common share
increased by 1.2%. The return to our stockholders was negative by 0.8%, however,
reflecting a slight increase in the discount at which our shares traded to their
net asset value. By comparison, the rate of return (including income) for our
benchmark, the Standard & Poor's 500 Stock Index, was 0.6%. For the twelve
months ended March 31, 2007, the return on the net asset value per Common Share
was 8.3%, and the return to our stockholders was 5.4%; these compare with a
return of 11.7% for the S&P 500. During each period, the discount at which our
shares traded continued to fluctuate and on March 31, 2007, it was 10.1%.
As set forth in the accompanying financial statements (unaudited), as of March
31, 2007, the net assets applicable to the Company's Common Stock were
$1,211,207,548, equal to $41.00 per Common Share.
The increase in net assets resulting from operations for the three months ended
March 31, 2007 was $13,335,178. During this period, the net realized gain on
securities sold was $40,355,722, and the decrease in net unrealized appreciation
was $27,429,687. Net investment income for the three months was $3,384,143, and
distributions to Preferred Stockholders amounted to $2,975,000.
During the three months, 44,900 shares of the Company's Common Stock were
repurchased for $1,673,704 at an average discount from net asset value of 10.1%.
The stock market ended the most recent quarter on a modestly positive note. But
volatility has risen and share prices were buffeted by competing trends. Growth
in the U.S. economy has become more measured reflecting the slowdown in housing,
higher energy prices, and flagging productivity in the face of rising wage
pressures. Meanwhile, global growth remains robust with ample liquidity and
interest rates that continue to facilitate a broad range of financial
transactions.
From a portfolio perspective, we had an active and productive quarter.
Meaningful capital gains were realized from the sale of securities, while
significant new positions were added, which should inure to the benefit of our
shareholders in the years to come.
We are pleased to report that on April 11, 2007, at the Company's annual
meeting, the Stockholders (1) elected nine directors, including two directors
who were elected by the holders of the Company's Preferred Stock, and (2)
ratified the selection of Ernst & Young LLP as auditors of the Company for the
year 2007. At the Board of Directors meeting on the same day, Spencer Davidson,
President and Chief Executive Officer of the Company, was elected Chairman of
the Board of Directors upon the retirement of Lawrence B. Buttenwieser, our
Chairman for the last 12 years and a Director of the Company for 40 years. His
wisdom and judgment have been invaluable to the Board. We express our gratitude
and deepest appreciation for his long and distinguished service to the Company.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend and distribution
payments, financial reports and press releases, is on our website and has been
updated through March 31, 2007. It can be accessed on the internet at
www.generalamericaninvestors.com.
By Order of the Board of Directors,
GENERAL AMERICAN INVESTORS COMPANY, INC.
Spencer Davidson
Chairman of the Board
President and Chief Executive Officer
April 11, 2007
2 STATEMENT OF ASSETS AND LIABILITIES March 31, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $766,332,806) $1,369,039,133
Corporate note (cost $28,991,038) 29,700,000
Money market fund (cost $3,780,151) 3,780,151
--------------
Total investments (cost $799,103,995) 1,402,519,284
CASH, RECEIVABLES AND OTHER ASSETS
Cash $5,241,266
Receivable for securities sold 1,781,690
Dividends, interest and other receivables 2,386,224
Pension asset, excess funded 8,790,864
Prepaid expenses and other assets 160,613 18,360,657
-------------
TOTAL ASSETS 1,420,879,941
Liabilities
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 1,615,809
Preferred dividend accrued but not yet declared 231,389
Pension benefit liability 3,344,310
Accrued thrift plan expense 2,969,975
Accrued expenses and other liabilities 1,510,910
9,672,393
TOTAL LIABILITIES
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000
===========
NET ASSETS APPLICABLE TO COMMON STOCK - 29,544,298 shares (note 2) $1,211,207,548
==============
NET ASSET VALUE PER COMMON SHARE $41.00
======
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 29,544,298 shares at par value (note 2) $29,544,298
Additional paid-in capital (note 2) 536,465,072
Undistributed realized gain on investments 38,640,673
Undistributed net investment income 5,603,060
Accumulated other comprehensive income (note 5) 745,545
Unallocated distributions on Preferred Stock (3,206,389)
Unrealized appreciation on investments 603,415,289
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,211,207,548
==============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Three Months Ended March 31, 2007 (Unaudited)
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General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $95,623) $5,627,127
Interest 785,792 $6,412,919
----------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment research 1,926,545
Administration and operations 752,792
Office space and general 136,571
Directors' fees and expenses 68,082
Auditing and legal fees 45,000
Transfer agent, custodian and registrar fees and expenses 39,121
Stockholders' meeting and reports 33,526
Miscellaneous taxes 27,139 3,028,776
--------- ----------
NET INVESTMENT INCOME 3,384,143
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (long-term, except for $2,775,237) 40,355,722
Net decrease in unrealized appreciation (27,429,687)
-----------
NET GAIN ON INVESTMENTS 12,926,035
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (2,975,000)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,335,178
===========
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Three Months
Ended Year Ended
March 31, 2007 December 31,
(Unaudited) 2006
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,384,143 $10,007,624
Net realized gain on investments 40,355,722 86,176,349
Net increase (decrease) in unrealized appreciation (27,429,687) 51,196,338
----------- ----------
16,310,178 147,380,311
----------- -----------
Distributions to Preferred Stockholders:
From net income - (1,092,608)
From short-term capital gains - (168,288)
From long-term capital gains - (10,639,104)
Unallocated distributions (2,975,000) -
----------- -----------
Decrease in net assets from Preferred distributions (2,975,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 13,335,178 135,480,311
----------- -----------
OTHER COMPREHENSIVE INCOME 92,986 652,559
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net income - (8,230,843)
From short-term capital gains - (1,262,677)
From long-term capital gains - (79,790,662)
----------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS - (89,284,182)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of distributions - 48,748,838
Cost of Common Shares purchased (1,673,704) (29,086,092)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (1,673,704) 19,662,746
----------- -----------
NET INCREASE IN NET ASSETS 11,754,460 66,511,434
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
BEGINNING OF PERIOD 1,199,453,088 1,132,941,654
------------- -------------
END OF PERIOD (including undistributed net investment income of
$5,603,060 and $2,218,917, respectively) $1,211,207,548 $1,199,453,088
============== ==============
(see notes to financial statements)
5 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the three months ended March 31, 2007
and for each year in the five-year period ended December 31, 2006. This
information has been derived from information contained in the financial
statements and market price data for the Company's shares.
Three Months
Ended Year Ended December 31,
March 31, 2007 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
------------ ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $40.54 $39.00 $35.49 $33.11 $26.48 $35.14
------ ------ ------- ------ ------ ------
Net investment income .12 .34 .19 .32 .03 .19
Net gain (loss) on securities -
realized and unrealized .44 4.72 5.85 3.48 7.72 (7.88)
Other comprehensive income - .03 - - - -
------ ------ ------- ------ ------ ------
Less distributions on Preferred Stock:
Dividends from net investment income - (.04) (.03) (.09) (.01) (.12)
Distributions from net short-term
capital gains - (.01) (.08) - - -
Distributions from net long-term
capital gains - (.36) (.30) (.32) (.35) (.23)
Unallocated (.10) - - - - -
------ ------ ------- ------ ------ ------
(.10) (.41) (.41) (.41) (.36) (.35)
------ ------ ------- ------ ------ ------
Total from investment operations .46 4.68 5.63 3.39 7.39 (8.04)
------ ------ ------- ------ ------ ------
Distributions on Common Stock:
Dividends from net investment income - (.29) (.15) (.23) (.02) (.02)
Distributions from net short-term
capital gains - (.04) (.44) - - (.19)
Distributions from net long-term
capital gains - (2.81) (1.53) (.78) (.52) (.41)
------ ------ ------- ------ ------ ------
- (3.14) (2.12) (1.01) (.54) (.62)
------ ------ ------- ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering - - - - (.22) -
------ ------ ------- ------ ------ ------
Net asset value, end of period $41.00 $40.54 $39.00 $35.49 $33.11 $26.48
====== ====== ======= ====== ====== ======
Per share market value, end of period $36.84 $37.12 $34.54 $31.32 $29.73 $23.85
====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price per share (0.75)%* 16.78% 17.40% 8.79% 27.01% (27.21)%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $1,211,208 $1,199,453 $1,132,942 $1,036,393 $986,335 $809,192
Ratio of expenses to average net assets
applicable to Common Stock 1.01%** 1.06% 1.25% 1.15% 1.23% 0.92%
Ratio of net income to average net assets
applicable to Common Stock 1.12%** 0.86% 0.51% 0.94% 0.13% 0.61%
Portfolio turnover rate 9.59%* 19.10% 20.41% 16.71% 18.62% 22.67%
PREFERRED STOCK
Liquidation value, end of period
(000's omitted) $200,000 $200,000 $200,000 $200,000 $200,000 $150,000
Asset coverage 706% 700% 666% 618% 593% 639%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $24.96 $25.44 $24.07 $24.97 $25.04 $25.85
*Not annualized
**Annualized
6 STATEMENT OF INVESTMENTS March 31, 2007 (Unaudited)
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General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE (1.9%
------------------------------------------------------------------------------------------------------------------------------------
250,000 Textron Inc. (COST $24,399,743) $22,450,000
-----------
BUILDING AND REAL ESTATE (6.0%)
------------------------------------------------------------------------------------------------------------------------------------
2,225,862 CEMEX, S.A. de C.V. ADR (COST $29,518,057) 72,896,981
----------
COMMUNICATIONS AND INFORMATION SERVICES (8.2%)
------------------------------------------------------------------------------------------------------------------------------------
100,000 American Tower Corporation (a) 3,895,000
900,000 Cisco Systems, Inc. (a) 22,977,000
324,100 Lamar Advertising Company Class A (a) 20,408,577
700,000 QUALCOMM Incorporated 29,862,000
1,185,000 Sprint Nextel Corporation 22,467,600
----------
(COST $74,880,765) 99,610,177
----------
COMPUTER SOFTWARE AND SYSTEMS (6.1%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Activision, Inc. (a) 13,258,000
1,051,000 Dell Inc. (a) 24,393,710
720,000 Microsoft Corporation 20,066,400
55,000 Nintendo Co., Ltd. 16,060,550
----------
(COST $68,567,277) 73,778,660
----------
CONSUMER PRODUCTS AND SERVICES (4.9%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc ADR 28,332,500
300,000 Heineken N. V. 15,744,000
235,000 PepsiCo, Inc. 14,936,600
----------
(COST $41,172,775) 59,013,100
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.1%)
------------------------------------------------------------------------------------------------------------------------------------
1,762,500 Republic Services, Inc. (COST $26,227,380) 49,032,750
----------
FINANCE AND INSURANCE (27.1%)
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BANKING (7.9%)
---------------------------------------------------------------------------------------------------------------------------------
270,000 Bank of America Corporation 13,775,400
300,000 M&T Bank Corporation 34,749,000
160,000 SunTrust Banks, Inc. 13,286,400
614,864 Wachovia Corporation 33,848,263
-----------
(COST $17,145,406) 95,659,063
-----------
INSURANCE (16.8%)
---------------------------------------------------------------------------------------------------------------------------------
285,000 The Allstate Corporation 17,117,100
335,000 American International Group, Inc. 22,518,700
275,000 Annuity and Life Re (Holdings), Ltd. (a) 151,250
335,000 Arch Capital Group Ltd. (a) 22,850,350
400,000 AXIS Capital Holdings Limited 13,544,000
275 Berkshire Hathaway Inc. Class A (a) 29,972,250
470,000 Everest Re Group, Ltd. 45,199,900
275,000 MetLife, Inc. 17,366,250
315,000 PartnerRe Ltd. 21,590,100
205,000 Transatlantic Holdings, Inc. 13,349,600
-----------
(COST $82,979,972) 203,659,500
-----------
OTHER (2.4%)
------------------------------------------------------------------------------------------------------------------------------------
10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% (d) 22,085,634
925,000 MFA Mortgage Investments, Inc. 7,122,500
-----------
(COST $16,936,916) 29,208,134
-----------
(COST $117,062,294) 328,526,697
-----------
7 STATEMENT OF INVESTMENTS March 31, 2007 (Unaudited) - continued
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General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (8.0%)
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PHARMACEUTICALS (7.0%)
---------------------------------------------------------------------------------------------------------------------------------
100,000 Alkermes, Inc. (a) $1,544,000
170,000 Biogen Idec Inc. (a) 7,544,600
50,000 Cephalon, Inc. (a) 3,560,500
604,900 Cytokinetics, Incorporated (a) 4,210,104
200,000 Genentech, Inc. (a) 16,424,000
355,000 MedImmune, Inc. (a) 12,918,450
275,000 Novo Nordisk B 25,168,000
528,000 Pfizer Inc 13,337,280
----------
(COST $43,828,096) 84,706,934
----------
MEDICAL INSTRUMENTS AND DEVICES (1.0%)
---------------------------------------------------------------------------------------------------------------------------------
240,000 Medtronic, Inc. (COST $761,084) 11,774,400
----------
(COST $44,589,180) 96,481,334
----------
MACHINERY AND EQUIPMENT (1.6%)
------------------------------------------------------------------------------------------------------------------------------------
1,150,000 ABB Ltd. ADR (COST $12,430,211) 19,757,000
----------
MINING (1.2%)
------------------------------------------------------------------------------------------------------------------------------------
65,000 Rio Tinto plc ADR (COST $13,420,905) 14,807,650
----------
MISCELLANEOUS (4.8%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $55,946,999) 58,480,484
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (17.8%)
------------------------------------------------------------------------------------------------------------------------------------
825,000 Apache Corporation 58,327,500
850,000 Halliburton Company 26,979,000
1,000,000 Patterson-UTI Energy, Inc. 22,440,000
3,000,000 Talisman Energy Inc. 52,680,000
1,220,000 Weatherford International Ltd. (a) 55,022,000
-----------
(COST $148,725,073) 215,448,500
-----------
RETAIL TRADE (18.2%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation 37,688,000
1,975,000 Dollar General Corporation 41,771,250
1,570,000 The Home Depot, Inc. (c) 57,681,800
2,100,000 The TJX Companies, Inc. 56,616,000
575,000 Wal-Mart Stores, Inc. 26,996,250
-----------
(COST $77,709,438) 220,753,300
-----------
TECHNOLOGY (3.1%)
------------------------------------------------------------------------------------------------------------------------------------
2,250,000 Xerox Corporation (a) (COST $31,682,709) 38,002,500
-----------
TOTAL COMMON AND PREFERRED STOCKS (113.0%) (COST $766,332,806) 1,369,039,133
-------------
Principal Amount CORPORATE NOTE
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CONSUMER PRODUCTS AND SERVICES (2.5 %)
------------------------------------------------------------------------------------------------------------------------------------
$30,000,000 General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes due 10/15/08 (COST $28,991,038) 29,700,000
----------
8 STATEMENT OF INVESTMENTS March 31, 2007 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares SHORT-TERM SECURITY AND OTHER ASSETS (note 1a)
-------------------------------------------------------------------------------------------------------------
3,780,151 SSgA Prime Money Market Fund (0.3%) (COST $3,780,151) $3,780,151
----------
TOTAL INVESTMENTS (e) (115.8%) (COST $799,103,995) 1,402,519,284
Cash, receivables and other assets less liabilities (0.7%) 8,688,264
PREFERRED STOCK (-16.5%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,211,207,548
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year.
(c) 1,000,000 shares held by custodian in a segregated custodian account as collateral for short positions, if any.
(d) Restricted security of an affiliate acquired 11/7/06.
(e) At March 31, 2007: (1) the cost of investments for Federal income tax purposes was the same as the cost for financial
reporting purposes, (2) aggregate gross unrealized appreciation was $609,061,061, (3) aggregate gross unrealized depreciation
was $5,645,772, and (4) net unrealized appreciation was $603,415,289.
(see notes to financial statements)
PORTFOLIO DIVERSIFICATION March 31, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of March 31, 2007 and 2006 is shown in the following table.
Percent Common Net Assets*
March 31, 2007 March 31
------------------------- -------------------------
Industry Category Cost(000) Value(000) 2007 2006
---------------------- ------------------------- --------------------------
Finance and Insurance
Banking $17,145 $95,659 7.9% 9.9%
Insurance 82,980 203,659 16.8 15.9
Other 16,937 29,208 2.4 1.2
------- -------- ---- ----
117,062 328,526 27.1 27.0
------- -------- ---- ----
Retail Trade 77,710 220,753 18.2 17.6
Oil and Natural Gas (Including Services) 148,725 215,449 17.8 23.4
Communications and Information Services 74,881 99,610 8.2 5.0
------- -------- ---- ----
Health Care
Pharmaceuticals 43,828 84,707 7.0 9.1
Medical Instruments and Devices 761 11,774 1.0 1.9
------- -------- ---- ----
44,589 96,481 8.0 11.0
------- -------- ---- ----
Consumer Products and Services 70,164 88,713 7.4 5.2
Computer Software and Systems 68,567 73,779 6.1 3.9
Building and Real Estate 29,518 72,897 6.0 6.4
Miscellaneous** 55,947 58,480 4.8 4.5
Environmental Control (Including Services) 26,227 49,033 4.1 4.2
Technology 31,683 38,003 3.1 2.4
Aerospace/Defense 24,400 22,450 1.9 -
Machinery & Equipment 12,430 19,757 1.6 -
Mining 13,421 14,808 1.2 -
Electronics - - - 1.4
Semiconductors - - - 0.5
Special Holdings - - - -
------- --------- ---- ----
795,324 1,398,739 115.5 112.5
Short-Term Securities 3,780 3,780 0.3 4.1
------- --------- ---- ----
Total Investments $799,104 1,402,519 115.8 116.6
=======
Other Assets and Liabilities - Net 8,689 0.7 0.4
Preferred Stock (200,000) (16.5) (17.0)
--------- ------ -----
Net Assets Applicable to Common Stock $1,211,208 100.0% 100.0%
========== ====== =====
* Net Assets applicable to the Company's Common Stock.
** Securities which have been held for less than one year, not previously disclosed and not restricted.
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
1. SIGNIFICANT ACCOUNTING POLICIES - General American Investors Company, Inc.
(the "Company"), established in 1927, is registered under the Investment Company
Act of 1940 as a closed-end, diversified management investment company. It is
internally managed by its officers under the direction of the Board of
Directors.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
a. SECURITY VALUATION Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Securities reported on the NASDAQ national market are valued at the official
closing price on that day. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price on the valuation date. Securities traded
primarily in foreign markets are generally valued at the preceding closing price
of such securities on their respective exchanges or markets. If, after the close
of the foreign market, conditions change significantly, the price of certain
foreign securities may be adjusted to reflect fair value as of the time of the
valuation of the portfolio. Investments in money market funds are valued at
their net asset value. The restricted security is valued at par value (cost),
divided by the conversion price $6.00 multiplied by the last reported sales
price of the publicly traded common stock of the corporation.
b. 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.
c. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
d. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
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 29,544,298
shares and 8,000,000 shares, respectively, were outstanding at March 31, 2007.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95%
Cumulative Preferred Stock, Series B in an underwritten offering. The Preferred
Shares are noncallable for 5 years and have a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of redemption. The underwriting discount and other expenses associated with the
Preferred Stock offering amounted to $6,700,000 and were charged to paid-in
capital.
The Company is required to allocate distributions from long-term capital gains
and other types of income proportionately among holders of shares of Common
Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an
asset coverage of at least 200% for the Preferred Stock. In addition, pursuant
to the Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds the Basic
Maintenance Amount under the guidelines established by Moody's Investors
Service, Inc. The Company has met these requirements since the issuance of the
Preferred Stock. If the Company fails to meet these requirements in the future
and does not cure such failure, the Company may be required to redeem, in whole
or in part, shares of Preferred Stock at a redemption price of $25.00 per share
plus accumulated and unpaid dividends (whether or not earned or declared). In
addition, the Company's failure to meet the foregoing asset coverage
requirements could restrict its ability to pay dividends on shares of Common
Stock and could lead to sales of portfolio securities at inopportune times.
The holders of Preferred Stock have voting rights equivalent to those of the
holders of Common Stock (one vote per share) and, generally, vote together with
the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the Company's
Board of Directors and the holders of Preferred and Common Stock, voting as a
single class, will elect the remaining directors. If the Company fails to pay
dividends on the Preferred Stock in an amount equal to two full years'
dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of EITF
D-98, Classification and Measurement of Redeemable Securities, which require
that preferred stock for which its redemption is outside of the company's
control should be presented outside of net assets in the statement of assets and
liabilities.
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
Transactions in Common Stock during the three months ended March 31, 2007 and
the year ended December 31, 2006 were as follows:
SHARES AMOUNT
----------------------- ---------------------
2007 2006 2007 2006
-------- -------- ------- --------
Treasury shares issued in payment of dividends
and distributions - 1,326,499 - $1,326,499
Increase in paid-in capital - 47,422,339
------- -----------
Total increase - 48,748,838
------- -----------
Shares purchased (at an average discount from net
asset value of 10.1% and 9.0%, respectively) 44,900 787,700 ($44,900) (787,700)
Decrease in paid-in capital (1,628,804) (28,298,392)
---------- ----------
Total decrease (1,673,704) (29,086,092)
---------- ----------
Net increase (decrease) ($1,673,704) $19,662,746
========== ==========
At March 31, 2007, the Company held in its treasury 1,687,265 shares of Common
Stock with an aggregate cost in the amount of $59,161,476. Distributions for tax
and book purposes are substantially the same.
3. OFFICERS' COMPENSATION - The aggregate compensation paid by the Company
during the three months ended March 31, 2007 to its officers (identified on back
cover) amounted to $1,818,125.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other
than short-term securities) for the three months ended March 31, 2007 amounted
to $133,930,225 and $142,608,490.
5. BENEFIT PLANS - The Company has funded and unfunded defined contribution
thrift plans that are available to its employees. The aggregate cost of such
plans for the three months ended March 31, 2007 were:
Service cost $78,836
Interest cost 177,622
Expected return on plan assets (313,593)
Amortization of:
Prior service cost 8,774
Recognized net actuarial loss (gain) 14,344
--------
Net periodic benefit cost (income) ($34,017)
========
The Company also has both a funded (Qualified) and an unfunded (Supplemental)
noncontributory defined benefit pension plans that cover its employees. The
plans provide defined benefits based on years of service and final average
salary with an offset for a portion of social security covered compensation. The
aggregate cost of such plans for the three months ended March 31, 2007 was
$76,689. The unfunded liability at March 31, 2007 was $2,969,975.
Effective December 31, 2006, the Company adopted the recognition provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 158 "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans" ("FAS158") which was released on September 2006. FAS 158
improves financial reporting by requiring employers to recognize the overfunded
or underfunded status of a defined benefit postretirement plan as an asset or
liability in the statement of assets and liabilities and to recognize changes in
funded status in the year in which the changes occur through other comprehensive
income.
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 $97,400 for the three months ended March 31, 2007.
Minimum rental commitments under the operating lease are approximately $505,000
per annum in 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 2007. The Company will also be charged its proportionate share of
operating expenses and real property taxes under the sublease.
7. RECENT ACCOUNTING PRONOUNCEMENTS - On July 13, 2006, the FASB released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN48").
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Company's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after June 29, 2007 and is to be applied to
all open tax years as of the effective date. Management does not believe that
the application of this standard will have a material impact on the financial
statements of the Company.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. Management does not believe
that the application of this standard will have a material impact on the
financial statements of the Company.
11 MAJOR STOCK CHANGES* Three Months Ended March 31, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES MARCH 31, 2007
---------------------------------------------------------------------------------------------------------------
NEW POSITIONS
Activision, Inc. - 700,000 (a)
Dell Inc. 1,051,000 1,051,000
Heineken N.V. 300,000 300,000
Nintendo Co., Ltd. 55,000 55,000
Sprint Nextel Corporation 450,000 1,185,000 (b)
Textron Inc. 250,000 250,000
ADDITIONS
The Allstate Corporation 10,000 285,000
Novo Nordisk B 95,000 275,000
PepsiCo, Inc. 10,000 235,000
DECREASES
---------------------------------------------------------------------------------------------------------------
ELIMINATIONS
Annaly Capital Management, Inc. 550,000 -
Constellation Brands, Inc. 325,000 -
EMC Corporation 300,000 -
Molex Incorporated Class A 550,000 -
VeriSign, Inc. 113,500 -
REDUCTIONS
Alkermes, Inc. 75,000 100,000
American International Group, Inc. 25,000 335,000
American Tower Corporation 675,000 100,000
Arch Capital Group Ltd. 15,000 335,000
Berkshire Hathaway Inc. Class A 25 275
CEMEX, S.A. de C.V. ADR 125,000 2,225,862
Cephalon, Inc. 100,000 50,000
Dollar General Corporation 525,000 1,975,000
Everest Re Group, Ltd. 30,000 470,000
General Motors Nova Scotia Finance Company 6.85%
Guaranteed Notes Due 10/15/08 $5,000,000 $30,000,000
Lamar Advertising Company - Class A 25,900 324,100
M&T Bank Corporation 10,000 300,000
MedImmune, Inc. 25,000 355,000
Medtronic, Inc. 210,000 240,000
MetLife, Inc. 10,000 275,000
PartnerRe Ltd. 20,000 315,000
Pfizer Inc 819,900 528,000
SunTrust Banks, Inc. 10,000 160,000
Transatlantic Holdings, Inc. 25,000 205,000
* Excludes transactions in Common and Preferred Stocks - Miscellaneous - Other.
(a) Securities purchased in prior period and previously carried under Common and Preferred Stocks - Miscellaneous - Other.
(b) Includes shares purchased in prior period and previously carried under Common and Preferred Stocks - Miscellaneous - Other.
OTHER MATTERS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
In addition to purchases of the Company's Common Stock as set forth in Note 2 on
page 10, 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.
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities and the Company's proxy voting record for the
twelve-month period ended June 30, 2006 are available: (1) without charge, upon
request, by calling us at our toll-free telephone number (1-800-436-8401), (2)
on the Company's website at www.generalamericaninvestors.com and (3) on the
Securities and Exchange Commission's website at www.sec.gov.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission (SEC) as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available at
www.generalamericaninvestors.com and on the SEC's website: www.sec.gov. Also,
Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public Reference Room
may be obtained by calling 1-800-SEC-0330. A copy of the Company's Form N-Q may
also be obtained by calling us at 1-800-436-8401.
On May 2, 2006, the Company submitted a CEO annual certification to the New York
Stock Exchange ("NYSE") on which the Company's principal executive officer
certified that he was not aware, as of that date, of any violation by the
Company of the NYSE's Corporate Governance listing standards. In addition, as
required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules,
the Company's principal executive and principal financial officer made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q relating
to, among other things, the Company's disclosure controls and procedures and
internal control over financial reporting, as applicable.
DIRECTORS
--------------------------------------------------------------------------------
Spencer Davidson, Chairman
Arthur G. Altschul, Jr. Sidney R. Knafel
Lewis B. Cullman D. Ellen Shuman
Gerald M. Edelman Joseph T. Stewart, Jr.
John D. Gordan, III Raymond S. Troubh
William T. Golden, Director Emeritus
OFFICERS
--------------------------------------------------------------------------------
Spencer Davidson, President & Chief Executive Officer
Andrew V. Vindigni, Senior Vice-President
Peter P. Donnelly, Vice-President & Trader
Sally A. Lynch, Vice-President
Eugene S. Stark, Vice-President, Administration &
Chief Compliance Officer
Jesse R. Stuart, Vice-President
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
Craig A. Grassi, Assistant Vice-President
Maureen E. LoBello, Assistant Secretary
SERVICE COMPANIES
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust
Company
59 Maiden Lane
New York, NY 10038
1-800-413-5499
www.amstock.com
RESULTS OF THE ANNUAL MEETING
OF STOCKHOLDERS
--------------------------------------------------------------------------------
The votes cast by stockholders at the Company's annual meeting held on
April 11, 2007 were as follows:
FOR WITHHELD
Election of Directors:
Lewis B. Cullman 32,088,065 467,325
Spencer Davidson 32,028,790 526,600
Gerald M. Edelman 32,134,767 420,623
John D. Gordan, III 32,227,580 327,810
D. Ellen Shuman 32,218,952 336,438
Joseph T. Stewart, Jr. 32,112,258 443,132
Raymond S. Troubh 32,128,083 427,307
Elected by holders of Preferred Stock:
Arthur G. Altschul, Jr. 7,370,437 83,205
Sidney R. Knafel 7,362,742 90,900
Ratification of the selection of Ernst & Young LLP as auditors of
the Company for the year 2007:
For - 32,298,866; Against - 104,589; Abstain - 151,933