UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00041
---------------------------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
450 Lexington Avenue, Suite 3300, New York, New York 10017-3911
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Eugene S. Stark
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017-3911
(Name and address of agent for service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Registrant's telephone number, including area code: 212-916-8400
Date of fiscal year end: December 31
Date of reporting period: June 30, 2007
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 30, 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
3
TO THE STOCKHOLDERS
For the six months ended June 30, 2007, the net asset value per common share
increased by 11.3%, while the investment return to our stockholders was 9.2%. By
comparison, the rate of return (including income) for our benchmark, the
Standard & Poor's 500 Stock Index, was 7.0%. For the twelve months ended June
30, 2007, the return on the net asset value per Common Share was 23.0%, and the
return to our stockholders was 21.6%; these compare with a return of 20.5% for
the S&P 500. During each period, the discount at which our shares traded
continued to fluctuate and on June 30, 2007, it was 10.2%.
As set forth in the accompanying financial statements (unaudited), as of June
30, 2007, the net assets applicable to the Company's Common Stock were
$1,319,084,730 equal to $45.14 per Common Share.
The increase in net assets resulting from operations for the six months ended
June 30, 2007 was $133,915,605. During this period, the net realized gain on
securities sold was $128,919,725, and the increase in net unrealized
appreciation was $3,755,733. Net investment income for the six months was
$7,190,147, and distributions to Preferred Stockholders amounted to $5,950,000.
During the six months, 364,300 shares of the Company's Common Stock were
repurchased for $14,343,113 at an average discount from net asset value of
10.3%.
The year to date has produced meaningful capital gains, though it may be
difficult to sustain this performance over the balance of the year. One of the
main concerns is rising interest rates, which reflect the impact of higher fuel
and food costs, among other factors, on inflation. Higher borrowing costs could
dampen the flow of deals, which is thought to be an important part of the
foundation currently supporting equities.
Although it's difficult to argue that stocks are now undervalued, if interest
rates are trending up, sufficient liquidity appears to be available, at
compelling prices, to generally support financial assets. Despite the housing
slump and its attendant subprime loan problems, the U.S. economy seems to be
expanding again. Jobless claims and unemployment remain relatively low, the
trade deficit appears to have stabilized, the dollar's decline has been orderly,
and global growth remains robust.
We are pleased to report that, on July 11, 2007, Messrs. Rodney B. Berens and
Daniel M. Neidich were appointed to the Board of Directors. Mr. Berens is
founding partner of Berens Capital Management LLC and previously served as Head
of Global Equities at Salomon Brothers and as a member of the firm's Operating
Committee. Mr. Neidich is founding partner and Co-Chief Executive Officer of
Dune Capital Management LP. and previously served as a member of Goldman Sachs'
Management Committee, co-head of its Merchant Banking Division, and Chairman of
the Whitehall Investment Committee. Messrs. Berens and Neidich each serve as
directors or trustees of numerous business, community, and eleemosynary
organizations. Their familiarity with investment management and the securities
industries should be of great value to the Company in the future.
We are also pleased to report that Joseph T. Stewart, Jr., a member of the Board
of Directors of the Company since 1987, has been appointed by his fellow
independent directors to serve as the Company's Lead Independent Director in
order to maintain good governance practices in view of combining the offices of
the Chairman and Chief Executive Officer at the Company's recent annual meeting.
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 June 30, 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
July 11, 2007
4
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
--------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $857,833,159) $1,491,824,793
Corporate note (cost $24,210,900) 24,812,500
Money market fund (cost $1,054,428) 1,054,428
--------------
Total investments (cost $883,098,487) 1,517,691,721
CASH, RECEIVABLES AND OTHER ASSETS
Cash $440,895
Receivable for securities sold 3,234,095
Deposits with broker for options written 23,085
Dividends, interest and other receivables 1,115,675
Pension asset, excess funded 8,908,039
Prepaid expenses and other assets 214,759 13,936,548
--------- -------------
TOTAL ASSETS 1,531,628,269
LIABILITIES
--------------------------------------------------------------------------------
Payable for securities purchased 2,866,112
Preferred dividend accrued but not yet declared 231,389
Outstanding options written, at value
(premium received $23,085) (note 1a) 15,610
Pension benefit liability 3,352,474
Accrued thrift plan expense 3,306,942
Accrued expenses and other liabilities 2,771,012
---------
TOTAL LIABILITIES 12,543,539
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 - 29,224,898 shares (note 2) $1,319,084,730
==============
NET ASSET VALUE PER COMMON SHARE $45.14
======
NET ASSETS APPLICABLE TO COMMON STOCK
--------------------------------------------------------------------------------
Common Stock, 29,224,898 shares at par value (note 2) $29,224,898
Additional paid-in capital (note 2) 524,115,063
Undistributed realized gain on investments 127,204,676
Undistributed net investment income 9,409,064
Accumulated other comprehensive income (note 5) 711,709
Unallocated distributions on Preferred Stock (6,181,389)
Unrealized appreciation on investments and options written 634,600,709
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,319,084,730
==============
(see notes to financial statements)
5
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $298,820) $11,946,944
Interest 1,506,642 $13,453,586
----------
EXPENSES
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Investment research 3,997,967
Administration and operations 1,550,678
Office space and general 272,513
Directors' fees and expenses 136,163
Auditing and legal fees 105,000
Transfer agent, custodian and registrar fees and expenses 78,243
Stockholders' meeting and reports 67,053
Miscellaneous taxes 55,822 6,263,439
--------- ----------
NET INVESTMENT INCOME 7,190,147
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS AND OPTIONS WRITTEN (NOTES 1d AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (long-term,
except for $9,198,910) 128,919,725
Net increase in unrealized appreciation 3,755,733
-----------
NET GAIN ON INVESTMENTS 132,675,458
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,950,000)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $133,915,605
============
(see notes to financial statements)
6
4 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
Six Months
Ended Year Ended
June 30, 2007 December 31,
(Unaudited) 2006
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $7,190,147 $10,007,624
Net realized gain on investments 128,919,725 86,176,349
Net increase in unrealized appreciation 3,755,733 51,196,338
----------- -----------
139,865,605 147,380,311
----------- -----------
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 (5,950,000) -
----------- ------------
Decrease in net assets from Preferred distributions (5,950,000) (11,900,000)
----------- ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 133,915,605 135,480,311
----------- ------------
OTHER COMPREHENSIVE INCOME 59,150 652,559
----------- ------------
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 (14,343,113) (29,086,092)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (14,343,113) 19,662,746
----------- -----------
NET INCREASE IN NET ASSETS 119,631,642 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
$9,409,064 and $2,218,917, respectively) $1,319,084,730 $1,199,453,088
============== ==============
(see notes to financial statements)
7
5 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the six months ended June 30, 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.
Six Months
Ended Year Ended December 31,
June 30, 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 .25 .34 .19 .32 .03 .19
Net gain (loss) on investments -
realized and unrealized 4.55 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 (.20) - - - - -
--------- --------- ------- ------- ------- --------
(.20) (.41) (.41) (.41) (.36) (.35)
--------- --------- ------- ------- ------- --------
Total from investment operations 4.60 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 $45.14 $40.54 $39.00 $35.49 $33.11 $26.48
========= ========= ======= ======= ======= ========
Per share market value, end of period $40.55 $37.12 $34.54 $31.32 $29.73 $23.85
========= ========= ======= ======= ======= ========
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price
per share 9.24%* 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) $1,319,085 $1,199,453 $1,132,942 $1,036,393 $986,335 $809,192
Ratio of expenses to average net assets
applicable to Common Stock 1.00%** 1.06% 1.25% 1.15% 1.23% 0.92%
Ratio of net income to average net assets
applicable to Common Stock 1.15%** 0.86% 0.51% 0.94% 0.13% 0.61%
Portfolio turnover rate 23.24%* 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 760% 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 $24.20 $25.44 $24.07 $24.97 $25.04 $25.85
*Not annualized
**Annualized
8
6 STATEMENT OF INVESTMENTS June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE (3.9%)
------------------------------------------------------------------------------------------------------------------------------------
254,900 Textron Inc. $28,067,039
325,000 United Technologies Corporation 23,052,250
----------
(COST $47,844,103) 51,119,289
----------
BUILDING AND REAL ESTATE (6.4%)
------------------------------------------------------------------------------------------------------------------------------------
2,280,483 CEMEX, S.A. de C.V. ADR (COST $31,628,612) 84,149,822
----------
COMMUNICATIONS AND INFORMATION SERVICES (10.7%)
------------------------------------------------------------------------------------------------------------------------------------
346,000 Avaya Inc. (a) 5,826,640
900,000 Cisco Systems, Inc. (a) 25,065,000
525,000 Dow Jones & Company, Inc. 30,161,250
324,100 Lamar Advertising Company Class A (a) 20,340,516
800,000 QUALCOMM Incorporated 34,712,000
1,225,000 Sprint Nextel Corporation 25,369,750
-----------
(COST $109,843,903) 141,475,156
-----------
COMPUTER SOFTWARE AND SYSTEMS (6.4%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Activision, Inc. (a) 13,069,000
1,360,000 Dell Inc. (a) 38,828,000
420,000 Microsoft Corporation 12,377,400
55,000 Nintendo Co., Ltd. 20,012,300
-----------
(COST $68,508,936) 84,286,700
-----------
CONSUMER PRODUCTS AND SERVICES (5.9%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc ADR 29,158,500
300,000 Heineken N. V. 17,652,000
41,000 Nestle S.A. 15,617,310
235,000 PepsiCo, Inc. 15,239,750
----------
(COST $56,398,431) 77,667,560
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.1%)
------------------------------------------------------------------------------------------------------------------------------------
881,500 Republic Services, Inc. 27,009,160
680,000 Waste Management, Inc. 26,554,000
-----------
(COST $39,285,764) 53,563,160
-----------
FINANCE AND INSURANCE (24.1%)
------------------------------------------------------------------------------------------------------------------------------------
BANKING (6.3%)
---------------------------------------------------------------------------------------------------------------------------------
350,000 Bank of America Corporation 17,111,500
315,000 M&T Bank Corporation 33,673,500
625,000 Wachovia Corporation 32,031,250
----------
(COST $21,166,709) 82,816,250
----------
INSURANCE (15.6%)
---------------------------------------------------------------------------------------------------------------------------------
275,000 The Allstate Corporation 16,915,250
335,000 American International Group, Inc. 23,460,050
275,000 Annuity and Life Re (Holdings), Ltd. (a) 165,000
335,000 Arch Capital Group Ltd. (a) 24,300,900
365,000 AXIS Capital Holdings Limited 14,837,250
275 Berkshire Hathaway Inc. Class A (a) 30,105,625
390,000 Everest Re Group, Ltd. 42,369,600
265,000 MetLife, Inc. 17,087,200
310,000 PartnerRe Ltd. 24,025,000
175,000 Transatlantic Holdings, Inc. 12,447,750
-----------
(COST $78,616,754) 205,713,625
-----------
OTHER (2.2%)
---------------------------------------------------------------------------------------------------------------------------------
10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% (d) 22,369,640
913,300 MFA Mortgage Investments, Inc. 6,648,824
----------
(COST $16,824,776) 29,018,464
----------
(COST $116,608,239) 317,548,339
-----------
9
7 STATEMENT OF INVESTMENTS June 30, 2007 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (5.1%)
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (4.5%)
----------------------------------------------------------------------------------------------------------------------------------
100,000 Alkermes, Inc. (a) $1,460,000
170,000 Biogen Idec Inc. (a) 9,095,000
604,900 Cytokinetics, Incorporated (a) 3,417,685
200,000 Genentech, Inc. (a) 15,132,000
275,000 Novo Nordisk B 29,991,500
----------
(COST $30,509,215) 59,096,185
----------
MEDICAL INSTRUMENTS AND DEVICES (0.6%)
----------------------------------------------------------------------------------------------------------------------------------
170,000 Medtronic, Inc. (COST $456,553) 8,816,200
----------
(COST $30,965,768) 67,912,385
----------
MACHINERY AND EQUIPMENT (2.0%)
------------------------------------------------------------------------------------------------------------------------------------
1,150,000 ABB Ltd. ADR (COST $12,430,211) 25,990,000
----------
METAL (1.4%)
------------------------------------------------------------------------------------------------------------------------------------
146,100 Carpenter Technology Corporation (COST $18,260,714) 19,038,291
----------
MISCELLANEOUS (5.6%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $71,644,755) 74,153,321
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (17.4%)
------------------------------------------------------------------------------------------------------------------------------------
600,000 Apache Corporation 48,954,000
850,000 Halliburton Company 29,325,000
1,000,000 Patterson-UTI Energy, Inc. 26,210,000
3,000,000 Talisman Energy Inc. 57,990,000
1,220,000 Weatherford International Ltd. (a) 67,392,800
------------
(COST $133,870,713) 229,871,800
------------
RETAIL TRADE (16.7%)
------------------------------------------------------------------------------------------------------------------------------------
630,000 Costco Wholesale Corporation 36,867,600
591,000 Dollar General Corporation 12,954,720
1,378,000 The Home Depot, Inc. (c) 54,224,300
483,000 Target Corporation 30,718,800
2,100,000 The TJX Companies, Inc. 57,750,000
575,000 Wal-Mart Stores, Inc. 27,663,250
-----------
(COST $85,722,795) 220,178,670
-----------
TECHNOLOGY (3.4%)
------------------------------------------------------------------------------------------------------------------------------------
130,000 Intermec, Inc. (a) 3,290,300
2,250,000 Xerox Corporation (a) 41,580,000
----------
(COST $34,820,215) 44,870,300
----------
TOTAL COMMON AND PREFERRED STOCKS (113.1%) (COST $857,833,159) 1,491,824,793
-------------
Principal Amount CORPORATE NOTE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES (1.9%)
------------------------------------------------------------------------------------------------------------------------------------
$25,000,000 General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes due 10/15/08 (COST $24,210,900) 24,812,500
----------
10
8 STATEMENT OF INVESTMENTS June 30, 2007 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares SHORT-TERM SECURITY AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
1,054,428 SSgA Prime Money Market Fund (0.1%) (COST $1,054,428) $1,054,428
----------
TOTAL INVESTMENTS (e) (115.1%) (COST $883,098,487) 1,517,691,721
Cash, receivables and other assets less liabilities (0.1%) 1,393,009
PREFERRED STOCK (-15.2%) (200,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,319,084,730
==============
(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 June 30, 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 $639,170,422,
(3) aggregate gross unrealized depreciation was $4,577,188, and
(4) net unrealized appreciation was $634,593,234.
(see notes to financial statements)
STATEMENT OF CALL OPTIONS WRITTEN June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Contracts Value
(100 shares each) COMMON STOCK/EXPIRATION DATE/EXERCISE PRICE (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND INFORMATION SERVICES
------------------------------------------------------------------------------------------------------------------------------------
446 Avaya Inc./January '08/$17.50 (PREMIUMS RECEIVED $23,085) $15,610
=======
(see notes to financial statements)
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of June 30, 2007 and 2006 is shown in the following table.
Percent Common Net Assets*
June 30, 2007 June 30
-------------------------------------- --------------------------
Industry Category Cost(000) Value(000) 2007 2006
-------------------------------- -------------------- ----------------- ----------- -----------
Finance and Insurance
Banking $21,167 $82,816 6.3% 9.5%
Insurance 78,617 205,714 15.6 16.4
Other 16,825 29,019 2.2 1.4
-------- --------- ------ ------
116,609 317,549 24.1 27.3
-------- --------- ------ ------
Oil and Natural Gas (Including Services) 133,871 229,872 17.4 20.1
Retail Trade 85,723 220,179 16.7 18.4
Communications and Information Services 109,844 141,475 10.7 5.4
Consumer Products and Services 80,609 102,481 7.8 5.9
Computer Software and Systems 68,509 84,287 6.4 3.5
Building and Real Estate 31,628 84,150 6.4 5.9
-------- --------- ------ ------
Health Care
Pharmaceuticals 30,509 59,096 4.5 7.9
Medical Instruments and Devices 456 8,816 0.6 1.9
-------- --------- ------ ------
30,965 67,912 5.1 9.8
-------- --------- ------ ------
Miscellaneous** 71,645 74,153 5.6 5.1
Environmental Control (Including Services) 39,286 53,563 4.1 4.2
Aerospace/Defense 47,844 51,119 3.9 -
Technology 34,820 44,870 3.4 2.3
Machinery & Equipment 12,430 25,990 2.0 1.3
Metals 18,261 19,038 1.4 -
Electronics - - - 1.4
Semiconductors - - - 0.2
Special Holdings - - - 0.0
-------- --------- ------ ------
882,044 1,516,638 115.0 110.8
Short-Term Securities 1,054 1,054 0.1 6.9
-------- --------- ------ ------
Total Investments $883,098 1,517,692 115.1 117.7
========
Other Assets and Liabilities - Net 1,393 0.1 0.0
Preferred Stock (200,000) (15.2) (17.7)
--------- ------ ------
Net Assets Applicable to Common Stock $1,319,085 100.0% 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.
11
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 (asked price for options written) on the
valuation date. Securities traded primarily in foreign markets are generally
valued at the preceding closing price of such securities on their respective
exchanges or markets. If, after the close of the foreign market, conditions
change significantly, the price of certain foreign securities may be adjusted to
reflect fair value as of the time of the valuation of the portfolio. 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 of $6.00
multiplied by the last reported sales price of the publicly traded common stock
of the corporation.
b. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium received and
the amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
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. 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.
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 29,224,898
shares and 8,000,000 shares, respectively, were outstanding at June 30, 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.
12
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 six months ended June 30, 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 10.3% and 9.0%, respectively) 364,300 787,700 ($364,300) (787,700)
Decrease in paid-in capital (13,978,813) (28,298,392)
---------- ----------
Total decrease (14,343,113) (29,086,092)
---------- ----------
Net increase (decrease) ($14,343,113) $19,662,746
=========== ===========
At June 30, 2007, the Company held in its treasury 2,006,665 shares of Common
Stock with an aggregate cost in the amount of $71,830,884. Distributions for tax
and book purposes are substantially the same.
3. OFFICERS' COMPENSATION - The aggregate compensation paid by the Company
during the six months ended June 30, 2007 to its officers (identified on back
cover) amounted to $3,636,250.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other
than short-term securities and options) for the six months ended June 30, 2007
amounted to $334,626,356 and $345,148,409.
5. BENEFIT PLANS - The Company has funded (Qualified) and 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 components of the net periodic benefit cost of the plans for
the six months ended June 30, 2007 were:
Service cost $150,780
Interest cost 360,149
Expected return on plan assets (626,687)
Amortization of:
Prior service cost 11,046
Recognized net actuarial loss (gain) 48,104
-------
Net periodic benefit cost (income) ($56,608)
=======
The Company also has funded and unfunded defined contribution thrift plans that
are available to its employees. The aggregate cost of such plans for the six
months ended June 30, 2007 was $449,881. The unfunded liability at June 30, 2007
was $3,306,942.
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 COMMITMENTS - In July 1992, the Company entered into an
operating lease agreement for office space which expires on December 31, 2007
and provided for future rental payments in the aggregate amount of approximately
$5.6 million. The lease agreement contains a clause whereby the Company received
a specified number of months of free rent beginning in December 1992 and
escalation clauses relating to rent charges, operating costs, and real property
taxes.
In January 2003, the Company extended a sublease agreement (originally entered
into in March 1996) which expires on December 31, 2007 and provides for future
rental receipts. Minimum rental receipts under the sublease are approximately
$254,000 in 2007. The Company will also be charged its proportionate share of
operating expenses and real property taxes under the sublease.
Net rental expense approximated $156,000 for the six months ended June 30, 2007.
On a gross basis, minimum rental commitments under the operating lease are
approximately $505,000 in 2007.
In June 2007, the Company entered into an operating lease agreement for new
office space which expires in February 2018 and provides for future rental
payments in the aggregate amount of approximately $10.8 million. The lease
agreement contains clauses whereby the Company receives free rent for a
specified number of months and credit towards construction of office
improvements, and incurs escalations annually relating to operating costs and
real property taxes and to annual rent charges beginning in February 2013. The
Company has the option to renew the lease after February 2018 for five years at
market rates.
Minimum rental commitments under the operating lease are approximately $0.9
million in 2008 and $1.0 million per annum in 2009 through 2012, $1.1 million in
2013 through 2017 and $0.1 million in 2018.
7. RECENT ACCOUNTING PRONOUNCEMENTS - 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.
13
11 MAJOR STOCK CHANGES* Three Months Ended June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES JUNE 30, 2007
-----------------------------------------------------------------------------------------------------------------
NEW POSITIONS
Carpenter Technology Corporation 146,100 146,100
Dow Jones & Company, Inc.. 525,000 525,000
Intermec, Inc. - 130,000 (a)
Nestle S.A. 41,000 41,000
Target Corporation 483,000 483,000
United Technologies Corporation 325,000 325,000
Waste Management, Inc. 680,000 680,000
ADDITIONS
Bank of America Corporation 80,000 350,000
Dell Inc. 309,000 1,360,000
M&T Bank Corporation 15,000 315,000
QUALCOMM Incorporated 100,000 800,000
Sprint Nextel Corporation 40,000 1,225,000
Textron Inc. 4,900 254,900
Wachovia Corporation 10,136 625,000
DECREASES
------------------------------------------------------------------------------------------------------------------
ELIMINATIONS
American Tower Corporation 100,000 -
Cephalon, Inc. 50,000 -
MedImmune, Inc. 355,000 -
Pfizer Inc 528,000 -
Rio Tinto plc ADR 65,000 -
SunTrust Banks, Inc. 160,000 -
REDUCTIONS
The Allstate Corporation 10,000 275,000
Apache Corporation 225,000 600,000
Avaya Inc. 209,000 346,000 (a)
AXIS Capital Holdings Limited 35,000 365,000
Costco Wholesale Corporation 70,000 630,000
Dollar General Corporation 1,384,000 591,000
Everest Re Group, Ltd. 80,000 390,000
General Motors Nova Scotia Finance Company 6.85%
Guaranteed Notes Due 10/15/08 $5,000,000 $25,000,000
The Home Depot, Inc. 192,000 1,378,000
Medtronic, Inc. 70,000 170,000
MetLife, Inc. 10,000 265,000
MFA Mortgage Investments, Inc. 11,700 913,300
Microsoft Corporation 300,000 420,000
PartnerRe Ltd. 5,000 310,000
Republic Services, Inc. 881,000 881,500
Transatlantic Holdings, Inc. 30,000 175,000
* Excludes transactions in Common and Preferred Stocks - Miscellaneous - Other.
(a) 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, 2007 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, 2007, 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
Joseph T. Stewart, Jr., Lead Independent Director
Arthur G. Altschul, Jr. Sidney R. Knafel
Rodney B. Berens Daniel M. Neidich
Lewis B. Cullman D. Ellen Shuman
Gerald M. Edelman Raymond S. Troubh
John D. Gordan, III
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
GENERAL AMERICAN INVESTORS COMPANY, INC.
We have reviewed the accompanying statement of assets and liabilities of
General American Investors Company, Inc., including the statement of
investments, as of June 30, 2007, and the related statements of operations and
changes in net assets and financial highlights for the six-month period ended
June 30, 2007. These financial statements and financial highlights are the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the statement of changes in net assets for
the year ended December 31, 2006 and financial highlights for each of the five
years in the period then ended and in our report, dated January 17, 2007, we
expressed an unqualified opinion on such financial statements and financial
highlights.
New York, New York ERNST & YOUNG LLP
August 6, 2007
15
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The schedule of investments in securities of unaffiliated issuers is included as
part of the report to stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM. 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
REGISTRANT PURCHASES OF EQUITY SECURITIES
(c) Total Number of Shares (d) Maximum Number (or Approximate
Period (a) Total Number (b) Average Price (or Units) Purchased as Part Dollar Value) of Shares (or Units)
of Shares Paid per Share of Publicly Announced that May Yet Be Purchased Under
2007 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01-01/31 - - - 616200
02/01-02/28 10800 37.6036 10800 605400
03/01-03/31 34100 37.1726 34100 571300
04/01-04/30 94900 38.1999 94900 476400
05/01-05/31 110900 39.7385 110900 365500
06/01-06/30 113600 40.8207 113600 251900
------- -------- ------ ------
Total 364300 364300
======= ======
Note - On January 17, 2007, the Board of Directors authorized and the registrant announced the repurchase of up to 250,000
shares of the registrant's common stock when the shares are trading at a discount from the underlying net asset value
of at least 8%. This represented a continuation of a repurchase program which began in March 1995. As of the
beginning of the period, January 1, 2007, there were 366,200 shares available for repurchase under such
authorization. As of the end of the period, June 30, 2007, there were 251,900 shares available for repurchase
under this program.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors as set forth in the
registrant's Proxy Statement, dated February 28, 2007.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of July 11, 2007, an evaluation was performed under the supervision and
with the participation of the officers of General American Investors Company,
Inc. (the "Registrant"), including the principal executive officer ("PEO") and
principal financial officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures. Based on that evaluation, the
Registrant's officers, including the PEO and PFO, concluded that, as of July
11, 2007, the Registrant's disclosure controls and procedures were reasonably
designed so as to ensure:(1) that information required to be disclosed by the
Registrant on Form N-CSR is recorded, processed, summarized and reported within
the time periods specified by the rules and forms of the Securities and Exchange
Commission, and (2) that material information relating to the Registrant is made
known to the PEO and PFO as appropriate to allow timely discussions regarding
required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting that occurred during the Registrant's second fiscal
quarter of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company Act of
1940.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
General American Investors Company, Inc.
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
Date: August 6, 2007
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Spencer Davidson
Spencer Davidson
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 2007
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: August 6, 2007