GENERAL AMERICAN INVESTORS
COMPANY, INC.
THIRD QUARTER REPORT
SEPTEMBER 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
TO THE STOCKHOLDERS
For the nine months ended September 30, 2007, the net asset value per common
share increased 13.4%, while the investment return to our stockholders increased
9.8%. By comparison, the rate of return (including income) for our benchmark,
the Standard & Poor's 500 Stock Index, was 9.1%. For the twelve months ended
September 30, 2007, the return on the net asset value per Common Share was
21.1%, and the return to our stockholders was 17.2%; these compare with a return
of 16.3% for the S&P 500. During each period, the discount at which our shares
traded continued to fluctuate and on September 30, 2007, it was 11.3%.
As set forth in the accompanying financial statements (unaudited), as of
September 30, 2007, the net assets applicable to the Company's Common Stock were
$1,326,467,992 equal to $45.94 per Common Share.
The increase in net assets resulting from operations for the nine months ended
September 30, 2007 was $155,245,486. During this period, the net realized gain
on securities sold was $168,673,447, and the decrease in net unrealized
appreciation was $14,237,331. Net investment income for the nine months was
$9,734,370, and distributions to Preferred Stockholders amounted to $8,925,000.
During the nine months, 717,000 shares of the Company's Common Stock were
repurchased for $28,317,915 at an average discount from net asset value of
10.4%.
Our portfolio continued to post respectable results in the quarter just ended,
and shareholders can anticipate receiving commensurate long-term capital gain
distributions.
While the popular indices approached record levels at the end of September, the
period was turbulent as credit concerns drove the market down by over ten
percent from the peak in July to the August low. A new high in the price of oil
and a low in the dollar, relative to the Euro, together with declining new home
sales and the price of houses retreating at a rate not seen in four decades,
added to investor uncertainty.
Over the rest of the year, securities may well be buffeted by the tension
arising from the positive and negative effects of the weakening dollar and the
uncertain direction of interest rates. Exports could continue to benefit and the
trade deficit may narrow further, moderating the housing collapse's effect on
job growth and consumer spending. Should our currency continue along its current
trajectory, however, more inflation will be likely and our creditors could
demand a higher rate of interest, which might produce a destabilizing impact to
the economy.
We are saddened to report that William T. Golden, our esteemed colleague and
Director Emeritus, died on October 7, 2007. Mr. Golden, a prominent investor,
philanthropist, adviser to the President of the United States, and leader in the
scientific community, served as a director of the Company for 35 years, and as
Director Emeritus since 1996. His counsel and support will be missed.
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 September 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
October 10, 2007
2 STATEMENT OF ASSETS AND LIABILITIES September 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $878,435,480) $1,494,633,680
Corporate note (cost $24,359,180) 24,750,000
Money market fund (cost $7,641,647) 7,641,647
--------------
Total investments (cost $910,436,307) 1,527,025,327
CASH, RECEIVABLES AND OTHER ASSETS
Cash $5,599
Deposits with broker for options written 23,085
Dividends, interest and other receivables 2,045,236
Pension asset, excess funded 9,035,179
Prepaid expenses and other assets 600,445 11,709,544
--------- --------------
TOTAL ASSETS 1,538,734,871
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 1,330,470
Preferred dividend accrued but not yet declared 231,389
Outstanding options written, at value (premium received $23,085)
(note 1a) 4,460
Pension benefit liability 3,368,348
Accrued thrift plan expense 3,260,976
Accrued expenses and other liabilities 4,071,236
---------
TOTAL LIABILITIES 12,266,879
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 - 28,872,198 shares (note 2) $1,326,467,992
==============
NET ASSET VALUE PER COMMON SHARE $45.94
==============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 28,872,198 shares at par value (note 2) $28,872,198
Additional paid-in capital (note 2) 510,492,961
Undistributed realized gain on investments 166,958,398
Undistributed net investment income 11,953,287
Accumulated other comprehensive income (note 5) 739,892
Unallocated distributions on Preferred Stock (9,156,389)
Unrealized appreciation on investments and options written 616,607,645
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,326,467,992
==============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Nine Months Ended September 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $314,063) $16,669,058
Interest 2,123,216 $18,792,274
-----------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment research 5,729,089
Administration and operations 2,179,003
Office space and general 446,944
Directors' fees and expenses 204,245
Auditing and legal fees 195,287
Stockholders' meeting and reports 111,703
Transfer agent, custodian and registrar fees and expenses 106,577
Miscellaneous taxes 85,056 9,057,904
--------- ---------
NET INVESTMENT INCOME 9,734,370
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 $10,765,076) 168,673,447
Net decrease in unrealized appreciation (14,237,331)
-----------
NET GAIN ON INVESTMENTS 154,436,116
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (8,925,000)
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $155,245,486
============
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
Nine Months
Ended Year Ended
September 30, 2007 December 31,
(Unaudited) 2006
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $9,734,370 $10,007,624
Net realized gain on investments 168,673,447 86,176,349
Net increase (decrease) in unrealized appreciation (14,237,331) 51,196,338
------------ -----------
164,170,486 147,380,311
------------ -----------
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 (8,925,000) -
------------ ------------
Decrease in net assets from Preferred distributions (8,925,000) (11,900,000)
------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 155,245,486 135,480,311
------------ -----------
OTHER COMPREHENSIVE INCOME 87,333 652,559
------------ -----------
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 dividends and
distributions - 48,748,838
Cost of Common Shares purchased (28,317,915) (29,086,092)
------------ -----------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (28,317,915) 19,662,746
------------ -----------
NET INCREASE IN NET ASSETS 127,014,904 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 $11,953,287 and $2,218,917, respectively) $1,326,467,992 $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 nine months ended September 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.
Nine Months
Ended Year Ended December 31,
September 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 .34 .34 .19 .32 .03 .19
Net gain (loss) on investments -
realized and unrealized 5.37 4.72 5.85 3.48 7.72 (7.88)
Other comprehensive income - .03 - - - -
------- ------- ------ ------- ------ ------
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 (.31) - - - - -
------- ------- ------ ------- ------ ------
(.31) (.41) (.41) (.41) (.36) (.35)
------- ------- ------ ------- ------ ------
Total from investment operations 5.40 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 $45.94 $40.54 $39.00 $35.49 $33.11 $26.48
======= ======= ====== ======= ====== =======
Per share market value, end of period $40.77 $37.12 $34.54 $31.32 $29.73 $23.85
======= ======= ====== ======= ====== =======
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price per share 9.83%* 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) $1,326,468 $1,199,453 $1,132,942 $1,036,393 $986,335 $809,192
Ratio of expenses to average net assets
applicable to Common Stock 0.96%** 1.06% 1.25% 1.15% 1.23% 0.92%
Ratio of net income to average net assets
applicable to Common Stock 1.03%** 0.86% 0.51% 0.94% 0.13% 0.61%
Portfolio turnover rate 29.72%* 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 763% 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 $23.05 $25.44 $24.07 $24.97 $25.04 $25.85
*Not annualized
**Annualized
6 STATEMENT OF INVESTMENTS September 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE (4.4%)
------------------------------------------------------------------------------------------------------------------------------------
509,800 Textron Inc. $31,714,658
325,000 United Technologies Corporation 26,156,000
-----------
(COST $47,844,103) 57,870,658
-----------
BUILDING AND REAL ESTATE (5.1%)
------------------------------------------------------------------------------------------------------------------------------------
2,280,483 CEMEX, S.A. de C.V. ADR (COST $31,628,612) 68,232,051
-----------
COMMUNICATIONS AND INFORMATION SERVICES (8.3%)
------------------------------------------------------------------------------------------------------------------------------------
90,000 Avaya Inc. (a) 1,526,400
900,000 Cisco Systems, Inc. (a) 29,816,910
400,000 Lamar Advertising Company Class A (a) 19,588,000
800,000 QUALCOMM Incorporated 33,808,000
1,325,000 Sprint Nextel Corporation 25,175,000
-----------
(COST $84,175,425) 109,914,310
-----------
COMPUTER SOFTWARE AND SYSTEMS (8.7%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Activision, Inc. (a) 15,113,000
1,550,000 Dell Inc. (a) 42,780,000
720,000 Microsoft Corporation 21,211,200
55,000 Nintendo Co., Ltd. 28,512,000
315,000 THQ Inc. (a) 7,868,700
-----------
(COST $92,410,373) 115,484,900
-----------
CONSUMER PRODUCTS AND SERVICES (8.4%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc ADR 30,705,500
300,000 Heineken N. V. 19,635,000
630,000 Hewitt Associates, Inc. Class A (a) 22,081,500
45,000 Nestle S.A. 20,160,000
250,000 PepsiCo, Inc. 18,315,000
-----------
(COST $78,354,580) 110,897,000
-----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.1%)
------------------------------------------------------------------------------------------------------------------------------------
881,500 Republic Services, Inc. 28,833,865
680,000 Waste Management, Inc. 25,663,200
------------
(COST $39,285,764) 54,497,065
------------
FINANCE AND INSURANCE (25.2%)
------------------------------------------------------------------------------------------------------------------------------------
BANKING (5.6%)
---------------------------------------------------------------------------------------------------------------------------------
200,000 Bank of America Corporation 10,054,000
300,000 M&T Bank Corporation 31,035,000
650,000 Wachovia Corporation 32,597,500
-----------
(COST $14,094,309) 73,686,500
-----------
INSURANCE (16.3%)
---------------------------------------------------------------------------------------------------------------------------------
275,000 The Allstate Corporation 15,727,250
325,000 American International Group, Inc. 21,986,250
275,000 Annuity and Life Re (Holdings), Ltd. (a) 206,250
335,000 Arch Capital Group Ltd. (a) 24,927,350
365,000 AXIS Capital Holdings Limited 14,202,150
275 Berkshire Hathaway Inc. Class A (a) 32,590,250
350,000 Everest Re Group, Ltd. 38,584,000
900,000 Fidelity National Financial, Inc. 15,732,000
250,000 MetLife, Inc. 17,432,500
310,000 PartnerRe Ltd. 24,486,900
155,000 Transatlantic Holdings, Inc. 10,901,150
-----------
(COST $92,296,799) 216,776,050
-----------
OTHER (3.3%)
---------------------------------------------------------------------------------------------------------------------------------
60,000 Ameriprise Financial, Inc. 3,786,600
10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% ( d) 23,522,370
925,000 Nelnet, Inc. 16,872,000
-----------
(COST $34,359,009) 44,180,970
-----------
(COST $140,750,117) 334,643,520
-----------
7 STATEMENT OF INVESTMENTS September 30, 2007 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE / PHARMACEUTICALS (4.5%)
------------------------------------------------------------------------------------------------------------------------------------
80,000 Alkermes, Inc. (a) $1,472,000
100,000 Biogen Idec Inc. (a) 6,633,000
604,900 Cytokinetics, Incorporated (a) 3,097,088
200,000 Genentech, Inc. (a) 15,604,000
275,000 Novo Nordisk B 33,107,250
-----------
(COST $30,082,866) 59,913,338
-----------
MACHINERY AND EQUIPMENT (2.0%)
------------------------------------------------------------------------------------------------------------------------------------
1,000,000 ABB Ltd. ADR (COST $10,779,026) 26,230,000
----------
METAL (1.5%)
------------------------------------------------------------------------------------------------------------------------------------
150,500 Carpenter Technology Corporation (COST $18,726,632) 19,566,505
----------
MISCELLANEOUS (4.2%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $60,137,934) 55,661,160
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (17.7%)
------------------------------------------------------------------------------------------------------------------------------------
600,000 Apache Corporation 54,036,000
800,000 Halliburton Company 30,720,000
1,000,000 Patterson-UTI Energy, Inc. 22,570,000
3,000,000 Talisman Energy Inc. 59,100,000
1,025,000 Weatherford International Ltd. (a) 68,859,500
----------
(COST $125,958,179) 235,285,500
-----------
RETAIL TRADE (14.5%)
------------------------------------------------------------------------------------------------------------------------------------
575,000 Costco Wholesale Corporation 35,287,750
1,278,000 The Home Depot, Inc. (c) 41,458,320
533,000 Target Corporation 33,882,810
2,100,000 The TJX Companies, Inc. 61,047,000
470,000 Wal-Mart Stores, Inc. 20,515,500
----------
(COST $72,476,622) 192,191,380
-----------
TECHNOLOGY (3.2%)
------------------------------------------------------------------------------------------------------------------------------------
130,000 Intermec, Inc. (a) 3,395,600
2,250,000 Xerox Corporation (a) 39,015,000
----------
(COST $34,820,215) 42,410,600
----------
TRANSPORTATION (0.9%)
------------------------------------------------------------------------------------------------------------------------------------
236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 11,835,693
----------
TOTAL COMMON AND PREFERRED STOCKS (112.7%) (COST $878,435,480) 1,494,633,680
-------------
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 $24,359,180) 24,750,000
----------
8 STATEMENT OF INVESTMENTS September 30, 2007 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
7,641,647 SSgA Prime Money Market Fund (0.5%) (COST $7,641,647) $7,641,647
----------
TOTAL INVESTMENTS (e) (115.1%) (COST $910,436,307) 1,527,025,327
Liabilities in excess of cash, receivables and other assets (0.0%) (557,335)
PREFERRED STOCK (-15.1%) (200,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,326,467,992
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year, not previously disclosed and not restricted.
(c) 500,000 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 September 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 $635,261,837, (3) aggregate gross unrealized depreciation
was $18,672,817, and (4) net unrealized appreciation was $616,589,020.
(see notes to financial statements)
STATEMENT OF CALL OPTIONS WRITTEN September 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) $4,460
======
(see notes to financial statements)
--------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION September 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of September 30, 2007 and 2006 is shown in the following
table.
Percent Common Net Assets*
September 30, 2007 September 30
------------------------- --------------------------
Industry Category Cost(000) Value(000) 2007 2006
----------------------- ----------- ----------- ------------ -----------
Finance and Insurance
Banking $14,094 $73,686 5.6% 9.5%
Insurance 92,297 216,776 16.3 18.2
Other 34,359 44,181 3.3 1.4
------- ------- ---- ----
140,750 334,643 25.2 29.1
------- ------- ---- ----
Oil and Natural Gas (Including Services) 125,958 235,286 17.7 17.2
Retail Trade 72,477 192,191 14.5 17.8
Consumer Products and Services 102,714 135,647 10.3 6.8
Computer Software and Systems 92,410 115,485 8.7 2.4
Communications and Information Services 84,175 109,914 8.3 5.8
Building and Real Estate 31,629 68,232 5.1 6.1
------- ------- ---- ----
Health Care
Pharmaceuticals 30,083 59,913 4.5 9.1
Medical Instruments and Devices - - - 1.8
------- ------- ---- ----
30,083 59,913 4.5 10.9
------- ------- ---- ----
Aerospace/Defense 47,844 57,871 4.4 -
Miscellaneous** 60,138 55,661 4.2 4.8
Environmental Control (Including Services) 39,286 54,497 4.1 4.1
Technology 34,820 42,411 3.2 2.5
Machinery & Equipment 10,779 26,230 2.0 1.3
Metals 18,727 19,567 1.5 -
Transportation 11,005 11,836 0.9 -
Electronics - - - 1.6
Special Holdings - - - 0.0
------- --------- ---- ----
902,795 1,519,384 114.6 110.4
Short-Term Securities 7,641 7,641 0.5 6.6
------- --------- ---- ----
Total Investments $910,436 1,527,025 115.1 117.0
Other Assets and Liabilities - Net ======== (557) (0.0) 0.2
Preferred Stock (200,000) (15.1) (17.2)
---------- ----- -----
Net Assets Applicable to Common Stock $1,326,468 100.0% 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 (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 - 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 28,872,198 shares and 8,000,000
shares, respectively, were outstanding at September 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.
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK - (Continued from bottom of previous page.)
Transactions in Common Stock during the nine months ended September 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 10.4% and
9.0%, respectively) 717,000 787,700 ($717,000) (787,700)
Decrease in paid-in capital (27,600,915) (28,298,392)
------------ -----------
Total decrease (28,317,915) (29,086,092)
------------ -----------
Net decrease ($28,317,915)($19,662,746)
============ ===========
At September 30, 2007, the Company held in its treasury 2,359,365 shares of
Common Stock with an aggregate cost in the amount of $85,805,687. Distributions
for tax and book purposes are substantially the same.
3. OFFICERS' COMPENSATION - The aggregate compensation paid and accrued by the
Company during the nine months ended September 30, 2007 to its officers
(identified on back cover) amounted to $5,454,375.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other
than short-term securities and options) for the nine months ended September 30,
2007 amounted to $432,766,957 and $462,292,131.
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 nine months ended September 30, 2007 were:
Service cost $226,170
Interest cost 540,224
Expected return on plan assets (940,031)
Amortization of:
Prior service cost 16,570
Recognized net actuarial loss (gain) 72,155
-------
Net periodic benefit cost (income) ($84,912)
=======
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 nine
months ended September 30, 2007 was $505,006. The unfunded liability at
September 30, 2007 was $3,260,976.
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 $258,000 for the nine months ended September 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, $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.
11 MAJOR STOCK CHANGES* Three Months Ended September 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES SEPTEMBER 30, 2007
--------------------------------------------------------------------------------------------------------------------------
NEW POSITIONS
Alexander & Baldwin, Inc. 25,000 236,100 (a)
Ameriprise Financial, Inc. - 60,000 (a)
Fidelity National Financial, Inc. 900,000 900,000
Hewitt Associates, Inc. Class A 130,000 630,000 (a)
Nelnet, Inc. 325,000 925,000 (a)
THQ Inc. - 315,000 (a)
ADDITIONS
Carpenter Technology Corporation 4,400 150,500
Dell Inc. 190,000 1,550,000
Lamar Advertising Company Class A 75,900 400,000
Microsoft Corporation 300,000 720,000
Nestle S.A. 4,000 45,000
PepsiCo, Inc. 15,000 250,000
Sprint Nextel Corporation 100,000 1,325,000
Target Corporation 50,000 533,000
Wachovia Corporation 25,000 650,000
DECREASES
--------------------------------------------------------------------------------------------------------------------------
ELIMINATIONS
Dollar General Corporation 591,000 (b) -
Dow Jones & Company, Inc. 525,000 -
MFA Mortgage Investments, Inc. 913,300 -
Medtronic, Inc. 170,000 -
REDUCTIONS
ABB Ltd. ADR 150,000 1,000,000
Alkermes, Inc. 20,000 80,000
American International Group, Inc. 10,000 325,000
Avaya Inc. 256,000 90,000
Bank of America Corporation 150,000 200,000
Biogen Idec Inc. 70,000 100,000
Costco Wholesale Corporation 55,000 575,000
Everest Re Group, Ltd. 40,000 350,000
Halliburton Company 50,000 800,000
The Home Depot, Inc. 100,000 1,278,000
M&T Bank Corporation 15,000 300,000
MetLife, Inc. 15,000 250,000
Transatlantic Holdings, Inc. 20,000 155,000
Wal-Mart Stores, Inc. 105,000 470,000
Weatherford International Ltd. 195,000 1,025,000
* 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.
(b) As a result of a merger with affiliates of Kohlberg Kravis & Roberts & Co. L.P., GS Capital Partners, an affiliate of Goldman
Sachs, Citi Private Equity.
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
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