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
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GENERAL AMERICAN INVESTORS COMPANY, INC.
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(Exact name of registrant as specified in charter)
100 Park Avenue, 35th Floor, New York, New York 10017
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(Address of principal executive offices) (Zip code)
Eugene S. Stark
General American Investors Company, Inc.
100 Park Avenue
35th Floor
New York, New York 10017
(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: December 31, 2007
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2007
ANNUAL
REPORT
3
GENERAL AMERICAN INVESTORS COMPANY, INC.
Established in 1927, the Company is a closed-end investment company listed on
the New York Stock Exchange. Its objective is long-term capital appreciation
through investment in companies with above average growth potential.
FINANCIAL SUMMARY (unaudited)
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2007 2006
------------- --------------
Net assets applicable to Common Stock -
December 31 $1,202,922,969 $1,199,453,088
Net investment income 9,782,623 10,007,624
Net realized gain 175,785,885 86,176,349
Net increase (decrease) in unrealized
appreciation (71,533,458) 51,196,338
Distributions to Preferred Stockholders (11,900,000) (11,900,000)
Per Common Share-December 31
Net asset value $38.10 $40.54
Market price $34.70 $37.12
Discount from net asset value -8.9% -8.4%
Common Shares outstanding-Dec. 31 31,573,058 29,589,198
Common Stockholders of record-Dec. 31 3,891 4,006
Market price range* (high-low) $43.87-$32.69 $39.47-$34.80
Market volume-shares 7,110,734 6,313,300
*Unadjusted for dividend payments.
DIVIDEND SUMMARY (per share) (unaudited)
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Ordinary Long-Term
Record Date Payment Date Income Capital Gain Total
------------ ------------ --------- ------------ --------
Common Stock
Nov. 16, 2007 Dec. 27, 2007 $.709475 (a) $5.040525 $5.750000
Jan. 28, 2008 Feb. 11, 2008 .005815 .209479 .215294
-------- --------- ---------
Total from 2007 earnings $.715290 $5.250004 $5.965294
======== ========= =========
Nov. 10, 2006 Dec. 21, 2006 $.333952 $2.666048 $3.000000
======== ========= =========
From 2006 earnings
(a) Includes short-term gains in the amount of $.009262 per share.
Preferred Stock
Mar. 7, 2007 Mar. 26, 2007 $.045885 $.325990 $.371875
Jun. 7, 2007 Jun. 25, 2007 .045885 .325990 .371875
Sept. 7, 2007 Sept. 24, 2007 .045885 .325990 .371875
Dec. 7, 2007 Dec. 24, 2007 .045885 .325990 .371875
-------- --------- ---------
Total for 2007 $.183540 (b) $1.303960 $1.487500
======== ========= =========
(b) Includes short-term gains in the amount of $.002396 ($.000599 per quarter).
Mar. 7, 2006 Mar. 24, 2006 $.039403 $.332472 $.371875
Jun. 7, 2006 Jun. 26, 2006 .039403 .332472 .371875
Sept. 7, 2006 Sept. 25, 2006 .039403 .332472 .371875
Dec. 7, 2006 Dec. 26, 2006 .039403 .332472 .371875
-------- --------- ---------
Total for 2006 $.157612 $1.329888 $1.487500
======== ========= =========
General American Investors Company, Inc.
100 Park Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
4
1 TO THE STOCKHOLDERS
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General American Investors
The U.S. stock market rose for a fifth consecutive year, gaining 5.4% in the 12
months ended December 31, 2007, as measured by our benchmark, the Standard &
Poor's 500 Stock Index (including income). General American Investors' net asset
value (NAV) per Common Share (assuming reinvestment of all dividends) increased
8.0%. The return to our Common Stockholders was 8.7%. At year end, the discount
at which our shares trade to their NAV was 8.9%.
The table that follows, which compares our returns on an annualized basis with
the S&P 500, now includes fifty years of data, illustrating that over many years
General American has produced superior investment results.
Years Stockholder Return S&P 500
--------------------------------------
3 14.2% 8.5%
5 15.6 12.7
10 13.0 5.9
20 16.6 11.8
30 17.0 12.9
40 13.1 10.5
50 12.6 11.0
The share repurchase program, a part of our ongoing effort to maximize NAV,
continues. In 2007, the Company purchased 763,600 of its Common Shares on the
open market at an average discount to NAV of 10.4%. The Board of Directors has
authorized repurchases of Common Shares when they are trading at a discount to
NAV in excess of 8%.
While the market rallied for the fifth year in succession last year,
facilitating respectable portfolio gains, returns became more volatile as the
year progressed, with peak-to-trough declines of over ten percent in the third
and fourth quarters. Earlier in the year, the economy, jobs and profits all
expanded meaningfully despite weakness in housing and nascent subprime loan
difficulties. Although the price of oil and other commodities was moving higher,
inflation appeared to be contained, while on balance, dollar weakness had a
favorable influence on U.S. companies with operations overseas, and on the trade
deficit. As the year progressed, however, the economy slowed noticeably in the
face of weakening demand. The one-two punch of rising energy costs and declining
house prices eroded purchasing power while requiring a higher rate of savings
from what remained.
By year end contraction was evident, with the unemployment rate approaching 5%
and recession a distinct possibility. What began in the housing market, with
loans to marginal borrowers who couldn't service their debt, spread to all
manner of complex financing transactions leading to the tightening of lending
standards and credit availability as bank capital shrank. Deals could no longer
be financed on advantageous terms, and the equity market faltered despite
valuations that seemed reasonable.
The new year has begun inauspiciously. Broad weakness in equities appears to
reflect concern that the current slowdown in U.S. growth is likely to extend at
least through the first half of the year. Even in the absence of a recession,
defined as two successive quarters of negative GDP growth, consumer spending,
housing, credit growth and corporate profits are all likely to experience
degrees of weakness. The lending landscape has changed, and it may take time to
restore liquidity and confidence in the banking system and financial markets. An
accommodative Federal Reserve, and some degree of fiscal stimulus, together with
improvement in net exports should help, but a relatively lengthy period of tepid
demand growth, sluggish earnings and modest equity returns appears to be the
most realistic prospect.
On a longer term basis, the case for equities remains intact. With 95% of those
who want jobs still employed, consumer spending, the main driver of economic
activity, is likely to continue to grow. Corporate balance sheets are in
relatively good shape and can support growth despite the current difficulties in
the financial sector. Worldwide, liquidity is abundant and the U.S. should
remain a destination of choice for capital undergirding distressed assets and
supporting appreciation.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, etc., is available on our website, which
can be accessed at www.generalamericaninvestors.com.
By Order of the Board of Directors,
Spencer Davidson
Chairman of the Board
President and Chief Executive Officer
January 16, 2008
5
2 THE COMPANY
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General American Investors
Corporate Overview
General American Investors, established in 1927, is one of the nation's oldest
closed-end investment companies. It is an independent organization that is
internally managed. For regulatory purposes, the Company is classified as a
diversified, closed-end management investment company; it is registered under
and subject to the Investment Company Act of 1940 and Sub-Chapter M of the
Internal Revenue Code.
Investment Policy
The primary objective of the Company is long-term capital appreciation. Lesser
emphasis is placed on current income. In seeking to achieve its primary
objective, the Company invests principally in common stocks believed by its
management to have better than average growth potential.
The Company's investment approach focuses on the selection of individual stocks,
each of which is expected to meet a clearly defined portfolio objective. A
continuous investment research program, which stresses fundamental security
analysis, is carried on by the officers and staff of the Company under the
oversight of the Board of Directors. A listing of the directors with their
principal affiliations, showing a broad range of experience in business and
financial affairs, is on the inside back cover.
Portolio Manager
Mr. Spencer Davidson, Chairman of the Board, President and Chief Executive
Officer, has been responsible for the management of General American since
August 1995. Mr. Davidson, who joined the Company in 1994 as senior investment
counselor, has spent his entire business career on Wall Street since first
joining an investment and banking firm in 1966.
"GAM" Common Stock
As a closed-end investment company, General American Investors does not offer
its shares continuously. The Common Stock is listed on The New York Stock
Exchange (symbol, GAM) and can be bought or sold with commissions determined in
the same manner as all listed stocks. Net asset value is computed and published
on the Company's website daily (on an unaudited basis) and is also furnished
upon request. It is also available on most electronic quotation services using
the symbol "XGAMX." The figure for net asset value per share, together with the
market price and the percentage discount or premium from net asset value as of
the close of each week, is published in Barron's and The Wall Street Journal.
The ratio of market price to net asset value has shown variation over a long
period of time. While shares of GAM usually sell at a discount from their
underlying net asset value, as do the shares of most other domestic equity
closed-end investment companies, they occasionally sell at a premium over net
asset value. During 2007, the stock sold at discounts from net asset value which
ranged from 4.3% (November 5) to 13.1% (August 16). At December 31, the price of
the stock was at a discount of 8.9% as compared with a discount of 8.4% a year
earlier.
"GAM Pr B" Preferred Stock
On September 24, 2003, the Company issued and sold in an underwritten offering
8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a
liquidation preference of $25 per share ($200,000,000 in the aggregate).
The Preferred Shares are noncallable prior to September 24, 2008, are rated
"Aaa" by Moody's Investors Service, Inc. and are listed and traded on The New
York Stock Exchange (symbol, GAM Pr B).
6
3 THE COMPANY
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General American Investors
The preferred capital is available to leverage the investment performance of the
Common Stockholders. As is the case for leverage in general, it may also result
in higher market volatility for the Common Stockholders.
Dividend and Distribution Policy
The Company's dividend and distribution policy is to distribute to stockholders
before year-end substantially all ordinary income estimated for the full year
and capital gains realized during the ten-month period ended October 31 of that
year. If any additional capital gains are realized or ordinary income is earned
during the last two months of the year, a "spill-over" distribution of these
amounts will be paid early in the following year to Common Stockholders.
Dividends and distributions on shares of Preferred Stock are paid quarterly.
Distributions from capital gains and dividends from ordinary income are
allocated proportionately among holders of shares of Common Stock and Preferred
Stock.
Dividends from income have been paid continuously on the Common Stock since 1939
and capital gain distributions in varying amounts have been paid for each of the
years 1943-2007 (except for the year 1974). (A table listing dividends and
distributions paid during the 20-year period 1988-2007 is shown at the bottom of
page 6.) To the extent that shares can be issued, dividends and distributions
are paid to Common Stockholders in additional shares of Common Stock unless the
stockholder specifically requests payment in cash. Spill-over dividends and
distributions of nominal amounts are generally paid in cash.
Proxy Voting Policies, Procedures and Record
The policies and procedures used by General American Investors to determine how
to vote proxies relating to portfolio securities and the Company's proxy voting
record for the 12-month period ended June 30, 2007 are available: (1) without
charge, upon request, by calling the Company at its toll-free number
(1-800-436-8401), (2) on the Company's website at
www.generalamericaninvestors.com and (3) on the Securities and Exchange
Commission's website at www.sec.gov.
Direct Registration
The Company makes available direct registration for its Common Shareholders.
Direct registration, which is an element of the Investors Choice Plan
administered by our transfer agent, is a system that allows for book-entry
ownership and electronic transfer of our Common Shares. Accordingly, when Common
Shareholders, who hold their shares directly, receive new shares resulting from
a purchase, transfer or dividend payment, they will receive a statement showing
the credit of the new shares as well as their Plan account and certificated
share balances. A brochure which describes the features and benefits of the
Investors Choice Plan, including the ability of shareholders to deposit
certificates with our transfer agent, can be obtained by calling American Stock
Transfer & Trust Company at 1-800-413-5499, calling the Company at
1-800-436-8401 or visiting our website: www.generalamericaninvestors.com - click
on Distribution & Reports, then Report Downloads.
Privacy Policy and Practices
General American Investors collects nonpublic personal information about its
customers (stockholders) with respect to their transactions in shares of the
Company's securities but only for those stockholders whose shares are registered
in their names. This information includes the stockholder's address, tax
identification or Social Security number and dividend elections. We do not have
knowledge of, nor do we collect personal information about, stockholders who
hold the Company's securities at financial institutions in "street name"
registration.
We do not disclose any nonpublic personal information about our current or
former stockholders to anyone, except as permitted by law. We also restrict
access to nonpublic personal information about our stockholders to those few
employees who need to know that information to perform their responsibilities.
We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard our stockholders' personal information.
7
4 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
"Total return on $10,000 investment for 20 years ended December 31, 2007"
The investment return for a Common Stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2007 is shown in the table below and
in the accompanying chart. The return based on GAM's net asset value (NAV) per
Common Share in comparison to the change in the Standard & Poor's 500 Stock
Index (S&P 500) is also displayed. Each illustration assumes an investment of
$10,000 at the beginning of 1988.
THE STOCKHOLDER RETURN is the return a Common Stockholder of GAM would have
achieved assuming reinvestment of all dividends and distributions at the actual
reinvestment price and of all cash dividends at the average (mean between high
and low) market price on the ex-dividend date.
THE GAM NET ASSET VALUE (NAV) RETURN is the return on shares of the Company's
Common Stock based on the NAV per share, including the reinvestment of all
dividends and distributions.
THE S&P 500 RETURN is the time-weighted total rate of return on this
widely-recognized, unmanaged index which is a measure of general stock market
performance, including dividend income.
The results illustrated are a record of past performance and may not be
indicative of future results.
GENERAL AMERICAN INVESTORS
------------------------------------------------------- STANDARD & POOR'S 500
STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN
------------------------ --------------------------- ------------------------------
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
INVESTMENT RETURN INVESTMENT RETURN INVESTMENT RETURN
------------------------- --------------------------- ------------------------------
1988 $12,126 21.26% $11,757 17.57% $11,653 16.53%
1989 18,019 48.60 16,208 37.86 15,338 31.62
1990 18,740 4.00 17,293 6.69 14,864 -3.09
1991 34,669 85.00 27,857 61.09 19,382 30.40
1992 39,793 14.78 28,845 3.55 20,853 7.59
1993 33,458 -15.92 28,341 -1.75 22,964 10.12
1994 30,828 -7.86 27,564 -2.74 23,255 1.27
1995 37,370 21.22 34,064 23.58 31,976 37.50
1996 44,650 19.48 40,866 19.97 39,302 22.91
1997 63,661 42.58 53,964 32.05 52,401 33.33
1998 83,594 31.31 72,927 35.14 67,362 28.55
1999 116,379 39.22 99,472 36.40 81,481 20.96
2000 138,608 19.10 117,019 17.64 74,074 -9.09
2001 144,610 4.33 115,615 -1.20 65,267 -11.89
2002 105,261 -27.21 89,000 -23.02 50,817 -22.14
2003 133,692 27.01 113,386 27.40 65,330 28.56
2004 145,444 8.79 125,145 10.37 72,379 10.79
2005 170,751 17.40 145,418 16.20 75,875 4.83
2006 199,403 16.78 163,217 12.24 87,757 15.66
2007 216,791 8.72 176,291 8.01 92,505 5.41
8
5 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
[CAPTION]
[Line graph with heading "20-YEAR INVESTMENT RESULTS ASSUMING AN INITIAL
INVESTMENT OF $10,000" at top left hand side. The vertical axis is to the right
side of the page and is labeled "CUMULATIVE VALUE OF INVESTMENT." The axis range
is from $0 to $240,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1988 through 2007 in one year increments.
Within the graph are three lines. The first line represents GAM Stockholder
Return. The second line represents GAM Net Asset Value Return, and the third
line represents the return of the S&P 500 Stock Index. The data points for the
lines are derived from the columns labeled "Cumulative Investment" from the
table on the preceding page. Also, embedded in upper left portion of the graph
is a table which appears as follows:]
COMPARATIVE ANNUALIZED INVESTMENT RESULTS
-----------------------------------------
YEARS ENDED STOCKHOLDER GAM NET S&P 500
DECEMBER 31, 2007 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------------------
1 year 8.7% 8.0% 5.4%
5 years 15.6 14.7 12.7
10 years 13.0 12.6 5.9
15 years 12.0 12.8 10.4
20 years 16.6 15.4 11.8
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2007 (UNAUDITED)
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General American Investors
SHARES OR
SHARES OR PRINCIPAL AMOUNT HELD
INCREASES PRINCIPAL AMOUNT DECEMBER 31, 2007
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NEW POSITIONS
NetEase.com, Inc. - 245,000
ADDITIONS
The Allstate Corporation 15,000 290,000
American International Group, Inc. 40,000 365,000
Carpenter Technology Corporation 10,000 321,000
Fidelity National Financial, Inc. 350,000 1,250,000
THQ Inc. 50,000 365,000
DECREASES
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ELIMINATIONS
Ameriprise Financial, Inc. 60,000 -
Annuity and Life Re (Holdings), Ltd. 275,000 -
Avaya Inc. 90,000 -
Bank of America Corporation 200,000 -
Intermec, Inc. 130,000 -
REDUCTIONS
Berkshire Hathaway Inc. Class A 60 215
Biogen Idec Inc. 10,000 90,000
CEMEX, S.A. de C.V. ADR 54,621 2,225,862
Cytokinetics, Incorporated 75,000 529,900
Dell Inc. 50,000 1,500,000
Everest Re Group, Ltd. 10,000 340,000
General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes Due 10/15/08 $5,500,000 $19,500,000
Lamar Advertising Company Class A 75,900 324,100
Nestle S.A. 2,500 42,500
Novo Nordisk B 180,000 190,000
PartnerRe Ltd. 20,000 290,000
Patterson-UTI Energy, Inc. 300,000 700,000
PepsiCo, Inc. 25,000 225,000
Sprint Nextel Corporation 405,000 920,000
Target Corporation 199,900 333,100
Transatlantic Holdings, Inc. 5,000 150,000
Wachovia Corporation 35,000 615,000
Xerox Corporation 350,000 1,900,000
* 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) Includes shares received in conjunction with a stock split.
"This table shows dividends and distributions on the Company's Common Stock for
the prior 20-year period. Amounts shown are based upon the year in which the
income was earned, not the year paid. Spill-over payments made after year-end
are attributable to income and gain earned in the prior year."
DIVIDENDS AND DISTRIBUTIONS PER COMMON SHARE (1988-2007) (UNAUDITED)
--------------------------------------------------------------------------------
EARNINGS SOURCE
----------------------------
SHORT-TERM LONG-TERM
YEAR INCOME CAPITAL GAINS CAPITAL GAINS
----------------------------------------------
1988 $.29 - $1.69
1989 .21 $.02 1.56
1990 .21 - 1.65
1991 .09 - 3.07
1992 .03 - 2.93
1993 .06 - 2.34
1994 .06 - 1.59
1995 .10 .03 2.77
1996 .20 .05 2.71
1997 .21 - 2.95
1998 .47 - 4.40
1999 .42 .62 4.05
2000 .48 1.55 6.16
2001 .37 .64 1.37
2002 .03 - .33
2003 .02 - .59
2004 .217 - .957
2005 .547 .041 1.398
2006 .334 - 2.666
2007 .706 .009 5.250
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
"The statement of investments as of December 31, 2007, shown on pages 12, 13 and
14 includes 55 security issues. Listed here are the ten largest holdings on
that date."
% COMMON
SHARES VALUE NET ASSETS*
-------------------------------------------------------------
WEATHERFORD INTERNATIONAL LTD. 1,025,000 $70,315,000 5.8%
Weatherford supplies a broad range of oil field services and
equipment on a worldwide basis. Its focus on helping customers
to increase production from existing fields, and enhance recovery
from new wells should lead to earnings growth.
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APACHE CORPORATION 600,000 64,524,000 5.4
Apache is a large independent oil and gas company with a long
history of growing production and creating value for shareholders.
The company's operations are primarily focused in North America,
the North Sea and Egypt.
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THE TJX COMPANIES, INC. 2,100,000 60,333,000 5.0
Through its T.J. Maxx and Marshalls divisions, TJX is the leading
off-price retailer. The continued growth of these divisions, along
with expansion into related U.S. and foreign off-price formats,
provide ongoing growth opportunities.
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CEMEX, S.A. de C.V. ADR 2,225,862 57,538,533 4.8
Domiciled in Mexico, CEMEX has grown organically and through
acquisition to become one of the world's leading cement and
aggregates companies. With the expansion of its operations into
related construction materials and additional geographic areas, as
well as its focus on cost containment, the company's free cash flow
should continue to increase, supporting a positive long-term outlook.
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TALISMAN ENERGY INC. 3,000,000 55,560,000 4.6
Talisman, headquartered in Calgary, Alberta, is an upstream
oil and gas producer with global operations. The company is
focusing on larger, deep gas opportunities in North America
and large international projects which should lead to faster
production growth and higher returns.
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COSTCO WHOLESALE CORPORATION 575,000 40,112,000 3.3
Costco is the largest wholesale club with a record of steady growth in
sales and profits as it continues to gain share of the consumer dollar.
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DELL INC. 1,500,000 36,765,000 3.1
Dell is a leading provider of computer systems and services. With
growing global demand for its products, the company should
continue to generate significant free cash flow as a result of its
focus on efficient distribution and margin expansion.
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TEXTRON INC. 509,800 36,348,740 3.0
Textron is a global company with operations in aerospace, defense,
industrial products and finance. Portfolio rationalization and
operational improvements made over the past few years have
created a strong platform for earnings growth.
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THE HOME DEPOT, INC. 1,278,000 34,429,320 2.9
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong cash flow
should provide the basis for continuing growth.
------------------------------------------------------------------------------------------------------------------------------------
EVEREST RE GROUP, LTD. 340,000 34,136,000 2.8
One of the largest independent U.S. property/casualty reinsurers,
Everest Re generates annual premiums of approximately $4 billion
and has a high quality, well-reserved AA balance sheet. This Bermuda
domiciled company has a strong management team that exercises
prudent underwriting discipline and efficient expense control,
resulting in above-average earnings and book value growth.
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$490,061,593 40.7%
============ =====
*Net assets applicable to the Company's Common Stock.
11
8 PORTFOLIO DIVERSIFICATION (unaudited)
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General American Investors
"The diversification of the Company's net assets applicable to its Common Stock
by industry group as of December 31, 2007 and 2006 is shown in the following
table."
PERCENT COMMON NET ASSETS*
DECEMBER 31, 2007 DECEMBER 31
----------------------------------------------------------------------------------
INDUSTRY CATEGORY COST(000) VALUE(000) 2007 2006
-----------------------------------------------------------------------------------------------------------------
Finance and Insurance
Banking $5,352 $47,859 4.0% 8.5%
Insurance 96,116 207,299 17.2 18.2
Other 31,623 36,682 3.0 2.6
------- ------- ---- ----
133,091 291,840 24.2 29.3
------- ------- ---- ----
Oil and Natural Gas
(Including Services) 116,211 234,391 19.5 17.2
Retail Trade 59,709 173,868 14.4 18.9
Computer Software and Systems 95,320 131,060 10.9 2.3
Consumer Products and Services 94,866 129,419 10.8 7.2
Communications and
Information Services 71,359 83,502 6.9 8.6
Aerospace/Defense 47,844 61,224 5.1 -
Building and Real Estate 29,518 57,539 4.8 6.6
Miscellaneous** 65,193 50,104 4.2 4.2
Environmental Control
(Including Services) 39,286 49,851 4.1 4.0
------- ------- ---- ----
Health Care/Pharmaceuticals, 15,790 34,754 2.9 8.7
Medical Instruments and Devices - - - 2.0
------- ------- ---- ----
15,790 34,754 2.9 10.7
------- ------- ---- ----
Technology 25,690 30,761 2.6 3.2
Machinery and Equipment 10,779 28,800 2.4 1.7
Metals 19,987 24,130 2.0 -
Transportation 11,005 12,197 1.0 -
Electronics - - - 1.3
Mining - - - 1.1
-------- --------- ----- -----
835,648 1,393,440 115.8 116.3
Short-Term Securities 9,166 9,166 0.8 1.4
-------- --------- ----- -----
Total Investments $844,814 1,402,606 116.6 117.7
======== ========= ===== =====
Other Assets and Liabilities - Net 317 0.0 (1.0)
Preferred Stock (200,000) (16.6) (16.7)
--------- ---- ----
Net Assets Applicable to
Common Stock $1,202,923 100.0% 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.
12
9 STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
General American Investors
DECEMBER 31,
------------------------------
ASSETS 2007 2006
---------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks
(cost $816,594,960 and $729,900,430, respectively) $1,374,257,148 $1,359,753,863
Corporate note (cost $19,053,293 and
$33,745,957, respectively) 19,183,125 34,737,500
Money market fund (cost $9,165,709 and
$17,255,705, respectively) 9,165,709 17,255,705
------------- -------------
Total investments (cost $844,813,962 and
$780,902,092, respectively) 1,402,605,982 1,411,747,068
CASH, RECEIVABLES AND OTHER ASSETS
Cash - 34,235
Receivable for securities sold - 2,875,316
Deposit with broker for options written 3,712,458 -
Dividends, interest and other receivables 1,333,175 1,430,378
Pension asset, excess funded 9,244,527 8,656,759
Prepaid expenses and other assets 2,549,782 149,755
------------- -------------
TOTAL ASSETS 1,419,445,924 1,424,893,511
------------- -------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased - 13,515,130
Preferred dividend accrued but not yet declared 231,389 231,389
Pension benefit liability 3,174,022 3,320,727
Outstanding options written at value (premiums
received $3,712,458 for 2007) (note 1a) 2,192,960 -
Accrued thrift plan liability 3,393,011 2,992,285
Accrued expenses and other liabilities 7,531,573 5,380,892
------------- -------------
TOTAL LIABILITIES 16,522,955 25,440,423
------------- -------------
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000 200,000,000
------------- -------------
NET ASSETS APPLICABLE TO COMMON STOCK - 31,573,058
and 29,589,198 shares, respectively (note 2) $1,202,922,969 $1,199,453,088
============== ==============
NET ASSET VALUE PER COMMON SHARE $38.10 $40.54
============== ==============
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 31,573,058 and 29,589,198 shares at par
value, respectively (note 2) $31,573,058 $29,589,198
Additional paid-in capital (note 2) 602,738,135 538,093,876
Undistributed realized gain (loss) on investments (note 2) 6,711,263 (1,715,049)
Undistributed net investment income (note 2) 1,711,821 2,218,917
Accumulated other comprehensive income (note 5) 1,108,563 652,559
Unallocated distributions on Preferred Stock (231,389) (231,389)
Unrealized appreciation on investments, securities
sold short and options 559,311,518 630,844,976
-------------- --------------
NET ASSETS APPLICABLE TO COMMON STOCK $1,202,922,969 $1,199,453,088
============== ==============
(see notes to financial statements)
13
10 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
--------------------------
INCOME 2007 2006
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $353,438 and $325,061, respectively) $20,925,587 $16,065,789
Interest 2,809,754 6,301,585
----------- -----------
TOTAL INCOME 23,735,341 22,367,374
----------- -----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 9,312,122 8,054,383
Administration and operations 3,104,891 2,922,014
Office space and general 562,787 544,210
Auditing and legal fees 307,829 163,000
Directors' fees and expenses 266,033 286,326
Transfer agent, custodian and registrar fees and expenses 169,891 140,346
Stockholders' meeting and reports 131,872 134,106
Miscellaneous taxes 97,293 115,365
---------- ----------
TOTAL EXPENSES 13,952,718 12,359,750
---------- ----------
NET INVESTMENT INCOME 9,782,623 10,007,624
---------- ----------
Realized Gain (Loss) And Change In Unrealized Appreciation On Investments (Notes 1f and 4)
---------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 176,058,639 86,808,130
Short sale transactions (note 1b) - (629,681)
Written option transactions (note 1c) (272,754) (2,100)
---------- ----------
Net realized gain on investments
(long-term except for $3,224,498 and
$2,228,817, respectively) 175,785,885 86,176,349
Net increase (decrease) in unrealized appreciation (71,533,458) 51,196,338
---------- ----------
NET GAIN ON INVESTMENTS 114,035,050 137,372,687
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,900,000) (11,900,000)
------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $102,135,050 $135,480,311
============ ============
(see notes to financial statements)
14
11 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATIONS 2007 2006
---------------------------------------------------------------------------------------------------
Net investment income $9,782,623 $10,007,624
Net realized gain on investments 175,785,885 86,176,349
Net increase (decrease) in unrealized appreciation (71,533,458) 51,196,338
------------ -----------
114,035,050 147,380,311
------------ -----------
Distributions to Preferred Stockholders:
From net investment income (689,497) (1,092,608)
From short-term capital gains (778,809) (168,288)
From long-term capital gains (10,431,694) (10,639,104)
------------ -----------
Decrease in net assets from Preferred distributions (11,900,000) (11,900,000)
------------ -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 102,135,050 135,480,311
------------ -----------
OTHER COMPREHENSIVE INCOME
Adjustment to apply FAS 158 (note 5) 456,004 652,559
------------ -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net investment income (9,603,869) (8,230,843)
From short-term capital gains (10,847,882) (1,262,677)
From long-term capital gains (145,301,188) (79,790,662)
------------ ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (165,752,939) (89,284,182)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of distributions 96,902,914 48,748,838
Cost of Common Shares purchased (30,271,148) (29,086,092)
------------ ------------
INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS 66,631,766 19,662,746
------------ ------------
NET INCREASE IN NET ASSETS 3,469,881 66,511,434
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 1,199,453,088 1,132,941,654
-------------- --------------
END OF YEAR (including undistributed net investment
income of $1,711,821 and $2,218,917, respectively) $1,202,922,969 $1,199,453,088
============== ===============
(see notes to financial statements)
15
12 STATEMENT OF INVESTMENTS DECEMBER 31, 2007
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE 509,800 Textron Inc. $36,348,740
(5.1%) 325,000 United Technologies Corporation 24,875,500
----------
(COST $47,844,103) 61,224,240
----------
------------------------------------------------------------------------------------------------------------------------------------
BUILDING AND 2,225,862 CEMEX, S.A. de C.V. ADR (COST $29,518,057) 57,538,533
REAL ESTATE (4.8%) ----------
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 900,000 Cisco Systems, Inc. (a) 24,362,910
INFORMATION SERVICES 324,100 Lamar Advertising Company Class A (a) 15,579,487
(6.9%) 800,000 QUALCOMM Incorporated 31,480,000
920,000 Sprint Nextel Corporation 12,079,600
----------
(COST $71,358,877) 83,501,997
----------
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 700,000 Activision, Inc. (a) 20,790,000
AND SYSTEMS (10.9%) 1,500,000 Dell Inc. (a) 36,765,000
720,000 Microsoft Corporation 25,632,000
245,000 NetEase.com, Inc. (a) 4,645,200
55,000 Nintendo Co., Ltd. 32,938,400
365,000 THQ Inc. (a) 10,289,350
-----------
(COST $95,320,352) 131,059,950
-----------
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 350,000 Diageo plc ADR 30,040,500
AND SERVICES (9.2%) 300,000 Heineken N.V. 19,497,000
630,000 Hewitt Associates, Inc. Class A (a) 24,122,700
42,500 Nestle S.A. 19,498,150
225,000 PepsiCo, Inc. 17,077,500
-----------
(COST $75,813,339) 110,235,850
-----------
------------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 881,500 Republic Services, Inc. 27,635,025
(INCLUDING SERVICES) 680,000 Waste Management, Inc. 22,215,600
(4.1%) -----------
(COST $39,285,764) 49,850,625
-----------
------------------------------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (4.0%)
(24.2%) ----------------------------------------------------------------------------------------------------------
300,000 M&T Bank Corporation 24,471,000
615,000 Wachovia Corporation 23,388,450
----------
(COST $5,352,608) 47,859,450
----------
INSURANCE (17.2%)
----------------------------------------------------------------------------------------------------------
290,000 The Allstate Corporation 15,146,700
365,000 American International Group, Inc. 21,279,500
335,000 Arch Capital Group Ltd. (a) 23,567,250
365,000 AXIS Capital Holdings Limited 14,224,050
215 Berkshire Hathaway Inc. Class A (a) 30,444,000
340,000 Everest Re Group, Ltd. 34,136,000
1,250,000 Fidelity National Financial, Inc. 18,262,500
250,000 MetLife, Inc. 15,405,000
290,000 PartnerRe Ltd. 23,933,700
150,000 Transatlantic Holdings, Inc. 10,900,500
-----------
(COST $96,115,768) 207,299,200
-----------
OTHER (3.0%)
----------------------------------------------------------------------------------------------------------
10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% (d) 24,925,690
925,000 Nelnet, Inc. 11,756,750
------------
(COST $31,622,636) 36,682,440
------------
(COST $133,091,012) 291,841,090
------------
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE/ 80,000 Alkermes, Inc. (a) 1,247,200
PHARMACEUTICALS 90,000 Biogen Idec Inc. (a) 5,122,800
529,900 Cytokinetics, Incorporated (a) 2,506,427
200,000 Genentech, Inc. (a) 13,414,000
190,000 Novo Nordisk B 12,464,000
-----------
(COST $15,790,018) 34,754,427
-----------
16
13 STATEMENT OF INVESTMENTS DECEMBER 31, 2006 - continued
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS (continued) VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
MACHINERY & EQUIPMENT 1,000,000 ABB Ltd. ADR (COST $10,779,026) $28,800,000
(2.4%) ------------
------------------------------------------------------------------------------------------------------------------------------------
METALS (2.0%) 321,000 Carpenter Technology Corporation (COST $19,986,798) 24,129,570
------------
------------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (4.2%) Other (b) (COST $65,192,916) 50,103,520
------------
------------------------------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 600,000 Apache Corporation 64,524,000
(INCLUDING SERVICES) 800,000 Halliburton Company 30,328,000
(19.5%) 700,000 Patterson-UTI Energy, Inc. 13,664,000
3,000,000 Talisman Energy Inc. 55,560,000
1,025,000 Weatherford International Ltd. (a) 70,315,000
------------
(COST $116,211,169) 234,391,000
------------
------------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE (14.4%) 575,000 Costco Wholesale Corporation 40,112,000
1,278,000 The Home Depot, Inc. (c) 34,429,320
333,100 Target Corporation 16,655,000
2,100,000 The TJX Companies, Inc. 60,333,000
470,000 Wal-Mart Stores, Inc. 22,339,100
------------
(COST $59,708,643) 173,868,420
------------
------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (2.6%) 1,900,000 Xerox Corporation (COST $25,689,854) 30,761,000
------------
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 12,196,926
(1.0%) ------------
------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS (114.2%) (COST $816,594,960) 1,374,257,148
-------------
PRINCIPAL AMOUNT CORPORATE NOTE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS $19,500,000 General Motors Nova Scotia Finance Company
AND SERVICES(1.6%) 6.85% Guaranteed Notes Due 10/15/08(COST $19,053,293) 19,183,125
----------
17
14 STATEMENT OF INVESTMENTS DECEMBER 31, 2007 - continued
--------------------------------------------------------------------------------
General American Investors
SHORT-TERM SECURITIES AND OTHER ASSETS
--------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE (NOTE 1a)
------------------------------------------------------------------------------------------------------------------------------------
9,165,709 SSgA Prime Money Market Fund (0.8%) (COST $9,165,709) $9,165,709
-----------
TOTAL INVESTMENTS (e) (116.6%) (COST $844,813,962) 1,402,605,982
-------------
Cash, receivables and other assets less liabilities (0.0%) 316,987
-------------
1,402,922,969
-------------
PREFERRED STOCK (-16.6%) (200,000,000)
-------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,202,922,969
==============
(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 custodial account as collateral for short positions, if any.
(d) Restricted security of an affiliate acquired 11/7/06.
(e) At December 31, 2007: (1) the cost of investments for Federal income tax purposes was the same as the cost for financial
reporting purposes, (2) aggregate gross unrealized appreciation was $601,536,275, (3) aggregate gross unrealized depreciation
was $43,744,256, and (4) net unrealized appreciation was $557,792,019.
(see notes to financial statements)
STATEMENT OF OPTIONS WRITTEN DECEMBER 31, 2007
--------------------------------------------------------------------------------
General American Investors
CONTRACTS
(100 SHARES EACH) COMMON STOCKS/EXPIRATION DATE/EXERCISE PRICE VALUE (NOTE 1a)
------------------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS
------------------------------------------------------------------------------------------------------------------------------------
OIL & NATURAL GAS (INCLUDING SERVICES)
------------------------------------------------------------------------------------------------------------------------------------
1,500 Apache Corporation /January 08/$105.00 (PREMIUM RECEIVED $1,058,824) $705,000
--------
RETAIL TRADE
------------------------------------------------------------------------------------------------------------------------------------
500 Costco Wholesale Corporation/January 08/$72.50 37,500
2,000 Costco Wholesale Corporation/January 08/$70.00 336,000
3,500 Target Corporation/January 08/$60.00 35,000
-------
(PREMIUMS RECEIVED $2,014,963) 408,500
-------
TOTAL CALL OPTIONS (PREMIUMS RECEIVED $3,073,787) 1,113,500
---------
------------------------------------------------------------------------------------------------------------------------------------
PUT OPTION
------------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE
------------------------------------------------------------------------------------------------------------------------------------
1,999 Target Corporation/January 08/$55.00 (PREMIUM RECEIVED $638,671) 1,079,460
---------
TOTAL OPTIONS (PREMIUMS RECEIVED $3,712,458) $2,192,960
==========
(see notes to financial statements)
18
15 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 open short positions and
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. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. 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.
d. 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.
e. 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.
f. 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. With respect to the Common Stock, 31,574,058 and 31,573,058 shares
were issued and outstanding, respectively, and 8,000,000 Preferred Shares were
issued and outstanding on December 31, 2007.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its
5.95% Cumulative Preferred Stock, Series B in an underwritten offering. The
Preferred Shares are noncallable for 5 years and have a liquidation preference
of $25.00 per share plus an amount equal to accumulated and unpaid dividends to
the date of redemption. The underwriting discount and other expenses associated
with the Preferred Stock offering amounted to $6,700,000 and were charged to
paid-in capital.
The Company is required to allocate distributions from long-term capital
gains and other types of income proportionately among holders of shares of
Common Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
19
16 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from previous page.)
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
requires that preferred stock for which its redemption is outside of the
company's control should be presented outside of net assets in the statement of
assets and liabilities.
Transactions in Common Stock during 2007 and 2006 were as follows:
SHARES AMOUNT
------------------------------------------------
2007 2006 2007 2006
------- ------- --------- ----------
Shares issued in payment of dividends and
distributions (includes 2,404,965 and
1,326,499 shares issued from treasury,
respectively) 2,747,460 1,326,499 $2,747,460 $1,326,499
Increase in paid-in capital 94,155,454 47,422,339
---------- ----------
Total increase 96,902,914 48,748,838
Shares purchased (at an average
discount from net asset value of
10.4% and 9.0%, respectively) 763,600 787,700 (763,600) (787,700)
Decrease in paid-in capital (29,507,548) (28,298,392)
---------- ----------
Total decrease (30,271,148) (29,086,092)
---------- ----------
Net increase $66,631,766 $19,662,746
========== ==========
At December 31, 2007, the Company held in its treasury 1,000 shares of
Common Stock with an aggregate cost in the amount of $35,281.
Distributions for tax and book purposes are substantially the same.
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $183,587
Undistributed long-term gains 6,613,882
Unrealized appreciation 559,311,518
-----------
$566,108,987
============
To reflect reclassification arising from permanent "book/tax" differences
for non-deductible expenses during the year ended December 31, 2007,
undistributed net investment income was increased by $3,647, and additional
paid-in capital was decreased by $3,647. Net assets were not affected by this
reclassification.
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during 2007 and 2006 to its
officers (identified on page 20) amounted to $8,874,500 and $7,255,500,
respectively.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (other than short-term securities and options)
during 2007 amounted to $465,468,867 and $569,525,640, on long transactions,
respectively.
--------------------------------------------------------------------------------
5. BENEFIT PLANS
The Company has funded (Qualified) and unfunded (Supplemental) defined
contribution thrift plans that are available to its employees. The aggregate
cost of such plans for 2007 and 2006 was $633,127 and $805,729, respectively.
The Company also has both funded (Qualified) and unfunded (Supplemental)
noncontributory defined benefit pension plans that cover its employees. The
pension plan provides a defined benefit based on years of service and final
average salary with an offset for a portion of social security covered
compensation.
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.
20
17 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
5. PENSION BENEFIT PLANS - (Continued from previous page.)
OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:
DECEMBER 31, 2007 (MEASUREMENT DATE) DECEMBER 31, 2006 (MEASUREMENT DATE)
----------------------------------- -----------------------------------
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------- ------------ -------- --------- ------------ ----------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $9,062,488 $3,320,726 $12,383,214 $8,902,156 $3,139,034 $12,041,190
Service cost 206,228 95,332 301,560 201,809 115,586 317,395
Interest cost 538,587 181,712 720,299 501,644 182,511 684,155
Benefits paid (544,838) (165,253) (710,091) (542,274) (165,252) (707,526)
Actuarial (gains)/losses 13,491 (197,383) (183,892) (848) 48,848 48,000
Plan amendments 61,112 (61,112) - - - -
---------- ---------- ----------- ---------- ---------- -----------
Projected benefit obligation at
end of year 9,337,068 3,174,022 12,511,090 9,062,487 3,320,727 12,383,214
---------- ---------- ----------- ---------- ---------- -----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year 17,719,247 - 17,719,247 15,906,987 - 15,906,987
Actual return on plan assets 1,407,186 - 1,407,186 2,354,533 - 2,354,533
Employer contributions - 165,253 165,253 - 165,252 165,252
Benefits paid (544,838) (165,253) (710,091) (542,274) (165,252) (707,526)
---------- ---------- ----------- ---------- ---------- -----------
Fair value of plan assets at end of year 18,581,595 - 18,581,595 17,719,246 - 17,719,246
---------- ---------- ----------- ---------- ---------- -----------
FUNDED STATUS AT END OF YEAR $9,244,527 ($3,174,022) $6,070,505 $8,656,759 ($3,320,727) $5,336,032
========== ========== =========== ========== ========== ===========
Accumulated benefit obligation at
end of year $8,726,625 $3,000,603 $11,727,228 $8,400,586 $2,971,614 $11,372,200
========== ========== =========== ========== ========== ===========
INCREMENTAL EFFECT OF ADOPTING FAS 158 BEFORE ADJUSTMENTS AFTER BEFORE ADJUSTMENTS AFTER
---------- ------------ ---------- ---------- ----------- -----------
Noncurrent benefit asset $8,656,759 $587,768 $9,244,527 $7,939,307 $717,452 $8,656,759
LIABILITIES
Current benefit liability 213,549 (4,510) 209,039 213,549 - 213,549
Noncurrent benefit liability 3,107,178 (142,194) 2,964,984 3,042,285 64,893 3,107,178
Accumulated other comprehensive income (652,559) (456,004) (1,108,563) - (652,559) (652,559)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF:
Net actuarial gain ($1,011,676) ($433,910) ($1,445,586)($1,006,540) ($5,136) ($1,011,676)
Prior service cost 289,088 47,935 337,023 289,088 70,029 359,117
---------- ---------- ----------- ---------- ---------- -----------
($722,588) ($385,975) ($1,108,563) ($717,452) $64,893 ($652,559)
========== ========== =========== ========== ========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF FISCAL YEAR:
Discount rate 6.00% 6.00% 5.75% 5.75%
Expected return on plan assets 8.75% N/A 8.75% N/A
Salary scale assumption 4.25% 4.25% 4.25% 4.25%
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $206,228 $95,332 $301,560 $201,809 $115,586 $317,395
Interest cost 538,587 181,712 720,299 501,645 182,511 684,156
Expected return on plan assets (1,253,375) - (1,253,375) (1,127,040) - (1,127,040)
Amortization of:
Prior service cost 19,309 2,784 22,093 13,235 21,861 35,096
Recognized net actuarial loss 96,207 - 96,207 185,502 - 185,502
---------- ---------- ----------- ---------- ---------- -----------
Net periodic benefit cost (gain) ($393,044) $279,828 ($113,216) ($224,849) $319,958 $95,109
WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31:
Discount rate 5.75% 5.75% 5.50% 5.50%
Expected long-term rate of return on
plan assets 8.75% N/A 8.75% N/A
Rate of salary increase 4.25% 4.25% 4.25% 4.25%
-------------------------------------------------------------------------------
PLAN ASSETS
The Company's qualified pension plan asset allocations by asset
at December 31, 2007 and 2006, are as follows:
December 31
---------------
Asset Category 2007 2006
-------------- ---- ----
Equity securities 89.6% 88.2%
Debt securities 10.4 11.8
----- -----
Total 100.0% 100.0%
===== =====
Generally, not less than 80% of plan assets are invested in investment
companies that invest in equity securities.
--------------------------------------------------------------------------------
EXPECTED CASH FLOWS Qualified Supplemental
Plan Plan Total
---------- ------------- ---------
Expected Company contributions for 2008 - $209,039 $209,039
========== ============= =========
Estimated benefit payments:
2008 $558,673 $209,039 $767,712
2009 568,231 221,569 789,800
2010 589,105 231,404 820,509
2011 613,344 236,916 850,260
2012 624,306 235,712 860,018
2013-2017 3,446,101 1,145,232 4,591,333
--------------------------------------------------------------------------------
6. CALL AND PUT OPTIONS
Transactions in a written covered call and collateralized put options during the
year ended December 31, 2007 were as follows:
Covered Calls Collateralized Put
---------------------------- ------------------------------
Contracts Premiums Contracts Premium
--------- --------- --------- --------
Options written 9,951 $4,296,648 2,000 $638,990
Options terminated in closing purchase transaction 2,451 1,222,861 (1) (319)
-------- ---------- ----- --------
Options outstanding, December 31, 2007 7,500 $3,073,787 1,999 $638,671
======== ========== ===== =========
--------------------------------------------------------------------------------
7. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expired on December 31, 2007 and provided for rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contained 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.
21
18 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
7. OPERATING LEASE COMMITMENT- (Continued from previous page.)
In January 2003, the Company extended a sublease agreement (originally
entered into in March 1996) which also expired on December 31, 2007 and provided
for rental receipts. Minimum rental receipts under the sublease were
approximately $254,000 in 2007. The Company was also charged its proportionate
share of operating expenses and real property taxes under the sublease.
Net rental expense approximated $316,500 for 2007. On a gross basis,
minimum rental commitments under the operating lease were 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 toward 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 $1.0
million per annum in 2008 through 2012, $1.1 million in 2013 through 2017, and
$0.1 million in 2018.
--------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENT
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.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
"The following table shows per share operating performance data, total
investment return, ratios and supplemental data for each year in the five-year
period ended December 31, 2007. This information has been derived from
information contained in the financial statements and market price data for the
Company's shares."
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $40.54 $39.00 $35.49 $33.11 $26.48
-------- -------- -------- -------- --------
Net investment income .31 .34 .19 .32 .03
Net gain (loss) on securities - realized
and unrealized 3.39 4.72 5.85 3.48 7.72
Other comprehensive income .02 .03 - - -
-------- -------- -------- -------- --------
Distributions on Preferred Stock:
Dividends from net investment income (.02) (.04) (.03) (.09) (.01)
Distributions from net short-term
capital gains (.03) (.01) (.08) - -
Distributions from net long-term
capital gains (.36) (.36) (.30) (.32) (.35)
-------- -------- -------- -------- --------
(.41) (.41) (.41) (.41) (.36)
-------- -------- -------- -------- --------
Total from investment operations 3.31 4.68 5.63 3.39 7.39
-------- -------- -------- -------- --------
Distributions on Common Stock:
Dividends from investment income (.33) (.29) (.15) (.23) (.02)
Distributions from net short-term
capital gains (.38) (.04) (.44) - -
Distributions from net long-term
capital gains (5.04) (2.81) (1.53) (.78) (.52)
-------- -------- -------- -------- --------
(5.75) (3.14) (2.12) (1.01) (.54)
-------- -------- -------- -------- --------
Capital Stock transaction -
effect of Preferred Stock offering - - - - (.22)
-------- -------- -------- -------- --------
Net asset value, end of year $38.10 $40.54 $39.00 $35.49 $33.11
======== ======== ======== ======== ========
Per share market value, end of year $34.70 $37.12 $34.54 $31.32 $29.73
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 8.72% 16.78% 17.40% 8.79% 27.01%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $1,202,923 $1,199,453 $1,132,942 $1,036,393 $986,335
Ratio of expenses to average net assets
applicable to Common Stock 1.11% 1.06% 1.25% 1.15% 1.23%
Ratio of net income to average net assets
applicable to Common Stock 0.78% 0.86% 0.51% 0.94% 0.13%
Portfolio turnover rate 31.91% 19.10% 20.41% 16.71% 18.62%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $200,000 $200,000 $200,000 $200,000 $150,000
Asset coverage 701% 700% 666% 618% 593%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $21.99 $24.44 $24.07 $24.97 $25.04
22
19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
General American Investors
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GENERAL AMERICAN INVESTORS
COMPANY, INC.
We have audited the accompanying statement of assets and liabilities, including
the statement of investments and statement of options written, of General
American Investors Company, Inc. as of December 31, 2007, and the related
statements of operations and changes in net assets for each of the two years in
the period then ended, and financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 2007, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
General American Investors Company, Inc. at December 31, 2007, the results of
its operations and the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
January 28, 2008
23
20 OFFICERS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION NAME (AGE) PRINCIPAL OCCUPATION
EMPLOYEE SINCE DURING PAST 5 YEARS EMPLOYEE SINCE DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (65) Chairman of the Board since 2007 Sally A. Lynch, Ph.D.(48) Vice-President of the
1994 President and Chief 1997 Company since 2006
Executive Officer of the securities analyst
Company since 1995 (biotechnology industry)
Andrew V. Vindigni (48) Senior Vice-President of the Peter P. Donnelly (59) Vice-President of the
1988 Company since 2006 1974 Company since 1991
Vice-President 1995-2006; securities trader
securities analyst (financial
services industry)
Diane G. Radosti (55) Treasurer of the
1980 Company since 1990
Eugene S. Stark (49) Vice-President, Administration Principal Accounting
2005 of the Company since 2005, Officer since 2003
Principal Financial Officer
since 2005, Chief Compliance
Officer since 2006; Carole Anne Clementi (61) Secretary of the
Chief Financial Officer of 1982 Company since 1994
Prospect Energy Corporation shareholder relations
(2005); and office management
Vice-President of
Prudential Financial, Inc.
(1987-2004) Craig A. Grassi (39) Assistant Vice-President of
1991 the Company since 2005
information technology
Jesse Stuart (41) Vice-President of the
2003 Company since 2006
securities analyst (general Maureen E. LoBello (57) Assistant Secretary of the
industries); 1992 Company since 2005
securities analyst & portfolio benefits administration
manager of Scudder, Stevens
and Clark (1996-2003)
All officers serve for a term of one year and are elected by the Board of
Directors at the time of its annual organization meeting on the third Wednesday
in April. The address for each officer is the Company's office. Other
directorships and affiliations for Mr. Davidson are shown in the listing of
Directors on the inside back cover of this report.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
In addition to purchases of the Company's Common Stock as set forth in Note 2,
on pages 15 and 16, 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
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.
24
DIRECTORS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
---------------------------------------------------------------------------------------------------------------------------------
Arthur G. Altschul, Jr. (43) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Diversified Natural Products, Inc., Director
Management, LLC Kolltan Pharmaceuticals, Inc., Chairman, Board
(private investment company) of Directors
Medicis Pharmaceutical Corporation, Director
Medrium, Inc., Chairman, Board of Directors
National Public Radio Foundation, Trustee
Neurosciences Research Foundation, Trustee
The Overbrook Foundation, Director
Rodney B. Berens (62) Founding Partner Agni Capital Management Ltd., Member of
2007 Berens Capital Management, LLC Investment Committee
Pendragon Capital Management Limited,
Non-Executive Director
Pierpont Morgan Library, Trustee and Member of
Investment Committee
The Woods Hole Oceanographic Institute, Trustee and
Member of Investment Committee
Lewis B. Cullman (89) Philanthropist Chess-in-the-Schools, Chairman Emeritus
1961 Metropolitan Museum of Art, Honorary Trustee
Museum of Modern Art, Vice Chairman,
International Council and Honorary Trustee
Neurosciences Research Foundation, Vice Chairman,
Board of Trustees
The New York Botanical Garden, Senior Vice
Chairman, Board of Managers
The New York Public Library, Trustee
Gerald M. Edelman (78) Member, Professor and Chairman of the Neurosciences Institute of the Neurosciences
1976 Department of Neurobiology Research Foundation, Director and President
The Scripps Research Institute NGN Capital, Chairman, Advisory Board
Promosome, LLC, Chairman, Scientific Advisory Board
John D. Gordan, III (62) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (77) Managing Partner IGENE Biotechnology, Inc., Director
1994 SRK Management Company Insight Communications Company, Inc.,
(private investment company) Chairman, Board of Directors
VirtualScopics, Inc., Director
Vocollect, Inc., Director
Daniel M. Neidich (58) Founding Partner and Co-Chief Capmark, Director
2007 Executive Officer New York Child Study Center, Director
Dune Capital Management LP Prep for Prep, Director
Real Estate Roundtable, Director
Co-Head, Merchant Banking Division Urban Land Institute, Trustee
Chairman, Whitehall Investment Committee
Member, Management Committee
Goldman Sachs
D. Ellen Shuman (52) Vice President and Bowdoin College, Trustee
2004 Chief Investment Officer Edna McConnell Clark Foundation,
Carnegie Corporation of New York Investment Advisor
The Investment Fund for Foundations -
TIFF Advisory Services, Director
Joseph T. Stewart, Jr. (78) Lead Independent Director since July 2007 Foundation of the University of
1987 Corporate director and trustee Medicine and Dentistry of New Jersey, Trustee
Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Member,
Board of Advisors
United States Merchant Marine Academy Foundation,
Trustee
Raymond S. Troubh (81) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Gentiva Health Services, Inc., Director
Triarc Companies, Inc., Director
INTERESTED DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (65) Chairman of the Board Medicis Pharmaceutical Corporation, Director
1995 President and Chief Executive Officer Neurosciences Research Foundation, Trustee
General American Investors
Company, Inc.
All Directors serve for a term of one year and are elected by Stockholders at
the time of the annual meeting on the third Wednesday in April. The address for
each Director is the Company's office.
24
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail:InvestorRelations@gainv.com
www.generalamericaninvestors.com
25
ITEM 2. CODE OF ETHICS.
On July 9, 2003, the Board of Directors adopted a code of ethics that applies to
registrant's principal executive and senior financial officers. The code of
ethics is available on registrant's Internet website at
http://www.generalamericaninvestors.com/corporateinfo.html. Since the code of
ethics was adopted there have been no amendments to the code nor have there been
granted any waivers from any provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors has determined that none of the members of registrant's
audit committee meets the definition of "audit committee financial expert" as
the term has been defined by the U.S. Securities and Exchange Commission (the
"Commission"). In addition, the Board of Directors has determined that the
members of the audit committee have sufficient financial expertise and
experience to perform the duties and responsibilities of the audit committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES The aggregate fees paid and accrued by the registrant for
professional services rendered by its independent auditors, Ernst & Young LLP,
for the audit of the registrant's annual financial statements and the review of
the registrant's semi-annual financial statements for 2007 and 2006 were $91,000
and $80,600, respectively.
(b) AUDIT RELATED FEES The aggregate fees paid or accrued by the registrant for
audit-related professional services rendered by Ernst & Young LLP for 2007 and
2006 were $28,800 and $25,400, respectively. Such services and related fees for
2007 and 2006 included: performance of agreed upon procedures relating to the
preferred stock basic maintenance reports ($7,300 and $6,400, respectively),
review of quarterly employee security transactions and issuance of report
thereon ($17,000 and $15,000, respectively) and other audit-related services
($4,500 and $4,000, respectively).
(c) TAX FEES The aggregate fees paid or accrued by the registrant for
professional services rendered by Ernst & Young LLP for the review of the
registrant's federal, state and city income tax returns and excise tax
calculations for 2007 and 2006 were $ 20,600 and $13,500, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2007 or 2006.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY All services to be performed for the
registrant by Ernst & Young LLP must be pre-approved by the audit committee. All
services performed during 2007 and 2006 were pre-approved by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees paid or accrued by the registrant for non-audit
professional services rendered by Ernst & Young LLP to the registrant for 2007
and 2006 were $49,400 and $38,900, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of the audit committee are: Sidney R. Knafel, chairman,
Arthur G. Altschul, Jr., Lewis B. Cullman, John D.
Gordan, III and D. Ellen Shuman.
(b) Not applicable.
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.
General American Investors Company, Inc.
PROXY VOTING POLICIES AND PROCEDURES
General American Investors Company, Inc. (the "Company") is uniquely
structured as an internally managed closed-end investment company. Our research
efforts, including the receipt and analysis of proxy material, are focused on
the securities in the Company's portfolio, as well as alternative investment
opportunities. We vote proxies relating to our portfolio securities in the best
long-term interests of the Company.
Our investment approach stresses fundamental security analysis, which
includes an evaluation of the integrity, as well as the effectiveness of
management personnel. In proxy material, we review management proposals and
management recommendations relating to shareholder proposals in order to, among
other things, gain assurance that management's positions are consistent with its
integrity and the long-term interests of the company. We generally find this to
be the case and, accordingly, give significant weight to the views of management
when we vote proxies.
Proposals that may have an impact on the rights or privileges of the
securities held by the Company would be reviewed very carefully. The explanation
for a negative impact could justify the proposal; however, if such justification
were not present, we would vote against a significant reduction in the rights or
privileges associated with any of our holdings.
Proposals relating to corporate governance matters are reviewed on a
case-by-case basis. When they involve changes in the state of incorporation,
mergers or other restructuring, we would, if necessary, complete our review of
the rationale for the proposal by contacting company representatives and, with
few exceptions, vote in favor of management's recommendations. Proposals
relating to anti-takeover provisions, such as staggered boards, poison pills and
supermajorities could be more problematic. They would be considered in light of
our assessment of the capability of current management, the duration of the
proposal, the negative impact it might have on the attractiveness of the company
to future "investors," among other factors. We can envision circumstances under
which we would vote against an anti-takeover provision.
Generally, we would vote with management on proposals relating to changes
to the company's capital structure, including increases and decreases of capital
and issuances of preferred stock; however, we would review the facts and
circumstances associated with each proposal before finalizing our decision.
Well-structured stock option plans and management compensation programs are
essential for companies to attract and retain high caliber management personnel.
We generally vote in favor of proposals relating to these issues; however, there
could be an occasion on which we viewed such a proposal as over reaching on the
part of management or having the potential for excessive dilution when we would
vote against the proposal.
Corporations should act in a responsible manner toward their employees, the
communities in which they are located, the customers they serve and the world at
large. We have observed that most stockholder proposals relating to social
issues focus on a narrow issue and the corporate position set forth in the proxy
material provides a well-considered response demonstrating an appropriate and
responsible action or position. Accordingly, we generally support management
recommendations on these types of proposals; however, we would consider each
proposal on a case-by-case basis.
We take voting proxies of securities held in our portfolio very seriously.
As indicated above, it is an integral part of the analytical process at General
American Investors. Each proposal and any competing interests are reviewed
carefully on a case-by-case basis. Generally, we support and vote in accordance
with the recommendations of management; however, the overriding basis for the
votes we cast is the best long-term interests of the Company.
Date: July 9, 2003
Item 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
As of December 31, 2007 and the date of this filing, Mr. Spencer Davidson,
Chairman, President and Chief Executive Officer, serves as the Portfolio Manager
of the registrant and is responsible for its day-to-day management. He has
served in this capacity since 1995. Mr. Davidson does not provide such services
for any other registered investment companies, pooled investment vehicles, or
other accounts. For performing such responsibilities, Mr. Davidson receives cash
compensation in the form of a fixed salary and an annual performance bonus. The
annual performance bonus is principally based upon the absolute performance of
the registrant and its relative performance to a closed-end management
investment company peer group (comprised of core equity funds) and the S&P 500
Index. Performance is evaluated in December by the Compensation Committee of the
Board of Directors (the members of which are independent and consult with the
full Board of Directors), based upon the registrant's net asset value return and
total investment return during the twelve months ended October 31. Additional
consideration is given to performance during the subsequent intervening period
and to market compensation data provided by a noted industry compensation
consulting firm. Mr. Davidson beneficially owns in excess of $1 million of the
registrant's outstanding equity securities.
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
------------------------------------------------------------------------------------------------------------------------------------
07/01-07/31 91900 41.0460 91900 660000
08/01-08/31 160000 38.3685 160000 500000
09/01-09/30 100800 40.3146 100800 399200
10/01-10/31 45600 42.0604 45600 353600
11/01-11/30 1000 35.2810 1000 352600
12/01-12/31 0 - 0 352600
------- -------- ------- ------
Total 399300 399300
======= =======
Note - On July 11, 2007, the Board of Directors authorized and the registrant announced the repurchase
of up to 500,000 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 represents a continuation
of a repurchase program which began in March 1995. As of the beginning of the period, July 1, 2007,
there were 251,900 shares available for repurchase under such authorization. As of the end of the
period, December 31, 2007, there were 352,600 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
recommmend 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 December 31, 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
December 31, 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 and on Form N-Q 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 decisions regarding required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the Registrant's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) As indicated in Item 2., the code of ethics is posted on the registrant's
Internet website.
(a)(2) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company
Act of 1940 are attached hereto as Exhibit 99 CERT.
(a)(3) There were no written solicitations to purchase securities under
the Rule 23c-1 under the Investment Company Act of 1940 during the
period covered by the report.
(b) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 are attached hereto as Exhibit 99.906 CERT.
27
SIGNATURES
Pursuant to the requirements of the Securities 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: February 8, 2008
Pursuant to the requirements of the Securities 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: February 8, 2008
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: February 8, 2008