UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00041
---------------------------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
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: June 30, 2008
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2008
A Closed-End Investment Company
listed on the New York Stock Exchange
100 PARK AVENUE
NEW YORK, NY 10017
212-916-8400 1-800-436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
3
TO THE STOCKHOLDERS
For the six months ended June 30, 2008, the net asset value per Common Share
decreased 4.5%, while the investment return to our stockholders was negative by
6.1%. By comparison, our benchmark, the Standard & Poor's 500 Stock Index
(including income) decreased 11.9%. For the twelve months ended June 30, 2008,
the return on the net asset value per Common Share was -7.4%, and the return to
our stockholders was -6.8%; these compare with a return of -13.2% for the S&P
500. During each period, the discount at which our shares traded continued to
fluctuate and on June 30, 2008, it was 10.5%.
As set forth in the accompanying financial statements (unaudited), as of June
30, 2008, the net assets applicable to the Company's Common Stock were
$1,141,320,885 equal to $36.15 per Common Share.
The decrease in net assets resulting from operations for the six months ended
June 30, 2008 was $54,812,857. During this period, the net realized gain on
securities sold was $33,093,704, and the decrease in net unrealized appreciation
was $87,661,514. Net investment income for the six months was $5,704,953, and
distributions to Preferred Stockholders amounted to $5,950,000.
The worldwide market weakness of the first quarter has continued unabated. The
combination of historically high personal consumption and low savings, together
with the constrained balance sheets of lending institutions, continues to weigh
on our economy. In addition to rising energy prices and the falling value of
houses, the specter of stagflation, that unpleasant combination of slow growth
and rising prices, may also explain the pronounced lack of investor enthusiasm.
While it is undoubtedly true that investment returns for the financial sector
are likely to be lower in the future, owing to the de-leveraging effects of
shrinking balance sheets and new share issuance, equity prices appear to have
largely adjusted to the new reality. Firms with permanent capital like ours are
positioned to benefit, moreover, from the buying opportunities that market
dislocation can provide.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend and distribution
payments, financial reports and press releases, is on our website and has been
updated through June 30, 2008. It can be accessed on the internet at
www.generalamericaninvestors.com .
By Order of the Board of Directors,
General American Investors Company, Inc.
Spencer Davidson
Chairman of the Board
President and Chief Executive Officer
July 9, 2008
4
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $849,000,051) $1,320,392,591
Corporate note (cost $13,621,576) 13,234,375
Money market fund (cost $2,924,321) 2,924,321
-------------
Total investments (cost $865,545,948) 1,336,551,287
CASH, RECEIVABLES AND OTHER ASSETS
Cash $236,395
Receivable for securities sold 310,117
Premiums deposited with brokers for options written 3,898,415
Dividends, interest and other receivables 1,497,613
Pension asset, excess funded 9,598,415
Prepaid expenses and other assets 3,245,493 18,786,448
--------- ------------
TOTAL ASSETS 1,355,337,735
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 591,417
Preferred dividend accrued but not yet declared 231,389
Outstanding options written, at value
(premiums deposited with brokers $3,898,415) (note 1a) 3,253,750
Pension benefit liability 3,212,048
Accrued thrift plan liability 3,485,661
Accrued expenses and other liabilities 3,242,585
---------
14,016,850
TOTAL LIABILITIES
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000
-----------
NET ASSETS APPLICABLE TO COMMON STOCK - 31,573,058 shares (note 2) $1,141,320,885
==============
NET ASSET VALUE PER COMMON SHARE $36.15
======
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 31,573,058 shares at par value (note 2) $31,573,058
Additional paid-in capital (note 2) 602,738,135
Undistributed realized gain on investments 33,191,074
Undistributed net investment income 7,233,177
Accumulated other comprehensive income (note 6) 1,116,826
Unallocated distributions on Preferred Stock (6,181,389)
Unrealized appreciation on investments and options 471,650,004
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,141,320,885
==============
(see notes to financial statements)
5
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2007 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $355,915) $11,515,415
Interest 1,112,132 $12,627,547
-----------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment research 4,226,979
Administration and operations 1,507,715
Office space and general 710,182
Directors' fees and expenses 144,679
Auditing and legal fees 125,145
Transfer agent, custodian and registrar fees and expenses 93,651
Stockholders' meeting and reports 65,431
Miscellaneous taxes 48,812 6,922,594
--------- ------------
NET INVESTMENT INCOME 5,704,953
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1d AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions (note 1b) 31,469,145
Written option transactions (note 1c) 1,624,559
Net decrease in unrealized appreciation (87,661,514)
-----------
NET LOSS ON INVESTMENTS (54,567,810)
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,950,000)
----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($54,812,857)
===========
(see notes to financial statements)
6
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Six Months
Ended Year Ended
June 30, 2008 December 31,
(Unaudited) 2007
OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $5,704,953 $9,782,623
Net realized gain on investments 33,093,704 175,785,885
Net decrease in unrealized appreciation (87,661,514) (71,533,458)
---------- -----------
(48,862,857) 114,035,050
---------- -----------
Distributions to Preferred Stockholders:
From net investment income - (689,497)
From short-term capital gains - (778,809)
From long-term capital gains - (10,431,694)
Unallocated distributions (5,950,000) -
---------- ----------
Decrease in net assets from Preferred distributions (5,950,000) (11,900,000)
---------- ----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (54,812,857) 102,135,050
---------- -----------
OTHER COMPREHENSIVE INCOME (Adjustment to apply FAS 158 (Note 6)) 8,263 456,004
---------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net investment income (183,597) (9,603,869)
From short-term capital gains - (10,847,882)
From long-term capital gains (6,613,893) (145,301,188)
---------- ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (6,797,490) (165,752,939)
---------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends and distributions - 96,902,914
Cost of Common Shares purchased - (30,271,148)
---------- ------------
INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS - 66,631,766
---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS (61,602,084) 3,469,881
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
BEGINNING OF PERIOD 1,202,922,969 1,199,453,088
------------- -------------
END OF PERIOD (including undistributed net investment
income of $7,233,177 and $1,711,821, respectively) $1,141,320,885 $1,202,922,969
============== ==============
(see notes to financial statements)
7
5 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the six months ended June 30, 2008 and
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.
Six Months
Ended Year Ended December 31,
June 30, 2008 ------------------------------------------------------------
(Unaudited) 2007 2006 2005 2004 2003
------------ ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $38.10 $40.54 $39.00 $35.49 $33.11 $26.48
--------- --------- -------- ------- ------- --------
Net investment income .18 .31 .34 .19 .32 .03
Net gain (loss) on investments -
realized and unrealized (1.72) 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)
Unallocated (.19) - - - - -
--------- --------- -------- ------- ------- --------
(.19) (.41) (.41) (.41) (.41) (.36)
--------- --------- -------- ------- ------- --------
Total from investment operations (1.73) 3.31 4.68 5.63 3.39 7.39
--------- --------- -------- ------- ------- --------
Distributions on Common Stock:
Dividends from net investment income (.01) (.33) (.29) (.15) (.23) (.02)
Distributions from net short-term
capital gains - (.38) (.04) (.44) - -
Distributions from net long-term
capital gains (.21) (5.04) (2.81) (1.53) (.78) (.52)
--------- --------- -------- ------- ------- --------
(.22) (5.75) (3.14) (2.12) (1.01) (.54)
--------- --------- -------- ------- ------- --------
Capital Stock transaction -
effect of Preferred Stock offering - - - - - (.22)
--------- --------- -------- ------- ------- --------
Net asset value, end of period $36.15 $38.10 $40.54 $39.00 $35.49 $33.11
========= ========= ======== ======= ======= ========
Per share market value, end of period $32.36 $34.70 $37.12 $34.54 $31.32 $29.73
========= ========= ======== ======= ======= ========
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price per share (6.09)%* 8.72% 16.78% 17.40% 8.79% 27.01%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $1,141,321 $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 1.19%** 1.11% 1.06% 1.25% 1.15% 1.23%
Ratio of net income to average net assets
applicable to Common Stock 0.98%** 0.78% 0.86% 0.51% 0.94% 0.13%
Portfolio turnover rate 12.77%* 31.91% 19.10% 20.41% 16.71% 18.62%
PREFERRED STOCK
Liquidation value, end of period
(000's omitted) $200,000 $200,000 $200,000 $200,000 $200,000 $200,000
Asset coverage 671% 701% 700% 666% 618% 593%
Liquidation preference per share $25.00 $25.00 $25.00 $ 25.00 $25.00 $25.00
Market value per share $23.36 $21.99 $24.44 $24.07 $24.97 $25.04
*Not annualized
**Annualized
8
6 STATEMENT OF INVESTMENTS June 30, 2008 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (note 1a)
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AEROSPACE/DEFENSE (6.0%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 The Boeing Company $19,716,000
600,700 Textron Inc. 28,791,551
325,000 United Technologies Corporation 20,052,500
-----------
(COST $78,462,056) 68,560,051
-----------
BUILDING AND REAL ESTATE (5.0%)
------------------------------------------------------------------------------------------------------------------------------------
2,306,590 CEMEX, S.A. de C.V. ADR (a) (c) (COST $31,830,094) 56,972,762
-----------
COMMUNICATIONS AND INFORMATION SERVICES (7.6%)
------------------------------------------------------------------------------------------------------------------------------------
915,000 Cisco Systems, Inc. (a) 21,282,900
324,100 Lamar Advertising Company Class A (a) 11,677,323
1,038,500 MetroPCS Communications, Inc. (a) 18,391,835
800,000 QUALCOMM Incorporated 35,496,000
------------
(COST $79,024,954) 86,848,058
------------
COMPUTER SOFTWARE AND SYSTEMS (13.1%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Activision, Inc. (a) 23,849,000
1,555,000 Dell Inc. (a) 34,023,400
570,000 Microsoft Corporation 15,680,700
410,000 NetEase.com, Inc. (a) 8,933,900
70,000 Nintendo Co., Ltd. 39,545,100
890,000 Teradata Corporation (a) 20,594,600
335,000 THQ Inc. (a) 6,787,100
------------
(COST $123,287,451) 149,413,800
------------
CONSUMER PRODUCTS AND SERVICES (8.5%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc ADR 25,854,500
375,000 Heineken N. V. 19,117,500
466,100 Hewitt Associates, Inc. Class A (a) 17,865,613
425,000 Nestle S.A. 19,256,750
240,000 PepsiCo, Inc. 15,261,600
------------
(COST $75,732,527) 97,355,963
------------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.6%)
------------------------------------------------------------------------------------------------------------------------------------
881,500 Republic Services, Inc. 26,180,550
680,000 Waste Management, Inc. 25,642,800
------------
(COST $39,285,764) 51,823,350
------------
FINANCE AND INSURANCE (19.8%)
------------------------------------------------------------------------------------------------------------------------------------
BANKING (2.5%)
---------------------------------------------------------------------------------------------------------------------------------
300,000 M&T Bank Corporation 21,162,000
485,000 Wachovia Corporation 7,532,050
------------
(COST $4,524,141) 28,694,050
------------
INSURANCE (13.5%)
---------------------------------------------------------------------------------------------------------------------------------
325,000 The Allstate Corporation 14,816,750
325,000 American International Group, Inc. 8,599,500
325,000 Arch Capital Group Ltd. (a) 21,554,000
185,000 AXIS Capital Holdings Limited 5,514,850
200 Berkshire Hathaway Inc. Class A (a) 24,150,000
315,000 Everest Re Group, Ltd. 25,108,650
1,275,000 Fidelity National Financial, Inc. 16,065,000
265,000 MetLife, Inc. 13,984,050
275,000 PartnerRe Ltd. 19,010,750
100,000 Transatlantic Holdings, Inc. 5,647,000
------------
(COST $87,551,980) 154,450,550
------------
OTHER (3.8%)
---------------------------------------------------------------------------------------------------------------------------------
450,000 American Express Company 16,951,500
10,000 Epoch Holding Corporation, Series A Convertible Preferred 4.6% (d) (f) 15,219,370
1,025,000 Nelnet, Inc. (a) 11,510,750
------------
(COST $51,081,155) 43,681,620
------------
(COST $143,157,276) 226,826,220
------------
9
7 STATEMENT OF INVESTMENTS June 30, 2008 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE / PHARMACEUTICALS (3.5%)
------------------------------------------------------------------------------------------------------------------------------------
70,000 Biogen Idec Inc. (a) $3,912,300
529,900 Cytokinetics, Incorporated (a) 1,965,929
200,000 Genentech, Inc. (a) 15,180,000
119,500 Gilead Sciences, Inc. (a) 6,327,525
190,000 Novo Nordisk B 12,448,800
------------
(COST $19,519,876) 39,834,554
------------
MACHINERY AND EQUIPMENT (2.5%)
------------------------------------------------------------------------------------------------------------------------------------
1,000,000 ABB Ltd. ADR (COST $10,779,026) 28,320,000
------------
METAL (1.4%)
------------------------------------------------------------------------------------------------------------------------------------
371,000 Carpenter Technology Corporation (COST $22,541,198) 16,194,150
------------
MISCELLANEOUS (4.1%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $49,552,605) 46,759,759
------------
OIL AND NATURAL GAS (INCLUDING SERVICES) (23.1%)
------------------------------------------------------------------------------------------------------------------------------------
549,800 Apache Corporation 76,422,200
800,000 Halliburton Company 42,456,000
600,000 Patterson-UTI Energy, Inc. 21,678,000
2,470,000 Weatherford International Ltd. (a) 122,487,300
------------
(COST $84,814,970) 263,043,500
------------
RETAIL TRADE (13.3%)
------------------------------------------------------------------------------------------------------------------------------------
575,000 Costco Wholesale Corporation 40,330,500
725,000 The Home Depot, Inc. 16,979,500
333,100 Target Corporation 15,485,819
1,675,000 The TJX Companies, Inc. 52,712,250
470,000 Wal-Mart Stores, Inc. 26,414,000
------------
(COST $54,317,368) 151,922,069
------------
TECHNOLOGY (2.3%)
------------------------------------------------------------------------------------------------------------------------------------
1,900,000 Xerox Corporation (COST $25,689,854) 25,764,000
------------
TRANSPORTATION (0.9%)
------------------------------------------------------------------------------------------------------------------------------------
236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 10,754,355
------------
TOTAL COMMON AND PREFERRED STOCKS (115.7% (COST $849,000,051) 1,320,392,591
-------------
Principal Amount CORPORATE NOTE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES (1.2%)
------------------------------------------------------------------------------------------------------------------------------------
$13,750,000 General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes due 10/15/08 (f) (COST $13,621,576) 13,234,375
------------
Shares SHORT-TERM SECURITY AND OTHER ASSETS
------------------------------------------------------------------------------------------------------------------------------------
2,924,321 SSgA Prime Money Market Fund (0.2%) (COST $2,924,321) 2,924,321
-------------
TOTAL INVESTMENTS (e) (117.1%) (COST $865,545,948) 1,336,551,287
Cash, receivables and other assets less liabilities (0.4%) 4,769,598
PREFERRED STOCK (-17.5%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,141,320,885
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year, not previously disclosed and not restricted.
(c) 1,600,000 shares held by custodian in a segregated custodian account as collateral for short positions and options, if any.
(d) Restricted security of an affiliate acquired 11/7/06.
(e) At June 30, 2008:
(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 $533,628,073,
(3) aggregate gross unrealized depreciation was $62,622,734, and
(4) net unrealized appreciation was $471,005,339.
(f) Level 2 fair value measurement, note 8.
(see notes to financial statements)
10
8 STATEMENT OF CALL OPTIONS WRITTEN June 30, 2008 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
Contracts Value
(100 shares each) COMMON STOCK/EXPIRATION DATE/EXERCISE PRICE (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS
------------------------------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS (INCLUDING SERVICES)
------------------------------------------------------------------------------------------------------------------------------------
1,691 Apache Corporation/July 08/$135.00 $1,268,250
2,500 Apache Corporation/July 08/$140.00 1,200,000
1,500 Apache Corporation/July 08/$145.00 405,000
----------
(PREMIUMS DEPOSITED WITH BROKERS $3,696,416) 2,873,250
----------
HEALTH CARE / PHARMACEUTICALS
------------------------------------------------------------------------------------------------------------------------------------
500 Genentech, Inc./July 08/$75.00 (PREMIUMS DEPOSITED WITH BROKERS $108,499) 125,000
----------
TOTAL CALL OPTIONS (PREMIUMS DEPOSITED WITH BROKERS $3,804,915) 2,998,250
----------
PUT OPTION
------------------------------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE
------------------------------------------------------------------------------------------------------------------------------------
500 American Express Company/July 08/$42.50 (PREMIUMS DEPOSITED WITH BROKERS $93,500) 255,500
--------
TOTAL CALL AND PUT OPTIONS (PREMIUMS DEPOSITED WITH BROKERS $3,898,415) $3,253,750
==========
(See notes to financial statements)
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION June 30, 2008 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of June 30, 2008 and 2007 is shown in the following table.
Percent Common Net Assets*
June 30, 2008 June 30
-------------------------------------- --------------------------
Industry Category Cost(000) Value(000) 2008 2007
-------------------------------- -------------------- ----------------- ----------- -----------
Oil and Natural Gas (Including Services) $84,815 $263,044 23.1% 17.4%
--------- --------- ------ ------
Finance and Insurance
Banking 4,524 28,694 2.5 6.3
Insurance 87,552 154,450 13.5 15.6
Other 51,081 43,682 3.8 2.2
--------- --------- ------ ------
143,157 226,826 19.8 24.1
--------- --------- ------ ------
Retail Trade 54,317 151,922 13.3 16.7
Computer Software and Systems 123,288 149,414 13.1 6.4
Consumer Products and Services 89,354 110,590 9.7 7.8
Communications and Information Services 79,025 86,848 7.6 10.7
Aerospace/Defense 78,462 68,560 6.0 3.9
Building and Real Estate 31,830 56,973 5.0 6.4
Environmental Control (Including Services) 39,286 51,823 4.6 4.1
Miscellaneous** 49,553 46,760 4.1 5.6
--------- --------- ------ ------
Health Care
Pharmaceuticals 19,520 39,835 3.5 4.5
Medical Instruments and Devices - - - 0.6
--------- --------- ------ ------
19,520 39,835 3.5 5.1
--------- --------- ------ ------
Machinery & Equipment 10,779 28,320 2.5 2.0
Technology 25,690 25,764 2.3 3.4
Metals 22,541 16,194 1.4 1.4
Transportation 11,005 10,754 0.9 -
--------- --------- ------ ------
862,622 1,333,627 116.9 115.0
Short-Term Securities 2,924 2,924 0.2 0.1
--------- --------- ------ ------
Total Investments $865,546 1,336,551 117.1 115.1
=========
Other Assets and Liabilities - Net 4,770 0.4 0.1
Preferred Stock (200,000) (17.5) (15.2)
---------- ------ ------
Net Assets Applicable to Common Stock $1,141,321 100.0% 100.0%
========== ======= ======
* Net Assets applicable to the Company's Common Stock.
** Securities which have been held for less than one year, not previously disclosed and not restricted.
11
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
1. SIGNIFICANT ACCOUNTING POLICIES - General American Investors Company, Inc.
(the "Company"), established in 1927, is registered under the Investment Company
Act of 1940 as a closed-end, diversified management investment company. It is
internally managed by its officers under the direction of the Board of
Directors.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
a. SECURITY VALUATION Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Securities reported on the NASDAQ national market are valued at the official
closing price on that day. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price (asked price for options written) on the
valuation date. Securities traded primarily in foreign markets are generally
valued at the preceding closing price of such securities on their respective
exchanges or markets. If, after the close of the foreign market, conditions
change significantly, the price of certain foreign securities may be adjusted to
reflect fair value as of the time of the valuation of the portfolio. Investments
in money market funds are valued at their net asset value. The restricted
security is valued at par value (cost), divided by the conversion price of $6.00
multiplied by the last reported sales price of the publicly traded common stock
of the corporation.
b. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium received and
the amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
c. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
d. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
e. OTHER As is customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
2. CAPITAL STOCK - The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $1.00 par value, and 10,000,000 shares of
Preferred Stock, $1.00 par value. 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 June 30, 2008.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95%
Cumulative Preferred Stock, Series B in an underwritten offering. The Preferred
Shares are noncallable for 5 years and have a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of redemption. The underwriting discount and other expenses associated with the
Preferred Stock offering amounted to $6,700,000 and were charged to paid-in
capital.
The Company is required to allocate distributions from long-term capital gains
and other types of income proportionately among holders of shares of Common
Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an
asset coverage of at least 200% for the Preferred Stock. In addition, pursuant
to the Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds the Basic
Maintenance Amount under the guidelines established by Moody's Investors
Service, Inc. The Company has met these requirements since the issuance of the
Preferred Stock. If the Company fails to meet these requirements in the future
and does not cure such failure, the Company may be required to redeem, in whole
or in part, shares of Preferred Stock at a redemption price of $25.00 per share
plus accumulated and unpaid dividends (whether or not earned or declared). In
addition, the Company's failure to meet the foregoing asset coverage
requirements could restrict its ability to pay dividends on shares of Common
Stock and could lead to sales of portfolio securities at inopportune times.
The holders of Preferred Stock have voting rights equivalent to those of the
holders of Common Stock (one vote per share) and, generally, vote together with
the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the Company's
Board of Directors and the holders of Preferred and Common Stock, voting as a
single class, will elect the remaining directors. If the Company fails to pay
dividends on the Preferred Stock in an amount equal to two full years'
dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of EITF
D-98, Classification and Measurement of Redeemable Securities, which require
that preferred stock for which its redemption is outside of the company's
control should be presented outside of net assets in the statement of assets and
liabilities.
12
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK - (Continued from bottom of previous page.)
There were no transactions in Common Stock during the six months ended June 30,
2008. Transactions in common stock during the year ended December 31, 2007 were
as follows:
SHARES AMOUNT
----------------- -----------------
Shares issued in payment of dividends and distributions
(includes 2,404,865 shares issued from treasury) 2,747,460 $2,747,460
Increase in paid-in capital 94,155,454
----------
Total increase 96,902,914
----------
Shares purchased (average discount from NAV of 10.4%) 763,600 (763,600)
Decrease in paid-in capital (29,507,548)
------------
Total decrease (30,271,148)
------------
Net increase $66,631,766
============
At June 30, 2008, 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.
3. OFFICERS' COMPENSATION - The aggregate compensation paid and accrued by the
Company during the six months ended June 30, 2008 to its officers (identified on
back cover) amounted to $4,084,250.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other
than short-term securities and options) for the six months ended June 30, 2008
amounted to $171,950,668 and $176,446,439.
5. WRITTEN OPTIONS - Transactions in written covered call and collateralized put
options during the six months ended June 30, 2008 were as follows:
Covered Calls Collateralized Puts
--------------------- ---------------------------
Contracts Premiums Contracts Premiums
--------- -------- ---------- ----------
Options outstanding, December 31, 2007 7,500 $3,073,787 1,999 $638,671
Options written 16,206 8,701,980 3,700 1,058,763
Options expired (6,210) (2,652,261) - -
Options exercised (502) (305,952) (159) (58,304)
Options terminated in closing
purchase transactions (10,803) (5,012,638) (5,040) (1,545,631)
-------- --------- -------- ----------
Options outstanding, June 30, 2008 6,191 $3,804,916 500 $93,499
======== ========== ======== ==========
6. BENEFIT PLANS - The Company has funded (Qualified) and unfunded
(Supplemental) noncontributory defined benefit pension plans that cover its
employees. The plans provide defined benefits based on years of service and
final average salary with an offset for a portion of social security covered
compensation. The components of the net periodic benefit cost (income) of the
plans for the six months ended June 30, 2008 were:
Service cost $157,675
Interest cost 369,976
Expected return on plan assets (715,462)
Amortization of prior service cost 11,046
--------
Net periodic benefit cost (income) ($176,765)
========
The Company also has funded and unfunded defined contribution thrift plans that
are available to its employees. The aggregate cost of such plans for the six
months ended June 30, 2008 was $277,422. The unfunded liability at June 30, 2008
was $3,485,661.
The Company applies 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" which
requires 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.
7. OPERATING LEASE COMMITMENT - In June 2007, the Company entered into an
operating lease agreement for office space which expires in February 2018 and
provides for future rental payments in the aggregate amount of approximately
$10.8 million. The lease agreement contains clauses whereby the Company receives
free rent for a specified number of months and credit towards construction of
office improvements, and incurs escalations annually relating to operating costs
and real property taxes and to annual rent charges beginning in February 2013.
The Company has the option to renew the lease after February 2018 for five years
at market rates. Rental expense approximated $449,200 for the six months ended
June 30, 2008. Minimum rental commitments under the operating lease are
approximately $0.9 million in 2008, $1.0 million per annum in 2009 through 2012,
$1.1 million in 2013 through 2017, and $0.1 million in 2018.
8. FAIR VALUE MEASUREMENTS - Effective January 1, 2008, the Company adopted FASB
Statement of Financial Accounting Standard No. 157 "Fair Value Measurements."
Various data inputs are used in determining the value of the Company's
investments. These inputs are summarized in a hierarchy consisting of the three
broad levels listed below:
Level 1 - quoted prices in active markets for identical securities (including
money market funds which are valued using amortized cost and which transact
at net asset value, typically $1 per share),
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, credit risk, etc.), and
Level 3 - significant unobservable inputs (including the Company's own
assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. The
following is a summary of the inputs used to value the Company's net assets as
of June 30, 2008:
Valuation Inputs Investments in Securities Options Written
----------------------------- ------------------------------- -------------------
Level 1 - Quoted prices $1,308,097,542 $3,253,750
Level 2 - Other significant observable
inputs (see (f), pages 6 and 7) 28,453,745 -
Level 3 - Unobservable inputs - -
------------------- ---------------
Total $1,336,551,287 $3,253,750
=================== ===============
13
11 MAJOR STOCK CHANGES* Three Months Ended June 30, 2008 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES SHARES HELD
INCREASES TRANSACTED JUNE 30, 2008
-----------------------------------------------------------------------------------------------------------------
NEW POSITIONS
American Express Company 50,000 450,000 (a)
MetroPCS Communications, Inc. 185,000 1,038,500 (a)
Teradata Corporation 600,000 890,000 (a)
The Boeing Company 300,000 300,000
ADDITIONS
Carpenter Technology Corporation 50,000 371,000
Cisco Systems, Inc. 15,000 915,000
Dell Inc. 55,000 1,555,000
NetEase.com, Inc. 165,000 410,000
PepsiCo, Inc. 40,000 240,000
DECREASES
------------------------------------------------------------------------------------------------------------------
ELIMINATIONS
Alkermes, Inc. 80,000 -
BearingPoint, Inc. 1,000,000 -
Sprint Nextel Corporation 480,000 -
REDUCTIONS
The Allstate Corporation 5,000 325,000
American International Group, Inc. 125,000 325,000
Apache Corporation 50,200 549,800 (b)
AXIS Capital Holdings Limited 20,000 185,000
Biogen Idec Inc. 20,000 70,000
Fidelity National Financial, Inc. 100,000 1,275,000
Heineken N.V. 10,000 375,000
Hewitt Associates, Inc. Class A 83,900 466,100
The Home Depot, Inc. 375,000 725,000
Nelnet, Inc. 125,000 1,025,000
Patterson-UTI Energy, Inc. 100,000 600,000
THQ Inc. 30,000 335,000
Transatlantic Holdings, Inc. 30,000 100,000
Wachovia Corporation 130,000 485,000
* 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) Shares sold from an exercised call option.
OTHER MATTERS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
In addition to purchases of the Company's Common Stock as set forth in Note 2 on
page 10, purchases of Common Stock may be made at such times, at such prices, in
such amounts and in such manner as the Board of Directors may deem advisable.
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities and the Company's proxy voting record for the
twelve-month period ended June 30, 2008 are available: (1) without charge, upon
request, by calling us at our toll-free telephone number (1-800-436-8401), (2)
on the Company's website at www.generalamericaninvestors.com and (3) on the
Securities and Exchange Commission's website at www.sec.gov.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission ("SEC") as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available at
www.generalamericaninvestors.com and on the SEC's website: www.sec.gov. Also,
Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public Reference Room
may be obtained by calling 1-800-SEC-0330. A copy of the Company's Form N-Q may
also be obtained by calling us at 1-800-436-8401.
On April 30, 2008, 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.
14
DIRECTORS
--------------------------------------------------------------------------------
Spencer Davidson, Chairman
Joseph T. Stewart, Jr., Lead Independent Director
Arthur G. Altschul, Jr. Sidney R. Knafel
Rodney B. Berens Daniel M. Neidich
Lewis B. Cullman D. Ellen Shuman
Gerald M. Edelman Raymond S. Troubh
John D. Gordan, III
OFFICERS
--------------------------------------------------------------------------------
Spencer Davidson, President & Chief Executive Officer
Andrew V. Vindigni, Senior Vice-President
Peter P. Donnelly, Vice-President & Trader
Sally A. Lynch, Vice-President
Eugene S. Stark, Vice-President, Administration &
Chief Compliance Officer
Jesse R. Stuart, Vice-President
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
Craig A. Grassi, Assistant Vice-President
Maureen E. LoBello, Assistant Secretary
SERVICE COMPANIES
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and
Trust Company
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
1-800-413-5499
www.amstock.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
GENERAL AMERICAN INVESTORS COMPANY, INC.
We have reviewed the accompanying statement of assets and liabilities of
General American Investors Company, Inc., including the statement of
investments, as of June 30, 2008, and the related statements of operations and
changes in net assets and financial highlights for the six-month period ended
June 30, 2008. These financial statements and financial highlights are the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the statement of changes in net assets for
the year ended December 31, 2007 and financial highlights for each of the five
years in the period then ended and in our report, dated January 28, 2008 we
expressed an unqualified opinion on such financial statements and financial
highlights.
New York, New York ERNST & YOUNG LLP
July 28, 2008
15
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The schedule of investments in securities of unaffiliated issuers is included as
part of the report to stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM. 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
REGISTRANT PURCHASES OF EQUITY SECURITIES
(c) Total Number of Shares (d) Maximum Number (or Approximate
Period (a) Total Number (b) Average Price (or Units) Purchased as Part Dollar Value) of Shares (or Units)
of Shares Paid per Share of Publicly Announced that May Yet Be Purchased Under
2008 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01-01/31 - - - 652600
02/01-02/28 - - - 652600
03/01-03/31 - - - 652600
04/01-04/30 - - - 652600
05/01-05/31 - - - 652600
06/01-06/30 - - - 652600
------- -------- ------ ------
Total - -
======= ======
Note - On January 16, 2008, the Board of Directors authorized and the registrant announced the repurchase of up to 300,000
shares of the registrant's common stock when the shares are trading at a discount from the underlying net asset value
of at least 8%. This represented a continuation of a repurchase program which began in March 1995. As of the
beginning of the period, January 1, 2008, there were 352,600 shares available for repurchase under such
authorization. As of the end of the period, June 30, 2008, there were 652,600 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
recommend nominees to the registrant's board of directors as set forth in the
registrant's Proxy Statement, dated February 22, 2008.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of June 30, 2008, 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 June
30, 2008, the Registrant's disclosure controls and procedures were reasonably
designed so as to ensure:(1) that information required to be disclosed by the
Registrant on Form N-CSR is recorded, processed, summarized and reported within
the time periods specified by the rules and forms of the Securities and Exchange
Commission, and (2) that material information relating to the Registrant is made
known to the PEO and PFO as appropriate to allow timely discussions regarding
required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting that occurred during the Registrant's second fiscal
quarter of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company Act of
1940.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
General American Investors Company, Inc.
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
Date: August 4, 2008
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Spencer Davidson
Spencer Davidson
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 4, 2008
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: August 4, 2008