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, 2008
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2008
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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2008 2007
------------- --------------
Net assets applicable to Common Stock -
December 31 $674,597,801 $1,202,922,969
Net investment income 13,446,046 9,782,623
Net realized gain 16,414,799 175,785,885
Net decrease in unrealized appreciation (523,757,542) (71,533,458)
Distributions to Preferred Stockholders (11,899,613) ( 11,900,000)
Per Common Share-December 31
Net asset value $21.09 $38.10
Market price $17.40 $34.70
Discount from net asset value -17.5% - 8.9%
Common Shares outstanding-Dec. 31 31,980,872 31,573,058
Common Stockholders of record-Dec. 31 3,806 3,891
Market price range* (high-low) $34.76-$13.01 $43.87-$32.69
Market volume-shares 10,131,229 7,110,734
*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. 14, 2008 Dec. 26, 2008 $.185594 $.254406 $.440000
======== ======== ========
Total from 2008 earnings
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
======== ========= =========
(a) Includes short-term gains in the amount of $.009262 per share.
Preferred Stock
Mar. 7, 2008 Mar. 24, 2008 $.108585 $.263290 $.371875
Jun. 6, 2008 Jun. 24, 2008 .108585 .263290 .371875
Sept. 8, 2008 Sept. 24, 2008 .108585 .263290 .371875
Dec. 8, 2008 Dec. 24, 2008 .108585 .263290 .371875
-------- -------- --------
Total for 2008 $.434340 $1.053160 $1.487500
======== ========= =========
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).
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 was down 37.1% for the year ended December 31, 2008, 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) decreased 43.0%. The return to our
Common Stockholders was negative by 48.2% because the discount at which our
shares traded to their NAV widened to 17.5% at this year end from 8.9% a year
ago.
In order to provide a more comprehensive presentation of our performance, return
on NAV has been added to the table that follows. Stockholder return reflects
widening in the discount to NAV to the very high end of its historic range, and
may not fully illustrate that over many years General American has produced
superior investment results.
Years (Market Value) NAV Return S&P 500
--------------------------------------------------------
3 -13.0% -11.6% -8.5%
5 -3.4 -2.4 -2.3
10 3.0 3.3 -1.5
20 11.8 11.3 8.4
30 14.2 13.5 11.0
40 10.4 11.3 9.0
50 10.4 11.0 9.2
Last year, the world economy ended a remarkable half-decade of strong growth and
robust profitability in dramatic fashion. As the credit crisis, whose origins
lay in inflated real estate prices that were fueled by easy money and lax
lending standards, played out, liquidity evaporated. The concept of decoupling
was thus discredited as virtually all markets-major, emerging and
commodity-became correlated and plunged precipitously. It was the worst market
for U.S. equities in seven decades, with most of the damage occurring in the
fourth quarter. The recession, hinted at earlier in the year, was well
entrenched by year's end, while relentlessly bleak economic reports reflected
accelerating lay-offs and continuing declines in house prices, with one in ten
mortgages at least a month in arrears or in foreclosure. Credit problems, which
manifested first in housing, before spreading to autos and retail, seem likely
to reach other sectors of the global economy as the new year unfolds.
In the short-run, consumer demand, for durables in particular, appears to be
sated and consequently savings are on the rise. While the benefits of increased
saving, which include the provision of funds for productivity-enhancing research
and development, and an improved trade balance, may seem obvious, they run into
the paradox of thrift. That is to say, the benefits tend to be long-term and are
offset by more severe economic contraction in the short-term as consumers
retrench. Since the demand for American exports is likely to remain constrained,
increased government spending appears to be a logical response to this problem,
with emphasis on defense and infrastructure. The former must be requisitioned
from U.S. manufacturers, by law, and the latter is mostly supplied by domestic
producers of cement and structural steel, et.al.
Government intervention in the financial system, initially piecemeal but more
comprehensive of late, is beginning to have a thawing effect on the markets.
Improvement is notably visible in those areas receiving state support, such as
the interbank money and top rated commercial paper markets. Although banks
remain reluctant lenders in the face of still mounting loan losses, and the path
back to normalization is almost certain to be long and bumpy, easier financial
conditions are likely to stabilize economic activity. Once the financial markets
are functioning normally, confidence should slowly return. Massive monetary
easing and the stimulating effect of declining energy costs should enable the
recovery of the global economy.
Credit creation may not return to boom-year levels and it may well remain more
of a Wal-Mart world than one favoring aspirational goods and services. But we've
owned Wal-Mart for twenty-five years and the experience has been salutary. In
general, stocks typically bottom before the economy does, since money is created
faster than the economy's ability to employ it. Investors then use the excess
liquidity to seek high returns by purchasing riskier assets like equities. With
the yield on the S&P 500 currently more than 100 basis points, or 1%, above that
on ten-year Treasury bonds for the first time since 1962, equity markets may
have discounted the preponderance of bad news. Our portfolio continues to
feature companies with strong financial characteristics, reasonable earnings
visibility and powerful positions in their respective industries. We retain
abundant cash reserves and look forward to their selective employment as
opportunities present themselves.
The share repurchase program, a part of our ongoing effort to maximize NAV,
continues. In 2008, the Company purchased 102,047 of its Common Shares on the
open market at an average discount to NAV of 19.8%. The Board of Directors has
authorized repurchases of Common Shares when they are trading at a discount to
NAV in excess of 8%.
In December 2008, the Board of Directors authorized the repurchase of 1 million
outstanding shares of its 5.95% Cumulative Preferred Stock when the shares are
trading at a market price below the liquidation price of $25.00 per share. In
2008, the Company purchased 15,300 of its Preferred Shares at an average price
of $21.12 per share.
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 21, 2009
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. The directors have a broad range of
experience in business and financial affairs.
Portfolio 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 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."
Net asset value per share (NAV), market price, and the discount or premium from
NAV as of the close of each week, is published in Barron's and The Wall Street
Journal, Monday edition.
While shares of GAM usually sell at a discount to NAV, as do the shares of most
other domestic equity closed-end investment companies, they occasionally sell at
a premium over NAV. During 2008, the stock sold at discounts to NAV which ranged
from 7.3% (February 12) to 25.2% (November 21). At December 31, the price of the
stock was at a discount of 17.5%.
Since March 1995, the Board of Directors has authorized the repurchase of Common
Stock in the open market when the shares trade at a discount to net asset value
of at least 8%.
"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 rated "Aaa" by Moody's Investors Service, Inc. and are
listed and traded on The New York Stock Exchange (symbol, GAM Pr B). The
Preferred Shares are available to leverage the investment performance of the
Common Stockholders, it may also result in higher market volatility for the
Common Stockholders.
6
3 THE COMPANY
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General American Investors
On December 10, 2008, the Board of Directors authorized the repurchase of 1
million Preferred Shares in the open market at prices below $25 per share.
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. 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 1943-2008 (except for the year 1974). (A table listing dividends and
distributions paid during the 20-year period 1989-2008 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.
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, 2008 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 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, 2008"
The investment return for a Common Stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2008 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 1989.
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.
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 at the reinvestment prices indicated above.
STANDARD & POOR'S 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.
Past performance reported below 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
------------------------- --------------------------- ------------------------------
1989 $14,860 48.60% $13,786 37.86% $13,162 31.62%
1990 15,454 4.00 14,708 6.69 12,755 -3.09
1991 28,591 85.00 23,694 61.09 16,633 30.40
1992 32,816 14.78 24,535 3.55 17,895 7.59
1993 27,592 -15.92 24,105 -1.75 19,706 10.12
1994 25,423 -7.86 23,445 -2.74 19,957 1.27
1995 30,818 21.22 28,973 23.58 27,440 37.50
1996 36,821 19.48 34,759 19.97 33,727 22.91
1997 52,500 42.58 45,899 32.05 44,968 33.33
1998 68,938 31.31 62,028 35.14 57,807 28.55
1999 95,975 39.22 84,607 36.40 69,923 20.96
2000 114,306 19.10 99,531 17.64 63,567 -9.09
2001 119,256 4.33 98,337 -1.20 56,009 -11.89
2002 86,806 -27.21 75,700 -23.02 43,608 -22.14
2003 110,253 27.01 96,442 27.40 56,063 28.56
2004 119,944 8.79 106,443 10.37 62,112 10.79
2005 140,814 17.40 123,686 16.20 65,112 4.83
2006 164,443 16.78 138,825 12.24 75,309 15.66
2007 178,782 8.72 149,945 8.01 79,383 5.41
2008 92,609 -48.20 85,439 -43.02 49,953 -37.07
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 $200,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1989 through 2008 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, 2008 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------------------
1 year -48.2 % -43.0 % -37.1 %
5 years -3.4 -2.4 -2.3
10 years 3.0 3.3 -1.5
15 years 8.4 8.8 6.4
20 years 11.8 11.3 8.4
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2008 (UNAUDITED)
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General American Investors
SHARES OR
PRINCIPAL AMOUNT SHARES HELD
INCREASES TRANSACTED DECEMBER 31, 2008
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ADDITIONS
ABB Ltd. ADR 200,000 1,200,000
American Express Company 25,000 400,000
AXIS Capital Holdings Limited 140,000 440,000
Cisco Systems, Inc. 45,000 960,000
Lamar Advertising Company Class A 50,000 374,100
MetroPCS Communications, Inc. 190,000 1,400,000
PartnerRe Ltd. 10,000 285,000
PepsiCo, Inc. 15,000 255,000
Republic Services, Inc. 67,500 949,000
DECREASES
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ELIMINATIONS
Biogen Idec Inc. 70,000 -
General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes Due 10/15/08 $13,750,000 -
REDUCTIONS
The Allstate Corporation 225,000 100,000
Apache Corporation 40,000 459,800
Arch Capital Group Ltd. 15,000 300,000
Berkshire Hathaway Inc. Class A 50 150
The Boeing Company 300,000 300,000
CEMEX, S.A. de C.V. ADR 430,727 1,875,862
Dell Inc. 75,000 1,480,000
Everest Re Group, Ltd. 50,000 250,000
Fidelity National Financial, Inc. 150,000 800,000
Heineken N.V. 50,000 375,000
Leap Wireless International, Inc. 74,500 68,000
McDermott International, Inc. 100,000 250,000
M&T Bank Corporation 20,000 195,000
MetLife, Inc. 15,000 235,000
Nelnet, Inc. 300,000 550,000
Nintendo Co., Ltd. 2,900 67,100
QUALCOMM Incorporated 100,000 700,000
Teradata Corporation 125,000 565,000
Textron Inc. 182,000 418,700
Transatlantic Holdings, Inc. 5,000 83,000
Waste Management, Inc. 50,000 630,000
Weatherford International Ltd. 420,000 2,050,000
* Excludes transactions in Common and Preferred Stocks-Miscellaneous-Other.
(a) Includes shares received from an assigned put option.
(b) Shares received in a merger with Allied Waste Industries, Inc.
"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 (1989-2008) (UNAUDITED)
--------------------------------------------------------------------------------
EARNINGS SOURCE
----------------------------
SHORT-TERM LONG-TERM
YEAR INCOME CAPITAL GAINS CAPITAL GAINS
----------------------------------------------
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
2008 .186 - .254
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
"The statement of investments as of December 31, 2008, shown on pages 12 and 13
includes 52 security issues. Listed here are the ten largest holdings on
that date."
% COMMON
SHARES VALUE NET ASSETS*
-------------------------------------------------------------
THE TJX COMPANIES, INC. 1,675,000 $34,454,750 5.1%
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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APACHE CORPORATION 459,800 34,268,894 5.1
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,
Egypt, Australia, and the North Sea.
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COSTCO WHOLESALE CORPORATION 575,000 30,187,500 4.5
Costco is the world's 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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WAL-MART STORES, INC. 470,000 26,348,200 3.9
Wal-Mart is the world's largest retailer offering value to consumers
in the U.S. and thirteen foreign countries.
------------------------------------------------------------------------------------------------------------------------------------
QUALCOMM INCORPORATED 700,000 25,081,000 3.7
QUALCOMM is a leading developer of intellectual property and
semiconductors for the mobile communications industry. The
company stands to benefit greatly from the global adoption of
mobile data applications.
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NINTENDO CO., LTD. 67,100 24,951,796 3.7
Nintendo is one of the world's leading developers of video game
platforms and software. Its innovative approach to product
development and customer segmentation should lead to further
market share gains.
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REPUBLIC SERVICES, INC. 949,000 23,525,710 3.5
Republic Services is a leading provider of non-hazardous, solid
waste collection and disposal services in the U.S. The efficient
operation of its routes and facilities combined with appropriate
pricing enable Republic Services to generate significant free cash
flow.
------------------------------------------------------------------------------------------------------------------------------------
WEATHERFORD INTERNATIONAL LTD. 2,050,000 22,181,000 3.3
Weatherford supplies a broad range of oil field services and
equipment on a worldwide basis. Its focus on helping customers
increase production from existing fields and enhance recovery
from new wells should lead to earnings growth.
------------------------------------------------------------------------------------------------------------------------------------
ARCH CAPITAL GROUP LTD. 300,000 21,030,000 3.1
Arch Capital, a Bermuda-based insurer/reinsurer, generates
premiums of approximately $3.5 billion and has a high quality,
well-reserved A-rated balance sheet. This company has a strong
management team that exercises prudent underwriting discipline and
efficient expense control, resulting in above-average earnings and
book value growth.
------------------------------------------------------------------------------------------------------------------------------------
WASTE MANAGEMENT, INC. 630,000 20,878,200 3.1
Waste Management provides waste collection and disposal services
to over 20 million customers in the U.S. The company also
operates waste-to-energy plants, provides recycling services, and
captures landfill gases for beneficial uses. The company has a
strong record of returning excess cash flow to shareholders through
dividends and stock repurchases.
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$262,907,050 39.0%
============ =====
*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, 2008 and 2007 is shown in the following
table."
PERCENT COMMON NET ASSETS*
DECEMBER 31, 2008 DECEMBER 31
----------------------------------------------------------------------------------
INDUSTRY CATEGORY COST(000) VALUE(000) 2008 2007
-----------------------------------------------------------------------------------------------------------------
Finance and Insurance
Banking $995 $11,195 1.7% 4.0%
Insurance 63,102 116,673 17.3 17.2
Other 34,617 27,952 4.1 3.0
------- ------- ---- ----
98,714 155,820 23.1 24.2
------- ------- ---- ----
Retail Trade 54,015 102,492 15.2 14.4
Oil and Natural Gas
(Including Services) 74,054 79,219 11.8 19.5
Consumer Products and Services 75,989 75,062 11.1 10.8
Computer Software and Systems 91,648 69,404 10.3 10.9
Communications and
Information Services 85,027 68,046 10.1 6.9
Environmental Control
(Including Services) 38,960 44,404 6.6 4.1
Aerospace/Defense 62,254 36,028 5.3 5.1
Miscellaneous** 37,553 32,261 4.8 4.2
Health Care/Pharmaceuticals 11,168 24,203 3.6 2.9
Machinery and Equipment 13,364 18,012 2.7 2.4
Building and Real Estate 24,457 17,145 2.5 4.8
Technology 25,690 15,143 2.2 2.6
Semiconductors 16,353 12,649 1.9 -
Transportation 11,005 5,917 0.9 1.0
Metals - - - 2.0
------- ------- ---- ----
720,251 755,805 112.1 115.8
Short-Term Securities 118,897 118,897 17.6 0.8
------- ------- ---- ----
Total Investments $839,148 874,702 129.7 116.6
========
Other Assets and Liabilities - Net (487) (0.1) 0.0
Preferred Stock (199,617) (29.6) (16.6)
-------- ---- ----
Net Assets Applicable to
Common Stock $674,598 100.0% 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 2008 2007
------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks
(cost $710,373,320 and $816,594,960, respectively) $745,830,202 $1,374,257,148
Corporate note (cost $9,877,906 and
$19,053,293, respectively) 9,975,000 19,183,125
Money market fund (cost $118,896,974 and
$9,165,709, respectively) 118,896,974 9,165,709
------------ -------------
Total investments (cost $839,148,200 and
$844,813,962, respectively) 874,702,176 1,402,605,982
RECEIVABLES AND OTHER ASSETS
Receivable for securities sold 2,638,460 -
Premium deposited with brokers for options written - 3,712,458
Dividends, interest and other receivables 1,461,811 1,333,175
Qualified pension plan asset, net excess funded (note 5) 1,899,294 9,244,527
Prepaid expenses and other assets 3,245,437 2,549,782
------------ -------------
TOTAL ASSETS 883,947,178 1,419,445,924
------------ -------------
LIABILITIES
------------------------------------------------------------------------------------------------------
Payable for securities purchased 1,347,832 -
Accrued preferred stock dividend not yet declared 231,002 231,389
Accrued supplemental pension plan liability (note 5) 3,195,179 3,174,022
Outstanding options written at value (premiums deposited
with brokers $3,712,458 for 2007) (notes 1a and 6) - 2,192,960
Accrued supplemental thrift plan liability 1,747,234 3,393,011
Accrued expenses and other liabilities 3,210,630 7,531,573
------------ -------------
TOTAL LIABILITIES 9,731,877 16,522,955
------------ -------------
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
7,984,700 and 8,000,000 shares, respectively, at a liquidation
value of $25 per share (note 2) 199,617,500 200,000,000
------------ -------------
NET ASSETS APPLICABLE TO COMMON STOCK - 31,980,872
and 31,573,058 shares, respectively (note 2) $674,597,801 $1,202,922,969
============ ==============
NET ASSET VALUE PER COMMON SHARE $21.09 $38.10
============ ==============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------
Common Stock, 31,980,872 and 31,573,058 shares at
par value, respectively (note 2) $31,980,872 $31,573,058
Additional paid-in capital (note 2) 608,328,298 602,738,135
Undistributed realized gain (loss) on investments (note 2) (16,916) 6,711,263
Undistributed net investment income (note 2) 5,759,182 1,711,821
Accumulated other comprehensive income (loss) (note 5) (6,776,609) 1,108,563
Unallocated distributions on Preferred Stock (231,002) (231,389)
Unrealized appreciation on investments and options 35,553,976 559,311,518
------------ --------------
NET ASSETS APPLICABLE TO COMMON STOCK $674,597,801 $1,202,922,969
============ ==============
(see notes to financial statements)
13
10 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
--------------------------
INCOME 2008 2007
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $413,817 and $353,438, respectively) $19,355,826 $20,925,587
Interest 3,037,848 2,809,754
----------- -----------
TOTAL INCOME 22,393,674 23,735,341
----------- -----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 3,868,008 9,312,122
Administration and operations 2,597,320 3,104,891
Office space and general 1,579,448 562,787
Directors' fees and expenses 275,634 266,033
Auditing and legal fees 215,601 307,829
Transfer agent, custodian and registrar fees and expenses 170,542 169,891
Stockholders' meeting and reports 126,838 131,872
Miscellaneous taxes 114,237 97,293
----------- -----------
TOTAL EXPENSES 8,947,628 13,952,718
----------- -----------
NET INVESTMENT INCOME 13,446,046 9,782,623
----------- -----------
Realized Gain (Loss) And Change In Unrealized Appreciation On Investments (Notes 1, 4 and 6)
---------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 8,649,744 176,058,639
Written option transactions (notes 1b and 6) 7,765,055 (272,754)
----------- -----------
Net realized gain on investments
(long-term except $3,224,498 for 2007) 16,414,799 175,785,885
Net decrease in unrealized appreciation (523,757,542) (71,533,458)
----------- -----------
NET INVESTMENT INCOME AND GAIN (LOSS) ON INVESTMENTS (493,896,697) 114,035,050
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,899,613) (11,900,000)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($505,796,310) $102,135,050
============ ============
(see notes to financial statements)
14
11 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATIONS 2008 2007
---------------------------------------------------------------------------------------------------
Net investment income $13,446,046 $9,782,623
Net realized gain on investments 16,414,799 175,785,885
Net decrease in unrealized appreciation (523,757,542) (71,533,458)
----------- -----------
(493,896,697) 114,035,050
----------- -----------
Distributions to Preferred Stockholders:
From net investment income (3,474,724) (689,497)
From short-term capital gains - (778,809)
From long-term capital gains (8,425,276) (10,431,694)
Unallocated distributions 387 -
----------- -----------
Decrease in net assets from Preferred distributions (11,899,613) (11,900,000)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (505,796,310) 102,135,050
----------- -----------
OTHER COMPREHENSIVE INCOME
Adjustment to apply FAS 158 (note 5) (7,885,172) 456,004
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
---------------------------------------------------------------------------------------------------
From net investment income (6,024,428) (9,603,869)
From short-term capital gains - (10,847,882)
From long-term capital gains (14,620,307) (145,301,188)
----------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (20,644,735) (165,752,939)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
---------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of dividends
and distributions 7,928,339 96,902,914
Cost of Common Shares purchased (1,986,688) (30,271,148)
Benefit to Common Shareholders resulting from
Preferred Shares purchased 59,398 -
----------- -----------
INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS 6,001,049 66,631,766
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (528,325,168) 3,469,881
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 1,202,922,969 1,199,453,088
------------- -------------
END OF YEAR (including undistributed net investment
income of $5,759,182 and $1,711,821, respectively) $674,597,801 $1,202,922,969
============= ==============
(see notes to financial statements)
15
12 STATEMENT OF INVESTMENTS DECEMBER 31, 2008
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE 300,000 The Boeing Company $12,801,000
(5.3%) 418,700 Textron Inc. 5,807,369
325,000 United Technologies Corporation 17,420,000
----------
(COST $62,253,609) 36,028,369
----------
--------------------------------------------------------------------------------------------------------------------
BUILDING AND
REAL ESTATE (2.5%) 1,875,862 CEMEX, S.A.B. de C.V. ADR (a) (COST $24,456,722) 17,145,379
----------
--------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 960,000 Cisco Systems, Inc. (a) 15,648,000
INFORMATION SERVICES 374,100 Lamar Advertising Company Class A (a) 4,698,696
(10.1%) 68,000 Leap Wireless International, Inc. (a) 1,828,520
1,400,000 MetroPCS Communications, Inc. (a) 20,790,000
700,000 QUALCOMM Incorporated 25,081,000
----------
(COST $85,026,705) 68,046,216
----------
--------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 1,480,000 Dell Inc. (a) 15,155,200
AND SYSTEMS (10.3%) 570,000 Microsoft Corporation 11,080,800
445,100 NetEase.com, Inc. (a) 9,836,710
67,100 Nintendo Co., Ltd. 24,951,796
565,000 Teradata Corporation (a) 8,378,950
----------
(COST $91,647,625) 69,403,456
----------
--------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 350,000 Diageo plc ADR 19,859,000
AND SERVICES (11.1%) 375,000 Heineken N.V. 11,444,940
466,100 Hewitt Associates, Inc. Class A (a) 13,227,918
425,000 Nestle S.A. 16,563,614
255,000 PepsiCo, Inc. 13,966,350
----------
(COST $75,988,936) 75,061,822
----------
--------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 949,000 Republic Services, Inc. 23,525,710
(INCLUDING SERVICES) 630,000 Waste Management, Inc. 20,878,200
----------
(COST $38,960,134) 44,403,910
----------
--------------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (1.7%)
(23.1%) ------------------------------------------------------------------------------------------
195,000 M&T Bank Corporation (COST $994,686) 11,194,950
----------
INSURANCE (17.3%)
------------------------------------------------------------------------------------------
100,000 The Allstate Corporation 3,276,000
300,000 Arch Capital Group Ltd. (a) 21,030,000
440,000 AXIS Capital Holdings Limited 12,812,800
150 Berkshire Hathaway Inc. Class A (a) 14,490,000
250,000 Everest Re Group, Ltd. 19,035,000
800,000 Fidelity National Financial, Inc. 14,200,000
235,000 MetLife, Inc. 8,192,100
285,000 PartnerRe Ltd. 20,311,950
83,000 Transatlantic Holdings, Inc. 3,324,980
-----------
(COST $63,101,799) 116,672,830
-----------
OTHER (4.1%)
------------------------------------------------------------------------------------------
400,000 American Express Company 7,420,000
1,666,667 Epoch Holding Corporation 12,650,002
550,000 Nelnet, Inc. (a) 7,881,500
-----------
(COST $34,617,385) 27,951,502
-----------
(COST $98,713,870) 155,819,282
-----------
--------------------------------------------------------------------------------------------------------------------
HEALTH CARE/ 529,900 Cytokinetics, Incorporated (a) 1,510,215
PHARMACEUTICALS 200,000 Genentech, Inc. (a) 16,582,000
(3.6%) 119,500 Gilead Sciences, Inc. (a) 6,111,230
-----------
(COST $11,167,600) 24,203,445
-----------
16
13 STATEMENT OF INVESTMENTS DECEMBER 31, 2008 - continued
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS (continued) VALUE (NOTE 1a)
--------------------------------------------------------------------------------------------------------------------
MACHINERY & EQUIPMENT 1,200,000 ABB Ltd. ADR (COST $13,364,456) $18,012,000
(2.7%) ------------
--------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (3.3%) Other (b) (COST $27,675,427) 22,286,370
------------
--------------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 459,800 Apache Corporation 34,268,894
(INCLUDING SERVICES) 800,000 Halliburton Company 14,544,000
(11.8%) 250,000 McDermott International, Inc. (a) 2,470,000
500,000 Patterson-UTI Energy, Inc. 5,755,000
2,050,000 Weatherford International Ltd. (a) 22,181,000
-----------
(COST $74,054,171) 79,218,894
-----------
--------------------------------------------------------------------------------------------------------------------
RETAIL TRADE (15.2%) 575,000 Costco Wholesale Corporation 30,187,500
333,100 Target Corporation 11,501,943
1,675,000 The TJX Companies, Inc. (c) 34,454,750
470,000 Wal-Mart Stores, Inc. 26,348,200
-----------
(COST $54,015,566) 102,492,393
-----------
--------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (1.9%) 700,000 ASML Holding N.V. (COST $16,353,613) 12,649,000
-----------
--------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (2.2%) 1,900,000 Xerox Corporation (COST $25,689,854) 15,143,000
-----------
--------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (0.9%) 236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 5,916,666
-----------
--------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (110.6%) (COST $710,373,320) 745,830,202
-----------
--------------------------------------------------------------------------------------------------------------------
CORPORATE NOTE
--------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (1.5%) Other (b) (e) (COST $9,877,906) 9,975,000
-----------
--------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES AND OTHER ASSETS
--------------------------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------------------------
118,896,974 SSgA Prime Money Market Fund (17.6%) (COST $118,896,974) 118,896,974
-----------
TOTAL INVESTMENTS (d) (129.7%) (COST $839,148,200) 874,702,176
Liabilities in excess of receivables and other assets (-0.1%) (486,875)
-----------
874,215,301
PREFERRED STOCK (-29.6%) (199,617,500)
-----------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $674,597,801
===========
(a) Non-income producing security.
(b) Securities which have been held for less than one year, not previously disclosed, and not restricted.
(c) 400,000 shares held by custodian in a segregated custodial account as collateral for short positions and options, if any.
(d) At December 31, 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 $197,012,086, (3) aggregate gross unrealized depreciation
was $161,458,110, and (4) net unrealized appreciation was $35,553,976.
(e) Level 2 fair measurement, note 8.
(see notes to financial statements)
17
14 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
General American Investors
1. SIGNIFICANT ACCOUNTING POLICIES
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 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.
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.
The Company is subject to the provisions of FASB Interpretation No. 48,
Accounting for Uncertainties in Income Taxes (FIN 48). As of and during the
period ended December 31, 2008, the Company did not have any liabilities for any
unrecognized tax positions. The Company recognizes interest and penalties, if
any, related to unrecognized tax positions as income tax expense in the
Statement of Operations. During the period, the Company did not incur any
interest or penalties.
d. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
e. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value. With respect to the Common Stock, 31,980,872 shares were issued and
outstanding; 8,000,000 Preferred Shares were originally issued and 7,984,700
were outstanding on December 31, 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 were noncallable for the 5 year period ended September 24, 2008
and have a liquidation preference of $25.00 per share plus an amount equal to
accumulated and unpaid dividends to the date of redemption. On December 10,
2008, the Board of Directors authorized the repurchase of 1 million Preferred
Shares in the open market at prices below $25.00 per share. A total of 15,300
Preferred Shares were repurchased at an average cost per share of $21.12 during
the year ended December 31, 2008. The average discount of $3.88 per Preferred
Share, $59,398 in the aggregate, was credited to additional paid-in capital of
the Common Stock.
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.
18
15 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 asset coverage of at least 200% of 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 to 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 2008 and 2007 were as follows:
SHARES AMOUNT
------------------------------------------------
2008 2007 2008 2007
------- ------- --------- ----------
Shares issued in payment of dividends and
distributions (includes 103,047 and
2,404,965 shares issued from treasury,
respectively) 509,861 2,747,460 $509,861 $2,747,460
Increase in paid-in capital 7,418,478 94,155,454
---------- ----------
Total increase 7,928,339 96,902,914
Shares purchased (at an average ---------- ----------
discount from net asset value of
19.8% and 10.4%, respectively) 102,047 763,600 (102,047) (763,600)
Decrease in paid-in capital (1,884,641) (29,507,548)
---------- ----------
Total decrease (1,986,688) (30,271,148)
---------- ----------
Net increase $5,941,651 $66,631,766
========== ==========
Distributions for tax and book purposes are substantially the same.
As of December 31, 2008, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income $1,940,080
Undistributed long-term gains (16,916)
Unrealized appreciation 35,553,976
-----------
$37,477,140
============
In accordance with U.S. Treasury Regulations, the Company has elected to
defer $16,916 of net realized capital losses arising after October 31, 2008.
Such losses are treated for tax purposes as arising on January 1, 2009.
To reflect reclassification arising from permanent "book/tax" differences
for tax distribution reclassification and non-deductible expenses during the
year ended December 31, 2008, undistributed net investment income was increased
by $100,467, undistributed net realized gain on investments was decreased by
$97,395 and additional paid-in capital was decreased by $3,072. Net assets were
not affected by this reclassification.
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during 2008 and 2007 to its
officers (identified on page 20) amounted to $5,257,000 and $8,874,500,
respectively.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (other than short-term securities and options)
during 2008 amounted to $301,033,584 and $425,080,355, on long transactions,
respectively.
--------------------------------------------------------------------------------
19
16 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
5. BENEFIT PLANS
The Company has funded (Qualified) and unfunded (Supplemental) defined
contribution thrift plans that are available to its employees. Due to the
decline in the value of the Company's shares, a net reduction in cost during
2008 of $1,405,619 was realized. The aggregate cost of such plans for 2007 was
$633,127. 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.
OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:
DECEMBER 31, 2008 (MEASUREMENT DATE) DECEMBER 31, 2007 (MEASUREMENT DATE)
----------------------------------- -----------------------------------
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------- ------------ -------- --------- ------------ ----------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $9,337,068 $3,174,022 $12,511,090 $9,062,488 $3,320,726 $12,383,214
Service cost 214,114 101,236 315,350 206,228 95,332 301,560
Interest cost 554,874 185,076 739,950 538,587 181,712 720,299
Benefits paid (538,394) (165,253) (703,647) (544,838) (165,253) (710,091)
Actuarial (gains)/losses (33,128) (99,902) (133,030) 13,491 (197,383) (183,892)
Plan amendments - - - 61,112 (61,112) -
---------- ---------- ----------- ---------- ---------- -----------
Projected benefit obligation at
end of year 9,534,534 3,195,179 12,729,713 9,337,068 3,174,022 12,511,090
---------- ---------- ----------- ---------- ---------- -----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year 18,581,595 - 18,581,595 17,719,247 - 17,719,247
Actual return on plan assets (6,609,373) - (6,609,373) 1,407,186 - 1,407,186
Employer contributions - 165,253 165,253 - 165,253 165,253
Benefits paid (538,394) (165,253) (703,647) (544,838) (165,253) (710,091)
---------- ---------- ----------- ---------- ---------- -----------
Fair value of plan assets at end of year 11,433,828 - 11,433,828 18,581,595 - 18,581,595
---------- ---------- ----------- ---------- ---------- -----------
FUNDED STATUS AT END OF YEAR $1,899,294 ($3,195,179) ($1,295,885)$9,244,527 ($3,174,022) $6,070,505
========== ========== =========== ========== ========== ===========
Accumulated benefit obligation at
end of year $8,912,352 $2,997,332 $11,909,684 $8,726,625 $3,000,603 $11,727,228
========== ========== =========== ========== ========== ===========
INCREMENTAL EFFECT OF ADOPTING FAS 158 BEFORE ADJUSTMENTS AFTER BEFORE ADJUSTMENTS AFTER
---------- ---------- ----------- ---------- ---------- -----------
Noncurrent benefit asset $9,244,527 ($7,345,233) $1,899,294 $8,656,759 $587,768 $9,244,527
LIABILITIES
Current benefit liability 209,039 59,179 268,218 213,549 (4,510) 209,039
Noncurrent benefit liability 2,964,984 (38,024) 2,926,960 3,107,178 (142,194) 2,964,984
Accumulated other comprehensive income (1,108,563) 7,885,172 6,776,609 (652,559) (456,004) (1,108,563)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF:
Net actuarial gain ($1,445,586) $7,907,265 $6,461,679($1,011,676) ($433,910) ($1,445,586)
Prior service cost 337,023 (22,093) 314,930 359,117 (22,094) 337,023
---------- ---------- ----------- ---------- ---------- -----------
($1,108,563) $7,885,172 $6,776,609 ($652,559) ($456,004) ($1,108,563)
========== ========== =========== ========== ========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF FISCAL YEAR:
Discount rate 6.00% 6.00% 6.00% 6.00%
Expected return on plan assets 7.20% 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 $214,114 $101,236 $315,350 $206,228 $95,332 $301,560
Interest cost 554,874 185,076 739,950 538,587 181,712 720,299
Expected return on plan assets (1,430,924) - (1,430,924)(1,253,375) - (1,253,375)
Amortization of:
Prior service cost 19,309 2,784 22,093 19,309 2,784 22,093
Recognized net actuarial loss - - - 96,207 - 96,207
---------- ---------- ----------- ---------- ---------- -----------
Net periodic benefit cost (gain) ($642,627) $289,096 ($353,531) ($393,044) $279,828 ($113,216)
========== ========== =========== ========== ========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31:
Discount rate 6.00% 6.00% 5.75% 5.75%
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, 2008 and 2007, are as follows:
December 31
---------------
Asset Category 2008 2007
-------------- ---- ----
Equity securities 79.3% 89.6%
Debt securities - 10.4
Other 20.7 -
----- -----
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 - $268,218 $268,218
========== ============= =========
Estimated benefit payments:
2009 $568,843 $268,218 $837,061
2010 594,892 317,733 912,625
2011 622,966 362,765 985,731
2012 637,288 401,266 1,038,554
2013 648,248 434,525 1,082,773
2014-2018 3,561,276 2,641,850 6,203,126
20
17 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
6. WRITTEN OPTIONS
Transactions in a written covered call and collateralized put options during the
year ended December 31, 2008 were as follows:
Covered Calls Collateralized Put
---------------------------- ------------------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- --------
Options outstanding, December 31, 2007 7,500 $3,073,787 1,999 $638,671
Options written 25,456 11,980,669 7,016 2,362,990
Options expired (16,124) (7,404,060) - -
Options exercised (1,002) (557,561) (2,409) (999,771)
Options terminated in closing purchase transaction (15,830) (7,092,835) (6,606) (2,001,890)
-------- ---------- ----- ---------
Options outstanding, December 31, 2008 0 $0 0 $0
======== ========== ===== =========
--------------------------------------------------------------------------------
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 $10,755,000, net of construction credits.
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. Rental expense approximated $988,000 for the year ended December
31, 2008. Minimum rental commitments under the operating lease are approximately
$1,075,000 per annum in 2009 through 2012, $1,183,000 in 2013 through 2017, and
$99,000 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 December 31, 2008:
Valuation Inputs Investments in Securities
----------------------------------------------------------------- ------------------------------
Level 1 - Quoted prices $864,727,176
Level 2 - Other significant observable inputs (see (e), page 13) 9,975,000
Level 3 - Unobservable inputs -
------------
Total $874,702,176
============
21
18 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, 2008. This information has been derived from
information contained in the financial statements and market price data for the
Company's shares."
2008 2007 2006 2005 2004
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $38.10 $40.54 $39.00 $35.49 $33.11
-------- -------- -------- -------- --------
Net investment income .42 .31 .34 .19 .32
Net gain (loss) on securities - realized
and unrealized (16.15) 3.39 4.72 5.85 3.48
Other comprehensive income (.25) .02 .03 - -
-------- -------- -------- -------- --------
Distributions on Preferred Stock:
Dividends from net investment income (.11) (.02) (.04) (.03) (.09)
Distributions from net short-term
capital gains - (.03) (.01) (.08) -
Distributions from net long-term
capital gains (.27) (.36) (.36) (.30) (.32)
-------- -------- -------- -------- --------
(.38) (.41) (.41) (.41) (.41)
-------- -------- -------- -------- --------
Total from investment operations (16.36) 3.31 4.68 5.63 3.39
-------- -------- -------- -------- --------
Distributions on Common Stock:
Dividends from investment income (.19) (.33) (.29) (.15) (.23)
Distributions from net short-term
capital gains - (.38) (.04) (.44) -
Distributions from net long-term
capital gains (.46) (5.04) (2.81) (1.53) (.78)
-------- -------- -------- -------- --------
(.65) (5.75) (3.14) (2.12) (1.01)
-------- -------- -------- -------- --------
Net asset value, end of year $21.09 $38.10 $40.54 $39.00 $35.49
======== ======== ======== ======== ========
Per share market value, end of year $17.40 $34.70 $37.12 $34.54 $31.32
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share (48.20%) 8.72% 16.78% 17.40% 8.79%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $674,598 $1,202,923 $1,199,453 $1,132,942 $1,036,393
Ratio of expenses to average net assets
applicable to Common Stock 0.87% 1.11% 1.06% 1.25% 1.15%
Ratio of net income to average net assets
applicable to Common Stock 1.31% 0.78% 0.86% 0.51% 0.94%
Portfolio turnover rate 25.52% 31.91% 19.10% 20.41% 16.71%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $199,617 $200,000 $200,000 $200,000 $200,000
Asset coverage 438% 701% 700% 666% 618%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $21.90 $21.99 $24.44 $24.07 $24.97
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, of General American Investors Company, Inc. as of
December 31, 2008, 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, 2008, 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
presentation. 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, 2008, 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
New York, New York
February 3, 2009
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 (66) Chairman of the Board since 2007 Sally A. Lynch, Ph.D.(49) 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 (49) Senior Vice-President of the Diane G. Radosti (56) Treasurer of the
1988 Company since 2006 1980 Company since 1990
Vice-President 1995-2006; Principal Accounting
securities analyst (financial Officer since 2003
services and consumer non-
durables industries) Carole Anne Clementi (62) Secretary of the
1982 Company since 1994
Eugene S. Stark (50) Vice-President, Administration shareholder relations
2005 of the Company since 2005, and office management
Principal Financial Officer
since 2005, Chief Compliance
Officer since 2006; Craig A. Grassi (40) Assistant Vice-President of
Chief Financial Officer of 1991 the Company since 2005
Prospect Energy Corporation information technology
(2005);
Vice-President of
Prudential Financial, Inc.
(1987-2004) Maureen E. LoBello (58) Assistant Secretary of the
1992 Company since 2005
benefits administration
Jesse Stuart (42) Vice-President of the
2003 Company since 2006
securities analyst (general
industries)
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 and Preferred Stock as set
forth in Note 2, on pages 14 and 15, purchases of Common and Preferred 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
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.
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. (44) Co-Founder and Chairman Delta Opportunity Fund, Ltd., Director
1995 Kolltan Pharmaceuticals, Inc. Diversified Natural Products, Inc., Director
Medicis Pharmaceutical Corporation, Director
Managing Member Medrium, Inc., Chairman, Board of Directors
Diaz & Altschul Capital National Public Radio Foundation, Trustee
Management, LLC Neurosciences Research Foundation, Trustee
(private investment company) The Overbrook Foundation, Director
Rodney B. Berens (63) Founding Partner Agni Capital Management Ltd., Member of Investment Committee
2007 Berens Capital Management, LLC Alfred P. Sloan Foundation, Member of Investment Committee
Pendragon Capital Management Limited, Non-Executive Director
Peterson Institute for International Economics, Member of
Investment Committee
Pierpont Morgan Library, Vice President of Finance and Head
of Investment Sub-Committee
The Woods Hole Oceanographic Institute, Trustee and Head
of Investment Committee
Lewis B. Cullman (90) 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 (79) Member, Professor and Chairman of Neurosciences Institute of the Neurosciences Research
1976 the Department of Neurobiology Foundation, Director and President
The Scripps Research Institute NGN Capital, Chairman, Advisory Board
Promosome, LLC, Chairman, Scientific Advisory Board
John D. Gordan, III (63) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (78) Managing Partner IGENE Biotechnology, Inc., Director
1994 SRK Management Company Insight Communications Company, Inc., Chairman,
(private investment company) Board of Directors
VirtualScopics, Inc., Director
Vocollect, Inc., Director
Daniel M. Neidich (59) Founding Partner and Co-Chief Capmark, Director
2007 Executive Officer New York Child Study Center, Director
Dune Capital Management LP Prep for Prep, Director
(since March 2005) Real Estate Roundtable, Chairman Elect
Urban Land Institute, Trustee
Co-Head, Merchant Banking Division
Chairman, Whitehall Investment
Committee
Member, Management Committee
Goldman Sachs
(prior to March 2005)
D. Ellen Shuman (53) Vice President and Bowdoin College, Trustee
2004 Chief Investment Officer Edna McConnell Clark Foundation, Investment Advisor
Carnegie Corporation of New York The Investment Fund for Foundations -TIFF Advisory
Services, Director
Joseph T. Stewart, Jr. (79) Lead Independent Director since Foundation of the University of Medicine and Dentistry
July 2007 of New Jersey, Trustee
1987 Corporate director and 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 (82) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Gentiva Health Services, Inc., Director
Wendy's/Arby's Group, Inc., Director
Interested Director
------------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (66) 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.
100 Park 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 2008 and 2007 were $98,300
and $91,000, 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 2008 and
2007 were $31,100 and $28,800, respectively. Such services and related fees for
2008 and 2007 included: performance of agreed upon procedures relating to the
preferred stock basic maintenance reports ($7,900 and $7,300, respectively),
review of quarterly employee security transactions and issuance of report
thereon ($18,300 and $17,000, respectively) and other audit-related services
($4,900 and $4,500, 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 2008 and 2007 were $16,400 and $15,200, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2008 or 2007.
(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 2008 and 2007 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 2008
and 2007 were $47,500 and $49,400, 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, 2008 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
2008 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
07/01-07/31 - - - 652,600
08/01-08/31 - - - 652,600
09/01-09/30 13,500 27.4233 13,500 639,100
10/01-10/31 88,547 18.2555 88,547 550,553
11/01-11/30 - - - 550,553
12/01-12/31 - - - 550,553
------- -------- ------- --------
Total 102,047 102,047
======= =======
Note - The Board of Directors has authorized the repurchase 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, 2008,
there were 652,600 shares available for repurchase under such authorization. As of the end of the
period, December 31, 2008, there were 550,553 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 22, 2008.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of December 31, 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
December 31, 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 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 6, 2009
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 6, 2009
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: February 6, 2009