n30b293012.htm - Generated by SEC Publisher for SEC Filing

 

                   A Closed-End Investment Company
               listed on the New York Stock Exchange

                           100 PARK AVENUE
                        NEW YORK • NY 10017
                   212-916-8400 • 1-800-436-8401
             E-mail: InvestorRelations@gainv.com
            www.generalamericaninvestors.com


 

For the nine months ended September 30, However, with China slowing and Europe in reces-
2012, the net asset value per Common Share sion, top-line gains have become even more challeng-
increased 13.7%, while the investment return ing, while cost saves appear to be largely exhausted.
to our stockholders increased by 16.7%. By com- The resulting pressure on margins has led to the first
parison, our benchmark, the Standard & Poor’s 500 decline in quarterly profit, year-over-year, since 2009
Stock Index (including income), increased 16.4%. and the likelihood that results will continue to be con-
For the twelve months ended September 30, 2012, strained in the near-term.
the return on the net asset value per Common Share  
increased by 29.5%, and the return to our stockholders Extraordinarily low interest rates may well persist
increased by 29.1%; these compare with an increase of for some time, due, in part, to the Federal Reserve’s
30.2% for the S&P 500. During both periods, the dis- efforts to support the housing market by encourag-
count at which our shares traded continued to fluctuate ing both purchases and refinancing. In consequence,
and on September 30, 2012, it was 14.2%. equities, especially those with strong balance sheets
  and meaningful dividends, may continue to find favor
As detailed in the accompanying financial statements with investors faced with maturing bond portfolios
(unaudited), as of September 30, 2012, the net assets and a compelling need for the higher yields available
applicable to the Company’s Common Stock were only in riskier asset classes.
$967,239,370 equal to $33.86 per Common Share.  
  Information about the Company, including our
The increase in net assets resulting from operations investment objectives, operating policies and
for the nine months ended September 30, 2012 was procedures, investment results, record of dividend
$113,930,774. During this period, the net realized and distribution payments, financial reports and press
gain on investments sold was $58,352,743, and releases, is on our website and has been updated
the increase in net unrealized appreciation was through September 30, 2012. It can be accessed on
$61,288,760. Net investment income for the the internet at www.generalamericaninvestors.com.
nine months was $2,773,250, and distributions to  
Preferred Stockholders amounted to $8,483,979. By Order of the Board of Directors,
 
During the nine months, 1,202,985 shares of the GENERAL AMERICAN INVESTORS COMPANY, INC.
Company’s Common Stock were repurchased for Spencer Davidson
$33,228,774 at an average discount from net asset Chairman of the Board
value of 14.6%. and Chief Executive Officer
 
The market strength that characterized the first part October 10, 2012
of the year, before flagging in the second quarter,  
resumed strongly in the period just ended. Despite  
tepid revenue growth, corporate profits continued  
to advance, owing to record margins, which were  
buoyed by improved productivity and constrained  
capital spending.  

 

 


          Value
  Shares   COMMON STOCKS   (note 1a)
  AEROSPACE/DEFENSE (2.6%)    
  325,000   United Technologies Corporation (Cost $22,957,205) $25,444,250
 
  COMMUNICATIONS AND INFORMATION SERVICES (7.7%)    
  960,000   Cisco Systems, Inc.   18,331,200
  700,000   QUALCOMM Incorporated   43,729,000
  393,100   Vodafone Group Plc ADR   11,203,350
        (Cost $49,005,585) 73,263,550
  COMPUTER SOFTWARE AND SYSTEMS (7.2%)    
  50,000   Apple Inc. (a)   33,355,250
  555,000   Dell Inc.   5,469,525
  795,000   Microsoft Corporation   23,659,200
  100,000   Teradata Corporation (a)   7,541,000
        (Cost $46,737,885) 70,024,975
  CONSUMER PRODUCTS AND SERVICES (15.7%)    
  350,000   Diageo plc ADR   39,455,500
  1,264,063   Ford Motor Company   12,463,661
  450,000   Nestle S.A.   28,448,438
  250,991   PepsiCo, Inc.   17,762,633
  240,998   Towers Watson & Co. Class A   12,784,944
  728,845   Unilever N.V.   26,042,470
  330,211   Visteon Corporation (a)   14,681,181
        (Cost $113,971,389) 151,638,827
  DIVERSIFIED (1.5%)        
  110   Berkshire Hathaway Inc. Class A (a) (Cost $1,250,573) 14,597,000
  ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.8%)    
  957,100   Republic Services, Inc.   26,329,821
  630,000   Waste Management, Inc.   20,210,400
        (Cost $39,190,474) 46,540,221
  FINANCE AND INSURANCE (26.1%)    
  BANKING (4.2%)        
  425,000   Bond Street Holdings LLC, Class A (a) (b)   7,862,500
  75,000   Bond Street Holdings LLC, Class B (a) (c)   1,318,125
  520,000   JPMorgan Chase & Co.   21,049,600
  110,000   M&T Bank Corporation   10,467,600
        (Cost $31,140,007) 40,697,825
  INSURANCE (12.7%)        
  860,000   Arch Capital Group Ltd. (a)   35,810,400
  240,000   Everest Re Group, Ltd.   25,670,400
  53,500   Forethought Financial Group, Inc. Class A (a) (d)   12,037,500
  350,000   MetLife, Inc.   12,061,000
  275,000   PartnerRe Ltd.   20,427,000
  420,000   Platinum Underwriters Holdings, Ltd.   17,165,400
        (Cost $59,701,102) 123,171,700
OTHER (9.2%)       
  315,000   American Express Company   17,910,900
  330,492   Aon Corporation   17,281,426
  1,666,667   Epoch Holding Corporation   38,500,008
  655,500   Nelnet, Inc.   15,561,570
        (Cost $44,893,728) 89,253,904
        (Cost $135,734,837) 253,123,429

 


 


      Value
Shares   COMMON STOCKS (continued)   (note 1a)
HEALTH CARE / PHARMACEUTICALS (4.7%)    
150,000 Celgene Corporation (a)   $11,460,000
500,000 Cytokinetics, Incorporated (a)   416,500
214,300 Gilead Sciences, Inc. (a)   14,214,519
198,479 Intercell AG (a)   464,038
755,808 Pfizer Inc.   18,781,829
    (Cost $34,051,578) 45,336,886
MACHINERY AND EQUIPMENT (3.6%)    
1,200,000 ABB Ltd. ADR   22,440,000
900,000 The Manitowoc Company, Inc.   12,006,000
    (Cost $23,703,922) 34,446,000
METALS AND MINING  (2.1%)    
767,700 Alpha Natural Resources, Inc. (a)   5,043,789
200,000 Freeport-McMoRan Copper & Gold Inc.   7,916,000
200,000 Nucor Corporation   7,652,000
    (Cost $33,417,741) 20,611,789
MISCELLANEOUS (2.6%)    
  Other (e) (Cost $23,702,875) 25,377,488
 
OIL AND NATURAL GAS (INCLUDING SERVICES) (9.7%)    
296,478 Apache Corporation   25,636,452
300,000 Canadian Natural Resources Limited   9,237,000
130,062 Devon Energy Corporation   7,868,751
750,000 Halliburton Company   25,267,500
2,050,000 Weatherford International Ltd. (a)   25,994,000
    (Cost $74,984,196) 94,003,703
RETAIL TRADE (15.5%)    
394,500 Costco Wholesale Corporation   39,513,120
234,050 Kohl’s Corporation   11,988,041
460,000 Target Corporation   29,196,200
1,544,668 The TJX Companies, Inc.   69,185,680
    (Cost $53,860,441) 149,883,041
SEMICONDUCTORS (2.8%)    
500,000 ASML Holding N.V. (Cost $11,701,015) 26,840,000
 
TECHNOLOGY (1.0%)        
750,000 International Game Technology (Cost $8,678,620) 9,817,500
 
TOTAL COMMON STOCKS (107.6%) (Cost $672,948,336) 1,040,948,659
 
Warrants   WARRANT    
BANKING  (0.3%)        
225,000 JPMorgan Chase & Co., expires 10/28/2018 (a) (Cost $2,865,853) 2,315,250

 


 

 
 
 
        Value  
Shares SHORT-TERM SECURITY AND OTHER ASSETS     (note 1a)  
124,904,638 SSgA U.S. Treasury Money Market Fund (12.9%) (Cost $124,904,638) $124,904,638  
TOTAL INVESTMENTS (f) (120.8%) (Cost $800,718,827)   1,168,168,547  
Liabilities in excess of cash, receivables and other assets (-1.1%)     (10,812,002 )
PREFERRED STOCK (-19.7%)     (190,117,175 )
 
NET ASSETS APPLICABLE TO COMMON STOCK (100%)   $967,239,370  
       
 

 

ADR - American Depository Receipt
(a)      Non-income producing security.
(b)      Level 3 fair value measurement, restricted security acquired 11/4/09, aggregate cost $8,500,000, unit cost is $20.00 per share and fair value is $18.50 per share, note 2. Fair value is based upon bid and/or transaction prices provided via the NASDAQ OMX PORTAL Alliance trading and transfer system for privately placed equity securities traded in the over-the-counter market among qualified investors and an evaluation of book value per share.
(c)      Level 3 fair value measurement, restricted security acquired 05/21/12, aggregate cost $1,500,000, unit cost is $20.00 per share and fair value is $17.58 per share, note 2. Fair value is based upon a judgmentally discounted bid price provided via the NASDAQ OMX PORTAL Alliance trading and transfer system for privately placed equity securities traded in the over-the-counter market among qualified investors and an evaluation of book value per share.
(d)      Level 3 fair value measurement, restricted security acquired 11/3/09, aggregate cost $10,748,000, unit cost is $200.90 per share and fair value is $225.00 per share, note 2. Fair valuation is based upon a market approach using valuation metrics (market price-earnings and market price-book value multiples), and changes therein, relative to a peer group of companies established by the underwriters as well as actual transaction prices resulting from limited trading in the security. Significant increases (decreases) in the relative valuation metrics of the peer group companies may result in higher (lower) estimates of fair value.
(e)      Securities which have been held for less than one year, not previously disclosed, and not restricted.
(f)      At September 30, 2012: the cost of investments for Federal income tax purposes was the same as the cost for financial reporting purposes, aggregate gross unrealized appreciation was $415,239,771, aggregate gross unrealized depreciation was $47,790,051, and net unrealized appreciation was $367,449,720.

 
 
 
Contracts       Value
(100 shares each) COMMON STOCK/EXPIRATION DATE/EXERCISE PRICE (note 1a)
CHEMICAL (INCLUDING INSTRUMENTATION)      
100 Universal Display Corp./December 2012/$34.00 (Premium Deposited with Broker $33,696) $36,000
METALS AND MINING      
750 Alpha Natural Resources/December 2012/$7.00 (Premium Deposited with Broker $87,477) 93,000
 
  TOTAL PUT OPTIONS (Premiums Deposited with Brokers $121,173) $129,000
 
(see notes to unaudited financial statements)      

 


 


  SHARES SHARES  
INCREASES TRANSACTED HELD  
NEW POSITION      
Vodafone Group Plc ADR 15,000 393,100 (b)
ADDITIONS      
Alpha Natural Resources, Inc. 300,000 767,700  
MetLife, Inc. 25,000 350,000  
Microsoft Corporation 25,000 795,000  
Nelnet, Inc. 10,500 655,500  
Nucor Corporation 50,000 200,000  
Towers Watson & Co. Class A 34,998 240,998  
Visteon Corporation 54,498 330,211  
 
DECREASES      
ELIMINATION      
Poniard Pharmaceuticals 4,883 —  
REDUCTIONS      
Arch Capital Group Ltd. 15,000 860,000  
ASML Holding N.V. 75,000 500,000  
Cytokinetics, Incorporated 29,900 500,000  
Dell Inc. 270,000 555,000  
Everest Re Group, Ltd. 5,000 240,000  
Intercell AG 215,231 198,479  
Kohl’s Corporation 50,000 234,050 (b)
PartnerRe Ltd. 10,000 275,000  
PepsiCo, Inc. 54,009 250,991  
Platinum Underwriters Holdings, Ltd. 15,000 420,000  
Teradata Corporation 45,000 100,000  
The TJX Companies, Inc. 296,040 1,544,668  

 

(a)      Common shares unless otherwise noted; excludes transactions in Common Stocks - Miscellaneous - Other.
(b)      Shares purchased in prior period and previously carried under Common Stocks - Miscellaneous - Other.

The diversification of the Company’s net assets applicable to its Common Stock by industry group as of September 30, 2012 is shown in the following table.

INDUSTRY CATEGORY COST(000) VALUE(000) PERCENT COMMON NET ASSETS  
Finance and Insurance            
Banking $34,006 $43,013   4.5 %
Insurance 59,701   123,172   12.7  
Other 44,894   89,254   9.2  
  138,601   255,439   26.4  
Consumer Products and Services 113,971   151,639   15.7  
Retail Trade 53,860   149,883   15.5  
Oil and Natural Gas (Including Services) 74,984   94,004   9.7  
Communications and Information Services 49,006   73,264   7.7  
Computer Software and Systems 46,738   70,025   7.2  
Environmental Control (Including Services) 39,190   46,540   4.8  
Health Care/Pharmaceuticals 34,052   45,337   4.7  
Machinery and Equipment 23,704   34,446   3.6  
Semiconductors 11,701   26,840   2.8  
Aerospace/Defense 22,957   25,444   2.6  
Miscellaneous** 23,703   25,377   2.6  
Metals and Mining 33,418   20,612   2.1  
Diversified 1,250   14,597   1.5  
Technology 8,679   9,817   1.0  
  675,814   1,043,264   107.9  
Short-Term Securities 124,905   124,905   12.9  
Total Investments $800,719   1,168,169   120.8  
Other Assets and Liabilities - Net     (10,812 ) (1.1 )
Preferred Stock     (190,117 ) (19.7 )
Net Assets Applicable to Common Stock   $967,240   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.

(see notes to unaudited financial statements)


 


ASSETS      
INVESTMENTS, AT VALUE (NOTE 1a)      
Common stocks (cost $672,948,336)     $1,040,948,659
Warrant (cost $2,865,853)     2,315,250
Money market fund (cost $124,904,638)     124,904,638
Total investments (cost $800,718,827)     1,168,168,547
 
RECEIVABLES AND OTHER ASSETS      
Cash held by custodian in segregated account* $527,536    
Receivable for securities sold 33,696    
Dividends, interest and other receivables 1,406,981    
Qualified pension plan asset, net excess funded (note 7) 528,854    
Prepaid expenses and other assets 2,032,413   4,529,480
TOTAL ASSETS     1,172,698,027
LIABILITIES      
Payable for securities purchased 3,045,211    
Accrued preferred stock dividend not yet declared 219,955    
Outstanding option written, at value (premium received $121,173) 129,000    
Accrued supplemental pension plan liability (note 7) 4,267,783    
Accrued supplemental thrift plan liability (note 7) 3,687,979    
Accrued expenses and other liabilities 3,991,554    
 
TOTAL LIABILITIES     15,341,482
 
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -      
7,604,687 shares at a liquidation value of $25 per share (note 5)     190,117,175
 
NET ASSETS APPLICABLE TO COMMON STOCK - 28,563,404 shares (note 5)     $967,239,370
 
NET ASSET VALUE PER COMMON SHARE     $33.86
 
NET ASSETS APPLICABLE TO COMMON STOCK      
Common Stock, 28,563,404 shares at par value (note 5) $28,563,404    
Additional paid-in capital (note 5) 524,357,999    
Undistributed net investment income (note 5) 4,059,294    
Undistributed realized gain on investments 59,205,908    
Accumulated other comprehensive income (note 7) (7,685,194 )  
Unallocated distributions on Preferred Stock (8,703,934 )  
Unrealized appreciation on investments 367,441,893    
 
NET ASSETS APPLICABLE TO COMMON STOCK     967,239,370

 

* Collateral for options written.

(see notes to unaudited financial statements)


 


INCOME        
Dividends (net of foreign withholding taxes of $489,045) $13,613,542      
Interest 2,790   $13,616,332  
 
EXPENSES        
Investment research 6,231,466      
Administration and operations 2,611,480      
Office space and general 1,237,376      
Directors’ fees and expenses 209,599      
Auditing and legal fees 175,942      
Miscellaneous taxes 131,727      
Transfer agent, custodian and registrar fees and expenses 128,106      
Stockholders’ meeting and reports 117,386   10,843,082  
NET INVESTMENT INCOME     2,773,250  
 
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1, 3 AND 4)      
Net realized gain on investments:        
Securities transactions (long-term) 58,677,546      
                Written option transactions (notes 1b and 4) (324,803 )    
  58,352,743      
Net increase in unrealized appreciation on investments 61,288,760      
NET GAIN ON INVESTMENTS     119,641,503  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (8,483,979 )
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS     $113,930,774  

 


  Nine months Ended      
  September 30, 2012   Year Ended  
OPERATIONS (Unaudited)   December 31, 2011  
Net investment income $2,773,250   5,295,369  
Net realized gain on investments 58,352,743   19,507,647  
Net increase (decrease) in unrealized appreciation 61,288,760   (42,899,858 )
  122,414,753   (18,096,842 )
Distributions to Preferred Stockholders:        
From net investment income —   (3,326,632 )
From short-term capital gains —   (249,312 )
From long-term capital gains —   (7,736,028 )
Unallocated distributions (8,483,979 ) —  
Decrease in net assets from Preferred distributions (8,483,979 ) (11,311,972 )
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 113,930,774   (29,408,814 )
OTHER COMPREHENSIVE INCOME - Funded status of defined benefit plans (note 7) —   (2,864,213 )
 
DISTRIBUTIONS TO COMMON STOCKHOLDERS        
From net investment income —   (4,388,308 )
From short-term capital gains —   (328,878 )
From long-term capital gains —   (10,204,952 )
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS —   (14,922,138 )
 
CAPITAL SHARE TRANSACTIONS (NOTE 5)        
Value of Common Shares issued in payment of dividends and distributions —   7,094,056  
Cost of Common Shares purchased (33,228,774 ) (24,302,457 )
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (33,228,774 ) (17,208,401 )
NET INCREASE (DECREASE) IN NET ASSETS 80,702,000   (64,403,566 )
 
NET ASSETS APPLICABLE TO COMMON STOCK        
BEGINNING OF PERIOD 886,537,370   950,940,936  
END OF PERIOD (including undistributed net investment income of $4,059,294 and        
$1,286,147, respectively) $967,239,370   886,537,370  

 

(see notes to unaudited financial statements)


 


The following table shows per share operating performance data, total investment return, ratios and supplemental data for the nine months ended
September 30, 2012 and for each year in the five-year period ended December 31, 2011. This information has been derived from information
 contained in the financial statements and market price data for the Company’s shares.

  Nine Months                      
  Ended                      
  September 30, 2012       Year Ended December 31,      
  (Unaudited)   2011   2010   2009   2008   2007  
 
PER SHARE OPERATING PERFORMANCE                        
Net asset value, beginning of period $29.78   $31.26   $27.50   $21.09   $38.10   $40.54  
Net investment income .10   .18   .19   .11   .42   .31  
Net gain (loss) on securities -                        
realized and unrealized 4.28   (.68 ) 4.37   6.94   (16.15 ) 3.39  
Other comprehensive income —   (.10 ) —   .07   (.25 ) .02  
  4.38   (.60 ) 4.56   7.12   (15.98 ) 3.72  
Distributions on Preferred Stock:                        
Dividends from net investment income —   (.11 ) (.07 ) (.11 ) (.11 ) (.02 )
Distributions from net short-term capital gains —   (.01 ) (.03 ) (.05 ) —   (.03 )
Distributions from net long-term capital gains —   (.26 ) (.27 ) (.19 ) (.27 ) (.36 )
Distributions from return of capital —   —   —   (.01 ) —   —  
Unallocated (.30 )  —   —   —   —   —  
  (.30 )  (.38 ) (.37 ) (.36 ) (.38 ) (.41 )
Total from investment operations 4.08   (.98 ) 4.19   6.76   (16.36 ) 3.31  
Distributions on Common Stock:                        
Dividends from net investment income —   (.15 ) (.08 ) (.10 ) (.19 ) (.33 )
Distributions from net short-term capital gains —   (.01 ) (.03 ) (.05 ) —   (.38 )
Distributions from net long-term capital gains —   (.34 ) (.32 ) (.19 ) (.46 ) (5.04 )
Distributions from return of capital —   —   —   (.01 ) —   —  
  —   (.50 ) (.43 ) (.35 ) (.65 ) (5.75 )
 
Net asset value, end of period $33.86   $29.78   $31.26   $27.50   $21.09   $38.10  
Per share market value, end of period $29.06   $24.91   $26.82   $23.46   $17.40   $34.70  
TOTAL INVESTMENT RETURN - Stockholder                        
return, based on market price per share 16.66%*   (5.29 %) 16.24 % 36.86 % (48.20 %) 8.72 %
 
RATIOS AND SUPPLEMENTAL DATA                        
Net assets applicable to Common Stock,                        
end of period (000’s omitted) $967,239 $886,537   $950,941   $864,323   $674,598   $1,202,923
Ratio of expenses to average net assets                        
applicable to Common Stock 1.55%**   1.39 % 1.54 % 1.93 % 0.87 % 1.11 %
Ratio of net income to average net assets                        
applicable to Common Stock 0.39%**   0.56 % 0.66 % 0.46 % 1.31 % 0.78 %
Portfolio turnover rate 4.81%*   11.17 % 18.09 % 24.95 % 25.52 % 31.91 %
 
PREFERRED STOCK                        
Liquidation value, end of period (000’s omitted) $190,117 $190,117   $190,117   $190,117   $199,617   $200,000  
Asset coverage 609%   566 % 600 % 555 % 438 % 701 %
Liquidation preference per share $25.00   $25.00   $25.00   $25.00   $25.00   $25.00  
Market value per share $26.01   $25.47   $24.95   $24.53   $21.90   $21.99  

 

*Not annualized
 **Annualized

(see notes to unaudited financial statements)
 


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, diversifi ed management investment company. It is internally managed by
its offi cers under the direction of the Board of Directors.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)
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 Equity securities traded on a national securities exchange are valued at the last reported sales price on the
last business day of the period. Equity securities reported on the NASDAQ national market are valued at the offi cial closing price on
that day. Listed and NASDAQ equity 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. Equity securities traded
primarily in foreign markets are valued at the closing price of such securities on their respective exchanges or markets. Corporate
debt securities, domestic and foreign, are generally traded in the over-the-counter market rather than on a securities exchange. The
Company utilizes the latest bid prices provided by independent dealers and information with respect to transactions in such securities
to determine current market value. If, after the close of foreign markets, conditions change signifi cantly, the price of certain foreign
securities may be adjusted to refl ect fair value as of the time of the valuation of the portfolio. Investments in money market funds
are valued at their net asset value. Special holdings (restricted securities) and other securities for which quotations are not readily
available are valued at fair value determined in good faith pursuant to specifi c procedures appropriate to each security as established
by and under the general supervision of the Board of Directors. The determination of fair value involves subjective judgments. As a
result, using fair value to price a security may result in a price materially different from the price used by other investors or the price
that may be realized upon the actual sale of the security.
 
b. OPTIONS The Company may purchase and write (sell) put and call options. The Company typically purchases put options or writes
call options to hedge the value of portfolio investments while it typically purchases call options and writes put options to obtain equity
market exposure under specifi ed circumstances. 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 are reported as a liability on the Statement of Assets and Liabilities.
Those that expire unexercised are treated by the Company on the expiration date as realized gains on written option transactions
in the Statement of Operations. 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 on written option transactions in the Statement of Operations. 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 on investments in the Statement of Operations. If a put option is exercised, the premium reduces the cost basis
for the securities purchased by the Company and is parenthetically disclosed under cost of investments on the Statement of Assets and
Liabilities. 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. See Note 4 for written option activity.
 
c. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security 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 pre-
mium on investments, is earned from settlement date and is recognized on the accrual basis. Cost of short-term investments represent
amortized cost.
 
d. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such currencies versus U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at
the exchange rate in effect on the transaction date. Events may impact the availability or reliability of foreign exchange rates used
to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Company’s Board of Directors. The Company does not separately report the effect of
changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and
unrealized gain or loss from investments on the Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade
and settlement dates on security transactions and the difference between the recorded amounts of dividends, interest, and foreign
withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S.
companies as a result of, among other factors, the possibility of political or economic instability or the level of governmental supervi-
sion and regulation of foreign securities markets.
 
e. DIVIDENDS AND DISTRIBUTIONS The Company expects to pay dividends of net investment income and distributions of net realized
capital and currency gains, if any, annually to common shareholders and quarterly to preferred shareholders. Dividends and distribu-
tions to common and preferred shareholders, which are determined in accordance with Federal income tax regulations are recorded
on the ex-dividend date. Distributions for tax and book purposes are substantially the same. Permanent book/tax differences relating
to income and gains are reclassifi ed to paid-in capital as they arise.
 
f. FEDERAL INCOME TAXES The Company’s policy is to fulfi ll 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. In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, man-
agement has analyzed the Company’s tax positions taken or expected to be taken on Federal and State income tax returns for all open
tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Company’s
financial statements.
 
g. CONTINGENT LIABILITIES Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred
and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated
with the ultimate resolution of a matter that are reasonably estimable and, if so, they are included in the accrual.
 
h. INDEMNIFICATIONS In the ordinary course of business, the Company enters into contracts that contain a variety of indemnifi cations.
The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses
pursuant to these indemnifi cation provisions and expects the risk of loss thereunder to be remote.

 


 


2. 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 $1.00 per share),
Level 2 - other signifi cant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.), and
Level 3 - signifi cant 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 September 30, 2012:

 

Assets   Level 1   Level 2   Level 3   Total  
Common stocks $1,019,730,534   — $21,218,125 $1,040,948,659  
Warrant   2,315,250   —   —   2,315,250  
Money market fund   124,904,638   —   —   124,904,638  
Total $1,146,950,422   — $21,218,125 $1,168,168,547  
 
Liabilities                  
Options Written ($129,000)       ($129,000)

 

The aggregate value of Level 3 portfolio investments changed during the nine months ended September 30, 2012 as follows:

Change in portfolio valuations using signifi cant unobservable inputs   Level 3
Fair value at December 31, 2011 $ 19,860,500
Net change in unrealized appreciation on investments   1,357,625
Fair value at September 30, 2012 $ 21,218,125
 
The increase in net unrealized appreciation included in the results of operations attributable to
Level 3 assets held at September 30, 2012 and reported within the caption Net change in    
unrealized appreciation/depreciation in the Statement of Operations: $ 1,357,625

 

3. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other than short-term securities and options) for the nine
months ended September 30, 2012 amounted to $49,995,737 and $158,153,625, on long transactions, respectively.
 
4. WRITTEN OPTIONS - Transactions in written call options and collateralized put options during the nine months ended September 30,
2012 were as follows:

 

  Covered Calls   Collateralized Puts
  Contracts   Premiums   Contracts   Premiums
Options outstanding, December 31, 2011 0   $0   0 $0
Options written 300   311,107   850   121,173
Options exercised (100 ) (101,421 ) 0   0
Options terminated in closing purchase transaction (200 ) (209,686 ) 0   0
Options outstanding, September 30, 2012 0   $0   850 $121,173

 

5. 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,
28,563,404 shares were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on
September 30, 2012.
 
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 accumulated and unpaid dividends to the date of redemption. On December 10, 2008, the Board of
Directors authorized the repurchase of up to 1 million Preferred Shares in the open market at prices below $25.00 per share. To date,
395,313 shares have been repurchased.
 
The Company is required to allocate distributions from long-term capital gains and other types of income proportionately among hold-
ers of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from
long-term capital gains, they will be paid from ordinary income or net short-term capital gains or will represent a return of capital.
 
Under the Investment Company Act of 1940, the Company is required to maintain an asset coverage of at least 200% of the Preferred
Stock. In addition, pursuant to Moody’s Investor Service, Inc. Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds a Basic Maintenance Amount. The Company has met these require-
ments 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. In addition, failure to meet the foregoing asset coverage requirements could restrict the
Company’s 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, gener-
ally, vote together with the holders of Common Stock as a single class.
  
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 subclassifi cation
as a closed-end investment company or changes in its fundamental investment policies.

 


 


5. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from bottom of previous page.)
The Company presents its Preferred Stock, for which its redemption is outside of the Company’s control, outside of the net assets
applicable to Common Stock in the Statement of Assets and Liabilities.
  
Transactions in Common Stock during the nine months ended September 30, 2012 and the year ended December 31, 2011 were as follows:

 

  Shares   Amount  
  2012   2011   2012     2011  
Shares issued in payment of dividends and distributions                  
(includes 278,416 shares issued from treasury) —   278,416   —   $278,416  
Increase in paid-in capital         —     6,815,640  
Total increase         —     7,094,056  
Shares purchased (at an average discount from net asset value                  
of 14.6% and 14.6%, respectively) 1,202,985   935,321 ($1,202,985)   (935,321)
Decrease in paid-in capital         (32,025,789)   (23,367,136)
Total decrease         (33,228,774)   (24,302,457)
Net decrease       $(33,228,774) ($17,208,401)

 

At September 30, 2012, the Company held in its treasury 3,417,468 shares of Common Stock with an aggregate cost in the amount of
$88,365,909
 
6. OFFICERS’ COMPENSATION - The aggregate compensation accrued and paid by the Company during the nine months ended September
30, 2012 to its offi cers (identifi ed on back cover) amounted to $5,160,083.

 

7. BENEFIT PLANS - The Company has funded (qualifi ed) and unfunded (supplemental) noncontributory defi ned benefi t pension plans
that are available to its employees. The plans provide defi ned benefi ts based on years of service and final average salary with an offset
for a portion of social security covered compensation. The components of the net periodic benefi t cost (income) of the plans for the
nine months ended September 30, 2012 were:  
 
Service cost $388,279
Interest cost 564,684
Expected return on plan assets (767,538)
Amortization of prior service cost 34,946
Recognized net actuarial loss 518,774
Net periodic benefi t cost 739,145

 

The Company recognizes the overfunded or underfunded status of a defi ned benefi t postretirement plan as an asset or liability in the
Statement of Assets and Liabilities and recognizes changes in funded status in the year in which the changes occur through other com-
prehensive income.
 
The Company also has funded (qualifi ed) and unfunded (supplemental) defi ned contribution thrift plans that are available to its employ-
ees. The aggregate cost of such plans for the nine months ended September 30, 2012 was $741,047. The qualifi ed thrift plan acquired
21,200 shares of the Company’s Common Stock during the nine months ended September 30, 2012 and held 601,044 shares of the
Company’s Common Stock at September 30, 2012.
 
8. OPERATING LEASE COMMITMENT - In September 2007, the Company entered into an operating lease agreement for offi ce space which
expires in February 2018 and provided for future rental payments in the aggregate amount of approximately $10,755,000, net of con-
struction credits. The lease agreement contains clauses whereby the Company receives free rent for a specifi ed number of months and
credit towards construction of offi ce 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 $822,200 for the nine months ended September 30, 2012. Minimum rental commit-
ments under the operating lease are approximately $1,183,000 in 2013 through 2017, and $99,000 in 2018.

 


Previous purchases of the Company’s Common and Preferred Stock are set forth in Note 5 on pages 10 and 11. Prospective purchases of Common
and Preferred Stock may be 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, 2012 are available: (1) without charge, upon request, by calling us at our toll-free telephone num-
ber (1-800-436-8401), (2) on the Company’s website at www.generalamericaninvestors.com and (3) on the Securities and Exchange Commission’s
website at www.sec.gov.
 
In addition to distributing financial statements as of the end of each quarter, General American Investors files a Quarterly Schedule of Portfolio
Holdings (Form N-Q) with the Securities and Exchange Commission (“SEC”) as of the end of the first and third calendar quarters. The Company’s
Forms N-Q are available at www.generalamericaninvestors.com and on the SEC’s website: www.sec.gov. Also, Forms N-Q may be reviewed and
copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the SEC’s Public Reference Room may be obtained
by calling 1-800-SEC-0330. A copy of the Company’s Form N-Q may also be obtained by calling us at 1-800-436-8401.
 
On May 18, 2012, the Company submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Company’s princi-
pal executive officer certified that he was not aware, as of that date, of any violation by the Company of the NYSE’s Corporate Governance listing
standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Company’s principal executive and
principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things,
the Company’s disclosure controls and procedures and internal control over financial reporting, as applicable.

 


 

DIRECTORS
Spencer Davidson, Chairman
Sidney R. Knafel, Lead Independent Director
   
Arthur G. Altschul, Jr. Betsy F. Gotbaum
Rodney B. Berens Daniel M. Neidich
Lewis B. Cullman D. Ellen Shuman
Gerald M. Edelman Raymond S. Troubh
John D. Gordan, III  

 

OFFICERS
Spencer Davidson, Chief Executive Officer
Jeffrey W. Priest, President
Andrew V. Vindigni, Senior Vice-President
Sally A. Lynch, Vice-President
Michael W. Robinson, Vice-President
Eugene S. Stark, Vice-President, Administration &
     Chief Compliance Officer
Jesse R. Stuart, Vice-President
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
Craig A. Grassi, Assistant Vice-President
Maureen E. LoBello, Assistant Secretary

 

SERVICE COMPANIES
COUNSEL TRANSFER AGENT AND REGISTRAR
Sullivan & Cromwell LLP American Stock Transfer & Trust
INDEPENDENTAUDITORS     Company, LLC
Ernst & Young LLP 6201 15th Avenue
  Brooklyn, NY 11219
CUSTODIAN 1-800-413-5499
State Street Bank and www.amstock.com
  Trust Company