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)
450 Lexington Avenue, Suite 3300, New York, New York 10017-3911
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(Address of principal executive offices) (Zip code)
Eugene S. Stark
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017-3911
(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, 2006
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2006
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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2006 2005
------------- --------------
Net assets applicable to Common Stock -
December 31 $1,199,453,088 $1,132,941,654
Net investment income 10,007,624 5,408,018
Net realized gain 86,176,349 63,024,095
Net increase in unrealized appreciation 51,196,338 103,638,830
Distributions to Preferred Stockholders (11,900,000) (11,900,000)
Per Common Share-December 31
Net asset value $40.54 $39.00
Market price $37.12 $34.54
Discount from net asset value -8.4% -11.4%
Common Shares outstanding-Dec. 31 29,589,198 29,050,399
Common Stockholders of record-Dec. 31 4,006 4,100
Market price range* (high-low) $39.47-$34.80 $35.45-$29.37
Market volume-shares 6,313,300 7,242,000
*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. 10, 2006 Dec. 21, 2006 $.333952 $2.666048 $3.000000
======== ========= =========
Nov. 11, 2005 Dec. 22, 2005 $.587543 (a) $1.260182 $1.847725
Jan. 30, 2006 Feb. 13, 2006 - .138000 .138000
-------- --------- ---------
Total from 2005 earnings $.587543 $1.398182 $1.985725
======== ========= =========
(a) Includes short-term gains in the amount of $.041294 per share.
Preferred Stock
Mar. 7, 2006 Mar. 24, 2006 $.039403 $.332472 $.371875
Jun. 7, 2006 Jun. 26, 2006 .039403 .332472 .371875
Sep. 7, 2006 Sep. 25, 2006 .039403 .332472 .371875
Dec. 7, 2006 Dec. 26, 2006 .039403 .332472 .371875
-------- --------- ---------
Total for 2006 $.157612 $1.329888 $1.487500
======== ========= =========
Mar. 7, 2005 Mar. 24, 2005 $.102969 $.268906 $.371875
Jun. 7, 2005 Jun. 24, 2005 .102969 .268906 .371875
Sep. 7, 2005 Sep. 26, 2005 .102969 .268906 .371875
Dec. 7, 2005 Dec. 27, 2005 .102969 .268906 .371875
-------- --------- ---------
Total for 2005 $.411876 (b) $1.075624 $1.487500
======== ========= =========
(b) Includes short-term gains in the amount of $.028844 ($.007211 per quarter).
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
4
1 TO THE STOCKHOLDERS
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General American Investors
The U.S. stock market rose for a fourth consecutive year, gaining 15.7% in the
12 months ended December 31, 2006, as measured by our benchmark, the Standard &
Poor's 500 Stock Index (including income). General American Investors' net asset
value (NAV) per Common Share (assuming reinvestment of all dividends) increased
12.2%. The return to our Common Stockholders was 16.8%, reflecting a decrease in
the discount at which our shares trade, which, at year end, was 8.4%.
The table that follows, which compares our returns on an annualized basis with
the S&P 500, illustrates that over many years General American has produced
superior investment results.
Years Stockholder Return S&P 500
---------------------------------------------
3 14.3% 10.3%
5 6.6 6.1
10 16.1 8.4
20 15.1 11.8
30 16.8 12.5
40 13.8 11.0
The share repurchase program, a part of our continuing effort to maximize NAV,
continues. In 2006, the Company purchased 787,700 of its Common Shares on the
open market at an average discount to NAV of 9.0%. The Board of Directors has
authorized repurchases of Common Shares when they are trading at a discount to
NAV in excess of 8%.
Coming on the heels of an exceptional year in 2005, last year's results were
less satisfying, although consistent with our record of long-term performance.
Curiously, bad news in Iraq and the renewed threat of nuclear proliferation were
accompanied by good markets and relatively strong economic activity. Trouble in
the housing market, as reflected in weakening prices and declining building
activity, did not appear to affect the rest of the economy. With inflation
contained, seemingly, and abundant liquidity as evidenced by the relatively low
cost of money, and the ease with which it could be borrowed, consumer spending
continued to support corporate profits and share prices.
As the new year unfolds, the sanguine investment climate that characterized the
past few years is showing signs of strain. The economy is likely to continue
slowing and corporate profits, generally, are expected to moderate. While the
Fed appears to have stopped raising interest rates, the prospect of decreases in
the immediate future is far from clear. Because consumer spending, the main
driver of GDP growth, remains asset-dependent, a protracted downturn in housing
could create the potential for collateral damage to other parts of the economy.
Globalization and its progeny, outsourcing, have held real wages and employment
growth, thus buttressing corporate profits. However, the risk of more persistent
inflation, as labor costs rise in a low unemployment setting, cannot be ruled
out. Should our trading partners weary of funding the current account deficit by
continuing to invest the bulk of their receipts in U.S. securities, dollar
weakness would likely ensue. The rise in interest rates that would likely attend
such a decline could have a seriously destabilizing effect on the capital
markets.
While the investment climate may be more volatile this year, equities should be
supported by relatively reasonable valuations and interest rates that remain
agreeable. Additionally, share buybacks, increasing dividends, and felicitous
mergers and acquisitions, all resulting from the current elevated level of
corporate profits, are likely to buoy share prices. Our investments remain
focused on well-managed companies with strong financial characteristics that can
generate consistent earnings growth and cash flow. We are confident that our
portfolio reflects these attributes, which should result in continuing superior
performance on a long-term basis.
We are pleased to announce that, on December 13, 2006, Andrew V. Vindigni was
promoted to Senior Vice-President of the Company. Mr. Vindigni has been a
Vice-President of the Company since 1995 and has been employed in a research
capacity with the Company since 1988.
Mr. Lawrence B. Buttenwieser, Chairman since 1995 and a Director since 1967,
will not be standing for re-election at the annual meeting on April 11, 2007.
His wisdom and judgment have been invaluable to the Board. We express our
gratitude and deepest appreciation for his long and distinguished service to the
Company.
We are saddened to report that Richard R. Pivirotto, our esteemed colleague and
Director, died on January 8, 2007. Mr. Pivirotto, was a director of Associated
Community Bancorp, Inc. and Immunomedics, Inc., a Trustee of General Theological
Seminary and Greenwich Hospital Corporation, and Charter Trustee Emeritus of
Princeton University. He served as a director of the Company for more than 35
years. His counsel and support will be missed.
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
President and Chief Executive Officer
January 17, 2007
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, 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 regulatory provisions of the Investment Company Act of 1940.
INVESTMENT POLICY
The primary objective of the Company is long-term capital appreciation. Lesser
emphasis is placed on current income. In seeking to achieve its primary
objective, the Company invests principally in common stocks believed by its
management to have better than average growth potential.
The Company's investment approach focuses on the selection of individual stocks,
each of which is expected to meet a clearly defined portfolio objective. A
continuous investment research program, which stresses fundamental security
analysis, is carried on by the officers and staff of the Company under the
oversight of the Board of Directors. A listing of the directors with their
principal affiliations, showing a broad range of experience in business and
financial affairs, is on page 20.
PORTFOLIO MANAGER
Mr. Spencer Davidson has been responsible for the management of General
American's portfolio since he was elected President and Chief Executive Officer
of the Company in August 1995. Mr. Davidson, who joined the Company in 1994 as
senior investment counselor, has spent his entire business career on Wall Street
since first joining an investment and banking firm in 1966.
"GAM" COMMON STOCK
As a closed-end investment company, General American Investors does not offer
its shares continuously. The Common Stock is listed on The New York Stock
Exchange (symbol, GAM) and can be bought or sold with commissions determined in
the same manner as all listed stocks. Net asset value is computed and published
on the Company's website daily (on an unaudited basis) and is also furnished
upon request. It is also available on most electronic quotation services using
the symbol "XGAMX." The figure for net asset value per share, together with the
market price and the percentage discount or premium from net asset value as of
the close of each week, is published in Barron's and The Wall Street Journal.
The ratio of market price to net asset value has shown considerable variation
over a long period of time. While shares of GAM usually sell at a discount from
their underlying net asset value, as do the shares of most other domestic equity
closed-end investment companies, they occasionally sell at a premium over net
asset value. During 2006, the stock sold at discounts from net asset value which
ranged from 6.1% (March 9 and November 2) to 13.2% (January 4). At December 31,
the price of the stock was at a discount of 8.4% as compared with a discount of
11.4% a year earlier.
"GAM Pr B" PREFERRED STOCK
On September 24, 2003, the Company issued and sold in an underwritten offering
8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a
liquidation preference of $25 per share ($200,000,000 in the aggregate).
The Preferred Shares are noncallable for 5 years, are rated "Aaa" by Moody's
Investors Service, Inc. and are listed and traded on The New York Stock Exchange
(symbol, GAM Pr B).
6
3 THE COMPANY
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General American Investors
The preferred capital is available to leverage the investment performance of the
Common Stockholders. As is the case for leverage in general, it may also result
in higher market volatility for the Common Stockholders.
DIVIDEND AND DISTRIBUTION POLICY
The Company's dividend and distribution policy is to distribute to stockholders
before year-end substantially all ordinary income estimated for the full year
and capital gains realized during the ten-month period ended October 31 of that
year. If any additional capital gains are realized or ordinary income is earned
during the last two months of the year, a "spill-over" distribution of these
amounts will be paid early in the following year to Common Stockholders.
Dividends and distributions on shares of Preferred Stock are paid quarterly.
Distributions from capital gains and dividends from ordinary income are
allocated proportionately among holders of shares of Common Stock and Preferred
Stock.
Dividends from income have been paid continuously on the Common Stock since 1939
and capital gain distributions in varying amounts have been paid for each of the
years 1943-2006 (except for the year 1974). (A table listing dividends and
distributions paid during the 20-year period 1987-2006 is shown at the bottom of
page 6.) To the extent that shares can be issued, dividends and distributions
are paid to Common Stockholders in additional shares of Common Stock unless the
stockholder specifically requests payment in cash. Spill-over dividends and
distributions of nominal amounts may be paid in cash only.
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, 2006 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 the 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 such as brokers or banks
in "street name" registration.
We do not disclose any nonpublic personal information about our stockholders or
former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders to
those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
7
4 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
"Total return on $10,000 investment 20 years ended December 31, 2006"
The investment return for a Common Stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2006 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 1987.
THE STOCKHOLDER RETURN is the return a Common Stock holder of GAM would have
achieved assuming reinvestment of all dividends and distributions at the actual
reinvestment price and of all cash dividends at the average (mean between high
and low) market price on the ex-dividend date.
THE GAM NET ASSET VALUE (NAV) RETURN is the return on shares of the Company's
Common Stock based on the NAV per share, including the reinvestment of all
dividends and distributions.
THE S&P 500 RETURN is the time-weighted total rate of return on this
widely-recognized, unmanaged index which is a measure of general stock market
performance, including dividend income.
The results illustrated are a record of past performance and may not be
indicative of future results.
GENERAL AMERICAN INVESTORS
------------------------------------------------------- STANDARD & POOR'S 500
STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN
------------------------ --------------------------- ------------------------------
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
INVESTMENT RETURN INVESTMENT RETURN INVESTMENT RETURN
------------------------- --------------------------- ------------------------------
1987 $8,389 -16.11% $10,253 2.53% $10,524 5.24%
1988 10,173 21.26 12,054 17.57 12,264 16.53
1989 15,116 48.60 16,618 37.86 16,141 31.62
1990 15,721 4.00 17,730 6.69 15,643 -3.09
1991 29,084 85.00 28,561 61.09 20,398 30.40
1992 33,382 14.78 29,575 3.55 21,946 7.59
1993 28,068 -15.92 29,058 -1.75 24,167 10.12
1994 25,862 -7.86 28,261 -2.74 24,474 1.27
1995 31,350 21.22 34,926 23.58 33,652 37.50
1996 37,457 19.48 41,900 19.97 41,361 22.91
1997 53,406 42.58 55,329 32.05 55,147 33.33
1998 70,127 31.31 74,772 35.14 70,892 28.55
1999 97,631 39.22 101,989 36.40 85,751 20.96
2000 116,278 19.10 119,980 17.64 77,956 -9.09
2001 121,313 4.33 118,540 -1.20 68,687 -11.89
2002 88,304 -27.21 91,252 -23.02 53,480 -22.14
2003 112,155 27.01 116,255 27.40 68,753 28.56
2004 122,013 8.79 128,311 10.37 76,172 10.79
2005 143,243 17.40 149,097 16.20 79,851 4.83
2006 167,279 16.78 167,347 12.24 92,356 15.66
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 $180,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1987 through 2006 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, 2006 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------------------
1 year 16.8% 12.2% 15.7%
5 years 6.6 7.1 6.1
10 years 16.1 14.9 8.4
15 years 12.4 12.5 10.6
20 years 15.1 15.1 11.8
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2006 (UNAUDITED)
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General American Investors
SHARES HELD
INCREASES SHARES DECEMBER 31, 2006
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NEW POSITIONS
Cephalon, Inc. - 150,000 (a)
Epoch Holding Corporation Series A Convertible
Preferred 4.6% 10,000 10,000
QUALCOMM Incorporated 700,000 700,000
Rio Tinto plc ADR - 65,000 (a)
Wachovia Corporation 614,864 (b) 614,864
ADDITIONS
Dollar General Corporation 901,000 2,500,000
PepsiCo, Inc. 50,000 225,000
Xerox Corporation 350,000 2,250,000
DECREASES
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ELIMINATIONS
Golden West Financial Corporation 585,000 (b) -
Standard MEMS, Inc. Series A Convertible Preferred 546,000 -
REDUCTIONS
Alkermes, Inc. 65,000 175,000
American International Group, Inc. 15,000 360,000
Annaly Capital Management, Inc. 105,000 550,000
Everest Re Group, Ltd. 35,000 500,000
MFA Mortgage Investments, Inc. 150,000 925,000
Microsoft Corporation 80,000 720,000
Pfizer Inc 389,100 1,347,900
The TJX Companies, Inc. 240,000 2,100,000
VeriSign, Inc. 20,000 113,500
* Excludes transactions in Common and Preferred Stocks-Miscellaneous-Other.
(a) Securities purchased in prior period and previously carried under Common and Preferred Stocks-Miscellaneous-Other.
(b) 614,864 shares of Wachovia Corporation were received in exchange for 585,000 shares of Golden West Financial
Corporation in conjunction with a merger.
"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 (1987-2006) (UNAUDITED)
--------------------------------------------------------------------------------
EARNINGS SOURCE
----------------------------
SHORT-TERM LONG-TERM
YEAR INCOME CAPITAL GAINS CAPITAL GAINS
----------------------------------------------
1987 $.35 - $1.54
1988 .29 - 1.69
1989 .21 $.02 1.56
1990 .21 - 1.65
1991 .09 - 3.07
1992 .03 - 2.93
1993 .06 - 2.34
1994 .06 - 1.59
1995 .10 .03 2.77
1996 .20 .05 2.71
1997 .21 - 2.95
1998 .47 - 4.40
1999 .42 .62 4.05
2000 .48 1.55 6.16
2001 .37 .64 1.37
2002 .03 - .33
2003 .02 - .59
2004 .217 - .957
2005 .547 .041 1.398
2006 .334 - 2.666
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
"The statement of investments as of December 31, 2006, shown on pages 12 and 13
includes 54 security issues. Listed here are the ten largest holdings on that
date."
% COMMON
SHARES VALUE NET ASSETS*
-------------------------------------------------------------
CEMEX, S.A. de C.V. ADR 2,350,862 $79,647,204 6.6%
Domiciled in Mexico, CEMEX is the third largest cement producer
in the world. With the expansion of its operations into related
construction materials and additional geographic areas, as well as
its focus on cost containment, the company's free cash flow
should continue to increase, supporting a positive long-term outlook.
------------------------------------------------------------------------------------------------------------------------------------
THE HOME DEPOT, INC. 1,570,000 63,051,200 5.3
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.
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THE TJX COMPANIES, INC. 2,100,000 59,892,000 5.0
Through its T.J. Maxx and Marshalls divisions, TJX is the leading
off-price retailer. The continued growth of these divisions, along
with expansion into related U.S. and foreign off-price formats,
provide ongoing growth opportunities.
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APACHE CORPORATION 825,000 54,870,750 4.6
Apache is a large independent oil and gas company with a long
history of growing production and creating value for shareholders.
The company's operations are primarily focused in North America,
the North Sea and Egypt.
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WEATHERFORD INTERNATIONAL LTD. 1,220,000 50,983,800 4.3
Weatherford supplies a broad range of oil field services through
its Drilling Methods, Well Construction, Drilling Tools and
Intervention Services divisions on a worldwide basis. Its focus on
increasing production from existing fields and synergies from the
acquisition of assets from Precision Drilling should lead to
earnings growth.
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TALISMAN ENERGY INC. 3,000,000 50,970,000 4.2
Talisman, headquartered in Calgary, Alberta, is an upstream
oil and gas producer with global operations. The company is
focusing on larger, deep gas opportunities in North America
and large international projects which should lead to faster
production growth and higher returns.
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EVEREST RE GROUP, LTD. 500,000 49,055,000 4.1
One of the largest independent U.S. property/casualty reinsurers,
generates annual premiums of approximately $4 billion and has
a high quality, well-reserved AA balance sheet. This Bermuda
domiciled company has a strong management team that exercises
underwriting discipline and efficient expense control,
resulting in above-average earnings and book value growth.
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REPUBLIC SERVICES, INC. 1,175,000 47,787,250 4.0
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. The high
probability of additional contracts and improved economic activity
should result in higher waste volumes for the company.
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DOLLAR GENERAL CORPORATION 2,500,000 40,150,000 3.3
Dollar General, is the country's largest dollar store company. It has
the opportunity to expand sales by adding new stores and to expand
margins by the strategy and tactics of a new management team.
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XEROX CORPORATION 2,250,000 38,137,500 3.2
Xerox develops, manufactures and finances a broad range of
document processing products and services for use in offices
worldwide. The growing adoption of color and digital products
should lead to growing profitability.
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$534,544,704 44.6%
============ =====
*Net assets applicable to the Company's Common Stock.
11
8 PORTFOLIO DIVERSIFICATION (unaudited)
--------------------------------------------------------------------------------
General American Investors
"The diversification of the Company's net assets applicable to its Common Stock
by industry group as of December 31, 2006 and 2005 is shown in the following
table."
PERCENT COMMON NET ASSETS*
DECEMBER 31, 2006 DECEMBER 31
----------------------------------------------------------------------------------
INDUSTRY CATEGORY COST(000) VALUE(000) 2006 2005
-----------------------------------------------------------------------------------------------------------------
Oil and Natural Gas
(Including Services) $148,725 $206,447 17.2% 29.7%
-------- -------- ---- ----
Finance and Insurance
Banking 17,349 101,658 8.5 8.8
Insurance 87,398 217,772 18.2 15.8
Other 22,878 31,330 2.6 1.1
-------- -------- ---- ----
127,625 350,760 29.3 25.7
-------- -------- ---- ----
Retail Trade 86,347 226,656 18.9 17.9
-------- -------- ---- ----
Health Care
Pharmaceuticals 66,003 104,218 8.7 8.0
Medical Instruments
and Devices 10,484 24,080 2.0 2.3
-------- -------- ---- ----
76,487 128,298 10.7 10.3
-------- -------- ---- ----
Communications and
Information Services 64,261 102,828 8.6 6.1
Consumer Products and Services 67,332 86,001 7.2 5.9
Building and Real Estate 31,961 79,647 6.6 6.0
Miscellaneous** 43,663 50,017 4.2 3.7
Environmental Control
(Including Services) 26,227 47,787 4.0 3.9
Technology 31,683 38,138 3.2 2.5
Computer Software and Systems 21,197 28,189 2.3 3.8
Machinery &Equipment 12,430 20,677 1.7 -
Electronics 12,287 15,235 1.3 1.2
Mining 13,421 13,811 1.1 -
Semiconductors - - - 0.5
-------- -------- ---- ----
763,646 1,394,491 116.3 117.2
Short-Term Securities 17,256 17,256 1.4 0.3
-------- -------- ---- ----
Total Investments $780,902 1,411,747 117.7 117.5
Other Assets and Liabilities - Net ======== (12,294) (1.0) 0.1
Preferred Stock (200,000) (16.7) (17.6)
-------- ---- ----
Net Assets Applicable to
Common Stock $1,199,453 100.0% 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 2006 2005
---------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks
(cost $729,900,430 and $714,895,565, respectively) $1,359,753,863 $1,301,855,069
Corporate note (cost $33,745,957 and
$33,123,366, respectively) 34,737,500 25,812,500
Money market fund (cost $17,255,705 and
$3,822,949, respectively) 17,255,705 3,822,949
------------- -------------
Total investments (cost $780,902,092 and
$751,841,880, respectively) 1,411,747,068 1,331,490,518
CASH, RECEIVABLES AND OTHER ASSETS
Cash 34,235 13,298
Receivable for securities sold 2,875,316 5,733,693
Dividends, interest and other receivables 1,430,378 1,028,867
Pension asset, excess funded 8,656,759 -
Prepaid pension cost - 7,714,456
Prepaid expenses and other assets 149,755 214,022
------------- -------------
TOTAL ASSETS 1,424,893,511 1,346,194,854
------------- -------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased 13,515,130 1,468,214
Preferred dividend accrued but not yet declared 231,389 231,389
Pension benefit liability 3,320,727 -
Accrued pension expense - 3,101,128
Accrued thrift plan expense 2,992,285 2,598,356
Accrued expenses and other liabilities 5,380,892 5,854,113
------------ -----------
TOTAL LIABILITIES 25,440,423 13,253,200
------------ -----------
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of
$25 per share (note 2) 200,000,000 200,000,000
------------ -----------
NET ASSETS APPLICABLE TO COMMON STOCK - 29,589,198
and 29,050,399 shares, respectively (note 2) $1,199,453,088 $1,132,941,654
============== ==============
NET ASSET VALUE PER COMMON SHARE $40.54 $39.00
============== ==============
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 29,589,198 and 29,050,399 shares at par
value, respectively (note 2) $29,589,198 $29,050,399
Additional paid-in capital (note 2) 538,093,876 518,972,693
Undistributed realized gain (loss) on investments (note 2) (1,715,049) 3,969,333
Undistributed net investment income (note 2) 2,218,917 1,531,980
Accumulated other comprehensive income (note 5) 652,559 -
Unallocated distributions on Preferred Stock (231,389) (231,389)
Unrealized appreciation on investments, securities
sold short and options 630,844,976 579,648,638
-------------- -------------
NET ASSETS APPLICABLE TO COMMON STOCK $1,199,453,088 $1,132,941,654
============== ==============
(see notes to financial statements)
13
10 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
--------------------------
INCOME 2006 2005
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $325,061 and $490,458, respectively) $16,065,789 $16,403,240
Interest 6,301,585 2,318,112
----------- -----------
TOTAL INCOME 22,367,374 18,721,352
----------- -----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 8,054,383 8,695,758
Administration and operations 2,922,014 3,236,737
Office space and general 544,210 537,671
Directors' fees and expenses 286,326 218,402
Auditing and legal fees 163,000 216,600
Transfer agent, custodian and registrar fees and expenses 140,346 176,854
Stockholders' meeting and reports 134,106 129,857
Miscellaneous taxes 115,365 101,455
----------- -----------
TOTAL EXPENSES 12,359,750 13,313,334
----------- -----------
NET INVESTMENT INCOME 10,007,624 5,408,018
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1F AND 4)
---------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 86,808,130 63,646,612
Short sale transactions (note 1b) (629,681) (755,114)
Option transactions (note 1c) (2,100) 132,597
----------- -----------
Net realized gain on investments
(long-term except for $2,228,817 and
$14,501,035, respectively) 86,176,349 63,024,095
Net increase in unrealized appreciation 51,196,338 103,638,830
----------- -----------
NET GAIN ON INVESTMENTS 137,372,687 166,662,925
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,900,000) (11,900,000)
------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $135,480,311 $160,170,943
============ ============
(see notes to financial statements)
14
11 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATIONS 2006 2005
---------------------------------------------------------------------------------------------------
Net investment income $10,007,624 $5,408,018
Net realized gain on investments 86,176,349 63,024,095
Net increase in unrealized appreciation 51,196,338 103,638,830
----------- -----------
147,380,311 172,070,943
----------- -----------
Distributions to Preferred Stockholders:
From net income (1,092,608) (845,368)
From short-term capital gains (168,288) (2,449,640)
From long-term capital gains (10,639,104) (8,604,992)
----------- -----------
Decrease in net assets from Preferred distributions (11,900,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 135,480,311 160,170,943
----------- -----------
OTHER COMPREHENSIVE INCOME
Adjustment to initially apply FAS 158 (note 5) 652,559 -
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
---------------------------------------------------------------------------------------------------
From net income (8,230,843) (4,333,771)
From short-term capital gains (1,262,677) (12,389,129)
From long-term capital gains (79,790,662) (43,672,026)
----------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (89,284,182) (60,394,926)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
---------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of distributions 48,748,838 36,584,716
Cost of Common Shares purchased (29,086,092) (39,812,172)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS 19,662,746 (3,227,456)
----------- -----------
NET INCREASE IN NET ASSETS 66,511,434 96,548,561
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 1,132,941,654 1,036,393,093
------------- -------------
END OF YEAR (including undistributed net investment
income of $2,218,917 and $1,531,980, respectively) $1,199,453,088 $1,132,941,654
============== ==============
(see notes to financial statements)
15
12 STATEMENT OF INVESTMENTS DECEMBER 31, 2006
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
BUILDING AND 2,350,862 CEMEX, S.A. de C.V. ADR (COST $31,961,056) $79,647,204
REAL ESTATE (6.6%) -----------
-----------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 775,000 American Tower Corporation (a) 28,892,000
INFORMATION SERVICES 900,000 Cisco Systems, Inc. (a) 24,597,000
(8.6%) 350,000 Lamar Advertising Company Class A (a) 22,886,500
700,000 QUALCOMM Incorporated 26,453,000
-----------
(COST $64,260,573) 102,828,500
-----------
-----------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 300,000 EMC Corporation (a) 3,960,000
AND SYSTEMS (2.3%) 720,000 Microsoft Corporation 21,499,200
113,500 VeriSign, Inc. (a) 2,729,675
-----------
(COST $21,197,130) 28,188,875
-----------
-----------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 325,000 Constellation Brands, Inc. (a) 9,431,500
AND SERVICES (4.3%) 350,000 Diageo plc ADR 27,758,500
225,000 PepsiCo, Inc. 14,073,750
-----------
(COST $33,585,638) 51,263,750
-----------
-----------------------------------------------------------------------------------------------------------------
ELECTRONICS (1.3%) 550,000 Molex Incorporated Class A (COST $12,287,441) 15,235,000
-----------
-----------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 1,175,000 Republic Services, Inc. (COST $26,227,380) 47,787,250
(INCLUDING SERVICES) -----------
(4.0%)
-----------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (8.5%)
(29.3%) ----------------------------------------------------------------------------------------
270,000 Bank of America Corporation 14,415,300
310,000 M&T Bank Corporation 37,869,600
170,000 SunTrust Banks, Inc. 14,356,500
614,864 Wachovia Corporation 35,016,505
------------
(COST $17,349,060) 101,657,905
------------
INSURANCE (18.2%)
----------------------------------------------------------------------------------------
275,000 The Allstate Corporation 17,905,250
360,000 American International Group, Inc. 25,797,600
275,000 Annuity and Life Re (Holdings), Ltd. (a) 110,000
350,000 Arch Capital Group Ltd. (a) 23,663,500
400,000 AXIS Capital Holdings Limited 13,348,000
300 Berkshire Hathaway Inc. Class A (a) 32,997,000
500,000 Everest Re Group, Ltd. 49,055,000
285,000 MetLife, Inc. 16,817,850
335,000 PartnerRe Ltd. 23,795,050
230,000 Transatlantic Holdings, Inc. 14,283,000
------------
(COST $87,398,021) 217,772,250
------------
OTHER (2.6%)
----------------------------------------------------------------------------------------
550,000 Annaly Capital Management, Inc. 7,650,500
10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% (d) 16,566,667
925,000 MFA Mortgage Investments, Inc. 7,113,250
------------
(COST $22,878,434) 31,330,417
------------
(COST $127,625,515) 350,760,572
------------
-----------------------------------------------------------------------------------------------------------------
HEALTH CARE (10.7%) PHARMACEUTICALS (8.7%)
----------------------------------------------------------------------------------------
175,000 Alkermes, Inc. (a) 2,339,750
170,000 Biogen Idec Inc. (a) 8,362,300
150,000 Cephalon, Inc. (a) 10,561,500
604,900 Cytokinetics, Incorporated (a) 4,524,652
200,000 Genentech, Inc. (a) 16,226,000
380,000 MedImmune, Inc. (a) 12,300,600
180,000 Novo Nordisk B 14,992,200
1,347,900 Pfizer Inc 34,910,610
------------
(COST $66,003,518) 104,217,612
------------
MEDICAL INSTRUMENTS AND DEVICES (2.0%)
----------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 24,079,500
------------
(COST $76,487,234) 128,297,112
-------------
16
13 STATEMENT OF INVESTMENTS DECEMBER 31, 2006 - continued
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS (continued) VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
MACHINERY & EQUIPMENT 1,150,000 ABB Ltd. ADR (COST $12,430,211) $20,677,000
(1.7%) -------------
---------------------------------------------------------------------------------------------------------------
MINING (1.1%) 65,000 Rio Tinto plc ADR (COST $13,420,904) 13,811,850
-------------
---------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (4.2%) Other (b) (COST $43,662,790) 50,016,500
-------------
---------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 825,000 Apache Corporation 54,870,750
(INCLUDING SERVICES) 850,000 Halliburton Company 26,392,500
(17.2% 1,000,000 Patterson-UTI Energy, Inc. 23,230,000
3,000,000 Talisman Energy Inc. 50,970,000
1,220,000 Weatherford International Ltd. (a) 50,983,800
-------------
(COST $148,725,073) 206,447,050
-------------
---------------------------------------------------------------------------------------------------------------
RETAIL TRADE (18.9%) 700,000 Costco Wholesale Corporation 37,009,000
2,500,000 Dollar General Corporation 40,150,000
1,570,000 The Home Depot, Inc. (c) 63,051,200
2,100,000 The TJX Companies, Inc. 59,892,000
575,000 Wal-Mart Stores, Inc. 26,553,500
------------
(COST$86,346,776) 226,655,700
------------
---------------------------------------------------------------------------------------------------------------
TECHNOLOGY (3.2%) 2,250,000 Xerox Corporation (a) (COST $31,682,709) 38,137,500
------------
---------------------------------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS (113.4%) (COST $729,900,430) 1,359,753,863
-------------
---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT CORPORATE NOTE
---------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS $35,000,000 General Motors Nova Scotia Finance Company
AND SERVICES (2.9%) 6.85% Guaranteed Notes Due 10/15/08 (COST $33,745,957) 34,737,500
--------------
SHARES SHORT-TERM SECURITY AND OTHER ASSETS
---------------------------------------------------------------------------------------------------------------
17,255,705 SSgA Prime Money Market Fund (1.4%) (COST $17,255,705) 17,255,705
-------------
TOTAL INVESTMENTS (e) (117.7%) (COST $780,902,092) 1,411,747,068
Liabilities in excess of receivables and other assets (-1.0%) (12,293,980)
-------------
1,399,453,088
PREFERRED STOCK (-16.7%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,199,453,088
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year.
(c) 1,000,000 shares held by custodian in a segregated custodian account as collateral for short positions, if any.
(d) Restricted security of an affiliate acquired 11/7/06.
(e) At December 31, 2006: (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 $632,899,306, (3) aggregate gross unrealized depreciation
was $2,054,330, and (4) net unrealized appreciation was $630,844,976.
(see notes to financial statements)
17
14 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
General American Investors Company, Inc. (the "Company"), established in 1927,
is registered under the Investment Company Act of 1940 as a closed-end,
diversified management investment company. It is internally managed by its
officers under the direction of the Board of Directors.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
a. SECURITY VALUATION Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Securities reported on the NASDAQ national market are valued at the official
closing price on that day. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price (asked price for open short positions and
options written) on the valuation date. Securities traded primarily in foreign
markets are generally valued at the preceding closing price of such securities
on their respective exchanges or markets. If, after the close of the foreign
market, conditions change significantly, the price of certain foreign securities
may be adjusted to reflect fair value as of the time of the valuation of the
portfolio. Investments in money market funds are valued at their net asset
value. The restricted security is valued at par value (cost), divided by the
conversion price of $6.00 multiplied by the last reported sales price of the
publicly traded common stock of the corporation.
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium received and
the amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
d. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
e. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
f. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
--------------------------------------------------------------------------------
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value, of which 29,589,198 shares and 8,000,000 shares, respectively, were
outstanding at December 31, 2006.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its
5.95% Cumulative Preferred Stock, Series B in an underwritten offering. The
Preferred Shares are noncallable for 5 years and have a liquidation preference
of $25.00 per share plus an amount equal to accumulated and unpaid dividends to
the date of redemption. The underwriting discount and other expenses associated
with the Preferred Stock offering amounted to $6,700,000 and were charged to
paid-in capital.
The Company is required to allocate distributions from long-term capital
gains and other types of income proportionately among holders of shares of
Common Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
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 an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines, the Company is required to
maintain a certain discounted asset coverage for its portfolio that equals or
exceeds the Basic Maintenance Amount under the guidelines established by Moody's
Investors Service, Inc. The Company has met these requirements since the
issuance of the Preferred Stock. If the Company fails to meet these requirements
in the future and does not cure such failure, the Company may be required to
redeem, in whole or in part, shares of Preferred Stock at a redemption price of
$25.00 per share plus accumulated and unpaid dividends (whether or not earned or
declared). In addition, the Company's failure to meet the foregoing asset
coverage requirements could restrict its ability to pay dividends on shares of
Common Stock and could lead to sales of portfolio securities at inopportune
times.
The holders of Preferred Stock have voting rights equivalent to those of
the holders of Common Stock (one vote per share) and, generally, vote together
with the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the
Company's Board of Directors and the holders of Preferred and Common Stock,
voting as a single class, will elect the remaining directors. If the Company
fails to pay dividends on the Preferred Stock in an amount equal to two full
years' dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of
EITF D-98, Classification and Measurement of Redeemable Securities, which
requires that preferred stock for which its redemption is outside of the
company's control should be presented outside of net assets in the statement of
assets and liabilities.
Transactions in Common Stock during 2006 and 2005 were as follows:
SHARES AMOUNT
------------------------------------------------
2006 2005 2006 2005
------- ------- --------- ----------
Treasury shares issued in payment of
dividends and distributions 1,326,499 1,067,491 $1,326,499 $1,067,491
Increase in paid-in capital 47,422,339 35,517,225
---------- ----------
Total increase 48,748,838 36,584,716
---------- ----------
Shares purchased (at an average
discount from net asset value of
9.0% and 12.4%, respectively) 787,700 1,222,404 (787,700) (1,222,404)
Decrease in paid-in capital (28,298,392)(38,589,768)
----------- -----------
Total decrease (29,086,092)(39,812,172)
----------- -----------
Net increase (decrease) $19,662,746 ($3,227,456)
=========== ===========
At December 31, 2006, the Company held in its treasury 1,642,365 shares of
Common Stock with an aggregate cost in the amount of $49,650,348.
Distributions for tax and book purposes are substantially the same.
As of December 31, 2006, the components of distributable earnings
on a tax basis were as follows:
Undistributed ordinary income $889,490
Accumulated capital losses (1,715,049)
Unrealized appreciation 630,844,976
------------
$630,019,417
============
In accordance with U.S. Treasury Regulations, the Company has elected to
defer $1,715,049 of net realized capital losses arising after October 31, 2006.
Such losses are treated for tax purposes as arising on January 1, 2007.
To reflect reclassification arising from permanent "book/tax" differences
for non-deductible expenses during the year ended December 31, 2006,
undistributed net investment income was increased by $2,764, and additional
paid-in capital was decreased by $2,764. Net assets were not affected by this
reclassification.
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during 2006 and 2005 to its
officers (identified on page 19) amounted to $7,255,500 and $5,881,000,
respectively.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities and options) during 2006 amounted to $250,301,775 and
$321,482,449, on long transactions, respectively, and $4,061,806 and $3,432,125,
on short sale transactions, respectively.
--------------------------------------------------------------------------------
5. BENEFIT PLANS
The Company has funded and unfunded defined contribution thrift plans that are
available to its employees. The aggregate cost of such plans for 2006 and 2005
was $805,729 and $815,088, respectively.
The Company also has both a funded (Qualified) and an unfunded
(Supplemental) noncontributory defined benefit pension plans that cover its
employees. The plans provide defined benefits based on years of service and
final average salary with an offset for a portion of social security covered
compensation.
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.
19
16 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
5. PENSION BENEFIT PLANS - (Continued from previous page.)
OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:
DECEMBER 31, 2006 (MEASUREMENT DATE) DECEMBER 31, 2005 (MEASUREMENT DATE)
----------------------------------- -----------------------------------
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------- ------------ -------- --------- ------------ ----------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $8,902,156 $3,139,034 $12,041,190 $7,487,615 $2,690,636 $10,178,251
Service cost 201,809 115,586 317,395 194,771 112,956 307,727
Interest cost 501,644 182,511 684,155 481,413 166,597 648,010
Benefits paid (542,274) (165,252) (707,526) (514,291) (146,513) (660,804)
Actuarial (gains)/losses (848) 48,848 48,000 1,071,753 298,925 1,370,678
Plan amendments - - - 180,895 16,433 197,328
---------- ---------- ----------- ---------- ---------- -----------
Projected benefit obligation at
end of year 9,062,487 3,320,727 12,383,214 8,902,156 3,139,034 12,041,190
---------- ---------- ----------- ---------- ---------- -----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year 15,906,987 - 15,906,987 14,625,572 - 14,625,572
Miscellaneous adjustment - - - 64,946 - 64,946
Actual return on plan assets 2,354,533 - 2,354,533 1,730,760 - 1,730,760
Employer contributions - 165,252 165,252 - 146,513 146,513
Benefits paid (542,274) (165,252) (707,526) (514,291) (146,513) (660,804)
---------- ---------- ----------- ---------- ---------- -----------
Fair value of plan assets at
end of year 17,719,246 - 17,719,246 15,906,987 - 15,906,987
---------- ---------- ----------- ---------- ---------- -----------
FUNDED STATUS AT END OF YEAR 8,656,759 (3,320,727) 5,336,032 7,004,831 (3,139,034) 3,865,797
Unrecognized actuarial (gains)/losses - - - 407,303 (53,984) 353,319
Unrecognized prior service cost - - - 302,322 91,890 394,212
---------- ---------- ----------- ---------- ---------- -----------
Net amount recognized at end of year $8,656,759 ($3,320,727) $5,336,032 $7,714,456 ($3,101,128) $4,613,328
========== ========== =========== ========== ========== ===========
Accumulated benefit obligation at
end of year $8,400,586 $2,971,614 $11,372,200 $8,322,164 $2,725,423 $11,047,587
========== ========== =========== ========== ========== ===========
INCREMENTAL EFFECT OF ADOPTING FAS 158 BEFORE ADJUSTMENTS AFTER
---------- ----------- -----------
Noncurrent benefit asset $7,939,307 $717,452 $8,656,759
LIABILITIES
Current benefit liability 213,549 - 213,549
Noncurrent benefit liability 3,042,285 64,893 3,107,178
Accumulated other comprehensive income - (652,559) (652,559)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER
COMPREHENSIVE INCOME CONSIST OF:
Net actuarial loss/(gain) ($1,006,540) ($5,136) ($1,011,676) N/A N/A N/A
Prior service cost/(credit) 289,088 70,029 359,117 N/A N/A N/A
---------- ---------- ----------- ---------- ---------- -----------
($717,452) $64,893 ($652,559) N/A N/A N/A
========== ========== =========== ========== ========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF FISCAL YEAR:
Discount rate 5.75% 5.75% 5.50% 5.50%
Expected return on plan assets 8.75% N/A 8.75% N/A
Salary scale assumption 4.25% 4.25% 4.25% 4.25%
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $201,809 $115,586 $317,395 $194,771 $112,956 $307,727
Interest cost 501,645 182,511 684,156 481,413 166,597 648,010
Expected return on plan assets (1,127,040) - (1,127,040)(1,077,936) - (1,077,936)
Amortization of:
Prior service cost 13,235 21,861 35,096 13,235 24,439 37,674
Recognized net actuarial loss 185,502 - 185,502 152,996 - 152,996
---------- ---------- ----------- ---------- ---------- -----------
Net periodic benefit cost ($224,849) $319,958 $95,109 ($235,521) $303,992 $68,471
========== ========== =========== ========== ========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET
PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31:
Discount rate 5.50% 5.50% 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, 2006 and 2005, are as follows:
December 31
---------------
Asset Category 2006 2005
-------------- ---- ----
Equity securities 88.2% 97.3%
Debt securities 11.8 2.7
----- -----
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 2007 - $213,549 $213,549
========== ============= =========
Estimated benefit payments:
2007 $527,506 $213,549 $741,055
2008 536,049 257,363 793,412
2009 542,757 289,572 832,329
2010 561,535 320,654 882,189
2011 583,903 353,543 937,446
2012-2016 3,190,667 2,217,100 5,407,767
--------------------------------------------------------------------------------
6. PUT OPTION
A transaction in a written collateralized put option during the
year ended December 31, 2006 was as follows:
Collateralized Put
--------------------------
Contract Premium
--------- --------
Options written 100 $16,199
Options terminated in closing purchase transactions (100) (16,199)
--------- --------
Options outstanding, December 31,2006 - $0
========= ========
--------------------------------------------------------------------------------
7. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expires in 2007 and provides for future rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contains a
clause whereby the Company received twenty months of free rent beginning in
December 1992 and escalation clauses relating to operating costs and real
property taxes.
Rental expense approximated $308,900 for 2006. Minimum rental commitments
under the operating lease are approximately $505,000 in 2007.
20
17 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
--------------------------------------------------------------------------------
7. OPERATING LEASE COMMITMENT- (Continued from previous page.)
In January 2003, the Company extended a sublease agreement (originally
entered into in March 1996) which expires in 2007 and provides for future rental
receipts. Minimum rental receipts under the sublease are approximately $254,000
in 2007. The Company will also receive its proportionate share of operating
expenses and real property taxes under the sublease.
--------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" ("FIN48"). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Company's tax
returns to determine whether the tax positions are "more-likely-than-not" of
being sustained by the applicable tax authority. Tax positions not deemed to
meet the more-likely-than-not threshold would be recorded as a tax benefit or
expense in the current year. Adoption of FIN 48 is required for fiscal years
beginning after June 29, 2007 and is to be applied to all open tax years as of
the effective date. Management does not believe that the application of this
standard will have a material impact on the financial statements of the Company.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. Management does not believe
that the application of this standard will have a material impact on the
financial statements of the Company.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
"The following table shows per share operating performance data, total
investment return, ratios and supplemental data for each year in the five-year
period ended December 31, 2006. This information has been derived from
information contained in the financial statements and market price data for the
Company's shares."
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $39.00 $35.49 $33.11 $26.48 $35.14
-------- -------- -------- -------- --------
Net investment income .34 .19 .32 .03 .19
Net gain (loss) on securities - realized
and unrealized 4.72 5.85 3.48 7.72 (7.88)
Other comprehensive income .03 - - - -
-------- -------- -------- -------- --------
Distributions on Preferred Stock:
Dividends from net investment income (.04) (.03) (.09) (.01) (.12)
Distributions from net short-term
capital gains (.01) (.08) - - -
Distributions from net long-term
capital gains (.36) (.30) (.32) (.35) (.23)
-------- -------- -------- -------- --------
(.41) (.41) (.41) (.36) (.35)
-------- -------- -------- -------- --------
Total from investment operations 4.68 5.63 3.39 7.39 (8.04)
-------- -------- -------- -------- --------
Distributions on Common Stock:
Dividends from investment income (.29) (.15) (.23) (.02) (.02)
Distributions from net short-term
capital gains (.04) (.44) - - (.19)
Distributions from net long-term
capital gains (2.81) (1.53) (.78) (.52) (.41)
-------- -------- -------- -------- --------
(3.14) (2.12) (1.01) (.54) (.62)
-------- -------- -------- -------- --------
Capital Stock transaction -
effect of Preferred Stock offering - - - (.22) -
-------- -------- -------- -------- --------
Net asset value, end of year $40.54 $39.00 $35.49 $33.11 $26.48
======== ======== ======== ======== ========
Per share market value, end of year $37.12 $34.54 $31.32 $29.73 $23.85
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 16.78% 17.40% 8.79% 27.01% (27.21)%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $1,199,453 $1,132,942 $1,036,393 $986,335 $809,192
Ratio of expenses to average net assets
applicable to Common Stock 1.06% 1.25% 1.15% 1.23% 0.92%
Ratio of net income to average net assets
applicable to Common Stock 0.86% 0.51% 0.94% 0.13% 0.61%
Portfolio turnover rate 19.10% 20.41% 16.71% 18.62% 22.67%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $200,000 $200,000 $200,000 $200,000 $150,000
Asset coverage 700% 666% 618% 593% 639%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $24.44 $24.07 $24.97 $25.04 $25.85
21
18 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, 2006, 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, 2006, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
General American Investors Company, Inc. at December 31, 2006, the results of
its operations and the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
January 17, 2007
22
19 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 (64) President and Chief Sally A. Lynch, Ph.D.(47) Vice-President of the
1994 Executive Officer of the 1997 Company since 2006
Company since 1995 securities analyst
(biotechnology industry)
Andrew V. Vindigni (47) Senior Vice-President of the Peter P. Donnelly (58) Vice-President of the
1988 Company since 2006 1974 Company since 1991
Vice-President 1995-2006; securities trader
securities analyst (financial
services industry)
Diane G. Radosti (54) Treasurer of the
1980 Company since 1990
Eugene S. Stark (48) Vice-President, Administration Principal Accounting
2005 of the Company since 2005, Officer since 2003
Principal Financial Officer
since 2005, Chief Compliance
Officer since 2006; Carole Anne Clementi (60) Secretary of the
Chief Financial Officer of 1982 Company since 1994
Prospect Energy Corporation shareholder relations
(2005); and office management
Vice-President of
Prudential Financial, Inc.
(1987-2004) Craig A. Grassi (38) Assistant Vice-President of
1991 the Company since 2005
information technology
Jesse Stuart (40) Vice-President of the
2003 Company since 2006
securities analyst (general Maureen E. LoBello (56) Assistant Secretary of the
industries); 1992 Company since 2005
securities analyst & portfolio benefits administration
manager of Scudder, Stevens
and Clark (1996-2003)
All officers serve for a term of one year and are elected by the Board of
Directors at the time of its annual organization meeting on the second
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 page 20.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
1-800-413-5499
www.amstock.com
--------------------------------------------------------------------------------
In addition to purchases of the Company's Common Stock as set forth in Note 2,
on page 15, purchases of Common Stock may be made at such times, at such prices,
in such amounts and in such manner as the Board of Directors may deem advisable.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission (SEC) as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available at
www.generalamericaninvestors.com and on the SEC's website: www.sec.gov. Also,
Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public Reference Room
may be obtained by calling 1-800-SEC-0330. A copy of the Company's Form N-Q may
be obtained by calling us at 1-800-436-8401.
On May 2, 2006, 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.
23
20 DIRECTORS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT ("DISINTERESTED") DIRECTORS
---------------------------------------------------------------------------------------------------------------------------------
Lawrence B. Buttenwieser (75) Counsel 2002-present
Chairman of the Partner 1966-2002
Board of Directors Katten Muchin Zavis Rosenman
1967 and predecessor firms (lawyers)
Arthur G. Altschul, Jr. (42) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Diversified Natural Products, Inc., Director
Management, LLC Medicis Pharmaceutical Corporation, Director
(private investment company) Medrium, Inc., Chairman, Board of Directors
National Public Radio Foundation, Trustee
Neurosciences Research Foundation, Trustee
The Overbrook Foundation, Director
Lewis B. Cullman (88) Philanthropist Chess-in-the-Schools, Chairman, Board of Trustees
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
Gerald M. Edelman (77) Member, Professor and Chairman Neurosciences Institute of the Neurosciences
1976 of the Department of Neurobiology Research Foundation, Director and President
The Scripps Research Institute
John D. Gordan, III (61) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (76) Managing Partner IGENE Biotechnology, Inc., Director
1994 SRK Management Company Insight Communications Company, Inc.,
(private investment company) Chairman, Board of Directors
VirtualScopics, Inc., Director
Vocollect, Inc., Director
D. Ellen Shuman (51) Vice President and Bowdoin College, Trustee
2004 Chief Investment Officer Edna McConnell Clark Foundation,
Carnegie Corporation of New York Investment Advisor
The Investment Fund for Foundations, Director
Joseph T. Stewart, Jr. (77) Corporate director and trustee Foundation of the University of
1987 Medicine and Dentistry of New Jersey, Trustee
Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Trustee,
Board of Advisors
United States Merchant Marine Academy Foundation,
Trustee
Raymond S. Troubh (80) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Gentiva Health Services, Inc., Director
Sun-Times Media Group, Inc., Director
Triarc Companies, Inc., Director
INSIDE ("INTERESTED") DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (64) President and Chief Executive Officer Medicis Pharmaceutical Corporation, Director
1995 General American Investors Neurosciences Research Foundation, Trustee
Company, Inc. since 1995
All Directors serve for a term of one year and are elected by Stockholders at the time of the annual meeting on the second
Wednesday in April. The address for each Director is the Company's office.
-------------------------------------------------------
William T. Golden, Director Emeritus
24
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail:InvestorRelations@gainv.com
www.generalamericaninvestors.com
25
ITEM 2. CODE OF ETHICS.
On July 9, 2003, the Board of Directors adopted a code of ethics that applies to
registrant's principal executive and senior financial officers. The code of
ethics is available on registrant's Internet website at
http://www.generalamericaninvestors.com/corporateinfo.html. Since the code of
ethics was adopted there have been no amendments to the code nor have there been
granted any waivers from any provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors has determined that none of the members of registrant's
audit committee meets the definition of "audit committee financial expert" as
the term has been defined by the U.S. Securities and Exchange Commission (the
"Commission"). In addition, the Board of Directors has determined that the
members of the audit committee have sufficient financial expertise and
experience to perform the duties and responsibilities of the audit committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES The aggregate fees paid and accrued by the registrant for
professional services rendered by its independent auditors, Ernst & Young LLP,
for the audit of the registrant's annual financial statements and the review of
the registrant's semi-annual financial statements for 2006 and 2005 were $80,600
and $75,000, 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 2006 and
2005 were $25,400 and $23,700, respectively. Such services and related fees for
2006 and 2005 included: performance of agreed upon procedures relating to the
preferred stock basic maintenance reports ($6,400 and $6,000, respectively),
review of quarterly employee security transactions and issuance of report
thereon ($15,000 and $14,000, respectively) and other audit-related services
($4,000 and $3,700, 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 2006 and 2005 were $13,500 and $13,000, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2006 or 2005.
(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 2006 and 2005 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 2006
and 2005 were $38,900 and $36,700, 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., Lawrence B. Buttenwieser, 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, 2006 and the date of this filing, Mr. Spencer Davidson,
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
2006 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
07/01-07/31 38100 35.8238 38100 676200
08/01-08/31 52000 36.6649 52000 624200
09/01-09/30 44200 37.1442 44200 580000
10/01-10/31 48700 38.2654 48700 531300
11/01-11/30 82400 36.5333 82400 448900
12/01-12/31 82700 37.3596 82700 366200
------- -------- ------- ------
Total 348100 348100
======= =======
Note - On July 12, 2006, the Board of Directors authorized and the registrant announced the repurchase
of up to 400,000 shares of the registrant's common stock when the shares are trading at
a discount from the underlying net asset value of at least 8%. This represents a continuation
of a repurchase program which began in March 1995. As of the beginning of the period, July 1, 2006,
there were 314,300 shares available for repurchase under such authorization. As of the end of the
period, December 31, 2006, there were 366,200 shares available for repurchase under this program.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommmend nominees to the registrant's Board of Directors as set forth in the
registrant's Proxy Statement, dated February 28, 2006.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of December 31, 2006, 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, 2006, 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 9, 2007
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
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 9, 2007
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: February 9, 2007