sep2014rpt.htm - Generated by SEC Publisher for SEC Filing

 

For the nine months ended September 30, 2014, the net Unfortunately, while the U.S. recovery has experienced a
asset value per Common Share increased 5.4% while modest uptick in growth from last year, our trading partners
the investment return to our stockholders increased by in Asia, Europe, and the emerging economies have not. This
5.3%. By comparison, our benchmark, the Standard & Poor’s has increased the relative value of the U.S. Dollar and reduced
500 Stock Index (including income), increased 8.4%. For the demand and prices for commodities including fuels and some
twelve months ended September 30, 2014, the return on the finished goods. And while this is a symptom of the weakness
net asset value per Common Share increased by 13.6%, and abroad, it is on balance a net positive for U.S. consumers.
the return to our stockholders increased by 15.2%; these com- Although recently embracing a modest form of QE intended
pare with an increase of 19.7% for the S&P 500. During both to jumpstart its economy, Europe continues to suffer from a
periods, the discount at which our shares traded continued to combination of no growth and deflation amidst structurally
fluctuate and on September 30, 2014, it was 14.4%. inhibited monetary and fiscal policy. Economic confidence
  has also been depressed by the continuing difficulties in coun-
As detailed in the accompanying financial statements (unau- tering Russian aggression against the Ukraine and threats to
dited), as of September 30, 2014, the net assets applicable to the Baltics. Asia has yet to fully address its mixed economic
the Company’s Common Stock were $1,276,977,415 equal to performance, particularly Japan and China. Japan instituted a
$43.30 per Common Share. large tax increase in the spring which has dampened demand
  and China continues to deal with the transition from an export
The increase in net assets resulting from operations for the nine oriented economy to one more balanced with support from
months ended September 30, 2014 was $63,068,047. During domestic demand.
this period, the net realized gain on investments sold was  
$89,067,458 and the decrease in net unrealized appreciation In sum, improved economic growth domestically, in conjunc-
was $25,105,461. Net investment income for the nine months tion with low interest rates, appear capable of continuing
was $7,590,029 and distributions to Preferred Stockholders the U.S. economy’s pace of slightly stronger, but still muted
amounted to $8,483,979. growth. Valuations among large capitalized equities remain
  cheaper relative to small and midsize firms, though recent
During the nine months, 445,681 shares of the Company’s underperformance by the latter has narrowed that gap consid-
Common Stock were repurchased for $15,560,378 at an aver- erably. Corporate margins seem to have plateaued, leaving
age discount from net asset value of 14.6%. earnings growth tied closer to the real economy’s growth rate
Throughout this year, we have commented on the performance and productivity improvements. A re-acceleration in non-U.S.
of the real economy relative to the financial economy. Our dis- economies is likely required to improve economic prospects
cussion examined the role persistently high operating margins beyond the current pace of growth. Despite this and putting
played in conjunction with the Federal Reserve’s extraordinary geopolitical developments aside, equity market valuations
interest rate policies in the elevation of the U.S. equity market’s appear fair and remain more attractive than fixed income secu-
earnings multiple and overall favorable performance. With the rities given current interest rates.
end of quantitative easing in sight and the prospect of higher Information about the Company, including our investment
short term interest rates, the U.S. stock market appears to have objectives, operating policies and procedures, investment
entered a period of relatively higher volatility. Some of that results, record of dividend and distribution payments, financial
volatility can also be attributed to a number of geopolitical reports and press releases, is on our website and has been
events. updated through September 30, 2014. It can be accessed on the
internet at www.generalamericaninvestors.com.
In the U.S., economic data continue to improve as reflected
in the employment data. Non-farm payroll employment is By Order of the Board of Directors,
averaging over 200,000 per month compared to approximately GENERAL AMERICAN INVESTORS COMPANY, INC.
180,000 with adjustments in 2013. While the unemploy-  
ment rate appears low, due in part to the deterioration in Jeffrey W. Priest
the labor participation rate, wage growth remains slightly President and Chief Executive Officer
above the inflation rate and appears to be near an inflection October 8, 2014
point. Furthermore, weekly hours worked are approaching  
levels considered normal for a recovery or expansion. Capital  
expenditures are improving as are corporate stock repurchases  
and during the past year merger and acquisition activity has  
accelerated. All of which suggests corporations are becoming  
increasingly confident in their future earnings prospects and the  
overall economy.  

 

 


              Value
    Shares   COMMON STOCKS     (note 1a)
CONSUMER   AUTOMOBILES AND COMPONENTS (1.4%)      
 DISCRETIONARY   1,264,063   Ford Motor Company (Cost $16,174,723) $18,695,492
 (11.7%)   CONSUMER SERVICES (0.9%)       
    690,000   International Game Technology (COST $7,978,541)   11,640,300
    RETAILING (9.4%)          
    284,050   Kohl’s Corporation     17,335,571
    460,000   Target Corporation     28,832,800
    1,244,668   The TJX Companies, Inc.     73,647,006
          (Cost $42,752,572)   119,815,377
          (Cost $66,905,836)   150,151,169
 
CONSUMER   FOOD, BEVERAGE AND TOBACCO (9.5%)      
STAPLES   196,039   Danone     13,121,616
(13.4%) 237,400   Diageo plc ADR     27,395,960
    450,000   Nestle S.A.     33,122,902
    195,000   PepsiCo, Inc.     18,152,550
    734,620   Unilever N.V.     29,252,010
          (Cost $70,472,922)   121,045,038
    FOOD AND STAPLES RETAILING (3.9%)      
    394,500   Costco Wholesale Corporation (Cost $12,041,935)   49,438,740
          (Cost $82,514,857)   170,483,778
 
ENERGY   2,133,269   Alpha Natural Resources, Inc. (a)     5,290,507
(12.8%) 115,000   Anadarko Petroleum Corporation     11,665,600
    331,478   Apache Corporation     31,115,840
    1,232,344   Cameco Corporation     21,763,195
    340,000   Ensco plc - Class A     14,045,400
    585,000   Halliburton Company     37,738,350
    145,000   Occidental Petroleum Corporation     13,941,750
    803,803   Ultra Petroleum Corp. (a)     18,696,458
    470,000   Weatherford International plc (a)     9,776,000
(Cost $121,679,289)   164,033,100
   
FINANCIALS   BANKS (2.4%)        
(21.9%) 670,000   FCB Financial Holdings, Inc., Class A (a)     15,215,700
    125,000   M&T Bank Corporation     15,411,250
          (Cost $13,662,262)   30,626,950
    DIVERSIFIED FINANCIALS (5.3%)      
    255,000   American Express Company     22,322,700
    380,000   JPMorgan Chase & Co.     22,891,200
    525,000   Nelnet, Inc.     22,622,250
          (Cost $28,184,141)   67,836,150
    INSURANCE (14.2%)      
    293,492   Aon plc     25,730,444
    750,000   Arch Capital Group Ltd. (a)     41,040,000
    110   Berkshire Hathaway Inc. Class A (a)     22,759,000
    145,000   Everest Re Group, Ltd.     23,491,450
    365,000   MetLife, Inc.     19,607,800
    255,000   PartnerRe Ltd.     28,021,950
    335,000   Platinum Underwriters Holdings, Ltd.     20,391,450
          (Cost $56,755,400)   181,042,094
          (Cost $98,601,803)   279,505,194

 


 


            Value
    Shares   COMMON STOCKS (continued)     (note 1a)
HEALTH CARE   PHARMACEUTICALS, BIOTECHNOLOGY AND LIFE SCIENCES      
(9.4%) 1,200,000 Ariad Pharmaceuticals, Inc. (a)   $6,480,000
    200,000 Celgene Corporation (a)     18,956,000
    398,600 Gilead Sciences, Inc. (a)     42,430,970
    427,191 Merck & Co., Inc.     25,323,882
    755,808 Pfizer Inc.     22,349,243
    449,475 Repros Therapeutics Inc.     4,449,803
        (Cost $60,871,047)   119,989,898
 
INDUSTRIALS   CAPITAL GOODS (5.2%)      
(10.5%) 915,000 General Electric Company     23,442,300
    360,000 Owens Corning     11,430,000
    300,000 United Technologies Corporation     31,680,000
        (Cost $53,470,464)   66,552,300
    COMMERCIAL AND PROFESSIONAL SERVICES (5.2%)      
    1,037,100 Republic Services, Inc.     40,467,642
    255,798 Towers Watson & Co. Class A     25,451,901
        (Cost $30,786,660)   65,919,543
    TRANSPORTATION (0.1%)      
    72,500 Hertz Global Holdings, Inc. (a) (Cost $1,569,031)   1,840,775
        (Cost $85,826,155)   134,312,618
  
INFORMATION   SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT (4.3%)      
TECHNOLOGY   256,850 ASML Holding N.V.     25,381,917
(17.9%) 833,700 Intel Corporation     29,029,434
        (Cost $24,319,428)   54,411,351
    SOFTWARE AND SERVICES (3.7%)      
    680,686 Microsoft Corporation     31,556,603
    338,654 Synchronoss Technologies, Inc. (a)     15,503,580
        (Cost $27,810,204)   47,060,183
    TECHNOLOGY HARDWARE AND EQUIPMENT (9.9%)      
    429,000 Apple Inc.     43,221,750
    1,000,000 Cisco Systems, Inc.     25,170,000
    615,000 EMC Corporation     17,994,900
    536,200 QUALCOMM Incorporated     40,091,674
        (Cost $68,953,357)   126,478,324
        (Cost $121,082,989)   227,949,858
  
MATERIALS   336,300 The Dow Chemical Company (Cost $10,566,260)   17,635,572
(1.4%)          
 
MISCELLANEOUS     Other (b) (Cost $29,077,649)   20,697,520
(1.6%)            
 
TELECOMMUNICATION   459,702 Verizon Communications Inc.     22,980,503
 SERVICES   552,688 Vodafone Group plc ADR     18,177,908
 (3.2%)       (Cost $41,177,835)   41,158,411
 
      TOTAL COMMON STOCKS (103.8%) (Cost $718,303,720)   1,325,917,118
    Contracts        
    (100 shares each)   PUT OPTION/EXPIRATION DATE/EXERCISE PRICE    
Energy (0.0%)   1,500 Weatherford International plc/January 17, 2015/$20.00 (Cost $233,010)   169,500

 


 


        Value  
Shares SHORT-TERM SECURITY AND OTHER ASSETS     (note 1a)  
135,031,909 SSgA U.S. Treasury Money Market Fund (10.6%) (Cost $135,031,909) $135,031,909  
TOTAL INVESTMENTS (c) (114.4%) (Cost $853,568,639)   1,461,118,527  
Cash, receivables and other assets less liabilities (0.5%)     5,976,063  
PREFERRED STOCK (-14.9%)       (190,117,175)
NET ASSETS APPLICABLE TO COMMON STOCK (100%)   $1,276,977,415  

 

ADR - American Depository Receipt (a) Non-income producing security.

(b) Securities which have been held for less than one year, not previously disclosed, and not restricted.

(c) At September 30, 2014 the cost of investments for Federal income tax purposes was the same as the cost for financial reporting purposes, aggregate gross unrealized appreciation was $637,221,693, aggregate gross
 unrealized depreciation was $29,671,806, and net unrealized appreciation was $607,549,887.


  Contracts     Value
  (100 shares each)   CALL OPTION/EXPIRATION DATE/EXERCISE PRICE   (note 1a)
Energy (0.0%) 1,500 Weatherford International plc/January 17, 2015/$25.00    
    (Premium Received $120,987) $70,500

 

(see notes to unaudited financial statements)


  SHARES           SHARES  
INCREASES TRANSACTED           HELD  
NEW POSITIONS      
Repros Therapeutics Inc. 303,584 449,475 (b)
Synchronoss Technologies, Inc. — 338,654 (b)
Verizon Communications Inc. 459,702 459,702  
Vodafone Group plc ADR 552,688 552,688  
ADDITIONS      
Cameco Corporation 181,729 1,232,344  
Cisco Systems, Inc. 180,000 1,000,000  
Ensco plc - Class A 91,900 340,000  
General Electric Company 50,000 915,000  
Towers Watson & Co. Class A 10,000 255,798  
 
DECREASES      
ELIMINATIONS      
Bob Evans Farms, Inc. 284,170 —  
FCB Financial Holdings, Inc., Class B (c) 75,000 —  
eBay Inc. 154,500 —  
Idenix Pharmaceuticals, Inc. 61,369 —  
Visteon Corporation 30,000 —  
REDUCTIONS      
Anadarko Petroleum Corporation 65,000 115,000  
Apple Inc. 40,000 429,000  
Everest Re Group, Ltd. 20,000 145,000  
FCB Financial Holdings, Inc., Class A (c) 125,000 670,000  
Gilead Sciences, Inc. 30,000 398,600  
Halliburton Company 35,000 585,000  
Hertz Global Holdings, Inc. 350,00 72,500  
International Game Technology 60,000 690,000  
JPMorgan Chase & Co. 20,000 380,000  
Republic Services, Inc. 50,000 1,037,100  
Weatherford International plc 80,000 470,000  

 

(a) Common shares unless otherwise noted; excludes transactions in Common Stocks - Miscellaneous - Other.
(b) Shares purchased in prior period and previously carried under Common Stocks - Miscellaneous - Other.
(c) Formerly known as Bond Street Holdings LLC.

(see notes to unaudited financial statements)


 


The diversification of the Company’s net assets applicable to its Common Stock by industry group as of September 30, 2014 is shown in the following table.

PERCENT COMMON
INDUSTRY CATEGORY COST(000) VALUE (000) NET ASSETS*  
Financials              
Banks $13,662   $30,627   2.4 %
Diversified Financials   28,184   67,836   5.3  
Insurance   56,756   181,042   14.2  
 
Information Technology   98,602   279,505   21.9  
Semiconductors & Semiconductor Equipment   24,320   54,411   4.3  
Software & Services   27,810   47,060   3.7  
Technology Hardware & Equipment   68,953   126,478   9.9  
    121,083   227,949   17.9  
Consumer Staples              
Food, Beverage & Tobacco   70,473   121,045   9.5  
Food & Staples Retailing   12,042   49,439   3.9  
    82,515   170,484   13.4  
Energy   121,912   164,203   12.8  
Consumer Discretionary              
Automobiles & Components   16,175   18,696   1.4  
Consumer Services   7,978   11,640   0.9  
Retailing   42,753   119,815   9.4  
    66,906   150,151   11.7  
Industrials              
Capital Goods   53,470   66,552   5.2  
Commercial & Professional Services   30,787   65,920   5.2  
Transportation   1,569   1,841   0.1  
    85,826   134,313   10.5  
Health Care              
Pharmaceuticals, Biotechnology & Life Sciences   60,871   119,990   9.4  
Telecommunication Services 41,178   41,158   3.2  
Miscellaneous** 29,078   20,698   1.6  
Materials 10,566   17,635   1.4  
  718,537   1,326,086   103.8  
Short-Term Securities 135,032   135,032   10.6  
Total Investments $853,569   1,461,118   114.4  
Other Assets and Liabilities - Net       5,976   0.5  
Preferred Stock       (190,117) (14.9)
Net Assets Applicable to Common Stock       $1,276,977   100.0 %

 

* Net Assets applicable to the Company’s Common Stock.
** Securities which have been held for less than one year, not previously disclosed, and not restricted.

(see notes to unaudited financial statements)


 


ASSETS          
INVESTMENTS, AT VALUE (NOTE 1a)          
Common stocks (cost $718,303,720)       $1,325,917,118
Purchased option (cost $233,010)         169,500
Money market fund (cost $135,031,909)         135,031,909
             Total investments (cost $853,568,639)         1,461,118,527
 
RECEIVABLES AND OTHER ASSETS          
Cash held by custodian in segregated account $3,213      
Receivable for securities sold   10,514,984      
Dividends, interest and other receivables, net   3,102,250      
Qualified pension plan asset, net excess funded (note 7)   5,344,751      
Prepaid expenses and other assets   1,277,914     20,243,112
TOTAL ASSETS         1,481,361,639
LIABILITIES          
Payable for securities purchased   2,903,414      
Accrued preferred stock dividend not yet declared   219,955      
Outstanding option written, at value (premium received $120,987)   70,500      
Accrued supplemental pension plan liability (note 7)   4,692,152      
Accrued supplemental thrift plan liability (note 7)   2,637,796      
Accrued expenses and other liabilities   3,743,232      
 
TOTAL LIABILITIES         14,267,049
 
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -          
7,604,687 shares at a liquidation value of $25 per share (note 5)         190,117,175
 
NET ASSETS APPLICABLE TO COMMON STOCK - 29,493,887 shares (note 5)       $1,276,977,415
 
NET ASSET VALUE PER COMMON SHARE       $43.30
 
NET ASSETS APPLICABLE TO COMMON STOCK          
Common Stock, 29,493,887 shares at par value (note 5) $29,493,887      
Additional paid-in capital (note 5)   549,443,435      
Undistributed net investment income (note 5)   7,398,490      
Undistributed realized gain on investments   92,777,721      
Accumulated other comprehensive loss (note 7)   (1,824,244 )    
Unallocated distributions on Preferred Stock   (8,703,934 )    
Unrealized appreciation on investments and option written   608,392,060      
 
NET ASSETS APPLICABLE TO COMMON STOCK       $1,276,977,415

 

(see notes to unaudited financial statements)


 


INCOME            
Dividends (net of foreign withholding taxes of $634,300)       $17,592,922  
Interest         482  
          17,593,404  
EXPENSES            
Investment research $5,319,698        
Administration and operations   2,700,818        
Office space and related expenses   1,266,837        
Auditing and legal fees   200,865        
Directors’ fees and expenses   183,766        
State and local taxes   119,984        
Transfer agent, custodian and registrar fees and expenses   116,975        
Stockholders’ meeting and reports   94,432     10,003,375  
NET INVESTMENT INCOME         7,590,029  
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1, 3 AND 4)        
Net realized gain on investments:            
Securities transactions (long-term except for $7,206,046)   88,524,266        
Written option transactions (notes 1b and 4)   543,192        
    89,067,458        
Net decrease in unrealized appreciation on investments and option written   (25,105,461 )      
NET GAIN ON INVESTMENTS         63,961,997  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS         (8,483,979 )
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS       $63,068,047  

 


    Nine Months Ended        
    September 30, 2014     Year Ended  
OPERATIONS   (Unaudited)     December 31, 2013  
Net investment income $7,590,029   $5,228,019  
Net realized gain on investments   89,067,458     69,657,472  
Net increase (decrease) in unrealized appreciation   (25,105,461 )   243,076,683  
    71,552,026     317,962,174  
Distributions to Preferred Stockholders:            
From net investment income   —     (992,168 )
From long-term capital gains   —     (10,319,804 )
Unallocated distributions   (8,483,979 )   —  
Decrease in net assets from Preferred distributions   (8,483,979 )   (11,311,972 )
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS   63,068,047     306,650,202  
OTHER COMPREHENSIVE INCOME - Funded status of defined benefit plans (note 7)   —     5,948,555  
DISTRIBUTIONS TO COMMON STOCKHOLDERS            
From net investment income   —     (5,382,759 )
From long-term capital gains   —     (55,987,513 )
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS   —     (61,370,272 )
CAPITAL SHARE TRANSACTIONS (NOTE 5)            
Value of Common Shares issued in payment of dividends and distributions   —     35,871,304  
Cost of Common Shares purchased   (15,560,378 )   (13,047,704 )
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS   (15,560,378 )   22,823,600  
NET INCREASE IN NET ASSETS   47,507,669     274,052,085  
 
NET ASSETS APPLICABLE TO COMMON STOCK            
BEGINNING OF PERIOD   1,229,469,746     955,417,661  
END OF PERIOD (including undistributed net investment income (loss) of $7,398,490 and            
($191,539), respectively) $1,276,977,415   $1,229,469,746  

 

(see notes to unaudited financial statements)


 


The following table shows per share operating performance data, total investment return, ratios and supplemental data for the nine months ended
September 30, 2014 and for each year in the five-year period ended December 31, 2013. This information has been derived from information con-
tained in the financial statements and market price data for the Company’s shares.

  Nine Months                                
  Ended                                
     September 30, 2014           Year Ended December 31,        
  (Unaudited)     2013     2012     2011     2010     2009  
 
PER SHARE OPERATING PERFORMANCE                                  
Net asset value, beginning of period $41.07     $32.68   $29.78   $31.26   $27.50   $21.09  
Net investment income .26     .17     .24     .18     .19     .11  
Net gain (loss) on securities -                                  
realized and unrealized 2.26     10.51     5.05     (.68 )   4.37     6.94  
Other comprehensive income (loss) —     .20     —     (.10 )   —     .07  
  2.52     10.88     5.29     (.60 )   4.56     7.12  
Distributions on Preferred Stock:                                  
Dividends from net investment income —     (.04 )   (.04 )   (.11 )   (.07 )   (.11 )
Distributions from net short-term capital gains —     —     (.01 )   (.01 )   (.03 )   (.05 )
Distributions from net long-term capital gains —     (.35 )   (.34 )   (.26 )   (.27 )   (.19 )
Distributions from return of capital —     —     —     —     —     (.01 )
Unallocated (.29 )   —     —     —     —     —  
  (.29 )   (.39 )   (.39 )   (.38 )   (.37 )   (.36 )
Total from investment operations 2.23     10.49     4.90     (.98 )   4.19     6.76  
Distributions on Common Stock:                                  
Dividends from net investment income —     (.18 )   (.21 )   (.15 )   (.08 )   (.10 )
Distributions from net short-term capital gains —     —     (.02 )   (.01 )   (.03 )   (.05 )
Distributions from net long-term capital gains —     (1.92 )   (1.77 )   (.34 )   (.32 )   (.19 )
Distributions from return of capital —     —     —     —     —     (.01 )
  —     (2.10 )   (2.00 )   (.50 )   (.43 )   (.35 )
 
Net asset value, end of period $43.30     $41.07   $32.68 $29.78   $31.26 $27.50  
Per share market value, end of period $37.06     $35.20   $27.82 $24.91   $26.82 $23.46  
TOTAL INVESTMENT RETURN - Stockholder                                  
return, based on market price per share 5.28 %*   34.24 %   19.77 %   (5.29 %)   16.24 %   36.86 %
 
RATIOS AND SUPPLEMENTAL DATA                                  
Net assets applicable to Common Stock,                                  
end of period (000’s omitted) $1,276,977   $1,229,470   $955,418   $886,537   $950,941   $864,323  
Ratio of expenses to average net assets                                  
applicable to Common Stock 1.07 %**   1.27 %   1.67 %   1.39 %   1.54 %   1.93 %
Ratio of net investment income to average net assets                                  
applicable to Common Stock 0.81 %**   0.47 %   0.74 %   0.56 %   0.66 %   0.46 %
Portfolio turnover rate 14.12 %*   17.12 %   9.56 %   11.17 %   18.09 %   24.95 %
 
PREFERRED STOCK                                  
Liquidation value, end of period (000’s omitted) $190,117   $190,117   $190,117   $190,117   $190,117   $190,117  
Asset coverage 772 %   747 % 603 % 566 % 600 % 555 %
Liquidation preference per share $25.00     $25.00   $25.00   $25.00   $25.00   $25.00  
Market value per share $25.72     $25.30   $25.54   $25.47   $24.95   $24.53  

 

*Not annualized
**Annualized
(see notes to unaudited financial statements)


 


1. SIGNIFICANT ACCOUNTING POLICIES - General American Investors Company, Inc. (the “Company”), established in 1927, is registered
under the Investment Company Act of 1940 as a closed-end, diversifi ed management investment company. It is internally managed by
its offi cers under the direction of the Board of Directors.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
 
a. SECURITY VALUATION Equity securities traded on a national securities exchange are valued at the last reported sales price on the
last business day of the period. Equity securities reported on the NASDAQ national market are valued at the offi cial closing price on
that day. Listed and NASDAQ equity securities for which no sales are reported on that day and other securities traded in the over-
the-counter market are valued at the last bid price (asked price for options written) on the valuation date. Equity securities traded
primarily in foreign markets are valued at the closing price of such securities on their respective exchanges or markets. Corporate
debt securities, domestic and foreign, are generally traded in the over-the-counter market rather than on a securities exchange. The
Company utilizes the latest bid prices provided by independent dealers and information with respect to transactions in such securities
to determine current market value. If, after the close of foreign markets, conditions change signifi cantly, the price of certain foreign
securities may be adjusted to refl ect fair value as of the time of the valuation of the portfolio. Investments in money market funds
are valued at their net asset value. Special holdings (restricted securities) and other securities for which quotations are not readily
available are valued at fair value determined in good faith pursuant to specifi c procedures appropriate to each security as established
by and under the general supervision of the Board of Directors. The determination of fair value involves subjective judgments. As a
result, using fair value to price a security may result in a price materially different from the price used by other investors or the price
that may be realized upon the actual sale of the security.
 
b. OPTIONS The Company may purchase and write (sell) put and call options. The Company typically purchases put options or writes
call options to hedge the value of portfolio investments while it typically purchases call options and writes put options to obtain equity
market exposure under specifi ed circumstances. The risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk of loss of the premium and a change in market
value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner
as portfolio securities. Premiums received from writing options are reported as a liability on the Statement of Assets and Liabilities.
Those that expire unexercised are treated by the Company on the expiration date as realized gains on written option transactions
in the Statement of Operations. The difference between the premium received and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for
the closing purchase transaction, as a realized loss on written option transactions in the Statement of Operations. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has
realized a gain or loss on investments in the Statement of Operations. If a put option is exercised, the premium reduces the cost basis
for the securities purchased by the Company and is parenthetically disclosed under cost of investments on the Statement of Assets and
Liabilities. The Company as writer of an option bears the market risk of an unfavorable change in the price of the security underlying
the written option. See Note 4 for written option activity.
 
c. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest income, adjusted for amortization of discount and pre-
mium on investments, is earned from settlement date and is recognized on the accrual basis. Cost of short-term investments represent
amortized cost.
d. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such currencies versus U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at
the exchange rate in effect on the transaction date. Events may impact the availability or reliability of foreign exchange rates used
to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Company’s Board of Directors. The Company does not separately report the effect of
changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and
unrealized gain or loss from investments on the Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign
withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
 
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S.
companies as a result of, among other factors, the possibility of political or economic instability or the level of governmental supervi-
sion and regulation of foreign securities markets.
 
e. DIVIDENDS AND DISTRIBUTIONS The Company expects to pay dividends of net investment income and distributions of net realized
capital and currency gains, if any, annually to common shareholders and quarterly to preferred shareholders. Dividends and distribu-
tions to common and preferred shareholders, which are determined in accordance with Federal income tax regulations are recorded
on the ex-dividend date. Permanent book/tax differences relating to income and gains are reclassifi ed to paid-in capital as they arise.
 
f. FEDERAL INCOME TAXES The Company’s policy is to fulfi ll the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal
income taxes is required. In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, man-
agement has analyzed the Company’s tax positions taken or expected to be taken on Federal and state income tax returns for all open
tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Company’s
financial statements.
 
g. CONTINGENT LIABILITIES Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred
and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated
with the ultimate resolution of a matter that are reasonably estimable and, if so, they are included in the accrual.
 
h. INDEMNIFICATIONS In the ordinary course of business, the Company enters into contracts that contain a variety of indemnifi cations.
The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses
pursuant to these indemnifi cation provisions and expects the risk of loss thereunder to be remote.

 


 


2. FAIR VALUE MEASUREMENTS - Various data inputs are used in determining the value of the Company’s investments. These inputs are
summarized in a hierarchy consisting of the three broad levels listed below:
 
Level 1 - quoted prices in active markets for identical securities (including money market funds which are valued using amortized cost
and which transact at net asset value, typically $1 per share),
Level 2 - other signifi cant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.), and
Level 3 - signifi cant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities. The following is a summary of the inputs used to value the Company’s net assets as of September 30, 2014:

 

Assets   Level 1   Level 2 Level 3 Total
Common stocks $1,325,917,118   — — $1,325,917,118
Purchased option   169,500   — — 169,500
Money market fund       135,031,909       —        —      135,031,909
     Total $1,461,118,527   — — $1,461,118,527
Liabilities            
Option written ($70,500)     ($70,500)

 

The aggregate value of Level 3 portfolio investments changed during the nine months ended September 30, 2014 as follows:

 

Change in portfolio valuations using signifi cant unobservable inputs:      Level 3  
Fair value at December 31, 2013 $32,637,795  
Realized gain   9,328,522  
Net change in unrealized appreciation   (4,181,595)
Proceeds from sale   (24,076,522)
Transfer to Level 1   (13,708,200)
Fair value at September 30, 2014 $0  

 

Transfers are reported as of the actual date of reclassifi cation. A transfer from Level 3 to Level 1 occurred during the period ended
September 30, 2014.
 
3. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other than short-term securities and options) for the nine
months ended September 30, 2014 amounted to $185,301,533 and $244,402,189, on long transactions, respectively.
 
4. WRITTEN OPTIONS - The level of activity in written options varies from year to year based upon market conditions. Transactions in
written covered call options and collateralized put options during the nine months ended September 30, 2014 were as follows:

 

  Covered Calls   Collateralized Puts
  Contracts     Premiums   Contracts     Premiums
Options outstanding, December 31, 2013 1,200   $229,628   0   $0
Options written 3,000     241,974   5,800     818,553
Options exercised (250)   (161,738) (1,500 )   (147,489)
Options expired (523)   (37,375) (2,500 )   (57,940)
Options terminated in closing purchase transaction (1,927)   (151,502) (1,800 )   (613,124)
Options outstanding, September 30, 2014 1,500   $120,987   0   $0

 

The maximum payout for written put options is limited to the number of put option contracts written and outstanding and the related
strike prices; currently, none are outstanding. The fair value of the covered call option contract at September 30, 2014 is $70,500.
 
5. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - The authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00 par value. With respect to the Common Stock, 29,493,887 shares
were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on September 30, 2014.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B in an underwritten
offering. The Preferred Shares were noncallable for the 5 year period ended September 24, 2008 and have a liquidation preference of $25.00 per
share plus accumulated and unpaid dividends to the date of redemption. On December 10, 2008, the Board of Directors authorized the repurchase
of up to 1 million Preferred Shares in the open market at prices below $25.00 per share. To date, 395,313 shares have been repurchased.
The Company is required to allocate distributions from long-term capital gains and other types of income proportionately among hold-
ers of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from
long-term capital gains, they will be paid from ordinary income or net short-term capital gains or will represent a return of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an asset coverage of at least 200% of the Preferred
Stock. In addition, pursuant to Moody’s Investor Service, Inc. Rating Agency Guidelines, the Company is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds a Basic Maintenance Amount. If the Company fails to meet
these requirements in the future and does not cure such failure, the Company may be required to redeem, in whole or in part, shares
of Preferred Stock at a redemption price of $25.00 per share plus accumulated and unpaid dividends. In addition, failure to meet the
foregoing asset coverage requirements could restrict the Company’s ability to pay dividends on shares of Common Stock and could lead
to sales of portfolio securities at inopportune times.
 
The holders of Preferred Stock have voting rights equivalent to those of the holders of Common Stock (one vote per share) and, gener-
ally, vote together with the holders of Common Stock as a single class.
 
Holders of Preferred Stock will elect two members to the Company’s Board of Directors and the holders of Preferred and Common
Stock, voting as a single class, will elect the remaining directors. If the Company fails to pay dividends on the Preferred Stock in an
amount equal to two full years’ dividends, the holders of Preferred Stock will have the right to elect a majority of the directors. In
addition, the Investment Company Act of 1940 requires that approval of the holders of a majority of any outstanding Preferred Shares,
voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the Preferred Stock
and (b) take any action requiring a vote of security holders, including, among other things, changes in the Company’s subclassifi cation
as a closed-end investment company or changes in its fundamental investment policies.

 


 


5. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from bottom of previous page.)
The Company presents its Preferred Stock, for which its redemption is outside of the Company’s control, outside of the net assets
applicable to Common Stock in the Statement of Assets and Liabilities.
Transactions in Common Stock during the nine months ended September 30, 2014 and the year ended December 31, 2013 were as follows:

 

    Shares       Amount  
  2014   2013   2014   2013
Shares issued in payment of dividends and distributions              
(includes 1,090,772 shares issued from treasury) —   1,090,772    —   $1,090,772
Increase in paid-in capital         —   34,780,532
Total increase         —   35,871,304
Shares purchased (at an average discount from net asset value              
of 14.6% and 14.3%, respectively) (445,681)   (385,176) ($445,681)   (385,176)
Decrease in paid-in capital         (15,114,697)   (12,662,528)
Total decrease         (15,560,378)   (13,047,704)
Net increase (decrease) (445,681)   705,596   ($15,560,378)   $22,823,600

 

At September 30, 2014, the Company held in its treasury 2,486,985 shares of Common Stock with an aggregate cost in the amount of
$73,530,867.
 
The tax basis distributions during the year ended December 31, 2013 are as follows: ordinary distributions of $6,746,658 and long-term
capital gains distributions of $65,935,586. As of December 31, 2013, distributable earnings on a tax basis included $3,963,127 from
undistributed net long-term capital gains and $633,497,521 from net unrealized appreciation on investments if realized in future years.
Reclassifications arising from permanent “book/tax” differences reflect non-tax deductible expenses and redesignation of dividends during
the year ended December 31, 2013. As a result, undistributed net investment loss was decreased by $8,208 and additional paid-in capital was
decreased by $1,014 and undistributed net realized gain on securities sold was decreased by $7,194. As of December 31, 2013 the Company
had straddle loss deferrals of $252,864. Net assets were not affected by this reclassification.
 
6. OFFICERS’ COMPENSATION - The aggregate compensation accrued and paid by the Company during the nine months ended September
30, 2014 to its offi cers (identifi ed on back cover) amounted to $5,129,625.
 
7. BENEFIT PLANS - The Company has funded (qualifi ed) and unfunded (supplemental) noncontributory defi ned benefi t pension plans
that are available to its employees. The pension plans provide defi ned benefi ts based on years of service and final average salary with
an offset for a portion of social security covered compensation. The components of the net periodic benefi t cost (income) of the plans
for the nine months ended September 30, 2014 were:

 

Service cost $349,650  
Interest cost   656,262  
Expected return on plan assets   (847,191)
Amortization of prior service cost   34,938  
Amortization of recognized net actuarial loss   335,928  
 
Net periodic benefi t cost $529,587  

 

The Company recognizes the overfunded or underfunded status of a defi ned benefi t postretirement plan as an asset or liability in the
Statement of Assets and Liabilities and recognizes changes in funded status in the year in which the changes occur through other com-
prehensive income.
 
The Company also has funded (qualifi ed) and unfunded (supplemental) defi ned contribution thrift plans that are available to its employ-
ees. The aggregate cost of such plans for the nine months ended September 30, 2014 was $548,720. The qualifi ed thrift plan acquired
13,999 shares and sold 11,100 shares of the Company’s Common Stock during the nine months ended September 30, 2014 and held
487,900 shares of the Company’s Common Stock at September 30, 2014.
 
8. OPERATING LEASE COMMITMENT - In September 2007, the Company entered into an operating lease agreement for offi ce space which
expires in February 2018 and provided for future rental payments in the aggregate amount of approximately $10,755,000, net of con-
struction credits. The lease agreement contains clauses whereby the Company receives free rent for a specifi ed number of months and
credit towards construction of offi ce improvements, and incurs escalations annually relating to operating costs and real property taxes
and to annual rent charges beginning in February 2013. The Company has the option to renew the lease after February 2018 for five
years at market rates. Rental expense approximated $838,000 for the nine months ended September 30, 2014. Minimum rental commit-
ments under the operating lease are approximately $1,183,000 in 2014 through 2017, and $99,000 in 2018.

 


Previous purchases of the Company’s Common and Preferred Stock are set forth in Note 5 on pages 10 and 11. Prospective purchases of Common
and Preferred Stock may be at such times, at such prices, in such amounts and in such manner as the Board of Directors may deem advisable.
 
The policies and procedures used by the Company to determine how to vote proxies relating to portfolio securities and the Company’s proxy vot-
ing record for the twelve-month period ended September 30, 2014 are available: (1) without charge, upon request, by calling us at our toll-free
telephone number (1-800-436-8401), (2) on the Company’s website at www.generalamericaninvestors.com and (3) on the Securities and Exchange
Commission’s website at www.sec.gov.
 
In addition to distributing financial statements as of the end of each quarter, General American Investors files a Quarterly Schedule of Portfolio
Holdings (Form N-Q) with the Securities and Exchange Commission (“SEC”) as of the end of the first and third calendar quarters. The Company’s
Forms N-Q are available at www.generalamericaninvestors.com and on the SEC’s website: www.sec.gov. Also, Forms N-Q may be reviewed and
copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the SEC’s Public Reference Room may be obtained
by calling 1-800-SEC-0330. A copy of the Company’s Form N-Q may also be obtained by calling us at 1-800-436-8401.
 
On May 16, 2014, the Company submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Company’s princi-
pal executive officer certified that he was not aware, as of that date, of any violation by the Company of the NYSE’s Corporate Governance listing
standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Company’s principal executive and
principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things,
the Company’s disclosure controls and procedures and internal control over financial reporting, as applicable.

 


 

 
DIRECTORS*
Spencer Davidson, Chairman
Sidney R. Knafel, Lead Independent Director
Arthur G. Altschul, Jr.    Betsy F. Gotbaum
Rodney B. Berens    Daniel M. Neidich
Lewis B. Cullman    Jeffrey W. Priest
John D. Gordan, III    Raymond S. Troubh
(*The Company is a stand-alone fund.)

 

OFFICERS
Jeffrey W. Priest, President and Chief Executive Officer
Andrew V. Vindigni, Senior Vice-President
Craig A. Grassi, Vice-President
Sally A. Lynch, Vice-President
Michael W. Robinson, Vice-President
Eugene S. Stark, Vice-President, Administration, Principal
Financial Officer & Chief Compliance Officer
Diane G. Radosti, Treasurer
Maureen E. LoBello, Corporate Secretary
Linda J. Genid, Assistant Corporate Secretary

 

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