mar2015qtrly.htm - Generated by SEC Publisher for SEC Filing


 

For the three months ended March 31, 2015, the net asset value per Common Share increased 1.51% while the investment return to our stockholders decreased by 0.06%. By comparison, our benchmark, the Standard & Poor’s 500 Stock Index (including income), increased 0.96%. For the twelve months ended March 31, 2015, the return on the net asset value per Common Share increased by 7.77%, and the return to our stockholders increased by 9.17%; these compare with an increase of 12.75% for the S&P 500. During both periods, the discount at which our shares traded continued to fluctuate and on March 31, 2015, it was 13.4%.

As detailed in the accompanying financial statements (unau-dited), as of March 31, 2015, the net assets applicable to the Company’s Common Stock were $1,220,964,927 equal to $40.37 per Common Share.

The increase in net assets resulting from operations for the three months ended March 31, 2015 was $14,888,724. During this period, the net realized gain on investments sold was $8,341,230 and the increase in net unrealized appreciation was $5,816,238. Net investment income for the three months was $3,559,249 and distributions to Preferred Stockholders amounted to $2,827,993.

During the three months, 625,974 shares of the Company’s Common Stock were repurchased for $21,823,502 at an average discount from net asset value of 13.6%.

The positive returns of the past six years continued through the first quarter, albeit at a modest pace. While the US equity market may appear fully valued, it remains supported by historically high operating margins, low interest rates, and a favorable competitive position. Rather than attempting to grow sales by pursuing marginal revenue opportunities as they have in the past, companies have generally employed responsible capital allocation strategies given the environment.

The conundrum for investors, which we described last year as the divergence between the moderate advance of the real economy and the stronger performance of the financial economy, remains. The U.S. economy entered 2015 with modestly weakened momentum just as it had in 2014. This year, the strength in the U.S. dollar will likely weigh on export oriented industries as well domestic companies competing with lower priced imports. West coast port closures, due to striking workers, also had a negative impact as did colder temperatures, particularly in the population-dense northeastern quarter of the country. Additional weights on first quarter GDP growth include: the oil and gas industry which faces a difficult price environment, has employed an aggressive cost cutting strategy, and has reduced capital expenditures; and significant geo-political uncertainty as the U.S. attempts to diplomatically deal with a number of crises.

Over the near to mid-term, reduced energy costs should be favorable for the economy. Aside from increased premiums for healthcare insurance, households are doing better than a year ago. Though still muted, wage growth continues on an upward trajectory and conversion of labor from part-time to full-time has also improved, which is a positive both for household income and formations. Unemployment claims data continue to suggest that the labor market is in good shape and consumer confidence has been relatively strong during this period. These and other factors might lead one to conclude that a number of economic concerns confronting the economy may be temporal in nature.

Likewise, strong performance of many of our trading partners’ equity markets, in local currency terms, has largely been based on aggressive monetary policies which may improve growth worldwide. Europe, in particular, has enjoyed strong financial market returns as have a number of emerging markets. Asset appreciation and currency weakness in these countries is seemingly having the desired effect of elevating consumption, reducing uncertainty, and improving balances of trade, though it remains to be seen how robust the impact will be longer term

In sum, investors in U.S. equity markets may continue to grapple with the notion of weaker than anticipated economic growth. Historically, a strong U.S. dollar has had a favorable impact on financial markets and the economy (subject to limits of course). Despite a pledge from the Federal Reserve to raise interest rates soon, they appear likely to remain historically low for the foreseeable future as economic growth remains muted and inflation is benefitting from lower import costs both on inputs and finished products. The U.S. economy appears capable of returning to its 2%-2.5% trajectory, providing a relatively stable environment for companies to continue to repurchase shares, deploy resources in a disciplined manner through capital expenditures and engage in merger and acquisition activity to reduce costs. Thus, despite six strong years of financial gains, the current environment remains favorable for equities when compared to fixed income investments. And though gains ahead may be more muted given the significant outperformance of the financial economy when compared to the real economy, it is not without historic precedent.

Information about the Company, including our investment objectives, operating policies and procedures, investment results, record of dividend and distribution payments, financial reports and press releases, is on our website and has been updated through March 31, 2015. It can be accessed on the internet at www.generalamericaninvestors.com.

By Order of the Board of Directors,

GENERAL AMERICAN INVESTORS COMPANY, INC.

Jeffrey W. Priest

President and Chief Executive Officer

April 15, 2015
 


              Value
    Shares   COMMON STOCKS     (note 1a)
CONSUMER   AUTOMOBILES AND COMPONENTS (1.7%)      
DISCRETIONARY   1,264,063   Ford Motor Company (Cost $16,174,723) $20,401,977
 (10.3%)   RETAILING (8.6%)        
    216,300   Target Corporation     17,751,741
    1,244,668   The TJX Companies, Inc.     87,188,993
          (Cost $16,315,129)   104,940,734
          (Cost $32,489,852)   125,342,711
  
CONSUMER   FOOD, BEVERAGE AND TOBACCO (10.1%)      
STAPLES   196,039   Danone     13,197,887
(13.9%) 237,400   Diageo plc ADR     26,249,318
    450,000   Nestle S.A.     33,995,470
    195,000   PepsiCo, Inc.     18,645,900
    734,620   Unilever N.V.     30,734,679
          (Cost $70,472,922)   122,823,254
    FOOD AND STAPLES RETAILING (3.8%)      
    307,800   Costco Wholesale Corporation (Cost $9,322,526)   46,630,161
          (Cost $79,795,448)   169,453,415
 
ENERGY   185,000   Anadarko Petroleum Corporation     15,319,850
(9.4%) 301,478   Apache Corporation     18,188,168
    1,372,819   Cameco Corporation     19,123,369
    420,000   Ensco plc - Class A     8,849,400
    585,000   Halliburton Company     25,669,800
    200,000   Occidental Petroleum Corporation     14,600,000
    803,803   Ultra Petroleum Corp. (a)     12,563,441
          (Cost $110,678,755)   114,314,028
 
FINANCIALS   BANKS (2.8%)        
(21.9%) 668,800   FCB Financial Holdings, Inc., Class A (a)     18,305,056
    125,000   M&T Bank Corporation     15,875,000
          (Cost $13,638,263)   34,180,056
    DIVERSIFIED FINANCIALS (5.3%)      
    245,000   American Express Company     19,139,400
    360,000   JPMorgan Chase & Co.     21,808,800
    518,500   Nelnet, Inc.     24,535,420
          (Cost $26,804,910)   65,483,620
    INSURANCE (13.8%)      
    293,492   Aon plc     28,210,451
    730,000   Arch Capital Group Ltd. (a)     44,968,000
    110   Berkshire Hathaway Inc. Class A (a)     23,925,000
    135,000   Everest Re Group, Ltd.     23,490,000
    365,000   MetLife, Inc.     18,450,750
    255,000   PartnerRe Ltd.     29,154,150
          (Cost $44,600,085)   168,198,351
          (Cost $85,043,258)   267,862,027

 


 


            Value
    Shares   COMMON STOCKS (continued)     (note 1a)
HEALTH CARE   PHARMACEUTICALS, BIOTECHNOLOGY AND LIFE SCIENCES      
(11.2%) 1,200,000 Ariad Pharmaceuticals, Inc. (a)   $9,888,000
    200,000 Celgene Corporation (a)     23,056,000
    443,600 Gilead Sciences, Inc. (a)     43,530,468
    265,142 Intra-Cellular Therapies Inc.     6,331,591
    427,191 Merck & Co., Inc.     24,554,939
    705,808 Pfizer Inc.     24,555,060
    508,375 Repros Therapeutics Inc. (a)     4,366,941
        (Cost $69,260,695)   136,282,999
   
INDUSTRIALS   CAPITAL GOODS (7.5%)      
(14.0%) 219,131 Eaton Corporation PLC     14,887,760
    1,015,000 General Electric Company     25,182,150
    390,000 Owens Corning     16,926,000
    300,000 United Technologies Corporation     35,160,000
        (Cost $73,018,724)   92,155,910
    COMMERCIAL AND PROFESSIONAL SERVICES (6.4%)      
    1,037,100 Republic Services, Inc.     42,064,776
    273,798 Towers Watson & Co. Class A     36,191,989
        (Cost $32,629,367)   78,256,765
    TRANSPORTATION (0.1%)      
    72,500 Hertz Global Holdings, Inc. (a) (Cost $1,569,031)   1,571,800
        (Cost $107,217,122)   171,984,475
  
INFORMATION   SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT (4.3%)      
TECHNOLOGY   256,850 ASML Holding N.V.     25,949,555
(18.6%) 833,700 Intel Corporation     26,069,799
        (Cost $24,319,428)   52,019,354
    SOFTWARE AND SERVICES (3.7%)      
    680,686 Microsoft Corporation     27,673,289
    365,534 Synchronoss Technologies, Inc. (a)     17,348,244
        (Cost $28,849,489)   45,021,533
    TECHNOLOGY HARDWARE AND EQUIPMENT (10.6%)      
    394,000 Apple Inc.     49,025,420
    1,000,000 Cisco Systems, Inc.     27,525,000
    615,000 EMC Corporation     15,719,400
    536,200 QUALCOMM Incorporated     37,180,108
        (Cost $66,114,556)   129,449,928
        (Cost $119,283,473)   226,490,815
  
MATERIALS   76,300 The Dow Chemical Company     3,660,874
(1.3%) 564,553 Huntsman Corporation     12,516,140
        (Cost $15,667,491)   16,177,014
 
MISCELLANEOUS     Other (b) (Cost $36,168,446)   39,633,757
(3.2%)          
  
TELECOMMUNICATION   623,852 Vodafone Group plc ADR (Cost $21,262,882)   20,387,483
SERVICES            
(1.7%)          
      TOTAL COMMON STOCKS (105.5%) (Cost $676,867,422)   1,287,928,724

 


 


        Value
Shares SHORT-TERM SECURITY AND OTHER ASSETS     (note 1a)
131,648,548 SSgA U.S. Treasury Money Market Fund (10.8%) (Cost $131,648,548) $131,648,548
TOTAL INVESTMENTS (c) (116.3%) (Cost $808,515,970)   1,419,577,272
Liabilities in excess of receivables and other assets (-0.7%)     (8,495,170)
PREFERRED STOCK (-15.6%)       (190,117,175)
NET ASSETS APPLICABLE TO COMMON STOCK (100%)   $1,220,964,927

 

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 March 31, 2015 the cost of investments for Federal income tax purposes was $808,515,970, aggregate gross unrealized appreciation was $639,918,436, aggregate gross unrealized depreciation was $28,857,134, and net unrealized appreciation was $611,061,302.


  NET SHARES SHARES  
INCREASES TRANSACTED HELD  
NEW POSITIONS      
Eaton Corporation PLC 35,000 219,131 (b)
Huntsman Corporation 564,553 564,553  
Intra-Cellular Therapies Inc. — 265,142 (b)
ADDITIONS      
Anadarko Petroleum Corporation 45,000 185,000  
Cameco Corporation 140,475 1,372,819  
Ensco plc - Class A 65,000 420,000  
General Electric Company 100,000 1,015,000  
Gilead Sciences, Inc. 30,000 443,600  
Occidental Petroleum Corporation 45,000 200,000  
Owens Corning 15,000 390,000  
Synchronoss Technologies, Inc. 26,880 365,534  
Vodafone Group plc ADR 71,164 623,852  
 
DECREASES      
ELIMINATIONS      
Alpha Natural Resources, Inc. 2,133,269 —  
International Game Technology 690,000 —  
Kohl’s Corporation 259,050 —  
Platinum Underwriters Holdings, Ltd. 325,000 —  
Verizon Communications Inc. 459,702 —  
Weatherford International Ltd. 470,000 —  
REDUCTIONS      
Apple Inc. 20,000 394,000  
Arch Capital Group Ltd. 20,000 730,000  
The Dow Chemical Company 260,000 76,300  
FCB Financial Holdings, Inc., Class A 1,200 668,800  
JPMorgan Chase & Co. 10,000 360,000  
Nelnet, Inc. 6,500 518,500  
Pfizer Inc. 50,000 705,808  
Target Corporation 155,000 216,300  

 

(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.

(see notes to unaudited financial statements)


 

 

The diversification of the Company’s net assets applicable to its Common Stock by industry group as of March 31, 2015 is shown in the table.

PERCENT
INDUSTRY CATEGORY COST (000) VALUE (000) COMMON NET ASSETS*  
Financials              
Banks $13,638 $34,180   2.8%
Diversified Financials   26,805   65,484   5.3    
Insurance   44,600   168,198   13.8    
   

 85,043

    267,862    21.9    
Information Technology          
Semiconductors & Semiconductor Equipment   24,319   52,019   4.3    
Software & Services   28,850   45,022   3.7    
Technology Hardware & Equipment   66,115   129,450   10.6    
    119,284   226,491   18.6    
Industrials              
Capital Goods   73,019   92,156   7.5    
Commercial & Professional Services   32,629   78,256   6.4    
Transportation   1,569   1,572   0.1    
    107,217   171,984   14.0    
Consumer Staples              
Food, Beverage & Tobacco   70,473   122,823   10.1    
Food & Staples Retailing   9,322   46,630   3.8    
    79,795   169,453   13.9    
Health Care              
Pharmaceuticals, Biotechnology & Life Sciences   69,261   136,283   11.2    
Consumer Discretionary              
Automobiles & Components   16,175   20,402   1.7    
Retailing   16,315   104,941   8.6    
    32,490   125,343   10.3    
Energy   110,679   114,314   9.4    
Miscellaneous**   36,168   39,634   3.2    
Telecommunication Services   21,263   20,387   1.7    
Materials   15,667   16,177   1.3    
    676,867   1,287,928   105.5    
Short-Term Securities   131,649   131,649   10.8    
Total Investments $808,516   1,419,577   116.3    
Other Assets and Liabilities - Net       (8,495) (0.7) 
Preferred Stock       (190,117) (15.6) 
Net Assets Applicable to Common Stock     $1,220,965   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 $676,867,422)       $1,287,928,724
Money market fund (cost $131,648,548)         131,648,548
Total investments (cost $808,515,970)         1,419,577,272
 
RECEIVABLES AND OTHER ASSETS          
Receivable for securities sold $2,735,128      
Dividends, interest and other receivables   2,385,708      
Qualified pension plan asset, net excess funded (note 7)   2,510,512      
Prepaid expenses, fixed assets and other assets   1,120,951     8,752,299
TOTAL ASSETS         1,428,329,571
LIABILITIES          
Payable for securities purchased   6,640,083      
Accrued compensation payable to officers and employees   1,000,000      
Accrued preferred stock dividend not yet declared   219,955      
Accrued supplemental pension plan liability (note 7)   6,018,866      
Accrued supplemental thrift plan liability (note 7)   2,825,472      
Accrued expenses and other liabilities   543,093      
 
TOTAL LIABILITIES         17,247,469
 
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 - 30,245,870 shares (note 5)       $1,220,964,927
 
NET ASSET VALUE PER COMMON SHARE       $40.37
 
NET ASSETS APPLICABLE TO COMMON STOCK          
Common Stock, 30,245,870 shares at par value (note 5) $30,245,870      
Additional paid-in capital (note 5)   575,409,449      
Undistributed net investment income (note 5)   2,701,638      
Undistributed realized gain on securities sold   10,116,771      
Accumulated other comprehensive loss (note 7)   (5,786,254 )    
Unallocated distributions on Preferred Stock   (3,047,948 )    
Unrealized appreciation on investments   611,325,401      
 
NET ASSETS APPLICABLE TO COMMON STOCK       $1,220,964,927

 

(see notes to unaudited financial statements)


 


INCOME  

 

    
Dividends (net of foreign withholding taxes of $48,486)     $7,147,556
 
EXPENSES        
Investment research $1,683,708    
Administration and operations   970,054    
Office space and general   409,410    
Auditing and legal fees   168,934    
Stockholders’ meeting and reports   150,291    
Transfer agent, custodian and registrar fees and expenses   105,071    
Directors’ fees and expenses   56,989    
State and local taxes   43,850   3,588,307
NET INVESTMENT INCOME       3,559,249
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1, 3 AND 4)        
Net realized gain on investments:        
Securities transactions   8,144,029    
Written option transactions (notes 1b and 4)   197,201    
    8,341,230    
Net increase in unrealized appreciation   5,816,238    
NET INVESTMENT INCOME, GAINS, AND APPRECIATION ON INVESTMENTS       14,157,468
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS       (2,827,993)
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS     $14,888,724

 


    Three Months Ended    
    March 31, 2015   Year Ended
OPERATIONS   (Unaudited)   December 31, 2014
Net investment income $3,559,249 $9,735,291
Net realized gain on investments   8,341,230   102,101,749
Net increase (decrease) in unrealized appreciation   5,816,238   (27,988,358)
    17,716,717   83,848,682
Distributions to Preferred Stockholders:        
From net investment income   —   (1,037,961)
From net capital gains   —   (10,274,011)
Unallocated distributions   (2,827,993)   —
Decrease in net assets from Preferred distributions   (2,827,993)   (11,311,972)
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS   14,888,724   72,536,710
OTHER COMPREHENSIVE LOSS        
Funded status of defined benefit plans (note 7)   —   (3,962,010)
DISTRIBUTIONS TO COMMON STOCKHOLDERS        
From net investment income   —   (9,462,665)
From net capital gains   —   (93,663,921)
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS   —   (103,126,586)
CAPITAL SHARE TRANSACTIONS (NOTE 5)        
Value of Common Shares issued in payment of dividends and distributions   —   51,886,970
Cost of Common Shares purchased   (21,823,502)   (18,905,125)
INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS   (21,823,502)   32,981,845
NET DECREASE IN NET ASSETS   (6,934,778)   (1,570,041)
 
NET ASSETS APPLICABLE TO COMMON STOCK        
BEGINNING OF PERIOD   1,227,899,705   1,229,469,746
END OF PERIOD (including under/over distributed net investment income of $2,701,638 and        
($857,611), respectively) $1,220,964,927 $1,227,899,705

 

(see notes to unaudited financial statements)


 


The following table shows per share operating performance data, total investment return, ratios and supplemental data for the three months ended
March 31, 2015 and for each year in the five-year period ended December 31, 2014. This information has been derived from information contained
in the financial statements and market price data for the Company’s shares.

    Three Months                            
    Ended                            
    March 31, 2015         Year Ended December 31,      
    (Unaudited)     2014     2013     2012     2011     2010
PER SHARE OPERATING PERFORMANCE                                
Net asset value, beginning of period $39.77   $41.07   $32.68   $29.78   $31.26   $27.50
Net investment income   .12   .32     .17     .24     .18     .19
Net gain (loss) on securities -                                
realized and unrealized   .57   2.39     10.51     5.05     (.68)   4.37
Other comprehensive income (loss)   —   (.13)   .20     —     (.10)   —
    .69   2.58     10.88     5.29     (.60)   4.56
Distributions on Preferred Stock:                                
Dividends from net investment income   —   (.04)   (.04)   (.04)   (.11)   (.07)
Distributions from net capital gains   —   (.34)   (.35)   (.35)   (.27)   (.30)
Unallocated   (.09) —     —     —     —     —
    (.09) (.38)   (.39)   (.39)   (.38)   (.37)
Total from investment operations   .60   2.20     10.49     4.90     (.98)   4.19
Distributions on Common Stock:                                
Dividends from net investment income   —   (.32)   (.18)   (.21)   (.15)   (.08)
Distributions from net capital gains   —   (3.18)   (1.92)   (1.79)   (.35)   (.35)
    —   (3.50)   (2.10)   (2.00)   (.50)   (.43)
 
Net asset value, end of period $40.37   $39.77   $41.07   $32.68   $29.78   $31.26
Per share market value, end of period $34.98   $35.00   $35.20   $27.82   $24.91   $26.82
TOTAL INVESTMENT RETURN - Stockholder                                
return, based on market price per share   (0.06%)* 9.32%   34.24%   19.77%   (5.29%)   16.24%
 
RATIOS AND SUPPLEMENTAL DATA                                
Net assets applicable to Common Stock,                                
end of period (000’s omitted) $1,220,965   $1,227,900 $1,229,470   $955,418   $886,537   $950,941
Ratio of expenses to average net assets                                
applicable to Common Stock   1.18%** 1.10%   1.27%   1.67%   1.39%   1.54%
Ratio of net income to average net assets                                
applicable to Common Stock   1.17%** 0.78%   0.47%   0.74%   0.56%   0.66%
Portfolio turnover rate   5.40%* 14.98%   17.12%   9.56%   11.17%   18.09%
 
PREFERRED STOCK                                
Liquidation value, end of period (000’s omitted) $190,117   $190,117 $190,117   $190,117   $190,117   $190,117
Asset coverage   742% 746%   747%   603%   566% 600%
Liquidation preference per share $25.00   $25.00   $25.00   $25.00   $25.00   $25.00
Market value per share $26.13   $26.01   $25.30   $25.54   $25.47   $24.95

 

*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, diversified management investment company. It is internally managed by
its offi cers under the direction of the Board of Directors.
 
The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles
(“U.S. GAAP”) pursuant to the requirements for reporting; Accounting Standards Codifi cation 946, Financial Services - Investment
Companies (“ASC946”), and Articles 6 and 10 of Regulation S-X.
 
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, expenses
and gains and losses during the reported period. Changes in the economic environment, financial markets, and any other parameters
used in determining these estimates could cause actual results to differ, and these differences could be material.
 
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 significantly, 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 specific 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 specified 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 reclassified to paid-in capital as they arise.
 
f. 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. 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 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.

 


 


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 significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.), and
Level 3 - significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities. The following is a summary of the inputs used to value the Company’s net assets as of March 31, 2015:

 

Assets   Level 1   Level 2   Level 3   Total
Common stocks $1,287,928,724 — — $1,287,928,724
Money market fund   131,648,548 — —   131,648,548
Total $1,419,577,272 — — $1,419,577,272

 

Transfers of Level 3 securities, if any, are reported as of the actual date of reclassification.
 
3. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities (other than short-term securities and options) for the three
months ended March 31, 2015 amounted to $69,420,092 and $116,669,564, 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 during the three months ended March 31, 2015 were as follows:

 

  Covered Calls
  Contracts     Premiums
Options outstanding, December 31, 2014 2,100   $245,504
Options terminated in closing purchase transaction (1,900)   (200,966)
Options expired (200)   (44,538)
Options outstanding, March 31, 2015 0   $0

 

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, 30,245,870 shares
were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on March 31, 2015.
 
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 allocates distributions from net 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 net capital gains,
they will be paid from investment company taxable income, 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 subclassification
as a closed-end investment company or changes in its fundamental investment policies.
 
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 three months ended March 31, 2015 and the year ended December 31, 2014 were as follows:

 

    Shares           Amount  
  2015   2014     2015   2014
Shares issued in payment of dividends and distributions                
(includes 1,473,643 shares issued from treasury) —   1,473,643     —   $1,473,643
Increase in paid-in capital           —   50,413,327
Total increase           —   51,886,970
Shares purchased (at an average discount from net asset value                
of 13.6% and 14.4%, respectively) (625,974)   (541,367)   (625,974)   (541,367)
Decrease in paid-in capital           (21,197,528)   (18,363,758)
Total decrease           (21,823,502)   (18,905,125)
Net increase (decrease) (625,974)   932,276   ($21,823,502)   $32,981,845

 

At March 31, 2015, the Company held in its treasury 1,735,002 shares of Common Stock with an aggregate cost in the amount of  $59,131,030.

 


 


5. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from bottom of previous page.)
The tax basis distribution during the year ended December 31, 2014 is as follows: ordinary distributions of $18,792,969 and net capital gains
distributions of $95,645,589. As of December 31, 2014, distributable earnings on a tax basis included $2,028,405 from undistributed net
capital gains and $605,509,163 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,
2014. As a result, additional paid-in capital was decreased by $724, accumulated net realized gain on investment transactions was decreased
by $98,539 and net investment increased by $99,263. As of December 31, 2014 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 three months ended March 31,
2015 to its offi cers (identifi ed on back cover) amounted to $1,694,000.
 
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 three months ended March 31, 2015 were:

 

Service cost $150,995
Interest cost   223,136
Expected return on plan assets   (316,433)
Amortization of prior service cost   10,241
Amortization of recognized net actuarial loss   160,533
 
Net periodic benefi t cost $228,472

 

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 three months ended March 31, 2015 was $135,570. The qualifi ed thrift plan acquired 5,500
shares of the Company’s Common Stock during the three months ended March 31, 2015 and held 544,088 shares of the Company’s
Common Stock at March 31, 2015.
 
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 aggregate rental payments of approximately $10,755,000, net of construction credits. The
lease agreement contains clauses whereby the Company receives free rent for a specifi ed number of months and credit towards con-
struction 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 $283,000 for the three months ended March 31, 2015. Minimum rental commitments under the operating
lease are approximately $1,183,000 in 2015 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 made at such times, at such prices, in such amounts and in such manner as the Board of Directors may deem advisable.
The policies and procedures used by the Company to determine how to vote proxies relating to portfolio securities and the Company’s proxy voting
record for the twelve-month period ended June 30, 2014 are available: (1) without charge, upon request, by calling us at our toll-free telephone num-
ber (1-800-436-8401), (2) on the Company’s website at www.generalamericaninvestors.com and (3) on the Securities and Exchange Commission’s
website at www.sec.gov.
 
In addition to distributing financial statements as of the end of each quarter, General American Investors files a Quarterly Schedule of Portfolio
Holdings (Form N-Q) with the Securities and Exchange Commission (“SEC”) as of the end of the first and third calendar quarters. The Company’s
Forms N-Q are available at www.generalamericaninvestors.com and on the SEC’s website: www.sec.gov. Also, Forms N-Q may be reviewed and
copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the SEC’s Public Reference Room may be obtained
by calling 1-800-SEC-0330. A copy of the Company’s Form N-Q may 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
Anang K. Majmudar, 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  

 

RESULTS OF THE ANNUAL MEETING
OF STOCKHOLDERS
The votes cast by stockholders at the Company’s annual meeting held
on April 15, 2015 were as follows:    
  For   Withheld
Election of Directors:      
Rodney B. Berens 28,696,742   6,077,096
Lewis B. Cullman 30,673,487   4,100,351
Spencer Davidson 30,674,706   4,099,132
John D. Gordan, III 30,814,429   3,959,409
Betsy F. Gotbaum 30,646,424   4,127,414
Sidney R. Knafel 30,767,753   4,006,085
Daniel M. Neidich 30,899,510   3,874,328
Jeffrey W. Priest 30,812,274   3,961,564
 
Elected by holders of Preferred Stock only:    
Arthur G. Altschul, Jr. 6,750,417   131,857
Raymond S. Troubh 6,719,122   163,152
 
Ratification of the selection of Ernst & Young LLP as auditors of the
Company for the year 2015:      
For - 32,563,338; Against - 347,592 ; Abstain - 2,050,013
 
Non-Binding Shareholder Proposal:    
For - 4,920,866; Against - 16,916,755; Abstain - 388,291