T O  T H E  S T O C K H O L D E R S

 

 

S T A T E M E N T  O F  I N V E S T M E N T S  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

General American Investors

		Shares		COMMON STOCKS				Value (note 1a)
Consumer		Media (4.3%)
Discretionary		399,285		Discovery, Inc. (a)					$10,788,681
(14.8%)		359,199		GCI Liberty, Inc.- Class A (a)					19,975,056
		43,021		The Madison Square Garden Company (a)					12,610,746
						(Cost $35,335,791)			43,374,483
		Retailing (10.5%)
		18,000		Amazon.com, Inc. (a)					32,053,500
		220,004		Liberty Expedia Holdings, Inc. (a)					9,416,171
		375,000		Macy’s, Inc.					9,011,250
		1,055,037		The TJX Companies, Inc.					56,138,519
						(Cost $33,012,848)			106,619,440
						(Cost $68,348,639)			149,993,923
Consumer		Food, Beverage and Tobacco (11.8%)
Staples		225,118		Danone (France)					17,346,023
(16.3%)		93,210		Diageo plc ADR (United Kingdom)					15,250,088
		385,000		Nestle S.A. (Switzerland)					36,692,443
		160,000		PepsiCo, Inc.					19,608,000
		530,000		Unilever N.V. (Netherlands/United Kingdom)					30,784,642
						(Cost $53,737,595)			119,681,196
		Food and Staples Retailing (4.5%)
		85,200		Costco Wholesale Corporation					20,630,328
		415,782		The Kroger Co.					10,228,237
		176,800		Target Corporation					14,189,968
						(Cost $25,139,276)			45,048,533
						(Cost $78,876,871)			164,729,729
Energy		252,500		Anadarko Petroleum Corporation					11,483,700
(7.1%)		1,327,947		Cameco Corporation (Canada)					15,656,495
		1,325,000		Ensco plc - Class A (United Kingdom)					5,207,250
		3,830,440		Gulf Coast Ultra Deep Royalty Trust					107,252
		460,000		Halliburton Company					13,478,000
		1,300,000		Helix Energy Solutions Group, Inc. (a)					10,283,000
		168,000		Phillips 66					15,988,560
						(Cost $65,349,681)			72,204,257
Financials		Banks (2.8%)
(20.2%)		110,000		M&T Bank Corporation					17,272,200
		1,000,000		New York Community Bancorp, Inc.					11,570,000
						(Cost $11,559,019)			28,842,200
		Diversified Financials (3.8%)
		182,300		JPMorgan Chase & Co.					18,454,229
		370,000		Nelnet, Inc.					20,375,900
						(Cost $9,742,733)			38,830,129
		Insurance (13.6%)
		70,214		Aon plc (United Kingdom)					11,985,530
		1,080,000		Arch Capital Group Ltd. (a) (Bermuda)					34,905,600
		295,000		Axis Capital Holdings Limited (Bermuda)					16,160,100
		110		Berkshire Hathaway Inc.- Class A (a) (b)					33,133,650
		115,000		Everest Re Group, Ltd. (Bermuda)					24,835,400
		380,000		MetLife, Inc.					16,176,600
						(Cost $36,582,535)			137,196,880
						(Cost $57,884,287)			204,869,209

 

 

S T A T E M E N T  O F  I N V E S T M E N T S  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d ) - c o n t i n u e d

General American Investors

		Shares		COMMON STOCKS (continued)				Value (note 1a)
Health Care		Pharmaceuticals, Biotechnology and Life Sciences
(7.4%)		1,416,926		Arantana Therapeutics, Inc. (a)					$5,100,934
		55,000		Celgene Corporation (a)					5,188,700
		333,600		Gilead Sciences, Inc.					21,687,336
		299,942		Intra-Cellular Therapies, Inc. (a)					3,653,293
		449,574		Kindred Biosciences, Inc. (a)					4,122,593
		185,191		Merck & Co., Inc.					15,402,335
		464,985		Paratek Pharmaceuticals, Inc. (a)					2,492,320
		330,808		Pfizer Inc.					14,049,416
		1,764,464		VBI Vaccines, Inc. (a) (Canada)					3,299,548
						(Cost $46,495,392)			74,996,475
Industrials		Capital Goods (4.0%)
(10.9%)		154,131		Eaton Corporation plc (Ireland)					12,416,793
		217,541		United Technologies Corporation					28,038,860
						(Cost $27,479,170)			40,455,653
		Commercial and Professional Services (4.8%)
		597,895		Republic Services, Inc.		(Cost $8,407,622)			48,058,800
		Transportation (2.1%)
		416,511		Delta Air Lines, Inc.		(Cost $21,327,337)			21,512,793
						(Cost $57,214,129)			110,027,246
Information		Semiconductors and Semiconductor Equipment (4.1%)
Technology		203,652		Applied Materials, Inc.					8,076,838
(27.0%)		177,850		ASML Holding N.V. (Netherlands)					33,444,693
						(Cost $9,264,556)			41,521,531
		Software and Services (13.7%)
		35,500		Alphabet Inc. (a)					41,652,505
		151,474		DXC Technology Company					9,741,293
		313,800		eBay Inc.					11,654,532
		76,500		Facebook, Inc. - Class A (a)					12,751,785
		400,686		Microsoft Corporation					47,256,907
		134,471		Worldpay, Inc. (a)					15,262,458
						(Cost $83,280,207)			138,319,480
		Technology, Hardware and Equipment (9.2%)
		89,000		Apple Inc.					16,905,550
		600,000		Cisco Systems, Inc.					32,394,000
		143,966		InterDigital, Inc.					9,498,877
		155,000		Lumentum Holdings Inc. (a)					8,763,700
		135,036		QUALCOMM Incorporated					7,701,103
		116,309		Universal Display Corporation					17,777,831
						(Cost $40,617,472)			93,041,061
						(Cost $133,162,235)			272,882,072
Miscellaneous				Other (c)		(Cost $40,916,655)			30,946,871
(3.1%)
Telecommunication		342,900		Vodafone Group plc ADR (United Kingdom)		(Cost $7,835,032)			6,233,922
Services
(0.6%)
				TOTAL COMMON STOCKS (107.4%)		(Cost $556,082,921)			1,086,883,704
		Warrant		WARRANT (a)
Technology,		281,409		Applied DNA Sciences, Inc./		(Cost $2,814)			5,403
Hardware And				November 14, 2019/$3.50
Equipment
(0.0%)

 

 

S T A T E M E N T  O F  I N V E S T M E N T S  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d ) - c o n t i n u e d

General American Investors

Put Options		Contracts (100 shares each)		COMPANY/EXPIRATION DATE/EXERCISE PRICE				Value (note 1a)
Retailing		1,500		The TJX Companies, Inc./January 17, 2020/$42.50		(Cost $493,551)			$127,500
(0.0%)
Technology,		908		QUALCOMM Incorporated/April 18, 2019/$50		(Cost $82,453)			13,620
Hardware And
Equipment
(0.0%)				TOTAL PUT OPTIONS (0.0%)		(Cost $576,004)			141,120
		Shares		SHORT-TERM SECURITY AND OTHER ASSETS
		122,816,034		State Street Institutional Treasury Plus Money Market Fund,
				Trust Class, 2.32% (d) (12.1%)		(Cost $122,816,034)			122,816,034
TOTAL INVESTMENTS (e) (119.5%)						(Cost $679,477,773)			1,209,846,261
Liabilities in excess of receivables and other assets (-0.7%)									(7,506,898	)
									1,202,339,363
PREFERRED STOCK (-18.8%)									(190,117,175	)
NET ASSETS APPLICABLE TO COMMON STOCK (100%)								$1,012,222,188

 

ADR - American Depository Receipt

(a) Non-income producing security.

(b) Security is held as collateral for options written.

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

(d) 7-day yield.

(e) At March 31, 2019, the cost of investments for Federal income tax purposes was $682,664,703; aggregate gross unrealized appreciation was $563,266,771; aggregate gross unrealized depreciation was $36,085,213; and net unrealized appreciation was $527,181,558.

 

M A J O R  S T O C K  C H A N G E S ( a ) : T h r e e  M o n t h s  E n d e d  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

Increases		Net Shares Transacted					Shares Held
New Positions
The Madison Square Garden Company			20,521				43,021	(b)
Target Corporation			176,800				176,800
Additions
InterDigital, Inc.			10,000				143,966
Macy’s, Inc.			75,000				375,000
Decreases
Eliminations
Sinclair Broadcast Group, Inc. - Class A			197,196				—
Wal-Mart Stores, Inc.			157,875				—
Reductions
Aon plc			84,338				70,214
Arantana Therapeutics, Inc.			182,439				1,416,926
Arch Capital Group Ltd.			120,000				1,080,000
Celgene Corporation			100,000				55,000
Cisco Systems, Inc.			40,000				600,000
Discovery, Inc.			50,000				399,285
eBay Inc.			125,000				313,800
Liberty Expedia Holdings, Inc.			115,275				220,004
Lumentum Holdings Inc.			20,000				155,000
Merck & Co., Inc.			15,000				185,191
MetLife, Inc.			20,000				380,000
Microsoft Corporation			100,000				400,686
Nelnet, Inc.			12,500				370,000
Nestle S.A.			65,000				385,000
New York Community Bancorp, Inc.			250,000				1,000,000
PepsiCo, Inc.			14,500				160,000
The TJX Companies, Inc.			241,499				1,055,037
Unilever N.V.			60,000				530,000
Universal Display Corporation			5,000				116,309
Worldpay, Inc.			14,298				134,471

 

(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 statement)

 

 

P O R T F O L I O  D I V E R S I F I C A T I O N  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

General American Investors

 

The diversification of the Company’s net assets applicable to its Common Stock by industry group as of March 31, 2019 is shown in the table. 

Industry Category			Cost (000)				Value (000)				Percent Common Net Assets*
Information Technology
Semiconductors and Semiconductor Equipment				$9,265				$41,522				4.1	%
Software and Services				83,280				138,319				13.7
Technology, Hardware and Equipment				40,702				93,060				9.2
				133,247				272,901				27.0
Financials
Banks				11,559				28,842				2.8
Diversified Financials				9,743				38,830				3.8
Insurance				36,582				137,197				13.6
				57,884				204,869				20.2
Con umer Staples
Food, Beverage and Tobacco				53,738				119,681				11.8
Food and Staples Retailing				25,139				45,049				4.5
				78,877				164,730				16.3
Consumer Discretionary
Media				35,336				43,374				4.3
Retailing				33,507				106,748				10.5
				68,843				150,122				14.8
Industrials
Capital Goods				27,479				40,455				4.0
Commercial and Professional Services				8,408				48,059				4.8
Transportation				21,327				21,513				2.1
				57,214				110,027				10.9
Health Care
Pharmaceuticals, Biotechnology and Life Sciences				46,495				74,996				7.4
Energy				65,350				72,204				7.1
Miscellaneous**				40,917				30,947				3.1
Telecommunication Services				7,835				6,234				0.6
				556,662				1,087,030				107.4
Short-Term Securities				122,816				122,816				12.1
Total Investments			$	679,478				1,209,846				119.5
Other Assets and Liabilities - Net								(7,507	)			(0.7	)
Preferred Stock								(190,117	)			(18.8	)
Net Assets Applicable to Common Stock							$	1,012,222				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.

 

S T A T E M E N T  O F  O P T I O N S  W R I T T E N  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

Call Options		Contracts (100 shares each)		COMPANY/EXPIRATION DATE/EXERCISE PRICE				Value (note 1a)
Retailing
(0.1%)		1,500		The TJX Companies, Inc./January 17, 2020/$52.50		(Premiums Received $371,944)		$735,000
Technology,		1,500		Cisco Systems, Inc./June 21, 2019/$50		(Premiums Received $632,931)		705,000
Hardware And				TOTAL CALL OPTIONS		(Premiums Received $1,004,875)		1,440,000
Equipment
(0.1%)
Put Options		Contracts (100 shares each)		COMPANY/EXPIRATION DATE/EXERCISE PRICE				Value (note1a)
Retailing		1,000		Macy’s, Inc./April 18, 2019/$25		(Premiums Received $149,699)		126,000
(0.0%)						(Total Premiums Received $1,154,574)		$1,566,000

 

*The maximum cash outlay if all call options are exercised is $17,875,000.

 

(see notes to unaudited financial statements)

 

 

S T A T E M E N T  O F  A S S E T S  A N D  L I A B I L I T I E S  M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

General American Investors

 

Assets
INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $556,082,921)							$1,086,883,704
Warrant (cost $2,814)							5,403
Purchased options (cost $576,004; note 4)							141,120
Money market fund (cost $122,816,034)							122,816,034
Total investments (cost $679,477,773)							1,209,846,261
RECEIVABLES AND OTHER ASSETS
Dividends, interest and other receivables			$1,638,239
Qualified pension plan asset, net excess funded (note 7)			3,116,906
Present value of future office lease payments (note 8)			5,361,478
Prepaid expenses, fixed assets, and other assets			1,562,852				11,679,475
TOTAL ASSETS							1,221,525,736
Liabilities
Payable for securities purchased			551,375
Accrued compensation payable to officers and employees			1,007,753
Accrued preferred stock dividend not yet declared			216,942
Outstanding options written, at value (premiums received $1,154,574; note 4)			1,566,000
Accrued supplemental pension plan liability (note 7)			5,320,066
Accrued supplemental thrift plan liability (note 7)			4,037,519
Present value of future office lease payments (note 8)			5,361,478
Accrued expenses and other liabilities			1,125,240
TOTAL LIABILITIES							19,186,373
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 - 25,494,769 shares (note 5)							$1,012,222,188
NET ASSET VALUE PER COMMON SHARE							$39.70
Net Assets Applicable To Common Stock
Common Stock, 25,494,769 shares at par value (note 5)			25,494,769
Additional paid-in capital (note 5)			417,300,610
Unallocated distributions on Preferred Stock			(3,047,948	)
Total distributable earnings (note 5)			576,438,781
Accumulated other comprehensive loss (note 7)			(3,964,024	)
NET ASSETS APPLICABLE TO COMMON STOCK							$1,012,222,188

 

(see notes to unaudited financial statements)

 

 

S T A T E M E N T  O F  O P E R A T I O N S  T h r e e  m o n t h s   e n d e d   M a r c h  3 1 ,  2 0 1 9  ( U n a u d i t e d )

General American Investors

 

Income
Dividends (net of foreign withholding taxes of $34,707)							$4,134,924
Interest							605,373
							4,740,297
Expenses
Investment research			$1,739,970
Administration and operations			886,326
Office space and general			298,651
Transfer agent, custodian, and registrar fees and expenses			90,001
Auditing and legal fees			75,205
Directors’ fees and expenses			73,972
State and local taxes			36,986
Stockholders’ meeting and reports			24,657				3,225,768
NET INVESTMENT INCOME							1,514,529
Realized Gain and Change in Unrealized Appreciation on Investments (notes 1, 3 and 4)
Net realized gain on investments:
Common stock			48,491,766
Purchased option transactions			(585,867	)
Written option transactions			(431,496	)
			47,474,403
Net increase in unrealized appreciation:
Common stocks and warrant			87,336,345
Purchased options			(2,081,828	)
Written options			(411,426	)
			84,843,091
GAINS AND APPRECIATION ON INVESTMENTS							132,317,494
NET INVESTMENT INCOME, GAINS, AND DEPRECIATION ON INVESTMENTS							133,832,023
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS							(2,827,993	)
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS							$131,004,030
S T A T E M E N T  O F  C H A N G E S  I N  N E T  A S S E T S
		Three Months Ended
		March 31, 2019				Year Ended
Operations		(Unaudited)				December 31, 2018
Net investment income			$1,514,529				$8,173,881
Net realized gain on investments			47,474,403				59,267,989
Net increase (decrease) in unrealized appreciation			84,843,091				(139,146,694	)
			133,832,023				(71,704,824	)
Distributions to Preferred Stockholders			(2,827,993	)			(11,311,972	)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS			131,004,030				(83,016,796	)
OTHER COMPREHENSIVE LOSS
Funded status of defined benefit plans (note 7)			—				(1,328,128	)
Distributions to Common Stockholders			—				(70,424,179	)
Capital Share Transactions (Note 5)
Value of Common Shares issued in payment of dividends and distributions			—				22,883,574
Cost of Common Shares purchased			(15,571,044	)			(41,808,714	)
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS			(15,571,044	)			(18,925,140	)
NET INCREASE (DECREASE) IN NET ASSETS			115,432,986				(173,694,243	)
Net Assets Applicable to Common Stock
BEGINNING OF PERIOD			896,789,202				1,070,483,445
END OF PERIOD			$1,012,222,188				$896,789,202

 

(see notes to unaudited financial statements)

 

 

F I N A N C I A L  H I G H L I G H T S

General American Investors

 

The following table shows per share operating performance data, total investment return, ratios, and supplemental data for the three months ended March 31, 2019 and for each year in the five-year period ended December 31, 2018. 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, 2019				Year Ended December 31,
		(Unaudited)				2018				2017				2016				2015				2014
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period			$34.51				$40.47				$37.56				$37.74				$39.77				$41.07
Net investment income			.06				.31				.32				.30				.48				.32
Net gain (loss) on common stocks, options and other - realized and unrealized			5.24				(3.03	)			6.23				3.10				(.99	)			2.39
Other comprehensive income (loss)			—				(.05	)			.08				.02				.02				(.13	)
			5.30				(2.77	)			6.63				3.42				(.49	)			2.58
Distributions on Preferred Stock:
Dividends from net investment income			—				(.06	)			(.04	)			(.04	)			(.12	)			(.04	)
Distributions from net capital gains			—				(.38	)			(.39	)			(.38	)			(.27	)			(.34	)
Unallocated			(.11	)			—				—				—				—				—
			(.11	)			(.44	)			(.43	)			(.42	)			(.39	)			(.38	)
Total from investment operations			5.19				(3.21	)			6.20				3.00				(.88	)			2.20
Distributions on Common Stock:
Dividends from net investment income			—				(.29	)			(.30	)			(.33	)			(.34	)			(.32	)
Distributions from net capital gains			—				(2.46	)			(2.99	)			(2.85	)			(.81	)			(3.18	)
			—				(2.75	)			(3.29	)			(3.18	)			(1.15	)			(3.50	)
Net asset value, end of period			$39.70				$34.51				$40.47				$37.56				$37.74				$39.77
Per share market value, end of period			$33.31				$28.44				$34.40				$31.18				$31.94				$35.00
TOTAL INVESTMENT RETURN - Stockholder return, based on market price per share			17.12	%*			(9.87	%)			21.21	%			7.59	%			(5.34	)%			9.32	%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock, end of period (000’s omitted)			$1,012,222				$896,789				$1,070,483				$1,022,535				$1,068,028				$1,227,900
Ratio of expenses to average net assets applicable to Common Stock			1.32	%**			1.20	%			1.28	%			1.27	%			1.17	%			1.10	%
Ratio of net income to average net assets applicable to Common Stock			.64	%**			.78	%			.79	%			.78	%			1.17	%			.78	%
Portfolio turnover rate			3.25	%*			23.00	%			19.58	%			20.29	%			14.41	%			14.98	%
PREFERRED STOCK
Liquidation value, end of period (000’s omitted)			$190,117				$190,117				$190,117				$190,117				$190,117				$190,117
Asset coverage			632	%			572	%			663	%			638	%			662	%			746	%
Liquidation preference per share			$25.00				$25.00				$25.00				$25.00				$25.00				$25.00
Market value per share			$26.45				$25.72				$26.59				$25.77				$26.75				$26.01

 

*	Not annualized
**	Annualized

(see notes to unaudited financial statements)

 

N O T E S  T O  F I N A N C I A L  S T A T E M E N T S  ( U n a u d i t e d )

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 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 Codification 946, Financial Services - Investment Companies (“ASC 946”), and 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.

 

 

N O T E S  T O  F I N A N C I A L  S T A T E M E N T S  (U n a u d i t e d)  -  c o n t i n u e d

General American Investors

 

1.

Significant Accounting Policies - (Continued from bottom of previous page.)

 

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 official 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 reflect fair value as of the time of the valuation of the portfolio. Investments in money market funds are valued at their net asset value.

 

b. Options The Company may purchase and write (sell) put and call options. The Company purchases put options or writes call options to hedge the value of portfolio investments while it purchases call options and writes put options to obtain equity market exposure. 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 written 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 written 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 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 premium 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 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 supervision 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 distributions 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, management 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 $1.00 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, 2019:

 

 

N O T E S  T O  F I N A N C I A L  S T A T E M E N T S  ( U n a u d i t e d )  -  c o n t i n u e d

General American Investors

 

2. Fair Value Measurements - (Continued from bottom of previous page.)

 

Assets		Level 1				Level 2			Level 3			Total
Common stocks			$1,086,883,704			—			—				$1,086,883,704
Warrant			5,403			—			—				5,403
Purchased options			141,120			—			—				141,120
Money market fund			122,816,034			—			—				122,816,034
Total			$1,209,846,261			—			—				$1,209,846,261
Liabilities
Options written			($1,566,000	)		—			—				($1,566,000	)

 

Transfers of securities between levels, if any, are reported as of the actual date of reclassification. No such transfers occurred during the three months ended March 31, 2019.

 

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, 2019 amounted to $35,128,575 and $112,871,795, on long transactions, respectively.

 

4. Options - The level of activity in purchased and written options varies from year to year based upon market conditions. Transactions in purchased calls and put options, as well as written covered call options and collateralized put options for the three months ended March 31, 2019 were as follows:

 

Purchased Options		Calls						Puts
		Contracts			Cost Basis			Contracts				Cost Basis
Outstanding, December 31, 2018		—			$	—			5,300				$600,557
Purchased		—				—			2,408				576,004
Exercised		—				—			(300	)			(60,910	)
Expired		—				—			(5,000	)			(539,647	)
Outstanding, March 31, 2019		—			$	—			2,408				$576,004

 

Written Options		Covered Calls						Collateralized Puts
		Contracts			Premiums			Contracts				Premiums
Outstanding, December 31, 2018		—			—				—				—
Written		6,000			$1,314,692				1,000				$149,699
Terminated in closing purchase transactions		(3,000	)		(309,817	)			—				—
Options assigned		—			—				—				—
Expired		—			—				—				—
Outstanding, March 31, 2019		3,000			$1,004,875				1,000				$149,699

 

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, 25,494,769 shares were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on March 31, 2019.

 

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. This authorization has been renewed annually thereafter. 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, generally, 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, 2019 and the year ended December 31, 2018 were as follows:

 

		Shares						Amount
		2019			2018			2019			2018
Par value of Shares issued in payment of dividends and distributions (issued from treasury)		—			758,865			—			$758,865
Increase in paid-in capital								—			22,124,709
Total increase								—			22,883,574
Par value of Shares purchased (at an average discount from net asset value of 16.2% and 16.0%, respectively)		(489,285	)		(1,227,947	)		($489,285	)		(1,227,947	)
Decrease in paid-in capital								(15,081,759	)		(40,580,767	)
Total decrease								(15,571,044	)		(41,808,714	)
Net decrease		(489,285	)		(469,082	)		($15,571,044	)		($18,925,140	)

 

 

N O T E S  T O  F I N A N C I A L  S T A T E M E N T S  ( U n a u d i t e d )  -  c o n t i n u e d

General American Investors

 

5. Capital Stock And Dividend Distributions - (Continued from bottom of previous page.)

 

At March 31, 2019, the Company held in its treasury 6,486,103 shares of Common Stock with an aggregate cost of $213,486,250.

 

The tax basis distributions during the year ended December 31, 2018 are as follows: ordinary distributions of $8,963,411 and net capital gains distributions of $72,772,740. As of December 31, 2018, distributable earnings on a tax basis totaled $445,891,246 consisting of $3,716,353 from undistributed net capital gains, $252,895 from ordinary income and $441,921,998 from net unrealized appreciation on investments. Reclassifications arising from permanent “book/tax” difference reflect non-tax deductible expenses during the year ended December 31, 2018. As a result, additional paid-in capital was decreased by $1,002,465 and total distributable earnings was increased by $1,002,465. Net assets were not affected by this reclassification. As of December 31, 2018, the Company had wash loss deferrals of $3,186,930 and straddle loss deferrals of $1,103,299.

 

6. Officers’ Compensation - The aggregate compensation accrued and paid by the Company during the three months ended March 31, 2019 to its officers (identified on back cover) amounted to $1,818,022.

 

7. Benefit Plans - The Company has funded (qualified) and unfunded (supplemental) noncontributory defined benefit pension plans that are available to its employees. The pension plans provide defined benefits 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 benefit cost (income) of the plans for the three months ended March 31, 2019 were:

 

Service cost		$	117,705
Interest cost			237,579
Expected return on plan assets			(379,878	)
Amortization of prior service cost			70
Amortization of recognized net actuarial loss			10,676
Net periodic benefit cost		$	(13,848	)

 

The Company recognizes the overfunded status of its defined benefit postretirement plan as an asset in the Statement of Assets and Liabilities and recognizes changes in funded status in the year in which the changes occur through other comprehensive income.

 

The Company also has funded (qualified) and unfunded (supplemental) defined contribution thrift plans that are available to its employees. The aggregate cost of such plans for the three months ended March 31, 2019 was $113,532. The qualified thrift plan acquired 1,800 shares in the open market, and distributed to a retired employee 182,721 shares of the Company’s Common Stock during the three months ended March 31, 2019 and held 454,743 shares of the Company’s Common Stock at March 31, 2019.

 

8. Operating Lease Commitment - The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases, which requires lessees to reassess if a contract is or contains lease agreements and assess the lease classification to determine if they should recognize a right-of-use asset and offsetting liability on the Statement of Assets and Liabilities that arises from entering into a lease, including an operating lease. This right-of-use asset and offsetting liability is reported on the Statement of Assets and Liabilities in line items entitled, “Present value of future office lease payments.” Since the operating lease does not specify an implicit rate, the right-of-use asset and liability have been calculated using a discount rate of 3.0%, which is based upon high quality corporate interest rates for a term equivalent to the lease period as of January 1, 2018. The annual cost of an operating lease continues to be reflected as an expense in the Statements of Operations and Changes in Net Assets.

 

In 2017, the Company entered into an operating lease agreement for office space which will expire in 2028 and provide for aggregate rental payments of approximately $6,437,500. The lease agreement contains clauses whereby the Company will receive free rent for a specified number of months and credit towards construction of office improvements and incurs escalations annually relating to operating costs and real property taxes and to annual rent charges beginning in 2023. Rental expense approximated $155,700 for the three months ended March 31, 2019. The Company has the option to extend the lease for an additional five years at market rates. As of March 31, 2019, no consideration has been given to extending this lease. Minimum rental commitments under this operating lease are approximately:

 

2019				$468,000
2020				624,000
2021				624,000
2022				624,000
2023				631,000
Thereafter				3,206,000
Total Remaining Lease Payments				6,177,000
Effect of Present Value Discounting				(815,522	)
Present Value of Future Office Lease Payments				$5,361,478

 

OTHER MATTERS (Unaudited)

Previous purchases of the Company’s Common and Preferred Stock are set forth in Note 5 on page 10. 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, 2018 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.

 

On April 25, 2019, 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 during 2018 relating to, among other things, the Company’s disclosure controls and procedures and internal control over financial reporting, as applicable.