UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00041
---------------------------------------------
GENERAL AMERICAN INVESTORS COMPANY, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
450 Lexington Avenue, Suite 3300, New York, New York 10017-3911
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(Address of principal executive offices) (Zip code)
Eugene S. Stark
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017-3911
(Name and address of agent for service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Registrant's telephone number, including area code: 212-916-8400
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2005
A Closed-End Investment Company
listed on the New York Stock Exchange
450 LEXINGTON AVENUE
NEW YORK, NY 10017
212-916-8400 1-800-436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
3
TO THE STOCKHOLDERS
For the six months ended June 30, 2005, the investment return to our
stockholders was 3.1% (assuming reinvestment of all dividends). The net asset
value per Common Share increased 5.9%. By comparison, the rate of return
(including income) for our benchmark, the Standard & Poor's 500 Stock Index, was
-0.8%. For the twelve months ended June 30, 2005, the return to our stockholders
was 10.2% and the return on the net asset value per Common Share was 14.6%;
these compare with a return of 6.2% for the S&P 500. During each period, the
discount at which our shares traded increased slightly and at June 30, 2005, it
was 14.1%.
As set forth in the accompanying financial statements (unaudited), as of June
30, 2005, the net assets applicable to the Company's Common Stock were
$1,070,178,768, equal to $37.27 per Common Share.
The increase in net assets resulting from operations for the six months ended
June 30, 2005 was $56,880,773. During this period, the net realized gain on
securities sold was $23,212,019 and the increase in net unrealized appreciation
was $36,256,982. Net investment income for the six months was $3,361,772 and
distributions to Preferred Stockholders amounted to $5,950,000.
During the six months, 636,204 shares of the Company's Common Stock were
repurchased for $19,701,744 at an average discount from net asset value of
12.7%.
The relatively robust returns generated thus far this year come, in large
measure, from our exposure to securities related to the oil and natural gas
industries. The discount to net asset value at which our shares trade,
meanwhile, has continued to widen, inexplicably. This gap has created the
opportunity to repurchase shares on an especially attractive basis. Over the
past 10 years the share price has ranged between a 2% premium and a 19% discount
to its net asset value.
We remain constructive with respect to security valuations. Concerns abound, of
course, including the costs of war finance, the impact of rising energy prices
on consumer spending, the loss of manufacturing jobs to foreign producers, and
an apparent housing bubble in some regions. There exists, furthermore, the
prospect of an inverted yield curve, marked by interest rates that are higher
for short-dated securities than for long-term bonds, a phenomenon that
characteristically presages recession. Importantly, however, the U.S. is at or
near full employment, inflation remains constrained, interest rates are
relatively low, liquidity is ample, and earnings and dividends continue to grow.
On June 30, 2005, Eugene L. DeStaebler, Jr., who had been an officer of the
Company for thirty years, and for the last twenty-eight, Vice-President,
Administration, retired. Mr. DeStaebler's broad knowledge and understanding of
the closed-end investment company industry, his expertise in administration,
oversight of the accounting function, as well as his guidance regarding
compliance, have been highly regarded by the Board of Directors and greatly
appreciated by the Company. The Board of Directors is pleased to announce that,
at its meeting today, Mr. DeStaebler has agreed to continue as a consultant in
his capacity as Chief Compliance Officer until December 31, 2005.
We are also pleased to report that Eugene S. Stark, Vice-President since May 16,
2005, was appointed Vice-President, Administration. Prior to joining the Company
in May 2005, Mr. Stark, a CPA, served as the chief financial officer of a
business development company. Mr. Stark had been a vice president of Prudential
Financial, Inc. (1987-2004) and, prior thereto, gained diverse audit experience
at Deloitte & Touche (1982-1987).
The information about the Company, including our investment objective, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, is contained on our website and has been
updated through June 30, 2005. It can be accessed on the Internet at
www.generalamericaninvestors.com.
By Order of the Board of Directors,
General American Investors Company, Inc.
Spencer Davidson
President and Chief Executive Officer
July 13, 2005
4
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
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INVESTMENTS, AT VALUE (NOTE 1a)
Common stocks (cost $730,316,780) $1,242,580,577
Corporate note (cost $709,754) 712,747
Corporate discount notes (cost $17,948,900) 17,948,900
Money market fund (cost $19,634,850) 19,634,850
-------------
Total investments (cost $768,610,284) 1,280,877,074
RECEIVABLES AND OTHER ASSETS
Receivable for securities sold $4,900,927
Dividends, interest and other receivables 834,883
Prepaid pension cost 7,596,696
Prepaid expenses and other assets 252,987 13,585,493
---------- -------------
TOTAL ASSETS 1,294,462,567
LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 15,584,363
Preferred dividend accrued but not yet declared 231,389
Accrued pension expense 5,621,609
Accrued expenses and other liabilities 2,846,438
----------
24,283,799
TOTAL LIABILITIES
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000
------------
NET ASSETS APPLICABLE TO COMMON STOCK - 28,717,595 shares (note 2) $1,070,178,768
==============
NET ASSET VALUE PER COMMON SHARE $37.27
==============
Net Assets Applicable To Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 28,717,595 shares at par value (note 2) $28,717,595
Additional paid-in capital (note 2) 507,429,475
Undistributed realized gain on investments 23,180,113
Undistributed net investment income 4,766,184
Unallocated distributions on Preferred Stock (6,181,389)
Unrealized appreciation on investments 512,266,790
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,070,178,768
==============
(see notes to financial statements)
5
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2005 (Unaudited)
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General American Investors
INCOME
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Dividends (net of foreign withholding taxes of $213,043) $8,853,709
Interest 727,873 $9,581,582
-----------
EXPENSES
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Investment research 3,706,917
Administration and operations 1,848,094
Office space and general 259,286
Directors' fees and expenses 102,520
Transfer agent, custodian and registrar fees and expenses 94,146
Stockholders' meeting and reports 84,755
Auditing and legal fees 73,800
Miscellaneous taxes 50,292 6,219,810
--------- ----------
NET INVESTMENT INCOME 3,361,772
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1f AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 23,011,600
Short sale transaction (note 1b) (755,114)
Option transactions (note 1c) 955,533
----------
Net realized gain on investments (long-term, except for $7,875,871) 23,212,019
Net increase in unrealized appreciation 36,256,982
----------
NET GAIN ON INVESTMENTS 59,469,001
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,950,000)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $56,880,773
============
(see notes to financial statements)
6
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Six Months
Ended Year Ended
June 30, 2005 December 31,
OPERATIONS (Unaudited) 2004
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,361,772 $9,253,481
Net realized gain on investments 23,212,019 36,774,029
Net increase in unrealized appreciation 36,256,982 62,361,773
----------- ----------
Distributions to Preferred Stockholders:
From net investment income - (2,686,304)
From long-term capital gains - (9,213,696)
Unallocated distributions on Preferred Stock (5,950,000) -
----------- -----------
Decrease in net assets from Preferred distributions (5,950,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 56,880,773 96,489,283
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net investment income (58,303) (6,602,940)
From long-term capital gains (7,929,239) (22,647,281)
---------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (7,987,542) (29,250,221)
---------- -----------
CAPITAL SHARE TRANSACTIONS
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Value of Common Shares issued in payment of distributions (note 2) 4,594,188 15,781,952
Cost of Common Shares purchased (note 2) (19,701,744) (32,963,032)
----------- -----------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (15,107,556) (17,181,080)
----------- -----------
NET INCREASE IN NET ASSETS 33,785,675 50,057,982
Net Assets Applicable to Common Stock
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BEGINNING OF PERIOD 1,036,393,093 986,335,111
------------- ------------
END OF PERIOD (including undistributed net investment income of
$4,766,184 and $1,462,715, respectively) $1,070,178,768 $1,036,393,093
============== ===============
(see notes to financial statements)
7
5 FINANCIAL HIGHLIGHTS
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General American Investors
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for the six months ended June 30, 2005 and
for each year in the five-year period ended December 31, 2004. This information
has been derived from information contained in the financial statements and
market price data for the Company's shares.
Six Months
Ended Year Ended December 31,
June 30, 2005 ------------------------------------------------------------
(Unaudited) 2004 2003 2002 2001 2000
------------ ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $35.49 $33.11 $26.48 $35.14 $39.91 $41.74
------ ------ ------- ------ ------ ------
Net investment income .12 .32 .03 .19 .41 .53
Net gain (loss) on securities -
realized and unrealized 2.14 3.48 7.72 (7.88) (.66) 6.12
------ ------ ------- ------ ------ ------
Distributions on Preferred Stock:
Dividends from investment income - (.09) (.01) (.12) (.07) (a) (.11) (b)
Distributions from capital gains - (.32) (.35) (.23) (.29) (.29)
Unallocated (.21) - - - - -
------ ------ ------- ------ ------ ------
(.21) (.41) (.36) (.35) (.36) (.40)
------ ------ ------- ------ ------ ------
Total from investment operations 2.05 3.39 7.39 (8.04) (.61) 6.25
------ ------ ------- ------ ------ ------
Less distributions on Common Stock:
Dividends from investment income - (.23) (.02) (.21) (c) (.88) (d) (2.30) (e)
Distributions from capital gains (.27) (.78) (.52) (.41) (3.28) (5.78)
------ ------ ------- ------ ------ ------
(.27) (1.01) (.54) (.62) (4.16) (8.08)
------ ------ ------- ------ ------ ------
Capital Stock transaction -
effect of Preferred Stock offering - - (.22) - - -
------ ------ ------- ------ ------ ------
Net asset value, end of period $37.27 $35.49 $33.11 $26.48 $35.14 $39.91
====== ====== ======= ====== ====== ======
Per share market value, end of period $32.00 $31.32 $29.73 $23.85 $33.47 $36.00
====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 3.08%* 8.79% 27.01% (27.21)% 4.33% 19.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $1,070,560 $1,036,393 $986,335 $809,192 $1,097,530 $1,155,039
Ratio of expenses to average net assets
applicable to Common Stock 1.22%** 1.15% 1.23% 0.92% 0.97% 1.05%
Ratio of net income to average net assets
applicable to Common Stock 0.66%** 0.94% 0.13% 0.61% 1.15% 1.24%
Portfolio turnover rate 8.61%* 16.71% 18.62% 22.67% 23.81% 40.61%
PREFERRED STOCK
Liquidation value, end of
period (000's omitted) $200,000 $200,000 $200,000 $150,000 $150,000 $150,000
Asset coverage 635% 618% 593% 639% 832% 870%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $25.09 $24.97 $25.04 $25.85 $25.90 $24.25
(a) Includes short-term capital gain in the amount of $.04 per share.
(b) Includes short-term capital gain in the amount of $.09 per share.
(c) Includes short-term capital gain in the amount of $.19 per share.
(d) Includes short-term capital gain in the amount of $.51 per share.
(e) Includes short-term capital gain in the amount of $1.82 per share.
*Not annualized
**Annualized
8
6 STATEMENT OF INVESTMENTS June 30, 2005 (Unaudited)
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General American Investors
Shares or Value
Principal Amount COMMON STOCKS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
BUILDING AND REAL ESTATE (4.5%)
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1,143,041 CEMEX, S.A. de C.V. ADR (COST $30,440,830) $48,487,799
-----------
COMMUNICATIONS AND INFORMATION SERVICES (7.2%)
------------------------------------------------------------------------------------------------------------------------------------
675,000 American Tower Corporation (a) 14,188,500
550,000 CIENA Corporation (a) 1,149,500
900,000 Cisco Systems, Inc. (a) 17,172,000
150,000 Juniper Networks, Inc. (a) 3,777,000
500,000 Lamar Advertising Company Class A (a) 21,385,000
4,600,000 Telecom Corporation of New Zealand Limited 19,228,000
-----------
(COST $69,828,479) 76,900,000
-----------
COMPUTER SOFTWARE AND SYSTEMS (4.6%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 EMC Corporation (a) 4,113,000
1,525,000 Microsoft Corporation 37,881,000
323,000 NetIQ Corporation (a) 3,659,590
133,500 VeriSign, Inc. (a) 3,839,460
----------
(COST $49,555,813) 49,493,050
----------
CONSUMER PRODUCTS AND SERVICES (3.6%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc 20,755,000
275,000 Ethan Allen Interiors Inc. 9,215,250
150,000 PepsiCo, Inc. 8,089,500
----------
(COST $28,303,579) 38,059,750
----------
ELECTRONICS (1.6%)
------------------------------------------------------------------------------------------------------------------------------------
715,000 Molex Incorporated Class A (COST $15,450,691) 16,788,200
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (3.9%)
------------------------------------------------------------------------------------------------------------------------------------
1,175,000 Republic Services, Inc. (COST $26,227,380) 42,311,750
----------
FINANCE AND INSURANCE (28.5%)
------------------------------------------------------------------------------------------------------------------------------------
BANKING (9.3%)
------------------------------------------------------------------------------------------------------------------------------------
325,000 Bank of America Corporation 14,823,250
585,000 Golden West Financial Corporation 37,662,300
310,000 M&T Bank Corporation 32,599,600
200,000 SunTrust Banks, Inc. 14,448,000
----------
(COST $19,811,943) 99,533,150
----------
INSURANCE (18.0%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 American International Group, Inc. 20,335,000
500,000 Annuity and Life Re (Holdings), Ltd. (a) 375,000
340,000 Arch Capital Group Ltd. (a) 15,317,000
300 Berkshire Hathaway Inc. Class A (a) 25,050,000
585,000 Everest Re Group, Ltd. 54,405,000
365,000 MetLife, Inc. 16,403,100
110,000 Montpelier Re Holdings Ltd. 3,803,800
425,000 PartnerRe Ltd. 27,378,500
325,000 Reinsurance Group of America, Incorporated 15,115,750
257,500 Transatlantic Holdings, Inc. 14,373,650
-----------
(COST $84,798,680) 192,556,800
-----------
OTHER (1.2%)
------------------------------------------------------------------------------------------------------------------------------------
250,000 Annaly Mortgage Management, Inc. 4,482,500
95,194 Central Securities Corporation 2,302,743
825,000 MFA Mortgage Investments, Inc. 6,146,250
----------
(COST $12,310,420) 12,931,493
-----------
(COST $116,921,043) 305,021,443
-----------
9
7 STATEMENT OF INVESTMENTS June 30, 2005 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Shares or Value
Principal Amount COMMON STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (11.5%)
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (9.3%)
---------------------------------------------------------------------------------------------------------------------------------
340,000 Alkermes, Inc. (a) $4,494,800
200,000 Biogen Idec Inc. (a) 6,890,000
240,000 Bristol-Myers Squibb Company 5,995,200
550,000 Cytokinetics, Incorporated (a) 3,817,000
270,000 Genaera Corporation (a) 459,000
365,000 Genentech, Inc. (a) 29,302,200
455,000 MedImmune, Inc. (a) 12,157,600
120,000 Millennium Pharmaceuticals, Inc. (a) 1,112,400
1,275,000 Pfizer Inc 35,164,500
----------
(COST $72,502,935) 99,392,700
----------
MEDICAL INSTRUMENTS AND DEVICES (2.2%)
---------------------------------------------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 23,305,500
----------
(COST $82,986,651) 122,698,200
-----------
MISCELLANEOUS (3.7%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $38,078,961) 39,861,160
-----------
OIL & NATURAL GAS (INCLUDING SERVICES) (26.7%)
------------------------------------------------------------------------------------------------------------------------------------
665,000 Apache Corporation 42,959,000
1,600,000 Devon Energy Corporation 81,088,000
600,000 EOG Resources, Inc. 34,080,000
525,000 Halliburton Company 25,105,500
650,000 Patterson-UTI Energy, Inc. 18,089,500
645,000 Talisman Energy Inc. 24,232,650
330,000 Total S.A. ADR 38,560,500
325,000 Unocal Corporation 21,141,250
-----------
(COST $178,177,362) 285,256,400
-----------
RETAIL TRADE (19.6%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation 31,311,000
500,000 Dollar General Corporation 10,180,000
1,920,000 The Home Depot, Inc. (c) 74,688,000
2,500,000 The TJX Companies, Inc. 60,875,000
675,000 Wal-Mart Stores, Inc. 32,535,000
-----------
(COST $78,446,127) 209,589,000
-----------
SEMICONDUCTORS (0.7%)
------------------------------------------------------------------------------------------------------------------------------------
491,500 Brooks Automation, Inc. (a) 7,298,775
197,000 EMCORE Corporation (a) 813,610
---------
(COST $9,890,144) 8,112,385
---------
SPECIAL HOLDINGS (a) (d) (NOTE 5) (0.0%)
------------------------------------------------------------------------------------------------------------------------------------
144,000 Silicon Genesis Corporation 1,440
546,000 Standard MEMS, Inc. Series A Convertible Preferred -
--------
(COST $6,009,720) 1,440 (e)
--------
TOTAL COMMON STOCKS (116.1%) (COST $730,316,780) 1,242,580,577
-------------
CORPORATE NOTE
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COMMUNICATIONS AND INFORMATION SERVICES (0.1%)
------------------------------------------------------------------------------------------------------------------------------------
$678,000 American Tower Corporation 9 3/8% due 2/1/09 (COST $709,754) 712,747
-------
10
8 STATEMENT OF INVESTMENTS June 30, 2005 (Unaudited) - continued
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General American Investors
Principal Value
Amount SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$6,000,000 American General Finance Corporation note due 7/11/05; 3.08% $5,982,033
6,000,000 General Electric Capital Corporation note due 7/18/05; 3.12% 5,981,800
6,000,000 Prudential Funding, LLC note due 7/25/05; 3.20% 5,985,067
19,634,850 SSgA Prime Money Market Fund 19,634,850
----------
TOTAL SHORT-TERM SECURITIES (3.5%) (COST $37,583,750) 37,583,750
-------------
TOTAL INVESTMENTS (f) (119.7%) (COST $768,610,284) 1,280,877,074
Liabilities in excess of receivables and other assets (-1.0%) (10,698,306)
PREFERRED STOCK (-18.7%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,070,178,768
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year, not previously disclosed and not restricted.
(c) 1,000,000 shares held by custodian in a segregated account as collateral for open short positions.
(d) Restricted security.
(e) Fair value of each holding in the opinion of the directors.
(f) At June 30, 2005: (1) the cost of investments for Federal income tax purposes was the same as the cost
for financial reporting purposes, (2) aggregate gross unrealized appreciation was $553,771,964,
(3) aggregate gross unrealized depreciation was $41,505,174, and (4) net unrealized appreciation was
$512,266,790.
(see notes to financial statements)
PORTFOLIO DIVERSIFICATION (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of June 30, 2005 and 2004 is shown in the following table.
PERCENT COMMON NET ASSETS*
JUNE 30, 2005 JUNE 30
---------------------------- ----------------------------
INDUSTRY CATEGORY Cost(000) Value(000) 2005 2004
----------------------------------------- ---------------------------- ----------------------------
Finance and Insurance
Banking $19,812 $99,533 9.3% 9.5%
Insurance 84,799 192,557 18.0 18.8
Other 12,310 12,931 1.2 2.3
------- ------- ------- -----
116,921 305,021 28.5 30.6
------- ------- ------- -----
Oil and Natural Gas (Including Services) 178,177 285,256 26.7 10.8
Retail Trade 78,446 209,589 19.6 19.6
------- ------- ------- -----
Health Care
Pharmaceuticals 72,503 99,393 9.3 15.4
Medical Instruments and Devices 10,484 23,306 2.2 2.2
------- ------- ------- -----
82,987 122,699 11.5 17.6
------- ------- ------- -----
Communications and Information Services 70,538 77,613 7.3 5.2
Computer Software and Systems 49,556 49,493 4.6 6.3
Building and Real Estate 30,441 48,488 4.5 1.6
Environmental Control (Including Services) 26,227 42,312 3.9 3.5
Miscellaneous** 38,079 39,861 3.7 4.5
Consumer Products and Services 28,303 38,060 3.6 3.8
Electronics 15,451 16,788 1.6 2.0
Semiconductors 9,890 8,112 0.7 1.4
Special Holdings 6,010 1 0.0 0.2
------- --------- ------- -----
731,026 1,243,293 116.2 107.1
Short-Term Securities 37,584 37,584 3.5 13.7
------- --------- ------- -----
Total Investments $768,610 1,280,877 119.7 120.8
========
Liabilities in excess of Other Assets - Net (10,698) (1.0) (0.5)
Preferred Stock (200,000) (18.7) (20.3)
---------- ------- -----
Net Assets Applicable to Common Stock $1,070,179 100.0% 100.0%
========== ======= =====
* Net Assets applicable to the Company's Common Stock.
** Securities which have been held for less than one year, not previously disclosed and not restricted.
11
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
1. SIGNIFICANT ACCOUNTING POLICIES
General American Investors Company, Inc. (the "Company"), established in 1927,
is registered under the Investment Company Act of 1940 as a closed-end,
diversified management investment company. It is internally managed by its
officers under the direction of the Board of Directors.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
a. SECURITY VALUATION Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Securities reported on the NASDAQ national market are valued at the official
closing price on that day. Listed and NASDAQ securities for which no sales are
reported on that day and other securities traded in the over-the-counter market
are valued at the last bid price on the valuation date. Securities traded
primarily in foreign markets are generally valued at the preceding closing price
of such securities on their respective exchanges or markets. If, after the close
of the foreign market, conditions change significantly, the price of certain
foreign securities may be adjusted to reflect fair value as of the time of the
valuation of the portfolio. Corporate discount notes are valued at amortized
cost, which approximates market 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 procedures established by and
under the general supervision of the Board of Directors.
b. SHORT SALES The Company may make short sales of securities for either
speculative or hedging purposes. When the Company makes a short sale, it borrows
the securities sold short from a broker; in addition, the Company places cash
with that broker and securities in a segregated account with the custodian, both
as collateral for the short position. The Company may be required to pay a fee
to borrow the securities and may also be obligated to pay any dividends declared
on the borrowed securities. The Company will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which the Company replaces the borrowed
securities.
c. OPTIONS The Company may purchase and write (sell) put and call options. The
risk associated with purchasing an option is that the Company pays a premium
whether or not the option is exercised. Additionally, the Company bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. Premiums received from writing options
that expire unexercised are treated by the Company on the expiration date as
realized gains from investments. The difference between the premium received and
the amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Company has realized a gain
or loss. If a put option is exercised, the premium reduces the cost basis for
the securities purchased by the Company. The Company as writer of an option
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
d. FEDERAL INCOME TAXES The Company's policy is to fulfill the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to its stockholders. Accordingly, no
provision for Federal income taxes is required.
e. INDEMNIFICATIONS In the ordinary course of business, the Company enters into
contracts that contain a variety of indemnifications. The Company's maximum
exposure under these arrangements is unknown. However, the Company has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
f. OTHER As customary in the investment company industry, securities
transactions are recorded as of the trade date. Dividend income and
distributions to stockholders are recorded as of the ex-dividend dates. Interest
income, adjusted for amortization of discount and premium on investments, is
earned from settlement date and is recognized on the accrual basis. Cost of
short-term investments represents amortized cost.
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00
par value, of which 28,717,595 shares and 8,000,000 shares, respectively, were
outstanding at June 30, 2005.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95%
Cumulative Preferred Stock, Series B in an underwritten offering. The Preferred
Shares are noncallable for 5 years and have a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of redemption. The underwriting discount and other expenses associated with the
Preferred Stock offering amounted to $6,700,000 and were charged to paid-in
capital.
The Company is required to allocate distributions from long-term capital gains
and other types of income proportionately among holders of shares of Common
Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an
asset coverage of at least 200% for the Preferred Stock. In addition, pursuant
to the Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds the Basic
Maintenance Amount under the guidelines established by Moody's Investors
Service, Inc. The Company has met these requirements since the issuance of the
Preferred Stock. If the Company fails to meet these requirements in the future
and does not cure such failure, the Company may be required to redeem, in whole
or in part, shares of Preferred Stock at a redemption price of $25.00 per share
plus accumulated and unpaid dividends (whether or not earned or declared). In
addition, the Company's failure to meet the foregoing asset coverage
requirements could restrict its ability to pay dividends on shares of Common
Stock and could lead to sales of portfolio securities at inopportune times.
The holders of Preferred Stock have voting rights equivalent to those of the
holders of Common Stock (one vote per share) and, generally, vote together with
the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the Company's
Board of Directors and the holders of Preferred and Common Stock, voting as a
single class, will elect the remaining directors. If the Company fails to pay
dividends on the Preferred Stock in an amount equal to two full years'
dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In
12
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from bottom of previous page.)
addition, the Investment Company Act of 1940 requires that approval of the
holders of a majority of any outstanding Preferred Shares, voting separately as
a class, would be required to (a) adopt any plan of reorganization that would
adversely affect the Preferred Stock and (b) take any action requiring a vote of
security holders, including, among other things, changes in the Company's
subclassification as a closed-end investment company or changes in its
fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of EITF
D-98, Classification and Measurement of Redeemable Securities, which require
that preferred stock for which its redemption is outside of the company's
control should be presented outside of net assets in the statement of assets and
liabilities.
Transactions in Common Stock during the six months ended June 30, 2005 and the
year ended December 31, 2004 were as follows:
SHARES AMOUNT
------------------ ------------------------
2005 2004 2005 2004
Shares issued in payment of dividends (includes 148,487
and 508,849 shares issued from treasury, respectively) 148,487 508,849 $148,487 $508,849
Increase in paid-in capital 4,445,701 15,273,103
------------ ----------
Total increase 4,594,188 15,781,952
------------ ----------
Shares purchased (at an average discount from net
asset value of 12.7% and 10.3%, respectively) 636,204 1,092,800 (636,204) (1,092,800)
Decrease in paid-in capital (19,065,540) (31,870,232)
------------ -----------
Total decrease (19,701,744) (32,963,032)
------------ -----------
Net decrease ($15,107,556)($17,181,080)
============ ===========
At June 30, 2005, the Company held in its treasury 2,513,968 shares of Common
Stock with an aggregate cost in the amount of $65,687,956.
Distributions for tax and book purposes are substantially the same.
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during the six months ended June
30, 2005 to its officers amounted to $2,936,250.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities and options) for the six months ended June 30, 2005
amounted to on long transactions $106,261,670 and $102,262,247, respectively,
and, with respect to short sale transactions, purchases for the six months
amounted to $3,825,799.
5. RESTRICTED SECURITIES
DATE VALUE
ACQUIRED COST (NOTE 1a)
------------ ----------- -----------
Silicon Genesis Corporation 2/16/01 $3,006,720 $1,440
Standard MEMS, Inc. Series A Convertible Preferred 12/17/99 3,003,000 -
---------- -----------
Total $6,009,720 $1,440
========== ===========
6. PENSION BENEFIT PLANS
The Company has funded (Qualified) and unfunded (Supplemental) noncontributory
defined benefit pension plans that cover substantially all of its employees. The
plans provide defined benefits based on years of service and final average
salary with an offset for a portion of social security covered compensation. The
components of the net periodic benefit cost of the plans for the six months
ended June 30, 2005 were:
Service cost $153,864
Interest cost 324,005
Expected return on plan assets (538,968)
Amortization of:
Prior service cost 18,837
Recognized net actuarial loss (gain) 76,498
--------
Net periodic benefit cost (income) $34,236
========
The Company also has funded and unfunded contributory defined contribution
thrift plans that cover substantially all employees. The aggregate cost of such
plans for the six months ended June 30, 2005 was $235,465. The unfunded
liability included in accrued expenses and other liabilities at June 30, 2005
was $2,589,851.
13
11 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
7. OPERATING LEASE COMMITMENT
In July 1992, the Company entered into an operating lease agreement for office
space which expires in 2007 and provides for future rental payments in the
aggregate amount of approximately $5.6 million. The lease agreement contains a
clause whereby the Company received twenty months of free rent beginning in
December 1992 and escalation clauses relating to operating costs and real
property taxes.
Rental expense approximated $148,000 for the six months ended June 30, 2005.
Minimum rental commitments under the operating lease are approximately $505,000
per annum in 2005 through 2007.
In January 2003, the Company extended a sublease agreement (originally entered
into in March 1996) which expires in 2007 and provides for future rental
receipts. Minimum rental receipts under the sublease are approximately $254,000
per annum in 2005 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
--------------------------------------------------------------------------------
MAJOR STOCK CHANGES* Three Months Ended June 30, 2005 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES JUNE 30, 2005
------------------------------------------------------------------------------------------------------------------------------------
NEW POSITIONS
Dollar General Corporation - 500,000 (a)
Talisman Energy Inc. 645,000 645,000
ADDITIONS
American Tower Corporation 125,000 675,000
MFA Mortgage Investments, Inc. 50,000 825,000
Transatlantic Holdings, Inc. 8,000 257,500
DECREASES
------------------------------------------------------------------------------------------------------------------------------------
REDUCTIONS
American International Group, Inc. 30,000 350,000
Annaly Mortgage Management, Inc. 25,000 250,000
Bank of America Corporation 43,000 325,000
Bristol-Myers Squibb Company 60,000 240,000
Everest Re Group, Ltd. 40,000 585,000
Genentech, Inc. 35,000 365,000
Golden West Financial Corporation 15,000 585,000
MetLife, Inc. 35,000 365,000
NetIQ Corporation 300,000 323,000
PartnerRe Ltd. 50,000 425,000
Reinsurance Group of America, Incorporated 25,000 325,000
SunTrust Banks, Inc. 5,000 200,000
Unocal Corporation 425,000 325,000
* Excludes transactions in Stocks - Miscellaneous - Other.
(a) Securities purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
--------------------------------------------------------------------------------
OTHER MATTERS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
In addition to purchases of the Company's Common Stock as set forth in Note 2 on
page 10, purchases of Common Stock may be made at such times, at such prices, in
such amounts and in such manner as the Board of Directors may deem advisable.
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, 2005 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 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 is available on the Company's website as shown
above.
14
DIRECTORS
--------------------------------------------------------------------------------
Lawrence B. Buttenwieser, Chairman
Arthur G. Altschul, Jr. Sidney R. Knafel
Lewis B. Cullman Richard R. Pivirotto
Spencer Davidson D. Ellen Shuman
Gerald M. Edelman Joseph T. Stewart, Jr.
John D. Gordan, III Raymond S. Troubh
William O. Baker, Director Emeritus
William T. Golden, Director Emeritus
OFFICERS
--------------------------------------------------------------------------------
Spencer Davidson, President & Chief Executive Officer
Andrew V. Vindigni, Vice-President
Eugene S. Stark, Vice-President, Administration
Peter P. Donnelly, Vice-President & Trader
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
Craig A. Grassi, Assistant Vice-President
Maureen E. LoBello, Assistant Secretary
Eugene L. DeStaebler, Jr., Chief Compliance Officer
SERVICE COMPANIES
--------------------------------------------------------------------------------
COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
CUSTODIAN
State Street Bank and
Trust Company
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust
Company
59 Maiden Lane
New York, NY 10038
1-800-413-5499
www.amstock.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
GENERAL AMERICAN INVESTORS COMPANY, INC.
We have reviewed the accompanying statement of assets and liabilities of
General American Investors Company, Inc., including the statement of
investments, as of June 30, 2005, and the related statements of operations and
changes in net assets and financial highlights for the six-month period ended
June 30, 2005. These financial statements and financial highlights are the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the statement of changes in net assets for
the year ended December 31, 2004 and financial highlights for each of the five
years in the period then ended and in our report, dated January 19, 2005, we
expressed an unqualified opinion on such financial statements and financial
highlights.
New York, New York ERNST & YOUNG LLP
July 13, 2005
15
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The schedule of investments in securities of unaffiliated issuers is included as
part of the report to stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
General American Investors Company, Inc.
PROXY VOTING POLICIES AND PROCEDURES
General American Investors Company, Inc. (the "Company") is uniquely
structured as an internally managed closed-end investment company. Our research
efforts, including the receipt and analysis of proxy material, are focused on
the securities in the Company's portfolio, as well as alternative investment
opportunities. We vote proxies relating to our portfolio securities in the best
long-term interests of the Company.
Our investment approach stresses fundamental security analysis, which
includes an evaluation of the integrity, as well as the effectiveness of
management personnel. In proxy material, we review management proposals and
management recommendations relating to shareholder proposals in order to, among
other things, gain assurance that management's positions are consistent with its
integrity and the long-term interests of the company. We generally find this to
be the case and, accordingly, give significant weight to the views of management
when we vote proxies.
Proposals that may have an impact on the rights or privileges of the
securities held by the Company would be reviewed very carefully. The explanation
for a negative impact could justify the proposal; however, if such justification
were not present, we would vote against a significant reduction in the rights or
privileges associated with any of our holdings.
Proposals relating to corporate governance matters are reviewed on a
case-by-case basis. When they involve changes in the state of incorporation,
mergers or other restructuring, we would, if necessary, complete our review of
the rationale for the proposal by contacting company representatives and, with
few exceptions, vote in favor of management's recommendations. Proposals
relating to anti-takeover provisions, such as staggered boards, poison pills and
supermajorities could be more problematic. They would be considered in light of
our assessment of the capability of current management, the duration of the
proposal, the negative impact it might have on the attractiveness of the company
to future "investors," among other factors. We can envision circumstances under
which we would vote against an anti-takeover provision.
Generally, we would vote with management on proposals relating to changes
to the company's capital structure, including increases and decreases of capital
and issuances of preferred stock; however, we would review the facts and
circumstances associated with each proposal before finalizing our decision.
Well-structured stock option plans and management compensation programs are
essential for companies to attract and retain high caliber management personnel.
We generally vote in favor of proposals relating to these issues; however, there
could be an occasion on which we viewed such a proposal as over reaching on the
part of management or having the potential for excessive dilution when we would
vote against the proposal.
Corporations should act in a responsible manner toward their employees, the
communities in which they are located, the customers they serve and the world at
large. We have observed that most stockholder proposals relating to social
issues focus on a narrow issue and the corporate position set forth in the proxy
material provides a well-considered response demonstrating an appropriate and
responsible action or position. Accordingly, we generally support management
recommendations on these types of proposals; however, we would consider each
proposal on a case-by-case basis.
We take voting proxies of securities held in our portfolio very seriously.
As indicated above, it is an integral part of the analytical process at General
American Investors. Each proposal and any competing interests are reviewed
carefully on a case-by-case basis. Generally, we support and vote in accordance
with the recommendations of management; however, the overriding basis for the
votes we cast is the best long-term interests of the Company.
Date: July 9, 2003
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM. 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
REGISTRANT PURCHASES OF EQUITY SECURITIES
(c) Total Number of Shares (d) Maximum Number (or Approximate
Period (a) Total Number (b) Average Price (or Units) Purchased as Part Dollar Value) of Shares (or Units)
of Shares Paid per Share of Publicly Announced that May Yet Be Purchased Under
2005 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01-01/31 72700 30.6667 72700 653604
02/01-02/28 77300 31.0622 77300 576304
03/01-03/31 157200 31.2879 157200 419104
04/01-04/30 105900 30.3646 105900 313204
05/01-05/31 96100 30.2055 76100 217104
06/01-06/30 127004 31.7654 127004 90100
------- -------- ------ ------
Total 636204 636204
======= ======
Note - On July 14, 2004, the Board of Directors authorized and the registrant announced the repurchase of up to 500,000
shares of the registrant's common stock when the shares are trading at a discount from the underlying net asset value
of at least 8%. As of the beginning of the period, January 1, 2005, there were 226,304 shares available for
repurchase under such authorization. On January 19, 2005, the Board of Directors authorized and the registrant
announced the repurchase of up to an additional 500,000 shares of common stock, representing a continuation of a
repurchases program which began in March 1995. As of the end of the period, June 30, 2005, there were 90,100 shares
available for repurchase under this program.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors as set forth in the
registrant's Proxy Statement, dated February 28, 2005.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of July 13, 2005, an evaluation was performed under the supervision and
with the participation of the officers of General American Investors Company,
Inc. (the "Registrant"), including the principal executive officer ("PEO") and
principal financial officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures. Based on that evaluation, the
Registrant's officers, including the PEO and PFO, concluded that, as of July
13, 2005, the Registrant's disclosure controls and procedures were reasonably
designed so as to ensure:(1) that information required to be disclosed by the
Registrant on Form N-CSR is recorded, processed, summarized and reported within
the time periods specified by the rules and forms of the Securities and Exchange
Commission, and (2) that material information relating to the Registrant is made
known to the PEO and PFO as appropriate to allow timely discussions regarding
required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting that occurred during the Registrant's second fiscal
quarter of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company Act of
1940.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
General American Investors Company, Inc.
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
Date: August 3, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Spencer Davidson
Spencer Davidson
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 2005
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: August 3, 2005