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.
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(Exact name of registrant as specified in charter)
450 Lexington Avenue, Suite 3300, New York, New York 10017-3911
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(Address of principal executive offices) (Zip code)
Eugene S. Stark
General American Investors Company, Inc.
450 Lexington Avenue
Suite 3300
New York, New York 10017-3911
(Name and address of agent for service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Registrant's telephone number, including area code: 212-916-8400
Date of fiscal year end: December 31
Date of reporting period: June 30, 2006
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL AMERICAN INVESTORS
COMPANY, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2006
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
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For the six months ended June 30, 2006, the investment return to our
stockholders was 4.9% (assuming reinvestment of all dividends and
distributions). The net asset value per Common Share increased by 1.7%. By
comparison, the rate of return (including income) for our benchmark, the
Standard & Poor's 500 Stock Index, was 2.7%. For the twelve months ended June
30, 2006, the return to our stockholders was 19.5%, and the return on the net
asset value per Common Share was 11.6%; these compare with a return of 8.5% for
the S&P 500. During each period, the discount at which our shares traded
continued to fluctuate and at June 30, 2006, it was 8.7%.
As set forth in the accompanying financial statements (unaudited), as of June
30, 2006, the net assets applicable to the Company's Common Stock were
$1,130,643,127, equal to $39.52 per Common Share.
The increase in net assets resulting from operations for the six months ended
June 30, 2006 was $17,911,615. During this period, the net realized gain on
securities sold was $76,478,198, and the decrease in net unrealized appreciation
was $57,871,637. Net investment income for the six months was $5,255,054, and
distributions to Preferred Stockholders amounted to $5,950,000.
During the six months, 439,600 shares of the Company's Common Stock were
repurchased for $16,209,356 at an average discount from net asset value of 9.5%.
Stock markets declined globally in the quarter just ended, erasing most of their
year-to-date gains. Foremost among the litany of concerns threatening equities
would appear to be Federal Reserve policy, specifically whether a seventeenth
consecutive rate hike is likely to be followed by further tightening. Others
include the effect of higher energy prices on consumer spending and the prospect
of a sharp decline in the housing market.
While the combination of higher interest rates, rising inflation and slower
growth may continue to have a moderating influence on investment returns, the
outlook is not without cause for optimism. The U.S. economy is expanding,
earnings and dividends are growing and job creation is vigorous, while around
the world the absence of recession is notable.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend and distribution
payments, financial reports and press releases, is on our website and has been
updated through June 30, 2006. 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 12, 2006
4
2 STATEMENT OF ASSETS AND LIABILITIES June 30, 2006 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
ASSETS
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INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $697,808,050) $1,220,287,368
Corporate note (cost $33,427,317) 32,725,000
Corporate discount notes (cost $49,895,903) 49,895,903
Money market fund (cost $27,658,129) 27,658,129
--------------
Total investments (cost $808,789,399) 1,330,566,400
CASH, RECEIVABLES AND OTHER ASSETS
Cash $28,066
Receivable for securities sold 62,317
Dividends, interest and other receivables 1,237,660
Prepaid pension cost 7,826,881
Prepaid expenses and other assets 183,477 9,338,401
---------- -------------
TOTAL ASSETS 1,339,904,801
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 94,209
Preferred distribution accrued but not yet declared 231,389
Accrued pension expense 5,970,343
Accrued expenses and other liabilities 2,965,733
----------
9,261,674
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 - 28,610,799 shares (note 2) $1,130,643,127
==============
NET ASSET VALUE PER COMMON SHARE $39.52
==============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 28,610,799 shares at par value (note 2) $28,610,799
Additional paid-in capital (note 2) 503,202,937
Undistributed realized gain on investments 76,446,745
Undistributed net investment income 6,787,034
Unallocated distributions on Preferred Stock (6,181,389)
Unrealized appreciation on investments 521,777,001
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $1,130,643,127
==============
(see notes to financial statements)
5
3 STATEMENT OF OPERATIONS Six Months Ended June 30, 2006 (Unaudited)
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General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $207,546) $8,808,836
Interest 2,721,074 $11,529,910
----------
EXPENSES
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Investment research 4,181,185
Administration and operations 1,364,994
Office space and general 266,156
Directors' fees and expenses 143,990
Auditing and legal fees 120,000
Transfer agent, custodian and registrar fees and expenses 82,111
Stockholders' meeting and reports 64,639
Miscellaneous taxes 51,781 6,274,856
---------- ----------
NET INVESTMENT INCOME 5,255,054
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 77,107,878
Short sale transactions (note 1b) (629,680)
----------
Net realized gain on investments (long-term, except for $1,941,847) 76,478,198
Net decrease in unrealized appreciation (57,871,637)
-----------
NET GAIN ON INVESTMENTS 18,606,561
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (5,950,000)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,911,615
============
(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, 2006 December 31,
(Unaudited) 2005
OPERATIONS
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Net investment income $5,255,054 $5,408,018
Net realized gain on investments 76,478,198 63,024,095
Net increase (decrease) in unrealized appreciation (57,871,637) 103,638,830
----------- ------------
23,861,615 172,070,943
----------- ------------
Distributions to Preferred Stockholders:
From net investment income - (845,368)
From short-term capital gains - (2,449,640)
From long-term capital gains - (8,604,992)
Unallocated distributions on Preferred Stock (5,950,000) -
----------- ------------
Decrease in net assets from Preferred Stock distributions (5,950,000) (11,900,000)
------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 17,911,615 160,170,943
------------ ------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
------------------------------------------------------------------------------------------------------------------------------------
From net investment income - (4,333,771)
From short-term capital gains - (12,389,129)
From long-term capital gains (4,000,786) (43,672,026)
------------ ------------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (4,000,786) (60,394,926)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
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Value of Common Shares issued in payment of distributions - 36,584,716
Cost of Common Shares purchased (16,209,356) (39,812,172)
------------ ------------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (16,209,356) (3,227,456)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (2,298,527) 96,548,561
NET ASSETS APPLICABLE TO COMMON STOCK
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BEGINNING OF PERIOD 1,132,941,654 1,036,393,093
------------- -------------
END OF PERIOD (including undistributed net investment income
of $6,787,034 and $1,531,980, respectively) $1,130,643,127 $1,132,941,654
============== ==============
(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, 2006 and
for each year in the five-year period ended December 31, 2005. 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, 2006 ------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
------------ ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $39.00 $35.49 $33.11 $26.48 $35.14 $39.91
--------- --------- ------- ------- ------- --------
Net investment income .18 .19 .32 .03 .19 .41
Net gain (loss) on investments -
realized and unrealized .69 5.85 3.48 7.72 (7.88) (.66)
--------- --------- ------- ------- ------- --------
Less distributions on Preferred Stock:
Dividends from net investment income - (.03) (.09) (.01) (.12) (.03)
Distributions from net short-term
capital gains - (.08) - - - (.04)
Distributions from net long-term
capital gains - (.30) (.32) (.35) (.23) (.29)
Unallocated (.21) - - - - -
---------- ---------- -------- ------- -------- -------
(.21) (.41) (.41) (.36) (.35) (.36)
---------- ---------- -------- ------- -------- -------
Total from investment operations .66 5.63 3.39 7.39 (8.04) (.61)
--------- --------- --------- ------- ------- -------
Less distributions on Common Stock:
Dividends from net investment
income - (.15) (.23) (.02) (.02) (.37)
Distributions from net short-term
capital gains - (.44) - - (.19) (.51)
Distributions from net long-term
capital gains (.14) (1.53) (.78) (.52) (.41) (3.28)
--------- ---------- ------- ------- ------- --------
(.14) (2.12) (1.01) (.54) (.62) (4.16)
---------- ---------- -------- -------- -------- --------
Capital Stock transaction -
effect of Preferred Stock offering - - - (.22) - -
--------- --------- ------- ------- ------- --------
Net asset value, end of period $39.52 $39.00 $35.49 $33.11 $26.48 $35.14
========= ========= ======= ======= ======= ========
Per share market value, end of period $36.10 $34.54 $31.32 $29.73 $23.85 $33.47
========= ========= ======= ======= ======= ========
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price
per share 4.92%* 17.40% 8.79% 27.01% (27.21)% 4.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of period (000's omitted) $1,130,643 $1,132,942 $1,036,393 $986,335 $809,192 $1,097,530
Ratio of expenses to average net assets
applicable to Common Stock 1.08%** 1.25% 1.15% 1.23% 0.92% 0.97%
Ratio of net investment income to average
net assets applicable to Common Stock 0.90%** 0.51% 0.94% 0.13% 0.61% 1.15%
Portfolio turnover rate 10.34%* 20.41% 16.71% 18.62% 22.67% 23.81%
PREFERRED STOCK
Liquidation value, end of
period (000's omitted) $200,000 $200,000 $200,000 $200,000 $150,000 $150,000
Asset coverage 665% 666% 618 593% 639% 832%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $22.48 $24.07 $24.97 $25.04 $25.85 $25.90
*Not annualized
**Annualized
8
6 STATEMENT OF INVESTMENTS June 30, 2006 (Unaudited)
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General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (note 1a)
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BUILDING AND REAL ESTATE (5.9%)
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1,175,431 CEMEX, S.A. de C.V. ADR (COST $31,961,074) $66,964,327
-----------
COMMUNICATIONS AND INFORMATION SERVICES (5.4%)
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775,000 American Tower Corporation (a) 24,118,000
900,000 Cisco Systems, Inc. (a) 17,577,000
350,000 Lamar Advertising Company Class A (a) 18,851,000
----------
(COST $37,774,748) 60,546,000
----------
COMPUTER SOFTWARE AND SYSTEMS (3.5%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 EMC Corporation (a) 3,291,000
1,400,000 Microsoft Corporation 32,620,000
133,500 VeriSign, Inc. (a) 3,093,195
----------
(COST $40,487,424) 39,004,195
----------
CONSUMER PRODUCTS AND SERVICES (3.0%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc ADR 23,642,500
175,000 PepsiCo, Inc. 10,507,000
----------
(COST $22,493,511) 34,149,500
----------
ELECTRONICS (1.4%)
------------------------------------------------------------------------------------------------------------------------------------
550,000 Molex Incorporated Class A (COST $12,287,441) 15,801,500
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.2%)
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Republic Services, Inc. (COST $26,227,380) 47,399,500
----------
FINANCE AND INSURANCE (27.3%)
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BANKING (9.5%)
---------------------------------------------------------------------------------------------------------------------------------
280,000 Bank of America Corporation 13,468,000
585,000 Golden West Financial Corporation 43,407,000
310,000 M&T Bank Corporation 36,555,200
180,000 SunTrust Banks, Inc. 13,726,800
-----------
(COST $17,866,105) 107,157,000
-----------
INSURANCE (16.4%)
---------------------------------------------------------------------------------------------------------------------------------
275,000 The Allstate Corporation 15,050,750
350,000 American International Group, Inc. 20,667,500
428,500 Annuity and Life Re (Holdings), Ltd. (a) 518,485
350,000 Arch Capital Group Ltd. (a) 20,811,000
300 Berkshire Hathaway Inc. Class A (a) 27,497,700
575,000 Everest Re Group, Ltd. 49,777,750
285,000 MetLife, Inc. 14,594,850
365,000 PartnerRe Ltd. 23,378,250
235,000 Transatlantic Holdings, Inc. 13,136,500
-----------
(COST $84,101,262) 185,432,785
-----------
OTHER (1.4%)
---------------------------------------------------------------------------------------------------------------------------------
655,000 Annaly Mortgage Management, Inc. 8,390,550
1,150,000 MFA Mortgage Investments, Inc. 7,912,000
----------
(COST $16,432,767) 16,302,550
-----------
(COST $118,400,134) 308,892,335
-----------
9
7 STATEMENT OF INVESTMENTS June 30, 2006 (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (9.8%)
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PHARMACEUTICALS (7.9%)
---------------------------------------------------------------------------------------------------------------------------------
240,000 Alkermes, Inc. (a) $4,540,800
170,000 Biogen Idec Inc. (a) 7,874,400
604,900 Cytokinetics, Incorporated (a) 3,804,821
240,000 Genentech, Inc. (a) 19,632,000
380,000 MedImmune, Inc. (a) 10,298,000
1,812,000 Pfizer Inc 42,527,640
----------
(COST $60,218,463) 88,677,661
----------
MEDICAL INSTRUMENTS AND DEVICES (1.9%)
---------------------------------------------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716 21,114,000
----------
(COST $70,702,179 109,791,661
-----------
MACHINERY AND EQUIPMENT (1.3%)
------------------------------------------------------------------------------------------------------------------------------------
1,150,000 ABB Ltd. ADR (COST $12,430,211) 14,904,000
----------
MISCELLANEOUS (5.1%)
------------------------------------------------------------------------------------------------------------------------------------
Other (b) (COST $59,130,397) 58,207,250
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (20.1%)
------------------------------------------------------------------------------------------------------------------------------------
825,000 Apache Corporation 56,306,250
400,000 Halliburton Company 29,684,000
1,000,000 Patterson-UTI Energy, Inc. 28,310,000
3,000,000 Talisman Energy Inc. 52,440,000
1,220,000 Weatherford International Ltd. (a) 60,536,400
-----------
(COST $147,241,413) 227,276,650
-----------
RETAIL TRADE (18.4%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation 39,991,000
1,950,000 Dollar General Corporation 27,261,000
1,570,000 The Home Depot, Inc. (c) 56,190,300
2,500,000 The TJX Companies, Inc. 57,150,000
575,000 Wal-Mart Stores, Inc. 27,697,750
----------
(COST $87,966,483) 208,290,050
-----------
SEMICONDUCTORS (0.2%)
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223,000 Brooks Automation, Inc. (a) (COST $2,012,801) 2,631,400
---------
SPECIAL HOLDING (a) (d) (0.0%)
------------------------------------------------------------------------------------------------------------------------------------
546,000 Standard MEMS, Inc. Series A Convertible Preferred (COST $3,003,000) -
---------
TECHNOLOGY (2.3%)
------------------------------------------------------------------------------------------------------------------------------------
1,900,000 Xerox Corporation (a) (COST $25,689,854) 26,429,000
----------
TOTAL COMMON AND PREFERRED STOCKS (107.9%) (COST $697,808,050) 1,220,287,368
-------------
Principal Amount CORPORATE NOTE
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CONSUMER PRODUCTS AND SERVICES (2.9%)
------------------------------------------------------------------------------------------------------------------------------------
$35,000,000 General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes due 10/15/08 (COST $33,427,317) 32,725,000
----------
10
8 STATEMENT OF INVESTMENTS June 30, 2006 (Unaudited) - continued
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General American Investors
Principal Amount/ Value
Shares SHORT-TERM SECURITIES AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$25,000,000 American General Finance Corporation note due 7/11/06; 5.20%(COST $24,949,445) $24,949,445
$25,000,000 General Electric Finance Corporation note due 7/5/06; 5.14% (COST $24,946,458) 24,946,458
27,658,129 SSgA Prime Money Market Fund (COST $27,658,129) 27,658,129
-----------
TOTAL SHORT-TERM SECURITIES (6.9%) (COST $77,554,032) 77,554,032
-----------
TOTAL INVESTMENTS (e) (117.7%) (COST $808,789,399) 1,330,566,400
Cash, receivables and other assets less liabilities (0.0%) 76,727
PREFERRED STOCK (-17.7%) (200,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,130,643,127
==============
(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 acquired 12/17/99. Fair value in the opinion of the directors.
(e) At June 30, 2006: (1) the cost of investments for Federal income tax purposes was the same as the cost for financial reporting
purposes, (2) aggregate gross unrealized appreciation was $543,375,149, (3) aggregate gross unrealized depreciation was
$21,598,148, and (4) net unrealized appreciation was $521,777,001.
(see notes to financial statements)
PORTFOLIO DIVERSIFICATION June 30, 2006 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of June 30, 2006 and 2005 is shown in the following table.
Percent Common Net Assets*
June 30, 2006 June 30
Industry Category Cost(000) Value(000) 2006 2005
-------------------------------- -------------------- ----------------- ----------- -----------
Finance and Insurance
Banking $17,866 $107,157 9.5% 9.3%
Insurance 84,101 185,433 16.4 18.0
Other 16,433 16,302 1.4 1.2
------- -------- ----- ----
118,400 308,892 27.3 28.5
------- -------- ----- ----
Oil and Natural Gas (Including Services) 147,241 227,277 20.1 26.7
Retail Trade 87,967 208,290 18.4 19.6
------- -------- ----- ----
Health Care
Pharmaceuticals 60,219 88,678 7.9 9.3
Medical Instruments and Devices 10,484 21,114 1.9 2.2
------- -------- ----- ----
70,703 109,792 9.8 11.5
------- -------- ----- ----
Building and Real Estate 31,961 66,964 5.9 4.5
Consumer Products and Services 55,921 66,874 5.9 3.6
Communications and Information Services 37,775 60,546 5.4 7.3
Miscellaneous** 59,130 58,207 5.1 3.7
Environmental Control (Including Services) 26,227 47,400 4.2 3.9
Computer Software and Systems 40,487 39,004 3.5 4.6
Technology 25,690 26,429 2.3 0.0
Electronics 12,287 15,802 1.4 1.6
Machinery and Equipment 12,430 14,904 1.3 0.0
Semiconductors 2,013 2,631 0.2 0.7
Special Holdings 3,003 0.0 0.0 0.0
------- --------- ------ -----
731,235 1,253,012 110.8 116.2
Short-Term Securities 77,554 77,554 6.9 3.5
------- --------- ------ -----
Total Investments $808,789 1,330,566 117.7 119.7
======== ========= ====== =====
Other Assets and Liabilities - Net 77 0.0 (1.0)
Preferred Stock (200,000) (17.7) (18.7)
---------- ------ ------
Net Assets Applicable to Common Stock $1,130,643 100.0% 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 (asked price for open short positions) 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.
Investments in money market funds are valued at their net asset value. Special
holdings (restricted securities) and other securities for which quotations are
not readily available are valued at fair value determined in good faith pursuant
to 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. 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.
d. 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.
e. 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 28,610,799
shares and 8,000,000 shares, respectively, were outstanding at June 30, 2006.
On September 24, 2003, the Company issued and sold 8,000,000 shares of its 5.95%
Cumulative Preferred Stock, Series B in an underwritten offering. The Preferred
Shares are noncallable for 5 years and have a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of redemption. The underwriting discount and other expenses associated with the
Preferred Stock offering amounted to $6,700,000 and were charged to paid-in
capital.
The Company is required to allocate distributions from long-term capital gains
and other types of income proportionately among holders of shares of Common
Stock and Preferred Stock. To the extent that dividends on the shares of
Preferred Stock are not paid from long-term capital gains, they will be paid
from ordinary income or net short-term capital gains or will represent a return
of capital.
Under the Investment Company Act of 1940, the Company is required to maintain an
asset coverage of at least 200% for the Preferred Stock. In addition, pursuant
to the Rating Agency Guidelines, the Company is required to maintain a certain
discounted asset coverage for its portfolio that equals or exceeds the Basic
Maintenance Amount under the guidelines established by Moody's Investors
Service, Inc. The Company has met these requirements since the issuance of the
Preferred Stock. If the Company fails to meet these requirements in the future
and does not cure such failure, the Company may be required to redeem, in whole
or in part, shares of Preferred Stock at a redemption price of $25.00 per share
plus accumulated and unpaid dividends (whether or not earned or declared). In
addition, the Company's failure to meet the foregoing asset coverage
requirements could restrict its ability to pay dividends on shares of Common
Stock and could lead to sales of portfolio securities at inopportune times.
The holders of Preferred Stock have voting rights equivalent to those of the
holders of Common Stock (one vote per share) and, generally, vote together with
the holders of Common Stock as a single class.
At all times, holders of Preferred Stock will elect two members of the Company's
Board of Directors and the holders of Preferred and Common Stock, voting as a
single class, will elect the remaining directors. If the Company fails to pay
dividends on the Preferred Stock in an amount equal to two full years'
dividends, the holders of Preferred Stock will have the right to elect a
majority of the directors. In addition, the Investment Company Act of 1940
requires that approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the Preferred Stock and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Company's subclassification as a closed-end investment company or
changes in its fundamental investment policies.
The Company classifies its Preferred Stock pursuant to the requirements of EITF
D-98, Classification and Measurement of Redeemable Securities, which 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.
12
10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from bottom of previous
page.) Transactions in Common Stock during the six months ended June 30, 2006
and the year ended December 31, 2005 were as follows:
SHARES AMOUNT
------------------ ------------------------
2005 2004 2005 2004
------------------ ------------------------
Shares issued in payment of dividends (includes 1,067,491
shares issued from treasury for 2005) - 1,067,491 - $1,067,491
Increase in paid-in capital - 35,517,225
--------- ----------
Total increase - 36,584,716
--------- ----------
Shares purchased (at an average discount from net
asset value of 9.5% and 12.4%, respectively) 439,600 1,222,404 ($439,600) (1,222,404)
Decrease in paid-in capital (15,769,756) (38,589,768)
----------- -----------
Total decrease (16,209,356) (39,812,172)
----------- -----------
Net decrease ($16,209,356) ($3,227,456)
============ ===========
At June 30, 2006, the Company held in its treasury 2,620,764 shares of Common
Stock with an aggregate cost in the amount of $77,099,870. 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, 2006 to its officers amounted to
$3,872,250.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities and
securities sold short (other than short-term securities) for the six months
ended June 30, 2006 amounted to $135,508,007 and $229,399,448 on long
transactions, respectively, and $4,061,806 and $3,432,126 on short sale
transactions, respectively.
5. 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, 2006 were:
Service cost $158,698
Interest cost 342,078
Expected return on plan assets (563,520)
Amortization of:
Prior service cost 17,548
Recognized net actuarial loss (gain) 92,751
--------
Net periodic benefit cost (income) $47,555
========
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, 2006 was $371,086. The unfunded
liability included in accrued expenses and other liabilities at June 30, 2006
was $2,791,863.
6. 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 $152,000 for the six months ended June 30, 2006.
Minimum rental commitments under the operating lease are approximately $505,000
per annum in 2006 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 2006 through 2007. The Company will also receive its proportionate
share of operating expenses and real property taxes under the sublease.
13
11 MAJOR STOCK CHANGES* Three Months Ended June 30, 2006 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES JUNE 30, 2006
-----------------------------------------------------------------------------------------------------------------
NEW POSITION
ABB Ltd. ADR - 1,150,000 (a)
ADDITIONS
American Tower Corporation 100,000 775,000
Annaly Mortgage Management, Inc. 155,000 655,000
Apache Corporation 160,000 825,000
Dollar General Corporation 1,200,000 1,950,000
Everest Re Group, Ltd. 25,000 575,000
Transatlantic Holdings, Inc. 10,000 235,000
DECREASES
-----------------------------------------------------------------------------------------------------------------
ELIMINATIONS
EMCORE Corporation 100,000 -
EOG Resources, Inc. 200,000 -
North Fork Bancorporation, Inc. 475,000 -
Total S.A. ADR 552,000 (b) -
REDUCTIONS
Annuity and Life Re (Holdings), Ltd. 71,500 428,500
Brooks Automation, Inc. 100,000 223,000
Genentech, Inc. 65,000 240,000
Halliburton Company 40,000 400,000
MFA Mortgage Investments, Inc. 150,000 1,150,000
MedImmune, Inc. 20,000 380,000
Pfizer Inc 135,000 1,812,000
SunTrust Banks, Inc. 20,000 180,000
* Excludes transactions in Common and Preferred Stocks - Miscellaneous - Other.
(a) Securities purchased in prior period and previously carried under Common and Preferred Stocks - Miscellaneous - Other.
(b) Includes shares received in conjunction with a stock split.
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, 2006 are available: (1) without charge, upon
request, by calling us at our toll-free telephone number (1-800-436-8401), (2)
on the Company's website at www.generalamericaninvestors.com and (3) on the
Securities and Exchange Commission's website at www.sec.gov.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission (SEC) as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available at
www.generalamericaninvestors.com and on the SEC's website: www.sec.gov. Also,
Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public Reference Room
may be obtained by calling 1-800-SEC-0330. A copy of the Company's Form N-Q may
be obtained by calling us at 1-800-436-8401.
On May 2, 2006, the Company submitted a CEO annual certification to the New York
Stock Exchange ("NYSE") on which the Company's principal executive officer
certified that he was not aware, as of that date, of any violation by the
Company of the NYSE's Corporate Governance listing standards. In addition, as
required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules,
the Company's principal executive and principal financial officer made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q relating
to, among other things, the Company's disclosure controls and procedures and
internal control over financial reporting, as applicable.
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 T. Golden, Director Emeritus
OFFICERS
--------------------------------------------------------------------------------
Spencer Davidson, President & Chief Executive Officer
Peter P. Donnelly, Vice-President & Trader
Sally A. Lynch, Vice-President
Eugene S. Stark, Vice-President, Administration &
Chief Compliance Officer
Jesse R. Stuart, Vice-President
Andrew V. Vindigni, Vice-President
Diane G. Radosti, Treasurer
Carole Anne Clementi, Secretary
Craig A. Grassi, Assistant Vice-President
Maureen E. LoBello, Assistant Secretary
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, 2006, and the related statements of operations and
changes in net assets and financial highlights for the six-month period ended
June 30, 2006. 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, 2005 and financial highlights for each of the five
years in the period then ended and in our report, dated January 18, 2006, we
expressed an unqualified opinion on such financial statements and financial
highlights.
New York, New York ERNST & YOUNG LLP
July 12, 2006
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.
Not applicable to this semi-annual report.
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
2006 (or Units) Purchased (or Unit) Plans or Programs the Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
01/01-01/31 93600 35.8364 93600 660000
02/01-02/28 97900 36.6130 97900 562100
03/01-03/31 37200 37.0097 37200 524900
04/01-04/30 79300 37.6870 79300 445600
05/01-05/31 102600 37.6683 102600 343000
06/01-06/30 29000 35.8809 29000 314000
------- -------- ------ ------
Total 439600 439600
======= ======
Note - On December 14, 2005, the Board of Directors authorized and the registrant announced the repurchase of up to 750,000
shares of the registrant's common stock when the shares are trading at a discount from the underlying net asset value
of at least 8%. This represented a continuation of a repurchase program which began in March 1995. As of the
beginning of the period, January 1, 2006, there were 753,600 shares available for repurchase under such
authorization. As of the end of the period, June 30, 2006, there were 314,000 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, 2006.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of July 12, 2006, an evaluation was performed under the supervision and
with the participation of the officers of General American Investors Company,
Inc. (the "Registrant"), including the principal executive officer ("PEO") and
principal financial officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures. Based on that evaluation, the
Registrant's officers, including the PEO and PFO, concluded that, as of July
12, 2006, the Registrant's disclosure controls and procedures were reasonably
designed so as to ensure:(1) that information required to be disclosed by the
Registrant on Form N-CSR 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, 2006
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, 2006
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: August 3, 2006