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
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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: December 31, 2005
2
ITEM 1. REPORTS TO STOCKHOLDERS.
GENERAL
AMERICAN
INVESTORS
2005
ANNUAL
REPORT
3
GENERAL AMERICAN INVESTORS COMPANY, INC.
Established in 1927, the Company is a closed-end investment company listed on
the New York Stock Exchange. Its objective is long-term capital appreciation
through investment in companies with above average growth potential.
FINANCIAL SUMMARY (unaudited)
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2005 2004
------------- --------------
Net assets applicable to Common Stock -
December 31 $1,132,941,654 $1,036,393,093
Net investment income 5,408,018 9,253,481
Net realized gain 63,024,095 36,774,029
Net increase in unrealized appreciation 103,638,830 62,361,773
Distributions to Preferred Stockholders (11,900,000) (11,900,000)
Per Common Share-December 31
Net asset value $39.00 $35.49
Market price $34.54 $31.32
Discount from net asset value -11.4% -11.7%
Common Shares outstanding-Dec. 31 29,050,399 29,205,312
Common Stockholders of record-Dec. 31 4,100 4,300
Market price range* (high-low) $35.45-$29.37 $31.74-$27.88
Market volume-shares 7,242,000 6,206,400
*Unadjusted for dividend payments.
DIVIDEND SUMMARY (per share) (unaudited)
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Ordinary Long-Term
Record Date Payment Date Income Capital Gain Total
------------ ------------ --------- ------------ --------
Common Stock
Nov. 11, 2005 Dec. 22, 2005 $.587543 (a) $1.260182 $1.847725
Jan. 30, 2006 Feb. 13, 2006 - .138000 .138000
-------- --------- ---------
Total from 2005 earnings $.587543 $1.398182 $1.985725
======== ========= =========
Nov. 12, 2004 Dec. 23, 2004 $.215327 $.684673 $.900000
Jan. 31, 2005 Mar. 10, 2005 .002000 .272000 .274000
-------- -------- ---------
Total from 2004 earnings $.217327 $.956673 $1.174000
======== ======== =========
(a) Includes short-term gain in the amount of $.041294 per share.
Preferred Stock
Mar. 7, 2005 Mar. 24, 2005 $.102969 $.268906 $.371875
Jun. 7, 2005 Jun. 24, 2005 .102969 .268906 .371875
Sep. 7, 2005 Sep. 26, 2005 .102969 .268906 .371875
Dec. 7, 2005 Dec. 27, 2005 .102969 .268906 .371875
-------- --------- ---------
Total for 2005 $.411876 (b) $1.075624 $1.487500
======== ========= =========
Mar. 8, 2004 Mar. 24, 2004 $.083947 $.287928 $.371875
Jun. 7, 2004 Jun. 24, 2004 .083947 .287928 .371875
Sep. 7, 2004 Sep. 24, 2004 .083947 .287928 .371875
Dec. 7, 2004 Dec. 27, 2004 .083947 .287928 .371875
-------- --------- ---------
Total for 2004 $.335788 $1.151712 $1.487500
======== ========= =========
(b) Includes short-term gain in the amount of $.028844 ($.007211 per quarter).
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericaninvestors.com
4
1 TO THE STOCKHOLDERS
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General American Investors
The U.S. stock market rose for the third consecutive year, gaining 4.8% in the
12 months ended December 31, 2005, as measured by our benchmark, the Standard &
Poor's 500 Stock Index (including income). General American Investors' net asset
value (NAV) per Common Share (assuming reinvestment of all dividends) increased
16.2%. The return to our Common Stockholders was 17.4%, reflecting a slight
narrowing in the discount at which our shares trade, which, at year end, was
11.4%.
The table that follows, which compares our returns on an annualized basis with
the S&P 500, illustrates that over many years General American has produced
superior investment results.
Years Stockholder Return S&P 500
---------------------------------------------
3 17.5% 14.3%
5 4.3 0.5
10 16.4 9.0
20 14.8 11.9
30 17.4 12.7
40 12.9 10.3
The share repurchase program, a part of our continuing effort to maximize NAV,
continues apace. During 2005, the Company purchased 1,222,404 of its Common
Shares in the open market at an average discount to NAV of 12.4%. The Board of
Directors has authorized repurchases of Common Shares when they are trading at a
discount in excess of 8% of NAV.
Markets rallied again last year, continuing the trend that began in 2003.
Earnings rose meaningfully, and interest rates remained at relatively modest
levels by historic standards, notwithstanding the Federal Reserve's ongoing
tightening campaign. While mirroring economic trends, the relatively muted
performance of stocks reflected the compression in valuation multiples (price to
earnings ratios) that generally attends a maturing business cycle.
Our performance last year benefited importantly from the portfolio's exposure to
the shares of oil and natural gas producers and their service providers. Other
contributors included financial services, biotech and cement companies. As in
the past, our investments were focused on companies with strong financial
characteristics and powerful positions in growing industries. Both operating
costs relative to average net assets and portfolio turnover remained well below
the equity mutual fund industry norm.
We enter 2006 with cautious optimism, encouraged by robust global growth and the
resiliency of our economy in the face of rising interest rates and higher energy
costs. While there is currently little evidence of decelerating spending, we
fear that consumer demand for durables like cars and housing is unlikely to rise
appreciably. It would appear that consumers have been spending more than they
make for some time, while other sources of liquidity, like home equity loans,
will probably contract, even assuming that the Fed stops raising rates this
year. With the unemployment rate below 5% and labor shortages, especially among
skilled workers, increasingly common, corporations may well supplement flagging
consumer demand with increased expenditure on productivity-enhancing capital
goods. They have been reluctant spenders in this business cycle, continuing to
cut costs and rationalize facilities in the face of lower-cost Asian
competition.
As corporate earnings have continued to grow, market valuations have become more
reasonable, but not generally compelling. Inflation appears to be rising
steadily, if not spectacularly, which together with an aging economic expansion
may continue to pressure the multiple awarded earnings and, consequently, market
prices. We remain encouraged, however, by the earnings and cash flow
characteristics of our portfolio companies and highly confident that our staff
will continue to perform to its customary high standard.
As mentioned in the mid-year report, Eugene L. DeStaebler, Jr., who had been an
officer of the Company for thirty years, retired as Vice-President,
Administration, on June 30, 2005. Mr. DeStaebler continued to serve as Chief
Compliance Officer, under a consultancy arrangement, through December 31, 2005.
Effective January 1, 2006, Eugene S. Stark, Vice-President, Administration,
assumed the additional responsibilities of Chief Compliance Officer.
We are pleased to report that on December 14, 2005, Dr. Sally Lynch, who has
been employed as a securities analyst at the Company since 1997, and Mr. Jesse
Stuart, CFA, who has also been employed as a securities analyst since 2003, were
appointed Vice-Presidents of the Company, both effective January 1, 2006.
We are saddened to report that Dr. William O. Baker, our esteemed colleague and
Director Emeritus, died on October 31, 2005. Dr. Baker, a prominent scientist,
former Chairman of the Board of Bell Laboratories, and an adviser to five
presidents on scientific affairs, served as a director of the Company for 13
years, and as Director Emeritus since 1996. His counsel and support will be
missed.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend payments,
financial reports and press releases, etc., is available on our website, which
can be accessed at www.generalamericaninvestors.com.
By Order of the Board of Directors,
Spencer Davidson
President and Chief Executive Officer
January 18, 2006
5
2 THE COMPANY
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General American Investors
CORPORATE OVERVIEW
General American Investors, established in 1927, is one of the nation's oldest
closed-end investment companies. It is an independent organization, internally
managed. For regulatory purposes, the Company is classified as a diversified,
closed-end management investment company; it is registered under and subject to
the regulatory provisions of the Investment Company Act of 1940.
INVESTMENT POLICY
The primary objective of the Company is long-term capital appreciation. Lesser
emphasis is placed on current income. In seeking to achieve its primary
objective, the Company invests principally in common stocks believed by its
management to have better than average growth potential.
The Company's investment approach focuses on the selection of individual stocks,
each of which is expected to meet a clearly defined portfolio objective. A
continuous investment research program, which stresses fundamental security
analysis, is carried on by the officers and staff of the Company under the
oversight of the Board of Directors. A listing of the directors with their
principal affiliations, showing a broad range of experience in business and
financial affairs, is on page 20.
PORTFOLIO MANAGER
Mr. Spencer Davidson has been responsible for the management of General
American's portfolio since he was elected President and Chief Executive Officer
of the Company in August 1995. Mr. Davidson, who joined the Company in 1994 as
senior investment counselor, has spent his entire business career on Wall Street
since first joining an investment and banking firm in 1966.
"GAM" Common Stock
As a closed-end investment company, General American Investors does not offer
its shares continuously. The Common Stock is listed on The New York Stock
Exchange (symbol, GAM) and can be bought or sold with commissions determined in
the same manner as all listed stocks. Net asset value is computed and published
on the Company's website daily (on an unaudited basis) and is furnished upon
request. It is also available on most electronic quotation services using the
symbol "XGAMX." The figure for net asset value per share, together with the
market price and the percentage discount or premium from net asset value as of
the close of each week, is published in The New York Times, The Wall Street
Journal and Barron's.
The ratio of market price to net asset value has shown considerable variation
over a long period of time. While shares of GAM usually sell at a discount from
their underlying net asset value, as do the shares of most other domestic equity
closed-end investment companies, they, occasionally, sell at a premium over net
asset value. During 2005, the stock sold at discounts from net asset value which
ranged from 9.8% (November 9) to 14.9% (July 5). At December 31, the price of
the stock was at a discount of 11.4% as compared with a discount of 11.7% a year
earlier.
"GAM Pr B" Preferred Stock
On September 24, 2003, the Company issued and sold in an underwritten offering
8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a
liquidation preference of $25 per share ($200,000,000 in the aggregate).
The Preferred Shares are noncallable for 5 years, are rated "aaa" by Moody's
Investors Service, Inc. and are listed and traded on The New York Stock Exchange
(symbol, GAM Pr B). preferred capital is available to leverage the investment
6
3 THE COMPANY
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General American Investors
performance of the Common Stockholders. As is the case for leverage in general,
it may also result in higher market volatility for the Common Stockholders.
DIVIDEND AND DISTRIBUTION POLICY
The Company's dividend and distribution policy is to distribute to stockholders
before year-end substantially all ordinary income estimated for the full year
and capital gains realized during the ten-month period ended October 31 of that
year. If any additional capital gains are realized or ordinary income is earned
during the last two months of the year, a "spill-over" distribution of these
amounts will be paid early in the following year to Common Stockholders.
Dividends and distributions on shares of Preferred Stock are paid quarterly.
Distributions from capital gains and dividends from ordinary income are
allocated proportionately among holders of shares of Common Stock and Preferred
Stock.
Dividends from income have been paid continuously on the Common Stock since 1939
and capital gain distributions in varying amounts have been paid for each of the
years 1943-2005 (except for the year 1974). (A table listing dividends and
distributions paid during the 20-year period 1986-2005 is shown at the bottom of
page 6.) To the extent that shares can be issued, dividends and distributions
are paid to Common Stockholders in additional shares of Common Stock unless the
stockholder specifically requests payment in cash. Spill-over dividends and
distributions of nominal amounts may be paid in cash only.
PROXY VOTING POLICIES, PROCEDURES AND RECORD
The policies and procedures used by General American Investors to determine how
to vote proxies relating to portfolio securities and the Company's proxy voting
record for the 12-month period ended June 30, 2005 are available: (1) without
charge, upon request, by calling the Company at its toll-free 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.
DIRECT REGISTRATION
The Company makes available direct registration for its Common Shareholders.
Direct registration, which is an element of the Investors Choice Plan
administered by our transfer agent, is a system that allows for book-entry
ownership and the electronic transfer of our Common Shares. Accordingly, when
Common Shareholders, who hold their shares directly, receive new shares
resulting from a purchase, transfer or dividend payment, they will receive a
statement showing the credit of the new shares as well as their Plan account and
certificated share balances. A brochure which describes the features and
benefits of the Investors Choice Plan, including the ability of shareholders to
deposit certificates with our transfer agent, can be obtained by calling
American Stock Transfer & Trust Company at 1-800-413-5499, calling the Company
at 1-800-436-8401 or visiting our website: www.generalamericaninvestors.com -
click on Dividends & Reports, then Report Downloads.
PRIVACY POLICY AND PRACTICES
General American Investors collects nonpublic personal information about its
customers (stockholders) with respect to their transactions in shares of the
Company's securities but only for those stockholders whose shares are registered
in their names. This information includes the stockholder's address, tax
identification or Social Security number and dividend elections. We do not have
knowledge of, nor do we collect personal information about, stockholders who
hold the Company's securities at financial institutions such as brokers or banks
in "street name" registration.
We do not disclose any nonpublic personal information about our stockholders or
former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders to
those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
7
4 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
"Total return on $10,000 investment 20 years ended December 31, 2005"
The investment return for a Common Stockholder of General American Investors
(GAM) over the 20 years ended December 31, 2005 is shown in the table below and
in the accompanying chart. The return based on GAM's net asset value (NAV) per
Common Share in comparison to the change in the Standard & Poor's 500 Stock
Index (S&P 500) is also displayed. Each illustration assumes an investment of
$10,000 at the beginning of 1986.
THE STOCKHOLDER RETURN is the return a Common Stock holder of GAM would have
achieved assuming reinvestment of all dividends and distributions at the actual
reinvestment price and of all cash dividends at the average (mean between high
and low) market price on the ex-dividend date.
THE GAM NET ASSET VALUE (NAV) RETURN is the return on shares of the Company's
Common Stock based on the NAV per share, including the reinvestment of all
dividends and distributions.
THE S&P 500 RETURN is the time-weighted total rate of return on this
widely-recognized, unmanaged index which is a measure of general stock market
performance, including dividend income.
The results illustrated are a record of past performance and may not be
indicative of future results.
GENERAL AMERICAN INVESTORS
------------------------------------------------------- STANDARD & POOR'S 500
STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN
------------------------ --------------------------- ------------------------------
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
INVESTMENT RETURN INVESTMENT RETURN INVESTMENT RETURN
------------------------- --------------------------- ------------------------------
1986 $11,117 11.17% $11,117 11.17% $11,869 18.69%
1987 9,326 -16.11 11,398 2.53 12,491 5.24
1988 11,309 21.26 13,401 17.57 14,556 16.53
1989 16,805 48.60 18,475 37.86 19,158 31.62
1990 17,477 4.00 19,710 6.69 18,566 -3.09
1991 32,332 85.00 31,752 61.09 24,210 30.40
1992 37,111 14.78 32,879 3.55 26,048 7.59
1993 31,203 -15.92 32,303 -1.75 28,684 10.12
1994 28,751 -7.86 31,418 -2.74 29,048 1.27
1995 34,851 21.22 38,827 23.58 39,941 37.50
1996 41,640 19.48 46,580 19.97 49,092 22.91
1997 59,371 42.58 61,509 32.05 65,454 33.33
1998 77,960 31.31 83,124 35.14 84,141 28.55
1999 108,536 39.22 113,381 36.40 101,777 20.96
2000 129,266 19.10 133,381 17.64 92,526 -9.09
2001 134,864 4.33 131,781 -1.20 81,525 -11.89
2002 98,167 -27.21 101,445 -23.02 63,475 -22.14
2003 124,682 27.01 129,241 27.40 81,603 28.56
2004 135,642 8.79 142,643 10.37 90,408 10.79
2005 159,243 17.40 165,751 16.20 94,775 4.83
8
5 INVESTMENT RESULTS (UNAUDITED)
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General American Investors
[CAPTION]
[Line graph with heading "20-YEAR INVESTMENT RESULTS ASSUMING AN INITIAL
INVESTMENT OF $10,000" at top left hand side. The vertical axis is to the right
side of the page and is labeled "CUMULATIVE VALUE OF INVESTMENT." The axis range
is from $0 to $180,000 in $20,000 increments. The horizontal axis, on the bottom
of the page, consists of the years 1986 through 2005 in one year increments.
Within the graph are three lines. The first line represents GAM Stockholder
Return. The second line represents GAM Net Asset Value Return, and the third
line represents the return of the S&P 500 Stock Index. The data points for the
lines are derived from the columns labeled "Cumulative Investment" from the
table on the preceding page. Also, embedded in upper left portion of the graph
is a table which appears as follows:]
COMPARATIVE ANNUALIZED INVESTMENT RESULTS
-----------------------------------------
YEARS ENDED STOCKHOLDER GAM NET S&P 500
DECEMBER 31, 2005 RETURN ASSET VALUE STOCK INDEX
------------------------------------------------------------------
1 year 17.4% 16.2% 4.8%
5 years 4.3 4.4 0.5
10 years 16.4 15.6 9.0
15 years 15.9 15.3 11.5
20 years 14.8 15.1 11.9
9
6 MAJOR STOCK CHANGES*: THREE MONTHS ENDED DECEMBER 31, 2005 (UNAUDITED)
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General American Investors
SHARES HELD
INCREASES SHARES DECEMBER 31, 2005
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ADDITIONS
Cytokinetics, Incorporated 54,900 604,900
MFA Mortgage Investments, Inc. 375,000 1,300,000
Patterson-UTI Energy, Inc. 250,000 1,000,000
Talisman Energy Inc. 208,700 1,000,000
Weatherford International Ltd. 185,000 1,220,000 (a)
DECREASES
---------------------------------------------------------------------------------------------------
ELIMINATIONS
Central Securities Corporation 102,809 (b) -
CIENA Corporation 550,000 -
Millenium Pharmaceuticals, Inc. 120,000 -
Reinsurance Group of America, Incorporated 200,000 -
Silicon Genesis Corporation 144,000 -
REDUCTIONS
American International Group, Inc. 5,000 345,000
Annaly Mortgage Management, Inc. 175,000 500,000
Bank of America Corporation 35,000 280,000
Brooks Automation, Inc. 168,500 323,000
Devon Energy Corporation 582,000 758,000
Everest Re Group, Ltd. 10,000 540,000
Genentech, Inc. 35,000 330,000
The Home Depot, Inc. 225,000 1,695,000
Microsoft Corporation 125,000 1,400,000
PartnerRe Ltd. 25,000 375,000
Pfizer Inc 50,000 1,250,000
* Excludes transactions in Stocks-Miscellaneous-Other.
(a) Includes shares received in conjunction with a stock split.
(b) Includes shares received from dividend payments.
"The following table shows aggregate dividends and distributions paid per share
on the Company's Common Stock for each year during the 20-year period 1986-2005.
Amounts shown include payments made after year-end attributable to income and
gain in each respective year."
DIVIDENDS AND DISTRIBUTIONS PER COMMON SHARE (1986-2005) (UNAUDITED)
-------------------------------------------------------------------------------
EARNINGS SOURCE
----------------------------
SHORT-TERM LONG-TERM
YEAR INCOME CAPITAL GAINS CAPITAL GAINS
----------------------------------------------
1986 $.36 - $2.15
1987 .35 - 1.54
1988 .29 - 1.69
1989 .21 $.02 1.56
1990 .21 - 1.65
1991 .09 - 3.07
1992 .03 - 2.93
1993 .06 - 2.34
1994 .06 - 1.59
1995 .10 .03 2.77
1996 .20 .05 2.71
1997 .21 - 2.95
1998 .47 - 4.40
1999 .42 .62 4.05
2000 .48 1.55 6.16
2001 .37 .64 1.37
2002 .03 - .33
2003 .02 - .59
2004 .217 - .957
2005 .547 .041 1.398
10
7 TEN LARGEST INVESTMENT HOLDINGS (UNAUDITED)
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General American Investors
"The statement of investments as of December 31, 2005, shown on pages 12 and 13
includes 53 security issues. Listed here are the ten largest holdings on that
date."
% COMMON
SHARES VALUE NET ASSETS*
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THE HOME DEPOT, INC. 1,695,000 $68,613,600 6.1%
The largest company in home center retailing, Home Depot's
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.
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CEMEX, S.A. de C.V. ADR 1,143,041 67,816,623 6.0
Domiciled in Mexico, CEMEX is the third largest cement producer
in the world. With the expansion of its operations into related
construction materials and additional geographic areas, as well as
its focus on cost containment, the company's free cash
flow should continue to increase, supporting a positive long-term
outlook.
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THE TJX COMPANIES, INC. 2,500,000 58,075,000 5.1
Through its T.J. Maxx and Marshalls divisions, TJX is a leading
off-price retailer. The continued growth of these divisions, along
with expansion into related U.S. and foreign off-price formats,
provide ongoing growth opportunities.
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EVEREST RE GROUP, LTD. 540,000 54,189,000 4.8
The largest independent U.S. property/casualty reinsurer, which
generates annual premiums of approximately $4.7 billion and has
a high quality, well-reserved AA balance sheet. This Bermuda
domiciled company has a strong management team that exercises
underwriting discipline and efficient expense control,
resulting in above-average earnings growth.
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TALISMAN ENERGY INC. 1,000,000 52,880,000 4.7
Talisman, headquartered in Calgary, Alberta, is an upstream
oil and gas producer with global operations. The company is
focusing on larger, deep gas opportunities in North America
and large international projects which should lead to faster
production growth and higher returns.
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DEVON ENERGY CORPORATION 758,000 47,405,320 4.2
One of the largest independent oil and gas exploration and
production companies, Devon operates both domestically and
internationally. Recent opportunistic acquisitions have enhanced
production and improved the company's exploration
profile.
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APACHE CORPORATION 665,000 45,565,800 4.0
Apache is a large independent oil and gas company. The
company has a long history of growing production and creating
value for shareholders. The company's operations are primarily
focused in North America, the North Sea and Egypt.
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WEATHERFORD INTERNATIONAL LTD. 1,220,000 44,164,000 3.9
Weatherford supplies a broad range of oil field services through
its Drilling Methods, Well Construction, Drilling Tools and
Intervention Services divisions on a worldwide basis. Its focus on
increasing production from existing fields and synergies from the
acquisition of assets from Precision Drilling should lead to
earnings growth.
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REPUBLIC SERVICES, INC. 1,175,000 44,121,250 3.9
Republic Services is a leading provider of non-hazardous solid waste
collection and disposal services in the U.S. The efficient operation
of its routes and facilities combined with appropriate pricing enable
Republic Services to generate significant free cash flow. The high
probability of additional contracts and the expectation that
economic activity will continue to improve should result in higher
waste volumes for the company.
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EOG RESOURCES, INC. 600,000 44,022,000 3.8
EOG is rapidly growing its reserves and production of natural gas.
The company's assets are primarily in North America and Trinidad.
The company earns among the highest returns on capital in its
industry.
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$526,852,593 46.5%
============ =====
*Net assets applicable to the Company's Common Stock.
11
8 PORTFOLIO DIVERSIFICATION (unaudited)
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General American Investors
"The diversification of the Company's net assets applicable to its securities by
industry group as of December 31, 2005 and 2004 is shown in the following
table."
PERCENT COMMON NET ASSETS*
DECEMBER 31, 2005 DECEMBER 31
-----------------------------------------------------------------------------------------------------------------
INDUSTRY CATEGORY COST(000) VALUE(000) 2005 2004
-----------------------------------------------------------------------------------------------------------------
Oil and Natural Gas
(Including Services) $207,050 $335,962 29.7% 18.3%
-------- -------- ---- ----
Finance and Insurance
Banking 18,171 99,890 8.8 10.1
Insurance 67,625 179,443 15.8 18.5
Other 16,084 12,880 1.1 2.1
-------- -------- ---- ----
101,880 292,213 25.7 30.7
-------- -------- ---- ----
Retail Trade 74,945 202,530 17.9 20.7
-------- -------- ---- ----
Health Care
Pharmaceuticals 50,789 90,856 8.0 10.6
Medical Instruments
and Devices 10,484 25,906 2.3 2.1
-------- -------- ---- ----
61,273 116,762 10.3 12.7
-------- -------- ---- ----
Communications and
Information Services 53,830 68,706 6.1 7.3
Building and Real Estate 30,441 67,817 6.0 3.9
Consumer Products and Services 62,733 66,602 5.9 3.8
Environmental Control
(Including Services) 26,227 44,121 3.9 3.8
Computer Software and Systems 41,604 43,620 3.8 5.5
Miscellaneous** 42,347 42,466 3.7 4.4
Technology 25,690 27,835 2.5 -
Electronics 12,287 13,525 1.2 1.8
Semiconductors 4,709 5,509 0.5 0.9
Special Holdings 3,003 - - 0.1
-------- --------- ----- -----
748,019 1,327,668 117.2 113.9
Short-Term securities 3,823 3,823 0.3 5.6
-------- --------- ----- -----
Total investments $751,842 1,331,491 117.5 119.5
======== --------- ----- -----
Cash, receivables and other
assets less liabilities 1,451 0.1 (0.2)
Preferred Stock (200,000) (17.6) (19.3)
--------- ----- -----
Net assets applicable to
Common Stock $1,132,942 100.0% 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.
12
9 STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
General American Investors
DECEMBER 31,
------------------------------
ASSETS 2005 2004
---------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks
(cost $714,895,565 and $691,689,451, respectively) $1,301,855,069 $1,167,272,723
Corporate note (cost $33,123,366 and
$12,326,060, respectively) 25,812,500 13,225,252
Corporate discount notes (cost for 2004 $58,487,897) - 58,487,897
Money Market Fund (cost for 2005 $3,822,949) 3,822,949 -
-------------- --------------
Total investments (cost $751,841,880 and
$762,503,408, respectively) 1,331,490,518 1,238,985,872
CASH, RECEIVABLES AND OTHER ASSETS
Cash 13,298 176,980
Receivable for securities sold 5,733,693 -
Deposit with broker for securities sold short - 3,070,685
Deposit with broker for options written - 188,519
Dividends, interest and other receivables 1,028,867 1,081,136
Prepaid pension cost 7,714,456 7,478,936
Prepaid expenses and other assets 214,022 294,166
-------------- --------------
TOTAL ASSETS 1,346,194,854 1,251,276,294
-------------- --------------
LIABILITIES
---------------------------------------------------------------------------------------------------
Payable for securities purchased 1,468,214 411,300
Preferred dividend accrued but not yet declared 231,389 231,389
Securities sold short, at value (proceeds for 2004
$3,070,685) (note 1a) - 3,608,280
Outstanding options written, at value (premiums
received $188,519 for 2004) (note 1a) - 123,580
Accrued pension expense 5,699,484 5,484,775
Accrued expenses and other liabilities 5,854,113 5,023,877
-------------- --------------
TOTAL LIABILITIES 13,253,200 14,883,201
-------------- --------------
5.95% CUMULATIVE PREFERRED STOCK, SERIES B -
8,000,000 shares at a liquidation value of
$25 per share (note 2) 200,000,000 200,000,000
-------------- --------------
NET ASSETS APPLICABLE TO COMMON STOCK - 29,050,399
and 29,205,312 shares, respectively (note 2) $1,132,941,654 $1,036,393,093
============== ==============
NET ASSET VALUE PER COMMON SHARE $39.00 $35.49
============== ==============
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
Common Stock, 29,050,399 and 29,205,312 shares at par
value, respectively (note 2) $29,050,399 $29,205,312
Additional paid-in capital (note 2) 518,972,693 521,985,714
Undistributed realized gain on investments (note 2) 3,969,333 7,864,450
Undistributed net investment income (note 2) 1,531,980 1,559,198
Unallocated distributions on Preferred Stock (231,389) (231,389)
Unrealized appreciation on investments, securities
sold short and options 579,648,638 476,009,808
-------------- --------------
NET ASSETS APPLICABLE TO COMMON STOCK $1,132,941,654 $1,036,393,093
============== ==============
(see notes to financial statements)
13
10 STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
--------------------------
INCOME 2005 2004
---------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes
of $490,458 and $222,175, respectively) $16,403,240 $18,010,297
Interest 2,318,112 2,538,401
----------- -----------
TOTAL INCOME 18,721,352 20,548,698
----------- -----------
EXPENSES
---------------------------------------------------------------------------------------------------
Investment research 8,695,758 7,257,447
Administration and operations 3,236,737 2,685,811
Office space and general 537,671 535,685
Directors' fees and expenses 218,402 187,539
Auditing and legal fees 216,600 172,200
Transfer agent, custodian and registrar fees and expenses 176,854 179,102
Stockholders' meeting and reports 129,857 169,197
Miscellaneous taxes 101,455 108,236
---------- ----------
TOTAL EXPENSES 13,313,334 11,295,217
---------- ----------
NET INVESTMENT INCOME 5,408,018 9,253,481
---------- ----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1f AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 63,646,612 39,187,387
Short sale transactions (note 1b) (755,114) (2,512,348)
Option transactions (note 1c) 132,597 98,990
---------- ----------
Net realized gain on investments
(long-term except for $14,501,035 for 2005) 63,024,095 36,774,029
Net increase in unrealized appreciation 103,638,830 62,361,773
----------- ----------
NET GAIN ON INVESTMENTS 166,662,925 99,135,802
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,900,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $160,170,943 $96,489,283
============ ===========
(see notes to financial statements)
14
11 STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
General American Investors
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATIONS 2005 2004
---------------------------------------------------------------------------------------------------
Net investment income $5,408,018 $9,253,481
Net realized gain on investments 63,024,095 36,774,029
Net increase in unrealized appreciation 103,638,830 62,361,773
----------- -----------
172,070,943 108,389,283
----------- -----------
Distributions to Preferred Stockholders:
From net income (845,368) (2,686,304)
From short-term capital gains (2,449,640) -
From long-term capital gains (8,604,992) (9,213,696)
----------- -----------
Decrease in net assets from Preferred distributions (11,900,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 160,170,943 96,489,283
----------- -----------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
---------------------------------------------------------------------------------------------------
From net income (4,333,771) (6,602,940)
From short-term capital gains (12,389,129) -
From long-term capital gains (43,672,026) (22,647,281)
----------- -----------
DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (60,394,926) (29,250,221)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
---------------------------------------------------------------------------------------------------
Value of Common Shares issued in payment of distributions 36,584,716 15,781,952
Cost of Common Shares purchased (39,812,172) (32,963,032)
----------- -----------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (3,227,456) (17,181,080)
----------- -----------
NET INCREASE IN NET ASSETS 96,548,561 50,057,982
NET ASSETS APPLICABLE TO COMMON STOCK
---------------------------------------------------------------------------------------------------
BEGINNING OF YEAR 1,036,393,093 986,335,111
-------------- --------------
end of year (including undistributed net investment income of
$1,531,980 and $1,559,198, respectively) $1,132,941,654 $1,036,393,093
============== ==============
(see notes to financial statements)
15
12 STATEMENT OF INVESTMENTS DECEMBER 31, 2005
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
BUILDING AND 1,143,041 CEMEX, S.A. de C.V. ADR (COST $30,440,830) $67,816,623
REAL ESTATE (6.0%) ----------
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND 675,000 American Tower Corporation (a) 18,292,500
INFORMATION SERVICES 900,000 Cisco Systems, Inc. (a) 15,408,000
(6.1%) 350,000 Lamar Advertising Company Class A (a) 16,145,500
4,600,000 Telecom Corporation of New Zealand Limited 18,860,000
----------
(COST $53,829,770) 68,706,000
----------
--------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 300,000 EMC Corporation (a) 4,086,000
AND SYSTEMS (3.8%) 1,400,000 Microsoft Corporation 36,610,000
133,500 VeriSign, Inc. (a) 2,923,650
----------
(COST $41,604,314) 43,619,650
----------
--------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 350,000 Diageo plc ADR 20,405,000
AND SERVICES (3.6%) 275,000 Ethan Allen Interiors Inc. 10,045,750
175,000 PepsiCo, Inc. 10,339,000
----------
(COST $29,609,424) 40,789,750
----------
--------------------------------------------------------------------------------------------------------------
ELECTRONICS (1.2%) 550,000 Molex Incorporated Class A (COST $12,287,441) 13,524,500
----------
--------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 1,175,000 Republic Services, Inc. (COST $26,227,380) 44,121,250
(INCLUDING SERVICES) ----------
(3.9%)
--------------------------------------------------------------------------------------------------------------
FINANCE AND INSURANCE BANKING (8.8%)
(25.7%) -------------------------------------------------------------------------------------
280,000 Bank of America Corporation 12,922,000
585,000 Golden West Financial Corporation 38,610,000
310,000 M&T Bank Corporation 33,805,500
200,000 SunTrust Banks, Inc. 14,552,000
----------
(COST $18,170,793) 99,889,500
----------
INSURANCE (15.8%)
-------------------------------------------------------------------------------------
345,000 American International Group, Inc. 23,539,350
500,000 Annuity and Life Re (Holdings), Ltd. (a) 575,000
350,000 Arch Capital Group Ltd. (a) 19,162,500
300 Berkshire Hathaway Inc. Class A (a) 26,586,000
540,000 Everest Re Group, Ltd. 54,189,000
285,000 MetLife, Inc. 13,965,000
375,000 PartnerRe Ltd. 24,626,250
250,000 Transatlantic Holdings, Inc. 16,800,000
-----------
(COST $67,625,042) 179,443,100
-----------
OTHER (1.1%)
-------------------------------------------------------------------------------------
500,000 Annaly Mortgage Management, Inc. 5,470,000
1,300,000 MFA Mortgage Investments, Inc. 7,410,000
---------
(COST $16,084,154) 12,880,000
----------
(COST $101,879,989) 292,212,600
-----------
--------------------------------------------------------------------------------------------------------------
HEALTH CARE (10.3%) PHARMACEUTICALS (8.0%)
-------------------------------------------------------------------------------------
265,000 Alkermes, Inc. (a) 5,066,800
180,000 Biogen Idec Inc. (a) 8,150,400
604,900 Cytokinetics, Incorporated (a) 3,956,046
330,000 Genentech, Inc. (a) 30,525,000
400,000 MedImmune, Inc. (a) 14,008,000
1,250,000 Pfizer Inc 29,150,000
----------
(COST $50,789,396) 90,856,246
----------
MEDICAL INSTRUMENTS AND DEVICES (2.3%)
-------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 25,906,500
-----------
(COST $61,273,112) 116,762,746
-----------
16
13 STATEMENT OF INVESTMENTS DECEMBER 31, 2005 - continued
--------------------------------------------------------------------------------
General American Investors
SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (3.7%) Other (b) (COST $42,346,406) $42,466,400
-----------
--------------------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS 665,000 Apache Corporation 45,565,800
(INCLUDING SERVICES) 758,000 Devon Energy Corporation 47,405,320
(29.7%) 600,000 EOG Resources, Inc. 44,022,000
440,000 Halliburton Company 27,262,400
1,000,000 Patterson-UTI Energy, Inc. 32,950,000
1,000,000 Talisman Energy Inc. 52,880,000
330,000 Total S.A. ADR 41,712,000
1,220,000 Weatherford International Ltd. (a) 44,164,000
-----------
(COST $207,050,041) 335,961,520
-----------
--------------------------------------------------------------------------------------------------------------
RETAIL TRADE (17.9%) 700,000 Costco Wholesale Corporation 34,629,000
750,000 Dollar General Corporation 14,302,500
1,695,000 The Home Depot, Inc. (c) 68,613,600
2,500,000 The TJX Companies, Inc. 58,075,000
575,000 Wal-Mart Stores, Inc. 26,910,000
-----------
(COST $74,944,941) 202,530,100
-----------
--------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (0.5%) 323,000 Brooks Automation, Inc. (a) 4,047,190
197,000 EMCORE Corporation (a) 1,461,740
-----------
(COST $4,709,063) 5,508,930
-----------
--------------------------------------------------------------------------------------------------------------
SPECIAL HOLDING 546,000 Standard MEMS, Inc. Series A
(a)(d) (0.0%) Convertible Preferred (COST $3,003,000) -
-----------
--------------------------------------------------------------------------------------------------------------
TECHNOLOGY (2.5%) 1,900,000 Xerox Corporation (a) (COST $25,689,854) 27,835,000
-----------
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS (114.9%) (COST $714,895,565) 1,301,855,069
--------------
--------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT CORPORATE NOTE
--------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS $35,000,000 General Motors Nova Scotia Finance Company
AND SERVICES (2.3%) 6.85% Guaranteed Notes Due 10/15/08 (COST $33,123,366) 25,812,500
------------
SHARES SHORT-TERM SECURITY AND OTHER ASSETS
--------------------------------------------------------------------------------------------------------------
3,822,949 SSgA Prime Money Market Fund (0.3%) (COST $3,822,949) 3,822,949
----------
TOTAL INVESTMENTS (e) (117.5%) (COST $751,841,880) 1,331,490,518
Cash, receivables and other assets less liabilities (0.1%) 1,451,136
-------------
1,332,941,654
PREFERRED STOCK (-17.6%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,132,941,654
==============
(a) Non-income producing security.
(b) Securities which have been held for less than one year.
(c) 1,000,000 shares held by custodian in a segregated custodian account as collateral for open short positions.
(d) Restricted security acquired 12/17/99. Fair value in the opinion of the directors.
(e) At December 31, 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 $602,842,012, (3) aggregate gross unrealized depreciation
was $23,193,374, and (4) net unrealized appreciation was $579,648,638.
17
14 NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 and
options written) 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. 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 29,050,399 shares and 8,000,000 shares, respectively, were
outstanding at December 31, 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.
18
15 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS -
(Continued from previous page.)
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
requires 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 2005 and 2004 were as follows:
SHARES AMOUNT
------------------------------------------------
2005 2004 2005 2004
---------------- ----------------------
Shares issued in payment of dividends
(includes 1,067,491 and 508,849 shares
issued from treasury, respectively) 1,067,491 508,849 $1,067,491 $508,849
Increase in paid-in capital 35,517,225 15,273,103
---------- ----------
Total increase 36,584,716 15,781,952
---------- ----------
Shares purchased (at an average
discount from net asset value of
12.4% and 10.3%, respectively) 1,222,404 1,092,800 (1,222,404) (1,092,800)
Decrease in paid-in capital (38,589,768) (31,870,232)
----------- -----------
Total decrease (39,812,172) (32,963,032)
----------- -----------
Net decrease ($3,227,456) ($17,181,080)
=========== ===========
At December 31, 2005, the Company held in its treasury 2,181,164 shares of Common Stock with an
aggregate cost in the amount of $60,890,513.
Distributions for tax and book purposes are substantially the same.
As of December 31, 2005, the components of distributable earnings on a tax basis
were as follows:
Undistributed long-term gains $3,969,333
Unrealized appreciation 579,648,638
------------
$583,617,971
============
To reflect reclassification arising from permanent "book/tax" differences for
the year ended December 31, 2004 undistributed net investment income was
decreased by $96,483, undistributed realized gain on investments was increased
by $32,883, and additional paid-in capital was increased by $63,600. These
differences are primarily due to reclassification of dividends for tax purposes
and non-deductible expenses. Net assets were not affected by this
reclassification.
To reflect reclassification arising from permanent "book/tax" differences for
the year ended December 31, 2005 undistributed net investment income was
decreased by $159,614, undistributed realized gain on investments was increased
by $163,692, and additional paid-in capital was decreased by $4,078. These
differences are primarily due to reclassification of dividends for tax purposes
and non-deductible expenses. Net assets were not affected by this
reclassification.
--------------------------------------------------------------------------------
3. OFFICERS' COMPENSATION
The aggregate compensation paid by the Company during 2005 and 2004 to its
officers amounted to $5,881,000 and $4,872,000, respectively.
--------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities and securities sold short (other than
short-term securities and options) during 2005 amounted to $254,596,163 and
$274,239,355, on long transactions, respectively, and $3,825,799, with respect
to short sale purchase transactions.
--------------------------------------------------------------------------------
5. PENSION BENEFIT PLANS
The Company has both a funded (Qualified) and an 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 Company also has funded and unfunded defined contribution thrift plans that
cover substantially all employees. The aggregate cost of such plans for 2005 and
2004 was $815,088 and $626,307, respectively. The unfunded liability included in
other liabilities at December 31, 2005 and 2004 was $2,598,357 and $2,541,127,
respectively.
19
16 NOTES TO FINANCIAL STATEMENTS - continued
--------------------------------------------------------------------------------
General American Investors
5. PENSION BENEFIT PLANS - (Continued from previous page.)
OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:
2005 2004
------------------------------- -----------------------------------
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------- ------------ ------ --------- ------------ ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $7,487,615 $2,690,636 $10,178,251 $6,793,866 $2,429,480 $9,223,346
Service cost 194,771 112,956 307,727 151,059 91,900 242,959
Interest cost 481,413 166,597 648,010 420,507 153,455 573,962
Benefits Paid (514,291) (146,513) (660,804) (427,238) (127,773) (555,011)
Actuarial (gains)/losses 1,071,753 298,925 1,370,678 395,684 144,698 540,382
Plan amendments 180,895 16,433 197,328 153,737 (1,124) 152,613
--------- --------- ---------- --------- --------- ----------
Benefit obligation at end of year 8,902,156 3,139,034 12,041,190 7,487,615 2,690,636 10,178,251
--------- --------- ---------- --------- --------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 14,625,572 - 14,625,572 13,029,458 - 13,029,458
Miscellaneous Adjustment 64,946 - 64,946 - - -
Actual return on plan assets 1,730,760 - 1,730,760 2,023,352 - 2,023,352
Employer contributions - 146,513 146,513 - 127,773 127,773
Benefits paid (514,291) (146,513) (660,804) (427,238) (127,773) (555,011)
--------- --------- ---------- --------- --------- ----------
Fair value of plan assets at end of year 15,906,987 - 15,906,987 14,625,572 - 14,625,572
--------- --------- ---------- --------- --------- ----------
FUNDED STATUS 7,004,831 (3,139,034) 3,865,797 7,137,957 (2,690,636) 4,447,321
Unrecognized actuarial (gains)/losses 407,303 (53,983) 353,320 206,316 (352,908) (146,592)
Unrecognized prior service cost 302,322 91,890 394,212 134,662 99,896 234,558
--------- --------- ---------- --------- --------- ----------
Net amount recognized $7,714,456 ($3,101,127) $4,613,329 $7,478,935 ($2,943,648) $4,535,287
========== ========== ========== ========== ========== ==========
AMOUNTS RECOGNIZED IN THE STATEMENT OF
ASSETS AND LIABILITIES CONSIST OF:
Prepaid benefit cost $7,714,456 - $7,714,456 $7,478,935 - $7,478,935
Accrued benefit liability - ($3,101,127) (3,101,127) - ($2,943,648) (2,943,648)
---------- ---------- ---------- ---------- ---------- ----------
Net amount recognized $7,714,456 ($3,101,127) $4,613,329 $7,478,935 ($2,943,648) $4,535,287
========== ========== ========== ========== ========== ==========
Accumulated Benefit Obligation $8,322,164 $2,725,423 $11,047,587 $6,882,288 $2,295,334 $9,177,622
Projected Benefit Obligation 8,902,156 3,139,034 12,041,190 7,487,615 2,690,636 10,178,251
Fair value of plan assets 15,906,987 - 15,906,987 14,625,572 - 14,625,572
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
END OF FISCAL YEAR
Discount rate 5.50% 5.50% 5.75% 5.75%
Expected return on plan assets 8.75% N/A 8.75% N/A
Salary scale assumption 4.25% 4.25% 4.25% 4.25%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $194,771 $112,956 $307,727 $151,059 $91,900 $242,959
Interest cost 481,413 166,597 648,010 420,507 153,455 573,962
Expected return on plan assets (1,077,936) - (1,077,936)(1,080,350) - (1,080,350)
Amortization of:
Prior service cost 13,235 24,439 37,674 (16,245) 28,565 12,320
Recognized net actuarial loss (gain) 152,996 - 152,996 - (24,871) (24,871)
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost ($235,521) $303,992 $68,471 ($525,029) $249,049 ($275,980)
========== ========== ========== ========== ========== ==========
WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET PERIODIC BENEFIT
COST FOR YEARS ENDED DECEMBER 31
Discount rate 5.75% 5.75% 6.25% 6.25%
Expected long-term rate of
return on plan assets 8.75% N/A 8.75% N/A
Rate of salary increase 4.25% 4.25% 4.25% 4.25%
The Company's Pension Committee, based on input from management and an outside consultant, reviews and determines the
reasonableness of plan assumptions and the allocation of plan assets.
-------------------------------------------------------------------------------
PLAN ASSETS
The Company's qualified pension plan asset allocations
at December 31, 2005 and 2004, by asset category, are as follows:
December 31
---------------
Asset Category 2005 2004
---- ----
Equity securities 97.3% 96.6%
Debt securities 2.7 3.4
----- -----
Total 100.0% 100.0%
===== =====
--------------------------------------------------------------------------------
CASH FLOWS Qualified Supplemental
Plan Plan Total
---------- ------------- ---------
Expected Company Contributions for 2006
to Plan Participants/Total Contributions - $227,632 $227,632
========== ============= =========
Estimated Future Benefit Payments:
2006 $512,297 $227,632 $739,929
2007 528,066 280,922 808,988
2008 540,389 329,335 869,724
2009 549,326 364,876 914,202
2010 567,641 396,499 964,140
2011-2015 3,069,125 2,393,245 5,462,370
--------------------------------------------------------------------------------
6. CALL AND PUT OPTIONS
Transactions in written covered call and collateralized put options during the
year ended December 31, 2005 were as follows:
Covered Calls Collateralized Puts
-------------------------- -------------------------
Contracts Premiums Contracts Premiums
--------- -------- --------- --------
Options outstanding, December 31, 2004 539 $90,021 500 $98,498
Options written 4,067 2,188,984 1,000 263,989
Options terminated in closing purchase transactions (4,606) (2,279,005) (500) (98,498)
Options exercised - - (1,000) (263,989)
--------- -------- -------- --------
Options outstanding, December 31,2005 - $0 - $0
========= ======== ======== ========
20
17 NOTES TO FINANCIAL STATEMENTS - 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 $298,200 for 2005. 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.
--------------------------------------------------------------------------------
8. SUBSEQUENT EVENT
On January 18, 2006, the Board of Directors declared on the Common Stock a
distribution of $0.138 per share from net long-term capital gains. This
distribution is payable in cash on February 13, 2006.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
General American Investors
"The following table shows per share operating performance data, total
investment return, ratios and supplemental data 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."
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $35.49 $33.11 $26.48 $35.14 $39.91
-------- -------- -------- -------- --------
Net investment income .19 .32 .03 .19 .41
Net gain (loss) on securities - realized
and unrealized 5.85 3.48 7.72 (7.88) (.66)
-------- -------- -------- -------- --------
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)
-------- -------- -------- -------- --------
(.41) (.41) (.36) (.35) (.36)
-------- -------- -------- -------- --------
Total from investment operations 5.63 3.39 7.39 (8.04) (.61)
-------- -------- -------- -------- --------
Less distributions on Common Stock:
Dividends from investment income (.15) (.23) (.02) (.02) (.37)
Distributions from net short-term
capital gains (.44) - - (.19) (.51)
Distributions from net long-term
capital gains (1.53) (.78) (.52) (.41) (3.28)
-------- -------- -------- -------- --------
(2.12) (1.01) (.54) (.62) (4.16)
-------- -------- -------- -------- --------
Capital Stock transaction -
effect of Preferred Stock offering - - (.22) - -
-------- -------- -------- -------- --------
Net asset value, end of year $39.00 $35.49 $33.11 $26.48 $35.14
======== ======== ======== ======== ========
Per share market value, end of year $34.54 $31.32 $29.73 $23.85 $33.47
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN - Stockholder
Return, based on market price per share 17.40% 8.79% 27.01% (27.21)% 4.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to Common Stock,
end of year (000's omitted) $1,132,942 $1,036,393 $986,335 $809,192 $1,097,530
Ratio of expenses to average net assets
applicable to Common Stock 1.25% 1.15% 1.23% 0.92% 0.97%
Ratio of net income to average net assets
applicable to Common Stock 0.51% 0.94% 0.13% 0.61% 1.15%
Portfolio turnover rate 20.41% 16.71% 18.62% 22.67% 23.81%
PREFERRED STOCK
Liquidation value, end of year
(000's omitted) $200,000 $200,000 $200,000 $150,000 $150,000
Asset coverage 666% 618% 593% 639% 832%
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Market value per share $24.07 $24.97 $25.04 $25.85 $25.90
21
18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
General American Investors
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GENERAL AMERICAN INVESTORS
COMPANY, INC.
We have audited the accompanying statement of assets and liabilities, including
the statements of investments, of General American Investors Company, Inc. as of
December 31, 2005, and the related statements of operations and changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
2005, by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
General American Investors Company, Inc. at December 31, 2005, the results of
its operations and the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Ernst & Young
New York, New York
January 18, 2006
22
19 OFFICERS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION NAME (AGE) PRINCIPAL OCCUPATION
EMPLOYEE SINCE DURING PAST 5 YEARS EMPLOYEE SINCE DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (63) President and Chief Sally A. Lynch, Ph.D.(46) Vice-President of the Company
1994 Executive Officer of the 1997 since 2006
Company since 1995 securities analyst
(biotechnology industry)
Andrew V. Vindigni (46) Vice-President of the Peter P. Donnelly (57) Vice-President of the
1988 Company since 1995 1974 Company since 1991
securities analyst (financial securities trader
services industry)
Diane G. Radosti (53) Treasurer of the
1980 Company since 1990
Eugene S. Stark (47) Vice-President, Administration Principal Accounting
2005 of the Company since 2005 Officer since 2003
Principal Financial Officer
since 2005; Chief Compliance Carole Anne Clementi (59) Secretary of the Company
Officer since 2006; 1982 since 1994
Chief Financial Officer of shareholder relations
Prospect Energy Corporation and office management
(2005);
Vice-President of
Prudential Financial, Inc. Craig A. Grassi (37) Assistant Vice-President of
(1987-2004) 1991 the Company since 2005;
employee since 1991
Jesse Stuart (39) Vice-President of the Company information technology
2003 since 2006
securities analyst (general Maureen E. LoBello (55) Assistant Secretary of the
industries); 1992 Company since 2005;
securities analyst &portfolio employee since 1992
manager of Scudder, Stevens benefits administration
and Clark (1996-2003)
All officers serve for a term of one year and are elected by the Board of
Directors at the time of its annual organization meeting on the second Wednesday
in April. The address for each officer is the Company's office. Other
directorships and affiliations for Mr. Davidson are shown in the listing of
Directors on page 20.
SERVICE ORGANIZATIONS
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
In addition to purchases of the Company's Common Stock as set forth in Note 2,
on page 15, 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.
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 6, 2005, 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.
23
20 DIRECTORS
--------------------------------------------------------------------------------
General American Investors
NAME (AGE) PRINCIPAL OCCUPATION
DIRECTOR SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT ("DISINTERESTED") DIRECTORS
---------------------------------------------------------------------------------------------------------------------------------
Lawrence B. Buttenwieser (74) Counsel 2002-present
Chairman of the Partner 1966-2002
Board of Directors Katten Muchin Zavis Rosenman
1967 and predecessor firms (lawyers)
Arthur G. Altschul, Jr. (41) Managing Member Delta Opportunity Fund, Ltd., Director
1995 Diaz & Altschul Capital Medicis Pharmaceutical Corporation, Director
Management, LLC Medrium, Inc., Chairman, Board of Directors
(private investment company) National Public Radio Foundation, Trustee
Neurosciences Research Foundation, Trustee
Lewis B. Cullman (87) Managing Member Chess-in-the-Schools, Chairman, Board of Trustees
1961 Cullman Ventures LLC Metropolitan Museum of Art, Honorary Trustee
Museum of Modern Art, Vice Chairman,
International Council and Honorary Trustee
Neurosciences Research Foundation, Vice Chairman,
Board of Trustees
The New York Botanical Garden, Senior Vice
Chairman, Board of Managers
Gerald M. Edelman (76) Member, Professor and Chairman of Neurosciences Institute of the Neurosciences
1976 the Department of Neurobiology Research Foundation, Director and President
The Scripps Research Institute
John D. Gordan, III (60) Partner
1986 Morgan, Lewis & Bockius LLP
(lawyers)
Sidney R. Knafel (75) Managing Partner IGENE Biotechnology, Inc., Director
1994 SRK Management Company Insight Communications Company, Inc.,
(private investment company) Chairman, Board of Directors
VirtualScopics, Inc., Director
Vocollect, Inc., Director
Richard R. Pivirotto (75) President Associated Community Bancorp, Inc., Director
1971 Richard R. Pivirotto Co., Inc. General Theological Seminary, Trustee
(self-employed consultant) Greenwich Hospital Corporation, Trustee
Immunomedics, Inc., Director
Princeton University, Charter Trustee Emeritus
D. Ellen Shuman (50) Vice President and Bowdoin College, Trustee
2004 Chief Investment Officer Edna McConnell Clark Foundation,
Carnegie Corporation of New York Investment Advisor
The Investment Fund for Foundations, Director
Meristar Hospitality Corporation, Director
Joseph T. Stewart, Jr. (76) Corporate director and trustee Foundation of the University of
1987 Executive Consultant Medicine and Dentistry of New Jersey, Trustee
Johnson & Johnson (1990-1999) Marine Biological Laboratory, Member,
Advisory Council
United States Merchant Marine Academy, Trustee,
Board of Advisors
United States Merchant Marine Academy Foundation,
Trustee
Raymond S. Troubh (79) Financial Consultant Diamond Offshore Drilling, Inc., Director
1989 Gentiva Health Services, Inc., Director
Petrie Stores Liquidating Trust, Trustee
Portland General Electric Company, Director
Triarc Companies, Inc., Director
INSIDE ("INTERESTED") DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
Spencer Davidson (63) President and Chief Executive Officer Medicis Pharmaceutical Corporation, Director
1995 General American Investors Neurosciences Research Foundation, Trustee
Company, Inc. since 1995
All Directors serve for a term of one year and are elected by Stockholders at
the time of the annual meeting on the second Wednesday in April. The address for
each Director is the Company's office.
------------------------------------------------------------------------------------------------------------------------------------
William T. Golden, Director Emeritus
24
General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail:InvestorRelations@gainv.com
www.generalamericaninvestors.com
25
ITEM 2. CODE OF ETHICS.
On July 9, 2003, the Board of Directors adopted a code of ethics that applies to
registrant's principal executive and senior financial officers. The code of
ethics is available on registrant's Internet website at
http://www.generalamericaninvestors.com/corporateinfo.html. Since the code of
ethics was adopted there have been no amendments to the code nor have there been
granted any waivers from any provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The board of directors has determined that none of the members of registrant's
audit committee meets the definition of "audit committee financial expert" as
the term has been defined by the U.S. Securities and Exchange Commission (the
"Commission"). In addition, the board of directors has determined that the
members of the audit committee have sufficient financial expertise and
experience to perform the duties and responsibilities of the audit committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES The aggregate fees paid and accrued by the registrant for
professional services rendered by its independent auditors, Ernst & Young LLP,
for the audit of the registrant's annual financial statements and the review of
the registrant's semi-annual financial statements for 2005 and 2004 were $75,000
and $69,600, respectively.
(b) AUDIT RELATED FEES The aggregate fees paid or accrued by the registrant for
audit-related professional services rendered by Ernst & Young LLP for 2005 and
2004 were $23,700 and $20,500, respectively. Such services and related fees for
2005 and 2004 included: performance of agreed upon procedures relating to the
preferred stock basic maintenance reports ($6,000 and $5,000, respectively),
review of quarterly employee security transactions and issuance of report
thereon ($14,000 and $12,000, respectively) and other audit-related services
($3,700 and $3,500, respectively).
(c) TAX FEES The aggregate fees paid or accrued by the registrant for
professional services rendered by Ernst & Young LLP for the review of the
registrant's federal, state and city income tax returns and excise tax
calculations for 2005 and 2004 were $13,000 and $12,500, respectively.
(d) ALL OTHER FEES No such fees were billed to the registrant by Ernst & Young
LLP for 2005 or 2004.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY All services to be performed for the
registrant by Ernst & Young LLP must be pre-approved by the audit committee. All
services performed during 2005 and 2004 were pre-approved by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees paid or accrued by the registrant for non-audit
professional services rendered by Ernst & Young LLP to the registrant for 2005
and 2004 were $36,700 and $33,000, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of the audit committee are: Sidney R. Knafel, chairman,
Arthur G. Altschul, Jr., Lawrence B. Buttenwieser, Lewis B. Cullman and John D.
Gordan, III.
(b) Not applicable.
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.
Mr. Spencer Davidson, President and Chief Executive Officer, serves as the
Portfolio Manager of the registrant and is responsible for its day-to-day
management. He has served in this capacity since 1995. Mr. Davidson does not
provide such services for any other registered investment companies, pooled
investment vehicles, or other accounts. For performing such responsibilities,
Mr. Davidson receives cash compensation in the form of a fixed salary and an
annual performance bonus. The annual performance bonus is principally based upon
the absolute performance of the registrant and its relative performance to a
closed-end management investment company peer group (comprised of core equity
funds) and the S&P 500 Index. Performance is evaluated in December by the
Compensation Committee of the board of directors (the members of which are
independent and consult with the full board of directors), based upon the
registrant's net asset value return and total investment return during the
twelve months ended October 31. Additional consideration is given to performance
during the subsequent intervening period and to market compensation data
provided by a noted industry compensation consulting firm. Mr. Davidson
beneficially owns in excess of $1 million of the registrant's outstanding equity
securities.
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
------------------------------------------------------------------------------------------------------------------------------------
07/01-07/31 97700 33.5250 97700 492400
08/01-08/31 105400 34.4012 105400 387000
09/01-09/30 69000 34.6016 69000 318000
10/01-10/31 82300 33.8024 82300 235700
11/01-11/30 87100 34.2758 87100 148600
12/01-12/31 144700 34.9293 144700 753900
------- -------- ------- ------
Total 586200 586200
======= =======
Note - On July 13, 2005 and December 14, 2005, the Board of Directors authorized and the registrant announced the repurchase
of up to 500,000 and 750,000 shares, respectively, 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 represents a continuation of a repurchase program
which began in March 1995. As of the beginning of the period, July 1, 2005, there were 90,100 shares available for
repurchase under such authorization. As of the end of the period, December 31, 2005, there were 753,900
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
recommmend 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 December 30, 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
December 30, 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 and on Form N-Q 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 decisions regarding required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the Registrant's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) As indicated in Item 2., the code of ethics is posted on the registrant's
Internet website.
(a)(2) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a)under the Investment Company
Act of 1940 are attached hereto as Exhibit 99 CERT.
(a)(3) There were no written solicitations to purchase securities under
the Rule 23c-1 under the Investment Company Act of 1940 during the
period covered by the report.
(b) The certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 are attached hereto as Exhibit 99.906 CERT.
27
SIGNATURES
Pursuant to the requirements of the Securities 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: February 9, 2006
Pursuant to the requirements of the Securities 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: February 9, 2006
By: /s/Eugene S. Stark
Eugene S. Stark
Vice-President, Administration
(Principal Financial Officer)
Date: February 9, 2006