GENERAL AMERICAN INVESTORS
COMPANY, INC.
FIRST QUARTER REPORT
MARCH 31, 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
TO THE STOCKHOLDERS
--------------------------------------------------------------------------------
For the three months ended March 31, 2006, the investment return to our
stockholders was 10.0% (assuming reinvestment of all dividends and
distributions). The net asset value per Common Share increased by 4.9%. By
comparison, the rate of return (including income) for our benchmark, the
Standard & Poor's 500 Stock Index, was 4.2%. For the twelve months ended March
31, 2006, the return to our stockholders was 29.8%, and the return on the net
asset value per Common Share was 22.3%; these compare with a return of 11.6% for
the S&P 500. During each period, the discount at which our shares traded
fluctuated moderately and at March 31, 2006, it was 7.2%.
As set forth in the accompanying financial statements (unaudited), as of March
31, 2006, the net assets applicable to the Company's Common Stock were
$1,174,679,700, equal to $40.76 per Common Share.
The increase in net assets resulting from operations for the three months ended
March 31, 2006 was $54,054,295. During this period, the net realized gain on
securities sold was $50,519,673, and the increase in net unrealized appreciation
was $5,049,472. Net investment income for the three months was $1,460,150, and
distributions to Preferred Stockholders amounted to $2,975,000.
During the three months, 228,700 shares of the Company's Common Stock were
repurchased for $8,315,463 at an average discount from net asset value of 10.2%.
Equity markets continued to rally through the quarter just ended, reflecting the
continuing resiliency of our economy in the face of rising interest rates and
higher commodity prices. Our portfolio participated in the advance, while the
return to shareholders benefited markedly by the decline in the discount to the
net asset value at which our shares trade.
Corporate earnings are continuing to grow, but at a moderating pace, suggesting
that further market gains, this year, may well be tempered. We remain focused on
longer-term trends, confident that shareholders will be rewarded by our
traditional investment practices.
We are pleased to report that on April 12, 2006, at the Company's annual
meeting, the Stockholders (1) elected eleven directors, including two directors
who were elected by the holders of the Company's Preferred Stock, and (2)
ratified the selection of Ernst & Young LLP as auditors of the Company for the
year 2006.
Information about the Company, including our investment objectives, operating
policies and procedures, investment results, record of dividend and distribution
payments, financial reports and press releases, is on our website and has been
updated through March 31, 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
April 12, 2006
2 STATEMENT OF ASSETS AND LIABILITIES March 31, 2006 (Unaudited)
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General American Investors
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT VALUE (NOTE 1a)
Common and preferred stocks (cost $703,902,460) $1,292,125,912
Corporate note (cost $33,275,342) 29,750,000
Corporate discount notes (cost $19,963,406) 19,963,406
Money market fund (cost $28,297,721) 28,297,721
-------------
Total investments (cost $785,438,929) 1,370,137,039
CASH, RECEIVABLES AND OTHER ASSETS
Cash $43,034
Receivable for securities sold 9,579,291
Dividends, interest and other receivables 2,440,263
Prepaid pension cost 7,773,337
Prepaid expenses and other assets 196,480 20,032,405
---------- -------------
TOTAL ASSETS 1,390,169,444
LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 7,776,063
Preferred distribution accrued but not yet declared 231,389
Accrued pension expense 5,911,460
Accrued expenses and other liabilities 1,570,832
----------
15,489,744
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 - 28,821,699 shares (note 2) $1,174,679,700
==============
NET ASSET VALUE PER COMMON SHARE $40.76
==============
NET ASSETS APPLICABLE TO COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, 28,821,699 shares at par value (note 2) $28,821,699
Additional paid-in capital (note 2) 510,885,930
Undistributed realized gain on investments 50,488,220
Undistributed net investment income 2,992,130
Unallocated distributions on Preferred Stock (3,206,389)
Unrealized appreciation on investments 584,698,110
===========
NET ASSETS APPLICABLE TO COMMON STOCK $1,174,679,700
==============
(see notes to financial statements)
3 STATEMENT OF OPERATIONS Three Months Ended March 31, 2006 (Unaudited)
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General American Investors
INCOME
------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $75,509) $3,674,643
Interest 1,100,652 $4,775,295
----------
EXPENSES
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Investment research 2,226,550
Administration and operations 725,301
Office space and general 132,586
Directors' fees and expenses 72,207
Auditing and legal fees 60,000
Transfer agent, custodian and registrar fees and expenses 40,783
Stockholders' meeting and reports 32,107
Miscellaneous taxes 25,611 3,315,145
---------- ---------
NET INVESTMENT INCOME 1,460,150
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (NOTES 1e AND 4)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments:
Long transactions 51,154,677
Short sale transaction (note 1b) (635,004)
----------
Net realized gain on investments (long-term, except for $458,004) 50,519,673
Net increase in unrealized appreciation 5,049,472
----------
NET GAIN ON INVESTMENTS 55,569,145
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (2,975,000)
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $54,054,295
===========
(see notes to financial statements)
4 STATEMENT OF CHANGES IN NET ASSETS
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General American Investors
Three Months
Ended Year Ended
March 31, 2006 December 31,
(Unaudited) 2005
OPERATIONS
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Net investment income $1,460,150 $5,408,018
Net realized gain on investments 50,519,673 63,024,095
Net increase in unrealized appreciation 5,049,472 103,638,830
----------- -----------
57,029,295 172,070,943
----------- -----------
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 (2,975,000) -
----------- -----------
Decrease in net assets from Preferred Stock distributions (2,975,000) (11,900,000)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 54,054,295 160,170,943
----------- -----------
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 (8,315,463) (39,812,172)
----------- -----------
DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS (8,315,463) (3,227,456)
----------- ----------
NET INCREASE IN NET ASSETS 41,738,046 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
$2,992,130 and $1,531,980, respectively) $1,174,679,700 $1,132,941,654
============== ==============
(see notes to financial statements)
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 three months ended March 31, 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.
Three Months
Ended Year Ended December 31,
March 31, 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 .05 .19 .32 .03 .19 .41
Net gain (loss) on investments -
realized and unrealized 1.95 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 (.10) - - - - -
------ ------ ------- ------ ------ ------
(.10) (.41) (.41) (.36) (.35) (.36)
------ ------ ------- ------ ------ ------
Total from investment operations 1.90 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 $40.76 $39.00 $35.49 $33.11 $26.48 $35.14
====== ====== ======= ====== ====== ======
Per share market value, end of period $37.84 $34.54 $31.32 $29.73 $23.85 $33.47
====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN - Stockholder
return, based on market price per share 9.98%* 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) $1,174,680 $1,132,942 $1,036,393 $986,335 $809,192 $1,097,530
Ratio of expenses to average net assets
applicable to Common Stock 1.14%** 1.25% 1.15% 1.23% 0.92% 0.97%
Ratio of net investment income to average
net assets applicable to Common Stock 0.50%** 0.51% 0.94% 0.13% 0.61% 1.15%
Portfolio turnover rate 5.39%* 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 687% 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 $24.69 $24.07 $24.97 $25.04 $25.85 $25.90
*Not annualized
**Annualized
6 STATEMENT OF INVESTMENTS March 31, 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 (6.4%)
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1,143,041 CEMEX, S.A. de C.V. ADR (COST $30,440,830) $74,617,716
-----------
COMMUNICATIONS AND INFORMATION SERVICES (5.0%)
------------------------------------------------------------------------------------------------------------------------------------
675,000 American Tower Corporation (a) 20,466,000
900,000 Cisco Systems, Inc. (a) 19,503,000
350,000 Lamar Advertising Company Class A (a) 18,413,500
----------
(COST $34,761,823) 58,382,500
----------
COMPUTER SOFTWARE AND SYSTEMS (3.9%)
------------------------------------------------------------------------------------------------------------------------------------
300,000 EMC Corporation (a) 4,089,000
1,400,000 Microsoft Corporation 38,094,000
133,500 VeriSign, Inc. (a) 3,202,665
----------
(COST $41,604,314) 45,385,665
----------
CONSUMER PRODUCTS AND SERVICES (2.7%)
------------------------------------------------------------------------------------------------------------------------------------
350,000 Diageo plc 22,200,500
175,000 PepsiCo, Inc. 10,113,250
----------
(COST $22,493,511) 32,313,750
----------
ELECTRONICS (1.4%)
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550,000 Molex Incorporated Class A (COST $12,287,441) 16,346,000
----------
ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.2%)
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Republic Services, Inc. (COST $26,227,380) 49,949,250
----------
FINANCE AND INSURANCE (27.0%)
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BANKING (9.9%)
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280,000 Bank of America Corporation 12,751,200
585,000 Golden West Financial Corporation 39,721,500
310,000 M&T Bank Corporation 35,383,400
475,000 North Fork Bancorporation, Inc. 13,694,250
200,000 SunTrust Banks, Inc. 14,552,000
-----------
(COST $31,006,675) 116,102,350
-----------
INSURANCE (15.9%)
------------------------------------------------------------------------------------------------------------------------------------
275,000 The Allstate Corporation 14,330,250
350,000 American International Group, Inc. 23,131,500
500,000 Annuity and Life Re (Holdings), Ltd. (a) 605,000
350,000 Arch Capital Group Ltd. (a) 20,209,000
300 Berkshire Hathaway Inc. Class A (a) 27,105,000
550,000 Everest Re Group, Ltd. 51,353,500
285,000 MetLife, Inc. 13,785,450
365,000 PartnerRe Ltd. 22,662,850
225,000 Transatlantic Holdings, Inc. 13,151,250
-----------
(COST $82,551,050) 186,333,800
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OTHER (1.2%)
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500,000 Annaly Mortgage Management, Inc. 6,070,000
1,300,000 MFA Mortgage Investments, Inc. 8,255,000
----------
(COST $16,084,154) 14,325,000
-----------
(COST $129,641,879) 316,761,150
-----------
7 STATEMENT OF INVESTMENTS March 31, 2006 (Unaudited) - continued
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General American Investors
Value
Shares COMMON AND PREFERRED STOCKS (continued) (note 1a)
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HEALTH CARE (11.0%)
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PHARMACEUTICALS (9.1%)
---------------------------------------------------------------------------------------------------------------------------------
240,000 Alkermes, Inc. (a) $5,292,000
170,000 Biogen Idec Inc. (a) 8,007,000
604,900 Cytokinetics, Incorporated (a) 4,409,721
305,000 Genentech, Inc. (a) 25,775,550
400,000 MedImmune, Inc. (a) 14,632,000
1,947,000 Pfizer Inc 48,519,240
-----------
(COST $67,179,843) 106,635,511
-----------
MEDICAL INSTRUMENTS AND DEVICES (1.9%)
---------------------------------------------------------------------------------------------------------------------------------
450,000 Medtronic, Inc. (COST $10,483,716) 22,837,500
----------
(COST $77,663,559) 129,473,011
-----------
MISCELLANEOUS (4.5%)
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Other (b) (COST $51,274,394) 53,090,000
----------
OIL & NATURAL GAS (INCLUDING SERVICES) (23.4%)
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665,000 Apache Corporation 43,564,150
200,000 EOG Resources, Inc. 14,400,000
440,000 Halliburton Company 32,128,800
1,000,000 Patterson-UTI Energy, Inc. 31,960,000
1,000,000 Talisman Energy Inc. 53,180,000
330,000 Total S.A. ADR 43,470,900
1,220,000 Weatherford International Ltd. (a) 55,815,000
-----------
(COST $174,256,353) 274,518,850
-----------
RETAIL TRADE (17.6%)
------------------------------------------------------------------------------------------------------------------------------------
700,000 Costco Wholesale Corporation 37,912,000
750,000 Dollar General Corporation 13,252,500
1,570,000 The Home Depot, Inc. (c) 66,411,000
2,500,000 The TJX Companies, Inc. 62,050,000
575,000 Wal-Mart Stores, Inc. 27,163,000
-----------
(COST $70,534,121) 206,788,500
-----------
SEMICONDUCTORS (0.5%)
------------------------------------------------------------------------------------------------------------------------------------
323,000 Brooks Automation, Inc. (a) 4,599,520
100,000 EMCORE Corporation (a) 1,020,000
----------
(COST $4,024,001) 5,619,520
----------
SPECIAL HOLDING (a) (d) (0.0%)
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546,000 Standard MEMS, Inc. Series A Convertible Preferred (COST $3,003,000) -
---------
TECHNOLOGY (2.4%)
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1,900,000 Xerox Corporation (a) (COST $25,689,854) 28,880,000
----------
TOTAL COMMON AND PREFERRED STOCKS (110.0%) (COST $703,902,460) 1,292,125,912
-------------
Principal Amount CORPORATE NOTE
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CONSUMER PRODUCTS AND SERVICES (2.5%)
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$35,000,000 General Motors Nova Scotia Finance Company
6.85% Guaranteed Notes due 10/15/08 (COST $33,275,342) 29,750,000
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8 STATEMENT OF INVESTMENTS March 31, 2006 (Unaudited) - continued
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General American Investors
Principal Value
Amount SHORT-TERM SECURITY AND OTHER ASSETS (note 1a)
------------------------------------------------------------------------------------------------------------------------------------
$10,000,000 General Electric Credit Corporation note due 4/11/06; 4.73% (COST $9,981,606) $9,981,606
10,000,000 UBS Finance Inc. Corporation note due 4/4/06; 4.68% (COST $9,981,800) 9,981,800
28,297,721 SSgA Prime Money Market Fund (COST $28,297,721) 28,297,721
-----------
TOTAL SHORT-TERM SECURITIES (4.1%) (COST $48,261,127) 48,261,127
-------------
TOTAL INVESTMENTS (e) (116.6%) (COST $785,438,929) 1,370,137,039
Cash, receivables and other assets less liabilities (0.4%) 4,542,661
PREFERRED STOCK (-17.0%) (200,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCK (100%) $1,174,679,700
==============
(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 March 31, 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 $602,036,783, (3) aggregate gross unrealized depreciation was
$17,338,673, and (4) net unrealized appreciation was $584,698,110.
(see notes to financial statements)
PORTFOLIO DIVERSIFICATION March 31, 2006 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
The diversification of the Company's net assets applicable to its Common Stock
by industry group as of March 31, 2006 and 2005 is shown in the following table.
Percent Common Net Assets*
March 31, 2006 March 31
------------------------- -------------------------
Industry Category Cost(000) Value(000) 2006 2005
---------------------- ------------------------- --------------------------
Finance and Insurance
Banking $31,007 $116,102 9.9% 9.7%
Insurance 82,551 186,334 15.9 19.2
Other 16,084 14,325 1.2 1.3
------- -------- ---- ----
129,642 316,761 27.0 30.2
------- -------- ---- ----
Oil and Natural Gas (Including Services) 174,256 274,519 23.4 26.5
Retail Trade 70,534 206,788 17.6 19.6
------- -------- ---- ----
Health Care
Pharmaceuticals 67,180 106,636 9.1 8.7
Medical Instruments and Devices 10,484 22,837 1.9 2.2
------- -------- ---- ----
77,664 129,473 11.0 10.9
------- -------- ---- ----
Building and Real Estate 30,441 74,618 6.4 3.9
Consumer Products and Services 55,769 62,064 5.2 3.6
Communications and Information Services 34,762 58,382 5.0 7.0
Miscellaneous** 51,274 53,090 4.5 1.8
Environmental Control (Including Services) 26,227 49,949 4.2 3.8
Computer Software and Systems 41,604 45,386 3.9 5.1
Technology 25,690 28,880 2.4 0.0
Electronics 12,288 16,346 1.4 1.7
Semiconductors 4,024 5,620 0.5 0.8
Special Holdings 3,003 - 0.0 0.0
------- --------- ---- ----
737,178 1,321,876 112.5 114.9
Short-Term Securities 48,261 48,261 4.1 4.7
-------- --------- ---- ----
Total Investments $785,439 1,370,137 116.6 119.6
========
Other Assets and Liabilities - Net 4,543 0.4 0.0
Preferred Stock (200,000) (17.0) (19.6)
---------- ----- -----
Net Assets Applicable to Common Stock $1,174,680 100.0% 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.
9 NOTES TO FINANCIAL STATEMENTS (Unaudited)
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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 28,821,699
shares and 8,000,000 shares, respectively, were outstanding at March 31, 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.
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 three months ended March 31, 2006 and
the year ended December 31, 2005 were as follows:
SHARES AMOUNT
----------------------- ---------------------
2006 2005 2006 2005
-------- -------- ------- --------
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 10.2% and 12.4%, respectively) 228,700 1,222,404 ($228,700) (1,222,404)
Decrease in paid-in capital (8,086,763)(38,589,768)
----------- ----------
Total decrease (8,315,463)(39,812,172)
----------- ----------
Net decrease ($8,315,463)($3,227,456)
=========== ==========
At March 31, 2006, the Company held in its treasury 2,409,864 shares of Common
Stock with an aggregate cost in the amount of $69,205,977. Distributions for tax
and book purposes are substantially the same.
3. OFFICERS' COMPENSATION - The aggregate compensation paid by the Company
during the three months ended March 31, 2006 to its officers amounted to
$1,536,125.
4. PURCHASES AND SALES OF SECURITIES - Purchases and sales of securities and
securities sold short (other than short-term securities) for the three months
ended March 31, 2006 amounted to $71,769,549 and $133,765,355 on long
transactions, respectively, and on short sale transactions $4,014,500 and
$3,379,496, 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 three months ended March 31, 2006 were:
Service cost $86,016
Interest cost 166,039
Expected return on plan assets (294,034)
Amortization of:
Prior service cost 8,774
Recognized net actuarial loss (gain) 27,405
-------
Net periodic benefit cost (income) ($5,800)
-------
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 three months ended March 31, 2006 was $280,358. The unfunded
liability included in accrued expenses and other liabilities at March 31, 2006
was $2,775,648.
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 $95,000 for the three months ended March 31, 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.
11 MAJOR STOCK CHANGES* Three Months Ended March 31, 2006 (Unaudited)
--------------------------------------------------------------------------------
General American Investors
SHARES HELD
INCREASES SHARES MARCH 31, 2006
---------------------------------------------------------------------------------------------------------------
NEW POSITION
The Allstate Corporation 105,000 275,000 (a)
ADDITIONS
American International Group, Inc. 5,000 350,000
Everest Re Group, Ltd. 10,000 550,000
Pfizer Inc 697,000 1,947,000
DECREASES
---------------------------------------------------------------------------------------------------------------
ELIMINATIONS
Devon Energy Corporation 758,000 -
Ethan Allen Interiors Inc. 275,000 -
Telecom Corporation of New Zealand Limited 4,600,000 -
REDUCTIONS
Alkermes, Inc. 25,000 240,000
Biogen Idec Inc. 10,000 170,000
EMCORE Corporation 97,000 100,000
EOG Resources, Inc. 400,000 200,000
Genentech Corporation 25,000 305,000
The Home Depot, Inc. 125,000 1,570,000
North Fork Bancorporation, Inc. 125,000 475,000 (a)
PartnerRe Ltd. 10,000 365,000
Transatlantic Holdings, Inc. 25,000 225,000
* Excludes transactions in Common and Preferred Stocks - Miscellaneous - Other.
(a) Includes shares purchased in prior period and previously carried under Stocks - Miscellaneous - Other.
OTHER MATTERS (Unaudited)
--------------------------------------------------------------------------------
General American Investors
In addition to purchases of the Company's Common Stock as set forth in Note 2 on
page 10, purchases of Common Stock may be made at such times, at such prices, in
such amounts and in such manner as the Board of Directors may deem advisable.
The policies and procedures used by the Company to determine how to vote proxies
relating to portfolio securities and the Company's proxy voting record for the
twelve-month period ended June 30, 2005 are available: (1) without charge, upon
request, by calling us at our toll-free telephone number (1-800-436-8401), (2)
on the Company's website at www.generalamericaninvestors.com and (3) on the
Securities and Exchange Commission's website at www.sec.gov.
In addition to distributing financial statements as of the end of each quarter,
General American Investors files a Quarterly Schedule of Portfolio Holdings
(Form N-Q) with the Securities and Exchange Commission (SEC) as of the end of
the first and third calendar quarters. The Company's Forms N-Q are available 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.
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
RESULTS OF THE ANNUAL MEETING
OF STOCKHOLDERS
--------------------------------------------------------------------------------
The votes cast by stockholders at the Company's annual
meeting held on April 12, 2006 were as follows:
Election of Directors:
FOR WITHHELD
Lawrence B. Buttenwieser 31,540,033 838,741
Lewis B. Cullman 31,583,948 795,127
Spencer Davidson 31,641,236 737,838
Gerald M. Edelman 31,604,421 774,653
John D. Gordan, III 31,706,826 672,248
Richard R. Pivirotto 31,595,341 783,734
D. Ellen Shuman 31,858,175 520,899
Joseph T. Stewart, Jr. 31,629,110 749,965
Raymond S. Troubh 31,624,309 754,766
Elected by holders of Preferred Stock:
Arthur G. Altschul, Jr. 6,903,727 75,655
Sidney R. Knafel 6,902,827 76,555
Ratification of the selection of Ernst & Young LLP as auditors of the Company
for the year 2006:
For - 31,843,199; Against - 383,380; Abstain - 152,497