General American Investors Company, Inc. Annual Report 2005

← All annual reports

FY2005 Annual Report · General American Investors Company, Inc.

Loading PDF…

G E N E R A L
A M E R I C A N
I N V E S T O R S

2 0 0 5
A N N U A L
R E P O R T

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)

2005

2004

Net assets applicable to Common Stock -

December 31

Net investment income
Net realized gain
Net increase in unrealized appreciation
Distributions to Preferred Stockholders

$1,132,941,654
5,408,018
63,024,095
103,638,830
(11,900,000)

Per Common Share-December 31

Net asset value
Market price

Discount from net asset value

$39.00
$34.54
-11.4%

Common Shares outstanding-Dec. 31
Common Stockholders of record-Dec. 31
Market price range* (high-low)
Market volume-shares

29,050,399
4,100
$35.45-$29.37
7,242,000

*Unadjusted for dividend payments.

$1,036,393,093
9,253,481
36,774,029
62,361,773
(11,900,000)

$35.49
$31.32
-11.7%

29,205,312
4,300
$31.74-$27.88
6,206,400

DIVIDEND SUMMARY (per share) (unaudited)

Record Date

Payment Date

Ordinary
Income

Long-Term
Capital Gain

Total

Common Stock

Nov. 11, 2005
Jan. 30, 2006

Dec. 22, 2005
Feb. 13, 2006

Total from 2005 earnings

Nov. 12, 2004
Jan. 31, 2005

Dec. 23, 2004
Mar. 10, 2005

Total from 2004 earnings
(a) Includes short-term gain in the amount of $.041294 per share.

$.587543 (a) $1.260182
.138000
$1.398182

$.587543

—

$1.847725
.138000
$1.985725

$.215327
.002000
$.217327

$.684673
.272000
$.956673

$.900000
.274000
$1.174000

Preferred Stock

Mar. 7, 2005
Jun. 7, 2005
Sep. 7, 2005
Dec. 7, 2005

Total for 2005

Mar. 8, 2004
Jun. 7, 2004
Sep. 7, 2004
Dec. 7, 2004

Total for 2004

Mar. 24, 2005
Jun. 24, 2005
Sep. 26, 2005
Dec. 27, 2005

Mar. 24, 2004
Jun. 24, 2004
Sep. 24, 2004
Dec. 27, 2004

$.102969
.102969
.102969
.102969

$.268906
.268906
.268906
.268906
$.411876 (b) $1.075624

$.083947
.083947
.083947
.083947
$.335788

$.287928
.287928
.287928
.287928
$1.151712

$.371875
.371875
.371875
.371875
$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

T O T H E S T O C K H O L D E R S

G e n e r a l A m e r i c a n I n v e s t o r s

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 (in-
cluding 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 nar-
rowing 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 superi-
or investment results.

Years

Stockholder Return

S&P 500

3
5
10
20
30
40

17.5%
4.3
16.4
14.8
17.4
12.9

14.3%
0.5
9.0
11.9
12.7
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 repur-
chases 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, not withstanding the Federal Reserve’s ongo-
ing 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 contrib-
utors 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 decelerat-
ing 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 rais-
ing 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 gener-
ally compelling. Inflation appears to be rising steadily, if
not spectacularly, which together with an aging econom-
ic 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 high-
ly 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 arrange-
ment, through December 31, 2005. Effective January 1,
2006, Eugene S. Stark, Vice-President, Administration, as-
sumed 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 ana-
lyst 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, for-
mer 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, finan-
cial 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

T H E C O M P A N Y

G e n e r a l A m e r i c a n I n v e s t o r s

Corporate
Overview

General American Investors,
established in 1927, is one
of the nation’s oldest closed-
end investment companies.
It is an independent organi-
zation, internally managed. For regulatory
purposes, the Company is classified as a
diversified, closed-end management invest-
ment 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 capi-
tal 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 con-
tinuous investment research program,
which stresses fundamental security analy-
sis, 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 deter-
mined 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 ear-
lier.

“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).

T H E C O M P A N Y

G e n e r a l A m e r i c a n I n v e s t o r s

The preferred capital is available to leverage
the investment 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 distrib-
ute to stockholders before
year-end substantially all ordi-
nary 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 stockhold-
er specifically requests payment in cash.
Spill-over dividends and distributions of nomi-
nal 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 port-
folio 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 abili-
ty 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 in-
formation 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, stockhold-
ers 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 in-
formation about our stockholders or former
stockholders to anyone, except as permitted by
law.

We restrict access to nonpublic personal infor-
mation about our stockholders to those
employees who need to know that
information to provide services to our
stockholders. We maintain physical, electron-
ic and procedural safeguards that comply with
federal standards to guard our stockholders’
nonpublic personal information.

I N V E S T M E N T R E S U L T S ( U N A U D I T E D )

G e n e r a l A m e r i c a n I n v e s t o r s

Total return on
$10,000 investment
20 years ended
December 31, 2005

T he 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 illustra-
tion assumes an investment of $10,000 at the
beginning of 1986.

The Stockholder Return is the return a
Common Stockholder of GAM would have
achieved assuming reinvestment of all
dividends and distributions at the actual rein-
vestment 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
INVESTMENT

ANNUAL
RETURN

CUMULATIVE
INVESTMENT

ANNUAL
RETURN

CUMULATIVE
INVESTMENT

ANNUAL
RETURN

1986

$11,117

11.17%

$11,117

11.17%

$11,869

18.69%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

9,326

11,309

16,805

17,477

32,332

37,111

31,203

28,751

34,851

41,640

59,371

77,960

1999

108,536

2000

129,266

2001

134,864

2002

2003

2004

2005

98,167

124,682

135,642

159,243

-16.11

21.26

48.60

4.00

85.00

14.78

-15.92

-7.86

21.22

19.48

42.58

31.31

39.22

19.10

4.33

-27.21

27.01

8.79

17.40

11,398

13,401

18,475

19,710

31,752

32,879

32,303

31,418

38,827

46,580

61,509

83,124

113,381

133,381

131,781

101,445

129,241

142,643

165,751

2.53

17.57

37.86

6.69

61.09

3.55

-1.75

-2.74

23.58

19.97

32.05

35.14

36.40

17.64

-1.20

-23.02

27.40

10.37

16.20

12,491

14,556

19,158

18,566

24,210

26,048

28,684

29,048

39,941

49,092

65,454

84,141

101,777

92,526

81,525

63,475

81,603

90,408

94,775

5.24

16.53

31.62

-3.09

30.40

7.59

10.12

1.27

37.50

22.91

33.33

28.55

20.96

-9.09

-11.89

-22.14

28.56

10.79

4.83

I N V E S T M E N T R E S U L T S ( U N A U D I T E D )

G e n e r a l A m e r i c a n I n v e s t o r s

20-YEAR INVESTMENT RESULTS
ASSUMING AN INITIAL
INVESTMENT OF $10,000

CUMULATIVE VALUE
OF INVESTMENT

$180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

COMPARATIVE ANNUALIZED INVESTMENT RESULTS

YEARS ENDED
DECEMBER 31, 2005

STOCKHOLDER

RETURN

GAM NET
ASSET VALUE

S&P 500
STOCK INDEX

1 year

5 years

10 years

15 years

20 years

17.4 %

16.2 %

4.8 %

4.3

16.4

15.9

14.8

4.4

15.6

15.3

15.1

0.5

9.0

11.5

11.9

GAM STOCKHOLDER RETURN

GAM NET ASSET VALUE

S&P 500 STOCK INDEX

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

M A J O R S T O C K C H A N G E S * : T H R E E M O N T H S E N D E D D E C E M B E R 3 1 , 2 0 0 5 ( U N A U D I T E D )

G e n e r a l A m e r i c a n I n v e s t o r s

INCREASES

ADDITIONS

Cytokinetics, Incorporated
MFA Mortgage Investments, Inc.
Patterson-UTI Energy, Inc.
Talisman Energy Inc.
Weatherford International Ltd.

ELIMINATIONS

REDUCTIONS

DECREASES

Central Securities Corporation
CIENA Corporation
Millenium Pharmaceuticals, Inc.
Reinsurance Group of America, Incorporated
Silicon Genesis Corporation

American International Group, Inc.
Annaly Mortgage Management, Inc.
Bank of America Corporation
Brooks Automation, Inc.
Devon Energy Corporation
Everest Re Group, Ltd.
Genentech, Inc.
The Home Depot, Inc.
Microsoft Corporation
PartnerRe Ltd.
Pfizer Inc

* Excludes transactions in Stocks-Miscellaneous-Other.

(a) Includes shares received in conjunction with a stock split.
(b) Includes shares received from dividend payments.

54,900
375,000
250,000
208,700
185,000

102,809 (b)
550,000
120,000
200,000
144,000

5,000
175,000
35,000
168,500
582,000
10,000
35,000
225,000
125,000
25,000
50,000

SHARES HELD
DECEMBER 31, 2005

604,900
1,300,000
1,000,000
1,000,000
1,220,000

(a)

—
—
—
—
—

345,000
500,000
280,000
323,000
758,000
540,000
330,000
1,695,000
1,400,000
375,000
1,250,000

D I V I D E N D S A N D D I S T R I B U T I O N S P E R C O M M O N S H A R E ( 1 9 8 6 - 2 0 0 5 ) ( U N A U D I T E D )

EARNINGS SOURCE
SHORT-TERM LONG-TERM

YEAR

INCOME CAPITAL GAINS CAPITAL GAINS

YEAR

INCOME CAPITAL GAINS CAPITAL GAINS

1986
1987
1988
1989
1990
1991
1992
1993
1994
1995

$.36
.35
.29
.21
.21
.09
.03
.06
.06
.10

—
—
—
$.02
—
—
—
—
—
.03

$2.15
1.54
1.69
1.56
1.65
3.07
2.93
2.34
1.59
2.77

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

$.20
.21
.47
.42
.48
.37
.03
.02
.217
.547

$.05
—
—
.62
1.55
.64
—
—
—
.041

$2.71
2.95
4.40
4.05
6.16
1.37
.33
.59
.957
1.398

The following table
shows aggregate
dividends and distribu-
tions 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.

T E N L A R G E S T I N V E S T M E N T H O L D I N G S ( U N A U D I T E D )

G e n e r a l A m e r i c a n I n v e s t o r s

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.

THE HOME DEPOT, INC.
The largest company in home center retailing, Home Depot’s
proven merchandising capabilities and strong financial structure
should provide the basis for continuing growth.

CEMEX, S.A. de C.V. ADR
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.

THE TJX COMPANIES, INC.
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.

EVEREST RE GROUP, LTD.
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
prudent underwriting discipline and efficient expense control,
resulting in above-average earnings growth.

TALISMAN ENERGY INC.
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.

DEVON ENERGY CORPORATION
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.

APACHE CORPORATION
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.

WEATHERFORD INTERNATIONAL LTD.
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.

VALUE

1,695,000

$68,613,600

% COMMON
NET ASSETS*
6.1%

1,143,041

67,816,623

6.0

2,500,000

58,075,000

5.1

540,000

54,189,000

4.8

1,000,000

52,880,000

4.7

758,000

47,405,320

4.2

665,000

45,565,800

4.0

1,220,000

44,164,000

3.9

REPUBLIC SERVICES, INC.
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.

EOG RESOURCES, INC.
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.

*Net assets applicable to the Company’s Common Stock.

1,175,000

44,121,250

3.9

600,000

44,022,000

3.8

$526,852,593 46.5%

P O R T F O L I O D I V E R S I F I C A T I O N ( U N A U D I T E D )

G e n e r a l A m e r i c a n I n v e s t o r s

INDUSTRY CATEGORY

COST(000)

VALUE(000)

2005

2004

DECEMBER 31, 2005

PERCENT COMMON NET ASSETS*
DECEMBER 31

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.

Oil and Natural Gas
(Including Services)
Finance and Insurance

Banking
Insurance
Other

Retail Trade
Health Care

Pharmaceuticals
Medical Instruments

and Devices

Communications and
Information Services
Building and Real Estate
Consumer Products and Services
Environmental Control
(Including Services)

Computer Software and Systems
Miscellaneous**
Technology
Electronics
Semiconductors
Special Holdings

Short-Term securities
Total investments

Cash, receivables and other

assets less liabilities

Preferred Stock
Net assets applicable to

Common Stock

$207,050

$335,962

29.7%

18.3%

18,171
67,625
16,084
101,880
74,945

50,789

10,484
61,273

53,830
30,441
62,733

26,227
41,604
42,347
25,690
12,287
4,709
3,003
748,019
3,823
$751,842

99,890
179,443
12,880
292,213
202,530

90,856

25,906
116,762

68,706
67,817
66,602

44,121
43,620
42,466
27,835
13,525
5,509
—
1,327,668
3,823
1,331,491

1,451
(200,000)

8.8
15.8
1.1
25.7
17.9

8.0

2.3
10.3

6.1
6.0
5.9

3.9
3.8
3.7
2.5
1.2
0.5
—
117.2
0.3
117.5

0.1
(17.6)

10.1
18.5
2.1
30.7
20.7

10.6

2.1
12.7

7.3
3.9
3.8

3.8
5.5
4.4
—
1.8
0.9
0.1
113.9
5.6
119.5

(0.2)
(19.3)

$1,132,942

100.0%

* Net assets applicable to the Company’s Common Stock.

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

S T A T E M E N T O F A S S E T S A N D L I A B I L I T I E S

G e n e r a l A m e r i c a n I n v e s t o r s

ASSETS

INVESTMENTS, AT VALUE (NOTE 1a)

Common and preferred stocks

DECEMBER 31,

2005

2004

(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)

Corporate discount notes (cost for 2004 $58,487,897)
Money Market Fund (cost for 2005 $3,822,949)
Total investments (cost $751,841,880 and

$762,503,408, respectively)

CASH, RECEIVABLES AND OTHER ASSETS

Cash
Receivable for securities sold
Deposit with broker for securities sold short
Deposit with broker for options written
Dividends, interest and other receivables
Prepaid pension cost
Prepaid expenses and other assets

TOTAL ASSETS

LIABILITIES

25,812,500
—
3,822,949

13,225,252
58,487,897
—

1,331,490,518

1,238,985,872

13,298
5,733,693
—
—
1,028,867
7,714,456
214,022

176,980
—
3,070,685
188,519
1,081,136
7,478,936
294,166

1,346,194,854

1,251,276,294

Payable for securities purchased
Preferred dividend accrued but not yet declared
Securities sold short, at value (proceeds for 2004

$3,070,685) (note 1a)

Outstanding options written, at value (premiums

received $188,519 for 2004) (note 1a)

Accrued pension expense
Accrued expenses and other liabilities

TOTAL LIABILITIES

1,468,214
231,389

411,300
231,389

—

3,608,280

—
5,699,484
5,854,113
13,253,200

123,580
5,484,775
5,023,877
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

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)

Additional paid-in capital (note 2)
Undistributed realized gain on investments (note 2)
Undistributed net investment income (note 2)
Unallocated distributions on Preferred Stock
Unrealized appreciation on investments, securities

sold short and options

$29,050,399
518,972,693
3,969,333
1,531,980
(231,389)

$29,205,312
521,985,714
7,864,450
1,559,198
(231,389)

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)

1 0

S T A T E M E N T O F O P E R A T I O N S

G e n e r a l A m e r i c a n I n v e s t o r s

INCOME

Dividends (net of foreign withholding taxes
of $490,458 and $222,175, respectively)

Interest

TOTAL INCOME

EXPENSES

Investment research
Administration and operations
Office space and general
Directors’ fees and expenses
Auditing and legal fees
Transfer agent, custodian and registrar fees and expenses
Stockholders’ meeting and reports
Miscellaneous taxes

TOTAL EXPENSES

NET INVESTMENT INCOME

YEAR ENDED DECEMBER 31,

2005

2004

$16,403,240
2,318,112

$18,010,297
2,538,401

18,721,352

20,548,698

8,695,758
3,236,737
537,671
218,402
216,600
176,854
129,857
101,455

7,257,447
2,685,811

535,685
187,539
172,200
179,102
169,197
108,236

13,313,334

11,295,217

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
Short sale transactions (note 1b)
Option transactions (note 1c)
Net realized gain on investments

63,646,612
(755,114)
132,597

39,187,387
(2,512,348)
98,990

(long-term except for $14,501,035 for 2005)

63,024,095

36,774,029

Net increase in unrealized appreciation

NET GAIN ON INVESTMENTS

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

103,638,830

62,361,773

166,662,925

99,135,802

(11,900,000)

$160,170,943

$96,489,283

(see notes to financial statements)

1 1

S T A T E M E N T O F C H A N G E S I N N E T A S S E T S

G e n e r a l A m e r i c a n I n v e s t o r s

OPERATIONS

Net investment income
Net realized gain on investments
Net increase in unrealized appreciation

Distributions to Preferred Stockholders:

From net income
From short-term capital gains
From long-term capital gains
Decrease in net assets from Preferred distributions

YEAR ENDED DECEMBER 31,

2005

2004

$5,408,018
63,024,095
103,638,830
172,070,943

$9,253,481
36,774,029
62,361,773
108,389,283

(845,368)
(2,449,640)
(8,604,992)

(11,900,000)

(2,686,304)
—
(9,213,696)
(11,900,000)

INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

160,170,943

96,489,283

DISTRIBUTIONS TO COMMON STOCKHOLDERS

From net income
From short-term capital gains
From long-term capital gains

DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS

CAPITAL SHARE TRANSACTIONS (note 2)

(4,333,771)
(12,389,129)
(43,672,026)

(6,602,940)
—
(22,647,281)

(60,394,926)

(29,250,221)

Value of Common Shares issued in payment of distributions
Cost of Common Shares purchased

36,584,716
15,781,952
(39,812,172) (32,963,032)

DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS

NET INCREASE IN NET ASSETS

NET ASSETS APPLICABLE TO COMMON STOCK

(3,227,456)

(17,181,080)

96,548,561

50,057,982

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)

1 2

S T A T E M E N T O F I N V E S T M E N T S D E C E M B E R 3 1 , 2 0 0 5

G e n e r a l A m e r i c a n I n v e s t o r s

BUILDING AND
REAL ESTATE (6.0%)

COMMON AND PREFERRED STOCKS

VALUE (NOTE 1a)

1,143,041 CEMEX, S.A. de C.V. ADR

(COST $30,440,830)

$67,816,623

COMMUNICATIONS AND

INFORMATION SERVICES
(6.1%)

675,000 American Tower Corporation (a)
900,000 Cisco Systems, Inc. (a)
350,000 Lamar Advertising Company Class A (a)

4,600,000 Telecom Corporation of New Zealand Limited

COMPUTER SOFTWARE
AND SYSTEMS (3.8%)

300,000 EMC Corporation (a)
1,400,000 Microsoft Corporation

133,500 VeriSign, Inc. (a)

CONSUMER PRODUCTS
AND SERVICES (3.6%)

350,000 Diageo plc ADR
275,000 Ethan Allen Interiors Inc.
175,000 PepsiCo, Inc.

18,292,500
15,408,000
16,145,500
18,860,000
68,706,000

4,086,000
36,610,000
2,923,650
43,619,650

20,405,000
10,045,750
10,339,000
40,789,750

(COST $53,829,770)

(COST $41,604,314)

(COST $29,609,424)

ELECTRONICS (1.2%)

550,000 Molex Incorporated Class A

(COST $12,287,441)

13,524,500

ENVIRONMENTAL CONTROL
(INCLUDING SERVICES) (3.9%)

1,175,000 Republic Services, Inc.

(COST $26,227,380)

44,121,250

FINANCE AND INSURANCE
(25.7%)

BANKING (8.8%)

280,000 Bank of America Corporation
585,000 Golden West Financial Corporation
310,000 M&T Bank Corporation
200,000 SunTrust Banks, Inc.

INSURANCE (15.8%)

345,000 American International Group, Inc.
500,000 Annuity and Life Re (Holdings), Ltd. (a)
350,000 Arch Capital Group Ltd. (a)

300 Berkshire Hathaway Inc. Class A (a)

540,000 Everest Re Group, Ltd.
285,000 MetLife, Inc.
375,000 PartnerRe Ltd.
250,000 Transatlantic Holdings, Inc.

OTHER (1.1%)

500,000 Annaly Mortgage Management, Inc.

1,300,000 MFA Mortgage Investments, Inc.

HEALTH CARE (10.3%)

PHARMACEUTICALS (8.0%)

265,000 Alkermes, Inc. (a)
180,000 Biogen Idec Inc. (a)
604,900 Cytokinetics, Incorporated (a)
330,000 Genentech, Inc. (a)
400,000 MedImmune, Inc. (a)

1,250,000 Pfizer Inc

MEDICAL INSTRUMENTS AND DEVICES (2.3%)

450,000 Medtronic, Inc.

12,922,000
38,610,000
33,805,500
14,552,000
99,889,500

23,539,350
575,000
19,162,500
26,586,000
54,189,000
13,965,000
24,626,250
16,800,000
179,443,100

5,470,000
7,410,000
12,880,000
292,212,600

5,066,800
8,150,400
3,956,046
30,525,000
14,008,000
29,150,000
90,856,246

(COST $18,170,793)

(COST $67,625,042)

(COST $16,084,154)
(COST $101,879,989)

(COST $50,789,396)

(COST $10,483,716)
(COST $61,273,112)

25,906,500
116,762,746

1 3

S T A T E M E N T O F I N V E S T M E N T S D E C E M B E R 3 1 , 2 0 0 5 - c o n t i n u e d

G e n e r a l A m e r i c a n I n v e s t o r s

COMMON AND PREFERRED STOCKS (Continued)

VALUE (NOTE 1a)

MISCELLANEOUS (3.7%)

Other (b)

(COST $42,346,406)

$42,466,400

OIL AND NATURAL GAS
(INCLUDING SERVICES)
(29.7%)

665,000 Apache Corporation
758,000 Devon Energy Corporation
600,000 EOG Resources, Inc.
440,000 Halliburton Company

1,000,000 Patterson-UTI Energy, Inc.
1,000,000 Talisman Energy Inc.

330,000 Total S.A. ADR

1,220,000 Weatherford International Ltd. (a)

RETAIL TRADE (17.9%)

700,000 Costco Wholesale Corporation
750,000 Dollar General Corporation

1,695,000 The Home Depot, Inc. (c)
2,500,000 The TJX Companies, Inc.
575,000 Wal-Mart Stores, Inc.

SEMICONDUCTORS (0.5%)

323,000 Brooks Automation, Inc. (a)
197,000 EMCORE Corporation (a)

45,565,800
47,405,320
44,022,000
27,262,400
32,950,000
52,880,000
41,712,000
44,164,000
335,961,520

34,629,000
14,302,500
68,613,600
58,075,000
26,910,000
202,530,100

4,047,190
1,461,740
5,508,930

(COST $207,050,041)

(COST $74,944,941)

(COST $4,709,063)

SPECIAL HOLDING
(a)(d) (0.0%)

546,000 Standard MEMS, Inc. Series A 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

CONSUMER PRODUCTS
AND SERVICES (2.3%)

PRINCIPAL AMOUNT

CORPORATE NOTE
$35,000,000 General Motors Nova Scotia Finance Company

6.85% Guaranteed Notes Due 10/15/08

(COST $33,123,366)

25,812,500

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%)

Cash, receivables and other assets less liabilities (0.1%)

PREFERRED STOCK (-17.6%)
NET ASSETS APPLICABLE TO COMMON STOCK (100%)

(COST $751,841,880)

1,331,490,518
1,451,136
1,332,941,654
(200,000,000)
$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.

1 4

N O T E S T O F I N A N C I A L S T A T E M E N T S

G e n e r a l A m e r i c a n I n v e s t o r s

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 posi-
tions 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 posi-
tion. The Company may be required to pay a fee to borrow the securities and may also be obligated to pay any divi-
dends 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 prefer-
ence 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 propor-
tionately 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.

1 5

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

G e n e r a l A m e r i c a n I n v e s t o r s

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 subclassifica-
tion 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:

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

Increase in paid-in capital

Total increase

Shares purchased (at an average

discount from net asset value of
12.4% and 10.3%, respectively)

Decrease in paid-in capital

Total decrease

Net decrease

1,222,404

1,092,800

$1,067,491
35,517,225
36,584,716

$508,849
15,273,103
15,781,952

(1,222,404)
(38,589,768)
(39,812,172)
($3,227,456)

(1,092,800)
(31,870,232)
(32,963,032)
($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
Unrealized appreciation

$3,969,333
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 in-
creased 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 in-
creased 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 pen-
sion 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.

1 6

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

G e n e r a l A m e r i c a n I n v e s t o r s

5. PENSION BENEFIT PLANS - (Continued from previous page.)

OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS:

CHANGE IN BENEFIT OBLIGATION

Benefit obligation at beginning of year

Service cost

Interest cost

Benefits Paid

Actuarial (gains)/losses

Plan amendments

Benefit obligation at end of year

CHANGE IN PLAN ASSETS

Fair value of plan assets at beginning of year

Miscellaneous Adjustment

Actual return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets at end of year

FUNDED STATUS

Unrecognized actuarial (gains)/losses

Unrecognized prior service cost

Net amount recognized

AMOUNTS RECOGNIZED IN THE STATEMENT OF

ASSETS AND LIABILITIES CONSIST OF:

Prepaid benefit cost
Accrued benefit liability

Net amount recognized

Accumulated Benefit Obligation

Projected Benefit Obligation

Fair value of plan assets

WEIGHTED-AVERAGE ASSUMPTIONS AS OF

END OF FISCAL YEAR

Discount rate

Expected return on plan assets

Salary scale assumption

COMPONENTS OF NET PERIODIC BENEFIT COST

Service cost

Interest cost

Expected return on plan assets

Amortization of:

Prior service cost
Recognized net actuarial loss (gain)

Net periodic benefit cost

2005

2004

QUALIFIED

SUPPLEMENTAL

QUALIFIED

SUPPLEMENTAL

PLAN

TOTAL

PLAN

TOTAL

$7,487,615

$2,690,636

$10,178,251

$6,793,866

$2,429,480

$9,223,346

194,771

481,413

(514,291)

1,071,753

180,895

8,902,156

14,625,572

64,946

1,730,760

—

(514,291)

15,906,987

7,004,831

407,303

302,322

112,956

166,597

307,727

648,010

151,059

420,507

91,900

153,455

(146,513)

(660,804)

(427,238)

(127,773)

298,925

16,433

1,370,678

197,328

395,684

153,737

144,698

(1,124)

242,959

573,962

(555,011)

540,382

152,613

3,139,034

12,041,190

7,487,615

2,690,636

10,178,251

—

14,625,572

13,029,458

64,946

—

1,730,760

2,023,352

—

146,513

(146,513)

146,513

(660,804)

—

(427,238)

127,773

(127,773)

13,029,458

—

2,023,352

127,773

(555,011)

—

15,906,987

14,625,572

—

14,625,572

(3,139,034)

3,865,797

7,137,957

(2,690,636)

(53,983)

91,890

353,320

394,212

206,316

134,662

(352,908)

99,896

4,447,321

(146,592)

234,558

$7,714,456

($3,101,127)

$4,613,329

$7,478,935

($2,943,648)

$4,535,287

$7,714,456
—

$7,714,456

—
($3,101,127)

$7,714,456
(3,101,127)

($3,101,127)

$4,613,329

$7,478,935
—

$7,478,935

—
($2,943,648)

($2,943,648)

$8,322,164

$2,725,423

$11,047,587

$6,882,288

$2,295,334

8,902,156

15,906,987

3,139,034

—

12,041,190

15,906,987

7,487,615

14,625,572

2,690,636

—

$7,478,935
(2,943,648)

$4,535,287

$9,177,622

10,178,251

14,625,572

5.50%

8.75%

4.25%

$194,771

481,413

(1,077,936)

5.50%

N/A

4.25%

5.75%

8.75%

4.25%

$112,956

166,597

$307,727

648,010

$151,059

420,507

5.75%

N/A

4.25%

$91,900

153,455

$242,959

573,962

—

(1,077,936)

(1,080,350)

—

(1,080,350)

13,235
152,996

24,439
—

($235,521)

$303,992

37,674
152,996

$68,471

(16,245)
—

28,565
(24,871)

12,320
(24,871)

($525,029)

$249,049

($275,980)

WEIGHTED-AVERAGE ASSUMPTIONS FOR DETERMINING NET PERIODIC BENEFIT

COST FOR YEARS ENDED DECEMBER 31

Discount rate

Expected long-term rate of return on plan assets

Rate of salary increase

5.75%

8.75%

4.25%

5.75%

N/A

4.25%

6.25%

8.75%

4.25%

6.25%

N/A

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

CASH FLOWS

Qualified
Plan

Supplemental
Plan

Total

at December 31, 2005 and 2004, by asset category, are as follows:

Expected Company Contributions for 2006

ASSET CATEGORY

Equity securities

Debt securities

Total

December 31

2005

97.3%

2.7

2004

96.6%

3.4

100.0%

to Plan Participants/Total Contributions

—

$227,632

Estimated Future Benefit Payments:

2006

2007

2008

2009

2010

2011-2015

$512,297

$227,632

$739,929

528,066

540,389

549,326

567,641

280,922

329,335

364,876

396,499

808,988

869,724

914,202

964,140

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:

Options outstanding, December 31, 2004
Options written
Options terminated in closing purchase transactions
Options expired
Options outstanding, December 31, 2005

Covered Calls

Collateralized Puts

Contracts
539
4,067
(4,606)
—
—

Premiums
$90,021
2,188,984
(2,279,005)
—
$0

Contracts
500
1,000
(500)
(1,000)
—

Premiums
$98,498
263,989
(98,498)
(263,989)
$0

1 7

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

G e n e r a l A m e r i c a n I n v e s t o r s

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.

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.

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

G e n e r a l A m e r i c a n I n v e s t o r s

PER SHARE OPERATING PERFORMANCE

Net asset value, beginning of year

Net investment income
Net gain (loss) on securities - realized

2005

2004

2003

2002

2001

$35.49
.19

$33.11
.32

$26.48
.03

$35.14
.19

$39.91

.41

and unrealized

5.85

3.48

7.72

(7.88)

(.66)

Distributions on Preferred Stock:

Dividends from net investment income (.03)
Distributions from net short-term

(.09)

(.01)

(.12)

capital gains

Distributions from net long-term

capital gains

(.08)

(.30)
(.41)

—

(.32)
(.41)

Total from investment operations 5.63 3.39

—

(.23)
(.35)
(.36)
(.35)
7.39 (8.04)

Less distributions on Common Stock:

Dividends from investment income
Distributions from net short-term

capital gains

Distributions from net long-term

capital gains

(.15)

(.44)

(1.53)
(2.12)

(.23)

(.02)

—

(.78)
(1.01)

—

(.52)
(.54)

(.02)

(.19)

(.41)
(.62)

(.03)

(.04)

(.29)
(.36)
(.61)

(.37)

(.51)

(3.28)
(4.16)

Capital Stock transaction -

effect of Preferred Stock offering

Net asset value, end of year
Per share market value, end of year

TOTAL INVESTMENT RETURN - Stockholder

—
$39.00
$34.54

—
$35.49
$31.32

(.22)
$33.11
$29.73

—
$26.48
$23.85

—
$35.14
$33.47

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

Portfolio turnover rate

0.51%
20.41%

0.94%
16.71%

0.13%
18.62%

0.61%
22.67%

1.15%
23.81%

PREFERRED STOCK

Liquidation value, end of year

(000’s omitted)

Asset coverage
Liquidation preference per share
Market value per share

$200,000
666%
$25.00
$24.07

$200,000
618%

$200,000
593%

$150,000
639%

$150,000
832%

$25.00
$24.97

$25.00
$25.04

$25.00
$25.85

$25.00
$25.90

1 8

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M

G e n e r a l A m e r i c a n I n v e s t o r s

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 finan-
cial 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 express-
ing an opinion on the effectiveness of the
Company’s internal control over financial report-
ing. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evi-
dence supporting the 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 sig-
nificant 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 posi-
tion of General American Investors Company,
Inc. at December 31, 2005, the results of its oper-
ations 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.

New York, New York
January 18, 2006

1 9

O F F I C E R S

G e n e r a l A m e r i c a n I n v e s t o r s

NAME (AGE)

EMPLOYEE SINCE

PRINCIPAL OCCUPATION
DURING PAST 5 YEARS

NAME (AGE)

EMPLOYEE SINCE

PRINCIPAL OCCUPATION
DURING PAST 5 YEARS

Spencer Davidson (63)

1994

President and Chief

Executive Officer of the
Company since 1995

Sally A. Lynch, Ph.D. (46)

Vice-President of the Company

1997

since 2006
securities analyst
(biotechnology industry)

Andrew V. Vindigni (46)

Vice-President of the

Peter P. Donnelly (57)

Vice-President of the

1988

Company since 1995
securities analyst (financial
services industry)

1974

Company since 1991
securities trader

Eugene S. Stark (47)

2005

Vice-President, Administration
of the Company since 2005;
Principal Financial Officer
since 2005; Chief Compliance
Officer since 2006;
Chief Financial Officer of
Prospect Energy Corporation
(2005);
Vice-President of
Prudential Financial, Inc.
(1987-2004)

Jesse Stuart (39)

Vice-President of the Company

2003

since 2006
securities analyst (general
industries);
securities analyst & portfolio
manager of Scudder, Stevens
and Clark (1996-2003)

Diane G. Radosti (53)

Treasurer of the

1980

Company since 1990
Principal Accounting
Officer since 2003

Carole Anne Clementi (59) Secretary of the Company

1982

Craig A. Grassi (37)

1991

Maureen E. LoBello (55)

1992

since 1994
shareholder relations
and office management

Assistant Vice-President of
the Company since 2005;
employee since 1991
information technology

Assistant Secretary of the
Company since 2005;
employee since 1992
benefits administration

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.

S E R V I C E O R G A N I Z A T I O N S

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 call-
ing 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 list-
ing 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.

2 0

D I R E C T O R S

G e n e r a l A m e r i c a n I n v e s t o r s

NNAAMMEE ((AAGGEE))
DDIIRREECCTTOORR SSIINNCCEE

PPRRIINNCCIIPPAALL OOCCCCUUPPAATTIIOONN
DDUURRIINNGG PPAASSTT 55 YYEEAARRSS

INDEPENDENT (“DISINTERESTED”) DIRECTORS

Lawrence B. Buttenwieser (74)
CHAIRMAN OF THE

BOARD OF DIRECTORS

1967

Counsel 2002-present
Partner 1966-2002
Katten Muchin Zavis Rosenman
and predecessor firms (lawyers)

Arthur G. Altschul, Jr. (41)
1995

Managing Member
Diaz & Altschul Capital

Management, LLC

(private investment company)

Lewis B. Cullman (87)
1961

Managing Member
Cullman Ventures LLC

Gerald M. Edelman (76)
1976

John D. Gordan, III (60)
1986

Sidney R. Knafel (75)
1994

Member, Professor and Chairman of the

Department of Neurobiology
The Scripps Research Institute

Partner
Morgan, Lewis & Bockius LLP
(lawyers)

Managing Partner
SRK Management Company
(private investment company)

Richard R. Pivirotto (75)
1971

President
Richard R. Pivirotto Co., Inc.
(self-employed consultant)

OOTTHHEERR DDIIRREECCTTOORRSSHHIIPPSS AANNDD AAFFFFIILLIIAATTIIOONNSS

Delta Opportunity Fund, Ltd., Director
Medicis Pharmaceutical Corporation, Director
Medrium, Inc., Chairman, Board of Directors
National Public Radio Foundation, Trustee
Neurosciences Research Foundation, Trustee

Chess-in-the-Schools, Chairman, Board of Trustees
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

Neurosciences Institute of the Neurosciences
Research Foundation, Director and President

IGENE Biotechnology, Inc., Director
Insight Communications Company, Inc.,

Chairman, Board of Directors
VirtualScopics, Inc., Director
Vocollect, Inc., Director

Associated Community Bancorp, Inc., Director
General Theological Seminary, Trustee
Greenwich Hospital Corporation, Trustee
Immunomedics, Inc., Director
Princeton University, Charter Trustee Emeritus

D. Ellen Shuman (50)
2004

Vice President and

Chief Investment Officer

Bowdoin College, Trustee
Edna McConnell Clark Foundation,

Carnegie Corporation of New York

Investment Advisor

Joseph T. Stewart, Jr. (76)
1987

Corporate director and trustee

Foundation of the University of

The Investment Fund for Foundations, Director
Meristar Hospitality Corporation, Director

Medicine and Dentistry of New Jersey, Trustee

Marine Biological Laboratory, Member,

Advisory Council

United States Merchant Marine Academy, Trustee,

Board of Advisors

United States Merchant Marine Academy Foundation,

Trustee

Diamond Offshore Drilling, Inc., Director
Gentiva Health Services, Inc., Director
Petrie Stores Liquidating Trust, Trustee
Portland General Electric Company, Director
Triarc Companies, Inc., Director

Raymond S. Troubh (79)
1989

Financial Consultant

INSIDE (“INTERESTED”) DIRECTOR

Spencer Davidson (63)
1995

President and Chief Executive Officer
General American Investors
Company, Inc. since 1995

Medicis Pharmaceutical Corporation, Director
Neurosciences Research Foundation, Trustee

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

William O. Baker, DIRECTOR EMERITUS
William T. Golden, DIRECTOR EMERITUS

General American Investors Company, Inc.
450 Lexington Avenue, New York, NY 10017
(212) 916-8400 (800) 436-8401
E-mail: InvestorRelations@gainv.com
www.generalamericanivestors.com