GAM Holding AG
Annual Report 2007

Plain-text annual report

General American Investors Company, Inc. 100 Park Avenue, New York, NY 10017 (212) 916-8400 (800) 436-8401 E-mail: InvestorRelations@gainv.com www.generalamericaninvestors.com 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 7 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) 2007 2006 Net assets applicable to Common Stock - December 31 Net investment income Net realized gain Net increase (decrease) in unrealized appreciation Distributions to Preferred Stockholders $1,202,922,969 9,782,623 175,785,885 (71,533,458) (11,900,000) Per Common Share-December 31 Net asset value Market price Discount from net asset value $38.10 $34.70 -8.9% Common Shares outstanding-Dec. 31 Common Stockholders of record-Dec. 31 Market price range* (high-low) Market volume-shares 31,573,058 3,891 $43.87-$32.69 7,110,734 *Unadjusted for dividend payments. $1,199,453,088 10,007,624 86,176,349 51,196,338 (11,900,000) $40.54 $37.12 -8.4% 29,589,198 4,006 $39.47-$34.80 6,313,300 DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Total Common Stock Nov. 16, 2007 Jan. 28, 2008 Dec. 27, 2007 Feb. 11, 2008 Total from 2007 earnings $.709475 (a) .005815 $.715290 $5.040525 .209479 $5.250004 $5.750000 .215294 $5.965294 Nov. 10, 2006 Dec. 21, 2006 $.333952 $2.666048 $3.000000 From 2006 earnings (a) Includes short-term gains in the amount of $.009262 per share. Preferred Stock Mar. 7, 2007 Jun. 7, 2007 Sept. 7, 2007 Dec. 7, 2007 Total for 2007 Mar. 26, 2007 Jun. 25, 2007 Sept. 24, 2007 Dec. 24, 2007 $.045885 .045885 .045885 .045885 $.183540 (b) $.325990 .325990 .325990 .325990 $1.303960 $.371875 .371875 .371875 .371875 $1.487500 (b) Includes short-term gains in the amount of $.002396 ($.000599 per quarter). Mar. 7, 2006 Jun. 7, 2006 Sept. 7, 2006 Dec. 7, 2006 Total for 2006 Mar. 24, 2006 Jun. 26, 2006 Sept. 25, 2006 Dec. 26, 2006 $.039403 .039403 .039403 .039403 $.157612 $.332472 .332472 .332472 .332472 $1.329888 $.371875 .371875 .371875 .371875 $1.487500 General American Investors Company, Inc. 100 Park Avenue, New York, NY 10017 (212) 916-8400 (800) 436-8401 E-mail: InvestorRelations@gainv.com www.generalamericaninvestors.com 1 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 a fifth consecutive year, gaining 5.4% in the 12 months ended December 31, 2007, 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 8.0%. The return to our Common Stockholders was 8.7%. At year end, the discount at which our shares trade to their NAV was 8.9%. By year end contraction was evident, with the unemploy- ment rate approaching 5% and recession a distinct possibility. What began in the housing market, with loans to marginal borrowers who couldn’t service their debt, spread to all manner of complex financing transac- tions leading to the tightening of lending standards and credit availability as bank capital shrank. Deals could no longer be financed on advantageous terms, and the equi- ty market faltered despite valuations that seemed reasonable. The table that follows, which compares our returns on an annualized basis with the S&P 500, now includes fifty years of data, illustrating that over many years General American has produced superior investment results. Years Stockholder Return S&P 500 3 5 10 20 30 40 50 14.2% 15.6 13.0 16.6 17.0 13.1 12.6 8.5% 12.7 5.9 11.8 12.9 10.5 11.0 The share repurchase program, a part of our ongoing effort to maximize NAV, continues. In 2007, the Company purchased 763,600 of its Common Shares on the open market at an average discount to NAV of 10.4%. The Board of Directors has authorized repurchases of Common Shares when they are trading at a discount to NAV in excess of 8%. While the market rallied for the fifth year in succession last year, facilitating respectable portfolio gains, returns became more volatile as the year progressed, with peak- to-trough declines of over ten percent in the third and fourth quarters. Earlier in the year, the economy, jobs and profits all expanded meaningfully despite weakness in housing and nascent subprime loan difficulties. Although the price of oil and other commodities was moving higher, inflation appeared to be contained, while on balance, dollar weakness had a favorable influ- ence on U.S. companies with operations overseas, and on the trade deficit. As the year progressed, however, the economy slowed noticeably in the face of weakening de- mand. The one-two punch of rising energy costs and declining house prices eroded purchasing power while requiring a higher rate of savings from what remained. The new year has begun inauspiciously. Broad weakness in equities appears to reflect concern that the current slowdown in U.S. growth is likely to extend at least through the first half of the year. Even in the absence of a recession, defined as two successive quarters of negative GDP growth, consumer spending, housing, credit growth and corporate profits are all likely to experience degrees of weakness. The lending landscape has changed, and it may take time to restore liquidity and confidence in the banking system and financial markets. An accommoda- tive Federal Reserve, and some degree of fiscal stimulus, together with improvement in net exports should help, but a relatively lengthy period of tepid demand growth, sluggish earnings and modest equity returns appears to be the most realistic prospect. On a longer term basis, the case for equities remains in- tact. With 95% of those who want jobs still employed, consumer spending, the main driver of economic activi- ty, is likely to continue to grow. Corporate balance sheets are in relatively good shape and can support growth despite the current difficulties in the financial sector. Worldwide, liquidity is abundant and the U.S. should remain a destination of choice for capital under- girding distressed assets and supporting appreciation. 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 Chairman of the Board President and Chief Executive Officer January 16, 2008 2 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 that is internally managed. For regu- latory purposes, the Company is classified as a diversified, closed-end management investment company; it is registered under and subject to the Investment Company Act of 1940 and Sub-Chapter M of the Internal Revenue Code. Investment Policy The primary objective of the Company is long-term capital appreciation. Lesser emphasis is placed on cur- rent 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 the inside back cover. Portfolio Manager Mr. Spencer Davidson, Chairman of the Board, President and Chief Executive Officer, has been responsible for the management of General American since August 1995. Mr. Davidson, who joined the Company in 1994 as senior investment counselor, has spent his entire business ca- reer 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 also furnished upon request. It is also available on most electronic quotation services using the symbol "XGAMX." The fig- ure 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 Barron’s and The Wall Street Journal. The ratio of market price to net asset value has shown 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 occa- sionally sell at a premium over net asset value. During 2007, the stock sold at discounts from net asset value which ranged from 4.3% (November 5) to 13.1% (August 16). At December 31, the price of the stock was at a discount of 8.9% as compared with a discount of 8.4% a year earlier. “GAM Pr B” Preferred Stock On September 24, 2003, the Company issued and sold in an underwritten offering 8,000,000 shares of its 5.95% Cumulative Preferred Stock, Series B with a liquidation preference of $25 per share ($200,000,000 in the aggregate). The Preferred Shares are noncallable prior to September 24, 2008, are rated "Aaa" by Moody’s Investors Service, Inc. and are listed and traded on The New York Stock Exchange (symbol, GAM Pr B). 3 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 1943-2007 (except for the year 1974). (A table listing dividends and distributions paid during the 20-year period 1988-2007 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 are generally paid in cash. 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, 2007 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 electronic transfer of our Common Shares. Accordingly, when Common Shareholders, who hold their shares directly, receive new shares resulting from a purchase, transfer or dividend payment, they will receive a statement showing the credit of the new shares as well as their Plan account and certificated share balances. A brochure which describes the features and benefits of the Investors Choice Plan, including the ability of shareholders to deposit certificates with our transfer agent, can be obtained by calling American Stock Transfer & Trust Company at 1-800-413-5499, calling the Company at 1- 800-436-8401 or visiting our website: www.generalamericaninvestors.com - click on Distribution & 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 col- lect personal information about, stockholders who hold the Company’s securities at financial institutions in “street name” registration. We do not disclose any nonpublic personal in- formation about our current or former stockholders to anyone, except as permitted by law. We also restrict access to nonpublic per- sonal information about our stockholders to those few employees who need to know that information to perform their responsibilities. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard our stockholders’ personal information. 4 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 for 20 years ended December 31, 2007 The investment return for a Common Stockholder of General American Investors (GAM) over the 20 years ended December 31, 2007 is shown in the table below and in the accompa ny ing 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 1988. The Stockholder Return is the return a Common Stock holder of GAM would have achieved assuming reinvestment of all dividends and distributions at the actual 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 1988 $12,126 21.26% $11,757 17.57% $11,653 16.53% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 18,019 18,740 34,669 39,793 33,458 30,828 37,370 44,650 63,661 83,594 1999 116,379 2000 138,608 2001 144,610 2002 105,261 2003 2004 2005 2006 2007 133,692 145,444 170,751 199,403 216,791 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 16.78 8.72 16,208 17,293 27,857 28,845 28,341 27,564 34,064 40,866 53,964 72,927 99,472 117,019 115,615 89,000 113,386 125,145 145,418 163,217 176,291 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 12.24 8.01 15,338 14,864 19,382 20,853 22,964 23,255 31,976 39,302 52,401 67,362 81,481 74,074 65,267 50,817 65,330 72,379 75,875 87,757 92,505 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 15.66 5.41 5 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 $240,000 $220,000 $200,000 $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, 2007 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year 5 years 10 years 15 years 20 years 8.7 % 8.0 % 5.4 % 15.6 13.0 12.0 16.6 14.7 12.6 12.8 15.4 12.7 5.9 10.4 11.8 GAM STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 6 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 7 ( 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 NEW POSITIONS NetEase.com, Inc. ADDITIONS The Allstate Corporation American International Group, Inc. Carpenter Technology Corporation Fidelity National Financial, Inc. THQ Inc. ELIMINATIONS REDUCTIONS DECREASES Ameriprise Financial, Inc. Annuity and Life Re (Holdings), Ltd. Avaya Inc. Bank of America Corporation Intermec, Inc. Berkshire Hathaway Inc. Class A Biogen Idec Inc. CEMEX, S.A. de C.V. ADR Cytokinetics, Incorporated Dell Inc. Everest Re Group, Ltd. General Motors Nova Scotia Finance Company 6.85% Guaranteed Notes Due 10/15/08 Lamar Advertising Company Class A Nestle S.A. Novo Nordisk B PartnerRe Ltd. Patterson-UTI Energy, Inc. PepsiCo, Inc. Sprint Nextel Corporation Target Corporation Transatlantic Holdings, Inc. Wachovia Corporation Xerox Corporation SHARES OR PRINCIPAL AMOUNT SHARES OR PRINCIPAL AMOUNT HELD DECEMBER 31, 2007 — 15,000 40,000 10,000 350,000 50,000 60,000 275,000 90,000 200,000 130,000 60 10,000 54,621 75,000 50,000 10,000 $5,500,000 75,900 2,500 180,000 20,000 300,000 25,000 405,000 199,900 5,000 35,000 350,000 245,000 (a) 290,000 365,000 321,000 1,250,000 365,000 (b) — — — — — 215 90,000 2,225,862 529,900 1,500,000 340,000 $19,500,000 324,100 42,500 190,000 290,000 700,000 225,000 920,000 333,100 150,000 615,000 1,900,000 (b) * Excludes transactions in Common and Preferred Stocks-Miscellaneous-Other. (a) Shares purchased in prior period and previously carried under Common and Preferred Stocks-Miscellaneous-Other. (b) Includes shares received in conjunction with a stock split. 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 8 - 2 0 0 7 ) ( U N A U D I T E D ) EARNINGS SOURCE SHORT-TERM LONG-TERM EARNINGS SOURCE SHORT-TERM LONG-TERM YEAR INCOME CAPITAL GAINS CAPITAL GAINS YEAR INCOME CAPITAL GAINS CAPITAL GAINS 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 $.29 .21 .21 .09 .03 .06 .06 .10 .20 .21 — $.02 — — — — — .03 .05 — $1.69 1.56 1.65 3.07 2.93 2.34 1.59 2.77 2.71 2.95 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 $.47 .42 .48 .37 .03 .02 .217 .547 .334 .706 — $.62 1.55 .64 — — — .041 — .009 $4.40 4.05 6.16 1.37 .33 .59 .957 1.398 2.666 5.250 This table shows dividends and distribu- tions on the Company’s Common Stock for the prior 20-year period. Amounts shown are based upon the year in which the income was earned, not the year paid. Spill-over payments made after year-end are attributable to income and gain earned in the prior year. 7 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, 2007, shown on pages 12, 13 and 14 includes 55 security issues. Listed here are the ten largest holdings on that date. WEATHERFORD INTERNATIONAL LTD. Weatherford supplies a broad range of oil field services and equipment on a worldwide basis. Its focus on helping customers to increase production from existing fields, and enhance recovery from new wells should lead to earnings growth. APACHE CORPORATION Apache is a large independent oil and gas company with 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. THE TJX COMPANIES, INC. Through its T.J. Maxx and Marshalls divisions, TJX is the 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. CEMEX, S.A. de C.V. ADR Domiciled in Mexico, CEMEX has grown organically and through acquisition to become one of the world’s leading cement and aggregates companies. 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. 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. COSTCO WHOLESALE CORPORATION Costco is the largest wholesale club with a record of steady growth in sales and profits as it continues to gain share of the consumer dollar. DELL INC. Dell is a leading provider of computer systems and services. With growing global demand for its products, the company should continue to generate significant free cash flow as a result of its focus on efficient distribution and margin expansion. TEXTRON INC. Textron is a global company with operations in aerospace, defense, industrial products and finance. Portfolio rationalization and operational improvements made over the past few years have created a strong platform for earnings growth. THE HOME DEPOT, INC. The largest company in home center retailing, Home Depot’s proven merchandising capabilities and strong cash flow should provide the basis for continuing growth. SHARES VALUE % COMMON NET ASSETS* 1,025,000 $70,315,000 5.8% 600,000 64,524,000 5.4 2,100,000 60,333,000 5.0 2,225,862 57,538,533 4.8 3,000,000 55,560,000 4.6 575,000 40,112,000 3.3 1,500,000 36,765,000 3.1 509,800 36,348,740 3.0 1,278,000 34,429,320 2.9 EVEREST RE GROUP, LTD. One of the largest independent U.S. property/casualty reinsurers, Everest Re generates annual premiums of approximately $4 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 and book value growth. *Net assets applicable to the Company’s Common Stock. 340,000 34,136,000 2.8 $490,061,593 40.7% 8 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) 2007 2006 DECEMBER 31, 2007 PERCENT COMMON NET ASSETS* DECEMBER 31 The diversification of the Company’s net assets applicable to its Common Stock by industry group as of December 31, 2007 and 2006 is shown in the following table. Finance and Insurance Banking Insurance Other Oil and Natural Gas (Including Services) Retail Trade Computer Software and Systems Consumer Products and Services Communications and Information Services Aerospace/Defense Building and Real Estate Miscellaneous** Environmental Control (Including Services) Health Care/Pharmaceuticals, Medical Instruments and Devices Technology Machinery and Equipment Metals Transportation Electronics Mining Short-Term Securities Total Investments Other Assets and Liabilities - Net Preferred Stock Net Assets Applicable to Common Stock $5,352 96,116 31,623 133,091 116,211 59,709 95,320 94,866 71,359 47,844 29,518 65,193 39,286 15,790 — 15,790 25,690 10,779 19,987 11,005 — — 835,648 9,166 $844,814 $47,859 207,299 36,682 291,840 234,391 173,868 131,060 129,419 83,502 61,224 57,539 50,104 49,851 34,754 — 34,754 30,761 28,800 24,130 12,197 — — 1,393,440 9,166 1,402,606 317 (200,000) 4.0% 8.5% 17.2 3.0 24.2 19.5 14.4 10.9 10.8 6.9 5.1 4.8 4.2 4.1 2.9 — 2.9 2.6 2.4 2.0 1.0 — — 115.8 0.8 116.6 0.0 (16.6) 18.2 2.6 29.3 17.2 18.9 2.3 7.2 8.6 — 6.6 4.2 4.0 8.7 2.0 10.7 3.2 1.7 — — 1.3 1.1 116.3 1.4 117.7 (1.0) (16.7) $1,202,923 100.0% 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 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, 2007 2006 (cost $816,594,960 and $729,900,430, respectively) $1,374,257,148 $1,359,753,863 Corporate note (cost $19,053,293 and $33,745,957, respectively) Money market fund (cost $9,165,709 and $17,255,705, respectively) Total investments (cost $844,813,962 and $780,902,092, respectively) CASH, RECEIVABLES AND OTHER ASSETS Cash Receivable for securities sold Deposit with broker for options written Dividends, interest and other receivables Pension asset, excess funded Prepaid expenses and other assets TOTAL ASSETS LIABILITIES 19,183,125 34,737,500 9,165,709 17,255,705 1,402,605,982 1,411,747,068 — — 3,712,458 1,333,175 9,244,527 2,549,782 34,235 2,875,316 — 1,430,378 8,656,759 149,755 1,419,445,924 1,424,893,511 Payable for securities purchased Preferred dividend accrued but not yet declared Pension benefit liability Outstanding options written at value (premiums received $3,712,458 for 2007) (note 1a) Accrued thrift plan liability Accrued expenses and other liabilities TOTAL LIABILITIES — 231,389 3,174,022 2,192,960 3,393,011 7,531,573 16,522,955 13,515,130 231,389 3,320,727 — 2,992,285 5,380,892 25,440,423 5.95% CUMULATIVE PREFERRED STOCK, SERIES B - 8,000,000 shares at a liquidation value of $25 per share (note 2) 200,000,000 200,000,000 NET ASSETS APPLICABLE TO COMMON STOCK - 31,573,058 and 29,589,198 shares, respectively (note 2) $1,202,922,969 $1,199,453,088 NET ASSET VALUE PER COMMON SHARE $38.10 $40.54 NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 31,573,058 and 29,589,198 shares at par value, respectively (note 2) Additional paid-in capital (note 2) Undistributed realized gain (loss) on investments (note 2) Undistributed net investment income (note 2) Accumulated other comprehensive income (note 5) Unallocated distributions on Preferred Stock Unrealized appreciation on investments, securities $31,573,058 602,738,135 6,711,263 1,711,821 1,108,563 (231,389) $29,589,198 538,093,876 (1,715,049) 2,218,917 652,559 (231,389) sold short and options 559,311,518 630,844,976 NET ASSETS APPLICABLE TO COMMON STOCK $1,202,922,969 $1,199,453,088 (see notes to financial statements) 10 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 $353,438 and $325,061, respectively) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Auditing and legal fees Directors’ fees and expenses Transfer agent, custodian and registrar fees and expenses Stockholders’ meeting and reports Miscellaneous taxes TOTAL EXPENSES NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 2007 2006 $20,925,587 2,809,754 $16,065,789 6,301,585 23,735,341 22,367,374 9,312,122 3,104,891 562,787 307,829 266,033 169,891 131,872 97,293 8,054,383 2,922,014 544,210 163,000 286,326 140,346 134,106 115,365 13,952,718 12,359,750 9,782,623 10,007,624 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) Written option transactions (note 1c) Net realized gain on investments (long-term except for $3,224,498 and $2,228,817, respectively) 176,058,639 — (272,754) 86,808,130 (629,681) (2,100) 175,785,885 86,176,349 Net increase (decrease) in unrealized appreciation (71,533,458) 51,196,338 NET GAIN ON INVESTMENTS DISTRIBUTIONS TO PREFERRED STOCKHOLDERS INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 114,035,050 137,372,687 (11,900,000) (11,900,000) $102,135,050 $135,480,311 (see notes to financial statements) 11 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 (decrease) in unrealized appreciation Distributions to Preferred Stockholders: From net investment income From short-term capital gains From long-term capital gains Decrease in net assets from Preferred distributions YEAR ENDED DECEMBER 31, 2007 2006 $9,782,623 175,785,885 (71,533,458) 114,035,050 $10,007,624 86,176,349 51,196,338 147,380,311 (689,497) (778,809) (10,431,694) (11,900,000) (1,092,608) (168,288) (10,639,104) (11,900,000) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 102,135,050 135,480,311 OTHER COMPREHENSIVE INCOME Adjustment to apply FAS 158 (note 5) DISTRIBUTIONS TO COMMON STOCKHOLDERS From net investment income From short-term capital gains From long-term capital gains DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS CAPITAL SHARE TRANSACTIONS (NOTE 2) 456,004 652,559 (9,603,869) (10,847,882) (145,301,188) (8,230,843) (1,262,677) (79,790,662) (165,752,939) (89,284,182) Value of Common Shares issued in payment of distributions Cost of Common Shares purchased 96,902,914 48,748,838 (30,271,148) (29,086,092) INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE IN NET ASSETS NET ASSETS APPLICABLE TO COMMON STOCK 66,631,766 19,662,746 3,469,881 66,511,434 BEGINNING OF YEAR 1,199,453,088 1,132,941,654 END OF YEAR (including undistributed net investment income of $1,711,821 and $2,218,917, respectively) $1,202,922,969 $1,199,453,088 (see notes to financial statements) 12 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 7 G e n e r a l A m e r i c a n I n v e s t o r s SHARES COMMON AND PREFERRED STOCKS VALUE (NOTE 1a) AEROSPACE/DEFENSE (5.1%) 509,800 Textron Inc. 325,000 United Technologies Corporation (COST $47,844,103) $36,348,740 24,875,500 61,224,240 2,225,862 CEMEX, S.A. de C.V. ADR (COST $29,518,057) 57,538,533 BUILDING AND REAL ESTATE (4.8%) COMMUNICATIONS AND INFORMATION SERVICES (6.9%) 900,000 Cisco Systems, Inc. (a) 324,100 Lamar Advertising Company Class A (a) 800,000 QUALCOMM Incorporated 920,000 Sprint Nextel Corporation COMPUTER SOFTWARE AND SYSTEMS (10.9%) 700,000 Activision, Inc. (a) 1,500,000 Dell Inc. (a) 720,000 Microsoft Corporation 245,000 NetEase.com, Inc. (a) 55,000 Nintendo Co., Ltd. 365,000 THQ Inc. (a) CONSUMER PRODUCTS AND SERVICES (9.2%) 350,000 Diageo plc ADR 300,000 Heineken N.V. 630,000 Hewitt Associates, Inc. Class A (a) 42,500 Nestle S.A. 225,000 PepsiCo, Inc. ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (4.1%) 881,500 Republic Services, Inc. 680,000 Waste Management, Inc. FINANCE AND INSURANCE (24.2%) BANKING (4.0%) 300,000 M&T Bank Corporation 615,000 Wachovia Corporation (COST $71,358,877) (COST $95,320,352) (COST $75,813,339) (COST $39,285,764) (COST $5,352,608) INSURANCE (17.2%) 290,000 The Allstate Corporation 365,000 American International Group, Inc. 335,000 Arch Capital Group Ltd. (a) 365,000 AXIS Capital Holdings Limited 215 Berkshire Hathaway Inc. Class A (a) 340,000 Everest Re Group, Ltd. 1,250,000 Fidelity National Financial, Inc. 250,000 MetLife, Inc. 290,000 PartnerRe Ltd. 150,000 Transatlantic Holdings, Inc. OTHER (3.0%) 10,000 Epoch Holding Corporation Series A Convertible Preferred 4.6% (d) 925,000 Nelnet, Inc. (COST $96,115,768) (COST $31,622,636) (COST $133,091,012) HEALTH CARE/ PHARMACEUTICALS (2.9%) 80,000 Alkermes, Inc. (a) 90,000 Biogen Idec Inc. (a) 529,900 Cytokinetics, Incorporated (a) 200,000 Genentech, Inc. (a) 190,000 Novo Nordisk B (COST $15,790,018) 24,362,910 15,579,487 31,480,000 12,079,600 83,501,997 20,790,000 36,765,000 25,632,000 4,645,200 32,938,400 10,289,350 131,059,950 30,040,500 19,497,000 24,122,700 19,498,150 17,077,500 110,235,850 27,635,025 22,215,600 49,850,625 24,471,000 23,388,450 47,859,450 15,146,700 21,279,500 23,567,250 14,224,050 30,444,000 34,136,000 18,262,500 15,405,000 23,933,700 10,900,500 207,299,200 24,925,690 11,756,750 36,682,440 291,841,090 1,247,200 5,122,800 2,506,427 13,414,000 12,464,000 34,754,427 13 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 7 - 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 MACHINERY & EQUIPMENT (2.4%) METALS (2.0%) SHARES COMMON AND PREFERRED STOCKS (Continued) VALUE (NOTE 1a) 1,000,000 ABB Ltd. ADR (COST $10,779,026) $28,800,000 321,000 Carpenter Technology Corporation (COST $19,986,798) 24,129,570 MISCELLANEOUS (4.2%) Other (b) (COST $65,192,916) 50,103,520 OIL AND NATURAL GAS (INCLUDING SERVICES) (19.5%) 600,000 Apache Corporation 800,000 Halliburton Company 700,000 Patterson-UTI Energy, Inc. 3,000,000 Talisman Energy Inc. 1,025,000 Weatherford International Ltd. (a) RETAIL TRADE (14.4%) 575,000 Costco Wholesale Corporation 1,278,000 The Home Depot, Inc. (c) 333,100 Target Corporation 2,100,000 The TJX Companies, Inc. 470,000 Wal-Mart Stores, Inc. 64,524,000 30,328,000 13,664,000 55,560,000 70,315,000 234,391,000 40,112,000 34,429,320 16,655,000 60,333,000 22,339,100 173,868,420 (COST $116,211,169) (COST $59,708,643) TECHNOLOGY (2.6%) 1,900,000 Xerox Corporation (COST $25,689,854) 30,761,000 TRANSPORTATION (1.0%) 236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 12,196,926 TOTAL COMMON AND PREFERRED STOCKS (114.2%) (COST $816,594,960) 1,374,257,148 CONSUMER PRODUCTS AND SERVICES (1.6%) PRINCIPAL AMOUNT CORPORATE NOTE $19,500,000 General Motors Nova Scotia Finance Company 6.85% Guaranteed Notes Due 10/15/08 (COST $19,053,293) 19,183,125 14 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 7 - 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 SHORT-TERM SECURITIES AND OTHER ASSETS SHARES 9,165,709 SSgA Prime Money Market Fund (0.8%) (COST $9,165,709) $9,165,709 VALUE (NOTE 1a) TOTAL INVESTMENTS (e) (116.6%) Cash, receivables and other assets less liabilities (0.0%) PREFERRED STOCK (-16.6%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) (COST $844,813,962) 1,402,605,982 316,987 1,402,922,969 (200,000,000) $1,202,922,969 (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 custodial account as collateral for short positions, if any. (d) Restricted security of an affiliate acquired 11/7/06. (e) At December 31, 2007: (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 $601,536,275, (3) aggregate gross unrealized depreciation was $43,744,256, and (4) net unrealized appreciation was $557,792,019. (see notes to financial statements) STATEMENT OF OPTIONS WRITTEN DECEMBER 31, 2007 G e n e r a l A m e r i c a n I n v e s t o r s CONTRACTS (100 SHARES EACH) CALL OPTIONS COMMON STOCKS/EXPIRATION DATE/EXERCISE PRICE VALUE (NOTE 1a) OIL & NATURAL GAS (INCLUDING SERVICES) 1,500 Apache Corporation /January 08/$105.00 (PREMIUM RECEIVED $1,058,824) $705,000 RETAIL TRADE 500 2,000 3,500 Costco Wholesale Corporation/January 08/$72.50 Costco Wholesale Corporation/January 08/$70.00 Target Corporation/January 08/$60.00 TOTAL CALL OPTIONS (PREMIUMS RECEIVED $2,014,963) (PREMIUMS RECEIVED $3,073,787) PUT OPTION RETAIL TRADE 1,999 Target Corporation/January 08/$55.00 (PREMIUM RECEIVED $638,671) TOTAL OPTIONS (PREMIUMS RECEIVED $3,712,458) (see notes to financial statements) 37,500 336,000 35,000 408,500 1,113,500 1,079,460 _____________ $2,192,960 _____________ _____________ 15 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. Investments in money market funds are valued at their net asset value. The restricted security is valued at par value (cost), divided by the conversion price of $6.00 multiplied by the last reported sales price of the publicly traded common stock of the corporation. 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. With respect to the Common Stock, 31,574,058 and 31,573,058 shares were issued and outstanding, respectively, and 8,000,000 Preferred Shares were issued and outstanding on December 31, 2007. 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. 16 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 2007 and 2006 were as follows: SHARES AMOUNT 2007 2006 2007 2006 Shares issued in payment of dividends and distributions (includes 2,404,965 and 1,326,499 shares issued from treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 10.4% and 9.0%, respectively) Decrease in paid-in capital Total decrease Net increase 2,747,460 1,326,499 $2,747,460 94,155,454 96,902,914 $1,326,499 47,422,339 48,748,838 763,600 787,700 (763,600) (29,507,548) (30,271,148) $66,631,766 (787,700) (28,298,392) (29,086,092) $19,662,746 At December 31, 2007, the Company held in its treasury 1,000 shares of Common Stock with an aggregate cost in the amount of $35,281. Distributions for tax and book purposes are substantially the same. As of December 31, 2007, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income Undistributed long-term gains Unrealized appreciation $183,587 6,613,882 559,311,518 $566,108,987 To reflect reclassification arising from permanent “book/tax” differences for non-deductible expenses during the year ended December 31, 2007, undistributed net investment income was increased by $3,647, and additional paid- in capital was decreased by $3,647. Net assets were not affected by this reclassification. 3. OFFICERS’ COMPENSATION The aggregate compensation paid by the Company during 2007 and 2006 to its officers (identified on page 20) amounted to $8,874,500 and $7,255,500, respectively. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (other than short-term securities and options) during 2007 amounted to $465,468,867 and $569,525,640, on long transactions, respectively. 5. BENEFIT PLANS The Company has funded (Qualified) and unfunded (Supplemental) defined contribution thrift plans that are avail- able to its employees. The aggregate cost of such plans for 2007 and 2006 was $633,127 and $805,729, respectively. The Company also has both funded (Qualified) and unfunded (Supplemental) noncontributory defined benefit pen- sion plans that cover its employees. The pension plan provides a defined benefit based on years of service and final average salary with an offset for a portion of social security covered compensation. Effective December 31, 2006, the Company adopted the recognition provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS158”) which was released on September 2006. FAS 158 improves financial reporting by requiring employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statement of assets and liabilities and to recognize changes in funded status in the year in which the changes occur through other comprehensive income. 17 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: DECEMBER 31, 2007 (MEASUREMENT DATE) SUPPLEMENTAL PLAN QUALIFIED PLAN TOTAL DECEMBER 31, 2006 (MEASUREMENT DATE) SUPPLEMENTAL PLAN QUALIFIED PLAN TOTAL CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year Service cost Interest cost Benefits paid Actuarial (gains)/losses Plan amendments Projected benefit obligation at end of year CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year FUNDED STATUS AT END OF YEAR $9,062,488 206,228 538,587 (544,838) 13,491 61,112 9,337,068 17,719,247 1,407,186 — (544,838) 18,581,595 $9,244,527 $3,320,726 95,332 181,712 (165,253) (197,383) (61,112) 3,174,022 — — 165,253 (165,253) — ($3,174,022) $12,383,214 301,560 720,299 (710,091) (183,892) — 12,511,090 17,719,247 1,407,186 165,253 (710,091) 18,581,595 $6,070,505 $8,902,156 201,809 501,644 (542,274) (848) — 9,062,487 15,906,987 2,354,533 — (542,274) 17,719,246 $8,656,759 $3,139,034 115,586 182,511 (165,252) 48,848 — 3,320,727 — — 165,252 (165,252) — ($3,320,727) $12,041,190 317,395 684,155 (707,526) 48,000 — 12,383,214 15,906,987 2,354,533 165,252 (707,526) 17,719,246 $5,336,032 Accumulated benefit obligation at end of year $8,726,625 $3,000,603 $11,727,228 $8,400,586 $2,971,614 $11,372,200 INCREMENTAL EFFECT OF ADOPTING FAS 158 BEFORE ADJUSTMENTS AFTER BEFORE ADJUSTMENTS AFTER Noncurrent benefit asset LIABILITIES Current benefit liability Noncurrent benefit liability $8,656,759 $587,768 $9,244,527 $7,939,307 $717,452 $8,656,759 213,549 3,107,178 (4,510) (142,194) 209,039 2,964,984 213,549 3,042,285 — 64,893 213,549 3,107,178 Accumulated other comprehensive income (652,559) (456,004) (1,108,563) — (652,559) (652,559) AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF: Net actuarial gain Prior service cost ($1,011,676) 289,088 ($722,588) ($433,910) 47,935 ($385,975) ($1,445,586) 337,023 ($1,108,563) ($1,006,540) 289,088 ($717,452) ($5,136) 70,029 $64,893 ($1,011,676) 359,117 ($652,559) 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 Net periodic benefit cost (gain) 6.00% 8.75% 4.25% $206,228 538,587 (1,253,375) 19,309 96,207 ($393,044) 6.00% N/A 4.25% $95,332 181,712 — 2,784 — $279,828 5.75% 8.75% 4.25% $301,560 720,299 (1,253,375) $201,809 501,645 (1,127,040) 22,093 96,207 ($113,216) 13,235 185,502 ($224,849) 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% 5.50% 8.75% 4.25% 5.75% N/A 4.25% $115,586 182,511 — 21,861 — $319,958 5.50% N/A 4.25% $317,395 684,156 (1,127,040) 35,096 185,502 $95,109 PLAN ASSETS The Company’s qualified pension plan asset allocations by asset EXPECTED CASH FLOWS Qualified Plan Supplemental Plan Total category at December 31, 2007 and 2006, are as follows: Expected Company contributions for 2008 — $209,039 $209,039 ASSET CATEGORY Equity securities Debt securities Total December 31 2007 89.6% 10.4 2006 88.2% 11.8 100.0% 100.0% Generally, not less than 80% of plan assets are invested in Expected benefit payments: 2008 2009 2010 2011 2012 558,673 568,231 589,105 613,344 624,306 209,039 221,569 231,404 236,916 235,712 767,712 789,800 820,509 850,260 860,018 investment companies that invest in equity securities. 2013-2017 3,446,101 1,145,232 4,591,333 6. CALL AND PUT OPTIONS Transactions in a written covered call and collateralized put options during the year ended December 31, 2007 were as follows: Options written Options terminated in closing purchase transaction Options outstanding, December 31, 2007 Covered Calls Contracts 9,951 2,451 7,500 Premiums $4,296,648 1,222,861 $3,073,787 Collateralized Put Contracts 2,000 1 1,999 Premium $638,990 319 $638,671 7. OPERATING LEASE COMMITMENT In July 1992, the Company entered into an operating lease agreement for office space which expired on December 31, 2007 and provided for rental pay- ments in the aggregate amount of approximately $5.6 million. The lease agreement contained a clause whereby the Company received a specified number of months of free rent beginning in December 1992 and escalation clauses relating to rent charges, operating costs, and real property taxes. 1 8 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, 2007. 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- (Continued from previous page.) In January 2003, the Company extended a sublease agreement (originally entered into in March 1996) which also expired on December 31, 2007 and provided for rental receipts. Minimum rental receipts under the sublease were approximately $254,000 in 2007. The Company was also charged its pro- portionate share of operating expenses and real property taxes under the sublease. Net rental expense approximated $316,500 for 2007. On a gross basis, minimum rental commitments under the operating lease were approximately $505,000 in 2007. In June 2007, the Company entered into an operating lease agreement for new office space which expires in February 2018 and pro- vides for future rental payments in the aggregate amount of approximately $10.8 million. The lease agreement contains clauses whereby the Company receives free rent for a specified number of months and credit towards construction of office improvements, and incurs escalations annually relating to operating costs and real property taxes and to annual rent charges beginning in February 2013. The Company has the option to renew the lease after February 2018 for five years at market rates. Minimum rental commitments under the operating lease are approximately $1.0 million per annum in 2008 through 2012, $1.1 million in 2013 through 2017, and $0.1 million in 2018. 8. RECENT ACCOUNTING PRONOUNCEMENT On September 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management does not believe that the application of this standard will have a material impact on the financial statements of the Company. 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 on securities - realized and unrealized Other comprehensive income Distributions on Preferred Stock: Dividends from net investment income Distributions from net short-term capital gains Distributions from net long-term capital gains Total from investment operations Distributions on Common Stock: Dividends from net investment income Distributions from net short-term capital gains Distributions from net long-term capital gains 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 2007 2006 2005 2004 2003 $40.54 .31 $39.00 .34 $35.49 .19 $33.11 .32 $26.48 .03 3.39 .02 (.02) (.03) (.36) (.41) 3.31 (.33) (.38) (5.04) (5.75) 4.72 .03 (.04) (.01) (.36) (.41) 4.68 (.29) (.04) (2.81) (3.14) 5.85 — (.03) (.08) (.30) (.41) 5.63 (.15) (.44) (1.53) (2.12) 3.48 7.72 — — (.09) (.01) — (.32) (.41) 3.39 — (.35) (.36) 7.39 (.23) (.02) — — (.78) (1.01) (.52) (.54) — $38.10 $34.70 — $40.54 $37.12 — $39.00 $34.54 — $35.49 $31.32 (.22) $33.11 $29.73 Return, based on market price per share 8.72% 16.78% 17.40% 8.79% 27.01% RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, end of year (000’s omitted) $1,202,923 $1,199,453 $1,132,942 $1,036,393 $986,335 Ratio of expenses to average net assets applicable to Common Stock 1.11% 1.06% 1.25% 1.15% 1.23% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 0.78% 31.91% 0.86% 19.10% 0.51% 20.41% 0.94% 16.71% 0.13% 18.62% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share $200,000 701% $25.00 $21.99 $200,000 700% $200,000 666% $200,000 618% $200,000 593% $25.00 $24.44 $25.00 $24.07 $25.00 $24.97 $25.00 $25.04 1 9 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 statement of investments and statement of options written, of General American Investors Company, Inc. as of December 31, 2007, 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 state - ments and financial highlights are the responsi- bility of the Company’s management. Our responsibility is to express an opinion on these financial state ments and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of 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, 2007, by correspon dence 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, 2007, 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 28, 2008 2 0 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 (65) 1994 Chairman of the Board since 2007 President and Chief Executive Officer of the Company since 1995 Sally A. Lynch, Ph.D. (48) Vice-President of the 1997 Company since 2006 securities analyst (biotechnology industry) Andrew V. Vindigni (48) Senior Vice-President of the Peter P. Donnelly (59) Vice-President of the 1988 Company since 2006 Vice-President 1995-2006; securities analyst (financial services industry) 1974 Company since 1991 securities trader Eugene S. Stark (49) 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 (41) Vice-President of the 2003 Company since 2006 securities analyst (general industries); securities analyst & portfolio manager of Scudder, Stevens and Clark (1996-2003) Diane G. Radosti (55) Treasurer of the 1980 Company since 1990 Principal Accounting Officer since 2003 Carole Anne Clementi (61) Secretary of the 1982 Company since 1994 shareholder relations and office management Craig A. Grassi (39) 1991 Assistant Vice-President of the Company since 2005 information technology Maureen E. LoBello (57) 1992 Assistant Secretary of the Company since 2005 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 third 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 the inside back cover of this report. 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 pages 15 and 16, 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, 2007 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 opera- tion of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. A copy of the Company’s Form N-Q may be obtained by calling us at 1-800-436-8401. On May 2, 2007, 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 relat- ed 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. 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 NAME (AGE) DIRECTOR SINCE PRINCIPAL OCCUPATION DURING PAST 5 YEARS OTHER DIRECTORSHIPS AND AFFILIATIONS INDEPENDENT DIRECTORS Arthur G. Altschul, Jr. (43) 1995 Managing Member Diaz & Altschul Capital Management, LLC Delta Opportunity Fund, Ltd., Director Diversified Natural Products, Inc., Director Kolltan Pharmaceuticals, Inc., Chairman, Board (private investment company) of Directors Rodney B. Berens (62) 2007 Founding Partner Berens Capital Management, LLC Lewis B. Cullman (89) 1961 Philanthropist Gerald M. Edelman (78) 1976 Member, Professor and Chairman of the Department of Neurobiology The Scripps Research Institute John D. Gordan, III (62) 1986 Sidney R. Knafel (77) 1994 Daniel M. Neidich (58) 2007 Partner Morgan, Lewis & Bockius LLP (lawyers) Managing Partner SRK Management Company (private investment company) Founding Partner and Co-Chief Executive Officer Dune Capital Management LP (since March 2005) Co-Head, Merchant Banking Division Chairman, Whitehall Investment Committee Member, Management Committee Goldman Sachs (prior to March 2005) Medicis Pharmaceutical Corporation, Director Medrium, Inc., Chairman, Board of Directors National Public Radio Foundation, Trustee Neurosciences Research Foundation, Trustee The Overbrook Foundation, Director Agni Capital Management Ltd., Member of Investment Committee Pendragon Capital Management Limited, Non-Executive Director Pierpont Morgan Library, Trustee and Member of Investment Committee The Woods Hole Oceanographic Institute, Trustee and Member of Investment Committee Chess-in-the-Schools, Chairman Emeritus 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 The New York Public Library, Trustee Neurosciences Institute of the Neurosciences Research Foundation, Director and President NGN Capital, Chairman, Advisory Board Promosome, LLC, Chairman, Scientific Advisory Board IGENE Biotechnology, Inc., Director Insight Communications Company, Inc., Chairman, Board of Directors VirtualScopics, Inc., Director Vocollect, Inc., Director Capmark, Director New York Child Study Center, Director Prep for Prep, Director Real Estate Roundtable, Director Urban Land Institute, Trustee D. Ellen Shuman (52) 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. (78) 1987 Lead Independent Director since July 2007 Corporate director and trustee Raymond S. Troubh (81) 1989 Financial Consultant INTERESTED DIRECTOR Spencer Davidson (65) 1995 Chairman of the Board President and Chief Executive Officer General American Investors Company, Inc. The Investment Fund for Foundations - TIFF Advisory Services, Director Foundation of the University of Medicine and Dentistry of New Jersey, Trustee Marine Biological Laboratory, Member, Advisory Council United States Merchant Marine Academy, Member, Board of Advisors United States Merchant Marine Academy Foundation, Trustee Diamond Offshore Drilling, Inc., Director Gentiva Health Services, Inc., Director Triarc Companies, Inc., Director 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 third Wednesday in April. The address for each Director is the Company’s office. 

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