GAM Holding AG
Annual Report 2008

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 8 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) Net assets applicable to Common Stock - December 31 Net investment income Net realized gain Net decrease in unrealized appreciation Distributions to Preferred Stockholders Per Common Share-December 31 Net asset value Market price Discount from net asset value 2008 2007 $674,597,801 13,446,046 16,414,799 (523,757,542) (11,899,613) $1,202,922,969 9,782,623 175,785,885 (71,533,458) ( 11,900,000) $21.09 $17.40 -17.5% $38.10 $34.70 - 8.9% 31,573,058 3,891 $43.87-$32.69 7,110,734 Common Shares outstanding-Dec. 31 Common Stockholders of record-Dec. 31 Market price range* (high-low) Market volume-shares 31,980,872 3,806 $34.76-$13.01 10,131,229 *Unadjusted for dividend payments. DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Total Common Stock Nov. 14, 2008 Dec. 26, 2008 $.185594 $.254406 $.440000 Total from 2008 earnings 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 (a) Includes short-term gains in the amount of $.009262 per share. Preferred Stock Mar. 7, 2008 Jun. 6, 2008 Sept. 8, 2008 Dec. 8, 2008 Total for 2008 Mar. 7, 2007 Jun. 7, 2007 Sept. 7, 2007 Dec. 7, 2007 Total for 2007 Mar. 24, 2008 Jun. 24, 2008 Sept. 24, 2008 Dec. 24, 2008 Mar. 26, 2007 Jun. 25, 2007 Sept. 24, 2007 Dec. 24, 2007 $.108585 .108585 .108585 .108585 $.434340 $.263290 .263290 .263290 .263290 $1.053160 $.045885 .045885 .045885 .045885 $.183540 (b) $.325990 .325990 .325990 .325990 $1.303960 $.371875 .371875 .371875 .371875 $1.487500 $.371875 .371875 .371875 .371875 $1.487500 (b) Includes short-term gains in the amount of $.002396 ($.000599 per quarter). 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 was down 37.1% for the year ended December 31, 2008, as measured by our benchmark, the Standard & Poor's 500 Stock Index (including income). General American Investors’ net asset value (NAV) per Common Share (assuming reinvestment of all dividends) decreased 43.0%. The re- turn to our Common Stockholders was negative by 48.2% because the discount at which our shares traded to their NAV widened to 17.5% at this year end from 8.9% a year ago. In order to provide a more comprehensive presentation of our performance, return on NAV has been added to the table that follows. Stockholder return reflects widen- ing in the discount to NAV to the very high end of its historic range, and may not fully illustrate that over many years General American has produced superior in- vestment results. Years Stockholder Return (Market Value) NAV Return S&P 500 3 5 10 20 30 40 50 -13.0% -11.6% -8.5% -3.4 3.0 11.8 14.2 10.4 10.4 -2.4 3.3 11.3 13.5 11.3 11.0 -2.3 -1.5 8.4 11.0 9.0 9.2 Last year, the world economy ended a remarkable half- decade of strong growth and robust profitability in dramatic fashion. As the credit crisis, whose origins lay in inflated real estate prices that were fueled by easy money and lax lending standards, played out, liquidity evaporated. The concept of decoupling was thus discredited as virtually all markets—major, emerging and commodity—became correlated and plunged pre- cipitously. It was the worst market for U.S. equities in seven decades, with most of the damage occurring in the fourth quarter. The recession, hinted at earlier in the year, was well entrenched by year’s end, while re- lentlessly bleak economic reports reflected accelerating lay-offs and continuing declines in house prices, with one in ten mortgages at least a month in arrears or in foreclosure. Credit problems, which manifested first in housing, before spreading to autos and retail, seem likely to reach other sectors of the global economy as the new year unfolds. In the short-run, consumer demand, for durables in particular, appears to be sated and consequently savings are on the rise. While the benefits of increased saving, which include the provision of funds for productivity-enhancing research and development, and an improved trade balance, may seem obvious, they run into the paradox of thrift. That is to say, the benefits tend to be long-term and are offset by more severe economic contraction in the short-term as con- sumers retrench. Since the demand for American exports is likely to remain constrained, increased gov- ernment spending appears to be a logical response to this problem, with emphasis on defense and infrastruc- ture. The former must be requisitioned from U.S. manufacturers, by law, and the latter is mostly supplied by domestic producers of cement and structural steel, et.al. Government intervention in the financial system, ini- tially piecemeal but more comprehensive of late, is beginning to have a thawing effect on the markets. Improvement is notably visible in those areas receiving state support, such as the interbank money and top rated commercial paper markets. Although banks remain reluctant lenders in the face of still-mounting loan losses, and the path back to normalization is almost certain to be long and bumpy, easier financial conditions are likely to stabilize economic activity. Once the financial markets are functioning normally, confidence should slowly return. Massive monetary easing and the stimulating effect of declining energy costs should enable the recovery of the global economy. Credit creation may not return to boom-year levels and it may well remain more of a Wal-Mart world than one favoring aspirational goods and services. But we’ve owned Wal-Mart for twenty-five years and the experi- ence has been salutary. In general, stocks typically bottom before the economy does, since money is creat- ed faster than the economy’s ability to employ it. Investors then use the excess liquidity to seek high re- turns by purchasing riskier assets like equities. With the yield on the S&P 500 currently more than 100 basis points, or 1%, above that on ten-year Treasury bonds for the first time since 1962, equity markets may have discounted the preponderance of bad news. Our portfo- lio continues to feature companies with strong financial characteristics, reasonable earnings visibility and powerful positions in their respective industries. We retain abundant cash reserves and look forward to their selective employment as opportunities present themselves. The share repurchase program, a part of our ongoing ef- fort to maximize NAV, continues. In 2008, the Company purchased 102,047 of its Common Shares on the open market at an average discount to NAV of 19.8%. The Board of Directors has authorized repurchases of Common Shares when they are trading at a discount to NAV in excess of 8%. In December 2008, the Board of Directors authorized the repurchase of 1 million outstanding shares of its 5.95% Cumulative Preferred Stock when the shares are trading at a market price below the liquidation price of $25.00 per share. In 2008, the Company purchased 15,300 of its Preferred Shares at an average price of $21.12 per share. 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 21, 2009 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. The directors have a broad range of experience in business and financial affairs. 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 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 elec- tronic quotation services using the symbol "XGAMX." Net asset value per share (NAV), market price, and the discount or premium from NAV as of the close of each week, is pub- lished in Barron’s and The Wall Street Journal, Monday edition. While shares of GAM usually sell at a discount to NAV, as do the shares of most other domes- tic equity closed-end investment companies, they occasionally sell at a premium over NAV. During 2008, the stock sold at discounts to NAV which ranged from 7.3% (February 12) to 25.2% (November 21). At December 31, the price of the stock was at a discount of 17.5%. Since March 1995, the Board of Directors has authorized the repurchase of Common Stock in the open market when the shares trade at a discount to net asset value of at least 8%. “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 rated "Aaa" by Moody’s Investors Service, Inc. and are listed and traded on The New York Stock Exchange (symbol, GAM Pr B). The Preferred Shares are available to leverage the investment performance of the Common Stockholders, it may also result in higher market volatility for the Common Stockholders. 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 On December 10, 2008, the Board of Directors authorized the repurchase of 1 million Preferred Shares in the open market at prices below $25 per share. Dividend and Distribution Policy The Company’s dividend and distribution policy is to distribute to stockholders be- fore year-end substantially all ordinary income estimated for the full year and capital gains realized during the ten-month period ended October 31 of that year. If any additional capital gains are realized or ordinary income is earned during the last two months of the year, a "spill-over" distribution of these amounts will be paid. 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 1943-2008 (except for the year 1974). (A table listing dividends and distributions paid during the 20-year period 1989-2008 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. Proxy Voting Policies, Procedures and Record The policies and procedures used by General American Investors to determine how to vote proxies relating to portfolio securities and the Company’s proxy voting record for the 12- month period ended June 30, 2008 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 safeguards that comply with fed- eral 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, 2008 The investment return for a Common Stockholder of General American Investors (GAM) over the 20 years ended December 31, 2008 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 1989. 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. 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 at the reinvestment prices indicated above. Standard & Poor’s 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. Past performance reported below 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 $14,860 48.60% $13,786 37.86% $13,162 31.62% 15,454 28,591 32,816 27,592 25,423 30,818 36,821 52,500 68,938 95,975 114,306 119,256 86,806 110,253 119,944 140,814 164,443 178,782 92,609 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 -48.20 14,708 23,694 24,535 24,105 23,445 28,973 34,759 45,899 62,028 84,607 99,531 98,337 75,700 96,442 106,443 123,686 138,825 149,945 85,439 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 -43.02 12,755 16,633 17,895 19,706 19,957 27,440 33,727 44,968 57,807 69,923 63,567 56,009 43,608 56,063 62,112 65,112 75,309 79,383 49,953 -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 -37.07 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 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 $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, 2008 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year -48.2 % -43.0 % -37.1 % 5 years 10 years 15 years -3.4 3.0 8.4 -2.4 3.3 8.8 20 years 11.8 11.3 -2.3 -1.5 6.4 8.4 GAM STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 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 8 ( 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 ADDITIONS INCREASES ABB Ltd. ADR American Express Company AXIS Capital Holdings Limited Cisco Systems, Inc. Lamar Advertising Company Class A MetroPCS Communications, Inc. PartnerRe Ltd. PepsiCo, Inc. Republic Services, Inc. DECREASES SHARES OR PRINCIPAL AMOUNT TRANSACTED SHARES HELD DECEMBER 31, 2008 200,000 25,000 140,000 45,000 50,000 190,000 10,000 15,000 67,500 ELIMINATIONS Biogen Idec Inc. General Motors Nova Scotia Finance Company 6.85% Guaranteed Notes Due 10/15/08 70,000 $13,750,000 REDUCTIONS The Allstate Corporation Apache Corporation Arch Capital Group Ltd. Berkshire Hathaway Inc. Class A The Boeing Company CEMEX, S.A. de C.V. ADR Dell Inc. Everest Re Group, Ltd. Fidelity National Financial, Inc. Heineken N.V. Leap Wireless International, Inc. McDermott International, Inc. M&T Bank Corporation MetLife, Inc. Nelnet, Inc. Nintendo Co., Ltd. QUALCOMM Incorporated Teradata Corporation Textron Inc. Transatlantic Holdings, Inc. Waste Management, Inc. Weatherford International Ltd. * Excludes transactions in Common and Preferred Stocks-Miscellaneous-Other. (a) Includes shares received from an assigned put option. (b) Shares received in a merger with Allied Waste Industries, Inc. 225,000 40,000 15,000 50 300,000 430,727 75,000 50,000 150,000 50,000 74,500 100,000 20,000 15,000 300,000 2,900 100,000 125,000 182,000 5,000 50,000 420,000 1,200,000 400,000 440,000 960,000 374,100 1,400,000 285,000 255,000 949,000 (a) (b) (a) — — 100,000 459,800 300,000 150 300,000 1,875,862 1,480,000 250,000 800,000 375,000 68,000 250,000 195,000 235,000 550,000 67,100 700,000 565,000 418,700 83,000 630,000 2,050,000 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 9 - 2 0 0 8 ) ( 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 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 $.21 .21 .09 .03 .06 .06 .10 .20 .21 .47 $.02 — — — — — .03 .05 — — $1.56 1.65 3.07 2.93 2.34 1.59 2.77 2.71 2.95 4.40 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 $.42 .48 .37 .03 .02 .217 .547 .334 .706 .186 $.62 1.55 .64 — — — .041 — .009 — $4.05 6.16 1.37 .33 .59 .957 1.398 2.666 5.250 .254 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, 2008, shown on pages 12 and 13 includes 52 security issues. Listed here are the ten largest holdings on that date. 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. SHARES VALUE % COMMON NET ASSETS* 1,675,000 $34,454,750 5.1% 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, Egypt, Australia, and the North Sea. COSTCO WHOLESALE CORPORATION Costco is the world’s largest wholesale club with a record of steady growth in sales and profits as it continues to gain share of the consumer dollar. WAL-MART STORES, INC. Wal-Mart is the world’s largest retailer offering value to consumers in the U.S. and thirteen foreign countries. QUALCOMM INCORPORATED QUALCOMM is a leading developer of intellectual property and semiconductors for the mobile communications industry. The company stands to benefit greatly from the global adoption of mobile data applications. NINTENDO CO., LTD. Nintendo is one of the world’s leading developers of video game platforms and software. Its innovative approach to product development and customer segmentation should lead to further market share gains. 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. WEATHERFORD INTERNATIONAL LTD. Weatherford supplies a broad range of oil field services and equipment on a worldwide basis. Its focus on helping customers increase production from existing fields and enhance recovery from new wells should lead to earnings growth. 459,800 34,268,894 5.1 575,000 30,187,500 4.5 470,000 26,348,200 3.9 700,000 25,081,000 3.7 67,100 24,951,796 3.7 949,000 23,525,710 3.5 2,050,000 22,181,000 3.3 ARCH CAPITAL GROUP LTD. Arch Capital, a Bermuda-based insurer/reinsurer, generates premiums of approximately $3.5 billion and has a high quality, well-reserved A-rated balance sheet. This company has a strong management team that exercises prudent underwriting discipline and efficient expense control, resulting in above-average earnings and book value growth. 300,000 21,030,000 3.1 WASTE MANAGEMENT, INC. Waste Management provides waste collection and disposal services to over 20 million customers in the U.S. The company also operates waste-to-energy plants, provides recycling services, and captures landfill gases for beneficial uses. The company has a strong record of returning excess cash flow to shareholders through dividends and stock repurchases. *Net assets applicable to the Company’s Common Stock. 630,000 20,878,200 3.1 $262,907,050 39.0% 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) 2008 2007 DECEMBER 31, 2008 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, 2008 and 2007 is shown in the following table. Finance and Insurance Banking Insurance Other Retail Trade Oil and Natural Gas (Including Services) Consumer Products and Services Computer Software and Systems Communications and Information Services Environmental Control (Including Services) Aerospace/Defense Miscellaneous** Health Care/Pharmaceuticals Machinery and Equipment Building and Real Estate Technology Semiconductors Transportation Metals Short-Term Securities Total Investments Other Assets and Liabilities - Net Preferred Stock Net Assets Applicable to Common Stock $995 63,102 34,617 98,714 54,015 74,054 75,989 91,648 85,027 38,960 62,254 37,553 11,168 13,364 24,457 25,690 16,353 11,005 — 720,251 118,897 $839,148 $11,195 116,673 27,952 155,820 102,492 79,219 75,062 69,404 68,046 44,404 36,028 32,261 24,203 18,012 17,145 15,143 12,649 5,917 — 755,805 118,897 874,702 (487) (199,617) 1.7% 4.0% 17.3 4.1 23.1 15.2 11.8 11.1 10.3 10.1 6.6 5.3 4.8 3.6 2.7 2.5 2.2 1.9 0.9 — 112.1 17.6 129.7 (0.1) (29.6) 17.2 3.0 24.2 14.4 19.5 10.8 10.9 6.9 4.1 5.1 4.2 2.9 2.4 4.8 2.6 — 1.0 2.0 115.8 0.8 116.6 0.0 (16.6) $674,598 100.0% 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, 2008 2007 (cost $710,373,320 and $816,594,960, respectively) $745,830,202 $1,374,257,148 Corporate note (cost $9,877,906 and $19,053,293, respectively) Money market fund (cost $118,896,974 and $9,165,709, respectively) Total investments (cost $839,148,200 and $844,813,962, respectively) RECEIVABLES AND OTHER ASSETS 9,975,000 19,183,125 118,896,974 9,165,709 874,702,176 1,402,605,982 Receivable for securities sold Premium deposited with brokers for options written Dividends, interest and other receivables Qualified pension plan asset, net excess funded (note 5) Prepaid expenses and other assets 2,638,460 — 1,461,811 1,899,294 3,245,437 — 3,712,458 1,333,175 9,244,527 2,549,782 TOTAL ASSETS LIABILITIES 883,947,178 1,419,445,924 Payable for securities purchased Accrued preferred stock dividend not yet declared Accrued supplemental pension plan liability (note 5) Outstanding options written at value (premiums deposited with brokers $3,712,458 for 2007) (notes 1a and 6) Accrued supplemental thrift plan liability Accrued expenses and other liabilities TOTAL LIABILITIES 1,347,832 231,002 3,195,179 — 1,747,234 3,210,630 9,731,877 — 231,389 3,174,022 2,192,960 3,393,011 7,531,573 16,522,955 5.95% CUMULATIVE PREFERRED STOCK, SERIES B - 7,984,700 and 8,000,000 shares, respectively, at a liquidation value of $25 per share (note 2) NET ASSETS APPLICABLE TO COMMON STOCK - 31,980,872 and 31,573,058 shares, respectively (note 2) 199,617,500 200,000,000 $674,597,801 $1,202,922,969 NET ASSET VALUE PER COMMON SHARE $21.09 $38.10 NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 31,980,872 and 31,573,058 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 (loss) (note 5) Unallocated distributions on Preferred Stock Unrealized appreciation on investments and options $31,980,872 608,328,298 (16,916) 5,759,182 (6,776,609) (231,002) 35,553,976 $31,573,058 602,738,135 6,711,263 1,711,821 1,108,563 (231,389) 559,311,518 NET ASSETS APPLICABLE TO COMMON STOCK $674,597,801 $1,202,922,969 (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 $413,817 and $353,438, 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, 2008 2007 $19,355,826 3,037,848 $20,925,587 2,809,754 22,393,674 23,735,341 3,868,008 2,597,320 1,579,448 275,634 215,601 170,542 126,838 114,237 9,312,122 3,104,891 562,787 266,033 307,829 169,891 131,872 97,293 8,947,628 13,952,718 13,446,046 9,782,623 Realized Gain (Loss) And Change In Unrealized Appreciation On Investments (Notes 1, 4 and 6) Net realized gain on investments: Long transactions Written option transactions (notes 1b and 6) Net realized gain on investments (long-term except $3,224,498 for 2007) Net decrease in unrealized appreciation 8,649,744 7,765,055 176,058,639 ( 272,754) 16,414,799 175,785,885 (523,757,542) (71,533,458) NET INVESTMENT INCOME AND GAIN (LOSS) ON INVESTMENTS (493,896,697) 114,035,050 DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (11,899,613) (11,900,000) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($505,796,310) $102,135,050 (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 decrease in unrealized appreciation Distributions to Preferred Stockholders: From net investment income From short-term capital gains From long-term capital gains Unallocated distributions Decrease in net assets from Preferred distributions YEAR ENDED DECEMBER 31, 2008 2007 $13,446,046 16,414,799 (523,757,542) (493,896,697) $9,782,623 175,785,885 (71,533,458) 114,035,050 (3,474,724) — (8,425,276) 387 (11,899,613) ( 689,497) ( 778,809) ( 10,431,694) — (11,900,000) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER COMPREHENSIVE INCOME (505,796,310) 102,135,050 Adjustment to apply FAS 158 (note 5) (7,885,172) 456,004 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) Value of Common Shares issued in payment of dividends and distributions Cost of Common Shares purchased Benefit to Common Shareholders resulting from Preferred Shares purchased INCREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE (DECREASE) IN NET ASSETS NET ASSETS APPLICABLE TO COMMON STOCK (6,024,428) — (14,620,307) ( 9,603,869) ( 10,847,882) ( 145,301,188) (20,644,735) ( 165,752,939) 7,928,339 (1,986,688) 96,902,914 ( 30,271,148) 59,398 — 6,001,049 66,631,766 (528,325,168) 3,469,881 BEGINNING OF YEAR 1,202,922,969 1,199,453,088 END OF YEAR (including undistributed net investment income of $5,759,182 and $1,711,821, respectively) $674,597,801 $1,202,922,969 (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 8 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 AEROSPACE/DEFENSE (5.3%) 300,000 The Boeing Company 418,700 Textron Inc. 325,000 United Technologies Corporation (COST $62,253,609) VALUE (NOTE 1a) $12,801,000 5,807,369 17,420,000 36,028,369 1,875,862 CEMEX, S.A.B. de C.V. ADR (a) (COST $24,456,722) 17,145,379 BUILDING AND REAL ESTATE (2.5%) COMMUNICATIONS AND INFORMATION SERVICES (10.1%) COMPUTER SOFTWARE AND SYSTEMS (10.3%) 960,000 Cisco Systems, Inc. (a) 374,100 Lamar Advertising Company Class A (a) 68,000 Leap Wireless International, Inc. (a) 1,400,000 MetroPCS Communications, Inc. (a) 700,000 QUALCOMM Incorporated 1,480,000 Dell Inc. (a) 570,000 Microsoft Corporation 445,100 NetEase.com, Inc. (a) 67,100 Nintendo Co., Ltd. 565,000 Teradata Corporation (a) CONSUMER PRODUCTS AND SERVICES (11.1%) 350,000 Diageo plc ADR 375,000 Heineken N.V. 466,100 Hewitt Associates, Inc. Class A (a) 425,000 Nestle S.A. 255,000 PepsiCo, Inc. ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (6.6%) 949,000 Republic Services, Inc. 630,000 Waste Management, Inc. 15,648,000 4,698,696 1,828,520 20,790,000 25,081,000 68,046,216 15,155,200 11,080,800 9,836,710 24,951,796 8,378,950 69,403,456 19,859,000 11,444,940 13,227,918 16,563,614 13,966,350 75,061,822 23,525,710 20,878,200 44,403,910 (COST $85,026,705) (COST $91,647,625) (COST $75,988,936) (COST $38,960,134) FINANCE AND INSURANCE (23.1%) BANKING (1.7%) 195,000 M&T Bank Corporation (COST $994,686) 11,194,950 INSURANCE (17.3%) 100,000 The Allstate Corporation 300,000 Arch Capital Group Ltd. (a) 440,000 AXIS Capital Holdings Limited 150 Berkshire Hathaway Inc. Class A (a) 250,000 Everest Re Group, Ltd. 800,000 Fidelity National Financial, Inc. 235,000 MetLife, Inc. 285,000 PartnerRe Ltd. 83,000 Transatlantic Holdings, Inc. OTHER (4.1%) 400,000 American Express Company 1,666,667 Epoch Holding Corporation 550,000 Nelnet, Inc. (a) HEALTH CARE / PHARMACEUTICALS (3.6%) 529,900 Cytokinetics, Incorporated (a) 200,000 Genentech, Inc. (a) 119,500 Gilead Sciences, Inc. (a) 3,276,000 21,030,000 12,812,800 14,490,000 19,035,000 14,200,000 8,192,100 20,311,950 3,324,980 116,672,830 7,420,000 12,650,002 7,881,500 27,951,502 155,819,282 1,510,215 16,582,000 6,111,230 24,203,445 (COST $63,101,799) (COST $34,617,385) (COST $98,713,870) (COST $11,167,600) 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 8 - 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 AND EQUIPMENT (2.7%) SHARES COMMON AND PREFERRED STOCKS (Continued) VALUE (NOTE 1a) 1,200,000 ABB Ltd. ADR (COST $13,364,456) $18,012,000 MISCELLANEOUS (3.3%) Other (b) (COST $27,675,427) 22,286,370 OIL AND NATURAL GAS (INCLUDING SERVICES) (11.8%) 459,800 Apache Corporation 800,000 Halliburton Company 250,000 McDermott International, Inc. (a) 500,000 Patterson-UTI Energy, Inc. 2,050,000 Weatherford International Ltd. (a) RETAIL TRADE (15.2%) 575,000 Costco Wholesale Corporation 333,100 Target Corporation 1,675,000 The TJX Companies, Inc. (c) 470,000 Wal-Mart Stores, Inc. 34,268,894 14,544,000 2,470,000 5,755,000 22,181,000 79,218,894 30,187,500 11,501,943 34,454,750 26,348,200 102,492,393 (COST $74,054,171) (COST $54,015,566) SEMICONDUCTORS (1.9%) 700,000 ASML Holding N.V. (COST $16,353,613) 12,649,000 TECHNOLOGY (2.2%) 1,900,000 Xerox Corporation (COST $25,689,854) 15,143,000 TRANSPORTATION (0.9%) 236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 5,916,666 TOTAL COMMON STOCKS (110.6%) (COST $710,373,320) 745,830,202 MISCELLANEOUS (1.5%) Other (b) (e) (COST $9,877,906) 9,975,000 CORPORATE NOTE SHORT-TERM SECURITIES AND OTHER ASSETS SHARES 118,896,974 SSgA Prime Money Market Fund (17.6%) (COST $118,896,974) 118,896,974 TOTAL INVESTMENTS (d) (129.7%) Liabilities in excess of receivables and other assets (-0.1%) (COST $839,148,200) PREFERRED STOCK (-29.6%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) 874,702,176 (486,875) 874,215,301 (199,617,500) $674,597,801 (a) Non-income producing security. (b) Securities which have been held for less than one year, not previously disclosed, and not restricted. (c) 400,000 shares held by custodian in a segregated custodial account as collateral for short positions and options, if any. (d) At December 31, 2008: (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 $197,012,086, (3) aggregate gross unrealized depreciation was $161,458,110, and (4) net unrealized appreciation was $35,553,976. (e) Level 2 fair measurement, note 8. (see notes to financial statements) 14 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 offi- cers 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 clos- ing 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 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. b. 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 invest- ments. 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. c. FEDERAL INCOME TAXES The Company’s policy is to fulfill the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal income taxes is required. The Company is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). As of and during the period ended December 31, 2008, the Company did not have any liabilities for any unrec- ognized tax positions. The Company recognizes interest and penalties, if any, related to unrecognized tax positions as income tax expense in the Statement of Operations. During the period, the Company did not incur any interest or penalties. d. INDEMNIFICATIONS In the ordinary course of business, the Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. e. OTHER As customary in the investment company industry, securities transactions are recorded as of the trade date. Dividend income and distributions to stockholders are recorded as of the ex-dividend dates. Interest income, adjusted for amortization of discount and premium on investments, is earned from settlement date and is recognized on the accrual basis. Cost of short-term investments represents amortized cost. 2. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $1.00 par value, and 10,000,000 shares of Preferred Stock, $1.00 par value. With respect to the Common Stock, 31,980,872 shares were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,984,700 were outstanding on December 31, 2008. 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 were noncallable for the 5 year period ended September 24, 2008 and have a liquidation preference of $25.00 per share plus an amount equal to accumulated and unpaid dividends to the date of redemption. On December 10, 2008, the Board of Directors authorized the repurchase of 1 million Preferred Shares in the open market at prices below $25.00 per share. A total of 15,300 Preferred Shares were repurchased at an average cost per share of $21.12 during the year ended December 31, 2008. The average discount of $3.88 per Preferred Share, $59,398 in the aggregate, was credited to additional paid-in capital of the Common Stock. The Company is required to allocate distributions from long-term capital gains and other types of income proportion- ately 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 capi- tal gains or will represent a return of capital. 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 - 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 asset coverage of at least 200% of the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines, the Company is required to maintain a certain dis- counted asset coverage for its portfolio that equals or exceeds the Basic Maintenance Amount under the guidelines estab- lished 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 to 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 divi- dends on the Preferred Stock in an amount equal to two full years’ dividends, the holders of Preferred Stock will have the right to elect a majority of the directors. In addition, the Investment Company Act of 1940 requires that approval of the holders of a majority of any outstanding Preferred Shares, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the Preferred Stock and (b) take any action requiring a vote of security holders, including, among other things, changes in the Company’s subclassification as a closed-end investment company or changes in its fundamental investment policies. The Company classifies its Preferred Stock pursuant to the requirements of EITF D-98, Classification and Measurement of Redeemable Securities, which requires that preferred stock for which its redemption is outside of the company’s control should be presented outside of net assets in the statement of assets and liabilities. Transactions in Common Stock during 2008 and 2007 were as follows: SHARES AMOUNT 2008 2007 2008 2007 Shares issued in payment of dividends and distributions (includes 103,047 and 2,404,965 shares issued from treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 19.8% and 10.4%, respectively) Decrease in paid-in capital Total decrease Net increase 509,861 2,747,460 $509,861 7,418,478 7,928,339 $2,747,460 94,155,454 96,902,914 102,047 763,600 (102,047) (1,884,641) (1,986,688) $5,941,651 ( 763,600) ( 29,507,548) ( 30,271,148) $66,631,766 Distributions for tax and book purposes are substantially the same. As of December 31, 2008, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income Undistributed capital losses Unrealized appreciation $1,940,080 (16,916) 35,553,976 $37,477,140 In accordance with U.S. Treasury Regulations, the Company has elected to defer $16,916 of net realized capital losses arising after October 31, 2008. Such losses are treated for tax purposes as arising on January 1, 2009. To reflect reclassification arising from permanent “book/tax” differences for tax distribution reclassification and non-de- ductible expenses during the year ended December 31, 2008, undistributed net investment income was increased by $100,467, undistributed net realized gain on investments was decreased by $97,395 and additional paid-in capital was de- creased by $3,072. Net assets were not affected by this reclassification. 3. OFFICERS’ COMPENSATION The aggregate compensation paid by the Company during 2008 and 2007 to its officers (identified on page 20) amounted to $5,257,000 and $8,874,500, respectively. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (other than short-term securities and options) during 2008 amounted to $301,033,584 and $425,080,355, on long transactions, respectively. 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 5. BENEFIT PLANS The Company has funded (Qualified) and unfunded (Supplemental) defined contribution thrift plans that are available to its employees. Due to the decline in the value of the Company’s shares, a net reduction in cost during 2008 of $1,405,619 was real- ized. The aggregate cost of such plans for 2007 was $633,127. The Company also has both funded (Qualified) and unfunded (Supplemental) noncontributory defined benefit pension 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. OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS: DECEMBER 31, 2008 (MEASUREMENT DATE) SUPPLEMENTAL PLAN QUALIFIED PLAN TOTAL DECEMBER 31, 2007 (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 $9,337,068 214,114 554,874 (538,394) (33,128) — 9,534,534 18,581,595 (6,609,373) — (538,394) 11,433,828 $1,899,294 $3,174,022 101,236 185,076 (165,253) (99,902) — 3,195,179 — — 165,253 (165,253) — ($3,195,179) $12,511,090 315,350 739,950 (703,647) (133,030) — 12,729,713 18,581,595 (6,609,373) 165,253 (703,647) 11,433,828 ($1,295,885) $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 Accumulated benefit obligation at end of year $8,912,352 $2,997,332 $11,909,684 $8,726,625 $3,000,603 $11,727,228 INCREMENTAL EFFECT OF ADOPTING FAS 158 BEFORE ADJUSTMENTS AFTER BEFORE ADJUSTMENTS AFTER Noncurrent benefit asset LIABILITIES Current benefit liability Noncurrent benefit liability $9,244,527 ($7,345,233) $1,899,294 $8,656,759 $587,768 $9,244,527 209,039 2,964,984 59,179 (38,024) 268,218 2,926,960 213,549 3,107,178 (4,510) (142,194) 209,039 2,964,984 Accumulated other comprehensive income (1,108,563) 7,885,172 6,776,609 (652,559) (456,004) (1,108,563) AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF: Net actuarial gain Prior service cost ($1,445,586) 337,023 ($1,108,563) $7,907,265 (22,093) $7,885,172 $6,461,679 314,930 $6,776,609 ($1,011,676) 359,117 ($652,559) ($433,910) (22,094) ($456,004) ($1,445,586) 337,023 ($1,108,563) 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% 7.20% 4.25% $214,114 554,874 (1,430,924) 19,309 — ($642,627) 6.00% N/A 4.25% $101,236 185,076 — 2,784 — $289,096 6.00% 8.75% 4.25% $315,350 739,950 (1,430,924) $206,228 538,587 (1,253,375) 6.00% N/A 4.25% $95,332 181,712 — 22,093 — ($353,531) 19,309 96,207 ($393,044) 2,784 — $279,828 $301,560 720,299 (1,253,375) 22,093 96,207 ($113,216) 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 6.00% 8.75% 4.25% 6.00% N/A 4.25% 5.75% 8.75% 4.25% 5.75% N/A 4.25% PLAN ASSETS The Company’s qualified pension plan asset allocations by asset EXPECTED CASH FLOWS Qualified Plan Supplemental Plan Total category at December 31, 2008 and 2007, are as follows: Expected Company contributions for 2009 — $268,218 $268,218 ASSET CATEGORY Equity securities Debt securities Other Total December 31 2008 79.3% — 20.7 2007 89.6% 10.4 — 100.0% 100.0% Expected benefit payments: 2009 2010 2011 2012 2013 Generally, not less than 80% of plan assets are invested in 2014-2018 investment companies that invest in equity securities. $568,843 $268,218 $837,061 594,892 622,966 637,288 648,248 317,733 362,765 401,266 434,525 912,625 985,731 1,038,554 1,082,773 3,561,276 2,641,850 6,203,126 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 6. WRITTEN OPTIONS Transactions in a written covered call and collateralized put options during the year ended December 31, 2008 were as follows: Options outstanding, December 31, 2007 Options written Options expired Options exercised Options terminated in closing purchase transaction Options outstanding, December 31, 2008 Contracts 7,500 25,456 (16,124) (1,002) (15,830) 0 Premiums $3,073,787 11,980,669 (7,404,060) (557,561) (7,092,835) $0 Contracts 1,999 7,016 — (2,409) (6,606) 0 Premiums $638,671 2,362,990 — (999,771) (2,001,890) $0 Covered Calls Collateralized Puts 7. OPERATING LEASE COMMITMENT In June 2007, the Company entered into an operating lease agreement for office space which expires in February 2018 and provides for future rental payments in the aggregate amount of approximately $10,755,000, net of construction credits. 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 begin- ning in February 2013. The Company has the option to renew the lease after February 2018 for five years at market rates. Rental expense approximated $988,000 for the year ended December 31, 2008. Minimum rental commitments under the operating lease are approximately $1,075,000 per annum in 2009 through 2012, $1,183,000 in 2013 through 2017, and $99,000 in 2018. 8. FAIR VALUE MEASUREMENTS Effective January 1, 2008, the Company adopted FASB Statement of Financial Accounting Standard No. 157 “Fair Value Measurements.” Various data inputs are used in determining the value of the Company’s investments. These inputs are summarized in a hierarchy consisting of the three broad levels listed below: Level 1 - quoted prices in active markets for identical securities (including money market funds which are valued using amortized cost and which transact at net asset value, typically $1 per share), Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.), and Level 3 - significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Company’s net assets as of December 31, 2008: Valuation Inputs Investments in Securities Level 1 - Quoted prices Level 2 - Other significant observable inputs (see (e), page 13) Level 3 - Unobservable inputs Total $864,727,176 9,975,000 — $874,702,176 1 8 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 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, 2008. This information has been derived from information contained in the financial statements and market price data for the Company’s shares. PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year Net investment income Net gain (loss) 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 2008 2007 2006 2005 2004 $38.10 .42 $40.54 .31 $39.00 .34 $35.49 .19 $33.11 .32 (16.15) (.25) (.11) — (.27) (.38) (16.36) (.19) — (.46) (.65) 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) 3.48 — (.09) — (.32) (.41) 3.39 (.23) — (1.53) (2.12) (.78) (1.01) Net asset value, end of year Per share market value, end of year $21.09 $17.40 $38.10 $34.70 $40.54 $37.12 $39.00 $34.54 $35.49 $31.32 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share (48.20%) 8.72% 16.78% 17.40% 8.79% RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, end of year (000’s omitted) $674,598 $1,202,923 $1,199,453 $1,132,942 $1,036,393 Ratio of expenses to average net assets applicable to Common Stock 0.87% 1.11% 1.06% 1.25% 1.15% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 1.31% 25.52% 0.78% 31.91% 0.86% 19.10% 0.51% 20.41% 0.94% 16.71% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share $199,617 438% $25.00 $21.90 $200,000 701% $200,000 700% $200,000 666% $200,000 618% $25.00 $21.99 $25.00 $24.44 $25.00 $24.07 $25.00 $24.97 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, of General American Investors Company, Inc. as of December 31, 2008, 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 responsibility 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, 2008, 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, 2008, 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 February 3, 2009 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 (66) 1994 Chairman of the Board since 2007 President and Chief Executive Officer of the Company since 1995 Sally A. Lynch, Ph.D. (49) Vice-President of the 1997 Company since 2006 securities analyst (biotechnology industry) Andrew V. Vindigni (49) Senior Vice-President of the Diane G. Radosti (56) Treasurer of the 1988 Company since 2006 Vice-President 1995-2006 securities analyst (financial services and consumer non-durables industries) 1980 Company since 1990 Principal Accounting Officer since 2003 Carole Anne Clementi (62) Secretary of the Eugene S. Stark (50) Vice-President, Administration 1982 2005 Jesse Stuart (42) 2003 of the Company and 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) Vice-President of the Company since 2006 securities analyst (general industries) Craig A. Grassi (40) 1991 Maureen E. LoBello (58) 1992 Company since 1994 shareholder relations and office management Assistant Vice-President of the Company since 2005 information technology 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 and Preferred Stock as set forth in Note 2, on pages 14 and 15, purchases of Common and Preferred 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, 2008 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 April 30, 2008, 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. (44) 1995 Co-Founder and Chairman Kolltan Pharmaceuticals, Inc. Managing Member Diaz & Altschul Capital Management, LLC (private investment company) Delta Opportunity Fund, Ltd., Director Diversified Natural Products, Inc., Director Medicis Pharmaceutical Corporation, Director Medrium, Inc., Chairman, Board of Directors National Public Radio Foundation, Trustee Neurosciences Research Foundation, Trustee The Overbrook Foundation, Director Rodney B. Berens (63) 2007 Founding Partner Berens Capital Management, LLC Lewis B. Cullman (90) 1961 Philanthropist Agni Capital Management Ltd., Member of Investment Committee Alfred P. Sloan Foundation, Member of Investment Committee Pendragon Capital Management Limited, Non-Executive Director Peterson Institute for International Economics, Member of Investment Committee Pierpont Morgan Library, Vice President of Finance and Head of Investment Sub-Committee The Woods Hole Oceanographic Institute, Trustee and Head 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 Gerald M. Edelman (79) 1976 John D. Gordan, III (63) 1986 Sidney R. Knafel (78) 1994 Daniel M. Neidich (59) 2007 Member, Professor and Chairman of the Neurosciences Institute of the Neurosciences Research Department of Neurobiology The Scripps Research Institute 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) 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, Chairman Elect Urban Land Institute, Trustee D. Ellen Shuman (53) 2004 Vice President and Chief Investment Officer Carnegie Corporation of New York Bowdoin College, Trustee Edna McConnell Clark Foundation, Investment Advisor The Investment Fund for Foundations -TIFF Advisory Joseph T. Stewart, Jr. (79) 1987 Lead Independent Director since July 2007 Corporate director and trustee Raymond S. Troubh (82) 1989 Financial Consultant INTERESTED DIRECTOR Spencer Davidson (66) 1995 Chairman of the Board President and Chief Executive Officer General American Investors Company, Inc. 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 Wendy’s/Arby’s Group, 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. 

Continue reading text version or see original annual report in PDF format above