GAM Holding AG
Annual Report 2009

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 9 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 increase (decrease) in unrealized appreciation Distributions to Preferred Stockholders Per Common Share-December 31 Net asset value Market price Discount from net asset value Common Shares outstanding-Dec. 31 Common Stockholders of record-Dec. 31 Market price range* (high-low) Market volume-shares *Unadjusted for dividend payments. 2009 2008 $864,323,372 3,400,143 15,219,812 204,253,481 (11,474,004) $27.50 $23.46 -14.7% 31,425,215 3,689 $24.21-$12.10 12,694,492 $674,597,801 13,446,046 16,414,799 (523,757,542) (11,899,613) $21.09 $17.40 -17.5% 31,980,872 3,806 $34.76-$13.01 10,131,229 DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Return of Capital Total Common Stock Nov. 13, 2009 Dec. 28, 2009 $.153697 (a) $.186135 $.010168 $.350000 Total from 2009 earnings (a) Includes short-term gains in the amount of $.050416 per share. Nov. 14, 2008 Dec. 26, 2008 $.185594 $.254406 $.440000 Total from 2008 earnings Preferred Stock Mar. 6, 2009 Jun. 8, 2009 Sept. 8, 2009 Dec. 7, 2009 Total for 2009 Mar. 24, 2009 Jun. 24, 2009 Sept. 24, 2009 Dec. 24, 2009 $.163303 .163303 .163303 .163303 $.653212 (b) $.197768 .197768 .197768 .197768 $.791072 $.010804 .010804 .010804 .010804 $.043216 $.371875 .371875 .371875 .371875 $1.487500 (b) Includes short-term gains in the amount of $.21426756 per share ($.05356689 per quarter). Mar. 7, 2008 Jun. 6, 2008 Sept. 8, 2008 Dec. 8, 2008 Total for 2008 Mar. 24, 2008 Jun. 24, 2008 Sept. 24, 2008 Dec. 24, 2008 $.108585 .108585 .108585 .108585 $.434340 $.263290 .263290 .263290 .263290 $1.053160 $.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 General American Investors’ net asset value (NAV) per Common Share (assuming reinvestment of all dividends) increased 32.1% for the year ended December 31, 2009. The U.S. stock market was up 26.5% for the year, as measured by our benchmark, the Standard & Poor's 500 Stock Index (including income). The return to our Common Stockholders increased by 36.9% and the discount at which our shares traded to their NAV continued to fluctuate and on December 31, 2009, it was 14.7%. The table that follows provides a comprehensive presen- tation of our performance and compares our returns on an annualized basis with the S&P 500. Stockholder return reflects widening in the discount to NAV to the high end of its historic range, and may not fully illustrate that over many years General American Investors has produced superior investment results. Years Stockholder Return (Market Value) NAV Return S&P 500 3 5 10 20 30 40 50 -8.4% -6.7% -5.7% 1.1 2.8 11.3 13.5 11.6 11.2 1.2 2.9 11.1 13.2 12.2 11.8 0.3 -1.0 8.2 11.2 9.8 9.4 The market rally that began in the second week of March continued through the year, with our portfolio participating fully in the advance. Consistent with past experience, stocks turned up in advance of clear signs of a recovery in the economy. Typically, this phenom- enon results from the creation of money, owing to massive monetary and fiscal stimulus, at a faster rate than the economy’s ability to employ it. The excess liquidity then finds its way into equities as investors seek higher returns by purchasing riskier assets. Data now support the view that the steep decline in the world economy is over and that recovery is becom- ing more firmly established, especially in Asia. The strength of the recovery in mature markets, important- ly, is likely to be muted relative to previous cycles. Savings rates in developed economies are at record lows and, to the extent that it exists, pent-up demand faces the formidable head wind of tight credit and a still-weak jobs market. In the U.S., where consumer spending is the main dri- ver of GDP growth, we anticipate cyclical recovery to continue despite meaningful structural impediments. Because business spending generally recovers slowly following recessions, hiring is likely to be tempered, with the numbers of unemployed and underemployed remaining elevated for an extended period. Manu- facturing jobs are declining secularly, while another construction boom, driven by housing, seems unlikely in the near-term. Additionally, advances in information technology are having a disruptive effect on labor markets. Government intervention in the financial system has had its intended effect of stabilizing markets and gen- erally making funds available at record-low interest rates. While many of the most profligate have been res- cued, savers have been punished by near zero returns on their liquid assets. The budget deficit is likely to sur- pass $1 trillion this year after reaching $1.4 trillion in 2009, and the combination of Federal borrowing together with a firming economy is likely to put upward pressure on interest rates. Should our trading partners tire of funding the current account deficit by investing most of their receipts in U.S. Treasuries, dol- lar weakness would likely ensue. In turn, interest rates could spike, destabilizing capital markets. The New Year has begun auspiciously. On average, earnings have been better than forecast. Stronger growth outside the U.S., combined with the weaker dol- lar, has had a favorable impact on companies with operations abroad and on the trade deficit. Corporate balance sheets are in relatively good shape and can sup- port anticipated strength in demand. Worldwide, liquidity is abundant and the U.S. is likely to remain a destination of choice for capital, undergirding distressed assets and supporting appreciation. Despite expectation of a subpar recovery, the case for equities, on a longer-term basis, remains intact. While the investment environment may be volatile this year, with inflation seemingly contained stocks should be supported by low interest rates and reasonable valu- ations. Our investments remain focused on well-managed companies with strong financial charac- teristics that can generate consistent earnings growth and cash flow. We are confident that our portfolio re- flects these attributes, which should result in continuing superior performance on a long-term basis. The share repurchase program, a part of our ongoing ef- fort to maximize NAV, continues. In 2009, the Company purchased 836,938 of its Common Shares on the open market at an average discount to NAV of 13.6%. The Board of Directors has authorized repurchases of Common Shares when they are trading at a discount to NAV of at least 8%. In December 2009, the Board of Directors renewed authority originally granted in 2008 to repurchase up to 1 million outstanding shares of its 5.95% Cumulative Preferred Stock when the shares are trading at a market price below the liquidation preference of $25.00 per share. In 2009, the Company purchased 380,013 of its Preferred Shares at an average price of $23.56 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 20, 2010 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 the Company 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, the Company 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 electronic 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 published in Barron’s and The Wall Street Journal, Monday edition. While shares of the Company usually sell at a discount to NAV, as do the shares of most other domestic equity closed-end investment companies, they occasionally sell at a premium over NAV. During 2009, the stock sold at discounts to NAV which ranged from 10.7% (October 1) to 21.5% (March 9). At December 31, the price of the stock was at a discount of 14.7%. 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 up to 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 and available 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 1943-2009 (except for the year 1974). (A table listing dividends and distributions paid during the 20-year period 1990-2009 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 the Company to de- termine how to vote proxies relating to portfolio securities and the Company’s proxy voting record for the 12-month period ended June 30, 2009 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.generalamerican- investors.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 The Company collects nonpub- lic personal information about its customers (stockholders) with respect to their transactions in shares of the Company’s securities but only for those stock- holders 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, 2009 The investment return for a Common Stockholder of General American Investors (GAM) over the 20 years ended December 31, 2009 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 1990. 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 $10,400 4.00% $10,669 6.69% 19,240 22,084 18,568 17,109 20,739 24,779 35,330 46,391 64,586 76,922 80,253 58,416 74,194 80,716 94,761 110,661 120,311 62,321 85,293 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 36.86 17,187 17,797 17,485 17,006 21,016 25,213 33,294 44,994 61,372 72,197 71,331 54,911 69,956 77,211 89,719 100,700 108,766 61,975 81,857 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 32.08 $9,691 12,637 13,596 14,972 15,162 20,848 25,624 34,165 43,919 53,125 48,296 42,553 33,132 42,595 47,190 49,470 57,217 60,312 37,954 47,993 -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 26.45 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 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 COMPARATIVE ANNUALIZED INVESTMENT RESULTS YEARS ENDED DECEMBER 31, 2009 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year 5 years 10 years 15 years 20 years 36.9 % 32.1 % 26.5 % 1.1 2.8 10.4 11.3 1.2 2.9 11.0 11.1 0.3 -1.0 8.0 8.2 GAM STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 6 M A J O R S T O C K C H A N G E S ( a ) : 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 9 ( 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 SHARES TRANSACTED SHARES HELD DECEMBER 31, 2009 NEW POSITIONS Bond Street Holdings LLC Cephalon, Inc. Forethought Financial Group, Inc. Class A with Warrants Pfizer Inc. ADDITIONS Fidelity National Financial, Inc. Nelnet, Inc. The TJX Companies, Inc. Weatherford International Ltd. DECREASES ELIMINATIONS Target Corporation Wyeth REDUCTIONS American Express Company AXIS Capital Holdings Limited Berkshire Hathaway Inc. Class A Heineken N.V. M&T Bank Corporation MetroPCS Communications, Inc. NetEase.com, Inc. The Travelers Companies, Inc. 500,000 12,100 37,500 655,808 (c) 200,000 5,000 100,000 100,000 250,000 564,273 (d) 25,000 25,000 10 25,000 5,000 300,000 83,000 15,000 500,000 337,100 37,500 655,808 (b) 725,000 650,000 1,775,000 2,150,000 — — 325,000 275,000 130 350,000 150,000 135,500 138,100 200,000 (a) Excludes transactions in Common Stocks -Miscellaneous - Other. (b) Shares purchased in prior period and previously carried under Common Stocks - Miscellaneous - Other. (c) Shares received as a merger with Wyeth. (d) Shares sold off as a result of a merger with Pfizer Inc. 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. 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 9 0 - 2 0 0 9 ) ( U N A U D I T E D ) EARNINGS SOURCE EARNINGS SOURCE SHORT-TERM LONG-TERM RETURN OF YEAR INCOME CAPITAL GAINS CAPITAL GAINS CAPITAL SHORT-TERM LONG-TERM RETURN OF YEAR INCOME CAPITAL GAINS CAPITAL GAINS CAPITAL 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 $.21 .09 .03 .06 .06 .10 .20 .21 .47 .42 — — — — — $.03 .05 — — .62 $1.65 3.07 2.93 2.34 1.59 2.77 2.71 2.95 4.40 4.05 — — — — — — — — — — 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 $.48 .37 .03 .02 .217 .547 .334 .706 .186 .103 $1.55 .64 — — — .041 — .009 — .051 $6.16 1.37 .33 .59 .957 1.398 2.666 5.25 .254 .186 — — — — — — — — — $.01 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, 2009, shown on pages 12 and 13 includes 61 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 in the U.S. and Europe, along with expansion of related U.S. and foreign off-price formats,provide ongoing growth opportunities. 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 to enhance recovery from new wells should lead to earnings growth. SHARES VALUE % COMMON NET ASSETS* 1,775,000 $64,876,250 7.5% 2,150,000 38,506,500 4.5 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. 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. 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. WAL-MART STORES, INC. Wal-Mart is the world’s largest retailer offering value to consumers in the U.S. and fifteen foreign countries. 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. DIAGEO PLC ADR Diageo produces, distills and markets alcoholic beverages worldwide. Its portfolio of leading global brands includes Smirnoff, Johnnie Walker, Jose Cuervo, Captain Morgan, Tanqueray and Guinness. Additionally, the company markets numerous regional and local brands. The com- pany’s brand strength and global scale enable it to generate significant cash flow which it uses to reward shareholders in the form of dividends and buybacks. HALLIBURTON COMPANY Halliburton offers a broad suite of services and products to customers worldwide for the exploration, development and production of oil and gas. The company has the scale, product depth and technology to provide value-added customer service and produce attractive long- term shareholder returns. ASML HOLDING N.V. ASML is the world's leading provider of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or microchips. ASML’s products and services help their customers - the major chipmakers - reduce the size and increase the functionality of microchips, and consumer electronic equipment. *Net assets applicable to the Company’s Common Stock. 575,000 34,022,750 3.9 700,000 32,382,000 3.7 295,478 30,484,465 3.5 550,000 29,397,500 3.4 949,000 26,866,190 3.1 350,000 24,293,500 2.8 800,000 24,072,000 2.8 700,000 23,863,000 2.8 $328,764,155 38.0% 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) PERCENT COMMON NET ASSETS* DECEMBER 31, 2009 DECEMBER 31, 2009 The diversification of the Company’s net assets applicable to its Common Stock by industry group as of December 31, 2009 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 Miscellaneous** Environmental Control (Including Services) Aerospace/Defense Health Care/Pharmaceuticals Technology Semiconductors Machinery and Equipment Building and Real Estate Metals Transportation Short-Term Securities Total Investments Other Assets and Liabilities - Net Preferred Stock Net Assets Applicable to Common Stock $10,764 71,719 30,930 113,413 50,195 80,957 87,069 80,004 43,239 47,719 38,960 52,291 38,914 40,141 24,408 13,365 23,385 19,940 11,005 765,005 52,927 $817,932 $19,384 119,013 54,681 193,078 128,297 115,721 109,455 74,746 57,767 49,541 48,166 42,841 40,041 38,802 35,165 22,920 22,127 18,025 8,082 1,004,774 52,927 1,057,701 (3,261) (190,117) $864,323 2.2% 13.8 6.3 22.3 14.8 13.4 12.7 8.6 6.7 5.7 5.6 5.0 4.6 4.5 4.1 2.7 2.6 2.1 0.9 116.3 6.1 122.4 (0.4) (22.0) 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 DECEMBER 31, 2009 INVESTMENTS, AT VALUE (NOTE 1a) Common stocks (cost $744,449,652) Corporate debt (cost $20,555,760) Money market fund (cost $52,926,704) Total investments (cost $817,932,116) RECEIVABLES AND OTHER ASSETS Cash (a) 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 TOTAL ASSETS LIABILITIES Payable for securities purchased Accrued preferred stock dividend not yet declared Outstanding options written at value (premiums deposited with brokers $46,223) (notes 1b and 6) Accrued supplemental pension plan liability (note 5) Accrued supplemental thrift plan liability Accrued expenses and other liabilities TOTAL LIABILITIES 5.95% CUMULATIVE PREFERRED STOCK, SERIES B - 7,604,687 at a liquidation value of $25 per share (note 2) NET ASSETS APPLICABLE TO COMMON STOCK - 31,425,215 (note 2) NET ASSET VALUE PER COMMON SHARE NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 31,425,215 shares at par value (note 2) Additional paid-in capital (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 NET ASSETS APPLICABLE TO COMMON STOCK $975,416,920 29,357,226 52,926,704 1,057,700,850 2,009,230 46,223 1,358,336 3,566,593 2,887,262 1,067,568,494 1,465,438 219,955 7,500 3,347,928 2,532,330 5,554,796 13,127,947 190,117,175 $864,323,372 $27.50 $31,425,215 595,653,151 2,522,662 (4,865,158) ( 219,955) 239,807,457 $864,323,372 (a) $1,968,750 held by custodian in a segregated custodial account as collateral for written options. (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 $332,152) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Directors’ fees and expenses Auditing and legal fees Miscellaneous taxes Transfer agent, custodian and registrar fees and expenses Stockholders’ meeting and reports TOTAL EXPENSES NET INVESTMENT INCOME DECEMBER 31, 2009 $14,349,771 3,237,147 17,586,918 8,465,743 3,111,927 1,671,041 255,223 213,339 187,168 150,682 131,652 14,186,775 3,400,143 Realized Gain And Change In Unrealized Appreciation On Investments (Notes 1, 4 and 6) Net realized gain on investments: Securities transactions (long-term, except for $4,043,031) Written option transactions (notes 1b and 6) Net increase in unrealized appreciation NET INVESTMENT INCOME AND GAIN ON INVESTMENTS DISTRIBUTIONS TO PREFERRED STOCKHOLDERS INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 15,407,515 (187,703) 15,219,812 204,253,481 222,873,436 (11,474,004) $211,399,432 (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 Return of Capital Unallocated distributions Decrease in net assets from Preferred distributions YEAR ENDED DECEMBER 31, 2009 2008 $3,400,143 15,219,812 204,253,481 222,873,436 $13,446,046 16,414,799 (523,757,542) (493,896,697) (3,389,107) (1,654,369) (6,107,907) (333,668) 11,047 (11,474,004) (3,474,724) — (8,425,276) — 387 ( 11,899,613) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER COMPREHENSIVE INCOME 211,399,432 (505,796,310) Adjustment to apply FAS 158 (note 5) 1,911,451 (7,885,172) DISTRIBUTIONS TO COMMON STOCKHOLDERS From net investment income From short-term capital gains From long-term capital gains Return of Capital (3,248,669) (1,585,814) (5,854,806) (319,841) (6,024,428) — (14,620,307) — DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (11,009,130) (20,644,735) 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 6,430,088 (19,553,159) 7,928,339 (1,986,688) 546,889 59,398 INCREASE (DECREASE) IN NET ASSETS - CAPITAL TRANSACTIONS (12,576,182) 6,001,049 NET INCREASE (DECREASE) IN NET ASSETS 189,725,571 (528,325,168) NET ASSETS APPLICABLE TO COMMON STOCK BEGINNING OF YEAR 674,597,801 1,202,922,969 END OF YEAR (including undistributed net investment income of $2,522,662 and $5,759,182, respectively) $864,323,372 $674,597,801 (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 9 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 STOCKS 300,000 The Boeing Company 215,000 Textron Inc. 325,000 United Technologies Corporation VALUE (NOTE 1a) $16,239,000 4,044,150 22,558,250 42,841,400 (COST $52,290,876) 1,872,000 CEMEX, S.A.B. de C.V. ADR (a) (COST $23,385,068) 22,127,040 AEROSPACE/DEFENSE (5.0%) BUILDING AND REAL ESTATE (2.6%) COMMUNICATIONS AND INFORMATION SERVICES (6.7%) COMPUTER SOFTWARE AND SYSTEMS (8.6%) 960,000 Cisco Systems, Inc. (a) 78,000 Leap Wireless International, Inc. (a) 135,500 MetroPCS Communications, Inc. (a) 700,000 QUALCOMM Incorporated 1,290,000 Dell Inc. (a) 570,000 Microsoft Corporation 138,100 NetEase.com, Inc. (a) 67,100 Nintendo Co., Ltd. 565,000 Teradata Corporation (a) CONSUMER PRODUCTS AND SERVICES (11.6%) 350,000 Diageo plc ADR 350,000 Heineken N.V. 466,100 Hewitt Associates, Inc. Class A (a) 450,000 Nestle S.A. 285,000 PepsiCo, Inc. ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (5.6%) 949,000 Republic Services, Inc. 630,000 Waste Management, Inc. FINANCE AND INSURANCE (22.3%) BANKING (2.2%) 500,000 Bond Street Holdings LLC (a) (c) 150,000 M&T Bank Corporation (COST $43,239,261) (COST $80,004,215) (COST $79,353,285) (COST $38,960,134) (COST $10,764,416) INSURANCE (13.8%) 175,000 The Allstate Corporation 315,000 Arch Capital Group Ltd. (a) 275,000 AXIS Capital Holdings Limited 250,000 Everest Re Group, Ltd. 725,000 Fidelity National Financial, Inc. 37,500 Forethought Financial Group, Inc. Class A with Warrants (a) (d) 280,000 MetLife, Inc. 275,000 PartnerRe Ltd. 83,000 Transatlantic Holdings, Inc. 200,000 The Travelers Companies, Inc. OTHER (6.3%) 325,000 American Express Company 130 Berkshire Hathaway Inc. Class A (a) 1,666,667 Epoch Holding Corporation 650,000 Nelnet, Inc. 337,100 Cephalon, Inc. (a) 529,900 Cytokinetics, Incorporated (a) 119,500 Gilead Sciences, Inc. (a) 655,808 Pfizer Inc. 195,344 Poniard Pharmaceuticals, Inc. (a) (COST $71,719,007) (COST $30,929,988) (COST $113,413,411) (COST $38,914,346) 1,200,000 ABB Ltd. ADR (COST $13,364,456) 22,920,000 HEALTH CARE / PHARMACEUTICALS (4.6%) MACHINERY AND EQUIPMENT (2.7%) 22,982,400 1,368,900 1,033,865 32,382,000 57,767,165 18,524,400 17,373,600 5,195,322 15,895,142 17,757,950 74,746,414 24,293,500 16,872,930 19,697,386 21,857,764 17,328,000 100,049,580 26,866,190 21,300,300 48,166,490 9,350,000 10,033,500 19,383,500 5,257,000 22,538,250 7,812,750 21,420,000 9,758,500 7,500,000 9,898,000 20,531,500 4,325,130 9,972,000 119,013,130 13,169,000 12,896,000 17,416,670 11,199,500 54,681,170 193,077,800 21,041,782 1,542,009 5,170,765 11,929,147 357,480 40,041,183 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 9 - 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 METALS (2.1%) SHARES COMMON STOCKS (Continued) 254,200 Alpha Natural Resources, Inc. (a) 150,000 Nucor Corporation (COST $19,939,605) VALUE (NOTE 1a) $11,027,196 6,997,500 18,024,696 MISCELLANEOUS (5.7%) Other (b) (COST $47,718,963) 49,540,984 OIL AND NATURAL GAS (INCLUDING SERVICES) (13.4%) Apache Corporation 295,478 100,000 Devon Energy Corporation 800,000 Halliburton Company 250,000 McDermott International, Inc. (a) 2,150,000 Weatherford International Ltd. (a) 200,000 XTO Energy Inc. RETAIL TRADE (14.8%) 575,000 Costco Wholesale Corporation 1,775,000 The TJX Companies, Inc. 550,000 Wal-Mart Stores, Inc. 30,484,465 7,350,000 24,072,000 6,002,500 38,506,500 9,306,000 115,721,465 34,022,750 64,876,250 29,397,500 128,296,500 (COST $80,956,754) (COST $50,195,392) SEMICONDUCTORS (2.8%) 700,000 ASML Holding N.V. (COST $17,340,380) 23,863,000 TECHNOLOGY (3.5%) 750,000 International Game Technology 1,900,000 Xerox Corporation (COST $34,368,474) 14,077,500 16,074,000 30,151,500 TRANSPORTATION (0.9%) 236,100 Alexander & Baldwin, Inc. (COST $11,005,032) 8,081,703 TOTAL COMMON STOCKS (112.9%) (COST $744,449,652) 975,416,920 PRINCIPAL AMOUNT CORPORATE DEBT (e) CONSUMER PRODUCTS AND SERVICES (1.1%) SEMICONDUCTORS (1.3%) TECHNOLOGY (1.0%) $9,600,000 Smithfield Foods, Inc., 7.75% due 5/15/2013 (COST $7,715,415) 9,405,600 8,000,000 ASML Holding N.V., 5.75% due 6/13/2017 (COST $7,067,846) 11,301,626 10,000,000 VeriFone Holdings, Inc., 1.375% due 6/15/2012 (COST $5,772,499) 8,650,000 TOTAL CORPORATE DEBT (3.4%) (COST $20,555,760) 29,357,226 SHARES SHORT-TERM SECURITIES AND OTHER ASSETS 52,926,704 SSgA Prime Money Market Fund (6.1%) (COST $52,926,704) 52,926,704 TOTAL INVESTMENTS (f) (122.4%) Liabilities in excess of receivables and other assets (-0.4%) (COST $817,932,116) PREFERRED STOCK (-22.0%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) 1,057,700,850 (3,260,303) 1,054,440,547 (190,117,175) $864,323,372 (a) Non-income producing security. (b) Securities which have been held for less than one year, not previously disclosed, and not restricted. (c) Level 3 fair value measurement, restricted security acquired 11/4/09, note 8. (d) Level 3 fair value measurement, restricted security acquired 11/3/09, note 8. (e) Level 2 fair value measurement, note 8. (f) At December 31, 2009: (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 $293,300,284, (3) aggregate gross unrealized depreciation was $53,531,550, and (4) net unrealized appreciation was $239,768,734. STATEMENT OF OPTION WRITTEN DECEMBER 31, 2009 CONTRACTS PUT OPTION (100 SHARES EACH) COMMON STOCK/EXPIRATION DATE/EXERCISE PRICE VALUE (NOTE 1a) AGRICULTURAL 250 Monsanto Company/January 10/$75.00 (PREMIUM DEPOSITED WITH BROKERS $46,223) $7,500 (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 Equity securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the period. Equity securities reported on the NASDAQ national market are valued at the official closing price on that day. Listed and NASDAQ equity 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. Equity securities traded primarily in foreign markets are valued at the closing price of such securities on their respective exchanges or markets. Corporate debt securities, domestic and foreign, are generally traded in the over-the-counter market rather than on a securities exchange. The Company utilizes the latest bid prices provided by independent dealers and information with respect to transactions in such securities to determine current market value. If, after the close of foreign markets, conditions change significantly, the price of certain foreign securi- ties 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. Special holdings (restricted securities) and other securities for which quotations are not readily available are valued at fair value determined in good faith pursuant to procedures established by and under the general supervision of the Board of Directors. b. OPTIONS The Company may purchase and write (sell) put and call options. The Company typically purchases put options or writes call options to hedge the value of portfolio investments while it typically purchases call options and writes put options to obtain equity market exposure under specified circumstances. The risk associated with purchas- ing 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 are reported as a liability on the Statement of Assets and Liabilities. Those that expire unexercised are treated by the Company on the expiration date as realized gains on written option transactions in the Statement of Operations. 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 on written option transactions in the Statement of Operations. If a call option is exercised, the premium is added to the proceeds from the sale of the under- lying security in determining whether the Company has realized a gain or loss on investments in the Statement of Operations. If a put option is exercised, the premium reduces the cost basis for the securities purchased by the Company and is parenthetically disclosed under cost of investments on the Statement of Assets and Liabilities. 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. See Note 6 for written option activity. C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME 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 ac- crual basis. Cost of short-term investments represents amortized cost. d. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Portfolio securities and other assets and liabilities de- nominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies versus U.S. dollars on the date of valuation. Purchases and sales of securities, income and expense items denominated in for- eign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Company’s Board of Directors. The Company does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statement of Operations. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized be- tween the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign de- nominated assets and liabilities other than investments in securities held at the end of the reporting period. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. companies as a result of, among other factors, the possibility of political or economic instability or the level of governmental supervision and regulation of foreign securities markets. e. DIVIDENDS AND DISTRIBUTIONS The Company expects to pay dividends of net investment income and distributions of net realized capital and currency gains, if any, annually to common shareholders and quarterly to preferred sharehold- ers. Dividends and distributions to common and preferred shareholders, which are determined in accordance with Federal income tax regulations are recorded on the ex-dividend date. Distributions for tax and book purposes are substantially the same. Permanent book/tax differences relating to income and gains are reclassified to paid-in capital as they arise. f. FEDERAL INCOME TAXES The Company’s policy is to fulfill the requirements of the Internal Revenue Code applicable to reg- ulated investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal income taxes is required. As of and during the year ended December 31, 2009, the Company did not have any liabilities for any unrecognized 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 year, the Company did not incur any interest or penalties. 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 1. SIGNIFICANT ACCOUNTING POLICIES - (Continued from previous page.) g. CONTINGENT LIABILITIES Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of a matter that are reasonably estimable and, if so, they are included in the accrual. h. 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. 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, 31,425,215 shares were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on December 31, 2009. 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 accumulated and unpaid dividends to the date of redemption. On December 10, 2008, the Board of Directors authorized the repurchase of up to 1 million Preferred Shares in the open mar- ket at prices below $25.00 per share. A total of 380,013 Preferred Shares were repurchased at an average cost per share of $23.56 during the year ended December 31, 2009. The average discount of $1.44 per Preferred Share, $546,889 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. Under the Investment Company Act of 1940, the Company is required to maintain an asset coverage of at least 200% of the Preferred Stock. In addition, pursuant to Moody’s Investor Service, Inc. Rating Agency Guidelines, the Company is required to maintain a certain discounted asset coverage for its portfolio that equals or exceeds a Basic Maintenance Amount. 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. In addition, failure to meet the foregoing asset coverage requirements could restrict the Company’s 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 presents its Preferred Stock, for which its redemption is outside of the Company’s control, outside of the net assets applicable to Common Stock in the statement of assets and liabilities. Transactions in Common Stock during 2009 and 2008 were as follows: SHARES AMOUNT 2009 2008 2009 2008 Shares issued in payment of dividends and distributions (includes 281,281 and 103,047 shares issued from treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 13.6% and 19.8%, respectively) Decrease in paid-in capital Total decrease Net increase (decrease) 281,281 509,861 $281,281 6,148,807 6,430,088 $509,861 7,418,478 7,928,339 836,938 102,047 (836,938) (18,716,221) (19,553,159) ($13,123,071) (102,047) ( 1,884,641) ( 1,986,688) $5,941,651 At December 31, 2009, the Company held in its treasury 555,657 shares of Common Stock with an aggregate cost in the amount of $13,354,222. 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.) Distributions for tax and book purposes are substantially the same. As of December 31, 2009, distributable earnings on a tax basis included $239,807,457 from unrealized appreciation. Reclassifications arising from permanent “book/tax” differences reflect non-tax deductible expenses incurred during the year ended December 31, 2009. As a result, undistributed net investment income was increased by $1,113 and additional paid-in capital was decreased by $1,113. Net assets were not affected by this reclassification. 3. OFFICERS’ COMPENSATION The aggregate compensation accrued and paid by the Company during the year ended December 31, 2009 to its officers (identified on page 20) amounted to $6,863,500. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (other than short-term securities and options) during 2009 amounted to $236,916,431 and $207,569,760, on long transactions, respectively. 5. BENEFIT PLANS The Company has funded (Qualified) and unfunded (Supplemental) defined contribution thrift plans that are available to its employees. The aggregate cost of such plans for 2009 was $ 1,188,895. 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. The Company recognizes the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statement of assets and liabilities and recognizes changes in funded status in the year in which the changes occur through other compre- hensive income. OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS: DECEMBER 31, 2009 (MEASUREMENT DATE) QUALIFIED SUPPLEMENTAL CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year Service cost Interest cost Benefits paid Actuarial (gains)/losses 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 PLAN PLAN TOTAL $9,534,534 277,950 584,624 (538,394) 474,858 10,333,572 11,433,829 3,004,730 — (538,394) 13,900,165 $3,566,593 $3,195,179 93,365 194,275 (165,253) 30,362 3,347,928 — — 165,253 (165,253) — ($3,347,928) $12,729,713 371,315 778,899 (703,647) 505,220 13,681,500 11,433,829 3,004,730 165,253 (703,647) 13,900,165 $218,665 Accumulated benefit obligation at end of year $9,499,823 $3,128,155 $12,627,978 CHANGE IN FUNDED STATUS: Noncurrent benefit asset LIABILITIES Current benefit liability Noncurrent benefit liability BEFORE $1,899,294 ADJUSTMENTS $1,667,299 AFTER $3,566,593 268,218 2,926,960 (75,583) 228,332 192,635 3,155,292 ACCUMULATED OTHER COMPREHENSIVE INCOME 6,776,609 (1,911,451) 4,865,158 AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF: Net actuarial gain Prior service cost WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 2009 AND FOR DETERMINING NET PERIODIC BENEFIT COST FOR THE YEAR ENDED DECEMBER 31, 2009: 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 $6,461,679 314,930 $6,776,609 ($1,884,525) (26,926) ($1,911,451) $4,577,154 288,004 $4,865,158 5.75% 7.20% 4.25% $277,950 584,624 (968,837) 24,669 353,851 $272,257 5.75% N/A 4.25% $93,365 194,275 — 2,257 — $289,897 $371,315 778,899 (968,837) 26,926 353,851 $562,154 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. BENEFIT PLANS - (Continued from previous page.) PLAN ASSETS The Company’s qualified pension plan asset allocations by asset at December 31, 2009, is as follows: ASSET CATEGORY Equity securities Debt securities Other Total 82% — 18 100% Generally, not less than 80% of plan assets are invested in investment companies that invest in equity securities. EXPECTED CASH FLOWS Qualified Supplemental Expected Company contributions for 2010 Expected benefit payments: 2010 2011 2012 2013 2014 2015-2019 Plan — Plan $192,635 Total $192,635 $563,621 587,661 598,057 636,715 687,177 3,521,763 $192,635 205,650 209,338 217,742 221,905 1,084,758 $756,256 793,311 807,395 854,457 909,082 4,606,521 6. WRITTEN OPTIONS Transactions in written covered call and collateralized put options during the year ended December 31, 2009 were as follows: Options written Options expired Options exercised Options terminated in closing purchase transaction Options outstanding, December 31, 2009 Covered Calls Collateralized Puts Contracts 9,295 (3,376) (3,619) (2,300) 0 Premiums $1,444,184 (446,663) (474,577) (522,944) $0 Contracts 650 (150) (250) — 250 Premiums $180,399 (29,954) (104,222) — $46,223 7. OPERATING LEASE COMMITMENT In September 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 construc- tion 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. Rental expense approximated $1,083,800 for the year ended December 31, 2009. Minimum rental commitments under the oper- ating lease are approximately $1,075,000 per annum in 2010 through 2012, $1,183,000 in 2013 through 2017, and $99,000 in 2018. 8. 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, 2009: Assets Common stocks Corporate debt Money market fund Total Liabilities Options written Level 1 $958,566,920 — 52,926,704 $1,011,493,624 Level 2 — $29,357,226 — $29,357,226 Level 3 $16,850,000 — — $16,850,000 Total $975,416,920 29,357,226 52,926,704 $1,057,700,850 ($7,500) — — ($7,500) The aggregate value of Level 3 portfolio investments changed during the twelve months ended December 31, 2009 as follows: Change in Portfolio Valuations using Significant Unobservable Inputs (Level 3) Acquisition of Level 3 assets Included in net change in unrealized depreciation on investments Fair value at December 31, 2009 $17,500,000 (650,000) $16,850,000 The amount of net unrealized gain included in the results of operations attributable to Level 3 assets held at December 31, 2009 and reported within the caption Net change in unrealized appreciation/depreciation in the Statement of Operations: $650,000 9. LITIGATION The Company is subject to a legal action arising from a construction worker’s personal injury that is covered under the terms of its insurance policies. Defense and legal costs are being funded by the insurer; damages are unspecified at this time. No liabilities or expenses have been incurred by the Company to date. 10. SUBSEQUENT EVENTS Subsequent events have been evaluated through February 3, 2010, the date the financial statements were available to be issued. There are no events to report subsequent to December 31, 2009. 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, 2009. This information has been derived from information contained in the financial statements and market price data for the Company’s shares. 2009 2008 2007 2006 2005 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 Distributions from return of capital 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 Distributions from return of capital $21.09 .11 6.94 .07 (.11) (.05) (.19) (.01) (.36) 6.76 (.10) (.05) (.19) (.01) (.35) $38.10 .42 (16.15) (.25) (.11) — (.27) — (.38) (16.36) (.19) — (.46) — (.65) $40.54 .31 $39.00 .34 $35.49 .19 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) Net asset value, end of year Per share market value, end of year $27.50 $23.46 $21.09 $17.40 $38.10 $34.70 $40.54 $37.12 $39.00 $34.54 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share 36.86% (48.20%) 8.72% 16.78% 17.40% RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, end of year (000’s omitted) $864,323 $674,598 $1,202,923 $1,199,453 $1,132,942 Ratio of expenses to average net assets applicable to Common Stock 1.93% 0.87% 1.11% 1.06% 1.25% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 0.46% 24.95% 1.31% 25.52% 0.78% 31.91% 0.86% 19.10% 0.51% 20.41% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share $190,117 555% $25.00 $24.53 $199,617 438% $200,000 701% $200,000 700% $200,000 666% $25.00 $21.90 $25.00 $21.99 $25.00 $24.44 $25.00 $24.07 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, 2009, and the related statement of operations for the year then ended, the statement of 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, 2009, 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, 2009, the results of its oper- ations for the year then ended, 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 con- formity with U.S. generally accepted accounting principles. New York, New York February 3, 2010 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 (67) 1994 Chairman of the Board since 2007 President and Chief Executive Officer of the Company since 1995 Sally A. Lynch, Ph.D. (50) Vice-President of the 1997 Company since 2006 securities analyst (biotechnology industry) Andrew V. Vindigni (50) Senior Vice-President of the Michael W. Robinson (37) Vice-President of the 1988 Company since 2006 Vice-President 1995-2006 securities analyst (financial services and consumer non-durables industries) 2006 Company since 2010 securities analyst (general industries) Diane G. Radosti (57) Treasurer of the Eugene S. Stark (51) Vice-President, Administration 1980 2005 Jesse Stuart (43) 2003 Carole Anne Clementi (63) Secretary of the 1982 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 the 1991 Craig A. Grassi (41) Company since 2006 securities analyst (general industries) Maureen E. LoBello (59) 1992 Company since 1990 Principal Accounting Officer since 2003 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 second Wednesday in April. The address for each officer is the Company’s office. Other directorships and affiliations for Mr. Davidson are shown in the listing of Directors on 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 Previous purchases of the Company’s Common and Preferred Stock are set forth in Note 2, on pages 15 and 16. Prospective pur- chases 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, 2009 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, 2009, 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. (45) 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 (64) 2007 Founding Partner Berens Capital Management, LLC Lewis B. Cullman (91) 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 Municipal Arts Society, 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 Member, Professor and Chairman of the Neurosciences Institute of the Neurosciences Research Gerald M. Edelman (80) 1976 John D. Gordan, III (64) 1986 Betsy F. Gotbaum (71) 2010 Sidney R. Knafel (79) 1994 Department of Neurobiology The Scripps Research Institute Partner Morgan, Lewis & Bockius LLP (lawyers) New York City’s Public Advocate (January 2002-December 2009) Lead Independent Director since April 2009 Managing Partner SRK Management Company (private investment company) Daniel M. Neidich (60) 2007 Chief Executive Officer Dune Real Estate Partners D. Ellen Shuman (54) 2004 Founding Partner and Co-Chief Executive Officer Dune Capital Management LP (March 2005-December 2009) Vice President and Chief Investment Officer Carnegie Corporation of New York Raymond S. Troubh (83) 1989 Financial Consultant INTERESTED DIRECTOR Spencer Davidson (67) 1995 Chairman of the Board President and Chief Executive Officer General American Investors Company, Inc. 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 Prep for Prep, Director Real Estate Roundtable, Chairman Elect Urban Land Institute, Trustee Bowdoin College, Trustee Edna McConnell Clark Foundation, Investment Advisor 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 second Wednesday in April. The address for each Director is the Company’s office. 

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