GAM Holding AG
Annual Report 2010

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 1 0 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 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. 2010 2009 $950,940,936 5,626,730 19,636,107 109,245,534 (11,311,972) $31.26 $26.82 -14.2% 30,423,294 3,504 $26.85-$21.01 13,189,863 $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 DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Return of Capital Total Common Stock Nov. 12, 2010 Dec. 23, 2010 $.113718 (a) $.316282 $.430000 Total from 2010 earnings (a) Includes short-term gains in the amount of $.033411 per share. Nov. 13, 2009 Dec. 28, 2009 $.153697 (b) $.186135 $.010168 $.350000 Total from 2009 earnings (b) Includes short-term gains in the amount of $.050416 per share. Preferred Stock Mar. 8, 2010 Jun. 7, 2010 Sept. 7, 2010 Dec. 7, 2010 Total for 2010 Mar. 24, 2010 Jun. 24, 2010 Sept. 24, 2010 Dec. 27, 2010 $.098348 .098348 .098348 .098348 $.393392 (c) $.273527 .273527 .273527 .273527 $1.094108 $.371875 .371875 .371875 .371875 $1.487500 (c) Includes short-term gains in the amount of $.115577 per share ($.02889425 per quarter). 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 (d) $.197768 .197768 .197768 .197768 $.791072 $.010804 .010804 .010804 .010804 $.043216 $.371875 .371875 .371875 .371875 $1.487500 (d) Includes short-term gains in the amount of $.21426756 per share ($.05356689 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 General American Investors’ net asset value (NAV) per Common Share (assuming reinvestment of all dividends) increased 15.3% for the year ended December 31, 2010. The U.S. stock market was up 15.1% 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 16.2% and the discount at which our shares traded to their NAV continued to fluctuate and on December 31, 2010, it was 14.2%. 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 -6.2% -4.6% -2.9% 0.9 2.6 11.9 12.1 12.5 12.0 1.0 2.7 11.5 12.3 12.6 12.2 2.2 1.4 9.1 10.7 10.1 9.7 The market rally that began in the first part of 2009 continued through this year, with our portfolio partici- pating fully in its rewards. Progress was uneven, but confidence improved markedly in the second half of the year as the fear of a double-dip recession receded and a bipartisan agreement on taxes was achieved. While the Fed’s effort to stabilize the housing market, and hence consumer wealth, was not entirely success- ful, the massive liquidity created in the process was supportive of equities. Easier financial conditions buoyed consumer confidence, as reflected in holiday sales and a resurgent automobile industry. We enter the new year with Asia continuing to boom, Europe growing modestly, and domestic economic ex- pansion more secure. Profit margins, while elevated, are likely to be maintained owing to an abundance of capacity that exists in many parts of the economy. Wage pressures should remain muted, reflecting the prospect of stubbornly high unemployment in an envi- ronment impacted by globalization and rapid technological change. While it seems evident in the long-term that a solution to America’s sizeable budget and trade deficits, short of selling more bonds and printing more money, must be found, such concerns may well be superseded by the fear of inflation and constraints on trade as the year unfolds. With the price of oil flirting with $100 once again and commodity costs driving a surge in the price of food and other products, most notably in Asia, the investing environment could become more volatile. Equity valuations appear to be reasonable, if not com- pelling, supported by agreeable interest rates, as the dollar’s relative strength continues to facilitate the Fed’s easy money stance. Additionally, we are encour- aged by the willingness of companies to raise dividends, buy back shares or even to break themselves apart in order to create shareholder value. In this environment, we remain confident that the companies in our portfo- lio possess the requisite characteristics to generate superior performance. As part of an ongoing effort to maximize shareholder value, over 4% of the Company’s shares were repurchased in 2010 at an average discount to NAV of 14.6%. 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 2010, 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. 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 19, 2011 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 2010, the stock sold at discounts to NAV which ranged from 11.5% (May 4) to 16.4% (July 22). At December 31, the price of the stock was at a discount of 14.2%. 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. Ordinarily, if any additional capital gains are realized and available or ordinary in- come is earned during the last two months of the year, a "spill-over" distribution of these amounts may be paid. Dividends and distribu- tions 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 1943-2010 (except for the year 1974). (A table listing dividends and distributions paid during the 20-year period 1991-2010 is shown at the bottom of page 4.) 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, 2010 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, 2010 The investment return for a Common Stockholder of General American Investors (GAM) over the 20 years ended December 31, 2010 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 illustration assumes an investment of $10,000 at the beginning of 1991. Stockholder Return is the return a Common Stock holder of GAM would have achieved assum- ing reinvestment of all dividends and distributions at the actual reinvestment 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 rein- vestment 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, includ- ing dividend income. Past performance may not be indicative of future results. GENERAL AMERICAN INVESTORS STANDARD & POOR’S 500 STOCKHOLDER RETURN NET ASSET VALUE RETURN RETURN CUMULATIVE INVESTMENT $18,500 ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN 85.00% $16,109 61.09% $13,040 30.40% 21,234 17,854 16,450 19,941 23,826 33,971 44,607 62,102 73,964 77,166 56,169 71,341 77,611 91,116 106,405 115,684 59,924 82,012 95,331 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 16.24 16,681 16,389 15,940 19,699 23,632 31,206 42,172 57,523 67,670 66,858 51,467 65,570 72,369 84,093 94,386 101,946 58,089 76,724 88,470 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 15.31 14,030 15,450 15,646 21,513 26,442 35,254 45,320 54,819 49,836 43,910 34,188 43,953 48,695 51,047 59,041 62,235 39,164 49,524 56,983 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 15.06 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 1 - 2 0 1 0 ) ( U N A U D I T E D ) EARNINGS SOURCE EARNINGS SOURCE SHORT-TERM LONG-TERM RETURN OF SHORT-TERM LONG-TERM RETURN OF YEAR INCOME CAPITAL GAINS CAPITAL GAINS CAPITAL YEAR INCOME CAPITAL GAINS CAPITAL GAINS CAPITAL 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 $.09 .03 .06 .06 .10 .20 .21 .47 .42 .48 — — — — $.03 .05 — — .62 1.55 $3.07 2.93 2.34 1.59 2.77 2.71 2.95 4.40 4.05 6.16 — — — — — — — — — — 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $.37 .03 .02 .217 .547 .334 .706 .186 .103 .081 $.64 — — — .041 — .009 — .051 .033 $1.37 .33 .59 .957 1.398 2.666 5.25 .254 .186 .316 — — — — — — — — $.01 — 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. 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 COMPARATIVE ANNUALIZED INVESTMENT RESULTS YEARS ENDED DECEMBER 31, 2010 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year 5 years 10 years 15 years 20 years 16.2 % 15.3 % 15.1 % 0.9 2.6 11.0 11.9 1.0 2.7 10.5 11.5 2.2 1.4 6.7 9.1 GAM STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 1 0 ( U N A U D I T E D ) NEW POSITIONS ADDITIONS ELIMINATIONS REDUCTIONS The diversification of the Company’s net assets applic- able to its Common Stock by industry group as of December 31, 2010 is shown in the table. 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 Aon Corporation Apple Inc. Celgene Corporation MSCI Inc. Class A American Express Company Microsoft Corporation PepsiCo, Inc. Republic Services, Inc. Unilever N.V. DECREASES SHARES OR PRINCIPAL AMOUNT TRANSACTED SHARES OR PRINCIPAL AMOUNT HELD 330,490 (b) — 100,000 — 50,000 200,000 15,000 8,100 104,917 330,490 60,000 (c) 200,000 (c) 300,000 (c) 375,000 770,000 315,000 957,100 654,917 — — — — 224,200 189,762 575,000 1,015,000 245,000 780,000 275,000 590,000 260,000 360,000 Hewitt Associates, Inc. Class A Leap Wireless International, Inc. Smithfield Foods, Inc. Corporate Bond 7.75% Due 5/15/2013 VeriFone Holdings, Inc. Corporate Bond 1.375% Due 6/15/2012 466,100 (d) 78,000 $9,600,000 $10,000,000 Alpha Natural Resources, Inc. Alexander & Baldwin, Inc. ASML Holding N.V. Dell Inc. Everest Re Group, Ltd. Halliburton Company MetLife, Inc. Nelnet, Inc. PartnerRe Ltd. Teradata Corporation 40,000 46,338 125,000 275,000 5,000 20,000 5,000 13,500 5,000 90,000 (a) Common shares unless otherwise noted; excludes transactions in Common Stocks -Miscellaneous - Other. (b) Shares received in a merger with Hewitt Associates, Inc. Class A. (c) Shares purchased in prior period and previously carried under Common Stocks - Miscellaneous - Other. (d) Position eliminated as a result of a merger with Aon Corporation. 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 Finance and Insurance Banking Insurance Other Retail Trade Oil and Natural Gas (Including Services) Consumer Products and Services Computer Software and Systems Health Care/Pharmaceuticals Communications and Information Services Environmental Control (Including Services) Miscellaneous** Machinery and Equipment Technology Aerospace/Defense Semiconductors Building and Real Estate Metals Transportation Short-Term Securities Total Investments Other Assets and Liabilities - Net Preferred Stock Net Assets Applicable to Common Stock COST(000) VALUE(000) PERCENT COMMON NET ASSETS* DECEMBER 31, 2010 $29,925 56,173 39,168 125,266 70,763 66,686 68,654 84,087 71,961 47,448 39,191 47,148 24,526 34,369 22,957 13,464 23,385 16,055 8,650 764,610 31,498 $796,108 $40,183 114,131 84,411 238,725 156,568 126,428 93,439 91,651 70,312 65,752 51,807 47,668 40,050 35,155 25,584 22,045 20,851 20,032 7,596 1,113,663 31,498 1,145,161 (4,103) (190,117) $950,941 4.3% 12.0 8.9 25.2 16.5 13.3 9.8 9.6 7.4 6.9 5.4 5.0 4.2 3.7 2.7 2.3 2.2 2.1 0.8 117.1 3.3 120.4 (0.4) (20.0) 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. 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, 2010, shown on pages 8 and 9 includes 57 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* 1,632,400 $72,462,236 7.6% 2,150,000 49,020,000 5.2 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. 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. 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. 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 an attractive long-term return on investment capital and strong shareholder appreciation. 575,000 41,520,750 4.4 296,478 35,349,072 3.7 700,000 34,643,000 3.6 780,000 31,847,400 3.4 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. 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. ABB LTD. ADR ABB provides power and automation technologies to customers around the world. ABB should benefit from the building of electrical systems in developing countries and the replacement of outdated infrastructure in developed countries. *Net assets applicable to the Company’s Common Stock. 550,000 29,661,500 3.1 957,100 28,579,006 3.0 315,000 27,735,750 2.9 1,200,000 26,940,000 2.8 $377,758,714 39.7% 8 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 1 0 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 VALUE (NOTE 1a) 325,000 United Technologies Corporation (COST $22,957,205) $25,584,000 1,946,880 CEMEX, S.A.B. de C.V. ADR (a)* (COST $23,385,068) 20,851,085 AEROSPACE/DEFENSE (2.7%) BUILDING AND REAL ESTATE (2.2%) COMMUNICATIONS AND INFORMATION SERVICES (6.9%) 960,000 Cisco Systems, Inc. (a) 300,000 MSCI Inc. Class A (a) 700,000 QUALCOMM Incorporated COMPUTER SOFTWARE AND SYSTEMS (9.6%) 60,000 Apple Inc. (a) 1,015,000 Dell Inc. (a) 770,000 Microsoft Corporation 168,100 NetEase.com, Inc. (a) 55,000 Nintendo Co., Ltd. 360,000 Teradata Corporation (a) CONSUMER PRODUCTS AND SERVICES (9.8%) 350,000 Diageo plc ADR* 450,000 Nestle S.A. 315,000 PepsiCo, Inc. 654,917 Unilever N.V. ENVIRONMENTAL CONTROL (INCLUDING SERVICES) (5.4%) 957,100 Republic Services, Inc. 630,000 Waste Management, Inc. FINANCE AND INSURANCE (24.9%) BANKING (4.0%) 500,000 Bond Street Holdings LLC (a) (b) 425,000 JPMorgan Chase & Co. 110,000 M&T Bank Corporation (COST $47,448,300) (COST $84,086,757) (COST $68,654,249) (COST $39,190,474) (COST $27,690,799) INSURANCE (12.0%) 315,000 Arch Capital Group Ltd. (a) 245,000 Everest Re Group, Ltd. 700,000 Fidelity National Financial, Inc. 37,500 Forethought Financial Group, Inc. Class A with Warrants (a) (c) 275,000 MetLife, Inc. 260,000 PartnerRe Ltd. 83,000 Transatlantic Holdings, Inc. 200,000 The Travelers Companies, Inc. OTHER (8.9%) 375,000 American Express Company 330,490 Aon Corporation 110 Berkshire Hathaway Inc. Class A (a) 1,666,667 Epoch Holding Corporation 590,000 Nelnet, Inc. HEALTH CARE / PHARMACEUTICALS (7.4%) 200,000 Celgene Corporation (a) 382,100 Cephalon, Inc. (a) 529,900 Cytokinetics, Incorporated (a) 564,500 Gilead Sciences, Inc. (a) 755,808 Pfizer Inc. 195,344 Poniard Pharmaceuticals, Inc. (a) MACHINERY AND EQUIPMENT (4.2%) 1,200,000 ABB Ltd. ADR* 1,000,000 The Manitowoc Company, Inc. (COST $56,173,146) (COST $39,167,898) (COST $123,031,843) (COST $71,961,454) (COST $24,525,812) 19,420,800 11,688,000 34,643,000 65,751,800 19,353,600 13,753,250 21,490,700 6,076,815 16,158,920 14,817,600 91,650,885 26,015,500 26,384,130 20,578,950 20,460,026 93,438,606 28,579,006 23,228,100 51,807,106 10,050,000 18,028,500 9,575,500 37,654,000 27,735,750 20,780,900 9,576,000 7,500,000 12,221,000 20,891,000 4,284,460 11,142,000 114,131,110 16,095,000 15,205,845 13,249,500 25,883,338 13,977,100 84,410,783 236,195,893 11,828,000 23,583,212 1,107,491 20,457,480 13,234,198 101,579 70,311,960 26,940,000 13,110,000 40,050,000 9 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 1 0 - 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%) COMMON STOCKS (Continued) SHARES 224,200 Alpha Natural Resources, Inc. (a) 150,000 Nucor Corporation (COST $16,054,563) VALUE (NOTE 1a) $13,458,726 6,573,000 20,031,726 MISCELLANEOUS (5.0%) Other (d) (COST $47,147,991) 47,667,807 OIL AND NATURAL GAS (INCLUDING SERVICES) (13.3%) Apache Corporation 296,478 130,062 Devon Energy Corporation 780,000 Halliburton Company 2,150,000 Weatherford International Ltd. (a) RETAIL TRADE (16.5%) 575,000 Costco Wholesale Corporation 400,000 1,632,400 J.C. Penney Company, Inc. The TJX Companies, Inc. 550,000 Wal-Mart Stores, Inc. 35,349,072 10,211,168 31,847,400 49,020,000 126,427,640 41,520,750 12,924,000 72,462,236 29,661,500 156,568,486 (COST $66,685,797) (COST $70,763,323) SEMICONDUCTORS (2.3%) 575,000 ASML Holding N.V. (COST $13,463,950) 22,045,500 TECHNOLOGY (3.7%) 750,000 International Game Technology 1,900,000 Xerox Corporation (COST $34,368,474) 13,267,500 21,888,000 35,155,500 TRANSPORTATION (0.8%) 189,762 Alexander & Baldwin, Inc. (COST $8,650,439) 7,596,173 TOTAL COMMON STOCKS (116.8%) (COST $762,375,699) 1,111,134,167 BANKING (0.3%) WARRANTS WARRANT 175,000 JPMorgan Chase & Co. Expires 10/28/2018 (a) (COST $2,234,227) 2,528,750 SHORT-TERM SECURITIES AND OTHER ASSETS SHARES 31,497,764 SSgA Prime Money Market Fund (3.3%) (COST $31,497,764) 31,497,764 TOTAL INVESTMENTS (e) (120.4%) Liabilities in excess of receivables and other assets (-0.4%) (COST $796,107,690) PREFERRED STOCK (-20.0%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) 1,145,160,681 (4,102,570) 1,141,058,111 (190,117,175) $950,940,936 * ADR - American Depository Receipt (a) Non-income producing security. (b) Level 3 fair value measurement, restricted security acquired 11/4/09, aggregate cost $10,000,000, unit cost is $20.00 and fair value is $20.10 per share, note 2. Fair value is based upon bid and transaction prices provided via the NASDAQ OMX PORTAL Alliance trading and transfer system for privately placed equity securities traded in the over-the-counter market among qualified investors and an evaluation of book value per share. (c) Level 3 fair value measurement, restricted security acquired 11/3/09, aggregate cost $7,500,000, unit cost and fair value is $200.00 per share,note 2. Fair valuation is based upon a market approach using valuation metrics (market price-earnings and market price-book value multiples), and changes therein, relative to a peer group of companies established by the underwriters. (d) Securities which have been held for less than one year, not previously disclosed, and not restricted. (e) At December 31, 2010: (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 $374,670,047, (3) aggregate gross unrealized depreciation was $25,617,056, and (4) net unrealized appreciation was $349,052,991. (see notes to financial statements) 10 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, 2010 INVESTMENTS, AT VALUE (NOTE 1a) Common stocks (cost $762,375,699) Warrant (cost $2,234,227) Money market fund (cost $31,497,764) Total investments (cost $796,107,690) RECEIVABLES AND OTHER ASSETS Cash Dividends, interest and other receivables Qualified pension plan asset, net excess funded (note 7) Prepaid expenses and other assets TOTAL ASSETS LIABILITIES Accrued preferred stock dividend not yet declared Accrued supplemental pension plan liability (note 7) Accrued supplemental thrift plan liability (note 7) 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 5) NET ASSETS APPLICABLE TO COMMON STOCK - 30,423,294 (note 5) NET ASSET VALUE PER COMMON SHARE NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 30,423,294 shares at par value (note 5) Additional paid-in capital (note 5) Undistributed realized loss on securities sold Undistributed net investment income (note 5) Accumulated other comprehensive income (loss) (note 7) Unallocated distributions on Preferred Stock Unrealized appreciation on investments and options NET ASSETS APPLICABLE TO COMMON STOCK (see notes to financial statements) $1,111,134,167 2,528,750 31,497,764 1,145,160,681 23,503 868,194 3,890,348 2,513,773 1,152,456,499 219,955 3,757,450 3,011,296 4,409,687 11,398,388 190,117,175 $950,940,936 $31.26 $30,423,294 572,919,395 (135,312) 3,721,504 (4,820,981) ( 219,955) 349,052,991 $950,940,936 11 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 $589,410) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Auditing and legal fees Directors’ fees and expenses Miscellaneous taxes Transfer agent, custodian and registrar fees and expenses Stockholders’ meeting and reports TOTAL EXPENSES NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 2010 $16,134,911 2,682,021 18,816,932 7,414,909 3,012,116 1,660,435 303,500 271,311 236,450 148,314 143,167 13,190,202 5,626,730 Realized Gain And Change In Unrealized Appreciation On Investments (Notes 1, 3 and 4) Net realized gain on investments: Securities transactions (long-term, except for $1,712,872) Written option transactions (notes 1b and 4) Net increase in unrealized appreciation NET INVESTMENT INCOME AND GAIN ON INVESTMENTS DISTRIBUTIONS TO PREFERRED STOCKHOLDERS INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (see notes to financial statements) 19,475,376 160,731 19,636,107 109,245,534 134,508,371 (11,311,972) $123,196,399 12 S T A T E M E N T O F C H A N G E S I N N E T A S S E T S G e n e r a l A m e r i c a n I n v e s t o r s OPERATIONS Net investment income Net realized gain on investments Net increase in unrealized appreciation Distributions to Preferred Stockholders: From net 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, 2010 2009 $5,626,730 19,636,107 109,245,534 134,508,371 $3,400,143 15,219,812 204,253,481 222,873,436 (2,112,684) (878,926) (8,320,362) — — (11,311,972) ( 3,389,107) (1,654,369) (6,107,907) (333,668) 11,047 (11,474,004) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 123,196,399 211,399,432 OTHER COMPREHENSIVE INCOME Funded status of defined benefit plans (note 7) 44,177 1,911,451 DISTRIBUTIONS TO COMMON STOCKHOLDERS From net investment income From short-term capital gains From long-term capital gains Return of capital (2,427,967) (1,010,091) (9,562,040) — (3,248,669) (1,585,814) (5,854,806) (319,841) DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (13,000,098) (11,009,130) CAPITAL SHARE TRANSACTIONS (NOTE 5) 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 DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE IN NET ASSETS NET ASSETS APPLICABLE TO COMMON STOCK 7,219,220 (30,842,134) 6,430,088 (19,553,159) — 546,889 (23,622,914) (12,576,182) 86,617,564 189,725,571 BEGINNING OF YEAR 864,323,372 674,597,801 END OF YEAR (including undistributed net investment income of $3,721,504 and $2,522,662, respectively) $950,940,936 $864,323,372 (see notes to financial statements) 13 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 table shows per share operating perfor- mance data, total investment return, ratios and supplemental data for each year in the five- year period ended December 31, 2010. This information has been derived from information contained in the financial statements and market price data for the Company’s shares. 2010 2009 2008 2007 2006 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 $27.50 .19 $21.09 .11 4.37 — 4.56 (.07) (.03) (.27) — (.37) 4.19 (.08) (.03) (.32) — (.43) 6.94 .07 7.12 (.11) (.05) (.19) (.01) (.36) 6.76 (.10) (.05) (.19) (.01) (.35) $38.10 .42 (16.15) (.25) (15.98) (.11) — (.27) — (.38) (16.36) (.19) — (.46) — (.65) Net asset value, end of year Per share market value, end of year $31.26 $26.82 $27.50 $23.46 $21.09 $17.40 $40.54 .31 $39.00 .34 3.39 .02 3.72 (.02) (.03) (.36) — (.41) 3.31 (.33) (.38) 4.72 .03 5.09 (.04) (.01) (.36) — (.41) 4.68 (.29) (.04) (5.04) — (5.75) $38.10 $34.70 (2.81) — (3.14) $40.54 $37.12 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share 16.24% 36.86% (48.20%) 8.72% 16.78% RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, end of year (000’s omitted) $950,941 $864,323 $674,598 $1,202,923 $1,199,453 Ratio of expenses to average net assets applicable to Common Stock 1.54% 1.93% 0.87% 1.11% 1.06% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 0.66% 18.09% 0.46% 24.95% 1.31% 25.52% 0.78% 31.91% 0.86% 19.10% PREFERRED STOCK Liquidation value, end of year (000’s omitted) Asset coverage Liquidation preference per share Market value per share (see notes to financial statements) $190,117 600% $25.00 $24.95 $190,117 555% $199,617 438% $200,000 701% $200,000 700% $25.00 $24.53 $25.00 $21.90 $25.00 $21.99 $25.00 $24.44 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 4 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, 2010, 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. 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, 2010: Assets Common stocks Warrant Money market fund Total Level 1 $1,093,584,167 2,528,750 31,497,764 $1,127,610,681 Level 2 — — — — Level 3 $17,550,000 — — $17,550,000 Total $1,111,134,167 2,528,750 31,497,764 $1,145,160,681 The aggregate value of Level 3 portfolio investments changed during the twelve months ended December 31, 2010 as follows: Change in portfolio valuations using significant unobservable inputs (Level 3) F a i r value at December 31, 2009 Net change in unrealized appreciation on investments F a i r value at December 31, 2010 Level 3 $16,850,000 700,000 $17,550,000 The amount of net unrealized gain included in the results of operations attributable to Level 3 assets held at December 31, 2010 and reported within the caption Net change in unrealized appreciation/depreciation in the Statement of Operations: $700,000 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (other than short-term securities and options) during 2010 amounted to $180,720,253 and $200,591,115, on long transactions, respectively. 4. WRITTEN OPTIONS Transactions in written covered call and collateralized put options during the year ended December 31, 2010 were as follows: Options outstanding, December 31, 2009 Options written Options expired Options outstanding, December 31, 2010 Covered Calls Collateralized Puts Contracts — 1,955 (1,955) 0 Premiums — $343,502 (343,502) $0 Contracts 250 — (250) 0 Premiums $46,223 — (46,223) $0 5. 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, 30,423,294 shares were issued and outstanding; 8,000,000 Preferred Shares were originally issued and 7,604,687 were outstanding on December 31, 2010. 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. 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. 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. CAPITAL STOCK AND DIVIDEND DISTRIBUTIONS - (Continued from previous page.) Under the Investment Company Act of 1940, the Company is required to maintain an asset coverage of at least 200% of the Preferred Stock. In addition, pursuant to Moody’s Investor Service, Inc. Rating Agency Guidelines, the Company is required to main- tain 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, gen- erally, vote together with the holders of Common Stock as a single class. 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 dividends on the Preferred Stock in an amount equal to two full years’ dividends, the holders of Preferred Stock will have the right to elect a majority of the directors. In addition, the Investment Company Act of 1940 requires that approval of the holders of a majority of any outstanding Preferred Shares, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the Preferred Stock and (b) take any action requiring a vote of security holders, including, among other things, changes in the Company’s subclassi- fication 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 2010 and 2009 were as follows: SHARES AMOUNT 2010 2009 2010 2009 Shares issued in payment of dividends and distributions (includes 277,555 and 281,281 shares issued from treasury, respectively) Increase in paid-in capital Total increase Shares purchased (at an average discount from net asset value of 14.6% and 13.6%, respectively) Decrease in paid-in capital Total decrease Net decrease 277,555 281,281 $277,555 6,941,665 7,219,220 $281,281 6,148,807 6,430,088 1,279,476 836,938 (1,279,476) (29,562,658) (30,842,134) ($23,622,914) (836,938) (18,716,221) (19,553,159) ($13,123,071) At December 31, 2010, the Company held in its treasury 1,557,578 shares of Common Stock with an aggregate cost in the amount of $37,302,822. Distributions for tax and book purposes are substantially the same. As of December 31, 2010, distributable earnings on a tax basis included $349,052,991 from unrealized appreciation. Reclassifications arising from permanent “book/tax” differences reflect non-tax deductible expenses incurred during the year ended December 31, 2010. As a result, undistributed net investment income was increased by $112,763 and additional paid-in capital was decreased by $112,763. Net assets were not affected by this reclassification. 6. OFFICERS’ COMPENSATION The aggregate compensation accrued and paid by the Company during the year ended December 31, 2010 to its officers (identified on page 20) amounted to $6,793,000. 7. 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 2010 was $743,113. The qualified thrift plan acquired 35,449 shares of the Company’s Common Stock during the year ended December 31, 2010 and held 552,135 shares of the Company’s Common Stock at December 31, 2010. 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. 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 7. BENEFIT PLANS - (Continued from previous page.) OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS: CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year Service cost Interest cost Benefits paid Actuarial (gains)/losses 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 DECEMBER 31, 2010 (MEASUREMENT DATE) QUALIFIED SUPPLEMENTAL PLAN PLAN TOTAL $10,333,572 301,470 598,073 (572,732) 983,014 11,643,397 13,900,164 2,206,313 — (572,732) 15,533,745 $3,890,348 $3,347,928 97,773 193,844 (174,387) 292,292 3,757,450 — — 174,387 (174,387) — ($3,757,450) $13,681,500 399,243 791,917 (747,119) 1,275,306 15,400,847 13,900,164 2,206,313 174,387 (747,119) 15,533,745 $132,898 Accumulated benefit obligation at end of year $10,659,798 $3,432,054 $14,091,852 CHANGE IN FUNDED STATUS: Noncurrent benefit asset LIABILITIES Current benefit liability Noncurrent benefit liability BEFORE $3,566,593 ADJUSTMENTS $323,755 AFTER $3,890,348 — — (219,784) (3,537,666) (219,784) ( 3,537,666) ACCUMULATED OTHER COMPREHENSIVE INCOME 4,865,158 (44,177) 4,820,981 AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF: Net actuarial gain Prior service cost WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 2010 AND FOR DETERMINING NET PERIODIC BENEFIT COST FOR THE YEAR ENDED DECEMBER 31, 2010: 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 $4,577,154 288,004 $4,865,158 $1,833 (46,010) ($44,177) $4,578,987 241,994 $4,820,981 5.75% 7.50% 4.25% $301,470 598,073 (1,135,259) 45,837 202,420 $12,541 5.75% N/A 4.25% $97,773 193,844 — 173 — $291,790 $399,243 791,917 (1,135,259) 46,010 202,420 $304,331 PLAN ASSETS The Company’s qualified pension plan asset allocation by asset class at December 31, 2010, is as follows: ASSET CATEGORY Equity securities Debt securities Money Market Fund Total LEVEL 1 $11,533,256 1,020,688 625,556 $13,179,500 LEVEL 2 $2,514,276 — — $2,514,276 EXPECTED CASH FLOWS QUALIFIED PLAN SUPPLEMENTAL PLAN Expected Company contributions for 2011 Expected benefit payments: 2011 2012 2013 2014 2015 2016-2020 — $603,905 629,360 680,337 740,358 770,357 3,949,747 $219,784 $219,784 237,497 254,341 259,674 260,759 1,283,550 LEVEL 3 — — — — TOTAL $14,047,532 1.020,688 625,556 $15,693,776 TOTAL $219,784 $823,689 866,857 934,678 1,000,032 1,031,116 5,233,297 18 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 8. 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 claus- es whereby the Company receives free rent for a specified number of months and credit towards construction of office improvements, and incurs escalations annually relating to operating costs and real property taxes and to annual rent charges beginning in February 2013. The Company has the option to renew the lease after February 2018 for five years at market rates. Rental expense approximated $1,101,500 for the year ended December 31, 2010. Minimum rental commitments under the operating lease are approximately $1,075,000 per annum in 2011 through 2012, $1,183,000 in 2013 through 2017, and $99,000 in 2018. 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 of an amount that is immaterial to the Company are being nego- tiated at this time. No liabilities or expenses have been incurred by the Company to date. 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, 2010, 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, 2010, 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, 2010, 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, 2011 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 (68) 1994 Chairman of the Board since 2007 Michael W. Robinson (38) Vice-President of the President and Chief 2006 Executive Officer of the Company since 1995 Company since 2010 securities anlayst (general industries) Andrew V. Vindigni (51) Senior Vice-President of the Diane G. Radosti (58) 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 (64) Secretary of the Eugene S. Stark (52) Vice-President, Administration 1982 2005 Jesse Stuart (44) 2003 of the Company and Principal Financial Officer since 2005, Chief Compliance Officer since 2006 Vice-President of the Company since 2006 securities analyst (general industries) Craig A. Grassi (42) 1991 Maureen E. LoBello (60) 1992 Company since 1994 shareholder relations and office management Assistant Vice-President of the Company since 2005 information technology Assistant Secretary of the the Company since 2005 benefits administration Sally A. Lynch, Ph.D. (51) Vice-President of the 1997 Company since 2006 securities analyst (biotechnology industry) 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, LLC 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 5, 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, 2010 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, 2010, 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. (46) 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 (term ended 8/31/2010) 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 (65) 2007 Founding Partner Berens Capital Management, LLC Alfred P. Sloan Foundation, Member of Investment Committee Peterson Institute for International Economics, Member of Investment Lewis B. Cullman (92) 1961 Philanthropist Committee Pierpont Morgan Library, Trustee and Head of Investment Sub-Committee The Woods Hole Oceanographic Institute, Trustee and Member 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 Gerald M. Edelman (81) 1976 Member, Professor and Chairman of the Neurosciences Institute of the Neurosciences Research Foundation Department of Neurobiology The Scripps Research Institute Director and President NGN Capital, Chairman, Advisory Board Promosome, LLC, Chairman, Scientific Advisory Board John D. Gordan, III (65) 1986 Senior Counsel (Partner prior thereto) Morgan, Lewis & Bockius LLP (law firm) Betsy F. Gotbaum (72) 2010 New York City’s Public Advocate (January 2002-December 2009) Alzheimer’s Association, Trustee Community Service Society, Trustee Coro Leadership, Trustee Learning Leaders, Trustee Medrium, Inc., Consultant Visiting Nurse Association of New York, Trustee Sidney R. Knafel (80) Lead Independent Director 1994 Managing Partner SRK Management Company (private investment company) IGENE Biotechnology, Inc., Director Insight Communications Company, Inc., Chairman, Board of Directors VirtualScopics, Inc., Director Vocollect, Inc., Director Daniel M. Neidich (61) 2007 Chief Executive Officer Dune Real Estate Partners D. Ellen Shuman (55) 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 (84) 1989 Financial Consultant Capmark, Director Child Mind Institute, Director NY Child Study Center, Director (term expired 2009) Prep for Prep, Director Real Estate Roundtable, Chairman, Board of Directors Urban Land Institute, Trustee Academy of Arts and Letters, Investment Advisor Bowdoin College, Trustee Community Foundation of Greater New Haven, Investment Advisor Edna McConnell Clark Foundation, Trustee The Investment Fund for Foundations, Trustee (term expired 9/30/2008) Diamond Offshore Drilling, Inc., Director Gentiva Health Services, Inc., Director Petrie Stores Liquidating Trust, Trustee (term expired 2006) Portland General Electric Company, Director (term expired 2006) Sun Times Media Group, Director (term expired 2007) Triarc Companies, Inc., Director (merged with Wendy’s International, Inc. 2008) Wendy’s International, Inc., Director INTERESTED DIRECTOR Spencer Davidson (68) 1995 Chairman of the Board President and Chief Executive Officer General American Investors Company, Inc. 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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