GAM Holding AG
Annual Report 2011

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 1 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 Market price range* (high-low) Market volume-shares *Unadjusted for dividend payments. 2011 2010 $886,537,370 5,295,369 19,507,647 (42,899,858) (11,311,972) $29.78 $24.91 -16.4% $950,940,936 5,626,730 19,636,107 109,245,534 (11,311,972) $31.26 $26.82 -14.2% 29,766,389 $28.68-$21.80 10,308,012 30,423,294 $26.85-$21.01 13,189,863 DIVIDEND SUMMARY (per share) (unaudited) Record Date Payment Date Ordinary Income Long-Term Capital Gain Total Common Stock Nov. 14, 2011 Total from 2011 earnings Dec. 23, 2011 $.158060 (a) $.341940 $.500000 (a) Includes short-term gains in the amount of $.011020 per share. Nov. 12, 2010 Total from 2010 earnings Dec. 23, 2010 $.113718 (b) $.316282 $.430000 (b) Includes short-term gains in the amount of $.033411 per share. Preferred Stock Mar. 7, 2011 Jun. 7, 2011 Sept. 7, 2011 Dec. 7, 2011 Total for 2011 Mar. 24, 2011 Jun. 24, 2011 Sept. 26, 2011 Dec. 27, 2011 $.117557 .117557 .117557 .117557 $.470228 (c) $.254318 .254318 .254318 .254318 $1.017272 $.371875 .371875 .371875 .371875 $1.487500 (c) Includes short-term gains in the amount of $.032784 per share ($.008196 per quarter). 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 (d) $.273527 .273527 .273527 .273527 $1.094108 $.371875 .371875 .371875 .371875 $1.487500 (d) Includes short-term gains in the amount of $.115577 per share ($.02889425 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) decreased 2.9% for the year ended December 31, 2011. The U.S. stock market was up 2.1% for the year, as measured by our benchmark, the Standard & Poor’s 500 Stock Index (including income). The return to our Common Stockholders decreased by 5.3% and the discount at which our shares traded to their NAV continued to fluctuate and on December 31, 2011, it was 16.4%. The table that follows provides a comprehensive pre- sentation 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 illus- trate 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 14.6% 13.9% 14.1% -3.3 1.6 8.3 11.4 12.1 11.2 -1.9 2.5 8.7 12.1 12.1 11.5 -0.3 2.9 7.8 11.0 9.8 9.2 2011, like the previous ten years, was challenging, with virtually all gains in the indices coming from dividend income. It was characterized by extreme volatility, which was manifested in a series of sharp rallies fol- lowed by equally pronounced selloffs in response, presumably, to a succession of exogenous events. These included the natural disasters in the Far East, the po- litical chaos in the Middle East and North Africa, the sovereign debt and bank crisis in Europe, and, domes- tically, the loss of our AAA credit rating. While U.S. markets performed better than the rest of the world, equity prices ended the year twelve percent lower than their 2006 peak, when measured in inflation adjusted terms. Similarly, efforts to stimulate employment and stabilize the housing market met with mixed results. As the year unfolds, it seems reasonable to assume that the U.S. will continue to experience sub-par growth rel- ative to past recoveries from deep recessions. Efforts to reduce public debt, which has reached almost 100% of GDP, together with higher private savings, necessitated by unsustainable growth in entitlement spending, are likely to have a direct impact on economic activity. European growth will almost certainly be depressed as its banks deleverage and the Euro zone’s existential crisis continues. Much has been written about the imbalances in the Chinese economy; critics note that consumption has been sacrificed in favor of high capi- tal investment in support of exports, resulting in a very large current account surplus. It is argued, further, that real estate in particular is overbuilt and that China will go the way of all state-directed abusers of credit. While this scenario may eventually come to pass, China ap- pears to be succeeding in its rebalancing effort, with consumption on the rise and the demand for mid-and high-quality goods and services rising along with it. Many of the problems associated with slower economic growth appear to be already reflected in security prices. While it is not likely that interest rates will continue to decline in concert with increased borrowing, their current levels suggest a compelling case for equities. Whether the metric is price to earnings ratio, free cash flow, or dividend yield, stocks appear to be priced at undemanding valuations. With a firm dollar, the U.S. may well remain the destination of choice for capital, and our portfolio, focused on well-managed companies with strong financial characteristics, should benefit. As part of an ongoing effort to maximize shareholder value, over 3% of the Company’s shares were repur- chased in 2011 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 2012, the Board of Directors renewed au- thority 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. We are pleased to announce that as of today, Mr. Jeffrey W. Priest was appointed President of the Company. Mr. Priest joined the Company in October 2010 and has spent his entire 26-year business career in the investment management and financial services industry. Information about the Company, including our invest- ment 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 and Chief Executive Officer February 1, 2012 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 continuous 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 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 career 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 continu- ously. 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 invest- ment companies, they occasionally sell at a premium over NAV. During 2011, the stock sold at discounts to NAV which ranged from 11.4% (March 7) to 16.8% (December 22). At December 31, the price of the stock was at a discount of 16.4%. 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 currently in the aggre- gate). 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 perfor- mance 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. Direct Registration The Company makes avail- able direct registration for its Common Shareholders. Direct registration, which is an Dividend and Distribution Policy The Company’s dividend and distribution policy is to dis- tribute to stockholders before year-end substantially all or- dinary 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 income is earned during the last two months of the year, a “spill-over” distribution of these amounts may be paid. Dividends and distri- butions 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 con- tinuously on the Common Stock since 1939 and capital gain distributions in varying amounts have been paid for each of the years 1943-2011 (except for the year 1974). (A table listing dividends and distributions paid during the 20-year period 1992-2011 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 securi- ties and the Company’s proxy voting record for the 12-month period ended June 30, 2011 are available: (1) without charge, upon request, by calling the Company at its toll-free number (1- 800-436-8401), (2) on the Company’s website at www.generalamericaninvestors.com and (3) on the Securities and Exchange Commission’s website at www.sec.gov. element of the Investors Choice Plan admin- istered 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 pay- ment, 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, includ- ing 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 non- public personal information about its customers (stock- holders) with respect to their transactions in shares of the Company’s securities but only for those stockholders whose shares are registered in their names. This information includes the stockholder’s address, tax identifi- cation or Social Security number and dividend elections. We do not have knowledge of, nor do we collect personal information about, stockholders who hold the Company’s securi- ties at financial institutions in “street name” registration. We do not disclose any nonpublic personal information about our current or former stock- holders to anyone, except as permitted by law. We also restrict access to nonpublic personal information about our stockholders to those few employees who need to know that infor- mation to perform their responsibilities. We maintain safeguards that comply with federal standards to guard our stockholders’ personal information. 4 I N V E S T M E N T R E S U L T S ( U N A U D I T E D ) G e n e r a l A m e r i c a n I n v e s t o r s Total return on $10,000 investment for 20 years ended December 31, 2011 T he investment return for a Common Stockholder of General American Investors (GAM) over the 20 years ended December 31, 2011 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 1992. 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-recog- nized, unmanaged index which is a measure of general stock market performance, including 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 $11,478 ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN CUMULATIVE INVESTMENT ANNUAL RETURN 14.78% $10,355 3.55% $10,759 7.59% 9,651 8,892 10,779 12,879 18,363 24,112 33,569 39,980 41,711 30,362 38,563 41,952 49,252 57,516 62,532 32,391 44,331 51,530 48,804 -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 -5.29 10,174 9,895 12,228 14,670 19,372 26,179 35,709 42,008 41,504 31,950 40,704 44,925 52,202 58,592 63,285 36,060 47,628 54,920 53,344 -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 -2.87 11,848 11,998 16,498 20,277 27,036 34,754 42,039 38,217 33,673 26,218 33,706 37,343 39,147 45,277 47,726 30,034 37,979 43,699 44,631 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 2.13 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 This table shows divi- dends and distributions 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 gains 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 2 - 2 0 1 1 ) ( 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 1992 $.03 .06 1993 .06 1994 .10 1995 .20 1996 .21 1997 .47 1998 .42 1999 .48 2000 2001 .37 — — — $.03 .05 — — .62 1.55 .64 — $2.93 — 2.34 — 1.59 — 2.77 — 2.71 — 2.95 — 4.40 — 4.05 6.16 — 1.37 — 2002 $.03 .02 2003 .217 2004 .547 2005 .334 2006 .706 2007 .186 2008 .103 2009 .081 2010 .147 2011 — — — $.041 — .009 — .051 .033 .011 $.33 .59 .957 1.398 2.666 5.25 .254 .186 .316 .342 — — — — — — — $.01 — — 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 COMPARATIVE ANNUALIZED INVESTMENT RESULTS YEARS ENDED DECEMBER 31, 2011 STOCKHOLDER RETURN GAM NET ASSET VALUE S&P 500 STOCK INDEX 1 year -5.3 % -2.9 % 2.1 % 5 years -3.3 -1.9 -0.3 10 years 15 years 20 years 1.6 9.3 8.3 2.5 9.0 8.7 2.9 5.4 7.8 $80,000 $60,000 $40,000 $20,000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GAM Stockholder Return GAM Net Asset Value S&P 500 Stock Index $0 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 1 ( 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 NEW POSITIONS Freeport-McMoRan Copper & Gold Inc. Intercell AG Visteon Corporation ADDITIONS PartnerRe Ltd. Platinum Underwriters Holdings, Ltd. DECREASES ELIMINATIONS Amgen Inc. MSCI Inc. Class A REDUCTIONS Dell Inc. Teradata Corporation The Travelers Companies, Inc. Wal-Mart Stores, Inc. Xerox Corporation — — — 10,000 35,000 40,000 255,000 190,000 130,000 30,000 20,000 250,000 SHARES HELD 200,000 (b) 413,800 (b) 275,713 (b) 285,000 435,000 — — 825,000 230,000 150,000 313,000 1,650,000 (a) Common shares unless otherwise noted; excludes transactions in Common Stocks -Miscellaneous - Other. (b) Shares purchased in prior period and previously carried under Common Stocks - Miscellaneous - Other. 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 The diversification of the Company’s net assets appli- cable to its Common Stock by industry group as of December 31, 2011 is shown in the table. INDUSTRY CATEGORY Finance and Insurance Banking Insurance Other Retail Trade Consumer Products and Services Oil and Natural Gas (Including Services) Computer Software and Systems Communications and Information Services Health Care/Pharmaceuticals Environmental Control (Including Services) Machinery and Equipment Miscellaneous** Technology Aerospace/Defense Semiconductors Metals and Mining Diversified 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, 2011 $34,006 65,666 36,369 136,041 60,926 98,715 74,984 57,635 38,582 58,451 39,191 23,704 31,292 30,967 22,957 13,464 37,135 1,251 725,295 52,634 $777,929 $36,600 116,186 83,159 235,945 172,761 128,796 102,024 67,516 55,647 52,493 46,976 30,867 29,134 26,034 23,754 24,029 22,849 12,623 1,031,448 52,634 1,084,082 (7,428) (190,117) $886,537 4.1% 13.1 9.4 26.6 19.5 14.5 11.5 7.6 6.3 5.9 5.3 3.5 3.3 2.9 2.7 2.7 2.6 1.4 116.3 5.9 122.2 (0.8) (21.4) 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. (see notes to financial statements) 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, 2011, shown on pages 8 and 9 includes 55 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. 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. EPOCH HOLDING CORPORATION Epoch is a mid-size global asset management firm serving insti- tutions, wealthy individuals and as sub-advisor to a number of mutual funds. The company has a culture of business owner operators with broad and deep experience in security analysis, investment portfolio structuring and business management. Epoch has a very successful history increasing assets under manage- ment with a compound annual growth rate of 56.5% over the last seven years. 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. ARCH CAPITAL GROUP LTD. Arch Capital, a Bermuda-based insurer/reinsurer, generates premiums of approximately $3.3 billion and has a high quality, well-reserved A-rated balance sheet. This company has a strong management team that exercises prudent underwriting discipline, efficient expense control, and steady capital management resulting in above-average earnings and book value growth. DIAGEO PLC ADR Diageo produces, distills and markets alcoholic beverages worldwide. The company’s portfolio includes Smirnoff, Johnnie Walker, Jose Cuervo, Captain Morgan, Tanqueray and Guinness. Additionally, Diageo markets numerous regional and local brands. The company generates excess cash flow which it uses to acquire different brands, pay dividends and buyback its stock. WEATHERFORD INTERNATIONAL LTD. Weatherford supplies a broad range of oilfield 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. 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. 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. NESTLE S.A. Nestle is a well-managed geographically diversified global food company with a favorably-positioned product portfolio and an excellent AA-rated balance sheet. Solid volume growth, strong pricing power, expense control and steady capital management yield durable above-average long-term total return potential. *Net assets applicable to the Company’s Common Stock. SHARES VALUE % COMMON NET ASSETS* 1,512,400 $97,625,420 11.0% 700,000 38,290,000 4.3 1,666,667 37,050,007 4.2 394,500 32,869,740 3.7 875,000 32,576,250 3.7 350,000 30,597,000 3.5 2,050,000 30,012,000 3.4 296,478 26,854,977 3.0 957,100 26,368,105 3.0 450,000 25,942,680 2.9 $378,186,179 42.7% 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 1 G e n e r a l A m e r i c a n I n v e s t o r s AEROSPACE/DEFENSE (2.7%) COMMUNICATIONS AND INFORMATION SERVICES (6.3%) COMPUTER SOFTWARE AND SYSTEMS (7.6%) CONSUMER PRODUCTS AND SERVICES (14.5%) DIVERSIFIED (1.4%) ENVIRONMENTAL CON- TROL (INCLUDING SERVICES) (5.3%) FINANCE AND INSURANCE (26.4%) SHARES COMMON STOCKS VALUE (NOTE 1a) 325,000 United Technologies Corporation (COST $22,957,205) $23,754,250 960,000 Cisco Systems, Inc. 700,000 QUALCOMM Incorporated 60,000 Apple Inc. (a) 825,000 Dell Inc. (a) 770,000 Microsoft Corporation 230,000 Teradata Corporation (a) 350,000 Diageo plc ADR* 450,000 Nestle S.A. 325,000 PepsiCo, Inc. 206,000 Towers Watson & Co. Class A 717,631 Unilever N.V. 275,713 Visteon Corporation (a) (COST $38,582,394) (COST $57,634,766) (COST $98,714,684) 17,356,800 38,290,000 55,646,800 24,300,000 12,069,750 19,989,200 11,157,300 67,516,250 30,597,000 25,942,680 21,563,750 12,345,580 24,578,252 13,769,107 128,796,369 110 Berkshire Hathaway Inc. Class A (a) (COST $1,250,573) 12,623,050 957,100 Republic Services, Inc. 630,000 Waste Management, Inc. BANKING (3.9%) 500,000 Bond Street Holdings LLC (a) (b) 520,000 JPMorgan Chase & Co. 110,000 M&T Bank Corporation INSURANCE (13.1%) 875,000 Arch Capital Group Ltd. (a) 245,000 Everest Re Group, Ltd. (COST $39,190,474) (COST $31,140,007) 53,500 Forethought Financial Group, Inc. Class A with Warrants (a) (c) 325,000 MetLife, Inc. 285,000 PartnerRe Ltd. 435,000 Platinum Underwriters Holdings, Ltd. 150,000 The Travelers Companies, Inc. OTHER (9.4%) 315,000 American Express Company 330,492 Aon Corporation 1,666,667 Epoch Holding Corporation 645,000 Nelnet, Inc. HEALTH CARE/PHARMA- CEUTICALS (5.9%) 170,000 Celgene Corporation (a) 529,900 Cytokinetics, Incorporated (a) 564,500 Gilead Sciences, Inc. (a) 413,800 Intercell AG (a) 755,808 Pfizer Inc. 4,883 Poniard Pharmaceuticals, Inc. (a) MACHINERY AND EQUIP- MENT (3.5%) 1,200,000 ABB Ltd. ADR* 900,000 The Manitowoc Company, Inc. (COST $65,665,838) (COST $36,368,971) (COST $133,174,816) (COST $58,451,455) (COST $23,703,922) 26,368,105 20,607,300 46,975,405 9,000,000 17,290,000 8,397,400 34,687,400 32,576,250 20,602,050 10,860,500 10,133,500 18,299,850 14,837,850 8,875,500 116,185,500 14,858,550 15,467,026 37,050,007 15,783,150 83,158,733 234,031,633 11,492,000 508,704 23,104,985 1,020,749 16,355,685 10,401 52,492,524 22,596,000 8,271,000 30,867,000 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 1 - 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 AND MINING (2.6%) COMMON STOCKS (Continued) SHARES 467,700 Alpha Natural Resources, Inc. (a) 200,000 150,000 Nucor Corporation Freeport-McMoRan Copper & Gold Inc. VALUE (NOTE 1a) $9,555,111 7,358,000 5,935,500 22,848,611 (COST $37,134,911) MISCELLANEOUS (3.3%) Other (d) (COST $31,292,109) 29,134,461 OIL AND NATURAL GAS (INCLUDING SERVICES) (11.5%) 296,478 Apache Corporation 300,000 Canadian Natural Resources Limited 130,062 Devon Energy Corporation 750,000 Halliburton Company 2,050,000 Weatherford International Ltd. (a) RETAIL TRADE (19.5%) 394,500 Costco Wholesale Corporation 460,000 Target Corporation 1,512,400 The TJX Companies, Inc. 313,000 Wal-Mart Stores, Inc. 26,854,977 11,211,000 8,063,844 25,882,500 30,012,000 102,024,321 32,869,740 23,561,200 97,625,420 18,704,880 172,761,240 (COST $74,984,196) (COST $60,926,374) SEMICONDUCTORS (2.7%) 575,000 ASML Holding N.V. (COST $13,463,950) 24,029,250 TECHNOLOGY (2.9%) 750,000 International Game Technology 1,650,000 Xerox Corporation (COST $30,966,849) 12,900,000 13,134,000 26,034,000 TOTAL COMMON STOCKS (116.1%) (COST $722,428,678) 1,029,535,164 BANKING (0.2%) WARRANTS 225,000 SHARES WARRANT JPMorgan Chase & Co. Expires 10/28/2018 (a) (COST $2,865,853) 1,912,500 SHORT-TERM SECURITIES AND OTHER ASSETS 52,634,324 SSgA U.S. Treasury Money Market Fund (a) (5.9%) (COST $52,634,324) 52,634,324 TOTAL INVESTMENTS (e) (122.2%) Liabilities in excess of receivables and other assets (-0.8%) (COST $777,928,855) PREFERRED STOCK (-21.4%) NET ASSETS APPLICABLE TO COMMON STOCK (100%) 1,084,081,988 (7,427,443) 1,076,654,545 (190,117,175) $886,537,370 * 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 $18.00 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 $10,748,000, unit cost and fair value is $203.00 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 as well as actual transaction prices resulting from limited trading in the security. (d) Securities which have been held for less than one year, not previously disclosed, and not restricted. (e) At December 31, 2011: (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 $369,910,464, (3) aggregate gross unrealized depreciation was $63,757,331, and (4) net unrealized appreciation was $306,153,133. (see notes to financial statements) 1 0 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, 2011 INVESTMENTS, AT VALUE (NOTE 1a) Common stocks (cost $722,428,678) Warrant (cost $2,865,853) Money market fund (cost $52,634,324) Total investments (cost $777,928,855) RECEIVABLES AND OTHER ASSETS Dividends, interest and other receivables Qualified pension plan asset, net excess funded (note 7) Prepaid expenses and other assets TOTAL ASSETS LIABILITIES Payables for securities purchased 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 - 29,766,389 (note 5) NET ASSET VALUE PER COMMON SHARE NET ASSETS APPLICABLE TO COMMON STOCK Common Stock, 29,766,389 shares at par value (note 5) Additional paid-in capital (note 5) Undistributed realized gain 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 NET ASSETS APPLICABLE TO COMMON STOCK (see notes to financial statements) $1,029,535,164 1,912,500 52,634,324 1,084,081,988 2,573,402 1,034,920 2,133,672 1,089,823,982 935,808 219,955 4,175,735 3,246,182 4,591,757 13,169,437 190,117,175 $886,537,370 $29.78 $29,766,389 556,383,685 853,165 1,286,147 (7,685,194) ( 219,955) 306,153,133 $886,537,370 1 1 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 $563,770) Interest TOTAL INCOME EXPENSES Investment research Administration and operations Office space and general Directors’ fees and expenses Auditing and legal fees Transfer agent, custodian and registrar fees and expenses Stockholders’ meeting and reports Miscellaneous taxes TOTAL EXPENSES NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 2011 $18,424,311 16,431 18,440,742 7,298,368 3,219,538 1,674,946 279,465 218,699 161,203 146,872 146,282 13,145,373 5,295,369 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 $288,080) Written option transactions (notes 1b and 4) Net decrease in unrealized appreciation NET INVESTMENT INCOME AND (LOSS) ON INVESTMENTS DISTRIBUTIONS TO PREFERRED STOCKHOLDERS DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (see notes to financial statements) 19,202,122 305,525 19,507,647 (42,899,858) (18,096,842) (11,311,972) ($29,408,814) 1 2 S T A T E M E N T O F C H A N G E S I N N E T A S S E T S G e n e r a l A m e r i c a n I n v e s t o r s OPERATIONS Net investment income Net realized gain on investments Net increase (decrease) in unrealized appreciation Distributions to Preferred Stockholders: From net investment income From short-term capital gains From long-term capital gains Decrease in net assets from Preferred distributions YEAR ENDED DECEMBER 31, 2011 2010 $5,295,369 19,507,647 (42,899,858) (18,096,842) $5,626,730 19,636,107 109,245,534 134,508,371 (3,326,632) (249,312) (7,736,028) (11,311,972) (2,112,684) (878,926) (8,320,362) (11,311,972) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER COMPREHENSIVE INCOME (29,408,814) 123,196,399 Funded status of defined benefit plans (note 7) (2,864,213) 44,177 DISTRIBUTIONS TO COMMON STOCKHOLDERS From net investment income From short-term capital gains From long-term capital gains (4,388,308) (328,878) (10,204,952) (2,427,967) (1,010,091) (9,562,040) DECREASE IN NET ASSETS FROM COMMON DISTRIBUTIONS (14,922,138) (13,000,098) CAPITAL SHARE TRANSACTIONS (NOTE 5) Value of Common Shares issued in payment of dividends and distributions Cost of Common Shares purchased DECREASE IN NET ASSETS - CAPITAL TRANSACTIONS NET INCREASE (DECREASE) IN NET ASSETS NET ASSETS APPLICABLE TO COMMON STOCK 7,094,056 (24,302,457) 7,219,220 (30,842,134) (17,208,401) (23,622,914) (64,403,566) 86,617,564 BEGINNING OF YEAR 950,940,936 864,323,372 END OF YEAR (including undistributed net investment income of $1,286,147 and $3,721,504, respectively) $886,537,370 $950,940,936 (see notes to financial statements) 1 3 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 per- formance data, total investment return, ratios and supplemental data for each year in the five-year period ended December 31, 2011. This information has been derived from information contained in the financial state- ments and market price data for the Company’s shares. PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year Net investment income Net gain (loss) on securities - realized and unrealized Other comprehensive income Distributions on Preferred Stock: Dividends from net investment income Distributions from net short-term capital gains Distributions from net long-term capital gains 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 2011 2010 2009 2008 2007 $31.26 .18 $27.50 .19 $21.09 .11 $38.10 .42 $40.54 .31 (.68) (.10) (.60) 4.37 — 4.56 6.94 .07 7.12 (16.15) (.25) (15.98) (.11) (.07) (.11) (.11) (.01) (.03) (.05) — (.26) — (.38) (.98) (.27) — (.37) 4.19 (.19) (.01) (.36) 6.76 (.27) — (.38) (16.36) (.15) (.08) (.10) (.19) (.01) (.03) (.05) — 3.39 .02 3.72 (.02) (.03) (.36) — (.41) 3.31 (.33) (.38) (.34) — (.50) (.32) — (.43) (.19) (.01) (.35) (.46) — (.65) (5.04) — (5.75) Net asset value, end of year Per share market value, end of year $29.78 $24.91 $31.26 $26.82 $27.50 $23.46 $21.09 $17.40 $38.10 $34.70 TOTAL INVESTMENT RETURN - Stockholder Return, based on market price per share RATIOS AND SUPPLEMENTAL DATA Net assets applicable to Common Stock, (5.29%) 16.24% 36.86% (48.20%) 8.72% end of year (000’s omitted) $886,537 $950,941 $864,323 $674,598 $1,202,923 Ratio of expenses to average net assets applicable to Common Stock 1.39% 1.54% 1.93% 0.87% 1.11% Ratio of net income to average net assets applicable to Common Stock Portfolio turnover rate 0.56% 11.17% 0.66% 18.09% 0.46% 24.95% 1.31% 25.52% 0.78% 31.91% 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) $190,117 566% $190,117 600% $190,117 555% $199,617 $200,000 701% 438% $25.00 $25.47 $25.00 $24.95 $25.00 $24.53 $25.00 $21.90 $25.00 $21.99 1 4 N O T E S T O F I N A N C I A L S T A T E M E N T S G e n e r a l A m e r i c a n I n v e s t o r s 1. SIGNIFICANT ACCOUNTING POLICIES General American Investors Company, Inc. (the “Company”), established in 1927, is registered under the Investment Company Act of 1940 as a closed-end, diversified management investment company. It is internally managed by its 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 state- ments 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 offi- cial 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 inde- pendent 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 securities may be adjusted to reflect fair value as of the time of the valuation of the portfolio. Investments in money market funds are valued at their net asset value. 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 con- tract. 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 transac- tion, 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 underlying security in determining whether the Company has realized a gain or loss on investments in the Statement of Operations. If a put option is exer- cised, 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 mar- ket 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 amorti- zation of discount and premium on investments, is earned from settlement date and is recognized on the accrual basis. Cost of short-term investments represents amortized cost. d. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Portfolio securities and other assets and liabilities denominated 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 foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Events may impact the availabil- ity 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 mar- ket 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 between 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 unre- alized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated 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 shareholders. Dividends and distributions to common and preferred shareholders, which are determined in accordance with Federal in- come 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 regulated investment companies and to distribute substantially all taxable income to its stockholders. Accordingly, no provision for Federal income taxes is required. In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Company’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Company’s financial statements. 1 5 N O T E S T O F I N A N C I A L S T A T E M E N T S - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s 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 in- vestments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with invest- ing in those securities. The following is a summary of the inputs used to value the Company’s net assets as of December 31, 2011: Assets Common stocks Warrant Money market fund Total Level 1 $1,009,674,664 1,912,500 52,634,324 $1,064,221,488 Level 2 — — — — Level 3 $19,860,500 — — $19,860,500 Total $1,029,535,164 1,912,500 52,634,324 $1,084,081,988 The aggregate value of Level 3 portfolio investments changed during the year ended December 31, 2011 as follows: Change in portfolio valuations using significant unobservable inputs F a i r value at December 31, 2010 Purchases Net change in unrealized appreciation on investments F a i r value at December 31, 2011 Level 3 $17,550,000 3,248,000 (937,500) $19,860,500 The amount of net unrealized loss included in the results of operations attributable to Level 3 assets held at December 31, 2011 and reported within the caption Net decrease in unrealized appreciation in the Statement of Operations: ($937,500) 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (other than short-term securities and options) during 2011 amounted to $124,125,286 and $182,642,803, on long transactions, respectively. 4. WRITTEN OPTIONS Transactions in collateralized put options during the year ended December 31, 2011 were as follows: Options outstanding, December 31, 2010 Options written Options expired Options exercised Options outstanding, December 31, 2011 Contracts 0 609 (400) (209) 0 Premiums $0 566,800 (403,209) (163,591) $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, 29,766,389 shares were issued and outstanding; 8, 000, 000 Preferred Shares were originally issued and 7, 604, 687 were outstanding on December 31, 2011. 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 propor- tionately among holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, they will be paid from ordinary income or net short-term capi- tal gains or will represent a return of capital. 1 6 N O T E S T O F I N A N C I A L S T A T E M E N T S - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s 5. 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 subclas- sification 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 2011 and 2010 were as follows: SHARES AMOUNT 2011 2010 2011 2010 Shares issued in payment of dividends and distributions (includes 278,416 and 277,555 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 14.6%, respectively) Decrease in paid-in capital Total decrease Net decrease 278,416 277,555 $278,416 6,815,640 7,094,056 $277,555 6,941,665 7,219,220 935,321 1,279,476 (935,321) (23,367,136) (24,302,457) ($17,208,401) (1,279,476) (29,562,658) (30,842,134) ($23,622,914) At December 31, 2011, the Company held in its treasury 2,214,483 shares of Common Stock with an aggregate cost in the amount of $55,137,135. Distributions for tax and book purposes are substantially the same. As of December 31, 2011, distributable earnings on a tax basis included $853,165 from undistributed net long-term capital gains and $306,153,133 from net unrealized appreciation on invest- ments if realized in future years. Reclassifications arising from permanent “book/tax” differences reflect non-tax deductible expenses incurred during the year ended December 31, 2011. As a result, undistributed net investment income was decreased by $15,786 and additional paid-in capital was increased by $15,786. 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, 2011 to its officers (identified on page 20) amounted to $6, 192,500. 7. BENEFIT PLANS The Company has funded (Qualified) and unfunded (Supplemental) defined contribution thrift plans that are available to its employ- ees. The aggregate cost of such plans for 2011 was $520,723. The qualified thrift plan acquired 31,015 shares and sold 3,306 shares of the Company’s Common Stock during the year ended December 31, 2011 and held 579,844 shares of the Company’s Common Stock at December 31, 2011. The Company also has both funded (Qualified) and unfunded (Supplemental) noncontributory defined benefit pen- sion plans that cover its employees. The pension plan provides a defined benefit based on years of service and final average salary with an offset for a portion of Social Security covered compensation. 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 com- prehensive income. 1 7 N O T E S T O F I N A N C I A L S T A T E M E N T S - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s 7. BENEFIT PLANS - (Continued from previous page.) OBLIGATIONS AND FUNDED STATUS OF DEFINED BENEFIT PLANS: DECEMBER 31, 2011 (MEASUREMENT DATE) QUALIFIED SUPPLEMENTAL PLAN PLAN TOTAL CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year Service cost Interest cost Benefits paid Actuarial (gains)/losses Plan amendments Projected benefit obligation at end of year CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year FUNDED STATUS AT END OF YEAR $11,643,397 308,442 591,227 (608,666) 1,192,445 — 13,126,845 15,533,745 (763,314) — (608,666) 14,161,765 $1,034,920 $3,757,450 115,721 189,188 (188,040) 296,455 4,961 4,175,735 — — 188,040 (188,040) — ($4,175,735) $15,400,847 424,163 780,415 (796,706) 1,488,900 4,961 17,302,580 15,533,745 (763,314) 188,040 (796,706) 14,161,765 ($3,140,815) Accumulated benefit obligation at end of year $11,958,306 $3,718,102 $15,676,408 CHANGE IN FUNDED STATUS: Noncurrent benefit asset LIABILITIES Current benefit liability Noncurrent benefit liability BEFORE $3,890,348 ADJUSTMENTS ($2,855,428) AFTER $1,034,920 (219,784) (3,537,666) (29,876) (388,409) (249,660) ( 3,926,075) ACCUMULATED OTHER COMPREHENSIVE INCOME 4,820,981 2,864,213 7,685,194 AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF: Net actuarial gain Prior service cost $4,578,987 241,994 $4,820,981 $2,905,847 (41,634) $2,864,213 $7,484,834 200,360 $7,685,194 WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 2011 AND FOR DETERMINING NET PERIODIC BENEFIT COST FOR THE YEAR ENDED DECEMBER 31, 2011: 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 5.00% 7.50% 4.25% 5.00% N/A 4.25% $308,442 591,227 (1,100,722) 45,837 447,090 $291,874 $115,721 189,188 — 758 — $305,667 $424,163 780,415 (1,100,722) 46,595 447,090 $597,541 PLAN ASSETS The Company’s qualified pension plan asset allocation by asset class at December 31, 2011, is as follows: ASSET CATEGORY Equity securities Debt securities Money market fund Total LEVEL 1 $11,081,056 525,661 419,879 $12,026,596 LEVEL 2 $2,106,449 — — $2,106,449 EXPECTED CASH FLOWS QUALIFIED PLAN SUPPLEMENTAL PLAN Expected Company contributions for 2012 Expected benefit payments: 2012 2013 2014 2015 2016 2017-2021 — $680,359 705,385 729,907 764,612 777,217 3,970,016 $249,660 $249,660 267,219 260,476 260,116 259,066 1,195,969 LEVEL 3 — — — — TOTAL $13,187,505 525,661 419,879 $14,133,045 TOTAL $249,660 $930,019 972,603 990,384 1,024,728 1,036,283 5,165,985 1 8 N O T E S T O F I N A N C I A L S T A T E M E N T S - c o n t i n u e d G e n e r a l A m e r i c a n I n v e s t o r s 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 clauses whereby the Company receives free rent for a specified number of months and credit towards construction of office improvements, and incurs escalations annually relating to operating costs and real property taxes and to annual rent charges beginning in February 2013. The Company has the option to renew the lease after February 2018 for five years at market rates. Rental expense approximated $1, 104,200 for the year ended December 31, 2011. Minimum rental commitments under the operating lease are approximately $1, 075, 000 per annum in 2012, $1, 183, 000 in 2013 through 2017, and $99, 000 in 2018. 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, 2011, 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 respon- sibility 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 design- ing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. 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, 2011, by correspon- dence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by manage- ment, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opin- ion. 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, 2011, 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, 2012 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 (69) 1994 Jeffrey W. Priest (49) 2010 Andrew V. Vindigni (52) 1988 Eugene S. Stark (53) 2005 Jesse Stuart (45) 2003 Chairman of the Board since 2007, Chief Executive Officer of the Company since 1995 President of the Company effective February 1, 2012 Managing Member and President, Amajac Capital Management, LLC (1999-2010) Senior Vice-President of the Company since 2006 Vice-President 1995-2006 securities analyst (financial services and consumer non-durables industries) Vice-President, Administration 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) Sally A. Lynch, Ph.D. (52) Vice-President of the 1997 Company since 2006 securities analyst (biotechnology industry) Michael W. Robinson (39) Vice-President of the 2006 Company since 2010 securities anlayst (general industries) Diane G. Radosti (59) 1980 Treasurer of the Company since 1990 Principal Accounting Officer since 2003 Carole Anne Clementi (65) Secretary of the 1982 Company since 1994 shareholder relations and office management Craig A. Grassi (43) 1991 Maureen E. LoBello (61) 1992 Assistant Vice-President of the Company since 2005 information technology Assistant Secretary of the 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, 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, 2011 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.generalamericaninves- tors.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 operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. A copy of the Company’s Form N-Q may be obtained by calling us at 1-800-436-8401. On April 30, 2011, 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 re- lated 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 INDEPENDENT DIRECTORS Arthur G. Altschul, Jr. (47) 1995 PRINCIPAL OCCUPATION DURING PAST 5 YEARS Co-Founder and Chairman Kolltan Pharmaceuticals, Inc. Managing Member Diaz & Altschul Capital Management, LLC (private investment company) Rodney B. Berens (66) 2007 Founding Partner Berens Capital Management, LLC Lewis B. Cullman (93) 1961 Philanthropist Gerald M. Edelman (82) 1976 Member, Professor and Chairman of the Department of Neurobiology The Scripps Research Institute John D. Gordan, III (66) 1986 Retired, Senior Counsel (2010-June 2011) Partner (1994-2010) Morgan, Lewis & Bockius LLP (law firm) Betsy F. Gotbaum (73) 2010 New York City’s Public Advocate (2002-December 2009) Sidney R. Knafel (81) 1994 Daniel M. Neidich (62) 2007 Lead Independent Director Managing Partner SRK Management Company (private investment company) Chief Executive Officer Dune Real Estate Partners LP (since December 2009) Founding Partner and Co-Chief Executive Officer Dune Capital Management LP (2005-December 2009) OTHER DIRECTORSHIPS AND AFFILIATIONS Child Mind Institute, Director Delta Opportunity Fund, Ltd., Director Medicis Pharmaceutical Corporation, Director Neurosciences Research Foundation, Trustee The Overbrook Foundation, Director Alfred P. Sloan Foundation, Member of Investment Committee Peterson Institute for International Economics, Member of Investment Committee Pierpont Morgan Library, Trustee and Head of Investment Committee The Woods Hole Oceanographic Institute, Trustee and Member of Investment Committee Chess-in-the-Schools, Chairman Emeritus Metropolitan Museum of Art, Honorary Trustee Museum of Modern Art, Vice Chairman, International Council and Honorary Trustee Neurosciences Research Foundation, Vice Chairman, Board of Trustees The New York Botanical Garden, Senior Vice Chairman, Board of Managers The New York Public Library, Trustee Neurosciences Institute of the Neurosciences Research Foundation Director and President NGN Capital, Chairman, Advisory Board Promosome, LLC, Chairman, Scientific Advisory Board Community Service Society, Trustee Coro Leadership, Trustee Fisher Center for Alzheimer’s Research Foundation, Trustee Learning Leaders, Trustee Medrium, Inc., Consultant Visiting Nurse Association of New York, Trustee IGENE Biotechnology, Inc., Director Insight Communications Company, Inc., Chairman, Board of Directors VirtualScopics, Inc., Director Vocollect, Inc., Director (term expired 2011) Capmark, Director (term expired 2011) 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 D. Ellen Shuman (56) 2004 Vice President and Chief Investment Officer Carnegie Corporation of New York (1999-July 2011) American 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 2008) Raymond S. Troubh (85) 1989 Financial Consultant INTERESTED DIRECTOR Spencer Davidson (69) 1995 Chairman of the Board and Chief Executive Officer General American Investors Company, Inc. Diamond Offshore Drilling, Inc., Director Gentiva Health Services, Inc., Director Sun Times Media Group, Director (term expired 2007) The Wendy’s Company, 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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