focussed on canada - morgan meighen & associates | · · 2013-11-12$80,000 $100,000 $120,000...

f o c u s s e d o n c a n a d aannual report | 2 0 1 1

CORPORATE PROFILE

Canadian General Investments, Limited (CGI) is a closed-end equity fund focussed on medium to long-terminvestments in Canadian corporations. It strives, through prudent security selection, timely recognition of capital gains/losses and appropriate income generating instruments, to provide better than average returns toinvestors.

CGI was established in 1930 and has been managed since 1956 by Morgan Meighen & Associates Limited (website: www.mmainvestments.com).

The graph below is presented to illustrate the benefit of a long-term investment in CGI's common shares. A $10,000 investment in CGI common shares would have grown to nearly $88,000 over the 25-year periodended December 31, 2011. This equates to a compound annual average growth rate of 9.1%. By comparison, a$10,000 investment in the benchmark S&P/TSX Composite Index would have grown to over $72,000 or a compound average annual growth rate of 8.2%.

For the 50 years ended December 31, 2011, a $10,000 investment in CGI would have grown to $1.8 million, representing a compound average annual return of 11.0%. The values for the benchmark for the same periodwere $800,000 and 9.2%, respectively.

Certain financial information contained in this report, including investment growth rates, rates of return and other such statistical information are historical values; past performance is no assurance or indicator of future returns. Share prices, net asset values and investment returns will fluctuate. Stated historical returns assume the reinvestment of alldistributions. Such financial information does not reflect any broker commissions, transaction costs or such other fees and expenses which may have been applicable nor income taxespayable by any shareholder, which would have the effect of reducing such historical returns. Stated returns for periods greater than one year are compound average annual rates ofreturn. Further information concerning risk can be found in the Management Report of Fund Performance of this Annual Report to Shareholders.

The Company is an investment fund, and as such, this Annual Report to Shareholders carries a variety of information concerning stocks and other investments, all for informational purposes only. The reader should assume that the Company and all individuals and entities (including the Manager and members of its staff) who have contributedto this publication may have a conflict of interest. Readers should therefore not rely solely on this Report in evaluating whether or not to buy or sell securities discussed herein.

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CGI Market

S&P/TSX Composite Index

Growth of a $10,000 Investment – 25 Years to December 31, 2011

Cover: Pointe Au Baril Twilight, Georgian Bay (detail) Oil on Board

Paul Mantrop is a working artist and founding member of the art collective "drawnonward". Over sixteen years ago the artists of drawnonward began to travel throughoutCanada in order to document its unique and varied regions. Today after over 100,000 kilometres have been travelled by bus, boat, canoe, train, skis and feet, drawnonward haspainted from coast to coast. From the Queen Charlotte Islands to the Yukon, from the Gaspe to Newfoundland and throughout the Canadian Arctic. Today Paul paints from astudio in his home near Collingwood, Ontario. You can learn more about Paul at www.paulmantrop.com.

Dear Fellow Shareholders,

We are pleased to present the 2011 annual report for CanadianGeneral Investments, Limited (CGI). In this report, you will findinformation on the performance of CGI for 2011. The management report of fund performance contains a management discussion of fund performance, a financial highlights section incorporating per share information as well asvarious financial ratios, historical returns and a summary ofinvestment portfolio which includes the top 25 holdings as at theend of the year. The full investment portfolio as at December 31,2011 is provided as part of CGI’s audited financial statements, which are also included as part of this report.

For the 12 months ended December 31, 2011, CGI’s commonshares recorded a net asset value per share (NAV) total returnof -11.7% and a market value total return of -12.3%. By comparison, the total return of its benchmark, the S&P/TSXComposite Index, was -8.7% during the same period.

During 2011, CGI paid four regular quarterly taxable dividends that aggregated $0.24 per common share, as well asa year-end special capital gains dividend of $0.56 per share.Based on the year-end market price of the common shares,aggregate dividends paid represented a 5.0% yield to shareholders.

CGI has been managed by Morgan Meighen & AssociatesLimited (the Manager) since 1956, with Michael A. Smedley,CEO and Chief Portfolio Officer of the Manager, and D. GregEckel, Senior Vice-President of the Manager, principallyresponsible for the day-to-day management of CGI’s investment portfolio.

Further information about CGI, including the most recentNAV and market price, current performance, the portfolio’sweekly top 10 holdings, historical dividend payments, as wellas various financial and regulatory reports, can be found at theManager’s website at www.mmainvestments.com.

We would like to thank you for your investment in CGI.

Vanessa L. Morgan Jonathan A. MorganChairman President & CEO

2011 ANNUAL REPORT | CANADIAN GENERAL INVESTMENTS, LIMITED | 1

LETTER TO SHAREHOLDERS

D. Greg Eckel, Michael A. Smedley, Jonathan A. Morgan and Vanessa L. Morgan

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Compound Annual Returns for the Periods to December 31, 2011

2 | 2011 ANNUAL REPORT | CANADIAN GENERAL INVESTMENTS, LIMITED

MANAGEMENT REPORT OF FUND PERFORMANCE

MANAGEMENT DISCUSSION OFFUND PERFORMANCE

INVESTMENT OBJECTIVE AND STRATEGIES

Canadian General Investments, Limited (CGI or the Company)is a closed-end equity fund, focussed on medium to long-terminvestments in primarily Canadian corporations. Its objective isto provide better than average returns to investors through prudent security selection, timely recognition of capitalgains/losses and appropriate income generating instruments.

The Manager, Morgan Meighen & Associates Limited (MMA),utilizes a bottom-up investment strategy in an effort to achieveCGI’s objective. With this type of investment strategy, theManager first seeks individual companies with attractive investment potential, then proceeds to consider the largerindustry, economic and global trends affecting those companies. This investment style allows for sector weightingsthat can differ from those of the benchmark, the S&P/TSXComposite Index (S&P/TSX).

RISK

As an equity fund, the Company’s primary risk is market risk – the exposure to market price changes for the securitiesheld within the portfolio. Economic conditions, investor sentiment, global events and many other factors contribute tothe day-to-day changes in security prices and the overall trendof the market. Some of the more significant changes or trendsin economic conditions through the year and their effects areas follows:

• Commodity prices. The price changes of commodities experienced a number of dichotomies in 2011. The S&PGoldman Sachs Commodity Index (an index that is composed of the principal physical commodities of active,liquid markets) was down 1.2% overall for the year, however,it was up 2.7% for the first six months and up 9.0% for thelast three months. The precious metals sub-component wasup 6.6% for the year, based primarily on gold’s large weighting and 9.6% return, while silver was down 10.2%.Although the Energy component of this index, representinga 70.5% weighting, was up 4.9%, Industrial Metals andAgriculture were down 22.3% and 15.9%, respectively. For acommodities-based economy like Canada’s, commodityprice strength would likely result in an improvement in theeconomy and an increase in stock prices in the sector.

• Interest rates. The Bank of Canada continued to keep interest rates low at 1% for the overnight rate. The primebank rate was steady at 3% for the entire year. Higher interest rates can have a negative effect on equity markets asit is more costly for companies to borrow to fund expansionand similarly for consumers to finance spending.

• Eurozone issues. Sovereign debt troubles continued inGreece, Italy, Spain and in many other countries throughoutEurope. In December, the European Central Bank startedmaking its largest credit infusion into the banking systemsince the beginning of the euro. Subsequently, the credit ratings for most nations have been lowered. While the eurocurrency has been relatively stable for the year, the lack ofconfidence in debt and equity markets will continue torestrict European growth.

• Geopolitical unrest. What started in Tunisia, moved throughthe Middle East and North Africa to create the “ArabSpring”. Meanwhile economic protests in Europe and theUnited States eventually resulted in global “Occupy” movements. These events have added to the volatility inalready fragile economies and markets, and at least in theshort term, limited the potential for positive returns.

CGI attempts to mitigate market risk by maintaining a welldiversified portfolio.

Being a closed-end investment fund, CGI’s shares generally tradeat a discount to its net asset value per share (NAV). As a result,the return experienced by a shareholder (market return) canoften differ from the underlying performance of the Company(portfolio performance). The share price is established by competitive markets, which reflect the buying demand and theselling supply of shares. Factors which are thought to influenceshare price, and therefore discounts and their converse, premiums, include a fund’s relative performance, the liquidity ofa fund’s shares, dividend yield, the use of a managed distributionpolicy, confidence in a fund’s portfolio manager, investors’ perceptions and expectations regarding the outlook of the country/sector/market where a fund invests. Throughout 2011,CGI’s shares traded at a discount ranging from 16.7% to 26.3%,ending the year at a discount of 21.6%.

Since 1998, with the issuance of its Series 1 preference shares,CGI has engaged in a leverage strategy in an effort to enhancereturns to common shareholders. At December 31, 2011,CGI’s Series 2 and Series 3 preference shares totalled $150 million, representing 26.2% of total portfolio assets (December 31, 2010 – 23.1%). As a result of this leverage, a10% decline in the value of the portfolio will result in approximately a 13.5% decrease in the Company’s NAV. Thereverse is true for a 10% increase in the portfolio value. CGI’sasset coverage (the ratio of its Assets to Obligations, both asdefined in the Preference Share provisions) at year end 2011was 3.8 times, higher than the required ratio of 2.5 times.

There were no changes affecting the overall level of risk associated with investing in CGI during the year. As theCompany is invested almost entirely in Canadian equities, it ismost suitable for investors seeking long-term capital appreciation, with income as a secondary objective. Investors inCGI should be willing to tolerate moderate market volatility.


Initially overweight positions in the Energy and Materials sectors were large contributors to CGI’s decline, as both sectorsunderperformed the S&P/TSX. Action was taken during theyear to reduce both of these latter exposures to underweight inorder to mitigate the downside for the Company. An overweight position in Utilities was carried throughout the yearand contributed positively to portfolio returns.

Although cash and equivalents were less than 1% of the portfolioat the end of the year, the Company held cash and equivalentsrepresenting almost 9% in the latter part of October 2011.

The strong 2010 performance of Pacific Rubiales Energy Corp.,Teck Resources Limited, and IMAX Corporation did not continue into 2011 and these holdings were large contributors

to CGI’s decline. Additionally, the holding of Sino-ForestCorporation was disposed of at a large loss. Enbridge Inc., a top10 holding for CGI, with long-term growth in value and dividends, was not only one of CGI’s best performers, but wasalso a big relative performer in the entire S&P/TSX, ranking#11 in the performance list for 2011. Dollarama Inc., anotherstrong performer in CGI’s portfolio, was ranked a very highfourth in the S&P/TSX. Dollarama, a standout in the Canadianretailing sector, has had consistently good financial metricssince its IPO late in 2009 and these results have been reflectedin its stock price gains. A new holding produced one of thelargest and quickest gains for CGI in the year when PoseidonConcepts Corp. was spun out of Open Range Energy Corp.

RESULTS OF OPERATIONS

PerformanceCGI’s net asset value at December 31, 2011 was $426,413,000,representing a 15.0% decrease from the $501,548,000 at theend of 2010. CGI’s NAV at December 31, 2011 was $20.44,down from $24.04 at year end 2010. The NAV return, with dividends reinvested, for the year ended December 31, 2011was -11.7%, compared with a -8.7% total return for the benchmark S&P/TSX Composite Index (S&P/TSX).

Equity markets had shown promise in the early stages of 2011by building on their gains of the prior year, but they reversedcourse in April and remained firmly in a downtrend for theremainder of the year. Macroeconomic issues seemed to carrythe greatest influence on the markets and the effects of thesewere magnified as all of news, speculation and rumour had aheightened sway on investors’ behaviour in a very nervousmarket. The Eurozone debt crisis dominated the headlines asthe consequences of various possible outcomes were debatedand analyzed. As well, a slowdown in some of the emergingeconomies such as China and Brazil became evident and provided unwelcome news as these areas had been a source ofglobal economic growth during the most recent period whendeveloped economies such as the United States had softened.

A loss of confidence in equities was apparent as almost allglobal market indices had double digit losses for the year, themajor exception being the U.S. where the S&P500 was flatand the Dow Jones Industrial Average was up about six percent. This anomaly could have been partly due to the

desire of obtaining relative safety in U.S. dollar denominatedassets. Although the S&P/TSX fared slightly better than theindices of most other global markets, the high correlationbetween markets around the world was a significant influenceon the downside.

A bias to perceived lower-risk assets was illustrated not only bythe general downtrend experienced by the S&P/TSX, but alsoby the dispersion of returns in the sub-sectors. Four of the tengroups in the index, including Energy, Consumer Discretionary,Information Technology and Materials underperformed theaverage, and they would be considered to have the highest sensitivity to deteriorating economic conditions. Outperformerstended to have stable, often regulated businesses, with goodcash flows and supportive dividend yields. Many of these companies were in the Telecommunication Services, ConsumerStaples and Utilities sectors.

CGI’s portfolio diversity has always been maintained to provide investors with a broad exposure to all of the sectors inthe Canadian market and so relative returns result from theoverall mix. The leverage provided by CGI’s preference sharesserved to magnify negative portfolio returns.

The table below illustrates the weightings of the five largest sectors in CGI’s portfolio as at December 31, 2011, comparedwith year end 2010, and with the S&P/TSX. The weightingsprovided for CGI represent the market value of each sector asa percentage of the total investment portfolio. At December 31, 2011 the portfolio was overweight in Industrialsand Consumer Discretionary and underweight Financials andEnergy, as compared to the sector weightings in the S&P/TSX.

CGI S&P/TSXYear end, Year end, Year end, Year end,

Sector 2011 2010 2011 2010Energy 26.0% 29.3% 27.5% 24.0%Materials 21.8% 29.9% 21.5% 25.7%Financials 19.5% 14.3% 28.0% 28.3%Consumer Discretionary 9.4% 9.7% 4.1% 4.7%Industrials 7.4% 5.5% 5.8% 5.7%


Poseidon is a fast growing fluids handling services company forthe oil and gas industry with some proprietary technology. Ithas been structured as a high yield play along with somegrowth potential – an attractive combination for investors.SXC Health Solutions Corp., Labrador Iron Ore RoyaltyCorporation and Baytex Energy Corp. were noted performersin 2010 and their strength continued into 2011.

Investment income, which is comprised mainly of dividends,interest and other income, was $12,226,000 for year, down 1.5%from 2010. Management fees and dividends on preferenceshares are the largest expenses of the Company. Managementfees increased by 9.2% to $6,905,000 as a result of higher average portfolio values compared to 2010. The dividends on itspreference shares were unchanged at $6,413,000.

DividendsCGI’s dividend policy is determined by the Board of Directors.Over the past several years, the Company has paid regularquarterly taxable dividends of $0.06 per common share onMarch 15, June 15, September 15 and December 15. For taxpurposes, CGI designated all taxable dividends paid to common and preference shareholders in 2011 as “eligible dividends”. In addition, CGI is able to pay capital gains dividends. The Board considers the payment of a special capital gains dividend taking into account the year’s performance of the Company, the amount of refundable capital gains tax on hand, and the desire to provide somedegree of yield consistency over time to common shareholders.On December 28, 2011, CGI paid a year-end special capitalgains dividend of $0.56 per common share, bringing total dividends to $0.80 for the year. Based on year-end prices forthe common shares, the dividend yield was 5.0% for 2011 compared to 5.2% for 2010.

TaxationAs a corporate entity, CGI is subject to tax on its taxable income – primarily on realized gains on the sale of investments – at an effective rate of approximately 20%. As aresult of its investment corporation status under Canadian taxlaw, CGI can recover taxes paid or payable on its realized taxable capital gains through the payment of capital gainsdividends to shareholders. To the extent that taxes paid or payableon taxable income and capital gains in a year are greater thantaxes recovered on the payment of capital gains dividends, therewill be a negative impact on net assets of the fund. For 2011, therewas a net recoverable related to tax of $2,045,000, compared to anet recoverable of $720,000 in the prior year. Taxes paid orpayable on realized taxable capital gains may be recoveredthrough the payment of capital gains dividends in future years.

At December 31, 2011, the Company had refundable capitalgains tax of approximately $2 million, which is refundable uponpayment of capital gains dividends of approximately $10 million.

RECENT DEVELOPMENTS

Market OutlookMacroeconomic issues remain in the forefront and continue todominate investor behaviour. Most significant is the amount ofscepticism regarding the ability of the European Union membersto alleviate the Eurozone debt crisis, a situation that has progressed into worries of sovereign debt defaults and bankingcredit losses. It also has repercussions for global growth expectations and this negative overhang has weighed heavily onequity movements.

On the other hand, some positive economic data has come outof the United States recently and has provided some encouragement to investors as to the possibility of an emergencefrom its period of economic contraction. U.S. leadership is necessary and would be an important catalyst in the process ofimproving prospects for a fragile global economy.

Mixed messages, such as those mentioned, cause uncertainty forinvestors and reduce confidence levels. Enthusiasm to pushstocks higher is muted in spite of valuations that appear very reasonable on historic measures. Until markets can get to a reasonable comfort level regarding some measure of resolution tothe Eurozone difficulties and additional evidence surfaces of animproving global economic environment, they will likely remainunsettled and volatile. However, if the current challenges are metsuccessfully, markets do have a chance to stabilize and movehigher in the near to medium term.

International Financial Reporting StandardsFor most Canadian publicly accountable enterprises, theCanadian Accounting Standards Board (AcSB) had mandated arequirement to prepare their financial statements in accordancewith International Financial Reporting Standards (IFRS) for fiscal periods beginning on or after January 1, 2011. However,the AcSB had previously approved two one-year deferrals onadoption by most investment funds until fiscal years beginningon or after January 1, 2013. In December 2011, as a result of thepossibility that the International Accounting Standards Board(IASB), which is responsible for the development and publication of IFRS, would not have time to finalize itsInvestment Entities standard prior to January 1, 2013, the AcSBdecided to extend the deferral for an additional year.Accordingly, the Company, which is an investment fund, willdefer its adoption of IFRS to the fiscal period beginning January1, 2014, with the Company’s first set of financial statements prepared under IFRS to be for the semi-annual period endedJune 30, 2014. These statements will provide correspondingcomparative financial information for 2013, including an opening statement of net assets as at January 1, 2013.

Based on the Manager’s analysis of the Company’s currentaccounting policies and financial statement presentation underCanadian generally accepted accounting principles against IFRS,it does not expect the adoption of IFRS to have a material effect

MANAGEMENT REPORT OF FUND PERFORMANCE (continued)


on CGI’s net assets or net asset value per share. The primary impact of IFRS on the Company’s financial statements will be in theareas of presentation and note disclosure. In addition, as a result of its analysis, the Manager does not believe the changeover to IFRSwill result in any significant changes to the Company’s existing business arrangements. The Manager continues to implement CGI’s changeover plan, including monitoring of new standards as they are issued by the IASB and AcSB, in order toupdate its analysis as appropriate.

RELATED PARTY TRANSACTIONS

The Company is managed by MMA, a company under common control with CGI. MMA provides continuing advice andinvestment management services, as well as administration, financial reporting and other ancillary services required by a publicly listed company. For more details concerning the services that are provided by MMA and the management fee thatis charged to the Company, see “Management Fees”.

Third Canadian General Investment Trust Limited (Third Canadian), a corporation under common control with the Company,has an approximate 37% (December 31, 2010 – 37%) ownership interest in the Company. As a result of its ownership positionin the Company, Third Canadian received dividends from net investment income of $1,831,000 (2010 - $1,831,000) and dividends from net realized gain on investments of $4,273,000 (2010 - $5,799,000).

FINANCIAL HIGHLIGHTSThe following tables show selected key financial information about the Company and are intended to help you understand the Company’s financialperformance for the past five financial years. Per share data is derived from the Company’s audited annual financial statements. The net assets pershare presented in the financial statements differs from the Company’s daily net asset value due to differences in valuation techniques as described inthe notes to the financial statements. Ratios and supplemental data are derived from the Company’s net asset value.

The Company’s Net Assets per Share (1)

2011 2010 2009 2008 2007

Net assets – beginning of year $ 23.97 $ 19.17 $ 13.81 $ 31.77 $ 31.58

Increase (decrease) from operations:

Total revenue 0.59 0.60 0.58 0.84 0.67

Total expenses (0.68) (0.66) (0.61) (0.86) (1.01)

Realized gains (losses) for the year 0.74 0.56 0.08 (5.41) 3.93

Unrealized gains (losses) for the year (3.55) 5.27 5.87 (13.36) (1.24)

Total increase (decrease) from operations (2.90) 5.77 5.92 (18.79) 2.35

Dividends paid to common shareholders:

Taxable dividends (0.24) (0.24) (0.24) (0.24) (0.24)

Capital gains dividends (0.56) (0.76) (0.50) - (1.36)

Total dividends (2) (0.80) (1.00) (0.74) (0.24) (1.60)

Income taxes recoverable on dividends from net realized gain on investments 0.11 0.15 0.10 - 0.29

Decrease (increase) in refundable income taxes on net realized gain on investments (0.01) (0.12) 0.08 1.07 (0.45)

0.10 0.03 0.18 1.07 (0.16)

Net assets – end of year (4 ) $ 20.37 $ 23.97 $ 19.17 $ 13.81 $ 31.77

(1) Net assets and dividends are based on the actual number of shares outstanding at the relevant time. The increase/decrease from operations is based on the

weighted average number of shares outstanding over the year.

(2) Dividends were paid in cash.

(3) This is not a reconciliation of the beginning and ending net assets per share.


Ratios and Supplemental Data

2011 2010 2009 2008 2007

Total net asset value (000’s) (1) $ 426,413 $ 501,548 $ 402,001 $ 290,477 $ 666,323

Number of shares outstanding (1) 20,861,141 20,861,141 20,861,141 20,861,141 20,861,141

Management expense ratio (2) (3) 3.02% 3.23% 3.82% 3.57% 3.04%

Trading expense ratio (4) 0.12% 0.18% 0.31% 0.25% 0.23%

Portfolio turnover rate (5) 22.32% 29.51% 41.54% 27.33% 36.68%

Net asset value per share (1) $ 20.44 $ 24.04 $ 19.27 $ 13.93 $ 31.94

Closing market price (1) $ 16.00 $ 19.18 $ 15.83 $ 9.12 $ 28.30

(1) This information is provided as at December 31 of the year shown.

(2) Management expense ratio (MER) is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is

expressed as an annualized percentage of daily average net asset value during the period.

(3) Excluding leverage costs (dividends on preference shares and amortization of deferred financing charge), the Company’s MERs were as follows:

2011 – 1.63%, 2010 – 1.70%, 2009 – 1.78%, 2008 – 1.67%, 2007 – 1.53%.

(4) The trading expense ratio represents total commissions and other portfolio transaction costs as an annualized percentage of daily average net asset value

during the period.

(5) The Company’s portfolio turnover rate indicates how actively the Manager manages the Company’s portfolio investments. A portfolio turnover of 100%

is equivalent to the Company buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund’s portfolio turnover

rate in a year, the greater the trading costs payable by the fund in the year. There is not necessarily a relationship between the turnover rate and the

performance of a fund.

MANAGEMENT FEES

The Company pays a management fee that is calculated and paid monthly at 1% per annum of the market value of CGI’s investments adjusted for cash, portfolio accounts receivable and portfolio accounts payable. The Company’s management feeswere used by MMA to pay costs for managing the portfolio and making investment decisions, as well as the provision of administrative services including making brokerage arrangements for the purchase and sale of securities, calculating the daily netasset value of the Company, maintaining financial and corporate records, preparing financial statements and all required regulatory filings and assisting in promotion activities. The officers of the Company are remunerated by MMA in their capacity as directors and/or officers of MMA and receive no compensation from CGI.

MANAGEMENT REPORT OF FUND PERFORMANCE (continued)


PAST PERFORMANCEThe performance information shown assumes that all dividends paid by CGI to common shareholders were reinvested in additional common shares of the Company. The performance information does not take into account broker commissions orother fees potentially payable by holders of the Company’s shares that would have reduced returns or performance. How theCompany has performed in the past does not necessarily indicate how it will perform in the future.

YEAR-BY-YEAR RETURNS

The following bar charts show the Company’s performance for each of the years shown, and illustrate how the Company’s performance has changed from year to year. The bar charts show, in percentage terms, how much an investment made on the firstday of each year would have grown or decreased by the last day of each year.

The bar chart below illustrates CGI’s net asset value per share return, with dividends reinvested at net asset value per share.

Net Asset Value Return

The bar chart below illustrates CGI’s market return, with dividends reinvested at the market price.

Market Value Return

ANNUAL COMPOUND RETURNS

The following table shows the Company’s historical annual compound total returns for the periods indicated, compared with theS&P/TSX. The Index return is also calculated on a total return basis, assuming that all distributions are reinvested.

1 Year 3 Years 5 Years 10 Years

Canadian General Investments, Limited – NAV -11.7% 18.4% -4.7% 8.4%

Canadian General Investments, Limited – Market -12.3% 27.1% -6.0% 10.7%

S&P/TSX Composite Index -8.7% 13.2% 1.3% 7.0%

The S&P/TSX Composite Index is a market capitalization-weighted index that provides a broad measure of performance of the Canadian equity market.

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9.5%

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82.9%

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2011


SUMMARY OF INVESTMENT PORTFOLIOas at December 31, 2011

Sector Allocation Asset Allocation% of % of % of % of

Net Asset Investment Net Asset InvestmentValue* Portfolio Value* Portfolio

Energy 34.9 26.0 Canadian Equities 124.4 92.7 Materials 29.3 21.8 Foreign Equities 8.9 6.7 Financials 26.2 19.5 Cash & Cash Equivalents 0.9 0.6 Consumer Discretionary 12.6 9.4 Industrials 9.9 7.4 Information Technology 9.9 7.4 Telecommunication Services 4.5 3.4 Utilities 4.0 3.0 Consumer Staples 1.0 0.8 Health Care 1.0 0.7Cash & Cash Equivalents 0.9 0.6

Top 25 Holdings% of % of

Net Asset InvestmentIssuer Sector Value* Portfolio

Labrador Iron Ore Royalty Corporation Materials 6.8 5.1 BMTC Group Inc. Consumer Discretionary 5.6 4.2 Enbridge Inc. Energy 4.8 3.6 SXC Health Solutions Corp. Information Technology 4.4 3.3 Brookfield Office Properties Canada Financials 4.4 3.3 Dollarama Inc. Consumer Discretionary 3.8 2.8 Apple Inc. Information Technology 3.8 2.8 Bank of Montreal Financials 3.6 2.7 Franco-Nevada Corporation Materials 3.4 2.5 Rogers Communications Inc. Telecommunication Services 3.3 2.5 Royal Bank of Canada Financials 3.0 2.2 Pacific Rubiales Energy Corp. Energy 2.8 2.1 TransCanada Corporation Energy 2.7 2.0 Baytex Energy Corp. Energy 2.7 2.0 The Toronto-Dominion Bank Financials 2.3 1.7 Potash Corporation of Saskatchewan Inc. Materials 2.3 1.7 Calfrac Well Services Ltd. Energy 2.2 1.6 Canadian Natural Resources Limited Energy 2.1 1.6 Blackpearl Resources Inc. Energy 2.1 1.6 Crescent Point Energy Corp. Energy 2.1 1.6 Canadian Pacific Railway Limited Industrials 2.1 1.6 Poseidon Concepts Corp. Energy 2.1 1.5Canadian Utilities Limited Utilities 2.0 1.5Home Capital Group Inc. Financials 2.0 1.5 Russel Metals Inc. Industrials 2.0 1.5

78.4 * 58.5

Total Net Asset Value* ($000's) $ 426,413

Total Investment Portfolio* ($000's) $ 572,273

* Total Net Asset Value represents Total Investment Portfolio adjusted for leverage in the form of preference shares ($150 million), other assets and other liabilities.

The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Company. The most recent quarterly portfolio disclosuremay be obtained by visiting the Manager's web site at www.mmainvestments.com, by calling 416-366-2931 (Toll-free: 1-866-443-6097), or by writing to theCompany at 10 Toronto Street,Toronto, Ontario, Canada, M5C 2B7.


MANAGEMENT’S REPORT

The accompanying financial statements have been prepared by Management and approved by the Board of Directors ofthe Company. Management is responsible for the information and representations contained in these financial statements.

The Company maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financialstatements have been prepared in accordance with Canadian generally accepted accounting principles and include certain amountsthat are based on estimates and judgements. The significant accounting policies which Management believes are appropriate for theCompany are described in note 1 to the financial statements.

The Board of Directors is responsible for reviewing and approving the financial statements and overseeing Management'sperformance of its financial reporting responsibilities. An Audit Committee comprised of non-Management Directors isappointed by the Board. The Audit Committee reviews the financial statements, adequacy of internal controls, the auditprocess and financial reporting with Management and the external Auditors. The Audit Committee reports to the Board ofDirectors prior to the approval of the audited financial statements for publication.

PricewaterhouseCoopers LLP, the Company’s external Auditors, who are appointed by the shareholders, audited the financialstatements in accordance with Canadian generally accepted auditing standards to enable them to express to the shareholderstheir opinion on the financial statements. Their report is set out on page 10.

Vanessa L. Morgan Jonathan A. Morgan

Chairman President & CEO

February 15, 2012

FINANCIAL REPORTS


INDEPENDENT AUDITOR’S REPORT

To the Shareholders ofCanadian General Investments, Limited(the Company)

We have audited the accompanying financial statements of the Company, which comprise the statement of investment portfolioas at December 31, 2011, the statements of net assets as at December 31, 2011 and 2010, and the statements of operations, cashflows, and changes in net assets for the years then ended, and the related notes which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordancewith Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and planand perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our auditopinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as atDecember 31, 2011 and 2010 and the results of its operations, its cash flows, and the changes in its net assets for the years thenended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants, Licensed Public Accountants

Toronto, Ontario

February 15, 2012


STATEMENTS OF NET ASSETS

As at December 31, 2011 and 2010 2011 2010

(in thousands of dollars, except shares outstanding and per share amounts) $ $

Assets

Investments at fair value (cost - $370,985; 2010 - $376,944) 567,052 647,103

Cash 3,683 1,354

Interest and dividends receivable 2,181 1,760

Income taxes recoverable 2,881 766

Deferred financing charge (note 2) - 55

575,797 651,038

Liabilities

Accounts payable and accrued liabilities 641 708

Accrued dividends on preference shares 281 281

Preference shares (note 2) 150,000 150,000

150,922 150,989

Net Assets 424,875 500,049

Shareholders’ Equity

Common shares (note 2) 128,568 128,568

Unrealized gain on investments 196,067 270,159

Retained earnings (note 3) 100,240 101,322

424,875 500,049

Number of common shares outstanding (note 2) 20,861,141 20,861,141

Net assets per common share (note 10) 20.37 23.97

The accompanying notes are an integral part of these financial statements.

Approved by the Board of Directors

Director Director


STATEMENTS OF OPERATIONS

For the years ended December 31, 2011 and 2010 2011 2010

(in thousands of dollars, except per share amounts) $ $

Investment income

Dividends 11,877 9,691

Interest and other 222 2,505

Securities lending revenue (note 9) 127 214

12,226 12,410

Expenses

Management fees (note 4) 6,905 6,321

Dividends on preference shares 6,413 6,413

Listing and regulatory costs 206 171

Directors’ fees and expenses 169 171

Investor relations 90 122

Custodial fees 75 80

Amortization of deferred financing charge 55 331

Audit fees 54 47

Security holder reporting costs 47 59

Independent review committee fees and expenses 30 27

Legal fees 19 8

Capital taxes - 16

Other 62 59

14,125 13,825

Net investment loss (1,899) (1,415)

Realized and unrealized gains (losses) on investments

Net realized gain on investments 16,020 12,752

Change in unrealized gain on investments (74,092) 109,835

Transaction costs on purchase and sale of investments (559) (786)

Net gain (loss) on investments (58,631) 121,801

Increase (decrease) in net assets resulting from operations for the year (60,530) 120,386

Increase (decrease) in net assets resulting from operations percommon share (based on 20,861,141 (2010 - 20,861,141)weighted-average common shares outstanding during the year) (2.90) 5.77



STATEMENTS OF CHANGES IN NET ASSETS


(in thousands of dollars) $ $

Increase (decrease) in net assets resulting from operations for the year (60,530) 120,386

Dividends to common shareholders

From net investment income (5,007) (5,007)

From net realized gain on investments (11,682) (15,854)

(16,689) (20,861)

Income taxes recoverable on dividends from net realized gain on investments 2,322 3,250

(14,367) (17,611)

Increase in refundable income taxes on net realized gain on investments (note 5) (277) (2,530)

Increase (decrease) in net assets during the year (75,174) 100,245

Net assets, beginning of year 500,049 399,804

Net assets, end of year 424,875 500,049



STATEMENTS OF CASH FLOWS


(in thousands of dollars) $ $

Cash provided by (used in):

Operating activities


Amortization of deferred financing charge 55 331

Proceeds of disposition of investments 221,600 239,205

Purchase of investments (199,621) (227,826)

Transaction costs on purchase and sale of investments (559) (786)

Net change in non-cash balances related to operations (2,603) 2,545

16,973 12,054

Financing activities

Dividends paid to common shareholders, net of income taxes recoverable (14,367) (17,611)


(14,644) (20,141)

Net increase (decrease) in cash during the year (note 7) 2,329 (8,087)

Cash, beginning of year 1,354 9,441

Cash, end of year 3,683 1,354



STATEMENT OF INVESTMENT PORTFOLIO

CONSUMER DISCRETIONARY (9.4%) (2010 - 9.6%)

Household Durables443,100 Brick Ltd. 1,342 1,365

Media253,344 Postmedia Network Canada Corp., C 2,397 1,799 450,000 IMAX Corporation 4,904 8,375 100,000 Shaw Communications Inc., B NV 1,433 2,023

Multiline Retail365,000 Dollarama Inc. 7,520 16,220

Specialty Retail1,275,600 BMTC Group Inc., A SV 3,835 23,599

TOTAL CONSUMER DISCRETIONARY 21,431 53,381

CONSUMER STAPLES (0.8%) (2010 - 1.2%)

Beverages224,800 Corby Distilleries Limited, A 2,851 3,666 50,000 Corby Distilleries Limited, B NV 789 737

TOTAL CONSUMER STAPLES 3,640 4,403

ENERGY (26.0%) (2010 - 29.4%)

Energy Equipment & Services322,000 Calfrac Well Services Ltd. 6,533 9,048 173,400 PHX Energy Services Corp. 2,731 1,838707,120 Poseidon Concepts Corp. 3,690 8,804200,000 Trican Well Service Ltd. 3,798 3,502

Oil, Gas & Consumable Fuels275,000 Athabasca Oil Sands Corp. 4,433 3,426 200,000 Baytex Energy Corp. 4,758 11,382

1,006,100 Bellatrix Exploration Ltd. 4,599 4,940 2,205,000 BlackPearl Resources Inc. 6,839 9,040 240,000 Canadian Natural Resources Limited 3,853 9,110 200,000 Crescent Point Energy Corp. 5,429 8,980 540,000 Enbridge Inc. 5,557 20,552 310,400 Gibson Energy Inc. 5,493 5,894 40,000 MEG Energy Corp. 1,902 1,647

1,200,000 Midway Energy Ltd. 4,510 3,876 800,000 Open Range Energy Corp. 1,664 1,488 639,600 Pacific Rubiales Energy Corp. 3,818 11,961 756,030 Parex Resources Inc. 3,297 5,247 250,000 Peyto Exploration & Development Corp. 4,313 6,067 160,000 Suncor Energy, Inc. 6,151 4,701 125,000 Tourmaline Oil Corp. 3,192 3,323256,000 TransCanada Corporation 7,091 11,392

1,000,000 Uranium One Inc. 3,009 2,140 TOTAL ENERGY 96,660 148,358

FINANCIALS (19.5%) (2010 - 14.3%)

Commercial Banks275,000 Bank of Montreal 10,640 15,353 120,000 Laurentian Bank of Canada 4,730 5,736 245,000 Royal Bank of Canada 10,190 12,720 130,000 The Toronto-Dominion Bank 5,599 9,913

Diversified Financial Services800,000 Element Financial Corporation 3,360 3,80064,000 Intact Financial Corporation 3,696 3,743197,756 TMX Group Inc. 6,784 8,235

Insurance7,200 E-L Financial Corporation Limited 2,640 2,415

Real Estate Management & Development766,900 Brookfield Office Properties Canada, units 6,138 18,536 374,270 First Capital Realty Inc. 3,706 6,471199,500 MI Developments, Inc. 6,505 6,496

Thrifts & Mortgage Finance254,500 Genworth MI Canada Inc. 5,141 5,210 175,000 Home Capital Group Inc. 8,687 8,592

Capital Markets76,900 Economic Investment Trust Limited 3,851 4,096

TOTAL FINANCIALS 81,667 111,316

HEALTH CARE (0.7%) (2010 - 0.0%)

Pharmaceuticals85,000 Valeant Pharmaceuticals

International, Inc. 3,332 4,035TOTAL HEALTH CARE 3,332 4,035

INDUSTRIALS (7.4%) (2010 - 5.5%)

Building Products195,600 Waterfurnace Renewable Energy Inc. 2,632 3,044

Machinery85,000 Caterpillar Inc. 8,872 7,832

Marine37,200 Algoma Central Corporation 2,863 3,804

Road & Rail130,000 Canadian Pacific Railway Limited 7,180 8,944450,000 TransForce Inc. 6,466 5,818

Trading Companies & Distributors200,000 Ritchie Bros. Auctioneers Incorporated 2,262 4,493 375,000 Russel Metals Inc. 3,243 8,400

TOTAL INDUSTRIALS 33,518 42,335

As at December 31, 2011NUMBER FAIR

OF COST VALUE

SHARES INVESTMENT $ $

(in thousands of dollars)

NUMBER FAIR

OF COST VALUE





INFORMATION TECHNOLOGY (7.5%) (2010 - 5.5%)

Computers & Peripherals39,000 Apple Inc. 10,347 16,063

IT Services330,000 SXC Health Solutions Corp. 4,418 19,267

Software140,000 Open Text Corporation 8,343 7,312

TOTAL INFORMATION TECHNOLOGY 23,108 42,642

MATERIALS (21.8%) (2010 - 29.9%)

Chemicals275,000 Methanex Corporation 5,951 6,391 230,000 Potash Corporation of Saskatchewan Inc. 9,812 9,685 90,000 The Scotts Miracle-Gro Company 3,811 4,274

Metals & Mining200,000 Allied Nevada Gold Corp. 4,872 6,140 405,400 Barisan Gold Corporation 204 199 51,350 Barisan Gold Corporation,

warrants 09/26/2013 unlisted 0 11 110,000 East Asia Minerals Corporation,

restricted 04/16/2012 40 37 110,000 East Asia Minerals Corporation,

warrants 12/15/2013 unlisted 15 19 325,000 First Quantum Minerals Ltd. 8,292 6,500 355,000 Franco-Nevada Corporation 7,358 13,735 100,000 Franco-Nevada Corporation,

warrants 03/13/2012 491 690 550,000 Guyana Goldfields Inc. 5,507 4,087 263,900 Harry Winston Diamond Corporation 4,261 2,850 565,400 Imperial Metals Corporation 3,925 7,068 42,870 Kinross Gold Corporation,

warrants 09/03/2013 107 41 775,400 Labrador Iron Ore Royalty

Corporation, units 5,605 28,806 800,000 Medusa Mining Ltd. 2,860 3,686 274,400 Neo Material Technologies Inc. 2,531 2,006 235,250 Osisko Mining Corporation 2,273 2,301 2,230,000 PMI Gold Corporation 2,012 2,007 120,000 Primero Mining Corp.,

warrants 07/20/2015 222 37 25,000 Quadra FNX Mining Ltd,

warrants 09/09/2012 49 48 375,000 Tahoe Resources Inc. 6,456 6,566 215,000 Teck Resources Limited, B SV 5,527 7,708 250,000 Thompson Creek Metals Company Inc. 1,709 1,768

Paper & Forest Products94,550 Domtar Corporation 4,526 7,691

TOTAL MATERIALS 88,416 124,351

TELECOMMUNICATION

SERVICES (3.4%) (2010 - 1.9%)

Diversified Telecommunication Services90,000 TELUS Corporation 4,928 5,178

Wireless Telecommunication Services360,000 Rogers Communications Inc., B NV 5,047 14,123

TOTAL TELECOMMUNICATION SERVICES 9,975 19,301

UTILITIES (3.0%) (2010 - 2.5%)

Electric Utilities250,000 Fortis Inc. 6,736 8,320

Independent Power Producers & Energy Traders

140,000 Canadian Utilities Limited, A NV 3,154 8,610 TOTAL UTILITIES 9,890 16,930

TRANSACTION COSTS (652) -

TOTAL INVESTMENTS (99.4%) 370,985 567,052CASH (0.6%) 3,683 3,683 INVESTMENT PORTFOLIO (100.0%) 374,668 570,735

NV: non-votingSV: subordinate voting

Percentage amounts in brackets represent fair value as a percentage of the Investment Portfolio.

All comparative weightings as at December 31, 2010.

RECONCILIATION OF INVESTMENT

PORTFOLIO TO NET ASSETS

INVESTMENT PORTFOLIO (134.3%) 570,735 PREFERENCE SHARES (-35.3%) (150,000)OTHER ASSETS AND LIABILITIES, NET (1.0%) 4,140

NET ASSETS (100.0%) 424,875

Percentage amounts in brackets represent fair value as a percentage of Net Assets.

The accompanying notes are an integral part of thesefinancial statements.

As at December 31, 2011NUMBER FAIR

OF COST VALUE



NUMBER FAIR

OF COST VALUE



STATEMENT OF INVESTMENT PORTFOLIO (CONTINUED)


NOTES TO FINANCIAL STATEMENTSDecember 31, 2011 and 2010

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements, prepared in accordance with Canadian generally accepted accounting principles (GAAP), include estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses during the year. Actualresults could differ from these estimates. The following is a summary of significant accounting policies followed by CanadianGeneral Investments, Limited (the Company).

Valuation of investmentsPublicly listed securities are valued at the most recent bid price. Unlisted securities that trade on an over-the-counter market and othersecurities, in special circumstances where a market quotation is not readily available or is considered inappropriate (such as a staleprice), are valued using available sources of information and commonly used valuation techniques, using primarily observable inputs.

Investment transactionsInvestment transactions are recorded on the trade date. Realized and unrealized gains and losses from investment transactionsare calculated on an average cost basis. The Company recognizes realized gains (losses) on investments and the net change inunrealized gains on investments in the statements of operations. Within shareholders’ equity, net realized gains (losses) on investments are accumulated in retained earnings, while net changes in unrealized gain on investments, a component of retainedearnings, are accumulated and separately presented as unrealized gain on investments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, whichinclude fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges,and transfer taxes and duties. These costs are expensed and are included in the statements of operations.

Investment incomeDividend income is recorded on the ex-dividend date. Interest income and securities lending revenue are recognized as earned.

Foreign exchangeAssets and liabilities denominated in foreign currencies are translated into Canadian dollars at year-end exchange rates. Purchases andsales of investments, investment income and expenses are calculated at the exchange rates prevailing on the dates of the transactions.

Deferred financing chargePreference share issuance costs are amortized on a straight-line basis over a five-year period, commencing from date of issue.

Future income taxesThe Company follows the asset and liability method of accounting for income taxes. Future income tax liabilities are measuredusing rates expected to apply to the taxable income in the years in which the temporary differences are expected to be settled.

No provision is made for future income taxes on the unrealized gain on investments, since such income taxes would be recoverableon payment of capital gains dividends by the Company (note 5).

2 CAPITAL STOCK

Common sharesThe Company is authorized to issue an unlimited number of common shares. As at December 31, 2011, there are 20,861,141(2010 - 20,861,141) common shares issued and outstanding.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Preference sharesThe Company is authorized to issue, in series, a class of preference shares of which the following are outstanding:

Class A Stated Cumulative 2011 2010preference Number amount annual Amount $ Amount $shares of shares per share $ dividend rate% Date of issue (in thousands of dollars) (in thousands of dollars)

Series 2 3,000,000 25.00 4.65 November 3, 2003 75,000 75,000

Series 3 3,000,000 25.00 3.90 March 3, 2006 75,000 75,000

150,000 150,000

The Company may redeem for cash, the following series, in whole or in part, at the following prices during the defined periods:

$26.00 $25.75 $25.50 $25.25 $25.00

Series 2 - - March 15, 2011 to March 15, 2012 to March 15, 2013March 14, 2012 March 14, 2013 and thereafter (1)

Series 3 June 15, 2011 to June 15, 2012 to June 15, 2013 to June 15, 2014 to June 15, 2015 June 14, 2012 June 14, 2013 June 14, 2014 June 14, 2015 and thereafter (2 )

(1) The holders may require the Company to redeem the Series 2 shares on or after March 15, 2014 for a cash price of $25.00 per share.

(2) The holders may require the Company to redeem the Series 3 shares on or after June 15, 2016 for a cash price of $25.00 per share.

The deferred financing charge of $3,985,000 (2010 - $3,985,000) in respect of Series 2 and Series 3 shares is presented net ofaccumulated amortization of $3,985,000 (2010 - $3,930,000).

3 RETAINED EARNINGS

The changes in retained earnings for the year were as follows:

2011 2010(in thousands of dollars) $ $

Retained earnings, beginning of year 101,322 110,912

Net realized gain on investments, net of transaction costs 15,461 11,966


Dividends paid from net realized gain on investments, net of income taxes recoverable of $2,322 (2010 - $3,250) (9,360) (12,604)

Dividends paid from net investment income (5,007) (5,007)


Retained earnings, end of year 100,240 101,322


4 RELATED PARTY INFORMATION

Management fees are paid monthly to Morgan Meighen & Associates Limited (the Manager), a corporation under common controlwith the Company, for services received in connection with the management of the Company’s financial accounts and investmentportfolio, among other services. Management fees are calculated monthly at 1% per annum of the fair value of the Company’sinvestments adjusted for cash, portfolio accounts receivable and portfolio accounts payable. Values for fee calculation purposes aredetermined on the basis of the financial statements of the Company as at the last day of the applicable month.

Third Canadian General Investment Trust Limited (Third Canadian), a corporation under common control with the Company,has an approximate 37% ownership interest in the Company. As a result of its ownership position in the Company, ThirdCanadian received dividends from net investment income of $1,831,000 (2010 - $1,831,000) and dividends from net realized gainon investments of $4,273,000 (2010 - $5,799,000).

5 TAXATION

The Company qualifies as an investment corporation under Section 130 of the Income Tax Act (Canada) (the Act) and, as such,is subject to a reduced rate of income tax on its net investment income other than dividends received from taxable Canadiancorporations. The Company’s provision for income taxes during the year is determined as follows:


Recovery of income taxes on net investment income (loss)

Recovery of income taxes based on combined Canadian federal and provincial income tax rate (536) (438)

Increase (decrease) in income taxes resulting from:

Dividends from taxable Canadian companies (3,210) (2,921)

Dividends on preference shares 1,812 1,988

Income tax rate differential for investment corporations (788) (442)

Other 2 10

Recovery of income taxes (2,720) (1,803)

Applied to reduce refundable income taxes on net realized gain on investments 2,720 1,803

Recovery of income taxes - -

Refundable income taxes on net realized gain on investments

Provision for income taxes based on combined Canadian federal and provincial income tax rate 4,526 3,953

Increase (decrease) in income taxes resulting from:

Non-taxable portion, net realized gain on investments (2,263) (1,977)

Differences arising from use of different cost bases for income tax and accounting purposes and other items (133) 1,300

Income tax rate differential for investment corporations 867 1,057

Recovery applied from investment income (2,720) (1,803)

Increase in refundable income taxes on net realized gain on investments 277 2,530



Income taxes are paid by the Company on net capital gains realized at the rate of approximately 20%. These income taxes arerecoverable by the Company as long as it continues to qualify as an investment corporation. The Company has refundablecapital gains taxes of approximately $2 million as at December 31, 2011 (2010 - $4 million), which are refundable on paymentof capital gains dividends of approximately $10 million (2010 - $20 million). This potential recovery has not been recordedby the Company.

The Company is also subject to a special tax of 33-1/3% on taxable dividends received from corporations resident in Canada.This special tax is refundable on payment of taxable dividends to shareholders at the rate of $1 for each $3 of such dividendspaid. The Company has no refundable dividend tax on hand as at December 31, 2011 and 2010.

In accordance with the Act, a corporation can qualify as an investment corporation if certain tests are satisfied. One of the testsis that the corporation cannot have specified shareholders. A specified shareholder is generally a shareholder, who, along withcertain persons to whom the shareholder is considered to be related, has a greater than 25% shareholding. The Company has hadspecified shareholders since June 20, 1996. The specified shareholder rules of the Act generally allow the Company to maintainits investment corporation status as long as it does not have any specified shareholders other than those specified shareholdersexisting on June 20, 1996. In addition, the specified shareholders as at June 20, 1996 cannot, after that date, contribute capital oracquire additional shares of the Company other than through certain specified transactions.

6 FINANCIAL INSTRUMENTS

The Company is a closed-end equity fund focussed on medium to long-term investments in primarily Canadian corporations.Its objective is to provide better than average returns to investors through prudent security selection, timely recognition of capital gains/losses and appropriate income generating instruments. The Company may invest in foreign securities that are typically not expected to exceed 15%, in aggregate, of the portfolio’s fair value.

In the normal course of operations, the Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk andmarket risk (defined as interest rate risk, currency risk and other price risk). In general, the Manager seeks to minimize the potentialadverse effects of these risks on the Company’s performance by employing professional, experienced portfolio managers, by dailymonitoring of the Company’s positions and market events, and by diversifying the investment portfolio within the policies andguidelines set by the Board of Directors of the Company, in a manner consistent with the investment objective. Pursuant to theManager’s bottom-up selection mandate, security selection is the primary criteria for managing risk. In order to attempt to mitigaterisk, depending on conditions, the Manager also considers other criteria such as asset class, industry, country and currency.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge anobligation. The Company’s main exposure to credit risk may consist of investments in debt instruments, including short-term securities, bonds, preferred shares, amounts due from brokers as well as securities on loan as part of the Company’s securities lending program. The fair value of debt instruments includes consideration of the creditworthiness of the debt issuer. The carryingamount of debt instruments, as presented on the statement of investment portfolio represents the maximum credit risk exposure asat December 31, 2011. This also applies to other assets, as these have a short term to settlement. As at December 31, 2011, theCompany had no investments in debt instruments (2010 - nil).

All transactions in securities are settled/paid for on delivery using approved brokers. The risk of default is considered minimal,as delivery of securities sold is only made once the Company’s custodian has received payment. Payment is made on a purchaseonce the securities have been received by the Company’s custodian. The trade will fail if either party fails to meet its obligation.

Credit risk with respect to the Company’s securities lending program is considered minimal given the nature of the collateral,as well as the indemnification provided by the agent administering the program (note 9).

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

As the Company is a publicly traded, closed-end investment fund with a fixed number of common shares outstanding, unlike anopen-ended mutual fund or exchange-traded fund, it is not exposed to the liquidity risk associated with daily cash redemptionsof securities. However, as part of a leverage strategy, the Company currently has two series of Class A preference shares outstanding: Series 2 for $75 million with a redemption date of March 15, 2014 and Series 3 for $75 million with a redemptiondate of June 15, 2016. Included in the Series 2 and Series 3 preference share provisions is a restriction, which precludes paymentof a common share dividend unless, after giving effect thereto, the ratio of assets to obligations (both as defined in the preference share provisions) exceeds 2.5 times.


Liquidity risk is managed by investing the majority of the Company’s assets in investments that are traded in an active marketand which can be readily disposed of and by retaining sufficient cash and cash equivalent positions to maintain liquidity.Restricted and unlisted securities, if any, are identified in the statement of investment portfolio. Leverage decisions, whether suchleverage is in the form of bank borrowings or bond or preference share issues from treasury, are at the discretion of the Company’sBoard of Directors.

All financial liabilities other than the preference shares of the Company as at December 31, 2011 and 2010 fall due withintwelve months.

Market risk

Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes inmarket interest rates. The Company’s interest-bearing financial assets and financial liabilities expose it to risks associated with theeffects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.

Although the Company may invest in interest-bearing financial instruments, the substantial majority of the Company’s financialassets and financial liabilities are non-interest-bearing or have short maturities. As a result, the Company is not subject to significant amounts of risk on its investments due to fluctuations in the prevailing levels of market interest rates.

As at December 31, 2011 and 2010, the Company had no investments in debt instruments.

The Company’s two series of Class A preference shares outstanding both have fixed coupon rates. While they themselves are notsubject to interest rate risk, any new issues, whether or not in connection with the redemption date of an existing series, will besubject to the prevailing interest rate environment at that time.

Currency risk:

Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, which is theCompany’s reporting currency. The Company is exposed to the risk that the value of securities denominated in other currencieswill fluctuate due to changes in exchange rates. Securities trading in foreign markets are also exposed to currency risk, as the pricein local terms in the foreign market is converted to Canadian dollars to determine fair value. The Company’s policy is not toenter into any hedging arrangements.

As at December 31, 2011, the Company had a 8.0% (2010 – 8.1%) weighting in foreign currencies. As at December 31, 2011, had theCanadian dollar strengthened or weakened by 5% in relation to all currencies represented in the portfolio as at December 31, 2011,with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $2,284,000 orapproximately 0.5% of total net assets (2010 - $2,623,000 or approximately 0.5% of total net assets).

Other price risk:

Other price risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in market prices(other than those arising from interest rate risk or currency risk), whether these changes are caused by factors specific to anindividual investment or its issuer, or by factors affecting all similar instruments traded in a market or market segment. Allsecurities present a risk of loss of capital. The Manager aims to moderate this risk through careful selection of securities andother financial instruments within the parameters of the investment strategy and by maintaining a well diversified portfolio.The maximum risk resulting from financial instruments is equivalent to their fair value. The Company’s equity and debt (if any) instruments are susceptible to other price risk arising from uncertainty about future prices of the instruments.

The statement of investment portfolio groups the securities by industry sector.

As at December 31, 2011, a 5% increase or decrease in market prices in the investment portfolio, with all other variables heldconstant, would have resulted in the net assets of the Company increasing or decreasing, respectively, by approximately$28,353,000 or approximately 6.7% of total net assets (2010 - $32,355,000 or approximately 6.5% of total net assets).

Sensitivity analyses are provided for information purposes only. In practice, the actual trading results may differ from thissensitivity analysis and the difference could be material.



Fair value measurementsThe Company classifies its investments within a fair value hierarchy, based on the inputs used in their fair value measurement.The hierarchy of inputs is summarized below:

Level 1: Unadjusted quoted prices at the measurement date in active markets for identical assets

Level 2: Directly or indirectly observable inputs other than quoted prices included in Level 1, such as quoted prices for identicalor similar assets in markets that are not active

Level 3: Inputs for the assets that are not based on observable market data

The following table indicates the fair value hierarchy of the inputs used in valuing the Company’s investments at December31, 2011 and 2010 (in thousands of dollars):

Quoted Prices in Significant Other SignificantActive Markets Observable Unobservable

December 31, 2011 (Level 1) Inputs (Level 2) Inputs (Level 3) Total(in thousands of dollars) $ $ $ $

Equity investments 566,985 67 - 567,052

Quoted Prices in Significant Other SignificantActive Markets Observable Unobservable

December 31, 2010 (Level 1) Inputs (Level 2) Inputs (Level 3) Total(in thousands of dollars) $ $ $ $

Equity investments 647,103 - - 647,103

Investments are classified as held for trading and carried at fair value. All other financial instruments of the Company, which mayinclude cash, receivable on securities sold or payable on securities purchased, interest and dividends receivable, accounts payableand accrued liabilities, accrued dividends on preference shares and preference shares, are classified as loans and receivables orfinancial liabilities, as applicable, and are carried at amortized cost which approximates their fair value.

During the years ended December 31, 2011 and 2010, there were no investments transferred between Level 1 and Level 2.

7 SUPPLEMENTAL CASH FLOW INFORMATION

Included in the net increase (decrease) in cash during the year are the following:


Preference share dividends and interest paid 6,415 6,413

Income taxes paid (recovered) - net 81 (3,855)


8 CAPITAL MANAGEMENT

The Company considers capital to be composed of its shareholders’ equity, as well as its outstanding preference shares.The balances are as follows:


Shareholders’ equity 424,875 500,049

Preference shares 150,000 150,000

574,875 650,049

The Company’s primary objective when managing its capital is to ensure that activities are carried out in accordance with theinvestment objective of the Company, as described in note 6. In addition, the Company monitors its adherence to the provisionsof the preference shares. In particular, included in the provisions is a dividend payment restriction, which provides that theCompany shall not pay a dividend on its common shares unless after giving effect thereto, the ratio of assets to obligations (both as defined in the preference shares’ provisions) exceeds 2.5 times. All common share dividend payments made in 2011 and2010 were in compliance with this provision.

9 SECURITIES LENDING

The Company participates in a securities lending program with its custodian, CIBC Mellon Trust Company. Collateral isheld by the custodian as agent for the Company and generally comprises Canadian or provincial government-guaranteedsecurities or obligations of other governments with appropriate credit ratings, and other short-term securities, of at least105% of the fair value of securities on loan. In the event that any of the loaned securities are not returned to the Companyand the value of the collateral held is less than the fair value of the securities not returned, the custodian shall indemnifythe Company for any such shortfall.

The Company had loaned securities with a fair value of $86,298,000 as at December 31, 2011 (2010 - $117,930,000) andthe custodian held collateral of $91,499,000 (2010 - $124,423,000).

10 COMPARISON OF NET ASSET VALUE PER SHARE AND NET ASSETS PER SHARE

In accordance with Section 3.6(1) of National Instrument 81-106, the Company’s net asset value per share, the net assets pershare, calculated in accordance with Canadian GAAP for financial reporting purposes, and an explanation of the differencesbetween such amounts, are required disclosures in the notes to the financial statements. For investments that are traded inan active market, Canadian GAAP requires that bid prices be used in the fair value of instruments, rather than the use of thelast traded price, as currently used for the purpose of determining net asset value. This change accounts for the differencebetween net asset value and net assets.

2011 2010$ $

Net asset value per share 20.44 24.04

Canadian GAAP adjustment (0.07) (0.07)

Net assets per share 20.37 23.97


FREQUENTLY ASKED QUESTIONS

What is Canadian General Investments?

CGI is a publicly listed closed-end equity fund, founded in 1930, focused on medium to long-term investments in Canadian corporations.

What is CGI’s objective?

CGI’s objective is to provide better than average returns to investors through prudent security selection, timely recognition ofcapital gains and appropriate income generating instruments.

Does CGI employ leverage?

At December 31, 2011, CGI had two series of TSX-listed preferred shares outstanding, consisting of the $75 million 4.65% Series 2 issue and the $75 million 3.90% Series 3 issue, which add leverage to the portfolio.

CGI has investment corporation status. What is this and how does it benefit me?

Qualification as an investment corporation under the Income Tax Act (Canada) essentially provides CGI with the same tax advantages as a Canadian mutual fund and closed-end funds in the U.S. and U.K. (i.e. capital gains tax is paid only once, by theinvestor, upon payment of the distribution by the company). This reduces double taxation at the corporate and shareholder levels, translating into higher returns for shareholders. The capital gains refund mechanism enables CGI to recover taxes on realized net capital gains through the payment of capital gains dividends. Most years, this has enabled CGI to provide a dividend yield superior to that of most common shares on the TSX. In addition, this status allows CGI to benefit from a reducedtax rate on certain investment income, as well as to borrow at favourable rates by making a tax election that is beneficial to preferred shareholders without negatively impacting common shareholders.

What is the dividend policy?

CGI’s dividend policy is determined by the Board of Directors. Over the past several years, the Company has paid regular quarterly income dividends of $0.06 per common share on March 15, June 15, September 15 and December 15. In addition, asan investment corporation, CGI is able to pay capital gains dividends. On a periodic basis, the Board considers the payment ofa capital gains dividend taking into account the current year’s performance, the amount of refundable capital gains tax on hand,and the desire to provide some degree of yield consistency over time. A special capital gains dividend of $0.56 was paid onDecember 28, 2011.

What is CGI’s Management Expense Ratio (MER)?

As a public company, CGI is responsible for numerous corporate costs, including management fees, dividends on preferenceshares, investor relations, listing and regulatory costs. CGI’s MER is based on all of these expenses as a percentage of daily average net assets during the year. CGI’s Management Report of Fund Performance discloses the MER calculated as prescribed,as well as excluding leverage costs (ie, dividends on preference shares and amortization of deferred financing charges). CGI’s MERfor 2011 was 3.02% including leverage costs and 1.63%, excluding these costs.

Is CGI appropriate for me?

The Board and Management envisage that the typical investor in CGI is interested in long-term capital growth and income froma portfolio of almost exclusively Canadian equities. Investors in CGI should be willing to tolerate a moderate level of volatilityin normal markets. CGI offers the opportunity to purchase a widely diversified, performance-oriented portfolio of Canadian equities in one stock, which is actively managed by a team of experienced managers and overseen by a Board of Directors. It isthe only closed-end Canadian equity fund company listed internationally.

Is CGI eligible for registered plans?

CGI is a fully qualified investment for Canadian registered plans.

How can I buy CGI?

CGI’s shares are traded through stock brokers and are listed on the Toronto Stock Exchange (symbols: common shares – CGI;preferred shares – CGI.PR.B and CGI.PR.C) and the London Stock Exchange (symbol: common shares – CGI). For the common shares, Bloomberg symbols are CGI CN and CGI LN; the Reuters symbols are CGI.TO and CGIq.L.

CORPORATE INFORMATIONCANADIAN GEN ERAL I NVESTM ENTS, LI M ITED

BOARD OF DIRECTORS

James F. BillettPresident, J.F. Billett Holdings Ltd.

James G. CookBarrister and Solicitor

Jonathan A. MorganPresident & CEO of the Corporation

Vanessa L. MorganChairman of the Corporation

R. Neil RaymondChairman & CEO, Innovium Media Properties Corp.

Michael A. SmedleyExecutive Vice-President & CEO, Morgan Meighen & Associates Limited

Richard O’C. WhittallPresident, Watershed Capital Partners Inc.

AUDIT COMMITTEE

James F. Billett (Chairman)James G. CookRichard O’C. Whittall

CORPORATE GOVERNANCE COMMITTEE

James G. CookJonathan A. MorganR. Neil Raymond (Chairman)

INDEPENDENT DIRECTORS COMMITTEE

James F. BillettJames G. Cook (Chairman)R. Neil RaymondRichard O’C. Whittall

OFFICERS

Vanessa L. MorganChairman

Jonathan A. MorganPresident & CEO

Colin D. SmithSecretary

Frank C. Fuernkranz, MBA, CA, CFATreasurer & CFO

Christopher J. Esson, CA, CFA, MBAAssistant-Treasurer

OFFICE OF THE COMPANY

10 Toronto StreetToronto, Ontario, Canada M5C 2B7Telephone: (416) 366-2931Toll Free: 1-866-443-6097Fax: (416) 366-2729e-mail: [email protected]: www.mmainvestments.com

MANAGER

Morgan Meighen & Associates LimitedToronto

AUDITORS

PricewaterhouseCoopers LLPToronto

BANKERS

Bank of MontrealToronto

SOLICITORS

Blake, Cassels & Graydon LLPToronto

CANADIAN REGISTRARAND TRANSFER AGENT

Computershare Trust Company of Canada100 University Avenue, 9th FloorToronto, Ontario, Canada M5J 2Y1Telephone:

Canada & U.S.: 1-800-564-6253 Overseas: 1-514-982-7555

Fax:Canada & U.S.: 1-888-453-0330Overseas: 1-416-263-9394

e-mail: [email protected]

To change your address, eliminate multiple mailingsor for other shareholder account inquiries, please contact Computershare at the above address.

We are pleased to offer you the convenience of DirectRegistration System (DRS), a system that allows you tohold securities in ‘book entry’ form without the needfor a physical certificate. For additional information,please refer to the Questions and Answers section at: www.computershare.com/investorcentrecanada

To participate, simply send your share certificate toComputershare along with a letter requesting thedeposit of the shares into DRS.

U.K. TRANSFER AGENT

Computershare Investor Services PLCP.O. Box 82The Pavilions, Bridgwater RoadBristol, BS99 6ZY United KingdomTelephone: 0870 702 0000Fax: 0870 703 6101e-mail: [email protected]

U.K. STOCKBROKER

Matrix Corporate Capital LLPOne Vine StreetLondon W1J 0AHTelephone: 020 3206 7000Fax: 020 3206 7016website: www.matrixgroup.co.uk

STOCK EXCHANGE LISTINGS

The Toronto Stock ExchangeTrading Symbols:

Common Shares CGIPreference Shares,

Series 2 CGI.PR.BSeries 3 CGI.PR.C

The London Stock ExchangeTrading Symbol:

Common Shares CGI

PUBLICATION

Net asset value per share (NAV) and/or market price andmarket return are published daily/weekly in variousmedia in Canada and the U.K.

The Company posts ongoing top 10 portfolio investments (priced at market), together with currentNAV and market return information on its website. CGIalso posts its top 25 holdings on its website on a quarterly basis. Similar information is available directlyfrom the Company upon request.

DIVIDEND REINVESTMENT AND SHAREPURCHASE PLAN

The Plan, administered by the Company’s CanadianTransfer Agent, offers an efficient method of acquiringadditional shares. As well as with reinvested dividends, shareholders may purchase additionalshares for cash (minimum $100 – maximum $5,000)every quarter. Shares are purchased on the open market, with participants paying the average costwhile the Company pays all administrative charges,including commissions. The Plan may be used forself-directed RRSPs. Also, a number of Canadian brokersoffer dividend reinvestment plans to CGI shareholders.Note: U.S. shareholders are eligible for the dividendreinvestment segment of the plan only.

ANNUAL MEETING OF SHAREHOLDERS

The Annual General Meeting of shareholders ofCanadian General Investments, Limited will be held at 2:00pm (Toronto time), Thursday, April 19, 2012 at St. Andrew’s Club & Conference Centre, 150 King Street West, 27th Floor, Toronto, Ontario,M5H 1J0.

Telephone: (416) 366-4228Website: www.standrewsclub.ca

The Company is a founding member of the Closed-EndFund Association (CEFA) in North America.

CANADIAN GENERAL INVESTMENTS, LIMITED

10 Toronto Street, Toronto, Ontario, Canada M5C 2B7Telephone: (416) 366-2931 Toll Free: 1-866-443-6097 Fax: (416) 366-2729

e-mail: [email protected]: www.mmainvestments.com

Managed by:

10%

Cert no. SW-COC-002999

focussed on canada - morgan meighen & associates | · · 2013-11-12$80,000 $100,000 $120,000...

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