CITY OF LONDON
INVESTMENT GROUP PLC
ANNUAL REPORT & ACCOUNTS 
2006
London office
10 Eastcheap
London
EC3M 1LX
United Kingdom
Telephone: + 44 (0) 207 711 0771
Facsimile: + 44 (0) 207 711 0772
US office
The Barn
1125 Airport Road
Coatesville
PA 19320
United States
Telephone: + 1 610 380 2110
Facsimile: + 1 610 380 2116
Singapore office
20 Collyer Quay
10-04 Tung Centre
Singapore 049319
Telephone: + 65 6236 9136
Facsimile: + 65 6532 3997
www.citlon.co.uk
  Introduction and highlights 1
Chairman’s statement 2
Chief Executive Officer’s review 5
Financial review 8
Officers and professional advisers 11
Board of directors 12
Report of the directors 14
Statement of directors’ responsibilities 18
Independent auditors’ report 19
Consolidated profit and loss account 20
Consolidated statement of total recognised gains and losses 20
Consolidated balance sheet 21
Company balance sheet 22
Cash flow statement 23
Notes to the financial statements 24
Notice of Annual General Meeting 37
Contents
Designed and produced by fourthquarter Printed by SV.two Introduction and highlights
City of London Investment Group Plc Annual Report 2006
1
City of London Investment Group PLC is a leading
emerging market and natural resource asset management
group, specialising in the provision of products and services
predominantly to institutional clients who include some of
the US’s leading blue chip institutions and endowment
funds. City of London operates its business from offices
in London, the US and Singapore.
• Admission to AIM on 12 April 2006 after placing 24.51% of the issued share capital in order
to provide existing institutional shareholders with liquidity and the ability to realise part of their
investment. These shares were placed with a deliberately small list of high quality institutions
The Company raised no new money.
• Funds under management were US$2.8 billion at the year end (2005: US$1.6 billion) and the
same at 31 August 2006.
• Profit before tax more than doubled to £4.8 million (2005: £2.1 million), reflecting the Group’s
growth in funds under management and the operational gearing inherent in the business.
The Board is not recommending a final dividend reflecting the fact that City of London was a
publicly traded company for less than two months of the period. It is the Board’s intention
going forward to pay dividends to shareholders twice a year, an interim and a final, with the
level of payout based on cover of two times.
“During the year under review, we were successful in winning new mandates
but also further diversified our asset management product portfolio with the
growth of our natural resources fund and the seeding of three new funds: a global
emerging market fund, a frontier fund and an emerging markets yield fund. In
addition, the Group commenced marketing its services and products in Europe.
It is our strategic objective to globalise our business, building on the very strong
base created in the North American market.” A Davison, Chairman
03 04 05 06
340
909
1558
2,751
Funds under
management  US$m
03 04 05 06
(0.2)
0.4
2.1
4.8
Pre-tax profit  £m
  Chairman’s statement
City of London Investment Group Plc Annual Report 2006
2
Despite our achievements during the year
under review, recent falls in emerging markets have
inevitably overshadowed some of this success.
However, the Board believes that our business
model – based on tried and tested processes and an
experienced management team – can cope with the
volatility in our target investment markets.
Emerging markets have always displayed volatility
and it is our ability to outperform in all market
conditions that has enabled the Group to
consistently win investment mandates from
sophisticated institutional investors. Our CEO,
Barry Olliff, addresses operational issues,
including investment markets, in his review
which follows my statement.
Results
Funds under management during the period
doubled to a peak in April 2006 of over US$3
billion before declining, with the markets, to
US$2.8 billion at 31st May, a level which has since
been maintained. Turnover from continuing
activities during the year increased by 82% to
£14.08 million (2005 – £7.74 million), producing
a 127% rise in operating profits to £4.68 million
(2005 – £2.06 million) as a result of the
operational leverage in our activities whereby costs
do not rise proportionally with turnover.
Operating profit for the current year is stated net
of £0.48 million costs related to the Admission to
AIM. Discontinued activities represent the closure
of a subsidiary and contributed just £38,700 of
turnover and £9,357 of operating profit. 
Profit before tax increased to £4.79 million
(2005 – £2.12 million), a rise of 125%. The tax
charge for the year was £1.78 million (2005 –
£0.79 million) and dividends paid to shareholders
pre-Admission to AIM were £2.28 million (2005 –
£0.35 million). Retained profit for the year was
£0.72 million (2005 – £0.98 million), which
contributed to the significant increase in
shareholders’ funds to £4.33 million (2005 – £2.56
million). Cash balances at the year end were £2.71
million (2005 – £2.40 million). There were no
borrowings. A more detailed explanation of the
results is contained in the Financial review.
Dividends
The Board is not recommending a final dividend
in respect of the financial year under review,
reflecting the fact that City of London was a
publicly traded company for less than two months
of the period. The dividends paid to our pre-IPO
shareholders in the period comprised an interim
dividend of £1.98 million in respect of the year to
31st May 2006 and a final dividend of £0.30
million in respect of the year to 31st May 2005.
It is the Board’s intention going forward to pay
dividends to shareholders twice a year, an interim
and a final, with the level of payout based on
cover of two times – dividends will represent
approximately half of post tax profits. We intend
to declare or recommend dividends with the
interim and full year results announced in January
and September respectively followed by payments
in February and November. The Board expects to
declare a first dividend in respect of the current
financial year with the interim results for the
period to 30th November 2006 in January 2007.
Review
The major corporate event during the year was our
Admission to AIM which took place at the very
end of the period in April 2006. We sought a
listing in order to provide our existing institutional
shareholders with liquidity and the ability to realise
The year to 31st May 2006 was a successful one for
City of London and I am pleased to be able to report
substantial progress to both our long term and new
shareholders.
Durable
investment
strategy suits
volatile
markets
Operating
profit up 127%
Future
dividend policy
based on two
times cover
AIM listing City of London Investment Group Plc Annual Report 2006
3
their investments in the Group. At Admission,
these shareholders sold shares representing
approximately one quarter of the issued share
capital and these shares were placed with a
deliberately small list of high quality institutions.
I welcome our new shareholders and thank the
old ones for their support over a number of
years. Those shareholders who sold shares at
Admission agreed long term lock-in arrangements
in respect of their remaining holding, and all
directors and senior managers entered into
similar lock-in agreements.
City of London’s asset management activities are
principally focused on providing emerging market
products and services predominantly to
institutional investor clients who include some of
the United States’ leading blue chip institutions
and endowment funds. We manage Open Ended
Funds as well as a number of segregated accounts
from offices in London, the US and Singapore. 
During the year under review, we were successful in
winning new mandates but also further diversified
our asset management product portfolio with the
growth of our natural resources fund and the
seeding of three new funds: a global emerging
market fund, a frontier fund and an emerging
markets yield fund. In addition, the Group
commenced marketing its services and products in
Europe. It is our strategic objective to globalise our
business, building on the very strong base created in
the North American market. Although we believe
that there is scope for considerable growth in our
activities in the United States in particular, we aim
to diversify the client base to become a truly global
business. To that end we are actively marketing our
distinctive investment management services and
pursuing opportunities in Europe and the Far East.
Directors, management and staff
I am delighted to welcome our new non-executive
director, David Cardale, to the Board. David was
appointed at the time of our Admission to AIM.
David has spent his career in investment markets
with significant experience in corporate finance
and private equity in Europe and the United
States. He is a co-founder and Chairman of Global
Investor Relations, one of Europe’s leading
providers of online investor relations services.
Perhaps the principal benefit to the Company of
the Admission to AIM is our increased ability to
incentivise our staff and management through the
use of option schemes. The Group has put in place
schemes for staff in London, the US and Singapore
as well as for senior management. Directors and
employees now hold options to acquire a total of
4.75 million shares representing approximately
17.7% of the current issued share capital. Of the
total shares under option, some 2.25 million shares
(representing 8.4% of the issued share capital) are
over shares held by an employee share trust and on
exercise will therefore occasion no dilution. The
Board believes that the recruitment, motivation
and retention of talented people is vital to the
success of the Group and that these schemes can
give us a real advantage in so doing compared to
non-listed rivals.
Outlook
Our expertise in emerging markets, natural resources
and closed end funds in general is, we believe,
exportable to a wider and more geographically
diverse client base than that we currently serve. City
of London has the people, systems and culture in
place to enable this growth without the addition of
significant extra costs. Despite the current volatility
in emerging markets, we believe we are well placed
to deliver further growth. 
A Davison
Chairman
15th September 2006
Employee
equity
participation
A balanced
Board:
executive and
non-executive
Diversification
and
globalisation Investment performance drives our business
performance Chief Executive Officer’s review
City of London Investment Group Plc Annual Report 2006
5
I believe that one of the best ways of developing
close relationships is by being as open as possible
and I would hope that the information that you
will find within this document is both interesting
and useful. You will probably be well aware that
part of our work revolves around closed end
fund corporate governance, for this reason as
well, we feel bound to lead by example regarding
the quality of information disclosed to our
shareholders.
The past financial year
This past financial year, like the preceding two,
has allowed us to grow our business significantly.
Funds under management (“FUM”) increased
from $1,558 million to $2,750 million or,
measured in sterling, from £855 million to £1,471
million. However, we have recently experienced
significant £/$ currency volatility. Most of our fees
are paid in US dollars and are then repatriated
back to the United Kingdom. Please refer to the
Financial review on pages 8 to 9 for more details
regarding our hedging strategy and a table
showing the sensitivity of our income to moves
in the $/£ exchange rate.
Over the past year there has been significant demand
for our products, not just relating to emerging
markets closed end funds, but also via equities
providing natural resource exposure. By the end of
2005, we had closed all of our US-based emerging
market commingled funds to new investors. This was
principally because we were concerned regarding
their size and in our ability, in the event that they
grew significantly larger, to continue to outperform
versus the various emerging market benchmarks
via which we are measured. Separate from our
emerging market commingled accounts, over the
past year we have benefited from significant growth
in the area of segregated accounts as well.
Diversification
But to return for a moment to our Natural
Resources business, it is worth making the point
that this part of our business has grown from $73
million at end May 2004 to $193 million as of end
May 2006, which is the end of our financial year.
As at the end of August, this figure has increased
to $215 million, which was the end of our first
quarter this new financial year. 
This business, which is one of the areas of
diversification that we have embarked upon, invests
significantly in listed equities, rather than our
traditional area of closed end funds. We are
assuming, and planning, for this business to grow
substantially over the next few years. As with our
Closed End Fund business, we are positioned at the
performance end of the marketplace which focuses
on relative return products for institutional clients.
A possible new office
As a result of both the growth of the local stock
markets in the Middle East, and the growth of
interest in the region’s emerging markets from the
equity index providers, we are beginning to
consider the possibility of opening an office within
the Gulf Cooperation Council Region (GCC). The
GCC, when combined with other countries within
the Middle East, now represents in excess of 15%
of the S&P/IFC Global Emerging Markets Index.
As more securities from this region become
investable and as new issuance continues to grow,
it seems increasingly likely that we will need to
research this area on a daily basis in a manner that
could prove increasingly difficult from our offices in
London or Singapore. As a result of our risk-averse
approach to the development of our business, we
would only undertake this type of expansion if we
thought it would add significant value to our
investment process. If we proceeded, we would
This is our first Report and Accounts as a listed company
and I would like to let you know that we value you as a
shareholder in the City of London Investment Group.
Over the years, we have developed close relationships with
our clients and now that we have a number of new shareholders
we would like to develop close relationships with you too. 
Natural
resource
accounts
increase
by 166%
Total funds
under
management
grow
by 77%
Growing
significance of
Middle East
markets Chief Executive Officer’s review continued
City of London Investment Group Plc Annual Report 2006
6
additionally intend, over a period of time to use
this office to market City of London products. As
occurred in 1997 when we opened our US office,
and again in 2000 when we opened our Singapore
office, this office would be initially staffed by one
or two existing City of London employees.
Business continuity plans
I thought it wise to relay some information regarding
our Business Continuity Plans which would come
into play in the event that we had, as a firm, to deal
with some type of disaster scenario. First, we have
the advantage of three diverse offices, with most key
personnel having undertaken some form of training,
typically for a few weeks, in at least two if not all
three offices. On top of this, we have in place a
contract with NDR Ltd, a leading UK provider of
disaster recovery facilities, which could be called
upon to replace any loss of operating capability,
whether the result of something simple like a power
cut or something more calamitous such as a flood or
an explosion. This facility has been extensively tested,
as have our daily back up routines, the source of full
data and systems duplicates, which are stored off-site.
On top of this, all key staff have remote internet
access to the company’s servers, whether in the UK,
the US, or Singapore. Naturally, all of the above, plus
additional detail, is described in our disaster recovery
procedures, which are divided into two sections:
technical and operational.
Cost income ratio
One of the ratios that is often cited within the
investment management industry is the cost-income
ratio, with the industry average being around 65%.
City of London’s cost-income ratio last year was 56%
(after adjusting operating costs to strip out listing
costs and third party marketing commission, which
within this context is a reduction in fee income
rather than a cost). A substantial part of our
operating costs is represented by profit-share, as
described in more detail in the Financial review, and
the cost-income ratio adjusted to exclude these
variable costs was 38%. In other words, the “fixed”
overhead cost of supporting our FUM when
measured as a percentage of net fee income, was
38%. The  major components of our overheads are
personnel, premises, IT and communications, and
marketing and business development. We work hard
to  keep these items as low as possible whilst
continuing to take a very long-term view regarding
the development of our business.
Operational leverage
One of the advantages of maintaining a low ratio
of costs to FUM is the extent to which
Shareholders will benefit from the Operational
Leverage within our business that can develop as a
result of further growth in FUM. 
Over the next year we will be focusing upon
developing our business outside the US where
around 85% of our assets are currently sourced.
That is to say, that to the extent possible, we will
be seeking additional assets to manage in the UK,
Europe and the Far East.
Recently we seeded three new funds domiciled in
the Cayman Islands, these three funds are Natural
Resources, Emerging Markets and a Global Equity
Fund. With minor variations these funds will be
similar to existing City of London funds, they will
however be marketed outside North America thus
providing us with a new suite of Funds via which
we would intend to develop our business over the
next few years.
End of first quarter FUM
As of the end of August, total FUM was US$2,815
million. We are just over three months into the
year and in the difficult markets that we have
recently experienced I would like to point out that
investment performance has been maintained.
Thanks to CoL employees
Finally, I would like to thank my colleagues for
their hard work and continuing commitment in
what has been a challenging year. 
B M Olliff
Chief Executive Officer
15th September 2006
Significant
growth
potential for
funds under
management
and profit
Focus on
holding down
fixed overheads We focus on profits, margins and costs and use
technology to leverage capabilities
process Financial review
City of London Investment Group Plc Annual Report 2006
8
The largest proportion of turnover, 93% (2005 –
78%), was derived from North America where the
Group has increased funds under management
significantly during the period. Fee margins were
maintained, reflecting the Group's premium
service positioning.
A substantial portion of Administrative Expenses
is represented by costs that vary with turnover.
This variable cost has two principal elements.
First, commissions payable to marketing agents,
principally in the US and generally fixed at 20%
of fee income, amounted to £2.18 million for the
year (2005 – £1.00 million). Second, it is the
Group’s policy to align staff costs with profitability
by closely controlling our fixed salary overhead,
and supplementing this with a profit-share scheme.
Profit sharing accounted for £2.20 million (2005 –
£0.94 million), representing 49% of total staff
costs of £4.50 million (2005 – £2.93 million).
The overall increase of 54% in staff costs therefore
comprises a 134% increase in profit share but
only a 16% increase in fixed overhead, which
was largely accounted for by the increase in the
average number of employees from 32 to 38 to
accommodate the expansion of the business
during the period.
Discontinued activities resulted from the closure
of a subsidiary, City of London Quantitative
Management Limited, in June 2005. This was,
in turn, the result of the expiry of the sole
management contract serviced by that subsidiary,
which was in respect of a Chilean registered fund.
Dividends are reported in accordance with FRS 21,
as a result of which the restated 2005 figure of
£0.35 million comprises the final dividend for the
year to 31st May 2004 and the interim dividend
for the year to 31st May 2005, while the 2006
figure of £2.28 million comprises the final
dividend for the year to 31st May 2005 and the
interim dividends for the year to 31st May 2006.
The tax charge rate, at 37% of pre-tax profits
(2005 – 37%), is higher than the 30% prevailing
rate of UK corporation tax because that part of net
income attributable to the US operations under
the Group’s transfer pricing policy attracts the
higher US corporate tax rate, which - with federal
and state taxes – is marginally in excess of 40%.
Recognised gains and losses
Recognised gains and losses include a revaluation
reserve of £0.13 million (2005 – nil) which reflects
the increase in the value of investments made by the
Group in order to seed new funds. At 31st May
2006, these investments had a current market value
of £1.36 million (2005 – £0.46 million), and the
increase of £0.90 million during the year represents
new investments of £0.77 million plus the
revaluation reserve of £0.13 million. The prior year
adjustment of £0.30 million (2005 – nil) is the final
dividend for the year to 31st May 2005, restated as a
result of the adoption of FRS 21, as described above.
Balance sheet
Net current assets make up 93% of total net assets
(2005 – 91%). For the most part debtors and
creditors convert to cash within a three month
cycle, which is the longest fee billing period.
Historically, there have been no overdue or bad
debts, and the nature of our debtors – the funds
we manage – is such that the risks of delay or
default is low. Creditors comprise accruals of £1.07
million (2005 – £0.83 million), and tax of £0.78
million (2005 – £0.64 million). With regard to the
latter, the increase over the prior year is relatively
small because this year Corporation Tax has been
paid in quarterly instalments in both the UK and
Turnover, representing management fees charged as a percentage
of funds under management, rose in line with the underlying
increase in funds under management, and at £14.1million was
almost double the previous year’s figure. 
04 05 06
Total income £k
Fixed costs
Variable costs
Operating profit
Note: excludes AIM listing costs
3,929
7,745
14,128 City of London Investment Group Plc Annual Report 2006
9
the US (previously just the US). The other major
component of creditors is third party marketing
commission of £0.25 million (2005 – £0.12m).
The Company has extended loans amounting to
£1.03 million (2005 – £1.26 million) to a trust set
up for the purpose of acquiring and holding the
Company’s shares to service the Employee Share
Option scheme. These loans are repaid on the
exercise of options issued by the trust. The amount
outstanding was reduced by £0.23 million during the
year, following the exercise of options in respect of
513,300 shares. These options were all issued to staff
between 1997 and 2001 at an exercise price of £0.45.
Share capital and the share premium account have
increased by £0.03 million and £0.65 million
respectively as a result of the exercise of 667,500
dilutive options issued to Barry Olliff in 1997 at
£0.04, and 2,500,000 warrants issued to
shareholders in 2004 at £0.26.
Currency exposure
The Group’s income is substantially sourced in
US$ (in the region of 90% of total income),
while its expenses are roughly evenly divided
between £ and US$ (with a small Singapore $
element). Consequently, net income as reported
in £ is significantly exposed to movements in
the $/£ exchange rate, which during the year to
31st May 2006 moved within the approximate
range 1.70 to 1.90.
The following table illustrates the approximate
effect across a range of funds under management
assumptions, given the current geographical
distribution of the expense base:
Average FUM US$bn
2.5 3.0 3.5 4.0
US$/£ Pre-tax, £m
1.80 6.2 8.7 11.2 13.7
1.85 5.9 8.4 10.8 13.2
1.90 5.7 8.1 10.4 12.8
1.95 5.5 7.8 10.1 12.4
2.00 5.3 7.5 9.8 12.0
Assumes:
1 Average net fee 0.9%.
2 Annual operating costs £3.0m plus US$6.0m.
A deeper analysis, however, would show that the
Group’s profitability is not as exposed as it might
superficially appear to be, because the underlying
dynamic offers a significant degree of natural
hedge. This is so because the funds’ underlying
investments are substantially non-US$
denominated, and so a weaker US$ gives uplift to
the US$ value of funds under management.
Accordingly, the Group’s hedging strategy is
focused upon balance sheet exposure rather than
revenue exposure, with forward sales of US$ being
used when appropriate to substantially offset or
eliminate the intrinsic long US$ position.
Accounting standards and policies
As an AIM listed company, City of London
Investment Group is required to adopt
International Financial Reporting Standards (IFRS)
for the year ended 31st May 2008. The Board’s
current intention is to continue to produce
accounts in line with UK GAAP until that time.
The first results prepared under IFRS will therefore
be the interim results for the six months to 30th
November 2007.
Dividends have been restated in accordance with
FRS 21 as described above.
The Group’s seed investments (as described above)
have been included this year in current assets on
the basis that they are available for immediate
conversion to cash, and are not expected to be
maintained in the long term. The comparative
figures have been restated accordingly.
D F Allison
Finance Director
15th September 2006 Employee participation is reflected in a
low turnover of staff and loyal client base
people Officers and professional advisers
City of London Investment Group Plc Annual Report 2006
11
Directors
A Davison
(Chairman) (Non-executive)
D F Allison
O Ashur
(Non-executive)
D Cardale
(Non-executive)
(Appointed 10th March 2006)
T W Griffith
B M Olliff
G A Robb
(Non-executive)
C M Yuste
(Appointed 1st June 2005)
Company Secretary
D F Allison
Registered Office
10 Eastcheap
London
EC3M 1LX
Bankers
The Royal Bank of Scotland plc
London City Office
62-63 Threadneedle Street
London
EC2R 8LA
Auditors
Moore Stephens LLP
Chartered Accountants
St. Paul’s House
Warwick Lane
London
EC4M 7BP City of London Investment Group Plc Annual Report 2006
12
Board of directors
A Davison
NON EXECUTIVE CHAIRMAN
Andrew Davison, a Chartered Accountant, joined
County Bank Limited in 1972 and by 1984 had
become Managing Director of NatWest Ventures.
In 1987 he became Chairman and CEO of
Business Mortgages Bank which was sold in 1991.
He subsequently joined the Boards of a number
of listed and unlisted companies.
B M Olliff 
CHIEF EXECUTIVE OFFICER
Barry Olliff’s career has spanned over 40 years
within the investment trust (closed-end fund)
sector. He began his career in 1964 with Denny
Brothers, ultimately Pinchin Denny, as a market
maker in the sector. In 1979 he moved to Laing
& Cruickshank as a member of their investment
trust department, and became a director in 1984.
In 1987. He established Olliff & Partners, the
stockbroker business from which City of London
was founded in the early 1990’s.
D F Allison 
FINANCE DIRECTOR
Doug Allison qualified as a Chartered Accountant
with Ernst & Young in 1980, and has worked in
the financial services sector since 1984, joining
City of London in 1997. He is also an Associate
of the Chartered Institute of Bankers.
C M Yuste
BUSINESS DEVELOPMENT DIRECTOR
Carlos Yuste holds a BS in International Relations
from the University of Ottawa, and an MA in
International Political Economy from Carleton
University, also in Ottawa. He worked at the
International Development Research Centre in
Ottawa from 1994 to 1998, leaving to undertake
an International MBA at York University, Toronto,
which he completed in 2000 before joining City
of London in the same year. City of London Investment Group Plc Annual Report 2006
13
T W Griffith
CHIEF OPERATING OFFICER
Prior to joining City of London Group in 2000,
Thomas Griffith held various positions in the
institutional client division of The Vanguard
Group including roles as both a Client
Relationship Manager and a Marketing Executive.
In 1986 he obtained a bachelor’s degree in
Corporate Finance and Investment Management
from the University of Alabama.
O Ashur
NON EXECUTIVE DIRECTOR
Omar Ashur is the chief financial officer of FMH,
one of the Company’s major shareholders and has
an MBA and PhD from the Wharton School of
the University of Pennsylvania, in Philadelphia.
D Cardale
NON EXECUTIVE DIRECTOR
David Cardale is the co-founder and Chairman
of Global Investor Relations. He has worked
extensively in both Corporate Finance and
Private Equity. He has advised a number of fund
management groups including Gartmore, Ivory &
Sime and NIM, and ran the European operations
of NatWest Equity Partners. He has been a director
of two London listed Investment T rusts. David
Cardale holds an MBA from INSEAD.
G A Robb 
NON EXECUTIVE DIRECTOR
George Robb qualified as a solicitor before
becoming fully involved with the asset
management sector in 1971. He was a founder
director and shareholder of Aberdeen Asset
Management and in 1994 established AMIC.
He is a non-executive director of several
companies in which AMIC is invested. Report of the directors
City of London Investment Group Plc Annual Report 2006
14
The directors present their annual report and the audited financial statements for the year ended 31st May 2006.
Principal activity and review of business
City of London Investment Group Plc is the holding company for a number of investment management subsidiaries. The principal
operating subsidiary is City of London Investment Management Company Limited, which acts as an investment adviser and which
advises on 22 accounts (2005 – 17 accounts) with a total of £1,471m (2005 – £783m) under management as at the end of the year.
Two other operating subsidiaries, City of London Quantitative Management Limited and City of London Latin America Limited,
ceased trading on 30th June 2005 and 31st January 2006 respectively, and in due course will be wound up.
The Report of the directors should be read in conjunction with the Chairman’s statement, the Chief Executive Officer’s review, and
the Financial review on pages 2 to 9, which together provide a commentary on the operations of the Group.
Future prospects
The Board is optimistic as to the future and is committed to increasing the group’s funds under management.
Results and dividend
The results of the group for the year, together with details of amounts transferred to reserves, are set out on page 20. The Company
has paid dividends of £2,282,675 during the year (2005 – £350,009).
Corporate governance
(a) The Board of directors
The Board recognises the importance of good corporate practice and is committed to maintaining high standards of corporate
governance throughout the group. The Board comprises four executive directors and four non-executive directors. The directors intend
to comply with the Combined Code in such respects as are appropriate for a company of this size, nature and stage of development.
The Board meets regularly and has overall responsibility for ensuring that the group is properly led and controlled, and is
accountable to shareholders for financial and operational performance. These responsibilities include the overall strategy of the
group, approval of significant items of expenditure and consideration of significant financing matters pertaining to the group.
The Board has established an Audit Committee, a Remuneration Committee and a Nominations Committee (each comprising the four
non-executive directors, who will invite other members of the Board to join meetings) with formally delegated duties and responsibilities.
(b) The Remuneration Committee
The Remuneration Committee is chaired by George Robb. It reviews the performance of executive directors and sets the scale and
structure of their remuneration and reviews the basis of their service agreements with due regard to the interests of the shareholders.
The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to directors
and employees. The remuneration and terms of appointment of non-executive directors will be set by the Board.
The company has a remuneration policy, the aim of which is to provide, in the context of the group’s business strategy,
remuneration that will attract and retain high calibre executives and staff. In order to achieve this, total rewards are set at levels that
are competitive within the relevant market. Rewards are earned through the achievement of objectives based on measures consistent
with shareholder interests.
(c) The Audit Committee
The Audit Committee is chaired by Andrew Davison. It meets at least twice each year and is responsible for monitoring the quality
of internal control, ensuring that the financial performance of the company is properly measured and reported on, meeting with the
auditors and reviewing reports from the auditors relating to accounting and internal controls.
The finance director is invited to attend meetings but the committee meets with the auditors at least once a year without the finance
director being present.
  City of London Investment Group Plc Annual Report 2006
15
(d) The Nominations Committee
The Nominations Committee is chaired by Andrew Davison. It is responsible for reviewing and proposing appointments to the
Board and the various Board committees. In addition, the committee has responsibility for reviewing the composition of the Board
and for selecting candidates for appointment, to meet the desired composition.
(e) Corporate Governance in Investee Closed-End Funds
Since 1999, City of London has produced a detailed statement outlining the corporate governance procedures and policies it expects
to be employed by closed-end funds in which we invest. We are now on the fifth edition of our “Statement on Corporate
Governance and Voting Policy for Closed-End Funds”. In publishing this statement we attempt to capture the current best practices
in the corporate governance of closed-end funds.
Corporate governance is an integral part of our investment process because it is our firm belief that a closed-end fund with poor
corporate governance will generally trade at a wide discount over time. Poor corporate governance in a closed-end fund results in
fund price under-performance via the widening of the discount to the Net Asset Value at which the fund trades.
Our statement is addressed to Boards, Managers, Shareholders, and the Professional community. It attempts to define the
responsibilities of all the parties involved within a closed-end fund, with the ultimate aim of promoting shareholder value and the
long-term interests of the closed-end fund sector.
A copy of our statement is distributed to the members of the Boards of the closed-end funds in which we invest and is available on
our website.
Directors interests and remuneration
(a) Shareholdings
The directors who served throughout the year and their interests in the company were as follows:
Ordinary Shares of
1p each 25p each
2006 2005
A Davison (Chairman) (non-executive) 49,000 1,750
B M Olliff 3,763,250 104,733
D F Allison 165,625 380
T W Griffith 14,075 –
C M Yuste (appointed 1st June 2005) 16,575 –
G A Robb (non-executive) – –
O Ashur (non-executive) – –
C Arcella (non-executive) (resigned 31st January 2006) – –
D Cardale (non-executive) (appointed 10th March 2006) – –
Notes:
(i) By a special resolution of the company passed on 6th April 2006, each of the issued and unissued ordinary shares of 25p each
was subdivided into 25 ordinary shares of 1p each.
(ii) On 4th July 2006 O Ashur purchased 5,000 shares, and T W Griffith purchased a further 2,500 shares, taking their holdings to
5,000 shares and 16,575 shares respectively. Report of the directors
Continued
City of London Investment Group Plc Annual Report 2006
16
(b) Share options
At 31st May 2006 share options were held by the following directors:
Exercise price Date from which
Number £ exercisable Expiry date
B M Olliff 62,500 0.45 10th January 2004 10th January 2008
62,500 0.45 13th September 2004 13th September 2008
500,000 0.29 14th May 2007 14th May 2009
25,000 1.40 31st March 2009 31st March 2016
D F Allison 62,500 0.45 10th January 2004 10th January 2008
62,500 0.45 13th September 2004 13th September 2008
250,000 0.26 14th May 2007 14th May 2014
18,750 1.40 31st March 2009 31st March 2016
T W Griffith 50,000 0.45 10th January 2004 10th January 2008
50,000 0.45 13th September 2004 13th September 2008
250,000 0.26 14th May 2007 14th May 2014
12,500 1.40 31st March 2009 31st March 2016
C M Yuste 50,000 0.45 10th January 2004 10th January 2008
50,000 0.45 13th September 2004 13th September 2008
250,000 0.26 14th May 2007 14th May 2014
12,500 1.40 31st March 2009 31st March 2016
(c) Remuneration
The remuneration of the directors who held office during the year ended 31st May 2006 is set out below:
Health Total Total Pension Pension
Salary Profit share insurance 2006 2005 2006 2005
£££ £ £ £ £
Non-executive
A Davison 25,764 –– 25,764 21,250 – –
G A Robb 15,764 – – 15,764 9,750 – –
O Ashur 15,764 – – 15,764 12,750 – –
D Cardale 4,483 – – 4,483 – – –
61,775 – – 61,775 43,750 – –
Executive
B M Olliff 197,053 530,129 – 727,182 347,885 24,632 23,504
D F Allison 125,004 215,000 977 340,981 218,754 15,626 15,626
T W Griffith 85,858 126,677 – 212,535 126,583 10,732 9,150
C M Yuste 85,858 126,677 – 212,535 –* 10,732 –*
493,773 998,483 977 1,493,233 693,222 61,722 48,280
*Carlos Yuste’s appointment to the Board took effect from 1st June 2005. City of London Investment Group Plc Annual Report 2006
17
Substantial shareholdings
At 29th August 2006, the Company had been notified of the following interests of 3% or more in the Company’s ordinary shares:
Number of Percentage of
Interested party shares issued shares
FMH Investments NV 7,929,425 29.61
B M Olliff 3,763,250 14.05
Scaleoption plc 3,134,300 11.70
Asset Management Investment Company PLC 2,531,275 9.45
F&C Asset Management 2,517,510 9.40
The City of London Employee Share Option Trust 2,455,250 9.17
Creditor payment policy
The Company’s current policy concerning the payment of its trade creditors is to:
(a) settle the terms of payment with suppliers when agreeing the terms of each transaction;
(b) ensure that suppliers are made aware of the terms of payment; and
(c) abide by the terms of payment.
The payment policy applies to all payments to suppliers for revenue and capital supplies of goods and services without exception.
As at 31st May 2006, the creditor days are Nil (2005 – Nil).
Donations
During the year the group made charitable donations of £2,000.
Auditors
On 3rd October 2005, Moore Stephens, the Company’s auditor, transferred its entire business to Moore Stephens LLP , a limited
liability partnership incorporated under the Limited Liability Partnerships Act 2000. The directors consented to treating the
appointment of Moore Stephens as extending to Moore Stephens LLP with effect from 3rd October 2005. A resolution to re-
appoint Moore Stephens LLP as the Company’s auditor will be put to the forthcoming Annual General Meeting.
Each of the persons who are directors at the time when this report is approved has confirmed that:
(a) so far as each director is aware, there is no relevant audit information of which the company’s auditors are unaware; and
(b) each director has taken all the steps that ought to have been taken as a director, including making appropriate enquiries of fellow
directors and the company’s auditors for that purpose, in order to be aware of any information needed by the company’s auditors
in connection with preparing their report and to establish that the company’s auditors are aware of that information.
Approved by the Board of directors and signed on behalf of the Board
D F Allison
Company Secretary
15th September 2006 Statement of directors’ responsibilities
City of London Investment Group Plc Annual Report 2006
18
United Kingdom company law requires the directors to prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss of the group for
that year. In preparing those financial statements, the directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable accounting standards have been followed, subject to any material departures disclosed
and explained in the financial statements;
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are
also responsible for the system of internal control, for safeguarding the assets of the company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities. Independent auditors’ report to the shareholders
of City of London Investment Group plc
City of London Investment Group Plc Annual Report 2006
19
We have audited the group and parent company financial statements (the “financial statements”) of City of London Investment
Group plc for the year ended 31st May 2006 which are set out on pages 20 to 36. These financial statements have been prepared
under the accounting policies set out therein.
This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’
report and for no other purpose. T o the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of
directors’ responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in
accordance with the Companies Act 1985. We also report to you if, in our opinion, the company has not kept proper accounting
records, if we have not received all the information and explanations we require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions is not disclosed.
We report to you whether in our opinion the information given in the directors’ report is consistent with the financial statements.
In addition, we read other information contained in the Annual Report. This other information comprises the Introduction and
highlights, the Chairman’s statement, the Chief Executive Officer’s review and the Financial review. We consider the implications for
our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our
responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice,
of the state of the group’s and the parent company’s affairs as at 31st May 2006 and of the group’s profit for the year then ended;
• the financial statements have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the directors’ report is consistent with the financial statements.
Moore Stephens LLP
15th September 2006
Registered Auditors and Chartered Accountants
St Paul’s House, Warwick Lane, London EC4M 7BP Consolidated profit and loss account
For the year ended 31st May 2006
City of London Investment Group Plc Annual Report 2006
20
Discontinued Continuing Total Total 2005
2006 2006 2006 (as restated)
Note £ £ £ £
T urnover 1,2 38,700 14,079,939 14,118,639 7,744,770
Administrative expenses
Staff costs 4(b) 16,455 4,488,282 4,504,737 2,934,801
Other administrative expenses 21,264 4,329,643 4,350,907 2,651,112
AIM listing costs – 482,708 482,708 –
Depreciation 35 108,077 108,112 98,541
(37,754) (9,408,710) (9,446,464) (5,684,454)
Other operating income 8,411 1,109 9,520 –
Operating profit 6 9,357 4,672,338 4,681,695 2,060,316
Interest receivable and similar income 7 109,562 64,065
Profit on ordinary activities before taxation 4,791,257 2,124,381
Tax charge on profit on ordinary activities 8 (1,784,138) (790,890)
Profit on ordinary activities after taxation 3,007,119 1,333,491
Dividends 9 (2,282,675) (350,009)
Retained profit for the financial year 17 724,444 983,482
Basic profit per share 10 13.8p 6.4p
Diluted profit per share 10 11.9p 4.8p
Consolidated statement of total recognised gains and losses
For the year ended 31st May 2006
2005
2006 (as restated)
Note £ £
Retained profit for the period 724,444 983,482
Increase in revaluation reserve 134,506 –
Total recognised gains and losses for the period 858,950 983,482
Prior year adjustment 17 300,013
Total gains and losses recognised since the last annual report 1,158,963 Consolidated balance sheet
31st May 2006
City of London Investment Group Plc Annual Report 2006
21
2005
2006 (as restated)
Note £ £
Fixed assets
Tangible assets 11 225,939 201,993
Investments 12 61,253 20,028
287,192 222,021
Current assets
Debtors 13 2,136,312 1,092,529
Investments 14 1,359,563 463,890
Cash at bank and in hand 2,708,915 2,398,040
6,204,790 3,954,459
Creditors, amounts falling due within one year 15 (2,160,169) (1,611,302)
Net current assets 4,044,621 2,343,157
Total assets less current liabilities 4,331,813 2,565,178
Capital and reserves
Called up share capital 16 267,777 236,102
Share premium account 17 1,357,283 712,258
Investment in own shares 17 (1,027,283) (1,258,268)
Revaluation reserve 17 134,506 –
Profit and loss account 17 3,599,530 2,875,086
Shareholders’ funds 17 4,331,813 2,565,178
The Board of directors approved these financial statements on 15th September 2006.
Signed on behalf of the Board of directors
B M Olliff D F Allison
Chief Executive Officer Finance Director Company balance sheet
31st May 2006
City of London Investment Group Plc Annual Report 2006
22
2005
2006 (as restated)
Note £ £
Fixed assets
Tangible assets 11 63,252 68,960
Investments 12 636,187 372,030
699,439 440,990
Current assets
Debtors 13 632,617 507,065
Investments 14 1,359,563 463,890
Cash at bank and in hand 35,261 354,192
2,027,441 1,325,147
Creditors, amounts falling due within one year 15 (1,093,182) (920,616)
Net current assets 934,259 404,531
Total assets less current liabilities 1,633,698 845,521
Capital and reserves
Called up share capital 16 267,777 236,102
Share premium account 17 1,357,283 712,258
Investment in own shares 17 (1,027,283) (1,258,268)
Revaluation reserve 17 134,506 –
Profit and loss account 17 901,415 1,155,429
Shareholders’ funds 17 1,633,698 845,521
The Board of directors approved these financial statements on 15th September 2006.
Signed on behalf of the Board of directors
B M Olliff D F Allison
Chief Executive Officer Finance Director Cash flow statement
For the year ended 31st May 2006
City of London Investment Group Plc Annual Report 2006
23
2006 2005
Note £ £
Consolidated cash flow statement
Net cash inflow from operating activities 20 4,145,424 2,199,337
Returns on investments and servicing of finance 21 109,562 64,065
Taxation 21 (1,643,687) (223,889)
Capital expenditure and financial investment 21 (164,267) (222,509)
Equity dividends paid (2,282,675) (350,009)
Financing 21 907,685 –
Management of liquid resources 21 (761,167) (311,027)
Increase in cash 23 310,875 1,155,968 Notes to the financial statements
For the year ended 31st May 2006
City of London Investment Group Plc Annual Report 2006
24
1 Accounting policies
The financial statements are prepared in accordance with applicable United Kingdom law and accounting standards.
The principal accounting policies adopted by the directors are set out below.
(a) Consolidation
These financial statements consolidate the financial statements of the company and all of its subsidiary undertakings.
The company’s principal subsidiaries are City of London Investment Management Company Limited and City of London
US Services Limited, all other subsidiaries being dormant at 31st May 2006
Goodwill of £25,023 arising on the acquisition of the subsidiary undertakings, being the excess of cost over the fair value of the
net tangible assets acquired, was written off directly to reserves in the year of acquisition for those acquisitions prior to 23rd
December 1998. Any goodwill arising on subsequent acquisitions will be capitalised and amortised over its useful economic life.
(b) T urnover
T urnover arises in Europe, North America and South America and comprises investment management fees earned.
(c) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the
balance sheet date and any exchange differences arising are dealt with through the profit and loss account.
(d) Tangible fixed assets and depreciation
For all tangible fixed assets depreciation is calculated to write off their cost to their estimated residual values by equal annual
instalments over the period of their estimated useful lives, which are considered to be:
Short leasehold property improvements – over the remaining life of the lease
Furniture and equipment – four years
Computer and telephone equipment – four years
(e) Investments
Fixed asset investments are stated at cost less provision for any impairment in value.
Current asset investments are those investments which are considered to be liquid assets. They are stated at market value, and
unrealised gains and losses are reflected in the revaluation reserve in accordance with the alternative accounting rules of the
Companies Act 1985. Comparatives have been restated in order to facilitate comparison with the current period.
(f) Leases
The cost of operating leases is charged to the profit and loss account in equal periodic instalments over the periods of the leases.
(g) Pensions
The group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension
schemes are charged to the profit and loss account as they accrue. City of London Investment Group Plc Annual Report 2006
25
1 Accounting policies continued
(h) Comparatives
Comparatives have been restated in respect of the presentation of dividends in accordance with FRS 21.
(i) Deferred taxation
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or
a right to pay less tax, at a future date, at rates that are expected to apply when they crystallise based on current tax rates and
law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods
different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that
it is regarded more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
2 T urnover
2006 2005
£ £
Management fees earned by subsidiary companies charged
as a percentage of funds under management 14,118,639 7,744,770
3 Analysis of turnover, operating profit and net assets
The directors consider that the group only undertakes one class of business, and hence only analysis by geographical location is given.
Turnover Operating profit Net assets
2005
2006 2005 2006 2005 2006 (as restated)
£ £ £ £ £ £
Europe 585,206 360,512 919,223 97,514 2,271,782 2,670,533
North America 13,185,903 6,093,723 3,538,613 1,203,505 2,014,559 31,082
South America 298,173 1,290,535 205,660 759,297 5,084 (136,437)
Other 49,357 – 18,199 – 40,388 –
14,118,639 7,744,770 4,681,695 2,060,316 4,331,813 2,565,178 Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
26
4 Employees
(a) Average number of persons employed by the group in the year:
2006 2005
Number Number
Investment management staff 9 6
Sales and dealing staff 2 1
Research staff 7 6
Settlement staff 2 2
Administration staff 18 17
38 32
(b) Staff costs incurred during the year in respect of these employees were:
2006 2005
£ £
Wages and salaries 1,960,784 1,589,449
Profit sharing payments 2,024,485 940,574
Social security costs 299,276 220,834
Defined contribution pension costs 220,192 183,944
4,504,737 2,934,801
The group made contributions of £220,192 (2005 – £183,944) in the period to individual defined contribution pension
schemes established for directors and employees. There were no outstanding or prepaid contributions at the balance sheet date.
5 Directors
Directors’ emoluments comprise:
2006 2005
£ £
Emoluments (excluding pension contributions and awards under share option schemes) 1,555,008 773,604
Pension contributions 61,722 52,699
2006 2005
Number Number
Number of directors on whose behalf pension contributions were paid during the year 4 4
2006 2005
£ £
Number of directors who exercised share options during the period 2 –
Highest paid director’s remuneration:
Emoluments (excluding pension contributions and awards under share option
schemes and other long-term incentive schemes) 727,181 347,885
Pension contributions 24,632 23,504
The highest paid director exercised share options during the period. City of London Investment Group Plc Annual Report 2006
27
6 Operating profit
2006 2005
£ £
The operating profit is arrived at after charging:
Depreciation of owned assets 108,112 98,541
Auditors’ remuneration:
– Audit fees 53,450 30,000
– Other services 131,142 27,306
Operating lease rentals:
– Land and buildings 143,516 96,875
7 Interest receivable and similar income
2006 2005
£ £
Interest on bank deposit 109,562 64,065
8 Tax charge on profit on ordinary activities
(a) Analysis of tax charge on ordinary activities:
2006 2005
£ £
Tax at 30% (2005 – 30%) based on the profit for the year 1,538,223 628,628
Double taxation relief (415,360) (331,628)
Adjustments in respect of prior years (3,148) (7,995)
1,119,715 289,005
Foreign tax for the current period 652,983 503,000
Adjustments in respect of prior years 11,440 (1,115)
664,423 501,885
1,784,138 790,890 Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
28
8 Tax charge on profit on ordinary activities continued
(b) Factors affecting tax charge for the current period:
The tax assessed for the period is different to that resulting from applying the standard rate of corporation tax in the UK: 30%
(prior year: 30%). The differences are explained below:
2006 2005
£ £
Profit on ordinary activities before tax 4,791,257 2,124,381
Tax at 30% thereon (1,437,377) (637,314)
Effects of:
Expenses not deductible for tax purposes (100,000) (2,968)
Capital allowances more than depreciation – 9,202
Unrelieved overseas tax (237,623) (171,372)
Prior period adjustments (8,292) 9,110
Other (846) 2,452
(1,784,138) (790,890)
9 Dividend
2005
2006 (as restated)
£ £
Dividends paid:
Interim dividend of £2.15 per share (2005 – £0.24) 1,982,662 200,009
Final dividend in respect of year ended:
31st May 2004 of £0.18 per share – 150,000
31st May 2005 of £0.36 per share 300,013 –
2,282,675 350,009
10 Earnings per share
The calculation of basic earnings per share is based on the profit for the year of £3,007,119 (2005 – £1,333,491) divided by the
weighted average of ordinary shares in issue for the year ended 31st May 2006 of 21,855,212 (2005 – 20,834,250).
As set out in Note 17 the Employee Benefit Trust held ordinary shares in the Company as at 31st May 2006. The Trustees of
the Trust have waived all rights to dividends associated with these shares. In accordance with FRS22 the ordinary shares held by
the Employee Benefit Trust have been excluded from the calculation of the weighted average of ordinary shares in issue.
The calculation of diluted earnings per share is based on the profit for the year of £3,007,119 (2005 – £1,333,491) divided by
the diluted weighted average of ordinary shares for the year ended 31st May 2006 of 25,272,459 (2005 – 27,587,026).
FRS22 requires that diluted earnings per share is calculated using the average share price during the year. The company listed on
AIM during the year, and so the average share price since that time has been used in the above calculation.
Comparative figures for ordinary shares anticipate the 25:1 share split to facilitate comparison with the current year. City of London Investment Group Plc Annual Report 2006
29
11 Tangible fixed assets
Group
Computer
Furniture and Short
and Telephone Leasehold
Equipment Equipment Improvements Total
££££
Cost
At 1st June 2005 82,548 552,863 157,448 792,859
Additions 12,595 118,958 1,715 133,268
Disposals (446) (84,241) – (84,687)
At 31st May 2006 94,697 587,580 159,163 841,440
Accumulated depreciation
At 1st June 2005 77,511 372,793 140,562 590,866
Charge for the year 4,828 96,632 6,652 108,112
Disposals (446) (83,031) – (83,477)
At 31st May 2006 81,893 386,394 147,214 615,501
Net book value
At 31st May 2006 12,804 201,186 11,949 225,939
At 31st May 2005 5,037 180,070 16,886 201,993
Company
Computer
Furniture and Short
and Telephone Leasehold
Equipment Equipment Improvements Total
££££
Cost
At 1st June 2005 44,437 235,304 132,419 412,160
Additions 2,687 30,309 – 32,996
Disposals (446) (57,635) – (58,081)
At 31st May 2006 46,678 207,978 132,419 387,075
Accumulated depreciation
At 1st June 2005 42,632 181,296 119,272 343,200
Charge for the year 1,273 32,126 5,305 38,704
Disposal (446) (57,635) – (58,081)
At 31st May 2006 43,459 155,787 124,577 323,823
Net book value
At 31st May 2006 3,219 52,191 7,842 63,252
At 31st May 2005 1,805 54,008 13,147 68,960 Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
30
12 Investments held as fixed assets
Group
Unlisted
Investments
£
Cost
At 1st June 2005 – as restated 20,028
Exchange translation (502)
Additions 41,727
At 31st May 2006 61,253
Company
Shares in
Unlisted subsidiary
investments undertakings Total
£££
Cost
At 1st June 2005 – as restated 20,028 352,002 372,030
Exchange translation (502) – (502)
Additions 40,657 234,000 274,657
Disposals – (9,998) (9,998)
At 31st May 2006 60,183 576,004 636,187
Holding of
ordinary
Subsidiary undertakings Activity shares
City of London Investment Management Company Limited Management of funds 100%
City of London Unit Trust Managers Limited Dormant company 100%
Grange Nominees Limited Nominee company 100%
Olliff & Partners Incorporated Limited Dormant company 100%
City of London US Investments Limited Holding company for US companies 100%
City of London US Investments Limited holds 100%
of the ordinary shares in the following:
City of London US Services Limited Service company
City of London Quantitative Management Limited Management of funds
City of London Latin America Limited Management of funds
The above companies are incorporated in Great Britain and registered in England and Wales. They are included in the consolidated
financial statements of the group. In the opinion of the directors, the value of the subsidiaries is at least equal to their cost. City of London Investment Group Plc Annual Report 2006
31
13 Debtors
Group Company
2005
2006 2005 2006 (as restated)
£ £ £ £
Trade debtors 1,762,550 960,851 – –
Amounts owed by group undertakings – – 35,110 431,843
Other debtors 180,282 42,754 98,779 27,189
Prepayments and accrued income 193,480 80,947 157,725 48,033
Corporation tax recoverable – 7,977 341,003 –
2,136,312 1,092,529 632,617 507,065
14 Current asset investments
Group and Company
31st May
31st May 2005
2006 (as restated)
£ £
Unlisted investments at market value 1,359,563 463,890
Unlisted investments at cost 1,225,057 463,890
15 Creditors: amounts falling due within one year
Group Company
2005 2005
2006 (as restated) 2006 (as restated)
£ £ £ £
Trade creditors 252,893 122,098 – –
Sundry creditors 57,279 19,244 85,357 1,011
Amounts owed to group undertakings – – 541,520 463,422
Other creditors including taxation and social security 780,692 640,242 – 42,351
Accruals and deferred income 1,069,305 829,718 466,305 413,832
2,160,169 1,611,302 1,093,182 920,616 Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
32
16 Share capital
Group and Company
31st May 31st May
2006 2005
Number of Number of
shares shares
Authorised
Ordinary shares of 1p (2005 – 25p each) 90,000,000 1,200,000
£ £
Ordinary shares of 1p (2005 – 25p each) 900,000 300,000
Group and Company
31st May 31st May
2006 2005
Number of Number of
shares shares
Allotted, called up and fully paid
Ordinary shares of 1p each (2005 – 25p each) 26,777,800 944,412
£ £
Ordinary shares of 1p each (2005 – 25p each) 267,777 236,102
During the period, the company allotted 126,700 £0.25 ordinary shares of which 100,000 were at a premium of £6.25 per share
and 20,700 at a premium of £0.75 per share.
During the period, the company passed a special resolution thus sub-dividing each of its issued and unissued £0.25 shares into
25 £0.01 shares. This resulted in the company’s issued share capital of £1,071,112 £0.25 ordinary shares becoming 26,777,800
£0.01 ordinary shares and its authorised share capital of 1,200,000 £0.25 ordinary shares becoming 30,000,000 £0.01 ordinary
shares. On the same day the company also passed a special resolution to increase its authorised share capital to 90,000,000
ordinary shares of £0.01 each. City of London Investment Group Plc Annual Report 2006
33
17 Combined statement of movement in reserves and reconciliation of shareholders’ funds
Group
Year ended
31st May
Share Investment Profit 2005
Share premium in own Revaluation and loss Total
capital account shares reserve account Total (as restated)
£ ££££ ££
At 1st June 2005 –
as previously stated 236,102 712,258 (1,258,268) – 2,575,073 2,265,165 1,431,696
Prior year adjustment FRS 21 – – – – 300,013 300,013 150,000
At 1st June 2005 –
as restated 236,102 712,258 (1,258,268) – 2,875,086 2,565,178 1,581,696
Revaluation reserve – – – 134,506 – 134,506 –
Share allotment 31,675 645,025 230,985 – – 907,685 –
Profit retained for the period – – – – 724,444 724,444 983,482
At 31st May 2006 267,777 1,357,283 (1,027,283) 134,506 3,599,530 4,331,813 2,565,178
Company
Year ended
31st May
Share Investment Profit 2005
Share premium in own Revaluation and loss Total
capital account shares reserve account Total (as restated)
££££ £££
At 1st June 2005 –
as previously restated 236,102 712,258 (1,258,268) – 1,205,416 895,508 744,624
Prior year adjustment FRS 21 – – – – (49,987) (49,987) (50,000)
At 1st June 2005 –
as restated 236,102 712,258 (1,258,268) – 1,155,429 845,521 694,624
Revaluation reserve – – – 134,506 – 134,506 –
Share allotment 31,675 645,025 230,985 – – 907,685 –
(Loss)/profit retained
for the period – – – – (254,014) (254,014) 150,897
At 31st May 2006 267,777 1,357,283 (1,027,283) 134,506 901,415 1,633,698 845,521
Investments in own shares relate to City of London Investments Group Plc shares held by an Employee Benefit Trust on behalf
of City of London Investment Group Plc.
At 31st May 2006 the Trust held 2,262,750 ordinary 1p shares (2005 – 111,042 ordinary 25p shares), of which 2,247,050
ordinary 1p shares (2005 – 102,748 ordinary 25p shares) were subject to options in issue.
In total, the company has granted options over 4,747,050 ordinary shares at exercise prices from £0.26 to £1.40. These options
have a range of exercise dates from September 2000 to March 2016. Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
34
18 Profit of the Parent Company
As permitted by section 230 of the Companies Act 1985, the profit and loss account of the parent company is not presented as
part of these financial statements. The parent company’s profit for the financial period before dividends paid, amounted to
£2,028,661 (2005 restated – £500,906).
19 Operating lease commitments
At 31st May 2006 the group was committed to making the following payments during the next year in respect of operating leases:
Motor Land and Motor Land and
vehicle buildings vehicle buildings
2006 2006 2005 2005
£ £ £ £
Leases which expire:
Within one year – 34,755 – 10,052
In the second to fifth years inclusive 6,826 99,496 – 82,447
6,826 134,251 – 92,499
20 Reconciliation of operating profit to net cash inflow from operating activities
2005
2006 (as restated)
£ £
Operating profit 4,681,695 2,060,316
Profit on sale of fixed assets (9,519) –
Depreciation charges 108,112 98,541
Decrease in debtors (1,043,783) (468,946)
Increase in creditors 408,417 509,527
Translation adjustments on investments 502 (101)
Net cash inflow from operating activities 4,145,424 2,199,337 City of London Investment Group Plc Annual Report 2006
35
21 Gross cash flows
2006 2005
£ £
Returns on investments and servicing of finance
Interest received 109,562 64,065
Taxation
Corporation tax paid (1,643,687) (223,889)
Capital expenditure and financial investment
Payments to acquire investments (41,727) –
Payments to acquire tangible fixed assets (133,268) (222,509)
Receipts from sales of tangible fixed assets 10,728 –
(164,267) (222,509)
Financing
Repayment of ESOP loan 230,985 –
Issue of ordinary share capital 676,700 –
907,685 –
Management of liquid resources
Payment to acquire current asset investments (761,167) (463,890)
Receipts from sale of current asset investments – 152,863
(761,167) (311,027)
22 Reconciliation of net cash flow to movement in net funds
2005
2006 (as restated)
£ £
Increase in cash in the year 310,875 1,155,968
Increase in liquid assets 761,167 311,027
Non cash changes 134,506 –
Change in net funds 1,206,548 1,466,995
Net funds at 1st June 2,861,930 1,394,935
Net funds at 31st May 4,068,478 2,861,930 Notes to the financial statements
Continued
City of London Investment Group Plc Annual Report 2006
36
23 Analysis of changes in net funds
At At
1st June Cash Revaluation 31st May
2005 flows reserve 2006
£ ££ £
Cash at bank and in hand 2,398,040 310,875 – 2,708,915
Current asset investments 463,890 761,167 134,506 1,359,563
2,861,930 1,072,042 134,506 4,068,478
24 Related party transactions
Advantage has been taken of the exemption under Financial Reporting Standard No. 8 not to disclose transactions between
entities, 90% or more of whose voting rights are controlled within the Group.
There are no other related party transactions requiring disclosure.
25 Financial instruments
Most of the group’s revenues, and a significant part of its expenses, are denominated in currencies other than sterling, principally
United States’ and Canadian Dollars. These revenues are derived from fee income which is based upon the net asset value of
accounts managed, and have the benefit of a natural hedge by reference to the underlying currencies in which investments are
held. Inevitably, debtor and creditor balances arise which in turn give rise to currency exposure. Each of the group’s subsidiaries
eliminates its currency exposure by transfer to the holding company. All hedging activity is therefore assessed at the group level.
Forward foreign exchange transactions are executed so as to substantially reduce the group’s exposure to currency market
movements. The level of forward currency hedging is such as is judged by the directors to be consistent with market conditions.
As at 31st May 2006, the group had net asset balances of US $7,507,086, offset by forward sales totalling US $3,600,000,
and net asset balances of C $501,335.
The group has no borrowings, and therefore has no exposure to interest rate risk other than that which attaches to its interest
earning cash balances. The group’s strategy is to maximise the amount of cash which is maintained in interest bearing accounts,
and to ensure that those accounts attract a competitive interest rate. At 31st May 2006 the group held £2,708,915 in cash
balances, of which £2,552,656 was held in bank accounts which attract variable interest rates.
The fair value of the group’s financial assets and liabilities is materially the same as the book value. Notice of Annual General Meeting
City of London Investment Group Plc Annual Report 2006
37
Notice is hereby given that the Annual General Meeting of City of London Investment Group Plc will be held at the offices of
Tavistock Communications, 131 Finsbury Pavement, London EC2A 1NT on Monday 30th October 2006 at 11.30 am for the
following purposes:
Ordinary business
1. To receive and adopt the financial statements for the year ended 31 May 2006 together with the reports of the directors and
auditors thereon.
2. Having retired by rotation, to re-elect Barry Martin Olliff as a director of the Company in accordance with article 132 of the
Company’s articles of association.
3. Having retired by rotation, to re-elect Douglas Forbes Allison as a director of the Company in accordance with article 132 of the
Company’s articles of association.
4. Having retired by rotation, to re-elect Andrew John Davison as a director of the Company in accordance with article 132 of the
Company’s articles of association.
5. Having retired by rotation, to re-elect Omar Issam Ashur as a director of the Company in accordance with article 132 of the
Company’s articles of association.
6. Having been appointed by the board since the last annual general meeting, to re-elect George Alan Robb as a director of the
Company in accordance with article 136 of the Company’s articles of association.
7. Having been appointed by the board since the last annual general meeting, to re-elect Carlos Manuel Yuste as a director of the
Company in accordance with article 136 of the Company’s articles of association.
8. Having been appointed by the board since the last annual general meeting, to re-elect David Cardale as a director of the
Company in accordance with article 136 of the Company’s articles of association.
9. To re-appoint Moore Stephens LLP as auditors of the Company to hold office from the conclusion of the meeting until the
conclusion of the next general meeting of the Company at which accounts are laid before the Company and authorise the
directors to determine the auditors’ remuneration.
Special business
To consider and, if thought fit, pass the following resolution as a special resolution:
10. THAT the Company be generally and unconditionally authorised to make market purchases (within the meaning of section
163(3) of Act) of any of its ordinary shares of £0.01 (1p) provided that:
(a) the maximum number of ordinary shares which may be purchased is 4,000,000 (representing 14.94% of the Company’s
issued ordinary share capital at the time of this resolution);
(b) the minimum price which may be paid for each ordinary share is £0.01 (1p) which amount shall be exclusive of expenses, if any; Notice of meeting
Continued
City of London Investment Group Plc Annual Report 2006
38
(c) the maximum price, exclusive of any expenses, which may be paid for any ordinary share is an amount equal to 105% of the
average of the middle market quotations for the ordinary shares of the Company as derived from the Daily Official List of
the London Stock Exchange plc for the five business days immediately preceding the date on which such share is contracted
to be purchased; 
(d) unless previously renewed, revoked or varied, this authority shall expire at the conclusion of the annual general meeting in
2007 or 15 months after the passing of this resolution (whichever is the earlier); and
under this authority the Company may make a contract to purchase ordinary shares which would or might be executed
wholly or partly after the expiry of this authority and may make purchases of ordinary shares pursuant to it as if this
authority had not expired.
By order of the Board
D F Allison
Company Secretary
15th September 2006
Registered office
10 Eastcheap
London EC3M 1LX
Registered in England and Wales No 2685257 Notes to the Notice of Annual General Meeting
City of London Investment Group Plc Annual Report 2006
39
1. A member entitled to receive notice, attend and vote at the annual general meeting (“AGM”) is entitled to appoint a proxy or
proxies to attend and, on a poll, vote instead of him. Such proxy need not be a member of the Company. Completion of a form
of proxy does not preclude the member attending the meeting and voting in person if they so wish. To be valid, the instrument
appointing a proxy, together, if appropriate, with a power of attorney or other authority (if any) under which it is signed, or a
notarially certified copy of such authority, must be deposited at the offices of the Company’s registrars, Capita Registrars, The
Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the time fixed for the holding of the
meeting. A form of proxy accompanies this notice.
2. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on the
register of members of the Company in order to have the right to attend and vote at the annual general meeting (and for the
purposes of the determination by the Company of the numbers of votes they may cast) is 11.30 am on 28th October 2006. The
rights of members to attend and vote at the meeting will be determined by reference to entries on the register of members at
11.30 am on 28th October 2006. Changes to entries on the register of members of the Company after that time will be
disregarded in determining the rights of any person to attend or vote at the meeting.
3. In the case of joint holders, the signature of only one of the joint holders is required on the form of proxy, but the vote of the
first named on the register of members will be accepted to the exclusion of the other joint holders.
4. The following documents are available for inspection at the place of the AGM from 15 minutes prior to the meeting until
the conclusion thereof:
a) The register of interests of the directors (and their families) in the share capital of the Company.
b) Copies of the directors’ contracts of service and letters of appointment of the non-executive directors.
c) Terms of reference of the Audit, Remuneration and Nominations Committees. Explanation of the business of the Annual General Meeting
City of London Investment Group Plc Annual Report 2006
40
Report and accounts (Resolution 1)
The first item on the agenda requires that the directors must present the accounts of the Company for the year ended 31st May 2006
together with the directors’ report and the independent auditors’ report thereon.
Re-appointment of directors (Resolutions 2-8)
The Company’s articles of association require that at every annual general meeting, one-third of the directors or, if their number is
not three or a multiple of three, the number nearest to one-third shall retire from office. This year following the adoption of new
articles of association all directors who have been in office for more than three years or have been appointed by the directors since
the last annual general meeting of the Company will stand for re-appointment.
Article 137 of the Company’s articles of association requires that a resolution for the appointment or re-appointment of two or more
persons as directors by a single motion may not be moved unless a resolution that it shall be so moved has first been agreed to by the
meeting without any vote being given against it. Consequently separate resolutions will be put to the meeting.
Re-appointment of Auditors (Resolution 9)
The Company is required at each general meeting at which accounts are laid before the shareholders to appoint auditors to hold
office from the conclusion of the annual general meeting until the conclusion of the next annual general meeting. Moore Stephens
LLP are the current auditors and have indicated their willingness to continue in office. If Resolution 9 is passed, Moore Stephens
LLP will be re-appointed as auditors to the Company.
Purchase by the Company of its own shares (Resolution 10)
Under section 166 of the Companies Act, the directors of a company may make market purchases of that company’s shares if
authorised to do so. The Company’s articles of association give a general authority to the directors to purchase shares on the market
but that authority is subject to the approval of shareholders. Your directors believe that granting such approval would be in the best
interests of shareholders in allowing directors the flexibility to react promptly to circumstances requiring market purchases.
Accordingly, Resolution 10, which will be proposed as a special resolution, will give the directors the authority to purchase issued shares
of the Company under section 166 of the Companies Act. The authority contained in this Resolution will be limited to an aggregate
nominal value of £40,000 which represents 14.49% of the issued ordinary share capital of the Company as at 15th September 2006.
The price which may be paid for those shares is also restricted as set out in the Resolution. This authority will expire at the conclusion
of the Company’s annual general meeting in 2007 or 15 months after the passing of this resolution (whichever is the earlier).
The board has no present intention of exercising this authority. However, this will be kept under review, and the board will use this
power only if and when, taking account of market conditions prevailing at the time, other investment opportunities, appropriate
gearing levels and the overall financial position of the group, they believe that the effect of such purchases will be in the best interests
of shareholders generally and that they will result in an increase in earnings per share.
Shares purchased under this authority may be held as treasury shares. The Company may purchase and hold shares as treasury shares
up to a maximum amount equal to 10% of the nominal value of the issued ordinary share capital at that time, rather than cancelling
them. Shares held in treasury do not carry voting rights and no dividends will be paid on any such shares. Shares held in treasury in
this way can be sold for cash or cancelled. This would allow the Company to manage its capital base more effectively and to
replenish its distributable reserves.
If and when the board resolves to exercise its authority to make market purchases, it will at that time decide whether shares
purchased are to be cancelled or held in treasury. Introduction and highlights 1
Chairman’s statement 2
Chief Executive Officer’s review 5
Financial review 8
Officers and professional advisers 11
Board of directors 12
Report of the directors 14
Statement of directors’ responsibilities 18
Independent auditors’ report 19
Consolidated profit and loss account 20
Consolidated statement of total recognised gains and losses 20
Consolidated balance sheet 21
Company balance sheet 22
Cash flow statement 23
Notes to the financial statements 24
Notice of Annual General Meeting 37
Contents
Designed and produced by fourthquarter Printed by SV.two CITY OF LONDON
INVESTMENT GROUP PLC
ANNUAL REPORT & ACCOUNTS 
2006
London office
10 Eastcheap
London
EC3M 1LX
United Kingdom
Telephone: + 44 (0) 207 711 0771
Facsimile: + 44 (0) 207 711 0772
US office
The Barn
1125 Airport Road
Coatesville
PA 19320
United States
Telephone: + 1 610 380 2110
Facsimile: + 1 610 380 2116
Singapore office
20 Collyer Quay
10-04 Tung Centre
Singapore 049319
Telephone: + 65 6236 9136
Facsimile: + 65 6532 3997
www.citlon.co.uk