Introduction
Chairman’s introduction
page 1
Risks
Key Risks
page 2
Performance
What is The City of London Investment Trust?
page 3
Income growth
page 4
Income consistency
page 5
Total return
page 6
Group comparison
page 7
Expenses comparison table
page 8
Low charges improve performance
page 9
Management
How is the Trust managed?
page 10
Experience counts
page 11
Where does City of London invest?
page 12
Local but global
page 13
Liquidity and discount management
page 14
Buying
Annual performance return
page 15
Benefits of investment trusts
page 16
How to invest
page 17
Further information
page 19
Generic risks
page 20
Chairman’s introduction
“Following the Retail Distribution Review, Independent Financial Advisers and their clients will be looking
further afield for high quality investment opportunities. The consistent returns which City of London, a long
established investment trust, has produced for its shareholders over the years meet that need.
The City of London formula is simple – growth and income from a portfolio of predominantly UK blue chip shares with the aim of growing the dividend and beating our peer group every year.
The City of London Investment Trust has an independent Board of Directors protecting the interests of shareholders and ensuring Henderson, our appointed investment manager, delivers performance. Through prudent planning we have been able to increase the dividend every year for the past 46 years and build a substantial revenue reserve which underpins future dividends. Low costs are a constant focus for us and our ongoing charge is now as low as 0.45%, which is significantly better than most other equity investment vehicles available in the market.
Job Curtis, our Portfolio Manager, has managed the portfolio for the last 21 years. His conservative and risk aware investment approach has ensured that City of London has been able to navigate successfully all the storms the market has thrown at us over the years.
The City of London Investment Trust enjoys a loyal shareholder base many of whom have held the shares happily for many years. I hope that you will join them.”
Philip Remnant Chairman
The City of London Investment Trust plc
www.cityinvestmenttrust.com
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Introduction
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• The value of investments, and the income from them, can fall as well as rise. You may not get back your original investment.• Past performance, as shown on pages 3 to 15 of this brochure, is not a guide to future performance.
• City of London pays dividends which are targeted to be at least 20% higher than the FTSE All Share Index. This is a target, not a guarantee.
• Not all the investments in the portfolio are made in Sterling, so exchange rates could affect the value and income from your investment.
• City of London specialises in UK listed investments. The investment carries greater risk than a more internationally diversified portfolio.
You can read more about risk on page 20.
Key risks
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What is The City of London Investment
Trust?
?
• A UK Growth and Income trust with at least 80% of the portfolio invested in well known blue chip UK listed companies.
• A well-diversified portfolio with a global outlook.
• Long term, consistent dividend track record.
• Quarterly dividends which are targeted to be 20% higher than the FTSE All Share Index.
• Low 2012 Ongoing Charge of only 0.45%.
• Conservatively run by veteran fund manager Job Curtis who has managed the portfolio for over 20 years. In 2010, Job won the Investment Week award for most consistent performer.
• An active and liquid market in the Company’s shares - total assets of £841m (as at 31 December 2012).
• Investment Adviser 100 Club Member in category of UK Equity Income.
• Rated as ‘Gold’ in the Morningstar Analyst Ratings.
Experienced manager
21
year recordVery low Ongoing Charge
0.45%
at 30 June 2012Large, liquid company
£841m
of total assets
46 years
of increasing
Introduction
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46 years of annual dividend increases despite the ups and downs of the market
Income growth
City of London shareholders have enjoyed
annual dividend increases every year
since 1966 despite:
1967 Sterling devaluation 1974 Bear market / 3 day week 1979 Winter of discontent 1983 Miners strike 1987 Stock market crash 1992 UK leaves the ERM 1999 Technology bubble 2001 Bear market
2008 Global Financial Crisis
Company Years dividend growth
City of London 46
Bankers Investment Trust 45
Alliance Trust 45
Caledonia Investments 45
F&C Global Smaller Companies 42
Foreign & Colonial Investment Trust 41
Brunner Investment Trust 40
JP Morgan Claverhouse Investment Trust 39
Witan Investment Trust 37
Scottish Mortgage Investment Trust 30
Merchants Trust 30
Murray Income 30
Scottish Investment Trust 28
Temple Bar 28
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Income consistency
0 5 10 15 20 25 30 Revenue Reserve (£m) 12 11 10 09 08 07 06 05 04 03 02 01 6 9 12 15 Dividend (Pence)• City of London’s unsurpassed dividend record has been achieved by:
• Retaining income from good years in a revenue reserve.
• Dipping into those revenue reserves in difficult years.
• Since 1978, the Trust has built up a substantial revenue reserve to underpin future dividends which in 2012 represented dividend cover of 102%.
• In the equivalent IMA sector (UK Equity Income) for open-ended funds, of the 31 funds over £300m in assets, all except one have cut their dividends at least once since each fund’s inception.
Source: The City of London Annual Reports 2001 - 2012. Earnings per
share 8.40p 7.48p 7.87p 8.24p 8.88p 10.18p 11.59p 13.53p 13.15p 11.93p 13.17p 14.05p Dividend per
share 7.50p 7.94p 8.07p 8.33p 8.62p 9.36p 10.30p 11.60p 12.32p 12.66p 13.20p 13.74p Payout ratio 89.3% 106.1% 102.5% 101.1% 97.1% 91.9% 88.9% 85.7% 93.7% 106.1% 100.2% 97.8%
‘Henderson’s Job Curtis currently has healthy reserves. The flexibility to use these reserves has helped the Trust
increase its dividends in each of the past 46 years.’ Richard Troue, Analyst, Hargreaves Lansdown
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Total return
0 100 200 300 400 500 Retail Prices Index FTSE All Share Index IMA UK Equity Income Sector Average (open-ended funds) Investment TrustGrowth & Income Sector Average (ex City of London) City of London
£
Total Return over 20 years on £100 invested
% NAV Performance
1y 3y 5y 10y
Total Return
City of London 16.3 39.9 20.8 157.2
AIC UK Growth & Income sector
(ex-City of London) 16.2 33.9 13.7 143.2 IMA UK Equity Income sector
(open-ended funds) 14.8 28.2 12.2 120.3
FTSE All Share 12.3 24.2 13.2 131.2
Retail Prices Index 3.1 13.2 17.0 38.3
Source: Morningstar, AIC and Datastream as at 31 Dec 2012.
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The comparison group shows City of London compared with all other companies in its sector (UK Growth & Income) with gross assets over £300m.
Company Morningstar Analyst Rating Price (p) Total Assets (£m) Disc(+)/Prem(-) (%)
City of London Gold 317.1 841 +3.4
Edinburgh Investment Gold 511.0 1166 +8.5
Perpetual Income & Growth Gold 289.0 735 +2.8
Lowland Silver 1011.0 314 -4.0
Dunedin Income Growth Bronze 236.0 395 +0.1
Murray Income Bronze 672.5 477 +0.6
Merchants Neutral 395.4 564 -4.3
JPMorgan Claverhouse Not rated 438.0 320 -9.1
Temple Bar Not rated 1005.0 664 +3.7
Company Div yield (%) 5 year div growth (%) Ongoing Charge (%) Net gearing
City of London 4.4 4.0 0.45 109
Edinburgh Investment 4.3 2.0 1.12 122
Perpetual Income & Growth 3.8 6.8 1.15 117
Lowland 3.0 2.9 0.92 113
Dunedin Income Growth 4.5 1.3 0.65 110
Murray Income 5.2 4.9 0.79 107
Merchants 6.1 1.6 0.64 121
JPMorgan Claverhouse 4.2 2.2 0.74 117
Temple Bar 3.6 1.8 0.51 102
Source: Association of Investment Companies, 31/12/2012
Group comparison
City of London has been awarded a gold rating in Morningstar’s inaugural Analyst
Ratings of invesment trusts
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City of London’s low Ongoing Charge of 0.45% is significantly better than most other
Charges comparison table
Rank Ongoing Charge 2012 Ongoing Charge (inc. Perf fee) TER (inc. Perf fee) TER (inc. Perf fee) TER (inc. Perf fee) UK Growth & Income Investment Trusts*** % 2012 2011 2010 2009
City of London 0.45 1 1 2 1
Temple Bar 0.51 4 2 1 2
Merchants 0.64 8 3 3 3
Dunedin Income Growth 0.65 5 4 8 4
JPMorgan Claverhouse** 0.74 7 5 5 6
Murray Income 0.79 3 6 7 5
Lowland 0.92 6 8 6 8
Edinburgh IT 1.12 9 7 4 7
Perpetual Income & Gwth 1.15 2 9 9 9
Comparison Group Average 0.77 Top 10 UK Equity Income Sector Funds by Total Assets Ongoing Charge 2012*
IP High Income Inc 1.7
IP Income Inc 1.7
Artemis Income Inc 1.5
Halifax UK Equity Income 1.5
Newton Higher Income 1.6
Jupiter Income Trust 1.7
Threadneedle UK Eq Inc 1.6
JOHCM UK Equity Income 1.3
M&G Dividend 1.7
SWIP MM UK Equity Income 1.8
Comparison Group Average 1.6
• The average ongoing charge (including performance fees) for investment trusts in the UK Growth & Income Sector for companies with gross assets over £300m is 0.77%, compared with 1.6% in the UK Equity Income sector for open-ended funds.
• Within the investment trust UK Growth & Income Sector, City of London has consistently had one of the lowest charges in its peer group.
Fund Source: Annual Reports 2012 or Key Investor Information Document.
* Investment Trust Source: Association of Investment Companies, 31/12/2012. Please note, in 2012 investment trusts adopted the ongoing charges methodology, replacing TERs. ** JPMorgan Claverhouse Annual Report 2011.
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Low charges improve performance
£10000 £12000 £14000 £16000 £18000 £20000 Open-ended Group Inv Trust Group CTY No fees 10 9 8 7 6 5 4 3 2 1 0 Years
Growth Rates
No Fees City of LondonAIC* Income & Growth Peer Group
IMA** UK Equity Income Peer Group
Growth rate 7.00% 7.00% 7.00% 7.00%
Fees 0.00% 0.45% 0.77% 1.61%
Net Growth Rate 7.00% 6.55% 6.23% 5.39%
Projected Growth
Year No Fees City of London
AIC* Income & Growth Peer Group
IMA** UK Equity Income Peer Group
1 £10,700 £10,655 £10,623 £10,539 3 £12,250 £12,096 £11,988 £11,706 5 £14,026 £13,733 £13,528 £13,002 10 £19,672 £18,860 £18,301 £16,904
Source: Winterflood Securities, Morningstar, Morningstar Direct * Association of Investment Companies
** Investment Management Association
Example - Assuming 7% compound annual growth rate on £10,000 invested using most recent (and average) values for fees
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Conservatively run
• Job Curtis manages the portfolio in a conservative way focusing on companies with:
• Cash generative businesses
• Attractive dividend yield
• Growing dividends
• Tangible and intangible assets
• A diverse portfolio constructed predominantly from UK blue chip global companies.
• Valuation driven investment style based on company research and taking into account macro-economic factors.
Independent Board
• The Board has a policy of maintaining an attractive revenue reserve to underpin future dividends.
• The Board’s aim is for the share price to reflect closely the underlying assets.
• The Board reviews and challenges the performance of the investment manager and provides insight from each director’s diverse business interests.
• The Board is responsible for negotiating fees with the management house.
How is the Trust managed?
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A senior investment professional, Job Curtis has managed City of London since 1 July 1991. He joined Touche Remnant in 1987, subsequently acquired by Henderson Global Investors in 1992, and is a key member of Henderson’s Global Equity Income team.
Job is renowned for his highly successful, conservative investment approach based on intensive analysis of the fundamentals of each stock, and strict control of risk.
Awards
• Winner of Investment Week’s Most Consistent Performer 2010.
• Highly commended in the UK Growth and Income Sector by Moneywise in 2009.
• Henderson Global Investors achieved the Highly Commended status for Best UK Mainstream Equity Trust for its management of City of London in the Money Observer Investment Trust Awards 2008.
• Investment Adviser 100 Club Member in UK Equity Income
• ‘Gold Rated’ by Morningstar
Experience counts
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Where does City of London invest?
Rank Company % of the Portfolio Dividend Yield %
1 British American Tobacco 5.6% 4.1%
2 Royal Dutch Shell 5.4% 4.8%
3 Diageo 5.1% 2.4% 4 HSBC 4.9% 3.7% 5 GlaxoSmithKline 4.7% 5.7% 6 Vodafone 4.0% 6.0% 7 Unilever 3.0% 3.2% 8 BP 2.6% 4.5% 9 Centrica 2.3% 4.6% 10 AstraZeneca 2.3% 5.9%
10 largest investments as at 31 December 2012, Source: Bloomberg.
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‘In our view City of London is a low risk option for gaining exposure to a diversified portfolio of UK listed multinational
companies.’ Craig’s Investment Partners
• The chart below shows the international nature of the sources of revenue for the Top 10 stocks in the portfolio.
• City of London has the additional flexibility to select international stocks up to a maximum of 20% if the portfolio manager thinks better returns can thereby be achieved.
Source: Oriel Securities, 31 December 2012. Rest of World 10.5% Middle East 2.9% South America 4.3% Asia 19.0% Europe ex UK 26.8% North America 25.7% UK 10.8%
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Liquidity and discount management
City of London is one of the largest trusts in the sector and there is a ready market in the Trust’s shares:• £841m total assets
• £911k traded on average per day, compared with an average of £566k for trusts in the same sector with over £300m of assets.
• The Board’s aim is for the share price to reflect closely its underlying net asset value; and also to reduce volatility and have a liquid market in the Company’s shares. The Board’s ability to influence this is, of course, limited. The Board believes flexibility is important and that it is not in shareholders’ interests to have a specific issuance and buy-back policy. The Board intends, however, subject always to the overall impact on the portfolio, the pricing of other trusts and overall market conditions, to consider issuance and buy-backs within a narrow band relative to net asset value.
Source: Morningstar, 31 December 2012
‘City of London Investment Trust is a good example of the benefits that the investment trust structure can offer investors.
-6 -4 -2 0 2 4 Dec
09 Aug10 Mar11 Oct11 May12 Dec12
Annual performance return
Discrete year performance % change to 31 December 2012 (ex-par) Price Nav 30/12/2011 to 31/12/2012 16.6 16.2 31/12/2010 to 30/12/2011 2.1 3.1 31/12/2009 to 31/12/2010 24.7 16.1 31/12/2008 to 31/12/2009 24.1 23.2 31/12/2007 to 31/12/2008 -21.4 -29.6 Source: Morningstar as at 31 December 2012.
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Introduction
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• Longevity – investment trusts have been around
for over 130 years.
• Independence – investment trusts have an
experienced board of directors independent from the management group protecting the interests of shareholders.
• Revenue reserve – investment trusts retain
revenue to ensure a smoothing of dividend payments.
• Gearing – investment trusts can borrow money to
enhance returns for shareholders in rising markets.
• Low cost - investment trusts generally have
lower charges than other equity based investment vehicles.
• Long term view - managers can avoid being
forced to sell to fund redemptions in a falling market.
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How to invest
Name of platform Target distribution channel The City of London Investment Trust plc availability
Future plans
Ascentric Whole of Market wrap Intermediated Yes
AXA Elevate Intermediated Yes
Cofunds Intermediated No
Fidelity FundsNetwork Both No
J.P. Morgan WealthManager+ Direct Yes
Novia Intermediated Yes
Nucleus Intermediated No Not supplied
Raymond James Intermediated Yes
7im Intermediated Yes
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How to invest
Name of platform Target distribution channel The City of London Investment Trust plc availability
Future plans
Standard Life Wrap Intermediated Yes
Transact Intermediated Yes
Execution-only Stockbrokers
Name of platform Target distribution channel The City of London Investment Trust plc availability
Website
Barclays Stockbrokers Direct Yes www.stockbrokers.barclays.co.uk
Alliance Trust Savings Direct Yes www.alliancetrustsavings.co.uk
Halifax Share Dealing Direct Yes www.halifax.co.uk/sharedealing
Hargreaves Lansdown Direct Yes www.hl.co.uk
Selftrade Direct Yes www.selftrade.co.uk
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Further information
Professional investors
If you wish to find out any further information please do not hesitate to contact our Investment Trust Sales Team: Sarah Gibbons-Cook: 020 7818 3198; sarah.gibbons-cook@henderson.com
or
Mike Wilson: 020 7818 6825; mike.wilson@henderson.com
Retail investors
Call us on
0800 856 5656
or
Introduction
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Value of Investments The value of investments and the income from them maygo down as well as up and you may not get back your original investment.
Past Performance
Past performance is not a guide to future performance.
Inflation
Inflation may affect the future buying power of your money.
Counterparty Risk
The investment trust will be subject to the risk of a counterparty being able to perform its obligations with respect to transactions, whether due to insolvency, bankruptcy or other causes. The investment manager assesses the credit worthiness of the counterparties as a part of the risk management process.
Borrowing
Investment trusts can borrow money to make additional investments on top of the money invested by shareholders. If the value of these investments falls, borrowing will magnify the negative impact on share performance.
Tax Treatment
Tax assumptions and reliefs depend on an
investor’s circumstances and may change if those circumstances or the law change.
Discount
The discount or premium at which a Trust’s shares trade may expand or contract as a result of relative performance and market sentiment.
Accounting, Legal and Regulatory
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the UKLA Listing Rules could result in suspension of a trust’s shares, while a breach of the Companies Act 2006 could lead to criminal proceedings or financial or reputational damage.
Generic risks
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OperationalDisruption to, or failure of the managers accounting, dealing or payment systems or the custodians records could prevent accurate reporting and monitoring of the trust’s financial position. Suppliers may not provide the required level of service.
Derivatives
Derivatives may be used for the purposes of efficient portfolio management. It is not expected that use of derivatives will lead to a higher risk profile. Certain Trusts may use derivatives for investment purposes.
Gearing (Borrowing)
The effect of borrowing money for investment purposes. The amount a company can “gear” is the amount it can borrow in order to invest. Gearing is used in the expectation that the returns on the investments bought will exceed the costs of the borrowings that funded the purchase.
Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.
