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Independent Inv Tst (IIT)

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Friday 20 January, 2006

Independent Inv Tst

Final Results

Independent Investment Trust PLC
20 January 2006


                    Results for the year to 30 November 2005

                                20 January 2006

                             Chairman's Statement

I began my statement last year with some comments on the threat to our future
prosperity posed by possible changes to our regulatory position.  I am delighted
to report that the Treasury has now confirmed that the current regulatory
position of investment trusts will remain unchanged.  I should like to thank all
shareholders who wrote to the Treasury to lobby for the maintenance of the
status quo.

During the year to 30 November 2005, our net asset value per share rose by 32.2%
from 157.9p to 208.8p.  This is the best annual result we have achieved since
our flotation in 2000, but it is always easier to produce good figures when the
stockmarket is providing a helping hand: the FTSE All Share Index rose by 16.9%
over the period.

In past reports we have confined ourselves to a statement of the results for the
year under review because we believe that no meaningful assessment can be made
of investment performance over periods of less than five years.  Having been in
business for over five years, we now intend to include a brief assessment of our
progress since flotation in each annual report.  Between 18 October 2000 and 30
November 2005, we produced an NAV total return of 132%, equivalent to a rate of
roughly 18.4% per annum, of which 2.4% per annum can be offset by RPI inflation.
This is towards the upper end of our hopes at the time of flotation and
compares favourably with the disappointing total return notionally available
from the FTSE All Share Index over the period, which amounted to 9%, or roughly
1.8% per annum.  An unexpected aspect of our progress has been the consistency
with which we have produced annual returns that are both positive and superior
to those notionally attributable to the FTSE All Share Index.  We regard this as
fortuitous and would warn you against expecting it to continue.

Notwithstanding this caveat, the performance of the Company since inception
reflects great credit on our managing director.  Despite occasional and
unconvincing suggestions that he means to quit while he is ahead, I can reassure
shareholders that his enthusiasm and energy appear unaffected by the passage of
the years.

Domestically, macroeconomic developments during our year were, on balance,
disappointing.  Growth was held back by the weakness of the consumer sector;
inflation was boosted by the strength of commodity prices - particularly the oil
price; and the uncontrollable juggernaut of public spending created an
uncomfortably high budget deficit.  Elsewhere in the world things have been a
bit better, with the US economy continuing to defy the pessimists, Europe and
Japan showing the most promising signs of recovery for some years, and the other
Asian economies maintaining strong growth rates.  Perhaps the most surprising
feature of the year was the resilience of bond markets in the face of a newsflow
that would have disconcerted traditional bond investors.  This is probably a
symptom of excessively easy monetary conditions, which may also lie behind the
remarkable buoyancy of corporate cash flows and a very high level - in the UK at
least - of cash takeover bids.  These factors, which make it easier to
understand the strong performance of the UK stockmarket against an unhelpful
economic backdrop, provided a very rewarding environment for our activities.

It was an active year for us.  Changes to the shape of the portfolio were
measured rather than dramatic, but in aggregate they have made a material
difference.  Individual opportunities have made miscellaneous financials a
significant sector for us; we added a number of new oil holdings in recognition
of the benefits of a high oil price; we increased our investment in recruitment
agents as their operating environment has improved; and we began the process of
rebuilding our retail exposure in early anticipation of a better consumer
spending outlook.  On the opposite tack, we continued to cut back our insurance
holdings and trimmed our big exposure to banks with a reduction in our holding
in HSBC.

Careful readers of the last paragraph will have noted that we seem to have made
more additions than reductions.    The explanation for this can be found in a
reversal of our relationship with our bankers during the course of the year: net
cash of £5.0m at 30 November 2004 had become net debt of £27.6m a year later.
After adjusting for the timing of our receipt of the £7.1m proceeds from the
takeover of our Paladin Resources holding (included in our balance sheet under
debtors), our net borrowings at 30 November amounted to £20.5m or 15% of
shareholders' funds.  As in previous years, we have used dollar borrowings to
hedge our direct US dollar exposure and this year we have also hedged our
holdings in Canadian oil companies with US dollar borrowings on the basis that
their business is effectively conducted in US dollars.  Our hedging policy has
been an expensive opportunity cost in the year under review, but it provides an
accurate reflection of our reluctance to take a view on the future path of the

As so often in the past, the highlight of our year has been the performance of
our housebuilders, particularly Persimmon, which has been the single most
successful investment we have ever made.  Much of the credit for this must go to
Duncan Davidson, who has presided over one of the most remarkable growth stories
in the UK stockmarket over the last twenty years and who steps down as chairman
in April.  We should like to pay tribute to Duncan and to express the wish that
we had not been so stupid as to sell two thirds of the holding we found
ourselves with in the immediate aftermath of the Beazer takeover.

Our UK bank holdings have once again been a disappointment to us, but as usual
the overall picture looks much more satisfactory once Anglo Irish is included.
Our retail holdings had a dismal year, but our insurance holdings made a
worthwhile contribution and our recruitment agents benefited from well timed
additions to Michael Page and Robert Walters.  Although slow to recognize the
prosperity of the oil industry, we had a great stroke of luck when Paladin, our
biggest holding in the industry, received a generous cash bid, yielding us a
profit of over 50% on our investment in under six months.  Further comments on
performance can be found in the managing director's report.

Earnings per share were 4.99p (4.56p).  We are proposing a final dividend of
2.5p (2.25p) to make a total for the year of 4.25p (3.75p).  In the past we have
warned that our revenue account has benefited from exceptional factors, but for
the year under review we consider it a fair reflection of our underlying
position.  Were it not for the ever present possibility of radical changes to
the portfolio, we should be bullish on the immediate outlook for our earnings.

The buoyancy of our portfolio has led to a further substantial fall in our
expense ratio - from 0.39% of year end shareholders' funds to 0.32%.  Indeed, we
are now close to achieving a degree of frugality that would enable us to promote
our wares in the city of Dundee.  One obstacle to further progress on this front
is salary inflation: after a difficult negotiation we have awarded our managing
director an increase in salary from £75,000 per annum to £100,000 per annum.
The negotiation was difficult because he knew we would be prepared to pay more
and we knew he would do the job for less, but in the end common sense prevailed.

We are now beginning to feel the constraints of size: the increase in our
shareholders' funds from under £60m at the time of launch to over £140m at the
time of writing has significantly reduced the number of companies in which we
can easily build holdings of the size we regard as appropriate.  There are now
several positions in our portfolio that we consider illiquid and in the case of
some of those we would have taken bigger holdings but for the liquidity
constraint.  It is therefore unlikely that we shall be considering any further
new issues of our shares unless and until our asset base is considerably
smaller.  Moreover, in the meantime we shall have a greater enthusiasm for share
repurchases when these can be effected at a material discount to net asset

The willingness of external investors to fund the extravagant economic policies
of the United States through the purchase of massive quantities of dollar
securities of no obvious attraction is a constant source of surprise to us.
While this continues, and with the added proviso that the politics of the Middle
East do not provoke a major disruption of the world's oil supplies, the global
financial outlook is essentially benign and markets may well continue to rise on
the back of strong corporate cash flows.  We remain concerned, however, that
sooner or later the USA will have to adopt more cautious policies and that these
are likely to herald a tougher environment for companies everywhere.  It is this
which has prevented us from taking our increase in gearing further.

Once again, we should like to encourage you to come to the AGM, which is to be
held in the Baillie Gifford offices at Calton Square at 4.45pm on Monday, 20
March 2006.  It will help our planning if we know how many shareholders are
likely to attend, and I shall be grateful if you will mark the proxy form
accordingly and return it to us.  I look forward to seeing as many of you as
possible there.

                         Managing Director's Report

During the year to 30 November 2005, The Independent Investment Trust produced a
NAV total return of 35%.  We consider this an excellent return at a time of low
inflation and it compares favourably with the 20.8% total return produced by a
theoretical investment in the FTSE All Share Index over the period.

Housebuilding continues to be the bedrock of our portfolio and has - for the
fifth year in succession - justified this position by producing a positive
return in excess of that notionally attributable to the FTSE All Share Index.
After net purchases of £1.4m, the value of our housebuilding stake rose during
the year from £29.5m to £42.9m.  In fact, our only transactions in the sector
were the purchase and subsequent partial sale of a small holding in Westbury in
November - an insurance policy against Persimmon's being forced to raise the
price of its bid for the company.

Conditions in the housing market have remained sticky throughout the period,
leading to declining forecasts for most of the companies in the sector
(Persimmon being a notable exception).  As we had hoped, this had been very
largely factored into stock prices by late 2004 and so the sector was able to
stage something of a recovery when it became clear that the more apocalyptic
predictions for house prices would not be met in 2005.  This recovery gathered
considerable momentum when Persimmon's bid for Westbury highlighted not only the
cheapness of sector valuations but also the benefits obtainable from corporate
activity: Persimmon's earnings will be substantially higher in 2006 than they
would have been in the absence of the Westbury bid.  We mourn the passing of the
ridiculously cheap valuations prevailing in the sector in late 2004 because they
removed the need for fund managers to make detailed predictions about immediate
prospects.  We still think, however, that the sector offers real management
quality at a very attractive valuation and therefore intend to persist with our
big commitment to it.  That said, we must acknowledge that we are overdue a year
of poor performance from it.

Our long history of unfulfilled hopes in the UK banking sector continues: of our
four UK counters (we try a new name every year), only Lloyds produced a
satisfactory return in the year under review.  Fortunately, the day has once
again been saved by a splendid performance from Anglo Irish and we await with
dread the first sign of fallibility from this excellent company.  Overall, our
bank holdings rose in value over the year from £23.4m to £26.6m despite a net
disinvestment of £0.2m.

We have had a year of considerable investment in the retail sector, but as yet
we have precious little to show for it.  An investment of £12m at 30 November
2004 was supplemented by net purchases of £10.4m, but was still only worth
£20.9m by 30 November 2005.  The most spectacular fall from grace has come from
Floors 2 Go, where a geared balance sheet, an aggressive expansion programme and
a soft market have combined to devastating effect.  We also made a painful exit
from William Morrison and lost Merchant Retail (profitably) to a takeover.  The
value of our Signet holding fell slightly and we misjudged the timing of our
initial purchases of Topps Tiles, although our subsequent additions have been
profitable.  Finally, we made a little money on our purchases of Land of Leather
and SCS Upholstery.  In general terms, we think the valuations of a number of
durable goods retailers now fully reflect the likelihood of difficult trading in
the short term.  In the case of those companies with strong balance sheets, good
dividend yields and apparently good market positions, we are happy to suffer the
risk of short term earnings disappointments in the hope of making good returns
when market conditions improve.  As in so many of our activities, we are not
trying to avoid risk, but rather to capitalize on it when it seems to be

Well timed additions to Michael Page and Robert Walters, together with a (less
successful) new purchase of Hays have brought recruitment agents to prominence
within the portfolio.  We consider these well managed businesses with good long
term prospects and hope that they are in the relatively early stages of a strong
cyclical upturn.

During the year, we were attracted to a number of disparate companies which we
have grouped together under the heading miscellaneous financials.  The consumer
finance company Cattles is an old friend whose share price has been badly hit by
what we consider a disproportionate reaction to the impact of adopting IFRS.
The spread betting company IG Group has also been in the portfolio before, but
we would have preferred not to have had to buy it back (at a multiple of our
selling price) from the private equity houses we were reluctantly forced to sell
it to two years earlier.  Finally, Intermediate Capital is a very successful
provider of mezzanine finance.  By 30 November 2005 we had made good profits in
IG and Intermediate, and a small profit in Cattles.

The oil sector has long presented a conundrum for us.  We are fully paid up
subscribers to the view that oil will become an increasingly scarce - and thus
expensive - resource as the years go by.  One of the consequences of this,
however, is that oil will become increasingly hard and expensive to find, making
it difficult for us to assess the extent to which the shareholders of individual
oil companies will benefit from a strong long term outlook for the oil price.
The Canadian tar sands companies, of which we own Suncor and Encana, fit the
bill but are expensively priced.  We did find another company, Paladin, which
appeared to have a shrewd approach to the process of reserve accumulation and we
bought a sizeable holding - only to see the company taken over (at a good price)
a few months after we had bought it.  Our latest researches have taken us into
the field of Canadian junior oil and gas exploration companies, JOGs as they are
known.  We own three - Cyries, Duvernay and ProEx - which appear to have
prospects of strong production growth on the back of promising exploration
acreage.  Their capitalizations are small in relation to the potential claimed
by their adherents, but this is a new field for us and we may have some
expensive on the job learning to do.  In the distantly related area of exotic
metals trading, we have taken a holding in Wogen against the possibility that
all the ambitious predictions of China's appetite for commodities have some
element of validity.  If they do, we may have bought into Wogen rather cheaply.

We made further net sales of insurance holdings, but the sector performed well
for us in underlying terms as the prospect of the industry lurching back into
one of its periodic bouts of suicidal rate-cutting receded.  Valuations still
appear reasonable and the immediate outlook for the industry has improved.

We took advantage of a period of price weakness to add to our holding in Herald
Investment Trust, which we intend to use as our primary vehicle for investing in
technology companies from now on.  Subsequent sales of Nokia and Herald
Worldwide left Sage as our only other technology holding.

Elsewhere, we had a brief flutter in the internet poker industry and were lucky
to emerge with a decent profit on our investment.  We also took part in the IPO
of the new property company Hansteen, which yielded an immediate (but
unrealized) profit.  We made a modest reduction in our DTZ holding after another
spectacular price performance.  We reduced United Utilities on grounds of
valuation and sold out of Altria at a good profit.  A new purchase of Domino's
Pizza made a sound start, GlaxoSmithKline made a good contribution for once, but
Johnston Press disappointed as fears grew about the prospects for the domestic
economy.  Finally, we received a good price for our Woolworth bond.

Results for the Period 1 June 2005 to 30 November 2005

We are bound by the listing requirements to disclose the results for the six
months from 1 June 2005 to 30 November 2005.  During that period the net asset
value per share rose by 21.4% as compared to a rise of  10.0% in the FTSE All-
Share Index.


The following is the unaudited preliminary statement for the year to 30 November
2005 which was approved by the board on 20 January 2006.  The directors of The
Independent Investment Trust PLC are recommending to the Annual General Meeting
of the Company to be held on 20 March 2006 the payment of a final dividend of
2.50p net (2.25p net last year) per ordinary share, making a total of 4.25p net
(3.75p net last year) per ordinary share for the year ended 30 November 2005.

                           STATEMENT OF TOTAL RETURN
               (unaudited and incorporating the revenue account*)

                                          For the year ended                      For the year ended
                                           30 November 2005                        30 November 2004

                                      Revenue    Capital       Total          Revenue    Capital        Total
                                        £'000      £'000       £'000            £'000      £'000        £'000
                                            -    33,475      33,475

Gains on investments                                                              -        8,352       8,352
Currency (losses)/ gains                    -      (759)       (759)              -          853         853
Income                                 4,268          -       4,268            3,641           -       3,641
Administrative expenses                 (433)         -        (433)            (402)          -        (402)
Net return before finance costs        3,835     32,716      36,551            3,239       9,205      12,444
and taxation
Finance costs of borrowings             (555)         -        (555)            (253)          -        (253)
Return on ordinary activities          3,280     32,716      35,996            2,986       9,205      12,191
before taxation
Tax on ordinary activities               (22)         -         (22)             (14)          -         (14)
Return on ordinary activities          3,258     32,716      35,974            2,972       9,205      12,177
after taxation
Dividends in respect of equity        (2,772)         -      (2,772)          (2,446)          -      (2,446)
Transfer to reserves                     486     32,716      33,202              526       9,205       9,731

Return per ordinary share :
(note 1)

Basic                                   4.99p     50.16p      55.15p            4.56p     14.11p       18.67p
Diluted (FRS14)                         4.99p                                   4.52p
Dividends per ordinary share            4.25p                                   3.75p
(note 2)                                                                        

* The revenue column of this statement is the profit and loss account of the

All revenue and capital items in this statement derive from continuing


                            SUMMARISED BALANCE SHEET
                              at 30 November 2005
                                                                At 30 November 2005     At 30 November 2004
                                                              £'000       £'000          £'000       £'000

Fixed asset investments                                                       158,611                 99,315


Debtors                                                            7,350                     232
Cash at bank and in hand                                           1,463                  11,799
                                                                   8,813                  12,031


Amounts falling due within one year                              (31,205)                 (8,329)

NET CURRENT (LIABILITIES)/ ASSETS                                            (22,392)                  3,702
TOTAL ASSETS LESS CURRENT LIABILITIES                                        136,219                 103,017


Called-up share capital                                                       16,307                  16,307
Share premium                                                                 13,046                  13,046
Special distributable reserve                                                 38,663                  38,663
Capital reserve - realised                                                    21,863                  15,684
Capital reserve - unrealised                                                  44,212                  17,675
Revenue reserve                                                                2,128                   1,642
EQUITY SHAREHOLDERS' FUNDS                                                   136,219                 103,017

NET ASSET VALUE PER ORDINARY SHARE (note 3)                                    208.8p                  157.9p

                                   THE INDEPENDENT INVESTMENT TRUST PLC

                                       SUMMARISED CASH FLOW STATEMENT

                                                               For the year ended         For the year ended
                                                                30 November 2005           30 November 2004
                                                                £'000       £'000          £'000       £'000

NET CASH INFLOW FROM OPERATING ACTIVITIES                                   3,787                      3,390

NET CASH OUTFLOW FROM SERVICING OF FINANCE                                   (450)                      (251)

Acquisitions of investments                                   (58,245)                   (24,793)
Disposals of investments                                       25,709                     31,381
Realised currency gain/(loss)                                      57                       (135)

NET CASH (OUTFLOW)/INFLOW FROM CAPITAL EXPENDITURE AND                    (32,479)                     6,453
EQUITY DIVIDENDS PAID                                                      (2,609)                    (2,120)

NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING                                (31,751)                      7,472

Net bank loans drawn down/(repaid)                             19,964                     (3,258)
NET CASH INFLOW/(OUTFLOW) FROM FINANCING                                   19,964                     (3,258)
(Decrease)/increase in cash                                               (11,787)                     4,214

(Decrease)/increase in cash in the year                                   (11,787)                     4,214
(Increase)/decrease in bank loans                                         (19,964)                     3,258
Exchange movement on bank loans                                              (816)                       988
                                                                          (32,567)                     8,460
NET FUNDS/(DEBT) AT START OF YEAR                                           4,998                     (3,462)
NET (DEBT)/FUNDS AT END OF YEAR                                           (27,569)                     4,998


                                                                      Year to                       Year to
                                                             30 November 2005              30 November 2004
                                                                        £'000                         £'000
1.    Return per ordinary share
      Revenue return                                                    3,258                         2,972
      Capital return                                                   32,716                         9,205

      The returns per share are based on the above returns and on 65,228,895 shares (2004 - 65,228,895),
      being the weighted average number of shares in issue during the year.

      Dilution of revenue return is attributable to the difference between the average share price and the
      average exercise price of the outstanding options for the year. The diluted revenue returns per share
      are based on the above returns and on 65,273,731 shares (2004 - 65,712,988), being the weighted
      average number of shares in issue during the year plus the notional number of shares that would have
      been issued for no consideration using an average share price of 179.0p (2004 - 161.0p) and an
      average exercise price for the options of 178.0p  (2004 - 153.0p).

                                                   Year to 30 November 2005        Year to 30 November 2004
                                                        Pence          £'000             Pence        £'000
2.    Dividends per share
      Interim dividend paid 2 September 2005             1.75          1,141              1.50          978
      Proposed final dividend payable 6 April            2.50          1,631              2.25        1,468
                                                         4.25          2,772              3.75        2,446

      If approved, the final dividend will be paid on 6 April 2006 to all shareholders on the register at
      the close of business on 10 March 2006.

                                                               At 30 November                At 30 November
                                                                         2005                          2004
                                                                        £'000                         £'000
3.    Net asset value per ordinary share
      Net asset value attributable to ordinary shares                 136,219                       103,017

      Net asset value per share is based on net assets (as shown above) and on 65,228,895 shares (2004 -
      65,228,895) being the number of shares in issue at the year end.

      Dilution of revenue return is attributable to the difference between the share price and the
      exercise price of the outstanding options. Because these options are exercisable at net asset
      value, no dilution to the net asset value arises from their exercise.

4.    The financial information set out above does not constitute the Company's statutory accounts for
      the year ended 30 November 2005.  The financial information for 2004 is derived from the statutory
      accounts for 2004 which have been delivered to the Registrar of Companies.  The Auditors have
      reported on the 2004 accounts; their report was unqualified and it did not contain a statement
      under section 237(2) or (3) of the Companies Act 1985.  The statutory accounts for 2005 will be
      finalised on the basis of the financial information presented in this preliminary announcement and
      will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

      None of the views expressed in this document should be construed as advice to buy or sell a
      particular investment.

                      This information is provided by RNS
            The company news service from the London Stock Exchange