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Independent Inv Tst (IIT)

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Friday 07 July, 2006

Independent Inv Tst

Interim Results

Independent Investment Trust PLC
07 July 2006


                   Results for the six months to 31 May 2006

                                  7 July 2006


                             Chairman's Statement

The six month period ending 31 May 2006 has seen our company produce a net asset
value total return of 15.9%.  It is pleasing that this compares favourably with
the total return of 8.1% notionally attributable to the FTSE All Share Index for
the period, but disappointing that both the return and the comparison would have
been significantly better had the period ended three weeks earlier.  That the
picture can change materially over so short a period is an illustration of the
folly of drawing any inferences from performance figures for a six month period.

Owing to a change in the method of accounting for dividends, it is no longer
possible to break our performance down neatly into a capital element and a
dividend.  However, our net asset value rose by 14.8% on the new basis - from a
restated 210.6p to 241.7p - and we are declaring an interim dividend of 2p
(1.75p last year), to be paid on 1 September 2006 from earnings of 3.05p (3.04 p
last year).  We remain unwilling to make predictions about earnings for the
year, but we believe that the underlying picture remains healthy and currently
expect to be able to recommend a final dividend at least equal to last year's

For much of the period investors enjoyed a prospect of robust growth, abundant
liquidity and low inflation.  Thus markets everywhere performed well and, in
general, the more speculative the market the better the performance.  This
appealing state of affairs was brought to an abrupt halt in the middle of May
when fears of a tightening of credit in response to apparent inflationary
pressures led to a fall in markets.  This fall had a rather dramatic feel to it,
but achieved no more than a partial reversal of the gains of the previous
months.  Thus, overall, the six month period must be considered a favourable one
for our activities, albeit that we wish that we had been a bit more prescient at
the beginning of May.

As is often the case when operating conditions for the corporate sector are
favourable, we generated a steady flow of new investment ideas and it was a
constant struggle for the managing director to stay within the gearing
constraints agreed by the board.  In particular, a big increase in our exposure
to the Canadian energy sector required him to make a number of sales he would
not otherwise have made.  As a result, our net gearing at 31 May was 13.2%,
little changed from its underlying level six months earlier.  As in the past, we
have hedged essentially all our Canadian holdings with US dollar borrowings.  We
have also taken out some euro borrowings to hedge investments in property
companies whose asset are predominantly in continental Europe.  The composition
of our net borrowings at 31 May was $39m and €20m, partially offset by net
sterling cash of £13m.

For once, our housebuilding holdings have not made an important contribution to
our performance in the period under review: after net sales of £5.4m (and
dividends of £0.7m), their value fell from £42.9m at 30 November to £39.8m at 31
May.  Investors reacted as they usually do to changing interest rate
expectations and the sector moved from being everybody's most favoured in
November to (almost) everybody's least favoured by the end of May.  We hope that
the change in attitude has been an over-reaction to the underlying change in
prospects, as it usually has been in the past, but we acknowledge that there are
uncertainties attending the outlook for the industry over the next year or two.
In the meantime, it is comforting that the stocks, after a brief period of
revaluation to ratings not seen since the early 1990s, are once again looking
statistically cheap.  We continue to enthuse about the long term prospects for
the industry.

After a difficult year last year, retailing bounced back nicely during the
period: after net purchases of £0.2m, the value of our retail holdings rose from
£20.9m at 30 November to £24.6m at 31 May.  The unlikely star of this
performance was Land of Leather, which rose in value by over 60% as investors
warmed to the idea that the company's experience in sourcing leather furniture
from Asia gives it a competitive advantage.  Topps Tiles and SCS Upholstery also
made worthwhile contributions as the market began to give them credit for a
resilient trading performance in a challenging market.  Signet, however,
continued to be held back by understandable concerns about the dollar and the
outlook for the US consumer, while Floors 2 Go struggled to cope with a hostile
trading environment.  We should also mention Domino's Pizza, which we do not
classify as a retailer, but which goes from strength to strength as a business
and saw its share price rise by 55% over the six months.

We made further reductions in our bank holdings as more attractive opportunities
emerged elsewhere.  Our performance in the sector was dull rather than poor and
was handicapped, for the first time since its purchase in 2003, by the burden of
an unexceptional showing from Anglo Irish.  We continue to think that the UK
banks are attractively valued, but as the experience of the last year
illustrates we find it difficult to justify holding onto them when more exciting
ideas present themselves in other sectors.

The energy sector is one that has produced more than its fair share of exciting
new ideas, many of them the direct result of a visit to North America paid by
the managing director and myself in May.  We came away convinced that small
Canadian gas exploration companies and (the much larger) tar sands companies
represent two of the most secure avenues to good long term production growth in
an energy industry dogged by the growing difficulty of finding new economically
viable reserves of oil and gas.  After adjusting for net purchases of £11.5m
(including proceeds from Paladin, which was in reality sold last year), the
sterling value of our oil and gas holdings fell slightly over the period.  The
decline was partly attributable to the weakness of the Canadian dollar (which
was more than compensated for by the greater decline in the sterling value of
the US dollar borrowings financing this part of the portfolio), but owed more to
the unexpected weakness of the gas price which, by the end of the period, was
some 40% below the level equivalent in energy terms to the then prevailing oil
price.  Such anomalous movements in the gas price are not unusual because of the
limited capacity to store gas and should, over time, be favourable as often as
they are unfavourable.  We have taken a beating in our one metals stock, Wogen,
which provided a painful reminder of the capacity of metals companies to deliver

Fortunately, we have had a much better time with our recruitment agents.
Holdings worth £11.5m at 30 November 2005 were supplemented by net purchases of
£3.5m and had become worth £20.7m by 31 May 2006.  The biggest gains were made
by our two longest standing holdings: Robert Walters (+103%) and Michael Page
(+55%), but Hays (+33%) also did well.  Our latest purchase, SThree, has not yet
had time to establish itself and was showing a modest loss on cost by 31 May.
The industry is a volatile stockmarket performer, reflecting its sensitivity to
economic trends, but the longer term records of growth and cash generation of
its best companies are outstanding.

Another extraordinary performance from DTZ (+71%), which had already seen a
doubling of its share price in the year to 30 November 2005, gives the
impression of a strong performance from a much enlarged property stake.  In
reality, however, the other constituents of the stake, all of which were bought
in the hope of a general improvement in property markets in continental Europe,
made little progress during the period.

Our insurance holdings had another dull showing as news of escalating losses
from the terrible 2005 hurricanes contributed to growing fears about the
possibility of further big storm losses in 2006.  We have sold our Bermudan
reinsurers, which were particularly hard hit in 2005, and bought a holding in
Kiln, which seems anomalously cheap.

Our big increase in exposure to companies in the miscellaneous financials sector
during 2005 paid off in the form of strong share price performances from IG
Group and Cattles, both of which we sold during the period.  Our remaining
holding in the sector, Intermediate Capital, continues to produce excellent
results, but seems not to be given any credit for them in the market.

Elsewhere in the portfolio, we took advantage of a rally in the GlaxoSmithKline
share price to sell our holding; United Utilities provided the sort of stable
share price performance for which we look to it; and Johnston Press once again
saw a creditably stable fundamental performance rewarded with a fall in its
share price.  Finally, our remaining technology holdings fell modestly in value.

The change in sentiment that swept through markets in May was not surprising,
given the length of the bull run and the expansion of credit that fuelled it.
At any material sign of trouble, highly borrowed investors feel obliged to pull
in their horns.  We consider it pointless to try to predict the near term
outlook for equities, but we have confidence that the companies in which we are
invested have attractive business prospects and are reasonably valued.


The following is the interim statement for the six months to 31 May 2006 which
has been neither reviewed nor audited by the auditors.  This statement is being
printed and will be sent to all shareholders on 21 July 2006.  Copies will be
available for inspection at the Registered Office of the Company or may be
obtained on request from the Company Secretaries after that date.

                                INCOME STATEMENT


                                For the six months to         For the six months to              For the year to
                                     31 May 2006                   31 May 2005                  30 November 2005
                              Revenue  Capital   Total*   Revenue   Capital     Total     Revenue   Capital     Total
                                                                   Restated+  Restated+*           Restated+  Restated+*
                               £'000    £'000    £'000     £'000     £'000      £'000      £'000     £'000      £'000
Realised gains on investments       -    11,301  11,301         -        711        711         -      6,060      6,060
Unrealised gains on investments     -     7,514   7,514         -      7,874      7,874         -     27,359     27,359
Currency gains/(losses)             -     1,148   1,148         -       (315)      (315)        -       (759)      (759)
Income                          2,878         -   2,878     2,317          -      2,317     4,268          -      4,268
Administrative expenses          (256)        -    (256)     (213)         -       (213)     (433)         -       (433)
Net return before finance 
costs and taxation              2,622    19,963  22,585     2,104      8,270     10,374     3,835     32,660     36,495
Finance costs of borrowings      (629)        -    (629)     (112)         -       (112)     (555)         -       (555)
Return on ordinary activities                                                                      
before taxation                 1,993    19,963  21,956     1,992      8,270     10,262     3,280     32,660     35,940
Tax on ordinary activities         (2)        -      (2)      (10)         -        (10)      (22)         -        (22)
Return on ordinary activities   
after taxation                  1,991    19,963  21,954     1,982      8,270     10,252     3,258     32,660     35,918
Return per ordinary share:  
(note 2)
Basic                            3.05p    30.61p  33.66p     3.04p     12.68p     15.72p     4.99p     50.07p     55.06p
Diluted (FRS 14)                 3.04p                       3.03p                           4.99p

 An interim dividend for the period of 2.00p per share is proposed (2005 -
1.75p). More information on dividend distributions can be found in note 3.

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

+  Various changes in accounting policies, as disclosed in note 1, have had the
cumulative effect of increasing reported net assets by £647,000 for the six
months ended
31 May 2005 and by £1,128,000 for the year ended 30 November 2005.

 All revenue and capital items in this statement derive from continuing

A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.


                         SUMMARISED BALANCE SHEET


                                                       At                       At                        At
                                              31 May 2006              31 May 2005          30 November 2005
                                                                         Restated+                 Restated+
                                                    £'000                    £'000                     £'000


Fixed asset investments                          177,824                  123,683                   158,108
Net liquid assets                                 16,927                    1,772                     6,820
Total assets (before deduction of
bank loans)                                      194,751                  125,455                   164,928
Bank loans                                       (37,081)                 (12,633)                  (27,581)
                                                 157,670                  112,822                   137,347


Called-up share capital                           16,307                   16,307                    16,307
Capital reserves                                 137,244                   92,892                   117,281
Revenue reserve                                    4,119                    3,623                     3,759

EQUITY SHAREHOLDERS' FUNDS                       157,670                  112,822                   137,347

(note 4)                                           241.7p                   173.0p                    210.6p

+See note 1




                                                                   For the six  For the six         For the
                                                                     months to    months to         year to
                                                                        31 May       31 May     30 November
                                                                          2006         2005            2005
                                                                         £'000        £'000           £'000

Net cash inflow from operating activities                               2,280        1,902           3,787
Net cash outflow from servicing of finance                               (504)         (97)           (450)
Net cash inflow/(outflow) from financial investment                     5,414      (15,856)        (32,479)
Equity dividends paid                                                  (1,631)      (1,468)         (2,609)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING                              5,559      (15,519)        (31,751)

Net cash inflow from bank loans                                        10,774        5,493          19,964
INCREASE/(DECREASE)IN CASH                                             16,333      (10,026)        (11,787)


Increase/(decrease) in cash in the period                              16,333      (10,026)        (11,787)
Net cash inflow from bank loans                                       (10,774)      (5,493)        (19,964)
Exchange movement on bank loans                                         1,274         (339)           (816)

MOVEMENT IN NET FUNDS/(DEBT) IN THE PERIOD                              6,833      (15,858)        (32,567)
Net (debt)/funds at start of the period                               (27,569)       4,998           4,998
NET DEBT AT END OF PERIOD                                             (20,736)     (10,860)        (27,569)


Net return before finance costs and taxation                           22,585       10,374          36,495
Gains on investments                                                  (19,963)      (8,270)        (32,660)
Changes in debtors and creditors                                         (340)        (192)            (26)
Overseas tax                                                               (2)         (10)            (22)
NET CASH INFLOW FROM OPERATING ACTIVITIES                               2,280        1,902           3,787



                                                              For the              For the               For the
                                                        six months to        six months to               year to
                                                               31 May               31 May           30 November 
                                                                 2006                 2005                  2005
                                                                £'000                £'000                 £'000
Shareholders' funds at 1 December as previously              136,219              103,017               103,017

Prior year adjustments:

Revaluation of investments at bid prices                        (503)                (447)                 (447)

Reversal of provision of final dividend                        1,631                1,468                 1,468

Shareholders' funds at 1 December as restated                137,347              104,038               104,038

Total recognised gains for the period                         21,954               10,252                35,918

Dividends recognised as distributions in the period           (1,631)              (1,468)               (2,609)

Shareholders' funds at 31 May/30 November                    157,670              112,822               137,347



1.          A number of new UK Financial Reporting Standards have been introduced with which the Company must comply
            by its 30 November 2006 financial year end. These standards are part of the UK convergence programme with
            International Accounting Standards and as such have required most UK listed companies to restate prior
            year figures to reflect the new accounting treatment. The financial statements for the six months to 31
            May 2006 have been prepared on the basis of the accounting policies set out in the Company's annual
            Financial Statements at 30 November 2005 except as detailed below:

            (a)     Investments have been valued at fair value through profit or loss in accordance with
            FRS 26 'Financial Instruments: Measurement.' The effect is to move from a mid to a bid basis of valuation,
            resulting in a reduction in the value of investments and unrealised capital reserves of £455,000 (31 May
            2005 - £494,000; 30 November 2005 - £503,000);

            (b)     In compliance with FRS 21 'Events after the Balance Sheet Date', dividends declared after the
            period end are no longer treated as a liability at the period end. The effect is to reduce creditors and
            increase revenue reserves by £1,305,000 (31 May 2005 - £1,141,000; 30 November 2005 - £1,631,000);

            (c)     The implementation of FRS 21 and the 2005 SORP has resulted in changes in the presentation of
            total returns. Previously dividends paid and payable in respect of a period were disclosed in the
            Statement of Total Return and the revenue column of that statement was deemed to be the profit and loss
            account of the Company. We now present an Income Statement which does not show the distribution in respect
            of equity shares and, whilst it still shows information on capital and revenue returns, it is the total
            return column which is regarded as the profit and loss account of the Company. Dividend distributions are
            now shown in the Reconciliation of Movements in Shareholders' Funds and in the notes to the Accounts.

            The overall effect of these changes on shareholders' funds is as follows:

                                                          Six months to          Six months to                 Year to
                                                                31  May                 31 May             30 November
                                                                   2006                   2005                    2005
                                                                  £'000                  £'000                   £'000
            Effect on shareholders' funds

            Investments/Capital reserve -                         (455)                  (494)                   (503)

            Creditors: dividends payable/Revenue                  1,305                  1,141                   1,631
                                                                    850                    647                   1,128

2.          Return per ordinary share
            Revenue return                                       1,991                   1,982                  3,258
            Capital return                                      19,963                  8,270+                 32,660+

            The returns per share are based on the above returns and on 65,228,895 shares, being the weighted average
            number of shares in issue during each period.

            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 period.  The diluted revenue returns per share
            are based on the above returns and on 65,546,104 shares (31 May 2005 - 65,424,001; 30 November 2005 -
            65,273,731), being the weighted average number of shares in issue during the period plus the notional
            number of shares that would have been issued for no consideration using an average share price of 245.9p
            (31 May 2005 - 173.3p; 30 November 2005 - 179.0p) and an average exercise price for the options of 238.0p
            (31 May 2005 - 169.8p; 30 November 2005 - 178.0p).

            +See note 1

                                                           Six months       Six months             Year to
                                                            to 31 May        to 31 May         30 November
                                                                 2006             2005                2005
                                                                £'000            £'000               £'000

3.    Dividends

      Amounts recognised as distributions in the period:

      Previous year's final dividend of 2.50p                   1,631            1,468               1,468
      (2005-2.25p), paid 6 April 2006
      Interim dividend (2005-1.75p, paid 2 September                -                -               1,141
                                                                1,631            1,468               2,609

      Dividends paid and proposed in the period:

      Interim dividend of 2.00p (2005-1.75p)                    1,305            1,141               1,141

      Final dividend (2005 - 2.50p)                                 -                -               1,631

                                                                1,305            1,141               2,772

      The interim dividend was declared after the period end date and has therefore not been included as a
      liability in the balance sheet. It is payable on 1 September 2006 to shareholders on the register at
      the close of business on 11 August 2006. The ex dividend date is 9 August 2006.

                                                                   At               At                  At
                                                               31 May           31 May         30 November
                                                                 2006             2005           Restated+
                                                                £'000            £'000               £'000
4.    Net asset value per ordinary share
      Net asset value attributable to ordinary shares         157,670          112,822             137,347

      Net asset value per share is based on net assets as shown above and on 65,228,895 shares, being the
      number of shares in issue at each period 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 net asset value arises from their exercise.

5.    The financial information contained within this interim report does not constitute statutory
      accounts as defined in section 240 of the Companies Act 1985.  The financial information for the
      year ended 30 November 2005 has been extracted from the statutory accounts and restated as disclosed
      in note 1.  Those accounts have been filed with the Registrar of Companies, contain an unqualified
      Auditors' Report and do not contain a statement under sections 237(2) or (3) of the Companies Act

6.    The Interim Report was approved by the board on 6 July 2006.

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

+See note 1

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