CIN.L Regulatory News (CIN)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, THE REPUBLIC OF SOUTH AFRICA AND THE UNITED STATES OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL

THIS ANNOUNCEMENT IS AN ADVERTISEMENT. IT IS NOT A PROSPECTUS. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT SOLELY ON THE BASIS OF INFORMATION CONTAINED IN THE PROSPECTUS TO BE PUBLISHED BY CITY OF LONDON GROUP PLC IN CONNECTION WITH THE PROPOSED ISSUE. IT IS INTENDED THAT THE PROSPECTUS WILL BE PUBLISHED ON OR AROUND 1 APRIL. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY AT 30 CANNON STREET, LONDON, EC4M 6XH AND AT THE OFFICES OF FOX WILLIAMS LLP AT TEN DOMINION STREET, LONDON, EC2M 2EE DURING NORMAL BUSINESS HOURS ON ANY WEEKDAY (SATURDAYS, SUNDAYS AND PUBLIC HOLIDAYS EXCEPTED) UP TO AND INCLUDING THE DATE WHICH IS ONE MONTH FOLLOWING ADMISSION.

City of London Group plc

Proposed Firm Placing and Open Offer to raise up to £7.5m

Change of Investment Policy

Launch of Credit Asset Management Limited

City of London Group plc, a closed-ended investment company specialising in the professional services and SME sectors, is pleased to announce that it intends to raise up to £7.5 million via the issue of up to 9,017,315 New Ordinary Shares at 83 pence per share through a Firm Placing and Open Offer conducted by Singer Capital Markets acting as Sponsor and Broker.

The Company also provides an update in respect of its proposed new venture, Credit Asset Management and a proposed change in its investment policy.

Overview:

·; Firm Placing to raise £5.2 million before expenses and Open Offer to raise up to £2.3 million. The Open Offer has not been underwritten and there is no minimum amount required to be raised pursuant to the Open Offer.

·; The Directors are investing £587,000 in the issue, £487,000 of which has irrevocably committed to be invested under the Open Offer. This commitment, when taken with the Firm Placing, will result in the Company raising a minimum of £5.7 million before expenses.

·; Strategy to invest in strong business models and teams in the professional services and SME sectors, providing initial equity, working capital and seed capital for management teams in the expectation of receiving high returns. The aim is to bring in third party investors to supplement or replace the Company's seed funding once the team's capability and concepts have been proven.

·; The net proceeds will be used to develop further the Company's existing investments in litigation funding, trade finance and legal receivables funding. The Company is also identifying a number of new investment opportunities offering strong returns and the Board is keen to accelerate growth in both areas without the constraint of its small capital base.

·; Credit Asset Management will initially target both short and long term general professional practice lending and SME asset financing with distribution through intermediaries. Management believes market conditions to be favourable for new entrants, with demand for asset-backed finance exceeding supply.

·; Proposed change in Investment Policy to enable a heavier weighting in financial services investments.

Eric Anstee, Chief Executive, said:

"I am delighted to confirm that City of London Group has successfully raised a minimum of £5.7 million with scope to raise potentially up to £7.5 million through this Firm Placing and Open Offer. The proceeds will help fund our growth strategy, principally through seed and working capital advances to the Company's existing investments as well as the launch of our new CAML venture.

In addition, we are extremely pleased to welcome six new substantial institutional shareholders to our share register, who will be looking to share in the exciting prospects we believe lay in store for our business."

It is intended that the Prospectus relating to the Firm Placing and Open Offer will be posted to shareholders on or around 1 April 2011. The Prospectus will contain a notice of general meeting to approve, inter alia, certain shareholder resolution required in connection with the Firm Placing and the Open Offer which will be held at The City Club, 19 Old Broad Street, London EC2N 1DS on 27 April 2011 at 10.00 a.m.

When posted, copies of the Prospectus will be submitted to the UKLA's National Storage Mechanism and will be available for inspection at www.hemscott.com.

In addition, the Prospectus will be available to view on the Company's website (www.cityoflondongroup.com). Copies of the Prospectus will be also available from the offices of the Company at 30 Cannon Street, London EC4M 6XH and at the offices of Fox Williams LLP, Ten Dominion Street, London EC2M 2EE.

For further information please contact:

City of London Group plc Tel: +44 (0)20 7628 5518

Eric Anstee, CEO

John Kent, Executive Director

Singer Capital Markets Ltd Tel: +44 (0)20 3205 7500

Jeff Keating

Jonathan Marren

College Hill Tel: +44 (0)20 7457 2020

Roddy Watt

Tony Friend

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any New Ordinary Shares, nor shall it (or any part of it), or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract or commitment whatsoever with respect to the proposed Firm Placing and Open Offer or otherwise. This announcement is not a Prospectus and investors should not subscribe for or purchase any New Ordinary Shares referred to in this announcement except on the basis of information in the Prospectus expected to be published in due course.

The distribution of this announcement in certain jurisdictions may be restricted by law and such distribution could result in violation of the laws of such jurisdictions. In particular, this announcement is not for distribution in Australia, Canada, Japan New Zealand, the Republic of South Africa or the United States.

This announcement is not for release, publication or distribution, in whole or in part, directly or indirectly, in or into Australia, Canada, Japan, New Zealand, the Republic of South Africa, the United States or any jurisdiction into which the publication or distribution would be unlawful. This announcement is for information purposes only and does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the Australia, Canada, Japan, New Zealand, the Republic of South Africa, the United States or any jurisdiction in which such offer or solicitation would be unlawful. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended ("Securities Act") and may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any state or other jurisdiction of the United States. The securities are being offered and sold outside the United States in accordance with Regulation S under the Securities Act. No public offering of the shares referred to in this announcement is being made in Australia, Canada, Japan, New Zealand, the Republic of South Africa, the United States or any jurisdiction in which such public offering would be unlawful.

The information in this press release may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions.

INFORMATION RELATING TO FORWARD LOOKING STATEMENTS:

This announcement contains forward looking statements including without limitation, statements containing the words "believes", "estimates", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations of similar expressions. Such forward looking statements involve unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company, or industry results, to be materially different from future results, performance or achievements expressed or implied by such forward looking statements.

Given these uncertainties, readers are cautioned not to place any undue reliance on such forward looking statements. These forward-looking statements apply only as at the date of this announcement. Subject to its legal and regulatory obligations (including under the Prospectus Rules), the Company expressly disclaims any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based unless required to do so by law or any appropriate regulatory authority, including FSMA, the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules.

1. Introduction

The Company is a closed-ended investment company specialising in the professional services and SME sectors and is pleased to announce that it intends to raise up to £7.5 million via the issue of up to 9,017,315 New Ordinary Shares at 83 pence per share through the Firm Placing and Open Offer conducted by Singer Capital Markets acting as Sponsor and Broker.

Under the Firm Placing, the Company intends to issue 6,280,723 New Ordinary shares raising approximately £5.2 million and under the Open Offer, the Company intends to issue up to 2,736,592 New Ordinary Shares raising up to approximately £2.3 million. The Open Offer has not been underwritten andthere is no minimum amount required to be raised pursuant to the Open Offer.

The Directors have irrevocably committed to apply for in aggregate 586,747 New Ordinary Shares pursuant to the Open Offer representing in aggregate £487,000. This commitment, when taken with the Firm Placing, will result in the Company raising a minimum of approximately £5.7 million.

The Directors are investing a total of in aggregate £587,000, £100,000 of which is being invested by the Energy Group Employee Benefit Trust, of which Eric Anstee is a beneficiary (together with other members of his family), as part of the Firm Placing.

The Placing Price of 83 pence represents a discount of 9.2 per cent. to the NAV of City of London Group of 91.4 pence per share as at 28 February 2011 and a discount of 12.6 per cent. of the closing share price as at 31 March 2011, being the last date prior to this announcement.

Qualifying Open Offer Shareholders can subscribe for Open Offer Shares on the basis of 1 Open Offer Share for every 4 Existing Ordinary Shares held, and may apply for any whole number of Open Offer Shares. Excess applications will be satisfied to the extent that corresponding applications by other Qualifiying Open Offer Shareholders are not made or are made for less than their pro rata entitlements.

The Issue is conditional, inter alia, upon:

(i) the passing of the Issue Resolutions which will be sought at the General Meeting to be held on 27 April 2011 at 10 a.m. (notice of which will be set out in the Prospectus);

(ii) Admission of the New Ordinary Shares becoming effective by not later than 8.00 a.m. on 28 April 2011 (or such later time and/or date as Singer Capital Markets Limited and the Company may agree, not being later than 8.00 a.m. on 9 June 2011); and

(iii) the Firm Placing and Open Offer Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.

Accordingly, if any of such conditions are not satisfied, or, if applicable, waived, the Issue will not proceed and Open Offer Entitlements and Excess Open Offer Entitlements admitted to CREST will thereafter be disabled.

2. Background to and reasons for the Issue and the use of proceeds

The Company's activities historically focused on the natural resource sector. The Company listed on the London Stock Exchange in 1996, and since then its principal activities have evolved from providing financial PR advice, mainly to mining companies, towards investment activity. The Company was first classified as an investment company in 2003, pursuant to rule 21 of the FSA's listing rules in force at the time (now superseded by the Listing Rules), and is now classified as a closed-ended investment company pursuant to Rule 15 of the Listing Rules.

Since 2007, the Board has managed the Investments with a small head office team, selecting early stage natural resources investments at the higher end of the risk and growth spectrum and balancing these with less volatile, higher income, larger cap stocks to meet the Company's operating expenses. The Company has also sought to increase its exposure to the financial services sector, investing in Fundamental Tracker Investment Management in late 2007, an investment manager, and FX Capital in 2009, a foreign exchange and payments business.

On 11th November 2009 the Company announced that it had appointed a new management team, led by Eric Anstee and John Kent, with the objective of further exploiting opportunities in the financial services sector. Since then, the new team has announced the launch of four new ventures with its initial focus of providing specialist finance for the professional services and SME Markets. being:

·; on 17 February 2010 the Company announced an investment in Therium, which invests in third party litigation, together with a seed fund to help Therium establish its track record;

·; on 23 March 2010 the Company announced the completion of a joint venture agreement and the provision of seed working capital to establish SHF Legal Funding which lends against receivables in the legal sector;

·; on 24 November 2010, the Company announced an investment in Trade Finance Partners, a new subsidiary company which provides trade finance to the SME Market; and

·; finally, the Company announced today the launch of Credit Asset Management, a new business managing funds aimed at general professional practice lending and SME asset financing.

The investments set out above have been undertaken against a background where in the Board's opinion the major banking institutions' appetite to fund specialist financial products in the SME Market and professional services segments has often appeared limited and uncertain. The Board believes this environment will continue and, as a consequence, the Board anticipates a rich vein of product opportunities and skilled management teams to materialise over the next eighteen months.

The Board's strategy is to invest in strong business models and teams, providing initial equity, working capital and seed funding for management teams. The aim is to bring in third party investors to supplement or replace the Company's seed funding once each team's capability and concepts have been proven. Demonstrating that track record and building start-up funds to a scale at which it makes sense to involve external investors inevitably takes time and the Company is limited in the number of opportunities it is able to pursue within its current small capital base. Given the unique opportunities the Board perceive in the current environment, the Board is also keen to add further new products and teams. The Board are accordingly undertaking the Issue in order to supplement our existing seed funds and accelerate their growth to scale and also to provide investment and seed funding capacity for new products and teams over the next eighteen months.

The Firm Placing Proceeds are intended to be broadly divided to scale up currently identified businesses and funds in the legal and SME Markets (i.e. Therium, SHF Legal Funding, Trade Finance Partners, City of London Law Funding and Credit Asset Management being part of the Operating Investments) and the Open Offer Proceeds used for resourcing new launches and products yet to be announced and further scaling up of the Operating Investments within the parameters of the Company's investment policy.

3. Information on the Company

Corporate strategy and investment rationale

In 2007 the Company sold its financial PR business, and made its first Operating Investment in the financial service sector by investing in Fundamental Tracker Investment Management. The initial focus for the Company's financial services strategy was asset management and financial advice, and in 2008 the Company invested further in SUSD Asset Management (then named ARC Fund Management Holdings plc and subsequently Consolidated Asset Management (Holdings) plc), originally an IFA grouping, adding a small shareholding in FX Capital in early 2009.

Since their appointment in November 2009, the new management team led by Eric Anstee and John Kent, has sought to develop the Company's investment mix towards a significantly greater weighting in financial services investments. This reflects their extensive expertise in financial services and their perception that there are a number of accessible, high return opportunities within the sector. By further shifting the focus of the Company's investment strategy towards financial services, the Directors believe that the Company will be able to build a strong platform for growth and one which will not experience the same degree of volatility as its historical investments in the natural resources sector.

The new management team is concentrating the Company's initial financial services investments on the provision of specialist funding to professional services businesses and SME Markets. The Board believes there are particular opportunities in these sectors as major national and foreign banks continue to restrict new lending to corporates and professional services firms, notwithstanding Government initiatives, such as Project Merlin, aimed at expanding the credit available to these sectors. The availability of asset backed financing, which has traditionally accounted for around 33 per cent. of SME Market external funding, has been curtailed with a number of independent providers ceasing new business. The lack of available trade finance has been blamed by the World Bank for 10-15 per cent. of the reduction in international trade following the financial crisis. The reported increase in solvency requirements for trade finance under Basel III would be likely, in the view of the Board, to further restrict the banks' appetite to lend. The professional services market has not been immune in the downturn and the legal sector in particular faces a period of turbulence with reform and deregulation ahead which in turn can be expected to create opportunities for new forms of external finance.

Against this background, the Company's strategy is to identify and exploit the product niches and business models within these chosen sectors which can yield the best risk reward profile, rather than build a wide product offering. All of the investments made in 2010 therefore target high returns. In each case it has also been a requirement that the product niches and business models are supported by a strong and experienced professional management team who will operate the business on a day to day basis and who are incentivised for growth. This investment strategy assumes that the Company will also take a more active oversight role in its financial services investments than it has with past investments, providing both strategic direction and assisting with fund raising, where appropriate.

With relatively high returns targeted for each of the investee companies in which the Company invests, the Directors believe there is capacity to offer attractive yields and returns to external investors through dedicated passive equity or subordinated debt funds. Such external funds facilitate less bank leverage and greater stability within these businesses, as well as permitting the Company to progressively recycle its initial seed funding when desirable. The Company's financial objective is to enjoy returns from both its seed funds and from its permanent "founder equity" as each investee company grows.

Investment objective

The Company's investment strategy is to move towards a quasi private equity type closed-ended investment company with a greater proportion of financial services investments adopting an active oversight role with each investee company. Following the Issue, these activities are expected to form the majority of the Company's investments (in value terms) and the Directors believe that it is therefore appropriate for the Company's investment policy to be amended. The proposed investment policy of the Company is set out below. The amendment to the Company's investment policy is subject to Shareholder approval by ordinary resolution at the General Meeting.

4. Proposed investment policy

The principal investment objective of the Company will be to achieve total returns for shareholders in excess of 8 per cent. per annum, measured on a 5 year rolling basis.

·; The majority of the Company's portfolio will be invested in the financial services sector through a series of equity and non equity investments in unquoted and quoted companies which provide specialist financing and alternative asset management services. The Company will give particular focus to professional services and the SME Market. It will also continue to hold a smaller portfolio of quoted stocks for the purposes of balance, liquidity and short term investment return and unquoted stocks where the Company believes there is an attractive growth opportunity.

·; The Company's main strategy will be to provide equity, working capital and seed funding to management teams and early stage companies to enable them to build a track record. When appropriate, the Company will assist those companies in expanding their activities by raising third party funding. The Company will then be able to progressively redeploy its initial working capital and seed funding whilst retaining its long term equity interest.

·; The Company will be able to hold majority and minority equity positions in its investee companies. Where it has a majority of the equity, the day to day control will remain with each management team within those companies, and the Company will exercise its rights as a shareholder in order to ensure appropriate investor protection and strategic direction. The Company will not generally have a fixed timescale for the realization of investments and these will be assessed periodically in order to optimize their value.

·; No more than 20 per cent. of the Company's total gross assets, as at the date of acquisition, will be invested in any one single company. If the Company acquires a portfolio of companies in a single transaction, this limitation shall be applied individually to each of the underlying companies where the investment has taken place and not to the portfolio as a whole. In the event that any of the Company's investee companies are combined, this limitation shall be applied to the combined entities.

·; Each of the investments will be separate from all others, stand alone and there will be no cross financing or funding requirements between them.

·; Borrowing will take place when the Company believes it to be in its best interests but the amount borrowed will not exceed 50 per cent. of the value of the investment portfolio at the time of borrowing and will, in any event, remain subject to the limitations of borrowing contained in its articles of association of the Company.

·; Compliance with investment restrictions and guidelines will be monitored continuously by the board. Any material changes to the investment policy must be approved by the shareholders in accordance with the Listing Rules and the Companies Act 2006.

5. Details of the Company's Investments

As at 28 February 2011 the Company had net assets of £10,699,000. These net assets were broadly derived as follows (unaudited):

As at 31 March 2011 (being the latest date practicable prior to this announcement) the respective values of the Investment Portfolio, Operating Investments, Investments in Legal and Other funds and Loan notes issued against legal funds were as follows:

(A) Investment Portfolio

Of the Investment Portfolio as at 28 February 2011, approximately £6,140,000 represented quoted stocks or equivalents and £1,352,000 unquoted stocks. Investments in the mining and energy sector represented £5,667,000 (cost £2,639,000) whilst other stocks represented £1,825,000 (cost £1,635,000).

Of the Investment Portfolio as at 31 March 2011 (being the latest date practicable prior to this announcement), approximately £5,496,000 represented quoted stocks or equivalents and £1,391,000 unquoted stocks. Investments in the mining and energy sector represented £5,216,000 (cost £2,544,000) whilst other stocks represented £1,671,000 (cost £1,515,000).

The largest investments in the Investment Portfolio as at 28 February 2011 and 31 March 2011 (being the latest date practical prior to the publication of this Offer) were as follows (the Company's shareholdings are shown where these exceed 3 per cent.):

With the exception of Flow Energy plc and Hurricane Exploration plc, the figures quoted above are based on 28 February 2011 and 31 March 2011 bid prices respectively. Flow Energy plc and Hurricane Exploration are not listed companies and, accordingly, the quoted figure is based on the price of the most recent placings for these Companies being $1.5 Australian Dollars per share as at 23 December 2010 (being £1 as at that date) and £11.10 per share as at 8 March 2011 respectively.

(B) Operating Investments

The Company's main Operating Investments as at 28 February 2011 and 31 March 2011 (being the latest date practical prior to the publication of the Prospectus) were as follows:

(i) Therium

Therium provides third party litigation funding for individuals, trustees and companies wishing to pursue substantial claims through litigation in the UK or in international arbitration. This is a relatively new asset class in the UK, although litigation funds have been established for a number of years in the USA and Australia. Therium focuses on large commercial litigation and arbitration claims (usually in excess of £1,000,000) and sources its cases through a network of relationships with a wide range of firms of solicitors active in commercial litigation. Cases are also sourced through strong links with a number of brokers for third party funding in the UK and other professionals advising on litigation such as barristers.

Therium undertakes extensive due diligence before making any investment and it has reviewed over 150 cases to date, investing in eleven so far. The cases have been funded either on a specific case basis through high net worth investors or through the Company's seed funding. Therium earns returns for its funds either through a multiple of funding commitments or a percentage of awards received on successful cases. Of the four legal cases settled to date Therium has earned a return on funds committed of 207 per cent. Therium charges management and performance fees to its funds and, in the case of an established third party fund, would normally seek to charge 2 per cent. of funds committed and 20 per cent. of fund investment return.

On 20 October 2010 the Company announced that it was issuing 8 per cent. fixed rate unsecured loan notes up to a value of £5,000,000. The loan notes were issued to high net worth clients of an IFA distributor in advance of that distributor's proposed establishment of a new legal fund, which was to be set up to hold funds for Therium to manage. As at 28 February 2011, £1,600,000 of loan notes have been issued and £1,526,465 provided to Therium. The Directors are no longer of the opinion that a new legal fund can be established by the distributor and it is anticipated that a new legal fund will be established by an alternative provider. Therium intends to offer the loan note holders the opportunity to convert their funds into the new Therium managed litigation fund. If the new legal fund is not established, the loan notes will be redeemed by the Company on their due date.

Therium is managed by John Byrne and Neil Purslow, both of whom are practicing solicitors admitted in England and Wales. John Byrne was formerly head of the London office of the law firm, Dorsey & Whitney, where he was instrumental in building the firm's London office into a full service City practice with one of the strongest tax litigation practices in the City. Neil Purslow was formerly litigation counsel in London for Marsh & McLennan Companies, Inc. and has extensive experience across a broad range of commercial litigation and arbitration.

As at the date of this announcement, the Company owns 50 per cent. of Therium's ordinary equity (at a cost of £300,000) and had invested a further £2,919,000 in seeding legal funds being managed by Therium. The Company has committed a further £895,000 to legal cases being funded by Therium. The Company has also guaranteed a working capital facility to Therium of £420,000 and has undertaken to provide further working capital loans (on terms to be agreed) to cover Therium's net operating costs for the year to 17 February 2012 up to a maximum of £700,000. The Directors anticipate that the Company's further investment in Therium and its legal funds will be approximately £1,000,000 from the Firm Placing Proceeds, which is likely to take this investment to, or close to, the maximum permitted under the Company's proposed new investment policy following completion of the Issue.

The Company's 50 per cent. shareholding in the Therium may be adjusted pursuant to a ratchet mechanism, summarised as follows:

(i) If there is less than £10,000,000 of additional funding (excluding the seed monies provided by City of London Group) in the Therium Litigation Fund as at 31 December 2011 then 40 per cent. of the Company's holding of ordinary shares will convert to deferred shares; and

(ii) If there is more than £10,000,000 but less than £20 million of additional funding (excluding the seed monies provided by City of London Group) in the Therium Litigation Fund as at 31 December 2011, then 20 per cent. of the Company's holdings of ordinary shares will convert into deferred shares.

(ii) SHF Legal Funding

SHF Legal Funding was set up to provide financing to the legal sector, combining experience of traditional business financing with the specific requirements of lawyers. SHF Legal Funding advances short term working capital to law firms which are awaiting settlement of their costs, particularly in personal injury cases. These advances represent a proportion of the costs outstanding and they are secured against the acceptance of liability by the defendant's insurer or equivalent body. This is a relatively new product and SHF Legal Funding initially entered into 'framework' agreements with a number of solicitors and several large legal cost assessment companies to assist in its roll out. Launched in April 2010, SHF Legal Funding has established itself in the sector and concluded framework agreements with fourteen firms of lawyers, lending a total of 123 loans worth £780,000 to date.

SHF Legal Funding was initially a joint venture with SHF, a PLUS listed financial services business, the principals of FML, a supplier of specialist financial products to the legal sector and New Avenue Projects Limited, which helped develop the product. Following a review of progress, the Company concluded that SHF Legal Funding's product set should be broadened and its sales efforts pursued more aggressively. Accordingly, on 16 February 2011 the Company exchanged a £125,000 loan note held in SHF into a £125,000 loan note issued by SHF Legal Funding and capitalised the SHF Legal Funding loan note in return for 99.36 per cent. of SHF Legal Funding's ordinary equity. The Company acquired a further 0.6 per cent. of the ordinary equity from previous shareholders and it now holds 99.96 per cent. of the entire ordinary equity. SHF Legal Funding will be managed through and alongside CAML and its existing arrangements with SHF and FML terminated with effect from 28 February 2011. The Company has an outstanding loan of £400,000 made to a special purpose ring fenced subsidiary of SHF Legal Funding which carries an interest rate of 12 per cent. together with £100,000 made to a second special purpose ring-fenced subsidiary of SHF Legal Funding which carries an interest rate of 10 per cent.

With a broader product set and simpler management arrangements, the Directors believe that SHF Legal Funding should be able to expand its business at a faster rate, particularly as pressure increases within the legal sector to utilize working capital more effectively. With a better established track record and a well secured asset book, the Directors believe that SHF Legal Funding should be able to access conventional debt markets to support its growth going forward. The Company intends to invest, approximately £1,000,000 from the Firm Placing Proceeds in SHF Legal Funding.

(iii) Trade Finance Partners

TFPL is a new business established in November 2010 by the Company and a team of experienced trade finance specialists with the aim of offering trade finance into the SME Market.

TFPL's product offerings cover the whole range of trade finance mechanisms including letters of credit, supplier guarantees, bonding and Forex hedging. It also offers an advisory and back office service to its clients, which greatly enhances the security in the transactions and includes access to TFPL's trade credit insurance policy.

TFPL has secured a revolving line of credit of up to £10,000,000 from the Bank of London and the Middle East based upon TFPL having combined equity and subordinated debt of up to £1,500,000. Under this revolving line of credit, TFPL buys the goods on behalf of its client when there is a confirmed order by issuing letters of credit or equivalent. TFPL will take ownership of the goods until the client has completed a sale and TFPL collects the proceeds from the client's customer and deducts its fees before remitting the balance. The exit risk is at all times covered by a suitable trade credit insurance policy or the existence of an investment grade buyer.

TFPL's management team is led by Chris Ash (CEO) and Glyn Powell (COO), both of whom have many years experience in specialist sales, trade and leasing finance. They are supported by William Tebbit (Commercial Director) who has broad experience in a number of management roles and sectors including investment banking and Noel Lyons (Finance Director) who has international experience with the oil, gas and financial services sectors. The business is chaired by Paul Tinkler, formerly managing director of a division of Carnaud Metal Box Group Plc, who has 30 years experience of global trading.

The Company, through its subsidiary COLCH, has acquired 51 per cent. of TFPL by investing £500,000 in ordinary shares and working capital. The Company has underwritten an issue of £1,000,000 of loan notes (of which £500,000 has already been drawn) to launch TFPL. Since it was launched, TFPL has accessed a level of business opportunities in excess of original expectations. Accordingly the Directors intend to invest approximately £1,000,000 from the Firm Placing Proceeds.

(iv) New Businesses

(a) Credit Asset Management

The Company today announced the launch of CAML, a 51 per cent. owned subsidiary, aimed at providing specialist asset finance to the SME Market and general practice lending to the professional services market. CAML is being led by Chris Boobyer (Chairman), Michael Hughes (CEO) and James Frost (FD). Between 2006 and 2010, Michael Hughes and James Frost were responsible for developing Universal Leasing ("UL"), a successful SME and professional services leasing business. Chris Boobyer has over 30 years experience in financial services, including senior positions with Barclays Asset Finance.

The intention is that CAML will target the same segments as UL, starting with short and long term professional practice lending. Distribution will be through the intermediaries and contacts the team developed when Michael Hughes and James Frost were growing UL. Current market conditions favour new entrants, particularly for asset backed finance where demand is believed to exceed supply with a consequential hardening of margins.

The Company will be funding CAML's running costs through a three year working capital loan of £750,000 at an interest rate of 4.67 per cent. per annum. The Company will also invest up to £5,000,000 in seed equity alongside which CAML expects to agree bank borrowings to support the growth in its book. The intention is to attract further equity from external sources in the future. CAML will also be seeking ring fenced equity management mandates targeting the same sector from which it will earn management and performance fees. The Company intends to invest approximately £1,250,000 from the Firm Placing Proceeds.

(b) City of London Law Funding

COLLF was established in August 2010 to complement Therium's business by focusing on smaller, lower risk opportunities predominantly arising out of litigation. It has not yet been fully activated as the focus of its business was deemed to have a lower priority call on the Company's existing resources. Funding from the Issue Proceeds will enable the Company to capitalize and launch this business on a sound financial footing. COLLF will sit alongside CAML (general practice lending), SHF Legal Funding (advances against agreed legal costs) and Therium (third party commercial litigation) by lending against smaller sized, lower risk litigation cases, for example matrimonial cases, and other legal services opportunities where risk assessment requires legal expertise. With a successful launch, COLLF is expected to utilize approximately £500,000 from the Firm Placing Proceeds.

(v) Legacy Investments

(a) Fundamental Tracker Investment Management

FTIM was formed in 2006 and launched the Munro Fund in September 2007, as a low cost, passive dividend tracker fund aimed at the FTSE 350 index. The Munro Fund is weighted toward total forecast dividend payouts in contrast to the 'market capitalization' approach adopted by other orthodox tracker funds. The Company owns 90.52 per cent. of FTIM and has funded its running costs since 2007. As at 28 February 2011, the Company has also invested seed funding currently valued at £425,000 in the Munro Fund. The Munro Fund currently manages £2,067,000 and in October 2010 it completed its three year track record which makes it eligible for a broader range of investment platforms. The Company does not intend to utlilize any of the Issue Proceeds to invest further in FTIM or the Munro Fund.

(b) FX Capital

FX Capital was set up in 2009 and is a specialist foreign exchange broking and international payments technology firm, offering online and telephone banking services directly to corporate and personal customer using proprietary technology platforms. The Company has a 19.9 per cent. shareholding in FX Capital, acquired at a cost of £287,000, and has subscribed for a loan note in the amount of £100,000. The Company intends to support the growth of FX Capital but does not intend to utlilize any significant proportion of the Issue Proceeds for this purpose.

Any additional proceeds from the Issue will be used either to scale up existing Operating Investments, as the Directors shall determine, and/or resourcing new launches and products yet to be announced.

(C) Investment in Legal and Other Funds and loan notes issued against legal funds

(a) Legal Funds and loan notes issued against legal funds

As at 28 February 2011 and 31 March 2011 (being the latest date practicable prior to this announcement), the Company's investment in Therium's legal funds is as follows:

As at 28 February 2011 and 31 March 2011 (being the latest date practicable prior to this announcement), of the £1,600,000 of loan notes issued by the Company, £1,526,465 has been advanced to Therium as seed funding. The loan notes carry an interest rate of 8 per cent. and are due for repayment in October 2011. The intention is that Therium will offer the loan note holders the opportunity to convert their funds into a Therium managed litigation fund, in which case such fund would purchase the Company's interest in the underlying litigation cases and the loan notes would no longer be repayable.

As at 28 February 2011 and 31 March 2011 (being the latest date practicable prior to this announcement), the Company's investment in SHF Legal Funding legal funds is as follows:

Secured loan to SHFLF1 plc £100,000

Secured loan to SHFLF2 Ltd £400,000

The Company's loan to SHFLF1 plc has an interest rate of 10 per cent. per annum and is a secured loan note repayable in December 2014. SHFLF1 plc is permitted to repay all amounts due (plus interest) prior to the December 2014.

The Company's loan to SHFLF2 Ltd is constituted as a facility secured by debenture over SHFLF2 Ltd's assets and with an interest rate of 12 per cent. per annum. It is repayable in tranches thirteen months after each tranche was originally drawn.

The assets of SHFLF1 plc and SHFLF2 Ltd are comprised of either ring fenced cash held in a bank account or receivables in the form of assigned fee liabilities agreed by insurers or equivalent.

(b) Other funds

As at 28 February 2011, the Company's investment in other funds represents its investment in the Munro Fund operated by FTIM, valued at £425,000. As at 31 March 2011, (being the latest date practicable prior to this announcement), the Company's investment in the Munro Fund was valued at £423,000. The underlying securities held by the Munro Fund are all FTSE 350 stocks and are accordingly liquid.

(D) Other net assets of the Company

As at 28 February 2011, the Company's other net assets comprise fixed assets, other professional loans made, cash and current assets of £2,220,000, less liabilities of £713,000 (and overdrafts of £508,000 and provision for deferred tax of £432,000). It is the Board's intention that any future loans relating to the legal sector will be made through CAML and COLFF.

6. Current trading and prospects

During the second half of its current financial year, the Investment Portfolio has continued to progress and grow, reflecting both good stock selection and the buoyancy of the natural resources and energy sectors. The Board has used the opportunity to take profits through partial realisations where portfolio stocks have posted particularly strong gains. In financial services, Therium has made good progress and continues to see a strong pipeline of opportunities, whilst TFPL is currently taking on trade finance clients at a level well above initial expectations. City of London Group has recently taken a controlling position in SHF Legal Funding, the legal receivables funding venture, in order to accelerate sales growth more aggressively. SHF Legal Funding will be managed through CAML, whose launch was announced today.

Looking ahead, the Board believes that the economic factors underpinning the strength of the natural resources sector will continue although there may be volatility in the way markets price these expectations. It also expects the current environment of uncertainty and restricted credit in banking markets to persist. This augurs well for the Company's financial services businesses which are aimed at addressing gaps in the traditional finance arena and the Board anticipates that these conditions will generate a number of new opportunities for the Company to exploit in the coming year.

7. Dividend policy

The Board was delighted to be able to reinstate both a final dividend of 0.5 pence per Ordinary Share in respect of the financial year ended 31 March 2010 and an interim dividend of 0.5 pence per Ordinary Share in respect of the first half of the current financial year, ended 31 March 2011. There is no assurance that the Company will declare or pay dividends on Ordinary Shares in the future, although as our investments mature we expect to have an increasing capacity to pay dividends and accordingly intend to pursue a progressive dividend policy.

8. Other

Investment Management and Custodian

The Company has never appointed an investment manager to oversee the investments of the Company. This role is performed by the Board. Similarly, the Company does not use a custodian.

Capital Structure

The Company's capital structure currently consists only of Ordinary Shares.

The Ordinary Shares give Shareholders the entitlement to all of the capital growth in the Company's assets and to all income from the Company that is resolved to be distributed. The Ordinary Shares are in registered form and traded on the London Stock Exchange's main market and no shares are currently in bearer form.

As at 31 March 2011 (the latest practicable date prior to this announcement) there were 11,136,642 Ordinary Shares in issue of which 190,273 Ordinary Shares were held in treasury.

Borrowings

The Company maintains an overdraft facility with Lloyds TSB Commercial of up to £1,200,000 secured against the Investment Portfolio. As at the date of this announcement the Company has utilised £418,000 of this facility.

Valuation

The NAV per Ordinary Share is calculated each month by the Company, with the exception of April each year. For the purposes of calculating the NAV per Ordinary Share, the Company's listed investments are valued at bid prices. Where trading in the securities of an investee company is suspended, the investment is valued at the Board's best assessment of fair value. Unlisted investments are valued by the Board. In making their valuations, the Board takes into account, where appropriate, latest dealing prices, valuations from reliable sources, asset values and other relevant factors.

The calculation of the NAV per Ordinary Share will only be suspended in exceptional circumstances where the underlying data necessary to value the investments of the Company cannot readily, or without undue expenditure, be obtained. Details of any suspension in making such calculations will be announced through a Regulatory Information Service.

As at 28 February the unaudited NAV of the Group per Ordinary Share was 91.4 pence per Ordinary Share and the unaudited NAV per Ordinary Share of the Company was 97.7 pence.

Investment Restrictions

The Company is subject to the Listing Rules which apply to closed-ended investment funds. As required under Rule 15.4.2 of the Listing Rules, the Company will at all times invest and manage its assets in a way which is consistent with its objective of spreading investment risk and in accordance with its published investment policy.

In accordance with Rule 15.2.3A of the Listing Rules, the Company (and, if applicable, its subsidiary undertakings) must not conduct any trading activity which is significant in the context of the Group as a whole, but this rule does not prevent the businesses forming part of the Investment Portfolio from conducting trading activities themselves.

In addition, in order to comply with Listing Rule 15.2.5, the Company will not invest more than 10 per cent., in aggregate, of the value of its total assets (calculated at the time of any relevant investment) in other closed-ended investment funds admitted to the Official List (save to the extent that those closed-ended investment funds have stated investment policies to invest no more than 15 per cent. of their gross assets in such other closed-ended investment funds).

In the event of any material breach of the investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the Board through an announcement via a Regulatory Information Service.

9. Principal terms and timing of the Issue

City of London Group intends to issue 6,280,723 New Ordinary Shares through the Firm Placing and up to 2,736,592 New Ordinary Shares through the Open Offer at 83 pence per New Ordinary Share to raise gross proceeds of up to approximately £7.5 million.

The Firm Placees have agreed, conditionally, to subscribe for 6,280,723 New Ordinary Shares at the Issue Price (representing gross proceeds of approximately £5.2 million) comprising the Firm Placed Shares. The Firm Placed Shares are not subject to clawback and are not part of the Open Offer.

Qualifying Open Offer Shareholders are being given the opportunity to subscribe for New Ordinary Shares pro rata to their existing shareholdings at the Issue Price on the basis of:

1 New Ordinary Share for every 4 Existing Ordinary Shares

held and registered in their name at the Record Date.

The Open Offer is intended to raise gross proceeds of up to approximately £2.3 million.

Qualifying Open Offer Shareholders may apply for any whole number of New Ordinary Shares. Excess applications will be satisfied to the extent that corresponding applications by other Qualifying Open Offer Shareholders are not made or are made for less than their pro rata entitlements. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down on a strictly pro rata basis based on the amount of the excess application. There is no minimum amount required to be raised pursuant to the Open Offer.

Fractions of Ordinary Shares will not be allotted and each Qualifying Open Offer Shareholder's entitlement under the Open Offer will be rounded down to the nearest whole number. The fractional entitlements will be retained for the benefit of the Company.

The New Ordinary Shares when issued and fully paid, will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of their issue.

Application has been made for the Open Offer Entitlements and Excess Open Offer Entitlements to be admitted to CREST. It is expected that the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST at 8.00 a.m. on 4 April 2011. The Open Offer Entitlements and Excess Open Offer Entitlements will also be enabled for settlement in CREST system at 8.00 a.m. on 4 April 2011.

Qualifying Non-CREST Shareholders will receive an Application Form with the Prospectus which sets out their maximum entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements allocated to them. Qualifying Open Offer Shareholders may apply for Excess Shares pursuant to the Excess Application Facility. Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements and Excess Open Offer Entitlements as soon as practicable after 8.00 a.m. on 4 April 2011.

Applications by Qualifying Open Offer Shareholders will be satisfied in full up to their Open Offer Entitlements. In addition and subject to availability, the Excess Application Facility will enable Qualifying Open Offer Shareholders to apply for any whole number of Excess Shares in excess of their Open Offer Entitlements. Qualifying Non-CREST Shareholders should complete the relevant sections of the Application Form. Qualifying CREST Shareholders will have Excess Open Offer Entitlements credited to their stock account in CREST. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down on a strictly pro rata basis based on the amount of the excess application.

The Issue is not being underwritten by Singer Capital Markets or by any other persons.

The Issue is conditional upon the following:

·; the passing of the Issue Resolutions at the General Meeting to be held on 27 April 2011;

·; Admission of the New Ordinary Shares becoming effective by not later than 8.00 a.m. on 28 April 2011 (or such later time and/or date as Singer Capital Markets and the Company may agree in writing, being not later than 8.00 a.m. on the Long Stop Date); and

·; the Firm Placing and Open Offer Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.

·; Accordingly, if any of the conditions are not satisfied, or if applicable, waived, the Issue will not proceed and Open Offer Entitlements and Excess Open Offer Entitlements admitted to CREST will thereafter be disabled.

10. General Meeting

The Prospectus will contain a notice of general meeting to approve, inter alia, the Firm Placing and the Open Offer which will be held at The City Club, 19 Old Broad Street, London EC2N 1DS on 27 April 2011 at 10.00 a.m.

11. Prospectus

The Prospectus containing details of the Firm Placing and Open Offer is expected to be posted to shareholders on or around 1 April 2011.

12. Singer Capital Markets

Singer Capital Markets, which is authorised and regulated by the FSA, is acting exclusively for the Company as sponsor, financial advisor and broker in connection with the Issue and, apart from responsibility and liabilities which may be imposed on Singer Capital Markets by the Financial Services and Markets Act 2000, as amended, Singer Capital Markets will not be responsible to anyone other than the Company for providing the protection afforded to customers of Singer Capital Markets or for advising any such person in connection with the Issue. Singer Capital Markets has not authorised the contents of any part of this document for the purposes of the Prospectus Rules.

DEFINITIONS

The following definitions used in this announcement will also be used in the Prospectus and unless the context otherwise requires:

EXPECTED TIMETABLE OF PRINCIPAL EVENTS