City Lon Inv Regulatory News (CLIG)

9th September 2013

CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)

("City of London" or "the Group")

FINAL RESULTS FOR THE YEAR TO 31st MAY 2013

SUMMARY

· Funds under management ("FuM") at 31st May 2013 were US$3.7 billion (2012: US$4.5 billion), a decline of 17%. In sterling terms, FuM fell by 16% to £2.4 billion (2012: £2.9 billion). The MSCI Emerging Markets Index ("MXEF") registered an 11% increase over the same period.

• We are now open to new investors, with a view to accepting up to US$500 million by 31st December 2014

· Revenues, representing the Group's management charges on FuM, were £29.4 million (2012: £34.1 million). Profit before tax was £8.9 million (2012: £11.5 million).

• Basic earnings per share were 24.9p (2012: 33.8p) after a tax charge of 29% (2012: 26%) of pre-tax profits.

• A maintained final dividend of 16p per share is recommended, payable on 25th October 2013 to shareholders on the register on 11th October 2013, making a total for the year of 24p (2012: 24p).

• Cash and cash equivalents at 31st May 2013 were £10.1 million (2012: £5.4 million).

For further information, please visit www.citlon.co.uk or contact:

Chairman's statement

When I was appointed your chairman on 1st October 2012, succeeding Andrew Davison who had been in the chair for some 13 years, little did I know what an eventful six months lay ahead for City of London.

In the light of this, before dealing with our financial performance, I owe shareholders an explanation of the board and management changes that it has been my responsibility to oversee.

For some time now under our previous chairman the board has endeavoured to grapple with the problems of succession which all successful founder-managed businesses have to address over the course of their development. We are fortunate in that we are in an industry where certain key management, in particular the CIO, frequently have far greater longevity than in almost any other industry; you don't need me to cite well known examples ranging from Warren Buffet to Mark Mobius, who continues to manage emerging market money for Templeton after more than 25 years. The approach we took to succession planning was, in the first instance, for Barry Olliff, our founder CEO and CIO, to transfer his CEO duties to a successor CEO. In order to minimise transition risk we agreed on an internal candidate, Doug Allison. He had, as Finance Director since 1997, been very much part of the CLIG team which had so successfully built the firm over the past two decades.

Unfortunately both Doug Allison and Valerie Tannahill, who replaced him as Finance Director having worked for City of London for over 15 years, resigned with immediate effect on 15th April 2013. All of the Directors, including those who stepped down, were of the view that these changes reflected the best interests of the Group. We have, however, been greatly encouraged by the energy and knowledge demonstrated by the Finance team in picking up the reins and ensuring that business continued as normal whilst some welcome cost savings have also been achieved. Barry has stepped back into the role of CEO on an interim basis and your board continues to seek transition solutions.

Our results

Over the course of the year the MXEF index, our principal benchmark, has fluctuated between 882 and 1,083 having started the year at 906 and finishing at 1,009. Furthermore, sentiment towards the emerging markets amongst certain sections of the investment community has cooled at best and in certain instances has become positively bearish. We have seen redemptions on an almost unprecedented scale although it appears that we are now over the worst and instead are seeing some very welcome new money being subscribed by existing clients.

Our Funds under Management ("FuM") declined by 13% in the first half of our financial year to 30th November 2012 and ended the year at US$3.7.billion, representing an annual decline of 17% in US$ terms from the US$4.5 billion recorded at 31st May 2012. In sterling terms, FuM declined by 16% to £2.4 billion (2012: £2.9 billion).

Revenues, representing the Group's management charges on FuM, for the year to 31st May 2013 were £29.4 million (2012: £34.1 million). Profit before tax was £8.9 million (2012: £11.5 million). The tax charge for the year was 29% of pre-tax profits (2012: 26% of pre-tax profits). Basic earnings per share were 24.9p (2012: 33.8p) and fully diluted earnings per share were 24.6p (2012: 32.8p). Cash and cash equivalents at 31st May 2013 were £10.1.million (2012: £5.4 million).

Dividends

The Board has recommended the payment of a maintained final dividend of 16p per share to be paid on 25th October 2013 to shareholders on the register on 11th October 2013. Together with the interim dividend of 8p per share (2012: 8p) paid in December 2012, this makes a total for the year of 24p per share (2012: 24p), covered 1.04 times by earnings per share (2012: 1.41 times).

Your Board

In addition to the changes referred to earlier, we have lost one non-executive director and gained another. Lynn Ruddick's resignation, to enable her to devote more time to her other business commitments, was announced in February. As I said at the time we were very sorry to see Lynn leave, but understood and

respected her need to balance her commitments. On behalf of the Board I would like formally to express our gratitude for her insightful and professional contribution to our deliberations.

On 1st August 2013 we were pleased to welcome Barry Aling to the Board. Barry has worked extensively in international equity markets over a 40-year period and will add important strength to our board with his direct in depth experience of emerging markets over very many years.

Outlook

Whilst a comment on outlook is expected from a Chairman, when it comes to predicting market movements I have always been a sceptical crystal ball gazer. However, following stabilisation of our

business, the improved investment performance and with the recent operational efficiencies working through to the bottom line, then based on current market levels and assuming reasonable trading activity, I anticipate a satisfactory outcome for the current year.

Lastly, I would like to thank all of our hardworking staff in London, the US, Singapore and Dubai for their efforts in these challenging times. I will update shareholders on our progress in the first part of our financial year at the time of the Annual General Meeting, which will be held on Monday 7th October 2013.

David Cardale

Chairman

4th September 2013

Chief Executive Officer's review

 I have gone into a number of issues in more depth than usual as it seems to me that I/we owe shareholders a detailed explanation regarding a number of aspects of our business as it has evolved over the past year.

Board changes

Shareholders will be aware of the departures of our CEO and Finance Director earlier this year as addressed

by the Chairman in his statement. Following this I have felt it right to take a reduction in what otherwise would have been my total remuneration for the year by accepting one half of my contractual bonus.

The CLIG team

With the above referenced exceptions, we have been successful over many years in retaining Group talent, experience, and DNA, and have been able to present to clients, potential clients, consultants and to shareholders a very consistent team.

Notwithstanding the Board departures earlier this year, it is important to emphasise the in-depth strength of the firm's staff. The core modus operandi of the CLIG team is akin to a partnership which functions in a collegiate manner that is designed to encourage continuity of employment for staff, while harnessing and developing employee potential.

This has been one of the strengths of the firm and is one of the reasons that clients and consultants have been so loyal to the firm during a difficult period in terms of our investment performance.

CLIM investment performance and investment process

In recent quarterly trading updates we have referred to the turnaround that has occurred in terms of our investment performance.

This has continued to improve and while not as yet coming through in the three year numbers it is certainly demonstrated via YTD outperformance of the order of 3% depending on the relevant EM fund and benchmark.

Looking back and after analysing previous investment decisions there have been a number of reasons for our underperformance. Examples would include poor investment decisions (poor stock picking), buying securities too early (at too narrow a discount), and not focusing on trading natural discount ranges (by reducing that natural trading range from say 500/600bpts to say 400bpts).

These examples are all process weaknesses, and the fortunate thing about technology today is that with number crunching, time, and an open mind, it's possible to both find the issues (weaknesses) and put in place long term remedies that ensure future compliance with what has been over the years a very successful and consistent investment process.

Historically through a cycle via our Investment Process we have established the following:

1) Our alpha has been generated approximately 1/3 from Country Allocation and 2/3 from trading Discount Volatility.

2) Securities demonstrate around 500 to 600bpts of discount volatility.

3) NAVs (from the securities within our Investible Universe) keep up with or marginally outperform their benchmarks.

There is one additional variable that we have to deal with and that is the SWAD. This is the Size Weighted Average Discount of a given portfolio on a specific day.

The net result of a 5% increase in the SWAD, other things being equal, (with neutral country allocation, and also index tracking NAV's) leads to 5% underperformance. This has been an additional headwind for us to deal with.

I have gone into some detail regarding our Process because it's our Process that has led to the previous underperformance. Having identified and corrected the weakness[es] we have now had a period of significant outperformance.

Reopening

Recent outperformance offers us an opportunity to reopen to new investors within our EM CEF strategy from the beginning of September.

This reopening will take some time to show results as we will need to establish some new relationships with consultants and potential clients.

In addition there are going to be some conditions attaching to our reopening and these are as follows:

• We will take in a maximum of US$100m per month.

• We will prioritise segregated accounts (US$25m+) over commingled account investors.

• We will accept only a total of US$500m in the first year (this is our target for the calendar year 2014).

• We will only remain open to new investors while the SWAD of our portfolios is in excess of 10%.

You will appreciate from the above that we have learnt from some of our past mistakes.

The message though is that we are getting back onto the front foot and are intending to start to replace some of the assets lost over the past few years.

Our reopening to new investors is a reflection of the fact that we have lost assets (approximately US$1.3bn) during FY 2012 and 2013.

Dividend

In maintaining the dividend we accept that this is a statement of faith in the future.

If there was a feeling that we were not now on the right track then the logical thing would have been to have cut the dividend and to conserve resources. As it is, with performance improving, and having the opportunity to reopen, there are a number of reasons why we are becoming optimistic.

Costs

As with any small firm we have to focus on the bottom line.

In addition, while we believe that our diversification plans will be successful, we remain for the present in effect a single product company.

This focus on the bottom line from the perspective of our firm investing in a volatile asset class therefore means that our salaries are kept towards the bottom end of relevant salary scales.

Focusing as we do on keeping the fixed overhead down means that we have as our major retention tool significant bonuses and equity participation when times are good. This is the trade-off for when times are bad.

I would have thought that this was the way to respond to potential volatility (risk) but it seems that what we are actually being encouraged to undertake by Eurocrats is to increase our fixed overhead so that bonuses will relate to an increased denominator!

Euro legislation

Returning to the topic of pay, as a Brit watching from the US what is going on in Europe, American corporations involved in investment management are rubbing their hands together.

Here we are with UCITS fund managers now potentially being threatened with the arbitrary remuneration rules that were introduced by the EU for bankers and/or prop desk traders.

Can EU bureaucrats (those that put together the proposed UCITS V legislation) not understand the difference between trading as principal and agent?

Bankers and prop desk traders can trade as principal (they use their firm's capital when they trade). Fund managers trade as agent (on behalf of their clients) and therefore do not.

Bankers and prop desk traders can cause systemic risk to banks. Fund managers cannot.

This was best said by Dougie Ferrans (Chairman of the IMA) in his December 2012 review:

"First, we are an agency business. Our clients assets are segregated and are not held on our balance sheets. We do not pose a systemic risk to financial markets or the wider economy. We play a critical role in the investment chain where we allocate capital from those who have it (savers and investors) to those who require it (corporations and governments). Regrettably, these basic facts are often unrecognized by those who shape the regulatory agenda. Here we are faced with relentless challenges that may be appropriate for sectors of the financial service industry that carry systemic risk - but one size does not fit all."

Possibly the proposal which is being considered as a part of the UCITS V directive will fail, but this issue, in my opinion, demonstrates that European lawmakers have little understanding of even the most rudimentary principles associated with supply and demand.

Sitting here in the US it will be interesting to watch as UCITS funds are closed and their fund managers are poached.

Alternatively salaries will be increased thus effectively legitimising the very increase in remuneration that lawmakers are attempting to oppose.

EU bureaucrats want to change the numerator whereas the response in the real world will be to increase the denominator!

Neither however is it just UCITS legislation that we have to bother with. There are other EU regulatory developments that will impact how investment managers determine remuneration, such as AIFMD, MiFID II, CRD IV. Again, what are the actual risks these initiatives are trying to manage?

As if this wasn't enough muddled thinking, the next area that we are seemingly going to have to deal with is an assumed relationship between bonuses and investment performance. It seems to me that there are three points here:

1) As with car manufacturers, TV makers and house builders, if you make a poor product that is uncompetitively priced you lose market share. This is the way that markets work. You effectively find that consumers will not buy your product in the first place or they will take their money away by investing elsewhere in someone else's product.

2) In the case of fund managers however, should it be different? We are actually meant to give back. How does that work? Why don't designers and production-staff at car manufacturers and TV makers potentially have to give back their remuneration, too? Or with a poorly constructed house, does the house builder recompense the owner for shoddy work? Surely it's the marketplace that should discriminate?

3) With regard to investment performance, let's accept that European bureaucrats have taken on the role of an Investment Consultant or an Actuary and have mastered the skill set of how fund managers should be measured in terms of their investment performance. Are they going to use one year performance, or two

year or three year performance? Are they going to measure volatility or risk adjusted returns or are they going to undertake peer group analysis? Are they going to measure those returns gross or net of fees?

Whilst some of the above intentions in some instances might seem to be good, in my opinion we should not forget that politicians and bureaucrats are not effective allocators of capital. Consumers are the best people to undertake that.

All that seems to be happening in this case is that market forces are being undermined as a result of politicians' need to show that they are doing "something". Remember, our industry was not the cause of the financial crisis and we pose no systemic risk to the banking system.

The bottom line is that, in my opinion, these proposals will weaken London as a financial centre and make Europe less relevant in terms of the provision of certain financial services.

Future prospects

New products (particularly those that use a similar Process such as Frontier or Developed) are difficult to sell in the event that your present (single) product has underperformed.

In addition, when there are significant Management changes in one year, potential clients could say that there must be some type of underlying instability.

In fact nothing could be further from the truth and as this is the first real chance that I have had to explain where the firm stands vis a vis recent Management changes the following is relevant:

The Investment Management team, as referenced earlier in this statement, is very stable.

Many of us have grown up together within a partnership environment and we are to a great extent a homogenous unit.

From a Shareholder perspective this is very important because if there were cracks within this structure, past performance would definitely be no guide to potential future returns.

In addition, and with the benefit of time, new potential clients and consultants will appreciate that with recently improved performance and a stable team, we should be considered for new mandates.

A different point, but certainly one of interest to Shareholders is the fact that significant savings in salaries have been made as a result of the two departures referenced above.

In addition, further savings have been made by closing under performing funds that were being supported using Group assets and subsidies. We have also saved money via providing technology solutions that have taken the place of employees. These savings overall total c. £1m on an annualised basis.

As a result of the above I would suggest that it would be fair to say that prospects are significantly better than a few months ago and that as a firm we are relatively optimistic.

Barry Olliff,

Chief Executive Officer

4th September 2013

Business review

Over the period, investment performance of the emerging market strategies has continued to improve which provides scope for additional marketing of the firm's capabilities in this area.

In addition, the underperformance of emerging markets versus developed markets over the preceding two years has given rise to attractive valuations in the asset class which may prove a good entry point for institutional investors who are typically underweight their target benchmarks.

With the improvement in investment performance, we are focused on marketing to new institutional prospects and, as we noted in last year's annual report, we have adopted a deliberate approach in our marketing that focuses on good investment performance, which then makes it possible to establish long-term relationships with the most sophisticated consultants. Over time, this has proven to be an excellent means of attracting and retaining client assets resulting in significantly higher fee margins and longer client retention.

Products

Our diversification efforts have not yielded the results we had hoped for at the time of writing this report last year. We have confronted this issue in two ways. First, in those cases where we could not expect to field a first or second quartile product, we have closed underperforming funds thus cancelling the operating subsidy provided by the firm. Second, with good investment performance restored in our core emerging

markets product, we now feel confident that this headwind has been removed from marketing the key diversification products which are extensions of our closed end fund investment approach.

The Frontier Emerging Markets Fund has performed well since its inception in 2005, and is now beginning to attract the attention of investment consultants and institutional prospects. Composite investment returns for the Frontier Emerging Market closed end fund strategy for the rolling one year ending 31st May 2013 were 30.7% vs 32.2% for the benchmark in US dollars (USD) and 32.7% vs 34.2% for the benchmark in sterling (GBP).

Over the period, CLIM placed its US$100 million of Qualified Foreign Institutional Investor (QFII) quota and we have now applied for an additional US$100 million of QFII quota for the China A Share CEF Strategy which has been invested in Chinese A Shares since 2003 and has generated first quartile performance over all annualised periods since inception.

We continue to advance the Developed closed end fund strategy, with the fourth anniversary of the launch of this product in September 2013 representing a significant milestone with respect to marketing opportunities, particularly within the context of the consultant universe. The product continues to exhibit consistent outperformance. Global composite investment returns for the developed market closed end fund strategy for the rolling one year ending 31st May 2013 were 27% vs 25.8% for the benchmark in USD and 28.9% vs 27.7% for the benchmark in GBP.

Performance

Global composite investment returns for the emerging market closed end fund strategy for the rolling one year ending 31st May 2013 were 14.7% vs 14.1% for the MSCI Emerging Markets Index in USD and 16.4% vs 15.8% for the index in GBP. Outperformance was attributable to country allocation and NAV outperformance.

The investment team continues to engage with boards of directors in order to improve corporate governance and reduce the number of shares in issue as a means to narrow historically wide discounts.

Outlook

Marketing efforts will be targeted at investment consultants, foundations, endowments and pension funds in the US and Europe. Our growing Frontier Emerging Market, China A Share and Developed closed end fund capability will be the focus of our product diversification and business development activities.

Carlos Yuste

Business Development Director

4th September 2013

Financial review

Consolidated income statement and statement of comprehensive income

The Group income statement is presented in line with International Accounting Standards but perhaps it is easier to understand the Group's results if we were to present them in a slightly differently way, as in table 1. From here it is clear to see the Group's net fee income, which is a more useful measure of the Group's income, and the operating profit to which the Group profit-share provision is applied.

Starting from the top, the gross fee income relates to management fees charged as a percentage of funds under management ("FuM") and decreased over the year under review by 14% to £29.4 million as a result

of a fall in FuM, which ended the year at US$3.7 billion, compared to US$4.5 billion at the start. This was primarily due to a large redemption in November 2012, from a single client that took the strategic decision to manage its emerging market exposure in-house, having been a client of ours for nearly five years.

The commissions payable of £4.2 million (2012: £5.2 million) relates to fees due to third party marketing agents for the introduction of clients. The contract to which all but a small portion of these commissions relate expired in October 2010. Under the agreement, commission is based on a period of ten years from

the date of initial investment.

Custody fees of £1.2 million (2012: £1.4 million) are the fees that we pay to custodian banks for the safekeeping and administration of the assets of the commingled funds (segregated account clients pay their own custody fees).

The net fee income for the year therefore rounds to £24.0 million (2012: £27.5 million). The weighted average net fee, or operating margin, is currently around 92 basis points, which compares to 87 basis points last year. The margin increase is primarily due to the single client redemption mentioned earlier, who was paying a lower fee due to the size of their investment.

The other contributing factors to the increase in the operating margin are:

1) as new money is invested we earn the full management fee as there is no introduction fee to pay

2) as clients subject to the marketing agreement reach their ten year anniversary no further commission

is payable and we retain 100% of the management fee

With reference to point 2, the table below illustrates the rate of commission run-off relating to the expired contract, based upon current FuM and market levels.

Marketing commission run-off (based on FUM at 31st July 2013)

The overheads for the year amount to £11.5 million (2012: 11.0 million), the largest component of which is staff costs at £7.6 million (2012: £6.8 million). This year staff costs include an exceptional charge of £0.7 million in connection with termination arrangements agreed with former executives Doug Allison and Valerie Tannahill, with the balance of payments to them on termination being covered by the profit-share provision. If we exclude this one-off cost, overheads become £10.8 million, which gives a monthly average of £0.9 million (2012: £0.9 million). As reported in the CEO interim review, we are focused on reducing costs and have put in place various initiatives which will result in an annualised saving of around £1.0 million. These savings kick in over various timeframes but looking specifically at the impact on overheads for the next financial year, and taking into account the additional cost savings from the recent executive departures, the monthly run-rate for overheads is expected to be closer to £0.8 million.

Total net income less overheads gives an operating profit of £12.5 million (2012: £16.5 million) to which the 30% profit-share provision is applied, which including related payroll taxes amounted to £4.1 million (2012: £5.4 million).

Investment income of £0.4 million (2012: £0.4 million) relates to the gain on sale of a number of our seed investments, approximately 60% of which was the result of partial redemptions and the balance due to closure of funds as a result of the rationalisation of our equity products.

This gives a pre-tax profit of £8.9 million (2012: £11.5 million). Corporation tax at £2.6 million (2012: £3.0 million) represents an average tax rate of 29% compared to 26% in 2012, which was somewhat reduced by one-off adjustments with respect to prior year accruals for taxes on the Group's US and Singapore operations, each at around £0.2 million.

Post-tax profit of £6.3 million (2012: £8.5 million) is adjusted by £0.3 million to arrive at total comprehensive income of £6.6 million (2012: £7.8 million), the adjustment being an increase of £0.5 million in the valuation of the Group's seed investments less £0.2 million taken as a realised gain on disposal (2012: downward revaluation of £0.7 million).

Consolidated statement of financial position and statement of changes in equity

Net assets have remained relatively stable at £14.6 million (2012: £15.3 million) however there have been some substantial movements in the underlying components during the year. Year on year the value of non-current assets has fallen by approximately 44% primarily due to deferred tax. In the UK (and US, although the rules are slightly different), a corporation tax deduction is available when share options are exercised and the tax deduction is based on the intrinsic value of those options at the date of exercise. When preparing our financial statements we are required to calculate the expected tax deduction based on our share price at the reporting date. At 31st May 2013 our share price was £2.585 (2012: £3.50) which meant that most of the options were out of the money and this therefore resulted in a lower intrinsic value and a reduced deferred tax asset. All bar a very small element of this is charged against reserves.

There is also a small deferred tax liability of £0.1 million this year that relates to the unrealised gain on our seed investments.

Trade and other receivables of £3.5 million (2012: £5.3 million) are down year on year mainly due to a combination of the prompt settlement of the first quarter fees this year (2012: £0.5 million receivable) and client redemptions during the year (2012: £1.3 million receivable), although the bulk of this relates to one single client. "Available-for-sale financial assets" of £3.8 million (2012: £6.9 million) represents our seed investments in fledgling products and this year we took the decision to rationalise our business development activities by liquidating several of our emerging market and natural resource equity products.

In addition, we reduced our holdings in products that are now being actively marketed and the fair value gain on these remaining holdings has been taken to reserves. The offsetting, and rather significant increase, is in cash which ended the year at £10.1 million (2012: £5.4 million).

Creditors falling due within one year are down from last year by £0.5 million as a result of a reduction in the profit-share provision and commissions payable of roughly £0.4 million each, offset by a year on year increase in corporation tax payable of £0.3 million. This is primarily due to accrual adjustments made in 2011-12 relating to prior years, as mentioned earlier.

The major movement in capital and reserves is obviously this year's profit of £6.3 million (2012: £8.5 million) and the dividends paid during the year which, rounded up totalled £6.1 million (2012: £6.1 million). The dividend comprised the 16p final dividend for 2011/12 plus the 8p interim dividend for the current year.

Half way through the year, the Group took the opportunity to use some of its surplus cash to fund the purchase of 404,086 Company shares at a price of £2.55. Half the shares were cancelled and the £0.5 million cost set against retained earnings. The other half were taken up by the Company ESOP thereby increasing its loan from the Company by £0.5 million. As the ESOP has waived its right to dividends, both transactions effectively enhance earnings per share for the remaining shareholders, albeit only the cancellation does so on a permanent basis. During the year Directors and employees exercised 261,300 dilutive options and 70,627 ESOP held options, raising £0.2 million.

Currency exposure

The movement of sterling against the US dollar has a significant influence on the Group's reported results as its income is almost entirely US dollar denominated whereas in the main, expenses are incurred locally by each office in sterling, Singapore dollars, United Arab Emirates dirhams as well as US dollars. During the year the US dollar/sterling exchange rate moved within an approximate range of US$1.50 - 1.60 to £1 (2012: US$1.55 -US$1.65 to £1). The following table illustrates the effect of a change in the US dollar/sterling exchange rate on the Group's post-tax profits at various FuM levels, based on the assumptions given, which are a close approximation of the Group's current operating parameters.

Post-tax profit: Illustration of US$/£ rate effect:

FuM US$bn: 3.0 3.5 4.0 4.5 5.0

US$/£ Post -tax, £m

1.45 4.1 5.7 7.3 8.8 10.4

1.50 3.9 5.4 6.9 8.5 10.0

1.55 3.7 5.1 6.6 8.1 9.6

1.60 3.5 4.9 6.3 7.8 9.2

1.65 3.3 4.7 6.1 7.4 8.8

Assumes:

1. Average net fee 0.92%

2. Annual operating costs £4.6m plus US$7.7m plus S$1.7m (£1 = S$2.00)

3. Profit-share 30% of operating profit

4. Average tax rate 29%

This illustration only deals with the US dollar/sterling impact but the movement of the US dollar against other currencies is also very relevant to the Group as it provides a natural hedge within the context of fee income. The Group's FuM, on which the fee income is based, is valued in US dollars but the underlying assets represent a broad range of currencies (principally in emerging markets) so as the US dollar weakens (strengthens) against these underlying currencies the value of the FuM in US dollar terms rises (falls).

In terms of currency exposure relating to the Group's balance sheet, it is still only the net US dollar position that is of any consequence and we look to eliminate or minimise this through a series of forward sales of US dollars for sterling. At 31st May these forward sales totalled US$10.9 million, with a weighted average

exchange rate of 1.586 to £1 (2012: US$11.8 million at a weighted average rate of 1.594 to £1).

Tracy Rodrigues

Financial Controller

4th September 2013

Consolidated income statement

For the year ended 31st May 2013

Consolidated statement of comprehensive income

For the year ended 31st May 2013

*Net of deferred tax.

Consolidated statement of financial position

31st May 2013

The Board of Directors approve and authorise for issue these financial statementson 4th September 2013.

Signed on behalf of the Board of Directors of City of London Investment Group PLC, company number 2685257.

B M Olliff

Chief Executive Officer

Consolidated statement of changes in equity

31st May 2013

Consolidated cash flow statement

For the year ended 31st May 2013

Notes 

For the year ended 31st May 2013

The contents of this preliminary announcement have been extracted from the Company's Annual Report, which is currently in print and will be distributed within the week. The information shown for the years ended 31st May 2013 and 31st May 2012 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 31st May 2013 and 31st May 2012. The reports of the auditors on those accounts were unqualified and did not contain adverse statements under sections 498(2) or (3) of the Companies Act 2006. The accounts for the year ended 31st May 2012 have been filed with the Registrar of Companies. The accounts for the year ended 31st May 2013 will be delivered to the Registrar of Companies in due course.

1  Basis of preparation

The financial statementshave been prepared in accordancewith International FinancialReporting Standards (IFRS) as adopted by the European Union ("EU") and with those parts of the CompaniesAct 2006 applicable to companiesreporting under IFRS.

The Group financialstatements have been prepared under the historical cost convention, except for certain financial assets held by theGroup that are reported at fair value. The Group financial statements have been prepared on a going concernbasis.

New IFRS Standardsand Interpretations

At the date of authorisation of these financialstatements, the followingStandards and Interpretations as adopted by the EU, whichare relevant to the Group, were in issue but not yet effective:

IFRS 10  Consolidated FinancialStatements - Effective for annual periods beginning on or after 1st January 2013. This replaces the portion of IAS 27 'Consolidated and Separate FinancialStatements' that addressesthe accounting for consolidated financial statements. The changes introducedby IFRS 10 will require management to exercise a degree of judgement to determine which entities it controls, and are thus required to consolidate, compared with the requirements that were in IAS 27. The standard defines control as being exercised when an investor is exposed, or has rights, to variable returns from his involvement with the investee and has the ability to affect those returns through his power over the investee.The Group has considered the principle of control in relation to its investees, and the adoption of this standard is not expected to have a material impact on the Group's financialstatements.

IFRS 12  Disclosure of Interests in Other Entities - Effective for annual periods beginning on or after 1st January 2013. The Standard is intended to complement IFRS 10 and requires disclosures about the judgementused by management in determining which entities it controls as well as the financial effects of, and risks associatedwith, an entity's investments in subsidiaries, joint arrangements, associatesand unconsolidated structuredentities. IFRS 12 is not expected to have a material impact on the Group's financialstatements.

At 31st May 2013 there are no other Standardsand Interpretations in issue but not in force that would be expected to have a materialimpact on the Group.

The preparation of these financial statementsin conformity with IFRS requires management to make estimatesand assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.Whilst estimates are basedon management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates.

The most significant areas of the financial statementsthat are subject to the use of estimates and assumptions are noted below:

Share-based payments

In order to calculate the charge for share-based compensation as required by IFRS 2, the Group makes estimates principally relating to the assumptions used in its option pricing model. 

Intangible assets

The useful economic life of intangibleassets, such as computer software, is determined on acquisition using 

value in use calculations based on management's assumptions and estimates of future cash flows. 

2  Basis of consolidation

These financial statementsconsolidate the financialstatements of the Company and all of its subsidiaryundertakings.

The Company's principal subsidiaries as at 31st May 2013 are City of London Investment ManagementCompany Limited and City of London US Services Limited. 

The consolidated financial statementsare prepared on the historicalcost basis except for the revaluation of certain financial instruments as outlined in note 3 (iii).

3  Significant accounting policies

The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently 

to all periods presented in these financial statements. In addition, where presentational changes are made in the 

current year, the prior year figures are also updated to present a true comparative.

(i) Property and equipment

For all property and equipmentdepreciation is calculated to write off their cost to their estimated residual values 

by equal annual instalments over the period of their estimated useful lives, which are considered to be:

Short leasehold property improvements  -  over the remaining life of the lease

Furnitureand equipment  -  four years

Computer and telephoneequipment  -  four years

(ii) Intangible assets

Intangible assets acquired separatelyare capitalised at cost and amortised on a straight line basis. Amortisation charges are spread over the useful life of the asset as follows:

Long term software licences  -  ten years

This representsa perpetual licence for the Group's fund accounting system. The Directorsconsider ten years as a reasonable estimate of useful life given the improved control and flexibility to manage and develop the software in-house.

(iii) Financial instruments

Under IAS 39, "Financial Instruments: Recognition and Measurement", financial assets must be classifiedas either:

•  Loans and receivables

•  Held-to-maturity investments

•  Available-for-sale financial assets

•  At fair value through profit or loss

Financial liabilities must be classified at fair value through profit or loss or at amortised cost.

The Group's investments in the funds that it manages are designated as available-for-sale financial assets. Such 

investments are initially recognised at fair value, being the consideration given together with any acquisition costs 

associated with theinvestment. They are subsequently carried at fair value, with any gains or losses arising from 

changes in fair value included aspart of other comprehensive income. Fair value is determined using the price based on 

the net asset value of the fund. Investments are derecognised when the rights to receive cash flows from the

investments have expired or have been transferred and the Group has transferred all risks and rewards of ownership. 

When derecognition occurs a realised profit or loss isrecognised in the income statement, calculatedas the difference 

between the net sales proceeds and the original cost of the financial asset. Any fair value gains or losses previously recognised as part of other comprehensive income are recycled into the income statement as part of this calculation 

of the profit or loss arising on derecognition.

The Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of an investment classified as available-for sale, a significant or prolonged 

decline in the fair value of the investment below its cost is considered as an indicator that the investment is 

impaired. If any such evidence exists for available- for-sale investments, the cumulative loss -measured as the 

difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement - is removed from other comprehensive income and recognised in the income statement.

The Group's investments in derivatives are classified as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently remeasuredat fair value, with any movement recognised in the income statement.The fair value of the derivatives held by the Group is determined as follows:

Options  -  priced using the quoted market bid price

Forward currency trades -  priced using the forward exchange bid rates from Bloomberg

The Group's investments have been classified here for recognition and measurement purposes under IAS39 but are not necessarily reported in the statement of financial position under those headings. A table showing how they are reportedis shown in note 11.

(iv) Trade receivables

Trade receivables are measured on initial recognition at fair value, and are subsequently carried at the lower of original fair value and their recoverable amount. Appropriate allowances for estimate dirrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired.

(v) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand, deposits with an original maturity of three months or less from inception, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(vi) Trade payables

Trade payables are measured at initial recognition at fair value and subsequently measured at amortisedcost.

(vii) Deferred taxation

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred tax is not accounted for if it arises from goodwill or the initial recognition (other than in a business 

combination) of other assets or liabilities in a transaction that affects neither the accounting nor the taxable profit or loss.

Deferred tax liabilities are generally recognisedfor all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be 

utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the 

extent that it is nolonger probable that sufficient taxable profits will be availableto allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the 

asset realised. The tax rates used are those that have been enacted, or substantively enacted, by the end of the 

reporting period. Deferred tax is charged or credited to the income statement, except when it relates to items charged or 

credited directly as part of other comprehensive income, in which case the deferred tax is also dealt with as part 

of other comprehensive income. For share-based payments, where the estimated future tax deduction exceeds the 

amount of the related cumulativeremuneration expense, the excess deferred tax is recogniseddirectly in equity.

(viii)Share-based payments

The Company operates an Employee Share Option Plan. The fair value of the employee services received in exchange for 

shareoptions is recognised as an expense. The fair value has been calculated using the Binomial pricing model, and has 

then been expensed on a straight line basis over the vesting period, based on the Company's estimate of the number of 

shares that will actually vest.

(ix) Revenue

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and such revenue can be reliably measured. Revenue is recognisedas services are provided and comprises investmentmanagement fees based on a percentage of Funds under Management, in accordance with the underlyingagreements.

(x) Commissions payable

A significant portion of the Group's revenue is subject to commissions payable under third party marketing agreements. Commissions payable are recognised in the same period as the revenue to which they relate.

(xi) Foreign currency translation

Foreign currency transactions are translated using the exchange rates prevailingat the transaction date. Monetary assets 

held in a currency other than the functional currency are translated each year end at the year end closing rates. Non-monetary assets are translated at the date of the transaction and held at historic costs with any gains or losses recognised in the income statement.

The functional currency of the Group's main trading subsidiaries, City of London Investment ManagementCompany Limited and City of London US Services Limited, is US dollars. The functionalcurrency of City of London Investment Group PLC (the "Company") is sterling. The Group uses sterling as the presentation currency.Under IAS 21 this means that exchange differences caused from translating from the functional currency to presentational currency for the main trading subsidiaries would be recognised in equity. However, the Group operates a policy whereby the foreign exchange positions of the subsidiaries are sold to the Company and therefore it is the only entity with any exchange differences. As such any exchange differences arising in the Company are "real" in that the functional currency matches the presentational currency. This means that all such 

exchangedifferences are included in the income statement and no split is required between other comprehensive 

income and the income statement.

(xii) Leases

The cost of operating leases is charged to the income statementin equal periodic instalments over the periods of the leases.

(xiii) Pensions

The Group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension schemes are charged to the income statement as they are incurred. Any amounts unpaid at the end of the period are reflected in other creditors. 

4  Segmental analysis

The Directors consider that the Group has only one reportablesegment, namely asset management, and hence only analysis by geographical location is given.

Europe