Half-year Report

Objective and Policy

The Company's objective is to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities and, if appropriate, index futures. The portfolio is constructed without reference to the composition of any stockmarket index. Although its investment policy allows gearing, including the use of derivatives, the Company is not permitted to employ gearing whilst it continues to be registered as a small UK Alternative Investment Fund Manager (AIFM). When appropriate, the directors will sanction a relatively concentrated portfolio structure and, depending on its AIFM status, relatively high levels of gearing.

Principal Risks and Uncertainties

Political risk has been added as a principal risk facing the Company as the board is of the view that political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company. To mitigate this risk, developments are closely monitored and considered by the board. The other principal risks facing the Company, which have not changed since the date of the Company's Annual Report and Financial Statements for the year to 30 November 2015, are financial risk, regulatory risk, custody risk, operational risk, discount/ premium volatility risk and resource risk. An explanation of these risks and how they are being managed or mitigated is set out on pages 7 and 8 of that report, which is available on the Company's website: www.independentinvestmenttrust.co.uk.  The Company's policy is designed to allow the Company an unusually high degree of freedom to exploit the directors' judgement. To the extent that the directors' judgement is flawed, future results could be unusually poor.

Responsibility Statement

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'InterimYearly Financial Reports';

b)   the Chairman's Statement includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c)   the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the board

Douglas McDougall

Chairman

12 July 2016

The six month period ending 31 May 2016 saw our company produce a net asset value total return of 5.7%.  The total returns notionally attributable to the FTSE All Share Index and the FTSE World Index were 0.1% and 3.9% respectively. Our net asset value per share rose from 390.1p to 400.3p over the period, and the share price from 363p to 387.25p, causing the discount to net asset value to fall from 6.9% to 3.3%.  On the face of it this was a respectable outcome, but it has been overshadowed by the impact on our portfolio of the result of the referendum on membership of the EU. By 11 July 2016, our net asset value had fallen to 338.1p and our share price to 329.25p.

Earnings for the half year amounted to 4.28p (4.79p) and we have already paid an interim dividend of 5p (2p).  As always, the outcome for the year will be influenced by our activity in the second half, but it is likely that any further payment will be weighted in favour of a special dividend rather than a regular one. Over the six months we bought back a total of 600,000 shares for cancellation at a discount of 4.3%.

In economic terms, the period represented a continuation of recent trends: growth remained disappointing in most parts of the world, including the USA - until recently a rare bright spot.  Monetary policy remained highly stimulative, but there were signs that investors were beginning to behave like an addict who needs ever greater doses of stimulus to achieve a given level of satisfaction.  Thus markets made little progress in local currency terms despite further substantial doses of monetary stimulus from the European and Japanese central banks.  However, many of our companies enjoyed surprisingly buoyant trading conditions during the six months.

After the rather hectic activity of the last two years, the half year saw a welcome reduction in turnover.  Indeed, only four purchases were made, all of them companies that made their initial public offerings (IPOs) during the period.  The main change in sector weighting was the reduction in our technology and telecommunications stake.  The increase in our retailing stake and the reduction in our consumer services stake owed much to our replacement of BCA Marketplace with a rather larger holding in Motorpoint.  Although classified by us as being in different sectors, the two companies are both involved in the selling of cars and there is therefore a considerable overlap in the risks they face. Our cash balances rose from an abnormally low level of 2% at 30 November 2015 to 4% at 31 May 2016.

The reduction in our technology and telecommunications stake has allowed housebuilding to resume its place as our largest sectoral exposure.  The news from our housebuilding holdings during the period was all good with earnings and dividends either in line with our expectations or, in most cases, significantly ahead of them.  The housebuilding story developed very much as we had hoped: house prices (outside central London) and volumes were growing at rates that appeared sustainable for some years to come, and land was available in abundance at prices that looked very attractive in relation to predicted selling prices.  Sentiment towards the sector fluctuated during the period, but we made no transactions . As a result, a stake worth £56.5m at 30 November 2015 had grown through market movements alone to one worth £58.3m at 31 May 2016.

The housebuilding industry has been singled out by investors as one of the most vulnerable to consequences of our forthcoming withdrawal from the EU.  It is too early to assess the immediate impact, which may be negative, but we retain our longer term optimism about the industry's prospects: we believe that there is a chronic shortage of housing, that the beneficial impact of any short term weakness in land prices could ultimately be considerable and that, in contrast to the situation in 2008/9, the companies' balance sheets are strong enough to ride out a prolonged period of difficult trading conditions without the need for additional capital.  That said, we recognize that the damage done to stockmarket sentiment may take time to repair.

Despite a strong showing from FDM (our biggest holding), our large position in technology and telecommunications suffered a small decline in underlying terms over the period: worth £62.3m at 30 November 2015, it had fallen in value to £47.9m by 31 May 20116 with net sales having accounted for £14.1m of the decrease.  Baidu, a large holding at 30 November, ran into difficulties with the Chinese authorities over its relationship with a number of dubious websites, as a result of which we decided to sell out.  Herald, Kainos and Gamma Communications, all of which have been successful investments for us, experienced some weakness in their share prices, but a new holding in the software robot company Blue Prism made an impressive start.  Profit taking in FDM and Gamma reflected the success of these holdings since their purchase in 2014.  Both companies continue to trade strongly.

Two new IPOs, Motorpoint and Joules, account for the big increase in our retail stake.  Motorpoint is a retailer of nearly new cars which is notable for both its profitability and the high regard in which its customers hold it.  Joules is a clothing retailer with a strong brand and scope for several years of physical expansion.  We took some more profits on the holding in our longstanding favourite Dunelm and sold out of SCS.  Overall, our retail holdings rose in value from £11.1m at 30 November 2015 to £23.0m at 31 May 2016 with net purchases having accounted for £10.3m of the increase.  Retailing is another industry that has suffered from adverse stockmarket sentiment since the referendum and we recognize the uncertainties surrounding the outlook for many retailers.  Our holdings are well managed, soundly financed and strong competitors within their market segments.  We see no immediate reason to be reject them.

A strong recovery in the share price of On The Beach was the main reason behind an excellent performance from our travel and leisure holdings, which increased in value from £15.3m at 30 November 2015 to £19.0m at 31 May 2016, despite sales of £1.7m.  On The Beach is providing a clear demonstration of the strength of its customer proposition, but is inevitably vulnerable to the influence of terrorist incidents on the willingness of its customers to book holidays.  It is also affected by exchange rate movements: sterling weakness makes overseas holidays more expensive.  Gym Group, our other holding in the travel and leisure sector, appears to be making good fundamental progress, but its share price suffered latterly from speculation that a major competitor may be planning an IPO.

Elsewhere in the portfolio, Fever-Tree provided another sparkling performance as its growth continued to outpace lofty expectations, while Midwich, a distributor of audio visual products, made a strong start following its IPO.  Holdings in The AA, Polar Capital Global Insurance, Bluefield Solar and SThree were little changed in value, but those in Ashtead, Gama Aviation, Telecom Plus and NAHL all suffered material falls.  The weakness in the Ashtead share price was attributable to speculation that its earnings may be approaching a cyclical peak; Gama Aviation is being affected by weakness in its European operations; Telecom Plus has seen its competitive position undermined by weak wholesale energy prices; and NAHL's business is reflecting uncertainty about the future of small claims litigation.  We sold our holding in BCA Marketplace at a satisfactory price to help fund our purchase of Motorpoint and we sold our small holding in Bankers Petroleum - our last energy holding - on the announcement of a cash bid from a Chinese buyer.

The job of making sense of economic and political developments seems to be getting harder.  Over the last couple of years we have tended to concentrate rather on the individual opportunities available to us, an emphasis which had served us well until the day of the referendum.  The period since has seen large, apparently arbitrary, moves in the prices of many of our holdings as liquidity has departed the universe of small and medium sized British companies.  It is impossible to forecast when we shall see a resumption of normal stockmarket conditions, but in the meantime we are encouraged by the overall quality of the businesses in which we are invested and by the financial strength exhibited by the great majority of them.

The principal risks facing the Company are set out above.  We draw your attention, in particular, to the unusually important role of the directors' judgement in the success or failure of the Company's policy.

Douglas McDougall

12 July 2016

All holdings are in equities domiciled in the UK unless otherwise stated.

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

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

For the six months ended 31 May 2016

For the six months ended 31 May 2015

*      The Capital Reserve balance at 31 May 2016 includes investment holding gains on fixed asset investments of £66,473,000 (31 May 2015 - gains of £52,824,000).

†          Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

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