MANCHESTER & LONDON INVESTMENT TRUST PLC - Annual Financial Report

MANCHESTER AND LONDON INVESTMENT TRUST PUBLIC LIMITED COMPANY

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2016

The full Annual Report and Accounts for the year ended 31 July 2016 can be found on the Company’s website at www.manchesterandlondon.co.uk.

Directors

P.H.A. Stanley (Chairman of the Board and Management Engagement Committee)

D. Harris (Chairman of the Audit and Remuneration Committees and Senior Independent Director)

B. Miller (Chairman of the Nomination Committee)

STRATEGIC REPORT

Principal Activities

The Company carries on business as an Investment Company. A review of investment activities for the year ended 31 July 2016 and the outlook for the coming year is given by the Investment Manager in the Investment Manager’s Review section below.

Financial Summary

Total Return

	Year to 31 July 2016	Year to 31 July 2015	Percentage (decrease)/Increase
Total return (£’000)	13,424	2,483	440.6
Return per 25p Ordinary Share – fully diluted	62.50p	11.47p	444.9
Total revenue return per 25p Ordinary Share	13.45p	6.00p	124.2
Cash dividend per 25p Ordinary Share	13.36p	6.00p	122.7

Capital

	At 31 July 2016	At 31 July 2015	Percentage (decrease)/Increase
Net assets attributable to equity shareholders* (£’000)	75,546	63,074	19.8
Net Asset Value per 25p Ordinary Share – fully diluted	350.81p	293.35p	19.6
Benchmark performance - Total Return Basis**	6,879	6,616	4.0
Total Portfolio Return performance versus benchmark adjusting for Shares bought back			17.3

* Net Asset Value as at 31 July 2016 includes a net £102,000 increase in respect of own Shares bought back and resold during the year (2015: £1.1m reduction).

** Dow Jones U.K. Total Stock Market Total Return Index (DWGBT).

Ongoing Charges

	Year to 31 July 2016	Year to 31 July 2015
Ongoing charges as a percentage of average net assets***	0.85%	0.78%

*** Calculated in accordance with AIC guidelines.

Financial Calendar

Year ended:	31 July 2016
Results announced:	21 October 2016
Report and Accounts made available to shareholders:	21 October 2016
Annual General Meeting to be held in Manchester:	28 November 2016
Expected final dividend payment:	2 December 2016

Chairman’s Statement

Results for the year ended 31 July 2016

The portfolio remains focused on larger capitalisation stocks listed in developed markets which are seeking global growth.

The Fund’s portfolio performance for our financial year has been acceptable with an increase in Net Asset Value per Share of 19.8 per cent. The new strategy adopted by the Investment Manager has meant that the outperformance of the Fund against our benchmark for the three years to the 31 July 2016 on a total return basis now stands at 1.3 per cent.

The discount the Shares trade at to their Net Asset Value per Share has widened by 2.2 per cent during the year and was 20.9 per cent at the year end. The other non-performance related potential reasons for the discount, such as the smaller size of the fund and the Sheppard family shareholding, all remain but at least one of these can be rectified in time.

It is also worth noting that the Fund’s volatility for the year was 16.2 per cent which was lower than its benchmark's volatility of 19.9 per cent over the same period.

Dividends

The Company's income is comprised of both (1) dividend income from investments (considered ordinary investment income to be paid as ordinary dividends) and (2) income from trading activity which includes gains and losses on the trading of Shares and equity derivatives, net of commissions, interest and other costs expensed (considered trading income to be paid as special dividends).

The Directors are proposing a final ordinary dividend per share of 1.85 pence and a final special dividend per share of 1.05 pence for the financial year 2016. This means that, on a per share basis, the dividends proposed or paid out in respect of the 2016 financial year total 2.25 pence as ordinary dividends and 11.11 pence as special dividends. On a total ordinary and special basis, these dividends are over 122.7 per cent higher than the total dividends paid in respect of the 2015 financial year and represent a yield of over 4.8 per cent on the share price as at the year end.

This returns the total dividend paid per share back to the levels seen in earlier years, but it should be noted that only the ordinary dividend per share should be considered as anything remotely possible of being a hopefully recurring item.

It is also inevitable that as the portfolio has been repositioned to focus on more forward-looking growth based equities we have seen the dividend income received drop. We do not see this trend reversing in the near future but we have been assured that the Investment Manager is constantly striving to generate as much trading income as possible.

Annual General Meeting

I look forward to welcoming shareholders to our forty-fourth Annual General Meeting, to be held in The Clarendon Room, St. James’s Club, 45 Spring Gardens, Manchester, M2 2BG at 12.30 pm on Monday 28 November 2016.

P.H.A. Stanley

Chairman

Investment Manager’s Review

We remain convinced that a portfolio of stocks that are future focused, developed market listed and of a larger capitalisation is the right strategy after a satisfactory year in 2015/16.

The Portfolio

The total return of the underlying portfolio (excluding all costs as calculated by Bloomberg L.P.) in base currency generated a positive total return of 21.9 per cent over the financial year compared with a return of our benchmark of 4.0 per cent.

Total return of the underlying portfolio (excluding all costs as calculated by Bloomberg L.P.) in local currency (the currency the shares are denominated in) generated a positive total return of 11.3 per cent. This means that a material contributor to performance was the decline in the value of Sterling over the year, in particular against the US Dollar.

The portfolio segments can be broken down in contribution to base currency performance terms over the year as follows:

Contribution to performance (based on TR of holdings in base currency)

Technology	12.3%
Consumer Goods	8.2%
Healthcare & Pharmaceuticals	1.9%
Other	(0.5%)
	21.9%

Technology Investments

We remain convinced that over the next decade we will see dramatic growth in the following themes: internet of things, electric vehicles, robotics, cloud computing, internet retailing, wearables and the shared economy. We have continued to focus on investing within this sector in mega capitalisation stocks or via specialist funds. We do not believe the sector is overvalued.

This year was yet again good for “FANG”, the market mnemonic for high-growth tech stocks Facebook Inc., Amazon.com Inc, Netflix Inc. and Alphabet Inc. (previously Google Inc.). Our holdings in Amazon.com Inc., Alphabet Inc. and Facebook Inc. contributed 3.1 per cent, 2.8 per cent and 1.6 per cent respectively to performance. These are core holdings and we believe there remains significant runway in all three investment cases.

We also had solid contributions from other core technology holdings: ARM Holdings Plc (which was acquired by SoftBank Group) contributed 0.9 per cent to performance, Microsoft Corp. 0.7 per cent, Paypal Holdings Inc. 0.6 per cent, Apple Inc. 0.3 per cent, Yahoo Inc. (which was largely driven by their stake in Alibaba Group) 0.9 per cent and Syngenta AG 0.6 per cent.

Our fund holdings in the sector also made positive contributions with 0.3 per cent from Scottish Mortgage Investment Trust Plc and 0.7 per cent from Polar Capital Technology Trust Plc.

The only material negative contributors were TomTom NV (-0.4 per cent) and Windeln.de AG (-0.3 per cent); the latter was disposed of during the year.

Consumer Goods Investments

We wrote last year that the biggest worry for this sector is that the brand owner’s power is being eroded via the platform power of the commerce gorillas like Amazon and Alibaba. This may lead to consolidation in the sector but from a position of weakness not strength. Our concerns are heightening which, when coupled with historically high valuation multiples in the sector, make us wary of adding exposure.

Hence, our strategy continues to be to hold the larger, more global players that are targets for consolidation with top class brands like Nivea, Heineken, Dove, Campari etc. and to cover most positions with short call option strategies.

The main positive contributors to performance were Heineken NV, which contributed 2.1 per cent to portfolio performance, Davide Campari-Milano Spa 1.3 per cent, Beiersdorf AG 1.2 per cent and Unilever Plc 1.0 per cent.

The WhiteWave Foods Co (which was acquired by Nestle SA) contributed 0.8 per cent. We also had smaller positive contributions from Pernod Ricard SA, SABMiller Plc and Svenska Cellulosa AB.

The only material negative contributor was Jimmy Choo Plc (-0.4 per cent), which was disposed of during the year.

Healthcare & Pharmaceutical Investments

We remain excited by the prospects for health care over the next decade due to Genomics, Immunology and Biologics. We anticipate strong public service pricing pressures but we anticipate the result will be further consolidation to remove duplicated cost structures. Hence, yet again, our strategy is to hold growth-based, multi-product companies that are potential consolidation targets. Of the three segments detailed herein we believe that the Healthcare sector offers the best prospects in the medium term.

Key positive contributors from the sector included GlaxoSmithKline Plc, which contributed 1.3 per cent to portfolio performance, Baxalta Inc. (which was acquired by Shire Plc) 1.0 per cent, Worldwide Healthcare Trust Plc 0.5 per cent and Smith and Nephew Plc 0.4 per cent.

Negative contributors included Shire Plc (0.7) per cent, Mallinckrodt Plc (0.3) per cent (which was disposed of during the year), AstraZeneca Plc (0.2) per cent and Spire Healthcare Group Plc (0.3) per cent.

Other

Following a couple of negative developments in the sector, most notably at Lending Club and TrustBuddy, discounts on our P2P funds increased although they had no direct exposure to any of the impacted loans which led to a negative contribution to portfolio performance from VPC Speciality Lending Investments Plc of (0.9) per cent and The SME Loan Fund plc of (0.4) per cent.

At various times during the year we had a modest level of short exposure to the energy sector through options, which contributed a positive 0.3 per cent to portfolio performance.

Generating Trading Income

We have detailed in previous years why the AIFMD regulations make it harder for us to generate Trading Income. The consequences of lower Trading Income will most probably lead to lower dividends in future financial periods.

Despite this, our Trading Income for the financial year increased from £971,000 for 2014/15 to £2,808,000 for 2015/16. This is a record performance for Trading Income in the fund’s history.

While generating further Trading Income will remain a key priority for the forthcoming year, the outcome is highly subject to market conditions and cannot in any way be guaranteed or relied upon. It is for this reason that we split out the dividends derived from Trading Income into Special Dividends.

Controlling Costs

Other operating expenses (being all costs excluding direct portfolio costs such as management fee, carry and commission) have increased from £180,000 to £224,000 since our preceding financial year. This increase has been highlighted before and we expect these costs to escalate following the introduction of AIFMD and anticipated further regulation over forthcoming financial years.

The increases in cost have and will be driven by the following factors:

1. The fund has introduced a new portfolio management software system into our accounting systems which we believe will give the Investment Manager and Fund Accountant greater control and analytical ability over the portfolio and provide the Board with greater clarity of the financial position of the fund.
2. Custody of the vast proportion of all the Company’s assets is now provided by JP Morgan and Morgan Stanley.
3. The Company has outsourced its Fund Accounting and Company Secretarial functions to Capita Asset Services Limited; and
4. It is also intended to seek to outsource the AIFM role to an external supplier over the next few years.

It is anticipated that by investing more in future years to make our systems even more robust we can protect shareholders’ assets more securely.

Brexit

The Company’s portfolio is diversified across a range of multinational holdings and hence any impact of Brexit, whether positive or negative, is likely to be immaterial in US Dollar terms. The portfolio’s weighting towards global multinationals means that should Brexit have a positive effect on UK companies it is possible that the portfolio would underperform its benchmark. The Company does hold a material amount of its cash in Sterling so any future weakening of Sterling would reduce the value of this holding in Dollar terms. The Company also holds a material amount of its cash in US Dollar so should Brexit have a positive effect on Sterling in the future it is possible that the portfolio would underperform its benchmark.

Investment Manager

M & L Capital Management Limited

Equity Exposures and Principal Portfolio Holdings

Equity Exposures (Longs)

As at 31 July 2016

Listed investments*	Sector	Valuation £’000	% of Net Assets
Amazon.com, Inc.²	Technology	4,474	5.9
AlphaBet Inc.²	Technology	4,390	5.8
Heineken N.V.¹	Consumer Goods	3,851	5.1
Facebook Inc.²	Technology	3,302	4.4
GlaxoSmithKline plc	Healthcare & Pharmaceuticals	3,287	4.3
Polar Capital Technology Trust plc	Technology	2,785	3.7
Smith & Nephew plc	Healthcare & Pharmaceuticals	2,735	3.6
Apple Inc.²	Technology	2,694	3.6
Shire plc	Healthcare & Pharmaceuticals	2,630	3.5
Unilever plc	Consumer Goods	2,562	3.4
Scottish Mortgage Investment Trust plc	Technology	2,533	3.3
Syngenta AG3	Technology	2,484	3.3
Paypal Holdings Inc.²	Technology	2,470	3.3
Microsoft Corporation²	Technology	2,463	3.3
Worldwide Healthcare Trust plc	Healthcare & Pharmaceuticals	2,412	3.2
VPC Specialty Lending Investments plc	Alternative Finance Funds	2,395	3.2
Yahoo! Inc.²	Technology	2,367	3.1
Beiersdorf AG¹	Consumer Goods	2,271	3.0
Pernod Ricard SA¹	Consumer Goods	2,244	3.0
The SME Loan Fund plc	Alternative Finance Funds	2,149	2.8
salesforce.com, Inc.²	Technology	2,040	2.7
Davide Campari-Milano S.p.A.¹	Consumer Goods	1,950	2.6
Whitbread plc	Consumer Goods	1,601	2.1
Barratt Developments plc	Consumer Goods	1,050	1.4
The Berkeley Group Holdings plc	Consumer Goods	966	1.3
Spire Healthcare Group plc	Healthcare & Pharmaceuticals	840	1.1
easyJet plc	Consumer Goods	833	1.1
Other listed investments (each under 1.0%)	Various	7,635	10.1
Listed investments		73,413	97.2
Unlisted at Directors’ valuation		246	0.3
Total long positions		73,659	97.5
Cash and net current assets		1,887	2.5
Net assets		75,546	100.0

(*Including equity swap exposures as detailed in note 19.)

All investments listed above are equities (unless otherwise stated), denominated in Sterling (except ¹Euro, ²USD and ³Swiss Francs) that have been issued by companies registered in England (save for Amazon.com, Inc., AlphaBet Inc., Heineken N.V., Facebook Inc., Apple Inc., Syngenta AG, Paypal Holdings Inc., Microsoft Corporation, Yahoo! Inc., Beiersdorf AG, Pernod Ricard SA, salesforce.com, Inc. and Davide Campari-Milano S.p.A., which are registered in the USA, the USA, Holland, the USA, the USA, Switzerland, the USA, the USA, the USA, Germany, France, the USA and Italy respectively).

Portfolio Sector Analysis

As at 31 July 2016

Sector	% of Net Assets
Technology	45.5
Consumer Goods	23.7
Healthcare & Pharmaceuticals	20.2
Alternative Finance Funds	6.0
Other	1.8
Unlisted Investments	0.3
Cash and net current assets/(liabilities)	2.5
Net assets	100.0

Principal Portfolio Holdings

Amazon.com Inc (“Amazon”)

Amazon is best known as one of the world’s largest e-commerce and online retail companies. However, it is increasingly becoming a much broader content and services platform for both consumers and businesses. In particular, Amazon Web Services is a leading provider of public cloud computing and may, in our view, be a key growth driver for the stock over the next 5 to 10 years. Amazon is likely to be a core long-term holding.

Alphabet Inc (“Alphabet”)

Alphabet is a global technology company that is at the forefront of innovation in internet-based services and future technologies. Current areas of Alphabet’s portfolio include online advertising, search, YouTube, cloud computing, Nest and Android operating systems. Future areas of growth for Alphabet may also include Robotics, internet of things, driverless vehicles and Artificial Intelligence.

We see Alphabet as offering compelling value on a sum of the parts basis and possibly becoming a leading player in a number of emerging technologies that could drive growth for years to come. Alphabet is likely to be a core long-term holding.

Heineken NV (“Heineken”)

Heineken is a Dutch brewer that produces well-known brands such as Heineken, Amstel & Strongbow. Heineken is inexpensive relative to its peer group with relatively stable growth potential. Though Heineken may not be a particularly willing seller, it could still attract attention in a sector that is likely to be driven by M&A over the next few years.

Facebook Inc. (“Facebook”)

Facebook is a social network with over 1bn daily active users. With such a strong reach and high user engagement, we see it potentially taking an increasing share of global advertising spend over the years to come. Beyond this, the Company is building an interesting portfolio of other social media platforms and technologies, such as Oculus Rift VR, which may serve to further strengthen the Facebook ecosystem.

GlaxoSmithKline plc (“GlaxoSmithKline”)

GlaxoSmithKline is a global healthcare & pharmaceuticals company. We believe Glaxo has a broad and attractive portfolio and is innovative enough to continue to compete successfully for global healthcare spend, which is in itself expected to grow over the next several years. The company is also inexpensive relative to its risk and growth profile, which is becoming increasingly uncommon in a world where predictable yield is so actively hunted.

Polar Capital Technology Trust plc (“Polar Capital”)

Polar Capital is a technology-focused investment trust. The fund trades at a modest discount, but has a strong track record in a sector where superior research resources and focus can be beneficial to returns. They share a similar outlook and philosophy on the sector to us, allowing us to leverage on their superior resources.

Smith & Nephew Plc (“Smith & Nephew”)

Smith & Nephew is a global medical devices company. It is an international producer of products used in arthroscopy, advanced wound management, orthopaedic reconstruction, endoscopy, trauma extremities, fixation devices and sports medicine.

Smith & Nephew has reasonably attractive growth prospects over the next 5 years and is frequently mentioned as an M&A target. However, the company’s core segments may not be immune to technological disruption in the long run and we would not be sad to see it acquired by a US peer.

Apple Inc (“Apple”)

Apple has a history of producing well designed, sleek and desirable consumer products.

Though the widespread concern is that Apple has now gone ex-growth, the stock in fact appears to be priced for substantial profit declines. While we have been disappointed by the lack of innovation in recent product launches, we believe hardware revenues can at least be stable, while increasing services revenues can drive growth.

Shire plc (“Shire”)

Shire is a global specialty biopharmaceutical company focusing on rare diseases, regenerative medicine and specialised conditions. We believe Shire is inexpensive relative to its growth prospects and remains a potential M&A candidate.

Unilever plc (“Unilever”)

Unilever is a multinational consumer goods company, with recognisable brands in personal goods, household goods and food. Unilever offers a stable returns profile with some growth, and although it is not inexpensive, we would expect further non-core food disposals to drive further multiple expansion.

Investment Record of the Last Ten Years

	Total	Return per Ordinary Share		Dividend per Ordinary	Total assets less	Net Asset Value per 25p share
Year ended	return £’000	Basic p	Fully diluted p	Share p	liabilities £’000	Basic p	Fully diluted p
31 July 2007	5,799	41.58	41.58	10.00	52,554	376.80	376.80
31 July 2008	(3,490)	(25.02)	(25.02)	10.00	47,669	341.80	341.80
31 July 2009	645	4.43	4.43	10.50	57,495	328.44	328.44
31 July 2010	13,151	71.75	71.75	11.50	85,203	379.40	379.40
31 July 2011	15,691	69.87	69.87	12.50	98,267	437.60	437.60
31 July 2012	(19,945)	(88.81)	(88.81)	13.00	75,515	336.26	336.26
31 July 2013	2,522	11.23	11.23	13.75	75,050	334.19	334.19
31 July 2014	(6,295)	(28.08)	(28.08)	13.75	64,361	293.20	293.20
31 July 2015	2,483	11.47	11.47	6.00	63,074	293.35	293.35
31 July 2016	13,424	62.50	62.50	13.36	75,546	350.81	350.81

In the period from 1981 to 2006, total assets less liabilities increased from £241,000 to £36,107,000. Net Assets per Share increased from 24.1p to 481.4p.

Corporate Summary

Investment Objective

The investment objective of the Company is to achieve capital appreciation together with a reasonable level of income.

Investment policy

Asset allocation

The Company’s investment objective is sought to be achieved through a policy of actively investing in a diversified portfolio, comprising UK and overseas equities and fixed interest securities. The Company seeks to invest in companies whose shares are admitted to trading on a regulated market. However, it may invest in a small number of equities and fixed interest securities of companies whose capital is not admitted to trading on a regulated market. Investment in overseas equities is utilised by the Company to increase the risk diversification of the Company’s portfolio and to reduce dependence on the UK economy in addressing the growth and income elements of the Company’s investment objective.

The Company may invest in derivatives, money market instruments, currency instruments, contracts for differences (“CFDs”), futures, forwards and options for the purposes of (i) holding investments and (ii) hedging positions against movements in, for example, equity markets, currencies and interest rates.

There are no maximum exposure limits to any one particular classification of equity or fixed interest security. The Company’s investments are not limited to any one industry sector and its current investment portfolio is spread across a range of sectors. The Company has no specific criteria regarding market capitalisation or credit ratings in respect of investee companies.

Risk diversification

The Company intends to maintain a relatively focused portfolio, seeking capital growth by investing in approximately 20 to 40 securities. The Company will not invest more than 15 per cent of the gross assets of the Company at the time of investment in any one security. However, the Company may invest up to 50 per cent of the gross assets of the Company at the time of investment in an investment company subsidiary, subject always to other restrictions set out in this investment policy and the Listing Rules.

The Company intends to be fully invested whenever possible. However, during periods in which changes in economic conditions or other factors so warrant, the Investment Manager may reduce the Company’s exposure to one or more asset classes and increase the Company’s position in cash and/or money market instruments.

Gearing

The Company may borrow to gear the Company’s returns when the Investment Manager believes it is in shareholders’ interests to do so. The Company’s investment policy and the Articles permit the Company to incur borrowing up to a sum equal to two times the adjusted total of capital and reserves. Any change to the Company’s borrowing policy will only be made with the approval of shareholders by special resolution.

The effect of gearing may be achieved without borrowing by investing in a range of different types of investments including derivatives. The Company will not enter into any investments which have the effect of increasing the Company’s net gearing beyond the above limit.

General

In addition to the above, the Company will observe the investment restrictions imposed from time to time by the Listing Rules which are applicable to investment companies with shares listed on the Official List of the United Kingdom Listing Authority under Chapter 15.

In accordance with the Listing Rules, the Company will manage and invest its assets in accordance with the Company’s investment policy. Any material changes in the principal investment policies and restrictions (as set out above) of the Company will only be made with the approval of shareholders by ordinary resolution.

In the event of any breach of the investment restrictions applicable to the Company, shareholders will be informed of the remedial actions to be taken by the Board and the Investment Manager by an announcement issued through a Regulatory Information Service approved by the FCA.

Dividend Policy

The Company may declare dividends as justified by funds available for distribution. The Company will not retain in respect of any accounting period an amount which is greater than 15 per cent of revenue profit in that period.

Capital Structure

The Company’s capital structure, including details of the powers of the Company’s Directors in relation to the issuing or buying back by the Company of its Shares, of shareholder authority for the purchase by the Company of its own Shares still valid at the period end and of acquisitions of own Shares, is summarised in note 17 to the financial statements.

At the Annual General Meeting held on 30 November 2015, shareholders approved the Board's proposal to authorise the Company to acquire up to 14.99 per cent of its issued share capital as at 31 July 2015.

During the year the Company bought back 51,500 (0.2%) of its Ordinary Shares. Total purchase consideration paid in the year amounted to £134,000. The Company also sold 85,000 (0.4%) of its Ordinary Shares from Treasury for a total consideration of £236,000, generating a surplus of £22,000 which is recognised in the Share Premium account.

Total Assets and Net Asset Value

The Company had total net assets of £75,546,000 and a Net Asset Value of 350.81p per Ordinary Share at 31 July 2016.

Business Model

The Company is an Investment Company as defined by Section 833 of the Companies Act 2006 and operated as an Investment Trust in accordance with Section 1158 of the Corporation Tax Act 2010.

The Company is also governed by the Listing Rules and Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and is premium listed on the main market of the London Stock Exchange under the epic code “MNL”.

The close company provisions of the Corporation Tax Act 2010 do not apply to the Company.

A review of investment activities for the year ended 31 July 2016 and the outlook for the coming year are given by the Investment Manager in his Review.

Principal Risks and Uncertainties

The management of the business and the execution of the Company’s strategy are subject to a number of risks. A robust assessment of the principal risks of the Company has been carried out, including those that would threaten its business model, future performance, solvency and liquidity. A summary of the risk management and internal control processes can be found in the Statement of Corporate Governance included in the full Annual Report.

An investment in the Company is only suitable for financially sophisticated investors who are capable of evaluating the risks and merits of such an investment, or other investors who have been professionally advised with regard to investment and who have sufficient resources to bear any loss which might result from such an investment. There can be no guarantee that investors will recover their initial investment. The investment may employ gearing and may be subject to sudden and large falls in value. Investors should be aware that movements in the price of the Company may be more volatile than movements in the price of the underlying investments and that there is a risk that investors may lose all their invested money. Investors considering an investment should consult their stockbroker, bank manager, solicitor, accountant and/or other independent financial adviser.

In respect of some of the companies in which the Company may invest:

• the Company may be undergoing significant change, or be exposed to the volatility of emerging or developing markets;

• they may have less mature businesses, a more restricted depth of management and accordingly a higher risk profile;

• the quality of the investments’ management may have been overestimated;

• the market value of, and income derived from, such shares can fluctuate; and

• there may not be a liquid market for their shares. The fact that a share is traded on a market does not guarantee its liquidity. Accordingly, such shares may be difficult to realise at quoted market prices.

Any change in the tax treatment of dividends paid, or income received by the Company, may reduce the level of yield received by shareholders. Any change in the Company’s tax status, or in legislation, could affect the value of the investments held by the Company and its performance.

Investment in the Company should be regarded as long-term in nature. There can be no guarantee that any appreciation in the value of the Company’s investments will occur and investors may not get back the full value of their investment. There can be no guarantee that the investment objective of the Company will be met.

The Company is exposed to a range of economic and market risks, liquidity, interest rates, exchange rates and general financial risks.

The market capitalisation of the Company will make the market of the Ordinary Shares less liquid than would be the case for a larger company.

Whilst the use of borrowings by the Company should enhance the Net Asset Value of the Ordinary Shares when the value of the Company’s underlying assets is rising, it will have the opposite effect when the underlying asset value is falling. Furthermore, should any fall in the underlying assets’ values result in the Company breaching the financial covenants applicable to borrowings, the Company may be required to repay such borrowing in whole or in part together with any attendant costs. In order to repay such borrowings, the Company may have to sell assets at less than their quoted market values. A positive Net Asset Value for the Ordinary Shares will be dependent upon the Company’s assets being sufficient to meet any debt.

On a winding-up of the Company, the Ordinary Shares rank for repayment of capital after repayment of all other creditors of the Company. Ordinary Shares are only appropriate for investors who understand that they may receive an amount less than their original investment.

Risk Management

The risks with regards to financial instruments, and the Company’s policies for management of these risks, are detailed in note 19 to the financial statements - “Risks – Investments, derivatives and other risks”. The Company manages the risks inherent in portfolio management by investing in approximately 20 to 40 securities of companies operating in a range of industrial sectors and varying the extent of cash holdings or gearing in relation to the Investment Manager’s assessment of overall market conditions.

The Company does not have any employees and consequently relies upon the services provided by a number of third parties. The Board therefore relies on the control procedures of these third parties which include the Company’s Investment Manager, Registrar, Custodians and Broker. This type of operational structure is not uncommon with investment trust companies.

Via reports from the Administrator, the Board reviews the internal control procedures of its third party service providers and assesses the reliability of these procedures as part of its risk management strategy. The Risk Management function is a responsibility of the Administrator, M&M Investment Services, which is a division of M&M Investment Company plc and operates as a standalone unit, comprised of individuals who are not members of the Board or the Sheppard family. Further details with regards to the Board’s risk management procedures are detailed in the “Internal Financial Control” section of the Statement of Corporate Governance included in the Full Annual Report.

Year-End Gearing

By the year end gross long equity exposure represented 97.5 per cent of net assets.

Key Performance Indicators (“KPIs”)

The key measures by which the Board judges the success of the Company are the share price, the Net Asset Value per Share and the ongoing charges measure.

The Board considers the most important key performance indicator to be the comparison with its benchmark index. This is referred to in the Financial Summary above.

Total net assets at 31 July 2016 amounted to £75,546,000 compared with £63,074,000 at 31 July 2015, an increase of 19.8 per cent (net of own share buybacks as disclosed in note 18), whilst the fully diluted Net Asset Value per Ordinary Share increased to 350.8p from 293.4p.

Net revenue return after taxation for the year was £2,889,000 (2015: £1,300,000), an increase of 122.2 per cent.

The share price during the period under review has been quoted at discounts to Net Asset Value of 13.6 to 25.1 per cent.

Ongoing charges set out in the Financial Summary is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average net assets over the year. The Board regularly reviews the ongoing charges measure and monitors Company expenses.

Future Development

A commentary on the trends and factors likely to affect the future development, performance and position of the Company, which includes an assessment of market sentiment and the effectiveness of government intervention, is set out in the Chairman’s Statement and the Investment Manager’s Review and is also released monthly in a fund fact sheet published via the Company’s website.

Management Arrangements

Details of the Company's management agreement with M & L Capital Management Limited ("the Investment Manager") are contained in note 3 to the financial statements.

Under the terms of the management agreement the Investment Manager will manage the Company's portfolio in accordance with the investment policy determined by the Board. The management agreement has a termination period of three months. Details of the fee arrangements are disclosed in note 3 to the financial statements. The Investment Manager is authorised and regulated by the FCA.

In the year to 31 July 2016 the total remuneration paid to the entire staff of the Investment Manager was £189,000 (2015: £182,000), payable to an average staff number throughout the year of 2 (2015: 2).

The investment management of MLIT is solely undertaken by Mr M. Sheppard and Mr R. Morgan, to whom a combined total of £189,000 (2015: £182,000) was paid by the Investment Manager during the year.

The Investment Manager was paid no performance fee or carried interest in the Company.

The remuneration policy of the Investment Manager is to pay fixed annual salaries, with non-guaranteed bonuses, dependent upon performance only. These bonuses are generally paid in MLIT stock, released over a three-year period.

The fund requires that the fund manager does not give preferential treatment to any single or class of shareholder. To this end, all Ordinary Shares carry equal voting rights and are traded on a public market, the only exception being that Shares held by the majority investment holding company and its related parties are not included in the annual draw for Wimbledon tickets.

The Company has in place a continuing, written and legally binding relationship agreement with its controlling shareholder, M&M Investment Company plc, and their associates, ensuring compliance with independence provisions set out in LR 6.1.4D.

Since entering the relationship agreement, the Company has fully complied with the independence provisions included within this agreement and, so far as the Company is aware, the independence provisions included in this agreement have also been complied with during the period under review by the controlling shareholder and their associates.

Alternative Investment Fund Managers Directive

AIFMD is applicable to all Alternative Investment Funds including ourselves. In conjunction with our Investment Manager, the Board has chosen to comply with the partial exemption, sub threshold regulations with the AIFM directive, by ensuring our gross assets do not exceed the Euro 100m threshold. This is not a long-term solution to this regulation and it is anticipated that the Board may appoint a Manager and Depositary once a suitably priced solution becomes available.

Environmental, Human Rights, Employee, Social and Community Issues

The Board consists entirely of non-executive Directors. Day-to-day management of the business is delegated to the Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Further details of our Environmental, Social and Governance policy can be found in the Directors’ Report. In addition, details of the Company’s Board composition and related gender diversity considerations can be found in the Statement of Corporate Governance included in the full Annual Report.

On behalf of the Board of Directors

Mr P.H.A. Stanley

Chairman

21 October 2016

DIRECTORS’ REPORT

The Directors present their report and financial statements for the year ended 31 July 2016.

Results

The Company’s total comprehensive profit for the year, after taxation, amounted to £13,424,000 (2015: £2,483,000 total comprehensive profit).

After own share buybacks as disclosed in note 17, total net assets at 31 July 2016 amounted to £75,546,000 compared with £63,074,000 at 31 July 2015, whilst the fully diluted Net Asset Value per Ordinary Share increased to 350.8p from 293.4p.

Dividends

A final ordinary dividend for the year ended 31 July 2015 of 1.70p (2014: 1.98p) and a final special dividend for the year ended 31 July 2015 of 0.25p per share (2014: 1.27p) were paid on 3 December 2015. An interim ordinary dividend of 0.40p, a first special dividend of 0.46p and a second special dividend of 2.10p per Ordinary Share were paid on 29 April 2016 (2015: 1.50p interim ordinary, 2.30p first special and 0.25p second special). Further to these, a first final special dividend for the year ended 31 July 2016 of 7.50p (2015: nil) was paid on 26 August 2016.

The Directors are recommending a final ordinary dividend of 1.85p per Ordinary Share (2015: 1.70p final ordinary) and a final special dividend of 1.05p per Ordinary Share (2015: 0.25p final special), giving a total for the year of 13.36p per Ordinary Share (2015: 6.00p).

It is our current intention that the final ordinary dividend will be paid on 2 December 2016 to shareholders registered on 18 November 2016. The Shares will be declared ex-dividend on 17 November 2016.

Share Valuations

On 31 July 2016, the middle market quotation and the Net Asset Value per Ordinary 25p Share were 277.4p and 350.8p, respectively. This indicates that the discount on the Company’s Shares was 20.9 per cent. This is not uncommon as the share prices of closed-end funds are often traded at a discount to their Net Asset Values.

Events after the Reporting Period

There have been no significant events since the end of the reporting period other than the volatility currently experienced in the stock market.

Going Concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Viability Statement

The Directors have assessed the prospects of the Company over the three year period to the Annual General Meeting in 2019. The Directors consider three years to be a reasonable time horizon to consider the continuing viability of the Company, although they do consider viability for the longer term foreseeable future also.

In their assessment of the viability of the Company, the Directors have considered each of the Company’s principal risks and uncertainties as set out in the Strategic Report and in particular have considered the potential impact of a significant fall in Global equity markets on the value of the Company’s investment portfolio overall. The Directors have also considered the Company’s income and expenditure projections and the fact that the Company’s investments mainly comprise readily realisable securities which could be sold to meet funding requirements if necessary, and on that basis consider that three years is an appropriate time period to assess continuing viability.

In forming their assessment of viability the Directors have also considered:

• the internal processes for monitoring costs;
• expected levels of investment income;
• the performance of the Investment Manager;
• portfolio risk profile;
• liquidity risk;
• gearing limits;
• counterparty exposure; and
• financial controls and procedures operated by the Company.

Based upon these considerations the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to the Annual General Meeting in 2019.

DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Company financial statements in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and Article 4 of the EU IAS Regulation. Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

• properly select suitable accounting policies in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, and apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• make judgements and accounting estimates that are reasonable;

• provide additional disclosure when compliance with the specific requirements of IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company financial position and financial performance;

• state that the Company financial statements have been prepared in accordance with IFRS, subject to any material departures disclosed and explained in the financial statements;

• present fairly the Company financial position, financial performance and cashflows; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that show and explain the Company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Statement of Corporate Governance (included in the full Annual Report) that comply with that law and those regulations.

To the best of the knowledge of each of the Directors, whose names are set out above:

        (a) the financial statements, prepared in accordance with the IFRS adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit         or loss of the Company; and

        (b) the Annual Report includes a fair review of the development and performance of the fund and the position of the Company, together with a description of the principal risks         and uncertainties that it faces.

The Board confirms that the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, strategy and business model of the Company. This statement is underpinned by the comprehensive review process of the annual report by the Audit Committee and Directors. Each of the Directors accepts responsibility accordingly.

On behalf of the Board of Directors

Mr P.H.A. Stanley

Chairman

21 October 2016

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 July 2016 or 31 July 2015 but is derived from those accounts. Statutory accounts for the year ended 31 July 2015 have been delivered to the Registrar of Companies and statutory accounts for the year ended 31 July 2016 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor’s report can be found in the Company’s full Report and Accounts at www.manchesterandlondon.co.uk.

Statement of Comprehensive Income

For the year ended 31 July 2016

		2016	2016	2016		2015	2015	2015
	Note	Revenue £’000	Capital £’000	Total £’000		Revenue £’000	Capital £’000	Total £’000
Gains
Gains/(losses) on investments at fair value through profit or loss		-	10,712	10,712		-	1,402	1,402
Trading income	2	2,808	-	2,808		971	-	971
Investment income	2	897	-	897		1,185	-	1,185
Gross return		3,705	10,712	14,417		2,156	1,402	3,558
Expenses
Investment management fee	3	(334)	-	(334)		(311)	-	(311)
Cost of investment transactions		(223)	-	(223)		(303)	-	(303)
Other operating expenses	4	(224)	-	(224)		(180)	-	(180)
Total expenses		(781)	-	(781)		(794)	-	(794)
Return before finance costs and tax		2,924	10,712	13,636		1,362	1,402	2,764
Finance costs	6	(35)	(177)	(212)		(62)	(219)	(281)
Return on ordinary activities before tax		2,889	10,535	13,424		1,300	1,183	2,483
Tax expense	7	-	-	-		-	-	-
Return on ordinary activities after tax		2,889	10,535	13,424		1,300	1,183	2,483
Earnings per Ordinary Share (pence)
Basic	9	13.45	49.05	62.50		6.00	5.47	11.47
Fully diluted	9	13.45	49.05	62.50		6.00	5.47	11.47

The total column of this statement represents the Statement of Comprehensive Income of the Company prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

The Company does not have any Other Comprehensive Income and hence the return on ordinary activities after tax, as disclosed above, is the same as the Company’s Total Comprehensive (Loss)/Income.

All items in the above statement derive from continuing operations.

Statements of Changes in Equity

For the year ended 31 July 2016

	Share capital £’000	Share premium £’000	Treasury Shares £’000	Other reserves £’000	Capital reserve (unrealised) £’000	Capital reserve (realised) £’000	Retained earnings £’000	Total £’000
Balance at 1 August 2014	5,614	35,295	(1,306)	(79)	15,239	(17,463)	27,061	64,361
Changes in equity for 2015
Total comprehensive loss	-	-	-	-	-	-	2,483	2,483
Buybacks of Ordinary Shares	-	-	(1,089)	-	-	-	-	(1,089)
Transfer of capital	-	-	-	-	(10,088)	11,271	(1,183)	-
Equity dividends paid	-	-	-	-	-	-	(2,681)	(2,681)
Balance at 31 July 2015	5,614	35,295	(2,395)	(79)	5,151	(6,192)	25,680	63,074
Changes in equity for 2016
Total comprehensive income	-	-	-	-	-	-	13,424	13,424
Buybacks of Ordinary Shares	-	-	(134)	-	-	-	-	(134)
Sale of Ordinary Shares from Treasury	-	22	214	-	-	-	-	236
Transfer of capital	-	-	-	-	4,881	5,654	(10,535)	-
Equity dividends paid	-	-	-	-	-	-	(1,054)	(1,054)
Balance at 31 July 2016	5,614	35,317	(2,315)	(79)	10,032	(538)	27,515	75,546

Statement of Financial Position

At 31 July 2016

			2016		2015
	Note		£’000		£’000
Non-current assets
Investments at fair value through profit or loss	10		38,999		28,040
			38,999		28,040
Current assets
Unrealised derivative assets	15		3,269		2,387
Trade and other receivables	11		22		24
Cash and cash equivalents	12		35,252		34,233
			38,543		36,644
Gross assets			77,542		64,684
Current liabilities
Unrealised derivative liabilities	15		(1,746)		(1,410)
Trade and other payables	14		(250)		(200)
			(1,996)		(1,610)
Net assets			75,546		63,074
Equity attributable to equity holders
Ordinary Share Capital	16		5,614		5,614
Shares held in Treasury	17		(2,315)		(2,395)
Share premium			35,317		35,295
Other reserves
Capital reserve – realised			(538)		(6,192)
Capital reserve – unrealised			10,032		5,151
Goodwill reserve			(79)		(79)
Retained earnings			27,515		25,680
Total equity			75,546		63,074

The financial statements were approved by the Board of Directors and authorised for issue on 21 October 2016 and are signed on their behalf by:

Mr D. Harris	Mr P.H.A. Stanley (Chairman)
Directors

Manchester and London Investment Trust Public Limited Company

Company Number: 01009550

Statement of Cash Flows

For the year ended 31 July 2016

	2016 £’000		2015 £’000
Cash flow from operating activities
Return on operating activities before taxation	13,424		2,483
Interest paid	383		54
(Gain)/Loss on investments	(7,941)		1,215
Decrease in receivables	2		76
Increase/(decrease) in payables	50		66
Increase in derivatives	(546)		(1,871)
Net cash generated from/(used in) operating activities	5,372		2,023
Cash flow from investing activities
Purchases of investments	(39,450)		(47,247)
Sales of investments	36,432		63,656
Net cash generated from investing activities	(3,018)		16,409
Cash flow from financing activities
Equity dividends paid	(1,054)		(2,681)
Buybacks of Ordinary Shares	(134)		(1,089)
Resale of Ordinary Shares	236		-
Interest paid	(383)		(54)
Net cash used in financing activities	(1,335)		(3,824)
Net increase/(decrease) in cash and cash equivalents	1,019		14,608
Cash and cash equivalents at beginning of year	34,233		19,625
Cash and cash equivalents at end of year	35,252		34,233

The notes form part of these financial statements.

Notes Forming Part of the Financial Statements

For the year ended 31 July 2016

1. Accounting policies

A summary of the principal accounting policies is set out below.

Manchester and London Investment Trust plc (“MLIT”) is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom.

a) Basis of preparation and statement of compliance

In accordance with European Union regulations, these financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”), as adopted for use in the EU effective at 31 July 2016.

As permitted by section 406(2) of the Companies Act 2006 consolidated accounts have not been prepared as the inclusion of the Company’s dormant subsidiaries is not material for the purpose of giving a true and fair view.

The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment.

To the extent that presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts revised by the Association of Investment Companies (“AIC”) is inconsistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP, whilst fully complying with IFRS.

The Company's principal accounting policies are set out below. These accounting policies have been applied consistently to all periods presented in these financial statements.

b) Presentation of Statement of Comprehensive Income

In order to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the statement of comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income. The updated Investment Trusts (Approved Company) (Tax) Regulations 2011 has removed the previous Section 833 restriction of the Companies Act 2006 that prohibited the distribution of dividends from net capital returns. However, the net revenue is also the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 Corporation Tax Act 2010.

c) Valuation of investments

Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given, excluding transaction or other dealing costs associated with the investment.

After initial recognition, investments, which are classified as at fair value through profit or loss, are measured at fair value. Gains or losses on investments designated as at fair value through profit or loss are recognised as a capital item. For investments that are actively traded in organised financial markets, fair value for longs/shorts are determined by reference to Stock Exchange quoted market bid/offer prices respectively, as at the close of business at the end of the reporting period.

Unlisted investments are valued at the Directors' estimate of fair value by reference to the following valuation guidelines – asset values, earnings, dividends, last trade values and any other relevant factors.

All purchases and sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or sell an asset.

Investments in subsidiaries are valued at cost in accordance with IAS 27 and reviewed annually for impairment.

d) Revenue recognition

Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company and the revenue can be reliably measured.

Income from trading activity includes gains and losses on the trading of shares, equity swaps and futures, net of commissions, interest and other costs expensed.

A position is deemed to be trading activity rather than investment if the position has been opened and closed and the duration that the position was open is less than twelve months. Changes to core holdings will not be classified as trading activities regardless of their duration. Positions opened but not yet closed are deemed to be investments in nature until closed at which point their duration determines if they are classified as trading rather than investment.

Listed options and futures contracts are recognised at fair value through profit or loss and fall within the classification of held for trading under FRS 26. The fair value is the applicable closing price of the underlying option or contract.

Dividend income from investments is recognised when the shareholders' right to receive payment has been established, normally the ex-dividend date. Special dividends representing a return of capital are credited to capital reserves.

Fixed returns on non-equity shares are recognised on a time apportionment basis so as to reflect the effective yield on the shares.

Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income.

e) Derivatives

Derivatives include equity swaps, futures and options. The Company recognises financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument.

Derivatives are held at fair value based upon traded prices and/or third party information provided and are recognised in the Statement of Comprehensive Income. They are recognised as capital and are shown in the capital column of the Statement of Comprehensive Income if they are of a capital nature, and are recognised as revenue and shown in the revenue column of the Statement of Comprehensive Income if they are of a revenue nature.

Equity swap positions are only accounted for as realised when closed. They are not accounted for as realised when a counterparty collateral reset occurs.

f) Expenses

All expenses are accounted for on the accruals basis and with the exception of capital interest are charged to revenue.

g) Finance costs

Finance costs are accrued at the effective interest rate.

h) Taxation

The tax charge represents the sum of the tax currently payable and any deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from return on operating activities before tax as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for 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. Deferred tax balances are not discounted.

Investment Trusts which have approval under Section 1158 Corporation Tax Act 2010 are not liable for taxation on capital or revenue gains.

The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to 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 is realised. Deferred tax is charged or credited through profit and loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

i) Dividends payable to shareholders

No equity dividend is accrued unless the shareholders' right to receive payment is established in the period. Dividends proposed after the end of the reporting period are disclosed in note 8.

j) Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank, short-term deposits with an original maturity of three months or less, cash held in highly liquid investment accounts or cash held as collateral on open equity swap and derivative positions.

k) Reserves

Reserves comprise:

Ordinary Share Capital

Nominal value of total Ordinary Shares issued.

Shares held in Treasury

Consideration paid for the purchase of Shares held in Treasury.

Share Premium

Excess consideration of price paid for Shares issued over nominal value.

Capital Reserve - realised

Gains and losses on the realisation of investments; and expenses and finance costs, together with the related taxation effect, are charged to this reserve in accordance with the above policies.

Capital Reserve - unrealised

Increases and decreases in the valuation of investments held at the year end.

Goodwill Reserve

Goodwill arising on consolidation prior to 1 August 1998 has been written off against reserves on acquisition as a matter of accounting policy.

Retained Earnings

Net income not yet distributed to shareholders.

l) Foreign currencies

In preparing the financial statements, transactions in currencies other than pounds sterling are recorded at the actual rate of exchange prevailing on the dates of the transactions. At each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the end of the reporting period.

Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities in foreign currencies are recognised through profit or loss or capital dependent upon their duration.

m) New standards and significant amendments not applied

The IASB and IFRIC have issued the following standards and interpretations with a date of adoption for annual periods beginning on or after the effective date shown:

Accounting Standards		Effective date
IFRS 2	Share-based Payment	1 January 2018
IFRS 5	Non-current assets held for sale and discontinued operations	1 January 2016
IFRS 7	Financial Instruments: Disclosures	1 January 2016
IFRS 9	Financial Instruments	1 January 2018
IFRS 10	Consolidated Financial Statements	1 January 2016
IFRS 11	Joint arrangements	1 January 2016
IFRS 12	Disclosure of interests in other entities	1 January 2016
IFRS 14	Regulatory Deferral Accounts	1 January 2016
IFRS 15	Revenue from contracts with customers	1 January 2018
IFRS 16	Leases	1 January 2019
IAS 1	Presentation of Financial Statements	1 January 2016
IAS 7	Statement of Cash Flows	1 January 2017
IAS 12	Income Taxes	1 January 2017
IAS 16	Property, plant and equipment	1 January 2016
IAS 19	Employee benefits	1 January 2016
IAS 27	Separate Financial Statements	1 January 2016
IAS 28	Investments in Associates and Joint Ventures	1 January 2016
IAS 34	Interim Financial Reporting	1 January 2016
IAS 38	Intangible assets	1 January 2016
IAS 41	Agriculture	1 January 2016

The Directors have chosen not to early adopt the above standards and interpretations and they do not anticipate that they would have a material impact on the Company’s financial statements in the period of initial application.

2. Income

	2016 £’000		2015 £’000
Total income comprises
Trading income	2,808		971
Dividends from listed investments	839		1,140
Interest	58		45
	3,705		2,156

Finance, commission and other costs (including stamp duty) deducted in the calculation of trading income are not disclosed separately.

3. Investment management fee

	2016	2016	2016		2015	2015	2015
	Revenue £’000	Capital £’000	Total £’000		Revenue £’000	Capital £’000	Total £’000
Investment management fee	334	-	334		311	-	311

The Investment Manager provides investment services to the Company under a management agreement with a termination period of three months. The annual fee is 0.5 per cent of the total portfolio value including cash and short term deposits, payable quarterly in arrears. The fee is not subject to Value Added Tax (“VAT”). Transactions with the Investment Manager during the year are disclosed in note 20.

The investment management fee is chargeable to revenue.

4. Other operating expenses

	2016 £’000		2015 £’000
Directors’ fees	48		48
Auditors’ remuneration	25		23
Registrar fees	10		10
Other expenses	141		99
	224		180
Fees payable to the Company’s auditor for the audit of the Company financial statements	25		23
Fees payable to the Company’s auditor for other services:
services relating to taxation	7		7
other services	3		3
	35		33

Other operating expenses include irrecoverable VAT where appropriate.

5. Staff numbers and costs

Excluding Directors, the Company employs no members of staff.

Included in Directors' fees above (note 4) are the emoluments paid to the Chairman as follows:

	2016 £’000		2015 £’000
P.H.A. Stanley (Chairman)	18		18

6. Finance costs

	2016 £’000		2015 £’000
Charged to revenue	35		62
Charged to capital	177		219
	212		281

The finance costs attributable to closed positions defined as trading income are deducted in the calculation of trading income along with commission costs. The split between the commission charged for trading and capital items is not disclosed separately.

7. Taxation

	2016	2016	2016	2015	2015	2015
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Current UK corporation tax	-	-	-	-	-	-
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit/(loss) before tax	2,889	10,535	13,424	1,300	1,183	2,483
Tax at the UK corporation tax rate of 20.00% (2015: 20.67%)	578	2,107	2,685	269	245	514
Tax effect of non-taxable dividends/unrealised profits	(168)	-	(168)	(228)	-	(228)
Income not subject to UK corporation tax	(307)	-	(307)	(17)	-	(17)
Brought forward losses utilised during the period	(115)	-	(115)	(28)	-	(28)
Profits on investment appreciation not taxable	-	(2,142)	(2,142)	-	(290)	(290)
Other non-taxable income less expenses not deductible for tax	7	35	42	-	45	45
Unrelieved tax losses and other deductions arising in the period	5	-	5	4	-	4
Excess management expenses	-	-	-	-	-	-
Current year tax charge	-	-	-	-	-	-

The Company has surplus management expenses at 31 July 2016 of £1,888,000 (2015: £2,372,000).

At 31 July 2016, there is an unrecognised deferred tax asset, measured at the standard rate of 18 per cent, of £340,000 (2015: £490,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Company will generate sufficient taxable profits in the foreseeable future to recover these amounts and therefore the asset has not been recognised in the year, or in prior years.

As at 31 July 2016, the Company has unrelieved capital losses of £9,330,000 (2015: £9,330,000). There is, therefore, a related unrecognised deferred tax asset, measured at the standard rate of 18 per cent, of £1,679,000 (2015: £1,928,000). These capital losses can only be utilised to the extent that the Company does not qualify as an investment trust in the future and, as such, the asset has not been recognised.

8. Dividends

Amounts recognised as distributions to equity holders in the period:	2016 £’000		2015 £’000
Final ordinary dividend for the year ended 31 July 2015 of 1.70p (2014: 1.98p) per share	365		431
Interim special dividend for the year ended 31 July 2015 of nil (2014: 5.00p) per share	-		1,098
Final special dividend for the year ended 31 July 2015 of 0.25p (2014: 1.27p) per share	54		276
Interim ordinary dividend for the year ended 31 July 2016 of 0.40p (2015: 1.50p) per share	86		322
First special dividend for the year ended 31 July 2016 of 0.46p (2015: 2.30p) per share	99		500
Second special dividend for the year ended 31 July 2016 of 2.10p (2015: 0.25p) per share	450		54
	1,054		2,681

A first final special dividend was of 7.50p for the financial year 2016 was paid on 26 August 2016. The Directors are proposing a final ordinary dividend of 1.85p and a final special dividend of 1.05p for the financial year 2016. These proposed dividends have been excluded as a liability in these financial statements in accordance with IFRS.

We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered.

	2016 £’000		2015 £’000
Interim ordinary dividend for the year ended 31 July 2016 of 0.40p (2015: 1.50p) per share	86		322
Proposed final ordinary dividend for the year ended 31 July 2016 of 1.85p (2015: 1.70p) per share*	398		365
First special dividend for the year ended 31 July 2016 of 0.46p (2015: 2.30p) per share	99		500
Second special dividend for the year ended 31 July 2016 of 2.10p (2015: 0.25p) per share	450		54
First final special dividend for the year ended 31 July 2016 of 7.50p (2015: nil) per share	1,615		-
Proposed final special dividend for the year ended 31 July 2016 of 1.05p (2015: 0.25p) per share*	226		54
	2,874		1,295

*Based on the total Shares eligible to receive dividend as at 21 October 2016.

9. Return per Ordinary Share

The calculation of the basic and fully diluted earnings per Ordinary Share is based on the following:

	2016	2016	2016		2015	2015	2015
	Revenue £’000	Capital £’000	Total £’000		Revenue £’000	Capital £’000	Total £’000
Return:
Basic and fully diluted	2,889	10,535	13,424		1,300	1,183	2,483

Basic revenue, capital and total return per Ordinary Share is based on the net revenue, capital and total return for the period and on the weighted average number of Ordinary Shares in issue (excluding those Shares held in Treasury per note 17) of 21,477,042 (2015: 21,645,499).

10. Investments at fair value through profit or loss

	Company
	2016 £’000	2015 £’000
Investments as below	38,999	28,040

   

	Listed £’000	Unlisted £’000	Total £’000
Opening cost at 1 August	24,862	120	24,982
Opening unrealised appreciation at 1 August	2,977	81	3,058
Opening fair value at 1 August	27,839	201	28,040
Purchases at cost	39,414	36	39,450
Sales proceeds	(36,428)	(4)	(36,432)
Realised profit on sales	3,932	(52)	3,880
Increase in unrealised appreciation	3,996	65	4,061
Closing fair value at 31 July	38,753	246	38,999
Closing cost at 31 July	31,780	100	31,880
Closing unrealised appreciation at 31 July	6,973	146	7,119
Closing fair value at 31 July	38,753	246	38,999

11. Trade and other receivables

	Company
	2016 £’000	2015 £’000
Dividend receivables	7	-
Other receivables	4	16
Prepayments	11	8
	22	24

12. Cash and cash equivalents

	Company
	2016 £’000		2015 £’000
Cash & cash equivalents	35,252		34,233

Cash & cash equivalents include £35.1m (2015: £33.3m) held in investment accounts as collateral against open equity swap and derivative exposures which are detailed in note 19.

13. Securities

As part of custodian relationships, assets held with both Morgan Stanley & Co. International plc and JP Morgan Chase & Co. are subject to a first fixed charge with full title guarantee as continuing security.

£29.4m of collateral was held with Morgan Stanley & Co. International plc as at 31 July 2016 (2015: £25.3m).

£47.3m of collateral was held with JP Morgan Chase & Co. as at 31 July 2016 (2015: £36.0m).

14. Trade and other payables

	Company
	2016 £’000		2015 £’000
Trade payables	198		156
Accruals	52		44
	250		200

15. Derivatives

The Company may use a variety of derivative contracts, including equity swaps, futures, forwards and options under master agreements with the Company’s derivative counterparties to enable the Company to gain long and short exposure on individual securities. Derivatives are valued by reference to the underlying market value of the corresponding security.

The sources of the return under the derivative contract (e.g. notional dividends, financing costs, interest returns and capital changes) are allocated to the revenue and capital accounts in accordance with the nature of the underlying source of income and in accordance with the guidance given in the AIC SORP. Notional dividend income arising on long positions is apportioned wholly to the revenue account. Notional interest expense on long positions is initially allocated 100% to capital whilst the position is unrealised, however, upon realisation these costs are expensed through the income statement as revenue or capital in accordance with the Company’s revenue recognition accounting policy. Unrealised changes in value relating to underlying price movements of securities in relation to derivatives are allocated to revenue or capital, dependent upon their nature.

The net fair value of derivatives at 31 July 2016 was a positive £1,523,000 (2015: positive £977,000). The corresponding gross exposure on equity swaps as at 31 July 2016 was £34,660,000 (2015: £28,761,000). The net marked to market futures and options total value as at 31 July 2016 was negative £647,000 (2015: negative £406,000).

	Company
	2016 £’000		2015 £’000
Assets
Unrealised derivative assets	3,269		2,387
	3,269		2,387
Current liabilities
Unrealised derivative liabilities	1,746		1,410
	1,746		1,410

16. Share capital

Ordinary share capital		2016				2015
	No. (‘000)	£’000		No. (‘000)	£’000
Authorised
Ordinary Shares of 25p each	28,000	7,000		28,000	7,000
Non-voting Convertible Preference Shares of £1 each	1,000	1,000		1,000	1,000
Ordinary Shares of 25p each issued and fully paid
Balance as at 1 August	22,457	5,614		22,457	5,614
Balance as at 31 July	22,457	5,614		22,457	5,614

Ordinary shares carry the right to one vote and the right to dividends.

17. Shares held in Treasury

	No. (‘000)	2016 £’000		No. (‘000)	£2015 ’000
Balance as at 1 August	956	2,395		506	1,306
Shares bought back during year	52	134		450	1,089
Shares sold back during year	(85)	(214)		-	-
Balance as at 31 July	923	2,315		956	2,395

At the annual general meeting held on 30 November 2015, shareholders approved the Board's proposal to authorise the Company to acquire up to 14.99 per cent of its issued share capital as at 31 July 2015.

During the year the Company bought back 51,500 (0.2%) of its Ordinary Shares. Total purchase consideration paid in the year amounted to £134,000. The Company also sold 85,000 (0.4%) of its Ordinary Shares from Treasury for a total consideration of £236,000, generating a surplus of £22,000 which is recognised in the Share Premium account.

18. Net Asset Value per Share

	Net Asset Value per share			Net Assets Attributable
	2016 p	2015 p		2016 £’000	2015 £’000
Ordinary Shares: basic and fully diluted	350.8	293.4		75,546	63,074

The basic Net Asset Value per Ordinary Share is based on net assets at the year end and 21,534,420 (2015: 21,500,920) Ordinary Shares in issue, adjusted for any Shares held in Treasury.

19. Risks – Investments, derivatives and other risks

In order to manage its portfolio efficiently and to enable the Investment Manager to pursue the investment objectives as set out in the Equity Exposures and Principal Portfolio Holdings section of the Strategic Report, the Company holds equity swaps, derivatives and other financial instruments. All equity swaps, derivative transactions and financial instruments are accounted for at fair value and comprise securities, cash balances, trade receivables and trade payables arising directly from financial operations.

The main risk arising from the Company's investment strategy is market price risk. There is also exposure to liquidity risk, interest rate risk and currency rate risk.

The Board regularly reviews and agrees policies for managing these risks, which are monitored by the Administrator, as summarised below.

Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. Both the Investment Manager and the Administrator actively monitor market prices throughout the year and report to the Board, which meets regularly to review investment strategy.

Details of the long equity exposures held at 31 July 2016 are shown in the Equity Exposures and Principal Portfolio Holdings section of the Strategic Report.

If the price of these investments and equity swaps had increased by 3 per cent at the reporting date with all other variables remaining constant, the capital return in the statement of comprehensive income and the net assets attributable to equity holders of the Company would increase by £2,210,000.

A 3 per cent decrease in share prices would have resulted in an equal and opposite effect of £2,210,000, on the basis that all other variables remain constant.

At the year end the Company’s direct equity exposure to market price risk was as follows:

	Company
	2016	2015
	£’000	£’000
Equity long exposures
Investments held in equity form	38,999	28,040
Long exposure held in equity swaps	34,660	28,761
	73,659	56,801

Interest rate risk

Interest rate risk arises from uncertainty over the interest rates charged by financial institutions. It represents the potential increased costs of financing for the Company. The Investment Manager actively monitors interest rates and the Company’s ability to meet its financing requirements throughout the year and reports to the Board.

Liquidity risk

Liquidity risk reflects the risk that the Company will have insufficient funds to meet its financial obligations as they fall due. The Directors have minimised liquidity risk by investing in a portfolio of quoted companies that are readily realisable.

The Company's un-invested funds are held almost entirely with the Custodians or on interest bearing deposits with UK banking institutions.

As at 31 July 2016 the financial liabilities comprised:

	Company
	2016	2015
	£’000	£’000
Unrealised derivative liabilities	1,746	1,410
Trade payables and accruals	250	200
	1,996	1,610

All of the above liabilities are due within one month and are stated at fair value.

The Company manages liquidity risk through constant monitoring of the Company’s gearing position to ensure the Company is able to satisfy any and all debts within the agreed credit terms.

Currency rate risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The only material foreign currency exposures are Syngenta AG with a market value of £2,484,000, denominated in Swiss Francs; Heineken N.V., Beiersdorf AG, Pernod Ricard SA and Davide Campari-Milano S.p.A., with a market value of £10,316,000, denominated in Euros; and Amazon.com, Inc., Alphabet Inc., Facebook Inc., Apple Inc., Paypal Holdings Inc., Microsoft Corporation, Yahoo! Inc., and Salesforce.com Inc., denominated in US Dollars with a market value of £24,100,000.

In addition, the Company held cash exposure to US Dollars of £12,939,000 at the year end.

The Company constantly monitors currency rate risk to ensure balances wherever possible are translated at rates favourable to the Company.

20. Related party transactions

The Investment Manager of the Company since 17 September 2015 is M & L Capital Management Limited (the former Investment Manager was Midas Investment Management Limited). Both companies are controlled by Mr M. Sheppard.

The Investment Manager receives a quarterly investment management fee for these services which in the year under review amounted to a total of £334,000 (2015: £311,000) excluding VAT. The balance owing to the Investment Manager as at 31 July 2016 was £175,000 (2015: £127,000).

Also payable in the year to Midas Investment Management Limited was a corporate fee for acting as financial adviser amounting to £5,000 (2015: £30,000) excluding VAT and commission fees of £5,000 (2015: £16,000) excluding VAT to the Company. The balance owing to Midas Investment Management Limited at 31 July 2016 was £1,000 (2015: £nil).

During the year the Company paid service, administration and secretarial charges totalling £19,000 (2015: £18,000) to its majority shareholder, M&M Investment Company plc. The balance owing to M&M Investment Company plc as at 31 July 2016 was £7,000 (2015: £28,000).

21. Capital management

There are no externally imposed capital requirements. The capital managed is noted in the Statements of Changes in Equity set out in the Corporate Summary above and managed in accordance with the Investment Policies and Objectives also set out in the Corporate Summary.

22. Ultimate control

The holding company and ultimate controlling shareholder throughout the year and the previous year was M&M Investment Company plc, a company incorporated in England and Wales. This company was controlled throughout the year and the previous year by Mr M. Sheppard and his immediate family.

A copy of the financial statements of M&M Investment Company plc can be obtained by writing to The Company Secretary, 2^nd Floor, Arthur House, Chorlton Street, Manchester M1 3FH.

23. Post balance sheet events

There have been no significant events since the end of the reporting period other than the volatility currently experienced in the stock market.

The financial statements were authorised for issue by the Directors on 21 October 2016. The Directors have the power to amend and reissue the financial statements.

ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of Manchester and London Investment Trust plc will be held at St James’s Club, 45 Spring Gardens, Manchester, M2 2BG on Monday 28 November 2016 at 12.30 pm. Full details of the AGM can be found in the letter to shareholders available on the Company’s website at www.manchesterandlondon.co.uk.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism (“NSM”) and will available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/nsm.

ENDS

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

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