Final Results

Capital Gearing Trust PLC
01 June 2005


CAPITAL GEARING TRUST plc
                                             
PRELIMINARY ANNOUNCEMENT

5 APRIL 2005


Chairman's Statement



In my first statement to shareholders as Chairman of Capital Gearing Trust, I am
pleased to report that in the year to 5 April 2005 the net asset value per share
has increased by 13.6% to 1691.7p. This performance follows a 20.7% gain in 2004
and represents the 21st consecutive year of growth in net asset value.


Although most stock markets performed well during the year, it is worth
restating that our investment objective is to provide capital growth in absolute
terms rather than producing a performance relative to the movement of any
particular stock market index. This objective ensures that capital preservation
is also an additional and important facet to our overall investment policy. From
time to time this means taking a contra view to the market consensus. It is
therefore pleasing to note that although a defensive investment stance has been
maintained throughout the year, the growth that has been achieved has been
marginally better than the 12.9% increase in the FTSE Investment Companies Index
and compares favourably with a rise in the FTSE All Share Index of 10.7% and a
negligible increase in the FTSE Government All Stocks Index of 0.1%.


The main changes made to the asset distribution within the portfolio can be seen
in the table on page 6 of the accounts. The redemption of a number of well
covered quality zero dividend preference shares occurred during the year and
thus overall exposure was reduced. Holdings in UK index linked gilts were
introduced thereby increasing the overall index linked bond weighting. A more
detailed summary of our investment strategy is given in the Investment Manager's
Report.


Earnings per share for the period amounted to 16.7p, which is unchanged from
last year.


Last year, a total distribution of 12.5p was paid, made up of 10.5p plus a
special dividend of 2p. This year the Board recommends a total distribution of
13p, made up of 11p plus a special dividend of 2p. The special dividend reflects
the income generated from the relatively high bond content of the portfolio that
at some stage might be switched into lower yielding capital growth orientated
securities.


As a Board, we are mindful of any major disconnection that may occur because of
market supply and demand imbalances between the share price and net asset value.
Equally, we are committed to maintaining the advantages of operating as a
closed-end investment trust. Last year, shareholders approved resolutions
seeking authority to issue up to 10% of share capital on a non pre-emptive
basis. In the event no additional shares were issued but the Board will be
putting forward a similar resolution at this year's AGM. We have also on
previous occasions indicated to shareholders our readiness to buy in shares
providing the price paid was at a discount to net asset value. We will therefore
again be seeking shareholders' authority to buy in stock within the terms set
out in the resolution in the Notice of the AGM.


As mentioned in our interim report, the Board has spent considerable time
updating governance procedures as a result of the publication of the new
Combined Code on Corporate Governance which came into effect for this reporting
period as well as giving consideration to the AITC Code of Corporate Governance
which provides guidance for best practise within the investment trust industry.
In its deliberations, the Board has attempted to strike an appropriate balance
between full compliance and the ability to manage the company's affairs to the
optimum benefit of shareholders. A full statement regarding these issues is
contained in the directors' report.


Looking ahead, we see a period of uncertainty for financial markets and it is
therefore likely that investors' attitude towards risk will contract from the
current relatively high levels. Against a background of higher interest rates, a
general slow-down in world economic and corporate profits growth combined with
some early signs of an inflationary pick-up, our defensive posture seems well
justified.




Lastly, I together with my director colleagues would like to thank Mark Cornwall
-Jones, who retired from the Board in January 2005, for his most valuable
contribution to the success of Capital Gearing Trust during his ten-year
stewardship as Chairman.



Tony Pattison

31 May, 2005



Investment Manager's Report and Portfolio Analysis



After a poor first four months, equity markets picked up in August as the world
economy re-accelerated. Over the year, as a whole, the FTSE All Share Index rose
by 10.7%. International bond markets improved yet further. Both were supported
by falling real yields on all financial assets and risk premia contracted to
very low levels.


Throughout the period, the trust maintained a defensive stance. We have believed
that the combination of economic imbalances in the real world and rampant
speculation in financial markets implies a high level of risk. Fortunately, our
exposure to both index linked and conventional government bonds delivered good
returns and that, together with some good performances from the equity
portfolio, enabled the NAV per share to rise by 13.6%.


The zero preference sector saw a number of our holdings maturing, including
Jupiter Split, Jupiter Enhanced, Murray Emerging Markets and Murray Global
Returns and New Fulcrum shortly after the year end. Sadly this sector is
shrinking and is likely to play a smaller role in our portfolio; the returns
have been most satisfactory. Good gains were seen in the asset values of a
number of conventional trusts, including Hansa, North Atlantic Securities and
Old Mutual South Africa. All our European funds saw growth in NAV combined with
narrowing discounts, with TR European Growth restructuring recently.


The venture capital funds saw exceptionally favourable conditions for realising
their investments and substantial distributions were received from Martin Currie
Capital Return 'A' and Thompson Clive. Further realisations are expected soon.


Outlook


The last year has been quite good for bond and equity markets, but the economic
background looks fragile and the level of speculation in financial and real
estate markets is unparalleled. Stimulated by monetary and fiscal policy, the
American consumer has reduced the personal savings rate to 1%; as a result
consumer spending rose by over 7% in 2004 and the current account deficit to
over 5% of GDP. The rest of the world has come to rely on U.S. consumption for
its growth, with domestic demand sluggish in Asia and Europe.


However, the factors that have encouraged increasing household debts and high
consumption in the U.S. look temporary; larger fiscal deficits, interest rates
at emergency levels and the resulting housing bubble all look to be fragile
props going forward. Indeed in the first quarter of 2005, final demand rose by
only 2%. That is not to say that the period of household retrenchment has begun
- the data is mixed, with employment picking up in recent months; but if it does
happen the consequences could be profound.


Whatever these consequences might initially be, in the form of recessionary
pressures, lower stock markets and rising credit premia, the impact will be
increased by the highly leveraged condition of financial markets. Anecdote
suggests that hedge funds have taken borrowing levels back close to where they
were in 1998 before the demise of Long Term Capital Management. The huge size of
the derivative market, in particular the rapidly growing credit derivative
swaps, and the Collateralised Debt Obligations ('CDO') and the CDO squared
products, which might be termed the split-capital trusts of the bond markets,
combines with the increase in junk bonds in issue to produce a highly fragile
financial system.


None of this need come home to roost in the short-term. The housing bubble in
the U.S. is still inflating and it is possible that a fall in the price of oil
could shore up consumer incomes. But every increase in U.S. interest rates
raises the possibility that the 'carry-trade' - the purchase of long term assets
financed by short-term borrowing - will be unwound.


In the UK, prospects for 2006 look difficult in any case. The economy is
operating at close to capacity, with the exception of manufacturing, which is
suppressed by an uncompetitive level for Sterling. Household debt ratios and
savings rates are as bad as in the U.S. and with higher taxes in prospect and a
housing market that has already stopped rising, consumption should moderate next
year, possibly to recessionary levels. Government expenditure may continue to
rise, but this on its own is not enough for a robust economy. Perhaps a markedly
weaker level for the pound could help. Equity markets are not extravagantly
priced in terms of p/e ratios but look rich in view of those prospects.


With this background, the emphasis in the portfolio is on capital preservation
rather than aggressive growth. The bond holdings have been increased by the
addition of Swiss & Austrian government bonds in Swiss Francs; in index-linked
we have included some UK gilts, which had markedly underperformed their overseas
peers. With the opportunities in zero preference shares diminishing, a little
more has been put into endowment funds. Our overall exposure, on an underlying
basis, to equities is about 30%.



RPA Spiller
31 May, 2005


Statement of Total Return (incorporating the Revenue Account)

for the year ended 5 April 2005



                  2005                              2004
                  Revenue   Capital    Total        Revenue   Capital    Total

                    £'000     £'000    £'000          £'000     £'000    £'000

Gains on                -     5,729    5,729                    6,649    6,649
investments

Income                876         -      876            821         -      821

GROSS RETURN          876     5,729    6,605            821     6,649    7,470

Investment           (131)     (308)    (439)          (113)     (263)    (376)
management fee

Other expenses       (234)        -     (234)          (201)        -     (201)
                      
RETURN ON
ORDINARY              
ACTIVITIES BEFORE
TAXATION              511     5,421    5,932            507     6,386    6,893
                                                 
Tax on ordinary       (50)       50        -            (63)       63        -
activities

RETURN
ATTRIBUTABLE TO
EQUITY
SHAREHOLDERS          461     5,471    5,932            444     6,449    6,893

Dividends on
ordinary shares:

Dividend payable
13p per
ordinary share       (358)        -     (358)          (344)        -     (344)
(2004 - 12.5p)

TRANSFER TO           103     5,471    5,574            100     6,449    6,549
RESERVES

RETURN PER
ORDINARY SHARE     16.73p   198.58p  215.31p         16.74p   243.08p  259.82p


The revenue column of this statement is the profit and loss account of the
company.


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



Balance sheet - 5 April 2005



                                                             2005        2004
FIXED ASSETS                                                £'000       £'000

Investments:

Listed investments                                         45,609      40,491

CURRENT ASSETS

Debtors                                                     1,378         923

Cash at bank                                                  151         131

                                                            1,529       1,054

CREDITORS: amounts falling due within one year                533         514

NET CURRENT ASSETS                                            996         540

NET ASSETS                                                 46,605      41,031

CAPITAL AND RESERVES

Called up share capital                                       689         689

Share premium account                                       7,296       7,296

Capital redemption reserve                                     16          16

Capital reserve - unrealised                                7,994       5,796

Capital reserve - realised                                 30,078      26,805

Revenue reserve                                               532         429

TOTAL SHAREHOLDERS' FUNDS - EQUITY                         46,605      41,031

NET ASSET VALUE PER ORDINARY SHARE                         1691.7p     1489.3p


Cash Flow Statement

for the year ended 5 April 2005



                                                            2005         2004
                                                           £'000        £'000

NET CASH INFLOW FROM OPERATING ACTIVITIES                    186          282

CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT

Payments to acquire investments                          (15,634)     (13,470)

Receipts from sale of investments                         16,245       11,082

                                                             611       (2,388)

EQUITY DIVIDENDS PAID                                       (344)        (407)


MANAGEMENT OF LIQUID RESOURCES

Cash paid to brokers awaiting investment                    (433)        (525)


FINANCING

Issue of new shares                                            -        3,070


INCREASE IN CASH                                              20           32


The financial information set out above does not constitute the company's
statutory accounts for the years ended 5 April 2005 or 2004. The financial
information for the year ended 5 April 2004 is derived from the statutory
accounts for that year which have been delivered to the Registrar of Companies.
The auditors reported on those accounts and their report was unqualified and did
not contain a statement under either Article 245(2) or Article 245(3) of the
Companies (Northern Ireland) Order 1986. The financial information for the year
ended 5 April 2005 has been prepared using the same accounting policies as
adopted in the company's statutory accounts for the year ended 5 April 2004. The
statutory accounts for the year ended 5 April 2005 will be finalised on the
basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the company's Annual General Meeting.


The dividend will be paid on 8 July 2005 to shareholders on the register as at
17 June 2005.


For queries, please contact


Andrew Kane or Keith Hawkins, Ernst & Young LLP             01582 643 000


Campbell Morton, Senior Independent Director                02890 763 631








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