Final Results

CAPITAL GEARING TRUST P.l.c.
31 May 2016

Annual Financial Results for the year ended 5 April 2016

The directors of Capital Gearing Trust P.l.c. announce the results for the year ended 5 April 2016.

Performance Summary	5 April 2016	5 April 2015	% Change
Share price	3,420.0p	3,316.5p	+3.1
Net asset value per ordinary share	3,382.0p	3,297.6p	+2.6
Premium	1.1%	0.6%	-
Shareholders’ funds	£107.9m	£96.5m	+11.8
Market capitalisation	£109.1m	£97.1m	+12.4
Ongoing charges percentage*	1.04%	0.96%	-
Dividend per Ordinary share	20.00p	20.00p	-

*Ongoing charges calculation prepared in accordance with the recommended methodology of the Association of Investment Companies

CHAIRMAN’S STATEMENT

Overview

As at 5 April 2016, the net asset value (NAV) per share was 3,382p compared to 3,297p a year earlier. Although an increase across the year of 2.6% might be seen as modest, this achievement is more creditable when measured against, for example, the decline in the FTSE All-Share Index of 9.3% over the same period. The Company's stated policy is to achieve growth in absolute terms, seeking to protect shareholder’s capital when markets face headwinds whilst possibly sacrificing potential short term returns during periods of market exuberance. Over the longer term, the cumulative effect of sustained positive compound returns has resulted in significant outperformance demonstrated by the Company's record. The Board believes that shareholders look to the Company to preserve the real value of their wealth, in part by avoiding the pitfalls of chasing momentum or overvalued asset classes.

Dividend and Earnings

The revenue return per share in the year ended 5 April 2016 was 16.91p, as against 26.82p in the previous year. It is not the aim of the Board or the Managers to search for income in order to support a target dividend payment. The objective is to seek an absolute positive total return. Nonetheless, the Board believes that dividend payouts should not necessarily suffer from short term movements in revenue earnings. Last year, a total distribution of 20p per Ordinary share was made. At this year's annual general meeting (the “AGM”), the Board will be recommending a maintained distribution of 20p per Ordinary share, drawing on revenue reserves for the uncovered shortfall in this year’s net revenue.

Annual General Meeting

This year, the AGM will be held in London at the offices of PricewaterhouseCoopers LLP on Thursday 7 July 2016 at 11.00 a.m. The notice convening the fifty-third AGM of the Company is set out at the end of this document and I, and the rest of the Board, look forward to meeting you then. As has become customary, after the formal business of the meeting has concluded, our Managers will be making a short presentation on the outlook for markets and the Company's investments, including a question and answer session for shareholders.

Share Issuance and Buybacks

In last year’s Annual Report, the Board set out the case for introducing a discount control policy (“the DCP”). Shareholders were presented with resolutions at the AGM in July 2015 to enable the Board to operate the DCP. These resolutions were strongly supported by shareholders and the Company began the operation of the DCP in early August 2015.

The principal aims of the Board in introducing the DCP were, in normal market conditions, to reduce the volatility in share price around the underlying NAV, and to improve the liquidity in the trading of the Company’s shares. The DCP has been operated so as to limit the premium or discount to NAV at which the Company’s shares trade, by issuing new shares to the market when the share price exceeds NAV by a small percentage or by repurchasing shares should the share price move to more than a small discount to NAV.

The implementation of the DCP policy has resulted in a significant reduction in the volatility in the premium / discount at which the shares previously traded.  It has also improved liquidity by allowing the Company to satisfy demand from investors wanting to buy into the Company. Throughout the last eight months, the share price has tended to trade at par or at a small premium to NAV, and only very briefly at a small discount.

Share repurchase has been at a very low level – only 9,450 shares were bought at an average discount of 1.1% to the prevailing NAV. Share issuance has been more regular and persistent, especially since the start of 2016. 273,525 shares were issued at an average premium of 1.5% to prevailing NAV. Taking issuance and repurchases together, there was a net cash inflow of £8.89m to the portfolio.

It must be stressed that growth in assets under management, per se, is not an aim of the DCP. There may well be periods in the future when the level of share buybacks significantly exceeds the level of issuance. The Board and the Managers are prepared for such an eventuality and will ensure that an appropriate proportion of the Company’s portfolio is held in liquid assets with low price volatility to fund such a repurchase programme should the need arise.

The operation of the DCP is dependent on the Directors having requisite shareholder authority to buyback and issue new shares and being satisfied that any offer or purchase of shares is in the best interest of shareholders of the Company as a whole. Such has been the rate of net share issuance, especially since the start of 2016, that the Board has had to request that shareholders approve an extension of the issuance and buyback authority at a General Meeting on 11 April 2016 and also to extend powers to issue shares through the publication of a prospectus on 6 May 2016.

As I noted in my statement with the interim results last October, it is too early to assess the impact of the DCP properly. The policy has yet to be exposed to a period of high volatility in markets or in the portfolio’s asset value. However, the Board is reassured that the aims of the mechanism appear to be being met at present – to the benefit of both existing and potential shareholders. 

Costs

The Board remains watchful of the costs of running the Company in a climate that continues to demand ever greater regulatory and compliance overheads. It is a matter of some regret therefore that the ongoing charges percentage has risen slightly during the year from 0.96% to 1.04%. There are two principal reasons for this. Changes in the composition of the Board necessitated a short period of ‘double-banking’ last summer. The decision to appoint Personal Assets Trust Administration Company Ltd (PATAC) as the Company Secretary and Administrator also resulted in some one-off handover costs. It is to PATAC’s credit that the transition was handled most smoothly, and the Board has benefited greatly from the experience and professionalism of the team over the past several months, not least in the effective operation of the DCP.

The current investment management fee of 0.6% reduces to 0.45% on incremental NAV above £120m and below £500m.  As at the year end the Company’s NAV was £107.92m. The Board does not anticipate substantial issuance of shares in the short term, however even modest share issuance under the DCP would ameliorate the ever-growing costs associated with the regulatory compliance of the Company. 

The Board

Last year saw refreshment in Board membership, with a change of Chairman and two new non-executive directors appointed. Both Robin Archibald and Jean Matterson have quickly proved their worth in our deliberations and initiatives.

George Prescott, the Chairman of the Audit Committee, and I both retire at the AGM and offer ourselves for re-election. Further details in respect of each director's retirement, evaluation and re-election can be found on page 15 of the Annual Report.

Alternative Investment Fund Managers Directive

As highlighted previously, the Company is an ‘Alternative Investment Fund' (“AIF”), as defined by the Alternative Investment Fund Managers Directive (“AIFMD”). The Company is registered under the AIFMD as a ‘small internally managed AIF'. Under the Company’s current AIFMD status the Company will remain ungeared. The Company's position in relation to the AIFMD is being continually monitored.

Outlook

The Company’s portfolio enters the new financial year, as twelve months ago, very defensively positioned. Apparently slowing growth in GDP in several key economies, consistently high debt levels, and the feeling that central banks may be scraping the barrel of monetary policy ingenuity, all point to a difficult year ahead for bond and equity markets. Additionally, neither the risk of geopolitical strife in the Middle and Far East nor threats to free trade from upcoming political events in the USA and UK bode well for market progress. Any significant rebalancing of the portfolio’s asset allocation towards a greater emphasis on equities must still await the emergence of better value in risk markets. Protection of wealth remains a priority.

Graham Meek

Chairman

31 May 2016

INVESTMENT OBJECTIVE AND INVESTMENT POLICY

INVESTMENT OBJECTIVE

The Company's objective is to achieve capital growth in absolute terms rather than relative to a particular stock market index. The preservation of shareholders' wealth is an important consideration in fulfilling this objective and has a strong underlying influence on the Company's investment policy.

The Company uses the Retail Price Index ("RPI") as a comparator. However, such a comparator is not used as a reason to suspend the exercise of investment judgement by CG Asset Management Limited ("CGAM") as investment manager, or by the Board.

INVESTMENT POLICY

Policy and risk

To meet its objective, the Company's long-term investment policy is to invest primarily in quoted closed-ended and other collective investment vehicles with a willingness to hold cash, bonds, index-linked securities and commodities when it is considered appropriate.

Recognising the diverse attributes of most closed-ended investment companies and collective investment instruments, as well as the lower-risk characteristics attached to the other principal asset classes in which the

Company invests, a flexible approach to asset allocation is adopted. CGAM and the Board monitor the investment portfolio regularly and amend investments and asset allocation as necessary to maximise shareholder returns.

Asset allocation

It is anticipated that under most market conditions, a broad mix of assets will be maintained and a maximum 80% exposure to either equity or fixed-interest securities, including index-linked securities and cash, may be held.

The maximum proportion of the Company's gross assets that can be held in other UK-listed investment companies (which do not have a stated investment policy to invest no more than 15% of their gross assets in other UK investment companies) is 10% in accordance with Listing Rule 15.2.5. It is however the aim of the Company to maintain a maximum 6% investment level in such companies in order to avoid any potential breach of this rule and to maintain investment flexibility.

The investment manager has the authority to invest in any geographical region and has no set limits on industry sector or country exposure. However, the Company will not invest more than 15% of its investment portfolio in any single investment or acquisition.

Gearing

The gearing range of the Company, at any one time, shall be between 0% and 20% of NAV at the time of acquisition and shall be subject to prior Board approval.

Additional elements

The Board will from time to time consider investments in derivatives such as guarantees, options and currency. Such investments may be made only for the purpose of efficient portfolio management and are subject to prior Board approval, which may be only granted following review of the investment, the potential return for shareholders and the regulatory impact on the Company. Additionally, investments in other funds managed by CGAM or by associates of CGAM will be considered by the Board on a case by case basis and are subject to Board approval.

VOTING POLICY

It is the Company's voting policy in respect of its investee companies that the custodian should vote all the Company's shares through its delegated authority from the Board. The exercise of voting rights attached to the Company's portfolio has been delegated to CGAM, and CGAM includes on its website a disclosure about the nature of its commitment to the FRC's Stewardship Code; details may be found at www.cgasset.com. Corporations are playing an increasingly important role in global economic activity, and the adoption of good corporate governance enhances a company's economic prospects by reducing the risk of government and regulatory intervention and any ensuing damage to its business or reputation. The investment manager engages actively, where appropriate, with the underlying investee companies to encourage good governance practices.

STRATEGIC REPORT

Investment strategy and business model

Capital Gearing Trust P.l.c. seeks to deliver absolute returns through the construction of multi asset portfolios with a specialist focus on investment trust equities and related securities. Portfolio construction is the key tool to mitigate capital loss in any given year. The fund manager allocates across asset classes based on an assessment of capital markets and macro-economic risks, with the aim of avoiding capital loss. In addition a portion of the portfolio is invested into the investment trust market with the aim of exploiting inefficiencies to generate risk adjusted returns that are superior to those available in more liquid equity markets.

Key performance indicators ("KPIs")

The Board monitors numerous KPI indices and ratios for the purpose of assessing and reporting investment performance. The Company seeks to achieve capital growth in real terms over both short-term and long-term periods. The Board monitors the performance of the investment manager against RPI over the short term (3 years) and the FTSE All Share over the longer term (10 years).

In addition, the Board monitors the following KPIs:

  * Share price premium/discount to NAV, an important measure of demand for the Company's shares and a key indicator of the need for shares to be bought back or issued. At the start of the year under review the premium to NAV was 0.6% compared with 1.1% at the year end; and

  * Ongoing charges percentage, calculated using the methodology recommended by the Association of Investment Companies which enables the Board to measure the control of costs and help in meeting the dividend payment objective. This percentage was 1.04% for the year to 5 April 2016 (2015: 0.96%).

Principal risks and uncertainties

The directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

Premium/Discount level

During the year, to assist in reducing premium volatility, the Company implemented a zero discount/premium management policy.  Under this policy the Company will purchase or issue shares to ensure that in normal market conditions the shares trade as close as possible to their underlying Net Asset Value per share.

Stock price

Uncertainty of future stock prices presents a risk in relation to potential losses on market positions held. The Board, with the investment manager, consider asset allocation on a regular basis to minimise potential risks where possible.

Register of members

The Board reviews all large transactions in the Company’s shares and periodically considers a full shareholder analysis.

Other risks

Risks associated with the Company's financial instruments include market price, interest rate, foreign currency and credit; information relating to such risks is given in note 17 to the financial statements. The Board also recognises a number of risks associated with operating in a regulatory environment and monitors operations closely in conjunction with their advisors in relation to sections 1158 to 1162 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Act 2006. Other risks are identified and managed by the Company's internal control and risk management system.

Employee, human rights, social and environmental matters

The Board recognises the requirement under section 414C Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any policies it has in relation to these matters and their effectiveness. These requirements do not apply to the Company as it has no employees, all directors are non-executive and it has outsourced all its functions to third-party providers. The Company has therefore not reported further in respect of these provisions.

The Company has limited direct impact on the environment. It invests primarily in closed-ended and other collective investment vehicles or government bonds. The sectors chosen do not generally raise ethical issues. The Board monitors and is satisfied with the underlying investee companies' policies to act with due regard to community, welfare and environmental factors. The Company aims to conduct itself responsibly, ethically and fairly and has sought to ensure that CGAM's management of the portfolio of investments takes account of social, environmental and ethical factors where appropriate.

Gender and diversity

At the end of the year under review, the Board comprised four male and one female director. The Board supports the principle of boardroom diversity in its broadest sense, in terms of gender, expertise, geographic background, age and race. Our Company is specialised and our priority to shareholders is to have a board with the specialist abilities to look after the Company's investments. In addition, the Board should be able to conclude that any new appointee would make an appropriate contribution. It is the Board's policy to review its composition regularly and, when appropriate, to refresh the Board through recruitment, with the aim of having the blend of skills and attributes that will best serve shareholders in the future.

INVESTMENT MANAGER'S REPORT

Review

Against a weak equity market backdrop the Company’s investment trust holdings performed well, in both absolute and relative terms. North Atlantic Smaller Companies Investment Trust and Oryx International Growth Fund were two UK focused holdings that delivered very strong gains. Renewable Energy Generation and Japan Residential Investment Company were two large specialist positions that were taken over during the year at significant premia to their opening value. The companies mentioned above represented over 25% of the opening equity portfolio and collectively delivered high teen returns. This solid performance in our larger holdings was enough to offset pockets of weakness in our smaller holdings including Candover Investments, which had a large exposure to the very weak oil and gas sector. The investment trust market continues to offer a number of opportunities to generate strong relative returns, however with valuations of the underlying equities still high, absolute return prospects are limited.

Just when it seemed government bond yields could go no lower, central bankers discovered a new tool: negative nominal interest rates. The European Central Bank, Bank of Japan, Swiss Central Bank and the Swedish Central Bank have all embraced the policy with the result that approximately 30% of the bonds in the global government bond index have negative nominal yields. This extraordinary development inverts the laws of finance, with potentially devastating implications for financial institutions and savers if it persists. However in the short term the impact has been soaring bond prices. The fund has now exited all its conventional bond holdings with the proceeds held as cash or reinvested into index-linked bonds. 

Inflation has been growing in all developed market jurisdictions albeit from very depressed levels. This trend is most notable in the US where core CPI has returned to pre-crisis norms and has upwards momentum. With deflationary fears receding index-linked bonds performed strongly in the second half of the year, outperforming conventional bonds as breakevens (the market’s implicit view of inflation) rose. Ten-year breakevens increased to 1.6%. However, this is still below the Federal Reserve’s target, below current core inflation, and below the CPI level forecast for 2016. Inflation linked bonds remain good value relative to conventional bonds and are still the most attractive defensive asset available to the Company.

Sterling weakness was a helpful tailwind in the year. A combination of factors impacted sterling including a slowing economy, lowering interest rate expectations, consistently poor current account data and most importantly Brexit fears.

Outlook

Financial markets are as distorted as any time in history, as evidenced by one third of all government debt trading on negative yields.  That in turn reflects the extraordinary fiscal and monetary policy that has been deployed by governments and central banks.  All this is an effort to avoid the natural consequences of the excesses that preceded the Great Financial Crisis.  The most significant of those excesses was the level of debt which rose alarmingly in the developed nations up to 2008.  For the world as a whole, debt has risen much further as a percentage of GDP since the crisis, exacerbated by an extraordinary expansion in China.  The solution to the problem of debt has been more debt.

Against that background, low growth in nominal GDP would cause disaster and central bankers are prepared to take high risks to stimulate growth and inflation so as to avoid the defaults that threaten both corporate and sovereign bonds.  It is unclear if the world economy is entering a period of renewed weakness, but if it is, then the central banks will be tempted by the next extension of QE, namely monetary finance.  That involves increasing government expenditure on infrastructure, or tax cuts, or simply handing out cash to citizens, financed by printed money.  Such a policy would surely succeed in raising both growth and inflation; the difficulty is in calibrating the latter.  Governments can always promote inflation if they are aggressive enough, just not 2% inflation.

Whether the economy holds up or not, the yield curve could steepen markedly sooner or later, undermining both bond and equity markets. The latter looks particularly vulnerable as valuations only make sense if current low interest rates persist indefinitely. Implicit in persistently low interest rates is persistently low nominal GDP growth which means current record high levels of corporate profits would prove unsustainable.

As always there are political and macro economic clouds on the horizon. A few potential concerns include a hard landing in China, economic problems in the Eurozone, growing political unrest in the European periphery, Brexit, military tension in the Middle East, and the threat of protectionism growing in the shadow of US politics. Given these risks combined with very high asset prices it seems reasonable to expect better investment opportunities in the future then are available today.

The portfolio remains defensively positioned and broadly spread with a high weighting to short duration assets. This positioning is consistent with the current aim of protecting capital after taxes, fees and inflation.  There will be a time when portfolio positioning becomes more ambitious but only when the value on offer in risk markets is considerably more attractive than today.

Alastair Laing

Peter Spiller

31 May 2016

DIRECTORS’ REPORT EXTRACTS

Going concern

The Company’s investment objectives and business activities, together with the main trends and factors likely to affect its future development and performance, are described in the Board’s Strategic Report. The financial position of the Company, including its cash flows and liquidity positions, is also described in the Strategic Report and financial statements. Note 17 to the financial statements describes the Company’s processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to market price, interest rates, foreign currency, credit and liquidity risk. The directors believe that the Company is well placed to manage its business risks successfully and consider that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence. For this reason, they continue to adopt the going concern basis in preparing the annual report and accounts. The directors do not consider that there are any material uncertainties to the Company’s ability to continue to adopt this approach over a period of at least twelve months from the date of approval of these financial statements.

Viability statement

The Board has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. The Board has drawn up a risk map of the risks facing the Company and has put in place appropriate processes and controls in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to manage these, are detailed on page above.

The Company is a long-term investor and the Board believes it is appropriate to assess the Company’s viability over a three year period in recognition of our investment manager’s long-term horizon and also what we believe to be investors’ horizons, taking account of the Company’s current position and the potential impact of the principal risks and uncertainties as shown on above.

The Directors also took into account the liquidity of the portfolio when considering the viability of the Company over the next three years and its ability to meet liabilities as they fall due.

The Directors do not expect there to be any significant change in the principal risks that have been identified and the adequacy of the controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company’s assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. The Directors believe that only a substantial financial crisis affecting the global economy could have an impact on this assessment.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

PORTFOLIO ANALYSIS

Distribution of investment funds of £107,820,000 (2015: £96,465,000)

		North			2016	2015
	UK	America	Europe	Elsewhere	Total	Total
	%	%	%	%	%	%
Investment Trust Assets:
Ordinary Shares	11.8	8.2	2.0	8.6	30.6	27.9
Zero dividend preference shares	11.2	1.8	-	9.2	22.2	19.9
Other Assets:
Index-Linked	14.7	15.9	2.1	-	32.7	26.8
Fixed Interest	3.0	-	-	1.5	4.5	16.3
Cash	10.0	-	-	-	10.0	9.1
	50.7	25.9	4.1	19.3	100.0	100.0

Investments of the Company

	2016	2015
	£'000	£'000
Investment Trust Ordinary Shares:
North Atlantic Smaller Companies	4,865	4,111
Schroder Global Real Estate Securities	2,245	234
Prospect Japan Fund	1,458	1,510
Rights & Issues Capital	1,338	952
Invesco Perpetual UK Smaller Companies Investment Trust	1,320	1,372
ETFS Metal Securities (physical gold)	1,273	1,190
Empiric Student Property	1,095	-
Oryx International Growth Fund	1,004	838
Better Capital PCC	979	519
North American Income Trust	943	616
Mithras Investment Trust	875	962
JP Morgan Private Equity USD	873	715
Schroder UK Growth Fund	862	204
Henderson Global Trust	788	724
Phoenix Spree Deutschland	768	-
JP Morgan Senior Secured Loan	672	-
Ground Rents Income Fund Ordinary	609	256
EPE Special Opportunities	602	159
John Laing Environmental Assets Group	505	-
Foresight Solar Fund	472	865
Private Equity Investor	469	684
Highbridge Multi-Strategy Fund	464	-
Rights & Issues Investment Trust	458	362
Advance Frontier Markets Fund	442	-
Miton Worldwide Growth Investment Trust	437	449
GCP Student Living	436	-
NextEnergy Solar Fund	429	278
Land Securities Group	385	-
Value & Income Trust	360	-
Candover Investments	350	328
Artemis Alpha Trust	318	-
Eurovestech	313	-
Jupiter US Smaller Companies	312	-
Bluecrest Allblue	309	-
Atlantis Japan Growth Fund	284	219
Project Finance Investments	277	-
Ecofin Water & Power Opportunities	275	-
JP Morgan Overseas Investment Trust	245	548
Real Estate Credit Investments	232	-
P2P Global Investments	226	-
Foreign & Colonial Investment Trust	222	42
LMS Capital	209	389
Aberdeen Asian Income Fund	192	-
Witan Pacific Investment Trust	190	473
Marwyn Value Investors	188	191
VPC Speciality Lending Investments	169	412
Henderson Alternative Strategies Trust	148	-
JP Morgan Income & Growth Income	130	130
Aberdeen Latin American Income	130	183
Alliance Trust	126	-
GCP Infrastructure Investments	98	90
Hansa Trust ‘A’ Shares	98	112
Polar Capital Global Healthcare Growth & Income	72	143
Acencia Debt Strategies	66	-
North American Banks Fund	62	18
Weiss Korea Opportunities Fund	54	-
Thames River Multi Hedge	50	50
Shape Capital	47	252
Signet Global Fixed Income Strategies	46	67
Alternative Investment Trust	45	47
HG Capital Trust	41	-
Close European Accelerated Fund	16	16
RENN Universal Growth Investment Trust	11	16
Cambium Global Timberland	6	19
Alternative Liquidity Solutions	2	62
Prospect Epicure J-REIT Value Fund	2	2
Blackrock Absolute Return Strategies	-	411
Renewable Energy Generation	-	1,199
Bluefield Solar	-	893
Greencoat UK Wind	-	546
Aurora Investment Trust	-	522
Japan Residential Investment Company	-	503
Castle Private Equity	-	480
Renewable Energy Infrastructure	-	445
BlackRock Income Strategies Trust	-	418
Dexion Absolute EUR	-	174
JP Morgan Income & Growth	-	161
Dexion Absolute USD	-	148
BlueCrest BlueTrend	-	93
BACIT	-	66
Sequoia Economic Infrastructure Income	-	53
Active Capital Trust	-	8
Thompson Clive Investments	-	3
	32,987	26,932
	2016	2015
	£'000	£'000
Investment Trust Zero Dividend Preference Shares
M&G High Income Investment Trust 2017	2,976	2,874
Ecofin Water & Power Opportunities Finance 2016	2,816	2,624
Electra Private Equity 2016	2,396	1,574
JZ Capital Partners 2022	2,142	-
Aberforth Geared Income Trust 2017	2,121	2,048
NB Private Equity Partners 2017	1,972	956
JP Morgan Income & Capital Trust 2018	1,691	1,533
Acorn Income Fund 2017	1,217	741
Jupiter Dividend & Growth Trust 2017	1,151	638
JZ Capital Partners 2016	1,113	1,571
Utilico Investments 2018	1,088	1,073
Premier Energy & Water Trust 2020	1,057	1,108
Utilico Finance 2016	912	894
JP Morgan Private Equity 2017	581	235
Picton Property 2016	333	-
Utilico Investments 2020	249	227
Small Companies Dividend Trust 2018	145	-
JP Morgan Private Equity 2015	-	1,140
	23,960	19,236
	2016	2015
	£'000	£'000
Index-Linked Securities
UK Treasury 1.25% 2017	6,777	3,483
UK Treasury 0.125% 2019	4,433	550
USA Treasury 1.375% 2018	3,594	3,448
USA Treasury 2.0% 2026	3,434	3,281
USA Treasury 0.625% 2021	2,883	2,723
UK Treasury 0.125% 2024	2,860	2,829
USA Treasury 0.125% 2023	2,196	2,067
USA Treasury 0.125% 2020	1,677	-
Sweden (Kingdom of) 0.5% 2017	1,516	2,227
USA Treasury 1.125% 2021	1,022	971
UK Treasury 1.875% 2022	846	849
USA Treasury 1.375% 2020	828	790
USA Treasury 0.125% 2024	708	-
Sweden (Kingdom of) 4.0% 2020	703	656
USA Treasury 0.125% 2019	583	550
Tesco Personal Finance 1% 2019	508	-
USA Treasury 0.125% 2022	188	176
The Housing Finance Corporation 5.5% 2024	152	-
National Grid 2.983% 2018	102	-
Nationwide 3.875% 2021	87	-
British Telecom 3.5% 2025	67	-
Tesco 4% 2016	50	-
The Housing Finance Corporation 5.65% 2020	26	-
Canada (Govt of) 4.0% 2031	-	618
USA Treasury 0.125% 2018	-	488
USA Treasury 1.625% 2018	-	118
	35,240	25,824
	2016	2015
	£'000	£'000
Fixed-Interest Securities
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018	1,014	968
Pershing Square 5.5% 2022	968	-
Ecofin Water & Power Opportunities plc 6.0% Convertible Unsecured Loan Stock 2016	924	991
F&C Global Smaller Companies plc 3.5% Convertible Unsecured Loan Stock 2019	542	520
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021	491	517
Edinburgh Dragon Trust 3.5% 2018	481	391
Scottish American 8.0% 2022	194	198
The Mercantile Investment Trust plc 6.125% 2030	190	191
Aberdeen Asian Smaller Companies Investment Trust 3.5% 2019	74	-
UK Treasury 2.0% 2016	-	5,570
Switzerland (Govt of) 3.0% 2018	-	2,335
USA Treasury 0.5% 2017	-	2,225
The Cayenne Trust 3.25% Convertible Unsecured Loan Stock 2016	-	771
SVG Capital 8.25% Convertible 2016	-	638
EPE Special Opportunities Convertible Loan Notes	-	442
	4,878	15,757
Total investments	97,065	87,748
Cash held by the Custodian awaiting investment	10,756	8,717
Total investment funds	107,821	96,465

The Strategic Report has been approved by the Board and signed on its behalf by:

Graham Meek

Chairman

31 May 2016

DECLARATION

Each of the directors, whose names and functions are listed in the Annual Report, confirms that, to the best of their knowledge:

  * the financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standards applicable in the UK and the Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice) and applicable law, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

  * the Directors' Report, contained in the Annual Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Income Statement for the year ended 5 April 2016

	Note	Revenue	Capital	2016 Total	Revenue	Capital	2015* Total
		£’000	£’000	£’000	£’000	£’000	£’000
Net gains on investments	9	-	3,067	3,067	-	4,736	4,736
Exchange (losses)/gains		-	(123)	(123)	-	454	454
Investment income	2	1,167	-	1,167	1,355	-	1,355
Gross return		1,167	2,944	4,111	1,355	5,190	6,545
Investment management fee	3	(238)	(357)	(595)	(224)	(337)	(561)
Other expenses	4	(421)	-	(421)	(345)	-	(345)
Net return on ordinary activities before tax		508	2,587	3,095	786	4,853	5,639
Tax (charge)/credit on net return on ordinary activities	6	(5)	5	-	(1)	37	36
Net return attributable to equity shareholders	15	503	2,592	3,095	785	4,890	5,675
Net return per Ordinary Share	8	16.91p	87.14p	104.05p	26.82p	167.07p	193.89p

The total column of this statement represents the income statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance issued by the Association of Investment Companies.

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

There are no gains or losses other than those recognised in the income statement and therefore no statement of comprehensive income has been presented.

*The 2015 comparatives have been restated after a prior period adjustment to reclassify a movement in an unrealised gain of £1,431,000 from exchange (losses)/gains to net gains on investments within the capital account.  This restatement has no effect on the net return on ordinary activities before tax.

The following notes form an integral part of these financial statements.

Statement of Changes in Equity for the year ended 5 April 2016

	Note	Called-up share capital £’000	Share premium account £’000	Capital redemption reserve £’000	Capital reserve* £’000	Revenue reserve £’000	Total equity shareholders’ funds £’000
Balance at 6 April 2014		731	12,107	16	76,974	1,484	91,512
Net return attributable to equity shareholders and total comprehensive income for the year					4,990	785	5,675
Dividends paid	7	-	-	-	-	(468)	(468)
Total transactions with owners recognised directly in equity		-	-	-	-	(468)	(468)
Balance at 5 April 2015		731	12,107	16	81,864	1,801	96,519
Balance at 6 April 2015		731	12,107	16	81,864	1,801	96,519
Net return attributable to equity shareholders and total comprehensive income for the year		-	-	-	2,592	503	3,095
Shares bought back into treasury		-	-	-	(309)	-	(309)
Shares issued from treasury		-	9	-	306	-	315
New shares issued		67	8,818	-	-	-	8,885
Dividends paid	7	-	-	-	-	(585)	(585)
Total transactions with owners recognised directly in equity		67	8,827	-	(3)	(585)	8,306
Balance at 5 April 2016		798	20,934	16	84,453	1,719	107,920

*The Capital reserve balance at 5 April 2016 includes unrealised gains on fixed asset investment of £10,301,000 (5 April 2015 – gains of £9,316,000). The balance at 6 April 2015 is restated after a prior period adjustment of a decrease in the realised gains of investments sold of £6,813,000 and an increase in the unrealised gains on fixed asset investments of £6,813,000.  This restatement had no net impact on the Capital Reserve.

The following notes form an integral part of these financial statements.

Statement of Financial Position as at 5 April 2016

	Note	2016 £’000	2015 £’000
Fixed assets
Investments held at fair value through profit or loss	9	97,065	87,748
Current assets
Debtors	10	464	465
Cash at bank and in hand		10,756	8,737
		11,220	9,202
Creditors: amounts falling due within one year	11	(365)	(431)
Net current assets		10,855	8,771
Total assets less current liabilities		107,920	96,519
Capital and reserves
Called-up share capital	12	798	731
Share premium account	13	20,934	12,107
Capital redemption reserve	13	16	16
Capital reserve	13	84,453	81,864
Revenue reserve	13	1,719	1,801
Total equity shareholders’ funds	15	107,920	96,519
Net asset value per Ordinary Share	14	3,382.0p	3,297.6p

The financial statements were approved by the Board on 31 May 2016 and signed on its behalf by:

Graham Meek Chairman

The following notes form an integral part of these financial statements.

Cash Flow Statement for the year ended 5 April 2016

		Note	2016 £’000	2015 £’000
Net cash outflow from operations before dividends and interest		16	(1,175)	(519)
Dividends received  Interest received			510 677	661 753
Net cash inflow from operating activities			12	895
Payments to acquire investments Receipts from sale of investments			(42,819) 36,691	(22,510) 21,827
Net cash outflow from investing activities			(6,128)	(683)
Equity dividends paid                                                                                                                                                                                                                                   Repurchase of ordinary shares Issue of ordinary shares		7	(585) (309) 9,029	(468)
Net cash inflow/(outflow) from financing activities			8,135	(468)
Increase/(decrease) in cash and cash equivalents			2,019	(256)
Cash and cash equivalents at start of year Reclassification of funds held by custodian from debtors to cash Cash and cash equivalents at end of year			8,737 - 10,756	21 8,972 8,737
Increase/(decrease) in cash and cash equivalents			2,019	(256)
Cash and cash equivalents consist of cash at bank and in hand			10,756	8,737
	The following notes form an integral part of these financial statements.

Notes to the Financial Statements

1 Accounting policies

1. Basis of accounting

Capital Gearing Trust P.l.c. is a public company limited by shares, is incorporated and domiciled in Northern Ireland and carries on business as an investment trust.  Details of the registered office and company status can be found on pages 12 and 13 respectively of the annual report and accounts.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards “UK GAAP”) and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“the SORP”) issued by the Association of Investment Companies in November 2014 and which superseded the SORP issued in January 2009. All of the Company’s operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of Investments held at fair value through profit or loss.

The Company has adopted Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the amended SORP, both of which became effective for periods beginning on or after 1 January 2015. FRS 102 replaces all extant standards applicable to the Company’s accounts. As a result there are some presentational changes to the accounts but no change to the measurement of numbers.

The changes to these accounts required by FRS 102 and the amended SORP may be summarised briefly as follows:

• the reconciliation of movements in shareholders’ funds has been renamed “Statement of changes in equity”;
• the balance sheet has been renamed “Statement of financial position”; and
• a footnote has been added to note 13, indicating which of the Company’s reserves are regarded as distributable.

The Company has early adopted an amendment to paragraph 34.22 of FRS 102, issued by the Financial Reporting Council in March 2016 regarding the categorisation of financial instruments into the fair value hierarchy in note 17. As a result of this amendment, the criteria used to allocate financial instruments into the three levels remain unchanged from prior years.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

There are no critical accounting estimates or judgements.

b)Valuation of investments

The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with a documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors. Accordingly, upon initial recognition the investments are designated by the Company as “held at fair value through profit or loss”. Investments are included initially at fair value which is taken to be their cost, including expenses incidental to purchase. Subsequently the investments are valued at fair value, which are quoted bid prices for Investments traded in active markets. Where trading in the securities of an investee company is suspended, the investment is valued at the Board’s estimate of its net realisable value.

All purchases and sales are accounted for on a trade date basis.

c)Accounting for reserves

Gains and losses on sales of investments and management fee and finance costs allocated to capital and any other capital charges are included in the Income Statement and dealt with in the capital reserve. Increases and decreases in the valuation of investments held at the year end and foreign exchange gains and losses on cash balances held at the year end are also included in the Income Statement and dealt with in the capital reserve. The cost of repurchasing the Company’s own shares for cancellation including the related stamp duty and transaction costs is charged to the distributable element of the capital reserve.

d)Dividends

In accordance with FRS 102 the final dividend is included in the financial statements in the year that it is approved by shareholders.

Special dividends receivable have been taken to capital where relevant circumstances indicate that the dividends are capital in nature.

e)Income

Dividends receivable on listed equity shares are recognised on the ex-dividend date as a revenue return, and the return on zero dividend preference shares is recognised as a capital return.

Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive payment is established.

Income from fixed-interest securities is recognised as revenue on a time apportionment basis so as to reflect their effective yield.

Income from securities where the return is linked to an inflation index is recognised on a time apportionment basis so as to reflect their effective yield, including the anticipated inflationary increase in their redemption value. The element of the total effective yield that relates to the inflationary increase in their redemption value is considered to represent a capital return, and is included in the Income Statement as such in accordance with the SORP. The amount recognised as a capital return on index-linked securities in the year was £287,000 (2015: £279,000).

f)Expenses

All expenses include, where applicable, value added tax (“VAT”). Expenses are charged through the revenue account except when expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The investment management fees have been allocated 60% (2015: 60%) to capital and 40% (2015: 40%) to revenue, in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

g)Other financial instruments

Other debtors and creditors do not carry any interest, are short term in nature and initially recognised at fair value and then held at amortised cost, with debtors reduced by appropriate allowances for estimated irrecoverable amounts.

Cash at bank and in hand may comprise cash and demand deposits which are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value.

h)Taxation

The charge for taxation is based on the net return for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.

A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis.

The tax effect of the allocation of expenditure between capital and revenue is reflected in the financial statements using the Company’s effective rate of tax for the year.

i)Foreign currency

The results and financial position of the Company are expressed in pounds sterling, which is the functional and presentational currency of the Company. The directors, having regard to the currency of the Company’s share capital and the predominant currency in which the Company operates, have determined the functional currency to be Sterling.

Transactions denominated in foreign currencies are recorded in the functional currency at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end.

j)Capital reserve

The following are accounted for in this reserve:

• gains and losses on the realisation of investments;
• realised exchange differences of a capital nature;
• expenses (transaction and investment) and finance costs, together with the related taxation effect, charged to this reserve in accordance with the above policies;
• increases and decreases in the valuation of investments held at the year end; and
• unrealised exchange differences of a capital nature.

1. Repurchases of shares into Treasury and subsequent reissues

The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis.  Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of “called-up share capital” and into “capital redemption reserve”.

The sales proceeds of Treasury shares reissued are treated as a realised profit up to the amount of the purchase price of those shares and is transferred to capital reserves.  The excess of the sales proceeds over the purchase price is transferred to “share premium”.

2	Investment income	2016 £’000	2015 £’000
	Income from investments:
	Income from UK bonds	420	420
	Income from UK equity and non-equity investments	483	411
	Interest from overseas bonds	264	297
	Interest from overseas equity and non-equity investments	–	227
	Total income	1,167	1,355
		2016    £’000	2015 £’000
	Total income comprises:
	Dividends	483	638
	Interest	684	717
		1,167	1,355
		2016    £’000	2015 £’000
	Income from investments comprises:
	Listed in the UK	903	831
	Listed overseas	264	524
		1,167	1,355

3	Investment management fee
		Revenue	Capital	2016 Total	Revenue	Capital	2015 Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Investment management fee	238	357	595	224	337	561

The Company’s investment manager CG Asset Management Limited received an annual management fee equal to 0.60% (2015: 0.60%) of the gross assets of the Company. At 5 April 2016 £161,838 (2015: £144,680) was payable. The percentage allocation of the investment management fee charged to capital and revenue is 60:40 as explained further in note 1(f).

4	Other expenses	2016 £’000	2015 £’000
	Administrative expense
	Portfolio administration and custody services	72	56
	Fees payable to Company auditor for the audit of Company accounts Fees payable to Company auditor for other services: Services relating to taxation - compliance	23 13	22 12
	Fees payable to Company auditor for other services:
	Services relating to taxation compliance	13	12
	Other taxation services	4	4
	Directors’ remuneration (note 5)	98	86
	Company secretarial and accountancy services	127	106
	General expenses	84	59
		421	345
	The above expenses include irrecoverable VAT where appropriate.

5	Directors’ remuneration	2016 £’000	2015 £’000
	The fees payable to the directors were as follows:
	Mr E G Meek	23	18
	Mr T R Pattison (retired 8 July 2015)	7	25
	Mr G A Prescott	20	20
	Mr R P A Spiller (retired 11 July 2014)	– 15	5        –
	Mr R A Archibald (appointed 28 May 2015)	15	–
	Mr A R Laing	18	18
	Miss J G K Matterson (appointed 28 May 2015)	15	–
		98	86
	Mr R P A Spiller’s and Mr A R Laing’s fees are paid directly to their employer. The Company made no pension contributions (2015: £nil) in respect of directors and no pension benefits are accruing to any director (2015: £nil). Mr A R Laing received remuneration totalling £48,203 (2015: £32,233) from CG Asset Management Limited in respect of its services to the Company. CG Asset Management Limited does not recharge this remuneration to the Company. Details of transactions with CG Asset Management Limited, of which Mr R P A Spiller and Mr A R Laing are directors, are disclosed in notes 3 and 18. There were no other transactions with directors during the year.

6	Tax (charge)/credit on net return on ordinary activities
				2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Current tax:
	Corporation tax	(5)	5	–	(37)	37	–
	Adjustment in respect of prior year:
	Foreign tax	–	–	–	36	–	36
	Total current tax charge/(credit) for the year	(5)	5	–	(1)	37	36

The tax assessed for the year is lower (2015: lower) than the standard rate of corporation tax in the UK of 20% (2015: 20%). The differences are explained below:

				2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Return on ordinary activities before taxation	508	2,587	3,095	786	4,853	5,639
	Return on ordinary activities at the standard rate of UK corporation tax	102	517	619	157	971	1,128
	UK franked dividends*	(97)	–	(97)	(120)	–	(120)
	Capital returns*	–	(588)	(588)	–	(1,038)	(1,038)
	Unrelieved loss for the year	–	66	66	–	30	30
	Foreign tax	–	–	–	(36)	–	(36)
	Current tax charge/(credit) for the year	5	5	–	1	(37)	(37)

*The Company is an Investment Trust Company as defined by section 833 of the Companies Act 2006 and these items are not subject to corporation tax within an Investment Trust Company.

No deferred tax liability has been recognised on unrealised gains on investments as it is anticipated that the Company will retain investment company status in the foreseeable future.

Potential deferred tax assets in respect of unrelieved management charges of £248,000 at 5 April 2016 (£182,000 at 5 April 2015) have not been recognised as the prospect for their recovery against future taxation liabilities is uncertain.

During the year there were no withholding tax refunds (2015: £39,000) in relation to prior years received from the Swiss tax authorities. Of the £39,000 received in 2015 £36,000 were credited to the income statement and £3,000 were offset against the existing corporation tax debtor.

7	Dividends Paid	2016 £’000	2015 £’000
	Ordinary Shares
	2015 dividend paid 17 July 2015 (20.0p per share)	585	-
	2014 dividend paid 17 July 2014 (16.0p per share)	-	468

The directors have recommended to shareholders a final dividend of 20p per share for the year ended 5 April 2016. If approved, this dividend will be paid to shareholders on 22 July 2016. This dividend is subject to approval by shareholders at the AGM and, therefore, in accordance with FRS 102, it has not been included as a liability in these financial statements. The total estimated dividend to be paid is £638,000 (based on the number of shares in issue at 5 April 2016).

		2016 £’000	2015 £’000
	Revenue available for distribution by way of dividend for the year	508	785
	Proposed final dividend of 20p for the year ended 5 April 2016	(638)	(585)
	Undistributed revenue for purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010*	(130)	200

* Undistributed revenue comprises approximately 0.0% (2015: 14.8%) of income from investments of £1,167,000 (2015: £1,355,000).

8 Net return per Ordinary share

The net return per Ordinary share of 104.05p (2015: 193.89p) is based on the total net return after taxation for the financial year of £3,095,000 (2015: £5,675,000) and on 2,974,510 (2015: 2,926,906) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Revenue return per Ordinary share of 16.91p (2015: 26.82p) is based on the net revenue return on ordinary activities after taxation of £503,000 (2015: £785,000) and on 2,974,510 (2015: 2,926,906) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Capital return per Ordinary share of 87.14p (2015: 167.07p) is based on the net capital return for the financial year of £2,592,000 (2015: £4,890,000) and on 2,974,510 (2015: 2,926,906) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

The Company does not have dilutive securities. Therefore, the basic and diluted returns per share are the same.

9	Investments held at fair value through profit or loss	2016 £’000	2015 £’000
	Investments comprise –
	Listed investment companies:
	Ordinary shares UK	17,018	16,353
	Ordinary shares Overseas	15,969	10,580
	Zero Dividend Preference Shares UK	15,071	13,832
	Zero Dividend Preference Share Overseas	8,890	5,403
	Listed UK Government Bonds	14,916	13,281
	Listed UK Non-Government Bonds	4,282	4,590
	Listed Overseas Government Bonds	19,331	22,672
	Listed Overseas Non-Government Bonds	1,588	1,037
		97,065	87,748
	Cost of investments held at 6 April*	74,330	77,495
	Unrealised appreciation at 6 April*	13,418	4,857
	Fair value of investments held at 6 April	87,748	82,352
	Additions at cost	42,768	22,661
	Sales – proceeds	(36,518)	(22,001)
	– net gains on sales	3,075	2,988
	Movement in unrealised appreciation in the year	(8)	1,748
	Fair value of investments held at 5 April	97,065	87,748
	Book cost at 5 April	83,655	81,143
	Unrealised appreciation at 5 April	13,410	6,605
		97,065	87,748
	Disposals – realised gains	3,075	2,988
	(Decrease)/Increase in unrealised appreciation	(8)	1,748
	Gains on investments	3,067	4,736

*The balances at 6 April 2015 are restated after a prior period adjustment of a decrease in realised gains on investments sold of £6,813,000 and an increase in the unrealised appreciation on fixed asset investments of £6,813,000. This restatement has no net impact on the fair value of investments held.

The geographical spread of investment and the Company’s investment policy is shown above.

10	Debtors	2016 £’000	2015 £’000
	Other debtors	171	173
	Prepayments and accrued income	166	187
	Corporation tax	127	105
		464	465

11	Creditors: amounts falling due within one year	2016 £’000	2015 £’000
	Other creditors	100	151
	Accruals and deferred income	265	280
		365	431

12	Called-up share capital	2016 £’000	2015 £’000
	Allotted and fully paid
	At the beginning of the year: 2,926,906 Ordinary shares (2015: 2,926,906)	731	731
	Allotted during the year: 264,156 Ordinary shares (2015:nil)	67	-
	At the end of the year: 3,191,062 Ordinary shares (2015: 2,926,906)	798	731
	During the year to 5 April 2016 there were 9,450 Ordinary shares of 25p each repurchased by the Company at a total cost of £309,000 and placed in treasury. During the year to 5 April 2016 the Company re-issued 9,369 Ordinary shares of 25p each from treasury for proceeds totalling £315,000. There were no shares repurchased by the Company nor were any shares re-issued from treasury during the year ended 5 April 2015. During the year to 5 April 2016 there were 264,156 new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £8,885,000. During the year to 5 April 2015 there were no new Ordinary shares issued by the Company. No shares were purchased for cancellation during the year (2015: nil) and at the year end 81 shares were held in treasury (2015: nil).

The total transaction costs on additions were £64,000 (2015: £45,000) and on sales £15,000 (2015: £15,000). These costs are included in the book cost of acquisitions and the net proceeds of sales.

13	Reserves
		Share premium account £’000	Capital redemption reserve £’000	Capital reserve* £’000	Revenue reserve £’000
	Balance at 6 April 2015	12,107	16	81,864	1,801
	Net return to equity shareholders	–	–	2,592	503
	Shares bought back into treasury	–	–	(309)	–
	Shares issued from treasury	9	–	306	–
	Premium on new shares issued	8,818	–	–	–
	Dividends paid (note 7)	–	–	–	(585)
	Balance at 5 April 2016	20,934	16	84,453	1,719

*The Capital reserve balance at 5 April 2016 includes unrealised gains on fixed asset investments of £13,410,000 (6 April 2015 – gains of £13,418,000). The balance at 6 April 2015 is restated after a prior period adjustment of a decrease in the realised gains of investments sold of £6,813,000 and an increase in the unrealised gains on fixed asset investments of £6,813,000. This restatement had no impact on the Capital Reserve.

As at 5 April 2016 £71,043,000 (2015: £68,446,000) of the Capital Reserve is regarded as being available for distribution.

14	Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset value attributable to each class of Ordinary share at the year end, calculated in accordance with the articles of association, were as follows:
	Net asset value per Ordinary share attributable to	2016	2015
	Ordinary shares (basic)	3,382.0p	3,297.6p

	Net asset value attributable to
		2016 £’000	2015 £’000
	Ordinary shares (basic)	107,920	96,519

The movements during the year in the net assets attributable to the Ordinary shares are detailed in note 15.

Net asset value per Ordinary share is based on the net assets, as shown above, and on 3,190,981 (2015: 2,926,906) Ordinary shares, being the number of Ordinary shares in issue at the year end (excluding treasury shares).

15	Reconciliation of movements in shareholders’ funds	2016 £’000	2015 £’000
	Opening equity shareholders’ funds	96,519	91,312
	Net proceeds on ordinary shares issued during the year	8,891	–
	Net return for the financial year	3,095	5,675
	Dividends paid (note 7)	(585)	(468)
	Closing equity shareholders’ funds	107,920	96,519

16	Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends and interest
		2016 £’000	2015 £’000
	Net return on ordinary activities before finance costs and taxation	3,095	5,639
	Less capital return on ordinary activities before finance costs and taxation	(2,587)	(4,853)
	Decrease in prepayments and accrued income	1	-
	Decrease in accruals and deferred income	(15)	(83)
	Management fees charged to capital	(357)	(337)
	Overseas withholding tax	(22)	16
	Dividends received	(483)	(638)
	Interest received	(684)	(717)
	Realised (losses)/gains on foreign currency transactions	(123)	454
	Net cash outflow from operations before dividends and interest	(1,175)	(519)

17	Financial instruments The company has the following financial instruments:	2016 £’000	2015 £’000
	Financial assets at fair value through profit or loss
	-Investments held at fair value through profit or loss	97,065	87,748
	Financial assets that are debt instruments measured at amortised cost
	-Cash at bank and at hand	10,756	8,737
	-Other debtors	171	173
	-Accrued income	155	175
		11,082	9,085
		2016	2015
		£’000	£’000
	Financial liabilities measured at amortised cost
	-Other creditors	100	151
	-Accruals	258	280
		356	431

The Company’s financial instruments comprise:

• investment trust ordinary shares, investment trust capital shares, investment trust zero dividend preference shares, commodity funds and real estate, and fixed and index-linked securities that are held in accordance with the Company’s investment objective;

• cash and liquid resources that arise directly from the Company’s operations; and

• debtors and creditors.

The main risks arising from the Company’s financial instruments are market price risk, interest rate risk, foreign currency risk and credit risk. The Board regularly reviews and agrees policies for managing each of these risks and they are summarised below.

Other debtors and creditors do not carry any interest and are short term in nature and accordingly are stated at their nominal value.

Market price risk

Market price risk arises mainly from uncertainty about the 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.

The Company invests in the shares of other investment companies. These companies may use borrowings or other means to gear their balance sheets which may result in returns that are more volatile than the markets in which they invest, and the market value of investment company shares may not reflect their underlying assets.

To mitigate these risks, the Board’s investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined financial, market and sector analysis, with the emphasis on long-term investments. An appropriate spread of investments is held in the portfolio in order to reduce both the systemic risk and the risk arising from factors specific to a country or sector. The investment manager actively monitors market prices throughout the year and reports to the Board, which meets regularly to consider investment strategy. A list of the investments held by the Company is shown above. All investments are stated at bid value, which in the directors’ opinion is equal to fair value.

Price risk sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per share to an increase or decrease of 5% in market prices. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s investments at the balance sheet date with all other variables held constant.

		2016	2016	2015	2015
		5% increase in market prices £’000	5% decrease in market prices £’000	5% increase in market prices £’000	5% decrease in market prices £’000
	Income statement – net return after taxation Revenue return	(10)	10	(11)	11
	Capital return	4,837	(4,837)	4,373	(4,373)
	Total return after taxation	4,827	(4,827)	4,362	(4,362)
	Net assets	4,827	(4,827)	4,362	(4,362)
	Net asset value per Ordinary share	154.66p	(154.66)p	149.03p	(149.03)p

Interest rate risk

Bond and preference share yields, and as a consequence their prices, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Government’s fiscal position, short-term interest rates and international market comparisons. The investment manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company.

Returns from bonds and preference shares are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds. This means that if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date. However, over the life of a bond the market price at any given time will depend on the market environment at that time. Therefore, a bond sold before its redemption date is likely to have a price different from its purchase level and a profit or loss may be incurred.

Interest rate sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per Ordinary share to an increase or decrease of 1% in regard to the Company’s monetary financial assets and financial liabilities. The financial assets affected by interest rates are funds held by the custodian on deposit. There are no financial liabilities affected by interest rates. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s monetary financial instruments at the balance sheet date with all other variables held constant.

		2016	2016	2015	2015
		1% increase in market prices £’000	1% decrease in market prices £’000	1% increase in market prices £’000	1% decrease in market prices £’000
	Income statement – net return after taxation Revenue return	86	(86)	70	(70)
	Capital return	–	–	–	–
	Total return after taxation	86	(86)	70	(70)
	Net assets	86	(86)	70	(70)
	Net asset value per Ordinary share	2.76p	(2.76)p	2.39p	(2.39)p

The interest rate profile of the Company’s assets at 5 April 2016 was as follows:

	Total (as per Balance Sheet)	Floating rate	Index- linked	Other fixed	Assets/ (liabilities) on which no interest is paid	Weighted average interest rate	Weighted average period for which rate is fixed
	£’000	£’000	£’000	£’000	£’000	%	Years
Assets
Investment trusts	56,947	–	–	–	56,947	–	–
UK index-linked government bonds	14,916	–	14,916	–	–	0.7	3.7
UK index-linked non-government bonds	1,067	–	1,067	–	–	0.7	4.6
UK non-government bonds	2,803	–	–	2,803	–	5.3	2.7
Overseas index-linked government bonds	19,331	–	19,331	–	–	0.9	5.2
Overseas non-government bonds	2,001	–	–	2,001	–	3.1	5.2
Invested funds	97,065	–	35,314	4,804	56,947
Cash at bank	10,756	10,751	–	–	5	–	–
Other debtors	464	–	–	–	464	–	–
Liabilities
Creditors	(365)	–	–	–	(365)	–	–
Total net assets	107,920	10,751	35,314	4,804	57,051

The interest rate profile of the Company’s assets at 5 April 2015 was as follows:

	Total (as per Balance Sheet)	Floating rate	Index- linked	Other fixed	Assets/ (liabilities) on which no interest is paid	Weighted average interest rate	Weighted average period for which rate is fixed
	£’000	£’000	£’000	£’000	£’000	%	Years
Assets
Investment trusts	39,208	–	–	–	39,208	–	–
UK index-linked  government bonds	7,711	–	7,711	–	–	0.7	5.6
UK government bonds	5,570	–	–	5,570	–	1.8	0.8
UK non-government bonds	4,590	–	–	4,590	–	4.7	2.6
Overseas index-linked government bonds	18,112	–	18,112	–	–	1.0	6.3
Overseas government bonds	4,560	–	–	4,560	–	0.9	2.3
Overseas non-government bonds	1,037	–	–	1,037	–	2.6	5.3
Other equities	6,960	–	–	–	6,960	–	–
Invested funds	87,748	–	25,823	15,757	46,168
Cash at bank	8,737	8,717	–	–	20	–	–
Other debtors	465	–	–	–	465	–	–
Liabilities
Creditors	(431)	–	–	–	(431)	–	–
Total net assets	96,519	8,717	25,823	15,757	46,222

Fair value of financial assets and liabilities

All financial assets and liabilities are either included in the Balance Sheet at fair value or at a reasonable approximation of fair value.

FRS 102 requires financial instruments to be categorised into a hierarchy consisting of the three levels below. Note that the criteria used to categorise investments include an amendment to paragraph 34.22 of FRS 102, issued by the Financial Reporting Council in March 2016, and which the Company has early adopted.

Level 1:  valued using unadjusted quoted prices in active markets for identical assets.

Level 2:  valued using observable inputs other than quoted prices included within Level 1.

Level 3:  valued using inputs that are unobservable.

The Company’s assets that are measured at fair value through the Income Statement are investments in listed securities and are fair valued under level 1 of the fair value measurement hierarchy. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in level 1 of the fair value measurement hierarchy.

Foreign currency risk

The Company’s investments in foreign currency securities are subject to the risk of currency fluctuations. The investment manager monitors current and forward exchange rate movements in order to mitigate this risk. The Company’s investments denominated in foreign currencies are:

		2016 Investments	2016 Accrued interest	2015 Investments	2015 Accrued interest
		£’000	£’000	£’000	£’000
	Canadian Dollar	–	–	618	5
	Euro	–	–	174	–
	US Dollar	22,035	47	20,881	32
	Swedish Krona	2,219	13	2,883	16
	Swiss Franc	47	–	2,587	15
	Australian Dollar	45	–	47	–
		22,346	60	27,190	68

Foreign currency sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per Ordinary share to an increase or decrease of 10% in the rates of exchange of foreign currencies relative to Sterling. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s foreign currency investments at the balance sheet date with all other variables held constant.

		2016 10% appreciation of Sterling £’000	2016 10% depreciation of Sterling £’000	2015 10% appreciation of Sterling £’000	2015 10% depreciation of Sterling £’000
	Income statement – net return after taxation	(21)	21	(42)	42
	Revenue return
	Capital return	(2,435)	2,435	(2,719)	2,719
	Total return after taxation	(2,456)	2,456	(2,761)	2,761
	Net assets	(2,456)	2,456	(2,761)	2,761
	Net asset value per Ordinary share	(78.69)p	78.69p	(94.33)p	94.33p

Liquidity risk

Liquidity risk is not considered to be significant as the Company has no bank loans or other borrowings. All liabilities are payable within 3 months.

Credit risk

In addition to interest rate risk, the Company’s investment in bonds, the majority of which are government bonds, is also exposed to credit risk which reflects the ability of a borrower to meet its obligations. Generally, the higher the quality of the issue, the lower the interest rate at which the issuer can borrow money. Issuers of a lower quality will tend to have to pay more to borrow money to compensate the lender for the extra risk taken. Investment transactions are carried out with a number of brokers whose credit standing is reviewed periodically by the investment manager. The investment manager assesses the risk associated with these investments by prior financial analysis of the issuing companies as part of his normal scrutiny of existing and prospective investments and reports regularly to the Board. Cash is held with a reputable bank with a high-quality external credit rating.

A further credit risk is the failure of a counterparty to a transaction to discharge its obligations under that transaction, which could result in a loss to the Company. The following table shows the maximum credit risk exposure.

Credit risk exposure

Compared to the Balance Sheet, the maximum credit risk exposure is:

		2016 Balance sheet £’000	2016 Maximum exposure £’000	2015 Balance sheet £’000	2015 Maximum exposure £’000
	Fixed assets – listed investments at fair value through profit and loss	97,065	40,118	87,748	41,580
	Debtors – amounts due from custodian, dividends and interest receivable	326	326	348	348
	Cash at bank	10,756	10,756	8,737	8,737
		108, 147	51,200	96,833	50,665

Capital management policies and procedures

The Company’s capital management objectives are:

• to ensure that it will be able to continue as a going concern; and

• to maximise the income and capital return to its equity.

  The Company’s capital at 5 April 2016 of £107,920,000 (2015: £96,519,000) comprises its equity share capital and reserves.

  The Board, with the assistance of the investment manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:

• the planned level of gearing, which takes into account the investment manager’s views on the market;

• the need to buy back equity shares;

• the need for new issues of equity shares; and

• the extent to which revenue in excess of that which is required to be distributed should be retained.

  The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting year. The Company is subject to externally imposed capital requirements:

• as a public company, the Company must have a minimum share capital of £50,000; and

• in order to pay dividends out of profits available for distribution, the Company must meet the capital restriction test imposed on investment companies by company law.

  18 Related-party transactions

  Related-party transactions with Mr A R Laing, director of the Company, for the year ended 5 April 2016 are disclosed in notes 3 and 5. There were no other related-party transactions.

GENERAL

The figures and financial information set out above are extracted from the Annual Report and Accounts for the year ended 5 April 2016, and do not constitute the statutory accounts for that year. The Company's Annual Report and Accounts for the year ended 5 April 2016 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2016 annual financial statements is unqualified and does not contain a statement under section 498 of the Companies Act 2006.

The 2015 figures and financial information are extracted from the published statutory accounts for the year ended 5 April 2015 and do not constitute the statutory accounts for that year. The 2015 annual report and financial statements have been delivered to the Registrar of Companies and included the Independent Auditors' Report which was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

Copies of the Company's Annual Report for the year ended 5 April 2016 will be posted to shareholders in June 2016. The Annual Report will be also available on the Company's website www.capitalgearingtrust.com and on request from the company secretary:

Steven Cowie
Personal Assets Trust Administration Company Limited
10 St Colme Street
Edinburgh
EH3 6AA
Telephone: [phone]
Email: [e-mail]

Annual general meeting ("AGM")

The Company's AGM will be held on Thursday, 7 July 2016 at 11am at the Embankment Place offices of PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH

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

For queries, please contact:

Steven Cowie
Company Secretary
Tel: [phone]
Email:[e-mail]