Final Results

Capital Gearing Trust PLC
8 June 2001

CAPITAL GEARING TRUST plc
PRELIMINARY ANNOUNCEMENT
5 April 2001

CHAIRMAN'S STATEMENT 
 
The cautious investment stance adopted by the Trust over the year to 5th
April 2001 proved rewarding to shareholders with a rise in the net asset
value per share of 10.2% to 1101p compared with a fall in the Investment
Trust Index of 10.6%, a fall in the FTSE All Share Index of 10.7%, and a fall
in the FTSE All Stocks Gilt Index of 0.4%. This may be considered a good
result and I think demonstrates the value of taking an independent line in
judging markets and not being driven by short-term performance league tables.
Over the year the discount of the share price to net asset value traded in a
relatively narrow range closing the year at a small discount of 1%. The Board
used the powers granted by shareholders to buy in a small amount of stock on
advantageous terms, and it is proposed that the powers to buy in (and sell
out) be renewed at the forthcoming Annual General Meeting.
 
 
In January 2001 Peter Spiller, the partner of Cazenove & Co. appointed to
manage the portfolio and a director of the Trust, informed the Board of his
intention to retire from Cazenove on 30th April 2001 and an announcement was
made to this effect at the time. He has now set up a small investment
management company of his own. While regretting the resulting severance of
our close links with Cazenove, the independent directors concluded that it
was in the best interest of shareholders to retain the services of Peter
Spiller as investment manager. I am pleased to report that the practical
aspects of this changeover were satisfactorily resolved and CG Asset
Management Ltd. was appointed Investment Manager with effect from 1st May,
2001. I am happy to confirm that Cazenove & Co. Ltd., remain the Trust's
Corporate broker.
 
 
Later this year we intend to enter trading in the Trust's share capital into
the Crest system of computerised settlement which we consider will benefit
shareholders.
 
 
Turning to the Revenue account, earnings per share for the year rose to
9.92p. The Directors now recommend a dividend of 8.00p compared with 7.00p in
2000. This dividend will be paid on 10th July, 2001 to shareholders on the
register as at 20th June, 2001.
 
 
The spread of the investment portfolio remains defensive in character with
over 60% of the assets invested in investment trust zero dividend preference
shares and fixed interest stocks compared with 70% at this time last year,
reflecting our current view of markets. While we are clearly interested in
the zero dividend preference share market the security and liquidity of some
of the stock on offer raise some questions.
 
 
The organisational changes to which I have referred above and in last year's
Statement will take time to settle down. However, I am confident that the
investments are well managed and positioned to weather the uncertain
conditions we currently face in markets.
 
 
MANAGER'S REPORT AND PORTFOLIO ANALYSIS 
 
Last year presented a tough environment with both the MSCI International and
FT All Share down by more than 10%. The technology, media and telephone
sectors were particularly weak, following the Nasdaq bubble of the previous
year. Against that background, the increase in net asset value per share of
Capital Gearing Trust of 10% may be regarded as satisfactory.
 
 
The portfolio benefited from overall asset allocation, sector bias and stock
selection. Throughout the year, equity exposure was kept below 35%. This
reflected a view that the fundamental position of world economies, and
particularly that of the US, demonstrated important imbalances that must
eventually lead to a recession. In addition, the flood of liquidity that the
Federal Reserve had injected into the US economy had driven share valuations
to unsustainable levels; in the case of technology, these reached manic
proportions. Your portfolio was heavily biased towards old economy stocks and
profits were taken on holdings that had done well out of high growth stocks
such as Scottish Value, which doubled in a year. Tor Capital, a long-held
investment, duly reconstructed in the summer of 2000, which, of course,
eliminated the discount. Electra tendered for part of its stock and your
portfolio reduced its holding at a good price. Five Arrows Chile went into
liquidation and Murray Emerging Economics reconstructed, the latter showing a
small profit on the year, following excellent earlier returns, despite the
difficult times for emerging markets. Other good performances were provided
by the managers of both Aberforth Split Capital Shares and Gartmore Irish. In
both cases the discount narrowed as well.
 
 
In the area of bond funds, the portfolio benefited from the reconstruction of
our holding in Latin American Extra Yield and further progress by the Asia
High Yield Bond Fund; here the combination of asset growth and reduction in
discount produced a 60% return in Yen. In general, our direct holdings of
bonds did well in local terms. The US Treasury Inflation Protected Securities
reflected a re-rating, inflation and a strong US dollar. The weakness of the
Euro reduced the sterling value of our bonds in Europe. In the UK, the large
holdings of zero-coupon preference shares, which have a short duration, were
also re-rated so that the return exceeded the redemption yield at the
beginning of the year.
 
 
OUTLOOK
 
In last year's report, I referred to the overheated economy and highly valued
stock market in the US. It is true that NASDAQ has seen a dramatic
correction, but share prices overall still look too high. Indeed, monetary
policy has been so stimulative, with money supply showing rapid growth over
the last year and continued expansion of credit throughout the private
sector, that the Federal Reserve appears to be trying to re-inflate the stock
market bubble. Unfortunately, that has made the financial imbalances in the
economy even worse, with the consumer over-extended, though as yet showing no
sign of retrenchment, and corporate America over-investing, although the
correction in this area has begun. With the outlook for profits poor, the
stock market will be a struggle between continued liquidity and lower
interest rates against poor profitability and over-valuation. The short term
is therefore hard to call, but there is little doubt that the market is
vulnerable to further falls in time. It is likely that both the economies and
stock markets in the rest of the world will respond to the trends in the US.
 
 
Happily, the opportunity to make reasonable returns remains. The portfolio of
zero-coupon preference shares is of high quality but should nevertheless
produce an attractive return in real terms. The long-term US index linked
bonds still look too cheap and further re-rating is expected; some of the
gain may be lost if - one is tempted to say when - the dollar weakens.
Conventional bonds in Euros on the other hand, look attractive and currency
moves should help, although appreciation may be delayed until after the
introduction of the Euro as money in the New Year.
 
 
Within the equities, the better value in smaller companies should benefit
Aberforth Split Level Capital Shares and the valuation of this well-managed
trust is still favourable. Details of the reconstruction of Investors Capital
are promised soon and should entail a small further uplift in value and
Gartmore Fledgling has already begun to liquidate. Group Trust is the subject
of a bid by Dunedin Enterprises. Both M&G Income and Schroder Split Capital,
in which we have small but highly geared exposure, are due to reorganise
later this year. In addition, there are votes in both Old Mutual South Africa
and the Asia High Yield Bond Fund. The remainder of the portfolio is in well
managed trusts where there is hope that discounts will narrow over the year.
 
 
STATEMENT OF TOTAL RETURN 
(INCORPORATING THE REVENUE ACCOUNT) 
FOR THE YEAR ENDED 5 APRIL 2001 

                                                                              
                                        2001                             2000 
              Revenue    Capital       Total   Revenue    Capital       Total 
                    £          £           £         £          £           £ 

  Realised          -   2,249,356  2,249,356         -   1,585,803  1,585,803 
  gains on                                                                    
  investments                                                                  
                                                                             
  Net               -    145,722     145,722         -    605,416     605,416 
  change in                                                                   
  unrealised                                                                  
  appreciation                                                                  
                                                                            
  Income      424,722          -     424,722   336,947          -     336,947 

  GROSS       424,722   2,395,078  2,819,800   336,947   2,191,219  2,528,166 
  RETURN                                                                      

  Investment  (44,372)  (177,488)  (221,860)   (37,318)  (149,668)  (186,986) 
  management                                                                  
  fees                                                                        

  Other       (140,713)  (4,334)   (145,047)   (95,577)         -    (95,577) 
  expenses                                                                   

  RETURN ON   239,637   2,213,256  2,452,893   204,052   2,041,551  2,245,603 
  ORDINARY                                                                    
  ACTIVITIES                                                                  
  BEFORE                                                                      
  TAXATION                                                                    

  Tax on      (11,667)    11,667           -   (2,250)          -     (2,250) 
  ordinary                                                                    
  activities                                                                  
                                                                              
  RETURN      227,970   2,224,923  2,452,893   201,802   2,041,551  2,243,353 
  ATTRIBUTABLE                                                                  
  TO                                                                       
  EQUITY                                                                      
  SHAREHOLDERS                                                                  
                                                                            
  Dividends                                                                   
  on          (181,272)        -   (181,272)   (163,163)         -   (163,163) 
  ordinary                                                                  
  shares:                                                                     

  Dividends                                                                   
  payable -                                                                   
  8p per                                                                      
  ordinary                                                                    
  share                                                                       
  (2000 -                                                                     
  7p)                                                                         

  TRANSFER     46,698   2,224,923  2,271,621    38,639          -   (163,163) 
  TO                                                                          
  RESERVES                                                                    

  RETURN           9.92p    96.83p      106.75p     8.66p     87.58p   96.24p
  PER              
  ORDINARY                                                                    
  SHARE*                                                                      
 
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.
 
* There was no dilution in either year

BALANCE SHEET - 5 APRIL 2001 

                                                                             
                                                          2001          2000 
  FIXED ASSETS                                                £             £

  Investments:                                                               
  Listed investments                                 24,980,041    23,322,832 
  CURRENT ASSETS                                                             
  Debtors                                               571,848       606,904
  Cash at bank                                          171,523       104,717 
                                                        743,371       711,621
  CREDITORS: amounts falling due within one year      (772,807)     (750,342) 
  NET CURRENT LIABILITIES                              (29,436)      (38,721) 
  NET ASSETS                                         24,950,605    23,284,111 
  CAPITAL AND RESERVES                                                       
  Called up share capital                               566,476       582,726
  Share premium account                                 991,150       991,150
  Capital redemption reserve                             16,250             -
  Capital reserve - unrealised                        3,794,195     3,648,473
  Capital reserve - realised                         19,408,615    17,934,541
  Revenue reserve                                       173,919       127,221 
  TOTAL SHAREHOLDERS' FUNDS - EQUITY                 24,950,605    23,284,111 
  NET ASSET VALUE PER ORDINARY SHARE*                   1101.1p        998.9p 

* There was no dilution of the above net asset value at either date.

CASH FLOW STATEMENT 
FOR THE YEAR ENDED 5 APRIL 2001 

                                                                             
                                                         2001           2000 
                                                             £              £

  NET CASH INFLOW FROM OPERATING ACTIVITIES           103,332        348,497 
  TAXATION                                                                   
  Income tax recovered                                 40,378         12,921 
  CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT                               
  Payments to acquire investments                 (11,455,814)   (12,323,954)
  Receipts from sale of investments                12,147,200     11,235,875 
                                                      691,386     (1,088,079)
  EQUITY DIVIDENDS PAID                              (163,163)      (116,545)
  FINANCING                                                                  
  Purchase of own shares                             (605,127)             - 
  INCREASE/(DECREASE) IN CASH                          66,806      (843,206) 

The financial information set out above does not constitute the company's
statutory accounts for the years ended 5 April 2000 and 2001 but is derived
from those accounts. Statutory accounts for 2000 have been delivered to the
Registrar of Companies and those for 2001 will be delivered following the
company's Annual General Meeting. The auditors have reported on those
accounts; their reports were unqualified and did not contain statements under
Article 245 (2) or (3) of the Companies (Northern Ireland) Order 1986.