Final Results

Capital Gearing Trust PLC
3 June 2003

CAPITAL GEARING TRUST plc 
PRELIMINARY ANNOUNCEMENT 
5th APRIL 2003

Leading world equity markets experienced further savage falls during the year to
5th April 2003. The severity of the retreat can be evidenced by the fall in the
FTSE All Share Index of 23.2% and of 33.1% in the FTSE Investment Companies
Index. The reverse has been the case in bond markets with a rise in the FTSE All
Stocks Gilt Index of 9.5%. It is pleasing to be able to report to shareholders
that the Trust's NAV has increased by 2.1% to 1234p per share. This is an
excellent relative performance but we should recognise that we have avoided
significant loss rather than achieved much gain.

This performance has been the result of eschewing equity markets where 20% of
our assets are deployed and focusing more on fixed interest holdings (31%),
index linked stocks (17%) and concentrating on good quality zero coupon shares
(32%). On this analysis the equity exposure is understated as we estimate on a
look-through basis the exposure is nearer 30%. Despite the alarming destruction
of value amongst some split capital investment trusts and the damage inflicted
on their shareholders - a risk to which I have consistently drawn attention over
the last few years - there are still opportunities to be found in this area and
of course amongst conventionally managed investment trusts. Our manager has
successfully circumvented the rocks.

In the light of the present allocation of assets the Board has considered the
accuracy of the Trust's stated investment objective - 'to achieve capital growth
principally through investment in closed ended vehicles'. We have now adopted
the following statement which more nearly reflects our present view - 'to
achieve capital growth in absolute terms principally through investment in
closed ended and other collective investment vehicles with a willingness to hold
cash and bonds when appropriate'. In this context the choice of the Investment
Trust Companies Index as the main comparator is not used as a reason to suspend 
the exercise of investment judgement.

One of the consequences of our higher exposure to fixed interest securities and
other money instruments has been a sharp jump in earnings per share to 21.1p
compared to 11.3p last year. Indeed the capital return mentioned above does not
do justice to the total return achieved. In the circumstances the Directors
recommend a dividend for the year of 16p per share, in part to maintain
investment trust status. However, shareholders will appreciate that this level
of distribution is unlikely to be sustainable as and when market conditions
change and we decide to re-enter the equity market. It would be wise therefore
to say that we regard a base dividend of 10p as the level from which we would
hope to grow the dividend in the medium term and that 6p must be regarded as a
'special'.

The present level of fee of 0.7% p.a. of the gross assets of the trust paid to
our investment manager came into effect on 5th April 1999. In the light of
increased costs placed on the financial services industry, the charges levied by
comparable trusts, and the satisfactory performance achieved, the Directors
have reviewed the position and have approved an increase in these fees to 0.85%
p.a. with effect from 5th April 2003. We consider the fee level to be justified
and still fully competitive and so report to shareholders.

During the year we reviewed our agreement with Gerrard Management Services for
the provision of secretarial services and their changing priorities. In the
event we decided to move this service to Ernst & Young LLP in January 2003.
This new relationship has started well and is a vital part of the control and
efficient management of the Trust. 

In the last two years we have sought shareholder authority to issue shares on a 
non-preemptive basis, when there is demand, at a premium to net asset value. In 
total we have issued 225,000 shares over this period. The Board now recommends 
to shareholders that authority be given at the AGM to issue up to 10% of the 
present share capital in the coming year, should the occasion arise. In reaching 
this view we have considered the size of the market on which we focus, and the 
attraction of spreading costs over a larger fund on the one hand; and the 
potential dilution in the ownership, commitment and loyalty of existing 
shareholders, which we so value, on the other. We have already indicated to 
shareholders our readiness to buy in shares should the supply and demand ratio 
change, and have indeed demonstrated such a commitment - provided this is at a 
discount to net asset value. Accordingly, we seek again power to buy-in stock in 
the terms set out in the resolution in the Notice of Meeting.

I come last to the most difficult part of my statement to shareholders - a 
comment on prospects. It will be apparent from his report that our investment
manager remains very cautious of equity markets and provides good arguments for
this stance. His view has been right and commands respect. It is the duty of the
Board to challenge regularly these arguments, particularly when the attraction
of fixed interest stocks may be changing in the light of deteriorating
government finances and confidence in the direction of the economy. We remain
cautious as a Board but the fear of further loss is becoming more evenly
balanced by the hope of future gain. A clear resolution of this tension is
unlikely for some time yet.

Mark Cornwall-Jones     2nd June 2003


             INVESTMENT MANAGER'S REPORT AND PORTFOLIO ANALYSIS

In the year to 5th April 2003, the Net Asset Value per share rose by 2.1%. This
compares to falls in the FTSE All Share Index of 23.2% and in the Investment
Companies Index of 33.1%. As these figures suggest, the year was difficult for
equity investors as the aftermath of the stock market and investment bubble
played out. However, other bubbles continued, notably in house prices in the USA
and the UK, and this helped to sustain consumer expenditure at levels that
deferred the recession that usually prevails after such excesses. Allied to the
aggressive easing of monetary policy - by the end of the period short-term real
rates of interest were negative in the USA and less than 1% in the UK- this
prevented the stock markets from falling far enough for them to offer fair
value.

The trust's asset allocation was therefore defensive throughout the year. We do
not attempt to play the technical rallies in equities. The holdings in bonds
showed excellent returns in local and in sterling terms, outperforming the bond
indices because of their long duration, both in index linked and conventional
government obligations. 

In the split capital market, two of our zero preference
holdings, Henderson Eurotrust and JOS Holdings were repaid in full at the
anticipated level. Because of publicity given to justified concern over this
part of the market, a number of opportunities were thrown up by distresses
sellers and much of our equity investment was in this area. New or increased
holdings included the zero dividend preference shares in Legg Mason
International Utilities, New Fulcrum, Premier High Income and Martin Currie
Income and Growth. All have proved satisfactory so far. The best return was in
American Trust Zero, which by the year-end had more than doubled its purchase
price.

Outlook

Although equity markets have fallen markedly in the last year, they still
represent poor value. That is particularly true of the USA, where accommodative
monetary policy has sustained levels for the S & P 500 that remain well above
our estimate of fair value even if the economic prospects had been sound. In
fact, the imbalances in the American economy, to which we referred last year,
have, if anything, deteriorated. Balance sheets for both companies and
individuals are in aggregate exceptionally weak. The current account deficit now
exceeds 5% of GDP and as a result the dollar is under pressure.

Unfortunately, that dollar weakness is exporting deflationary pressures to
Europe and the UK. The latter already faces quite severe problems as the rise in
house prices comes to an end; a reversion to more normal levels of saving looks
likely soon, leading to a very modest growth, if any, in retail sales. The only
significant source of growth will be government expenditure, hardly a
sustainable position.

With estimates of world growth continuing to fall, central banks can be expected
to cut short term interest rates even further. In the USA, the lax monetary
policy and explicit threat of printing money should lead to a steep yield curve.
That is a threat to all bond markets. However, we do not believe that the
European Central Bank is a printing bank and expect good returns from government
bonds there. Index-linked government bonds continue to look attractive on real
yields of close to 3% outside the UK.

As last year, we hope to produce a modest but satisfactory absolute return for 
the trust.

R P A Spiller     2nd June 2003



Statement of Total Return (incorporating the Revenue Account) 
for the year ended 5 April 2003 

                                                            2003                             2002
                                   Revenue      Capital    Total    Revenue     Capital     Total
                                     £'000        £'000    £'000      £'000       £'000     £'000

Gains on investments                     -          674      674          -       2,559     2,559

Income                                 765            -      765         500          -       500

GROSS RETURN                           765          674    1,439         500      2,559     3,059

Investment management fees            (48)        (190)    (238)        (43)      (165)     (208)

Other expenses                       (148)            -    (148)       (185)          -     (185)

RETURN ON ORDINARY 
ACTIVITIES BEFORE 
TAXATION                              569           484    1,053         272      2,394     2,666
       
Tax on ordinary activities           (57)            57        -        (13)         13         -

             RETURN 
       ATTRIBUTABLE 
                 TO

EQUITY SHAREHOLDERS                   512           541    1,053         259      2,407     2,666


Dividends on ordinary 
shares:

Dividend payable 16p per 
ordinary share (2002 - 9p)          (407)             -    (407)       (209)          -     (209)

TRANSFER TO 
RESERVES                              105           541      646          50      2,407     2,457


RETURN PER 
ORDINARY SHARE                     21.14p        22.34p   43.48p      11.30p    104.97p   116.27p


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

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


Balance sheet - 5 April 2003
                                                      2003        2002
                                                     £'000       £'000
FIXED ASSETS

Investments:                                        
                                                    
  Listed investments                                31,454      26,793

CURRENT ASSETS

Debtors                                                397      1,455

Cash at bank                                            99        159

                                                       496      1,614

CREDITORS: amounts falling due within one year         538        366

NET CURRENT (LIABILITIES)/ ASSETS                     (42)      1,248

NET ASSETS                                          31,412     28,041
 


CAPITAL AND RESERVES

Called up share capital                                636        580

Share premium account                                4,279      1,610

Capital redemption reserve                              16         16

Capital reserve - unrealised                         2,295      3,087

Capital reserve - realised                          23,857     22,524

Revenue reserve                                        329        224

TOTAL SHAREHOLDERS' FUNDS - EQUITY                  31,412     28,041



NET ASSET VALUE PER ORDINARY SHARE                 1233.8p    1208.2p



Cash Flow Statement 
for the year ended 5 April 2003
                                                      2003        2002
                                                     £'000       £'000
 
NET CASH INFLOW FROM OPERATING ACTIVITIES              230          14


TAXATION
Income tax recovered                                    37           -

 
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire investments                   (13,230)    (13,518)                
Receipts from sale of investments                    9,243      14,239
                                                   (3,987)         721


EQUITY DIVIDENDS PAID                                (209)       (181)      


MANAGEMENT OF LIQUID RESOURCES
Cash paid to brokers awaiting investment             1,143     (1,199)                  
 

FINANCING
Issue of new shares                                  2,726         632

 
DECREASE IN CASH                                      (60)        (13)

The financial information set out above does not constitute the Company's
statutory accounts for the year ended 5 April 2002 and 2003 but is derived from
these accounts. Statutory accounts for 2002 have been delivered to the Registrar
of Companies and those for 2003 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.

Dividend

The dividend will be paid on 31st July 2003 to shareholders on the register as
at 11th July 2003.


For queries, please contact:

Madeleine Cordes, Ernst & Young LLP              01582 643057 

Campbell Morton, Senior Independent Director     028 90 763631
   

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