Final Results

CAPITAL GEARING TRUST P.l.c.

1 June 2017

Annual Financial Results for the year ended 5 April 2017

The directors of Capital Gearing Trust P.l.c. announce the results for the year ended 5 April 2017.

Performance Summary	5 April 2017	5 April 2016	% Change
Share price	3,870.5p	3,420.0p	+13.2
Net asset value per ordinary share	3,805.0p	3,382.0p	+12.5
Premium	1.7%	1.1%	+0.6
Shareholders’ funds	£169.5m	£107.9m	+57.1
Market capitalisation	£172.4m	£109.1m	+58.0
Shares in issue	4,453,174	3,191,062	+39.6
Ongoing charges percentage*	0.89%	1.04%	-14.4
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 2017, the net asset value (NAV) per share was 3,805p compared to 3,382p a year earlier. Though in absolute terms an increase of 13.4% is satisfactory, some observers might note critically that the fund’s performance did lag behind that of, for example, the 25.5% increase in the MSCI UK index. Such criticism would be to miss the point. I can only reiterate that the Company's stated policy is to achieve growth in absolute terms over the longer term, seeking to protect shareholder’s capital when markets face headwinds (for example, as in 2015/2016) whilst possibly sacrificing potential short term returns during periods of market exuberance. 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. The cumulative benefit for shareholders of maintaining positive compound returns, and seeking to avoid periods of drawdown, is clear.

Dividend and Earnings

The revenue return per share in the year ended 5 April 2017 was 18.26p, as against 16.91p in the previous year. With the relatively high asset allocation towards index-linked and short dated bonds, income was always likely to take second place to preserving and growing capital. The objective of the Trust is to seek an absolute positive total return, and not to strive for some arbitrary income target. Nonetheless, the Board believes that dividend payouts should not necessarily suffer from short term movements in revenue earnings. For the third year in succession, 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 income.

Annual General Meeting

This year, the AGM will be held in London at the Moorgate offices of Smith & Williamson on Monday, 10 July 2017 at 11.00 a.m. The notice convening the fifty-fourth AGM of the Company is set out on pages 52 and 53 of the Annual Report and I, and the rest of the Board, look forward to meeting shareholders then. As has become customary, after the formal business of the meeting is concluded, our Managers will be making a short presentation on the outlook for markets and the Company's investments, including the opportunity to ask questions.

Share Issuance and Buybacks

The Company’s discount control policy (“DCP”) will, by the time of this year’s AGM, have been in operation for almost two years.

The principal aims of the Board in introducing the DCP were 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 to limit the premium or discount to NAV at which the Company’s shares trade, by issuing new shares to the market when the premium exceeds NAV by a small percentage or by repurchasing shares should the share price move to more than a small discount to NAV.

These aims have resulted in a significant reduction in the volatility in the premium / discount at which the shares previously traded and in improved liquidity, allowing the Company to satisfy demand from new investors wanting to buy into the Company. Since the inception of the DCP, the share price has tended to trade at par or at a small premium to NAV, and only very briefly at a small discount.

The past year has seen a significant acceleration in the issuance of shares in response to investor demand. Share repurchase has been at a very low level overall, and non-existent in 2016/2017. During the first eight months of operation of the DCP, 273,525 shares were issued at an average premium of 1.5% to prevailing NAV, with a resultant net cash inflow of £8.89m to the portfolio. During the last financial year, 1,262,193 new shares were issued leading to a net cash inflow of £45.99m. Aided by the growth in NAV per share of 13.4%, this means that the Company’s portfolio is some 65% larger at £160.64m compared to a year ago.

Whilst the growth in assets under management, per se, has not been an aim of the DCP, there have been concomitant benefits. Ongoing costs have become a smaller proportion of the Company as its value has grown thereby enhancing net returns to shareholders. The increased size and liquidity of the Company has encouraged new investors to purchase shares, for whom the trust was previously too difficult to trade.

However, tides in investment fashion can flow two ways. In the future the level of share buybacks may at some point significantly exceed the level of issuance. The Board and the Managers must 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 this need arise. Thus the operation of DCP in expanding the issued share capital can impose constraints on asset allocation. For example, it would be hard to envisage a portfolio structured entirely of investment trust assets, given the underlying illiquidity in many trust shares.

Costs

In a period of low interest rates and uncertain investment returns, one of the Board’s key responsibilities is to monitor and control the costs of running your Company. It is encouraging to note that the ongoing charges percentage has fallen during the year from 1.04% to 0.89%. The principal reason for this positive trend has been the steady issuance of new shares referred to previously. The “fixed”costs of running the Company, dominated by ever more onerous compliance requirements, are spread across a significantly broader base of issued share capital. Moreover, 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 £169.45m.  Even without any substantial issuance of shares in the short term, this latter factor should continue to impact positively on the ongoing charge ratio during the current year.

The Board

Alastair Laing 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 16 of the annual report.

Alternative Investment Fund Managers Directive

The Company has, up until now, been registered under the Alternative Investment Fund Managers Directive (“AIFMD”) as a ‘small internally managed Alternative Investment Fund' (“AIF”)’.

We have stated previously that the Company's position in relation to the AIFMD is continually monitored. At the end of the past financial year, the Board decided that this status needed revision in the light of evolving market practice, the increase in scale of the Company, and the restrictions on certain aspects of investment policy and portfolio management actions that AIF status imposes.

Accordingly, the Board invited the Investment Managers, CG Asset Management, to apply for authorisation as a Small Authorised UK Alternative Investment Fund Manager (“AIFM”). This application was duly made to the Financial Conduct Authority just before the Company’s financial year end. The Board awaits a positive outcome shortly.

Outlook

During 2016, the decline in the trade-weighted value of sterling came to the rescue of many U.K. portfolios, CGT’s included. It is hard to see from what quarter help will ride this year. Inflationary pressures are slowly emerging and whilst the bottom of the interest rate cycle may now be past it is hard to see rapid increases in nominal short rates anytime soon. Meanwhile, the policies of the central banks seem likely to become rather less accommodating in supporting asset prices than recent years. Geopolitical risks intuitively remain high in many regions, with new, untested, administrations facing new challenges. Yet market risk measures remain at or near historic lows. For the twelve months ahead it may be that merely preserving the gains of previous years will be viewed as success.  Nevertheless, we will be striving to maintain our record of positive total returns.

Graham Meek

Chairman

1 June 2017

INVESTMENT OBJECTIVES AND INVESTMENT POLICY

INVESTMENT OBJECTIVES

The Company’s dual objectives are to preserve shareholders' real wealth and to achieve absolute total return over the medium to longer term.

INVESTMENT POLICY

The Company aims to achieve its investment objectives through long only investment in quoted closed-ended funds and other collective investment vehicles, bonds, commodities and cash, as considered appropriate.

Given the diverse attributes of closed-ended funds and other collective investment vehicles, as well as the lower-risk characteristics attached to the other asset classes in which the Company invests, a flexible approach to asset allocation is adopted. 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 at any time.

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

The Company does not have a formal benchmark but uses the UK Retail Price Index (RPI) as the minimum target for returns to be achieved over the medium to longer term, thereby aiming to at least preserve the real value of shareholders’ investments.

The Company, in pursuing total return, does not aim to invest for income to support any target dividend payment, since capital return is likely to be the largest component of the absolute return objective.

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 Company may invest in derivatives such as warrants, options, swaps and forward contracts for the purpose of efficient portfolio management, subject to prior Board approval. Investments in other funds managed by CG Asset Management, or by associates of CG Asset Management, will be considered by the Board on a case by case basis and are subject to Board approval.

Borrowing powers

The Company has the authority to borrow up to 20% of net assets, subject to prior Board approval.

AIFMD status

The Company is registered currently under the AIFMD as a small UK Alternative Investment Fund Manager (AIFM). Although the investment policy of the Company permits gearing, including the use of derivatives, the Company is not permitted to employ gearing whilst it continues to be registered under its present AIFM status.

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 MSCI UK 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 1.1% compared with 1.7% 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 0.89% for the year to 5 April 2017 (2016: 1.04%).

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

The Company operates a zero discount/premium management policy to assist in reducing premium volatility.  Under this policy the Company will purchase or issue shares to ensure, in normal market conditions, that the shares trade close 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.

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 15 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

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. At the end of the year under review, the Board comprised four male and one female director.

INVESTMENT MANAGER'S REPORT

Review

In financial terms we live in truly extraordinary times. It is worth reminding ourselves of this fact regularly, if not we all risk becoming, like the apocryphal frog in the pan of heated water, so inured to our present circumstances that we go from being alive to being an hors d’oeuvre without noticing. US equities, by pretty much any measure we might use, are incredibly expensive. The cyclically adjusted price earnings ratio (“CAPE”) has only been more expensive twice (in 1929 and 1999/2000), EV/EBITDA and Price to Sales have not been higher since 2000. Sadly the bond market does not offer an obvious refuge. Despite approaching full employment and market inflation expectations exceeding policy mandates across all durations, the Bank of England has the most accommodative monetary policy in its history. Our response to this environment is to remain defensively positioned with a principle focus on capital preservation. In practical terms this means our equity exposure remains extremely constrained, our corporate bond exposure is to high quality issues and our sovereign bond exposure is the shortest duration it has ever been.

Given this extremely defensive portfolio positioning we were delighted, not to mention surprised, that the portfolio delivered 13.4% returns over the year. These returns were only possible due to the marked weakness of sterling after the UK referendum decision to leave the European Union. Our holdings of overseas index-linked bonds benefited from double digit currency gains. The corporate bond and preference share holdings returned about 7% after the Bank of England included corporate bonds into its asset purchase programme as well as lowering base rates. The investment trust portfolio performed very strongly in the year returning about 19%, notwithstanding the low beta profile of many of the holdings. The standout performers included the Prospect Japan Fund which was subject to a bid. The bid is not straightforward but we are hopeful it will go through delivering further upside. Another area of strong performance was in the UK smaller companies sector including Invesco Perpetual UK Smaller Companies and Aberforth Geared Income both of which benefited from strong asset performance and narrowing discounts. Both trusts have promised exits to investors at close to NAV in the near future giving us hope of further modest outperformance.

The year proved to be a strong one for issuance in the listed infrastructure sector both in renewable energy and in social and physical infrastructure. These sectors offer prospective real returns in low single digits with significantly lower risk than the equity markets. We have participated in a number of these issues. In most instances the funds have quickly traded up to significant premia to NAVs, levels at which we were no longer comfortable to hold them and we have reduced our positions accordingly.

New positions were added over the year in German residential property. We purchased shares in three German listed companies to add to an existing holding of a London listed investment trust. For some time we have sought a means of expressing our view that the German currency, were such a thing to exist, is incredibly cheap. Absent full fiscal union or other large scale fiscal transfers, the Eurozone appears to be unsustainable in its current form. We have struggled to find a means to satisfactorily express this view as German government bond yields have fallen so low as to make them uninvestable. German residential real estate offers some income and capital growth potential in the short term, and a free option of currency gain should the Euro break up.

Notwithstanding these opportunities there are certainly risks lurking in the investment trust sector. We monitor discounts to NAVs considering the weighted average discount across the sector as a whole, and we screen trusts at an individual level by setting target discounts at which we would buy or sell. The former shows the market is trading as tightly to NAV as it ever has. The latter shows that there are very few “buys” and a very great number of “sells” in our universe. It is a timely reminder that discounts in the investment trust market are a double-edged sword. From here the probability that aggregate discounts widen is greater than that they narrow. We have taken what steps we can to protect your portfolio from such an eventuality by favouring trusts: with guaranteed exits at NAV; that are in liquidation; or where the boards have made strong promises about the level of discount they will tolerate.

Outlook

The decisive financial development in western markets over the last 35 years has been the collapse of interest rates.  Both nominal and real interest rates have seen falls that are unparalleled in modern, or indeed ancient, financial history.  In consequence, bonds have enjoyed a bull market that has been astonishing both in extent and duration.  Real rates for 10 year government bonds in the UK have fallen from 4.5% to minus 2% on a 10 year index-linked bond.  Prices of longer issues are yet more extraordinary – in order to ‘guarantee’ £1 real value in 51 years, investors need to save £2.40 today assuming no costs and reinvesting the coupons. The effect is not limited to bond markets, the risk-free discount rate is fundamental to the valuation of all financial assets, including equities and property.  That is why CAPE assessments of equities are trading at such rich levels and prime properties at such high multiples of rental yields.

The reasons for falling interest rates revolve principally around disinflation and the policy stance of central banks.  Both look to be at or close to a turning point.  Certainly the prospects for inflation have broken the long term trend, which bottomed in the second half of 2016, when fears of deflation in the US and Europe were widespread.  Given the policy background, such deflationary fears always looked overplayed. Even now forward inflation swaps suggest that market participants believe inflation in the US and the UK will be lower than target levels in five years’ time.  That still seems to underestimate the outlook; as we have seen, if slow growth were to depress inflation, a dovish response by central banks is all but assured.  Both countries enjoy essentially full employment; conditions for wage growth are at last supportive.

Debt levels are such that financial repression (inflation levels greater than interest rates) can be assumed.  Furthermore, economies have adapted over this prolonged period of negligible interest rates to an extent that prohibits rapid or substantial increases in nominal short rates.  Nevertheless with inflation rising and the unwinding of central banks’ balance sheets, a steeper yield curve can be expected in both the US and the UK.  Europe may lag as political imperatives to shore up the weakest members of the Eurozone, notably Italy, overwhelm any fears of inflation.

This raises an important question, if long bond yields and by extension discount rates are likely to rise how should asset allocation react?  For conventional bonds, the conclusion is clear; duration should be short. Historically equity valuations have also been very weak in the face of rising bond yields, most notably in the 1970’s. Of course, corporate profits could thrive in more inflationary conditions, but the increase in the valuation of those earnings is what has driven markets up over the last 10 years and the reversal of that process should overwhelm the growth of corporate profits. Much the same process applies to property.

Among the broad asset classes, only US inflation protected bonds (“TIPS”) offer the prospect of protection against inflation and real capital gain if inflation rises above long term interest rates.  Furthermore these gains are likely to be achieved at a time that all other asset values will be falling. For this reason inflation linked bonds remain the largest weighting within the portfolio.

Overall the conclusion is clear.  If the discount rate used to value all financial assets is unprecedentedly low, then the key to asset allocation is to lock that rate in for as short a time as possible.  As the prolonged bull market in interest rates comes to an end, and is reversed, short duration is the key to avoid giving back the wonderful returns of the last three and a half decades.

Peter Spiller

Alastair Laing

Christopher Clothier

1 June 2017

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 15 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 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 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 £169,758,000 as at 5 April 2017

		North			2017
	UK	America	Europe	Elsewhere	Total
	%	%	%	%	%
Investment Trust Assets:
Ordinary Shares	16.3	4.5	4.9	8.5	34.2
Zero dividend preference shares	6.7	-	0.1	5.4	12.2
Other Assets:
Index-Linked	15.6	18.0	2.6	0.3	36.5
Fixed Interest	9.0	0.3	0.9	1.5	11.7
Cash	3.7	1.2	0.5	-	5.4
	51.3	24.0	9.0	15.7	100.0

Distribution of investment funds of £107,821,000 as at 5 April 2016

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

Investments of the Company

	2017	2016
Investment Trust Ordinary Shares:	£'000	£'000
North Atlantic Smaller Companies	5,252	4,865
Better Capital PCC	2,503	979
iShares MSCI Japan GBP Hedged UCITS ETF	2,503	-
Civitas Social Housing	2,441	-
Unite Group	2,220	-
Rights & Issues Investment Trust	1,969	458
JPEL Private Equity USD	1,906	873
Ground Rents Income Fund Ordinary	1,853	609
Deutsche Wohnen	1,694	-
Schroder UK Growth Fund	1,579	862
RM Secured Direct Lending	1,576	-
ETFS Metal Securities (physical gold)	1,463	1,273
Foreign & Colonial Investment Trust	1,346	222
The Renewables Infrastructure Group	1,303	-
Prospect Japan Fund	1,292	1,458
Foresight Solar Fund	1,276	472
John Laing Environmental Assets Group	1,134	505
Aberforth Geared Income Trust	1,108	-
Vonovia	1,044	-
Oryx International Growth Fund	1,037	1,004
Ecofin Global Utilities and Infrastructure Trust	1,002	-
Invesco Perpetual UK Smaller Companies Investment Trust	991	1,320
Bluefield Solar Income Fund	986	-
GCP Asset Backed Income Fund C Shares	973	-
HICL Infrastructure	930	-
SQN Asset Finance Income Fund	919	-
EPE Special Opportunities	881	602
DW Catalyst Fund	866	-
Segro	863	-
Leg Immobilien	859	-
Mithras Investment Trust	826	875
North American Income Trust	824	943
Candover Investments	725	350
SME Loan Fund	701	-
SVG Capital	627	-
Phoenix Spree Deutschland	626	768
BH Macro	559	-
Advance Frontier Markets Fund	555	442
GCP Infrastructure Investments	537	98
iShares Core FTSE 100 ETF	508	-
Vanguard FTSE 250 UCITS ETF	505	-
Witan Pacific Investment Trust	503	190
BH Macro USD	483	-
GCP Asset Backed Income Fund (formerly Project Finance Investments)	390	277
Artemis Alpha Trust	374	318
Real Estate Credit Investments	344	232
Eurovestech	313	313
Value & Income Trust	307	360
BH Global	280	-
Witan Investment Trust	270	-
TR Property Investment Trust	223	-
Miton Worldwide Growth Investment Trust	216	437
Aberdeen Latin American Income	173	130
Land Securities Group	157	385
Marwyn Value Investors	137	188
Weiss Korea Opportunities Fund	136	54
Ecofin Realisation Company	126	-
Hansa Trust ‘A’ Shares	116	98
GCP Student Living	90	436
LMS Capital	35	209
Schroder Global Real Estate Securities	17	2,245
JP Morgan Senior Secured Loan	10	672
Bluecrest Allblue	10	309
Highbridge Multi-Strategy Fund	5	464
Aberdeen Asian Income Fund	-	192
Alliance Trust	-	126
Atlantis Japan Growth Fund	-	284
Ecofin Water & Power Opportunities	-	275
Empiric Student Property	-	1,095
Henderson Alternative Strategies Trust	-	148
Henderson Global Trust	-	788
JP Morgan Income & Growth Income	-	130
JP Morgan Overseas Investment Trust	-	245
Jupiter US Smaller Companies	-	312
NextEnergy Solar Fund	-	429
P2P Global Investments	-	226
Private Equity Investor	-	469
Rights & Issues Capital	-	1,338
VPC Speciality Lending Investments	-	169
Investments with a market value below £100,000	613	466
	58,090	32,987
	2017	2016
Investment Trust Zero Dividend Preference Shares:	£'000	£'000
NB Private Equity ZDP 2022	3,198	-
Aberforth Geared Income Trust 2017	2,997	2,121
JP Morgan Private Equity 2017	2,687	581
JZ Capital Partners 2022	2,323	2,142
JP Morgan Income & Capital Trust 2018	1,716	1,691
Jupiter Dividend & Growth Trust 2017	1,509	1,151
Utilico Investments 2018	1,499	1,088
Acorn Income Fund 2022	1,457	-
Utilico Investments 2020	944	249
Premier Energy & Water Trust 2020	873	1,057
Ranger Direct Lending 2021	438	-
Small Companies Dividend Trust 2018	408	145
Taliesin Property Fund 2018	355	-
GLI Finance 2019	323	-
M&G High Income Investment Trust 2017	-	2,976
Ecofin Water & Power Opportunities Finance 2016	-	2,816
Electra Private Equity 2016	-	2,396
NB Private Equity Partners 2017	-	1,972
Acorn Income Fund 2017	-	1,217
JZ Capital Partners 2016	-	1,113
Utilico Finance 2016	-	912
Picton Property 2016	-	333
	20,727	23,960
	2017	2016
Index-Linked Securities:	£'000	£'000
UK Treasury 0.125% 2019	8,429	4,433
USA Treasury 2.0% 2026	7,677	3,434
UK Treasury 1.25% 2017	6,893	6,777
UK Treasury 0.125% 2024	4,149	2,860
USA Treasury 0.125% 2025	4,040	-
USA Treasury 0.625% 2021	3,323	2,883
USA Treasury 1.75% 2028	2,903	-
USA Treasury 0.125% 2020	2,702	1,677
USA Treasury 0.125% 2023	2,538	2,196
USA Treasury 0.625% 2023	2,348	-
UK Treasury 2.5% 2020	2,148	-
Sweden (Kingdom of) 0.25% 2022	2,073	-
Sweden (Kingdom of) 0.5% 2017	1,554	1,516
UK Treasury 0.125% 2026	1,514	-
USA Treasury 1.125% 2021	1,173	1,022
USA Treasury 1.375% 2020	949	828
UK Treasury 1.875% 2022	913	846
USA Treasury 3.875% 2029	823	-
USA Treasury 0.125% 2024	816	708
Tesco Personal Finance 1.0% 2019	767	508
Sweden (Kingdom of) 4.0% 2020	713	703
USA Treasury 0.125% 2019	674	583
National Grid 1.25% 2021	448	-
Sydney ARPT Finance Company 3.76% 2020	429	-
USA Treasury 0.75% 2042	418	-
Severn Trent 1.3% 2022	392	-
Nationwide 3.875% 2021	231	87
USA Treasury 0.125% 2022	217	188
The Housing Finance Corporation 5.5% 2024	170	152
National Grid 2.983% 2018	143	102
Places for People Capital Markets 1.0% 2022	141	-
USA Treasury 1.375% 2018	-	3,594
Investments with a market value below £100,000	167	143
	61,875	35,240
	2017	2016
Fixed-Interest Securities:	£'000	£'000
UK Treasury 31/07/2017	2,998	-
UK Treasury 10/04/2017	2,000	-
UK Treasury 07/08/2017	1,998	-
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021	1,629	491
Pershing Square 5.5% 2022	1,225	968
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018	1,208	1,014
BG Energy Capital 5.125% 2017	1,183	-
Severn Trent 6.0% 2018	651	-
BT 6.625% 2017	607	-
BMW Finance 1.75% 2017	543	-
Bruntwood Investments 6.0% 2020	537	-
National Grid North America 1.875% 2018	506	-
Edinburgh Dragon Trust 3.5% 2018	498	481
LVMH 1.625% 2017	483	-
Vodafone Group 5.375% 2017	463	-
Sky Group 5.75% 2017	462	-
Primary Healthcare Properties 5.375% 2019	442	-
CLS Holdings 5.5% 2019	415	-
F&C Global Smaller Companies plc 3.5% Convertible Unsecured Loan Stock 2019	410	542
Northumbrian Water 6.0% 2017	400	-
Workspace Group 6.0% 2019	391	-
Ecclesiastical Insurance Office 8.625% Non-Cumulative Irredeemable Preference Shares	348	-
The Mercantile Investment Trust 6.125% 2030	193	190
Unite Group 6.125% 2020	108	-
Ecofin Water & Power Opportunities plc 6.0% Convertible Unsecured Loan Stock 2016	-	924
Scottish American 8.0% 2022	-	194
Investments with a market value below £100,000	247	74
	19,945	4,878
Total investments	160,637	97,065
Cash held by custodian awaiting investment	9,121	10,756
Total investment funds	169,758	107,821

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

Graham Meek

Chairman

1 June 2017

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 2017

	Note	Revenue	Capital	2017 Total	Revenue	Capital	2016 Total
		£’000	£’000	£’000	£’000	£’000	£’000
Net gains on investments	9	-	15,978	15,978	-	3,067	3,067
Exchange gains/(losses)		-	20	20	-	(123)	(123)
Investment income	2	1,448	-	1,448	1,167	-	1,167
Gross return		1,448	15,998	17,446	1,167	2,944	4,111
Investment management fee	3	(333)	(500)	(833)	(238)	(357)	(595)
Other expenses	4	(395)	-	(395)	(421)	-	(421)
Net return on ordinary activities before tax		720	15,498	16,218	508	2,587	3,095
Tax (charge)/credit on net return on ordinary activities	6	(23)	22	(1)	(5)	5	-
Net return attributable to equity shareholders		697	15,520	16,217	503	2,592	3,095
Net return per Ordinary Share	8	18.26p	406.59p	424.85p	16.91p	87.14p	104.05p

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 following notes form an integral part of these financial statements.

Statement of Changes in Equity for the year ended 5 April 2017

	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 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					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
Balance at 6 April 2016		798	20,934	16	84,453	1,719	107,920
Net return attributable to equity shareholders and total comprehensive income for the year		-	-	-	15,520	697	16,217
Shares issued from treasury		-	-	-	3	-	3
New shares issued		315	45,676	-	-	-	45,991
Dividends paid	7	-	-	-	-	(686)	(686)
Total transactions with owners recognised directly in equity		315	45,676	-	3	(686)	45,308
Balance at 5 April 2017		1,113	66,610	16	99,976	1,730	169,445

*The capital reserve balance at 5 April 2017 includes unrealised gains on fixed asset investment of £21,805,000 (5 April 2016 – gains of £13,410,000).

As at 5 April 2017 £78,171,000 (2016: £71,043,000) of the capital reserve is regarded as being available for distribution.

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

Statement of Financial Position as at 5 April 2017

	Note	2017 £’000	2016 £’000
Fixed assets
Investments held at fair value through profit or loss	9	160,637	97,065
Current assets
Debtors	10	595	464
Cash at bank and in hand		9,121	10,756
		9,716	11,220
Creditors: amounts falling due within one year	11	(908)	(365)
Net current assets		8,808	10,855
Total assets less current liabilities		169,445	107,920
Capital and reserves
Called-up share capital	12	1,113	798
Share premium account		66,610	20,934
Capital redemption reserve		16	16
Capital reserve		99,976	84,453
Revenue reserve		1,730	1,719
Total equity shareholders’ funds		169,445	107,920
Net asset value per Ordinary Share	13	3,805.0p	3,382.0p

The financial statements were approved by the Board on 1 June 2017 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 2017

	Note	2017 £’000	2016 £’000
Net cash outflow from operations before dividends and interest	14	(1,058)	(1,175)
Dividends received  Interest received		644 616	510 677
Net cash inflow from operating activities		202	12
Payments to acquire investments Receipts from sale of investments		(117,112) 69,913	(42,819) 36,691
Net cash outflow from investing activities		(47,199)	(6,128)
Equity dividends paid                                                                                                                                                                                                                                   Repurchase of ordinary shares Issue of ordinary shares	7	(686) - 46,048	(585) (309) 9,029
Net cash inflow from financing activities		45,362	8,135
(Decrease)/increase in cash and cash equivalents		(1,635)	2,019
Cash and cash equivalents at start of year Cash and cash equivalents at end of year		10,756 9,121	8,737 10,756
(Decrease)/increase in cash and cash equivalents		(1,635)	2,019
Cash and cash equivalents consist of cash at bank and in hand		9,121	10,756
The following notes form an integral part of these financial statements.

Notes to the Financial Statements

1 Accounting policies

a)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 13 and 14 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”) including Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” 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 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 15. As a result of this amendment, the criteria used to allocate financial instruments into the three levels remain unchanged from prior years.

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.

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.

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% (2016: 60%) to capital and 40% (2016: 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.

k)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	2017 £’000	2016 £’000
	Income from investments:
	Interest from UK bonds	427	420
	Income from UK equity and non-equity investments	656	483
	Interest from overseas bonds	351	264
	Income from overseas equity and non-equity investments	14	–
	Total income	1,448	1,167
		2017    £’000	2016 £’000
	Total income comprises:
	Dividends	670	483
	Interest	778	684
		1,448	1,167
		2017    £’000	2016 £’000
	Income from investments comprises:
	Listed in the UK	1,083	903
	Listed overseas	365	264
		1,448	1,167

3	Investment management fee
		Revenue	Capital	2017 Total	Revenue	Capital	2016 Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Investment management fee	333	500	833	238	357	595

The Company’s investment manager CG Asset Management Limited received an annual management fee equal to 0.60% of the net assets of the Company up to £120m and 0.45% thereafter (2016: 0.60%). At 5 April 2017 £236,000 (2016: £162,000) 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	2017 £’000	2016 £’000
	Administrative expense
	Portfolio administration and custody services	26	72
	Fees payable to Company auditor for the audit of Company accounts Fees payable to Company auditor for other services: Services relating to taxation - compliance	21	23 13
	Fees payable to Company auditor for other services:
	Services relating to taxation compliance	9	13
	Other taxation services	4	4
	Directors’ remuneration (note 5)	99	98
	Company secretarial and accountancy services	135	127
	General expenses	101	84
		395	421
	The above expenses include irrecoverable VAT where appropriate.

5	Directors’ remuneration	2017 £’000	2016 £’000
	The fees payable to the directors were as follows:
	Mr E G Meek	25	23
	Mr T R Pattison (retired 8 July 2015)	-	7
	Mr G A Prescott	20	20
	Mr R A Archibald (appointed 28 May 2015)	18	15
	Mr A R Laing	18	18
	Miss J G K Matterson (appointed 28 May 2015)	18	15
		99	98
	Mr A R Laing’s fee is paid directly to his employer. The Company made no pension contributions (2016: £nil) in respect of directors and no pension benefits are accruing to any director (2016: £nil). Mr A R Laing received remuneration totalling £37,909 (2016: £48,203) 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 A R Laing is a director, are disclosed in notes 3 and 16. There were no other transactions with directors during the year.

6	Tax (charge)/credit on net return on ordinary activities
				2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Current tax:
	Corporation tax	(23)	22	(1)	(5)	5	–
	Total current tax (charge)/credit for the year	(23)	22	(1)	(5)	5	–

The tax assessed for the year is lower (2016: lower) than the standard rate of corporation tax in the UK of 20% (2016: 20%). The differences are explained below:

				2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Return on ordinary activities before taxation	720	15,498	16,218	508	2,587	3,095
	Return on ordinary activities at the standard rate of UK corporation tax	144	3,099	3,243	102	517	619
	UK franked dividends*	(122)	-	(122)	(97)	–	(97)
	Capital returns*	-	(3,199)	(3,199)	–	(588)	(588)
	Unrelieved loss for the year	-	78	78	–	66	66
	Corporation tax	1	-	1	–	–	–
	Current tax charge/(credit) for the year	23	(22)	1	5	(5)	–

*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 £326,000 at 5 April 2017 (£248,000 at 5 April 2016) have not been recognised as the prospect for their recovery against future taxation liabilities is uncertain.

During the year withholding tax refunds of £114,000 (2016: £nil) in relation to prior years was received from the Swiss tax authorities, all of which was offset against the existing corporation tax debtor.

7	Dividends Paid	2017 £’000	2016 £’000
	Ordinary Shares
	2016 dividend paid 22 July 2016 (20.0p per share)	686	-
	2015 dividend paid 17 July 2015 (20.0p per share)	-	585

The directors have recommended to shareholders a final dividend of 20p per share for the year ended 5 April 2017. If approved, this dividend will be paid to shareholders on 21 July 2017. 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 £891,000 (based on the number of shares in issue at 5 April 2017).

		2017 £’000	2016 £’000
	Revenue available for distribution by way of dividend for the year	719	508
	Proposed final dividend of 20p for the year ended 5 April 2017	(891)	(638)
	Revenue surplus/(deficit) for purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010*	(172)	(130)

* Undistributed revenue comprises approximately 0.0% (2016: 0.0%) of income from investments of £1,448,000 (2016: £1,167,000).

8 Net return per Ordinary share

The net return per Ordinary share of 424.85p (2016: 104.05p) is based on the total net return after taxation for the financial year of £16,217,000 (2016: £3,095,000) and on 3,817,149 (2016: 2,974,510) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Revenue return per Ordinary share of 18.26p (2016: 16.91p) is based on the net revenue return on ordinary activities after taxation of £697,000 (2016: £503,000) and on 3,817,149 (2016: 2,974,510) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Capital return per Ordinary share of 406.59p (2016: 87.14p) is based on the net capital return for the financial year of £15,520,000 (2016: £2,592,000) and on 3,817,149 (2016: 2,974,510) 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	2017 £’000	2016 £’000
	Investments comprise –
	Listed investment companies:
	Ordinary shares UK	27,646	17,018
	Ordinary shares Overseas	30,444	15,969
	Zero Dividend Preference Shares UK	11,284	15,071
	Zero Dividend Preference Share Overseas	9,443	8,890
	Listed UK Government Bonds	31,041	14,916
	Listed UK Non-Government Bonds	10,862	4,282
	Listed Overseas Government Bonds	34,942	19,331
	Listed Overseas Non-Government Bonds	4,975	1,588
		160,637	97,065
	Cost of investments held at 6 April*	83,655	74,330
	Unrealised appreciation at 6 April*	13,410	13,418
	Fair value of investments held at 6 April	97,065	87,748
	Additions at cost	117,614	42,768
	Sales – proceeds	(70,020)	(36,518)
	– net gains on sales	7,583	3,075
	Movement in unrealised appreciation in the year	8,395	(8)
	Fair value of investments held at 5 April	160,637	97,065
	Book cost at 5 April	138,832	83,655
	Unrealised appreciation at 5 April	21,805	13,410
		160,637	97,065
	Disposals – realised gains	7,583	3,075
	Increase/(decrease) in unrealised appreciation	8,395	(8)
	Gains on investments	15,978	3,067

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

The total transaction costs on additions were £126,000 (2016: £64,000) and on sales £31,000 (2016: £15,000). These costs are included in the book cost of acquisitions and the net proceeds of sales.

10	Debtors	2017 £’000	2016 £’000
	Other debtors	224	171
	Prepayments and accrued income	358	166
	Corporation tax	13	127
		595	464

11	Creditors: amounts falling due within one year	2017 £’000	2016 £’000
	Other creditors	610	100
	Accruals and deferred income	298	265
		908	365

12	Called-up share capital	2017 £’000	2016 £’000
	Allotted and fully paid
	At the beginning of the year: 3,191,062 Ordinary shares (2016: 2,926,906)	798	731
	Allotted during the year: 1,262,112 Ordinary shares (2016: 264,156)	315	67
	At the end of the year: 4,453,174 Ordinary shares (2016: 3,161,062)	1,113	798
	During the year to 5 April 2017 there were no Ordinary shares of 25p each repurchased by the Company (2016: 9,450 Ordinary shares of 25p each repurchase at a total cost of £309,000) During the year to 5 April 2017 the Company re-issued 81 (2016: 9,369) Ordinary shares of 25p each from treasury for proceeds totalling £3,000 (2016: £315,000). During the year to 5 April 2017 there were 1,262,112 (2016: £264,156) new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £45,991,000 (2016: £8,885,000). No shares were purchased for cancellation during the year (2016: nil) and at the year end no shares were held in treasury (2016: 81).

13	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	2017	2016
	Ordinary shares (basic)	3,805.0p	3,382.0p

	Net asset value attributable to
		2017 £’000	2016 £’000
	Ordinary shares (basic)	169,445	107,920

Net asset value per Ordinary share is based on the net assets, as shown above, and on 4,453,174 (2016: 3,190,981) Ordinary shares, being the number of Ordinary shares in issue at the year end (excluding treasury shares).

14	Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends and interest
		2017 £’000	2016 £’000
	Net return on ordinary activities before finance costs and taxation	16,218	3,095
	Less capital return on ordinary activities before finance costs and taxation	(15,498)	(2,587)
	(Increase)/decrease in prepayments and accrued income	(5)	1
	Increase/(decrease) in accruals and deferred income	42	(15)
	Management fees charged to capital	(500)	(357)
	Decrease/(increase) in overseas withholding tax	113	(22)
	Dividends received	(670)	(483)
	Interest received	(778)	(684)
	Realised gains/(losses) on foreign currency transactions	20	(123)
	Net cash outflow from operations before dividends and interest	(1,058)	(1,175)

15	Financial instruments The company has the following financial instruments:	2017 £’000	2016 £’000
	Financial assets at fair value through profit or loss
	-Investments held at fair value through profit or loss	160,637	97,065
	Financial assets that are debt instruments measured at amortised cost
	-Cash at bank and at hand	9,121	10,756
	-Other debtors	224	171
	-Accrued income	343	155
		170,325	11,082
		2017	2016
		£’000	£’000
	Financial liabilities measured at amortised cost
	-Other creditors	601	100
	-Accruals	298	258
		899	356

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 objectives;

• 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.

		2017	2017	2016	2016
		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	(14)	14	(10)	10
	Capital return	8,010	(8,010)	4,837	(4,837)
	Total return after taxation	7,996	(7,996)	4,827	(4,827)
	Net assets	7,996	(7,996)	4,827	(4,827)
	Net asset value per Ordinary share	179.56p	(179.56)p	154.66p	(154.66)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.

		2017	2017	2016	2016
		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	73	(73)	86	(86)
	Capital return	–	–	–	–
	Total return after taxation	73	(73)	86	(86)
	Net assets	73	(73)	86	(86)
	Net asset value per Ordinary share	1.64p	(1.64)p	2.76p	(2.76)p

The interest rate profile of the Company’s assets at 5 April 2017 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	78,817	–	–	–	78,817	–	–
UK index-linked government bonds	24,045	–	24,046	–	–	0.6	3.4
UK index-linked non-government bonds	2,848	–	2,457	–	–	1.4	4.0
UK government bonds	6,996	–	–	–	6,996	–	–
UK non-government bonds	8,014	–	–	8,404	–	1.7	2.4
Overseas index-linked government bonds	34,942	–	34,943	–	–	0.6	6.8
Overseas index-linked non-government bonds	429	–	429	–	–	2.2	3.6
Overseas non-government bonds	4,546	–	–	4,545	–	2.5	2.4
Invested funds	160,637	–	61,875	12,949	85,813
Cash at bank	9,121	9,116	–	–	5	–	–
Other debtors	595	–	–	–	595	–	–
Liabilities
Creditors	(908)	–	–	–	(908)	–	–
Total net assets	169,445	9,116	61,875	12,949	85,505

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

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:

		2017 Investments	2017 Accrued interest	2016 Investments	2016 Accrued interest
		£’000	£’000	£’000	£’000
	Euro	3,611	–	–	–
	US Dollar	36,067	98	22,035	47
	Swedish Krona	4,341	16	2,219	13
	Swiss Franc	14	–	47	–
	Australian Dollar	469	1	45	–
		44,502	115	22,346	60

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.

		2017 10% appreciation of Sterling £’000	2017 10% depreciation of Sterling £’000	2016 10% appreciation of Sterling £’000	2016 10% depreciation of Sterling £’000
	Income statement – net return after taxation	(29)	29	(21)	21
	Revenue return
	Capital return	(4,450)	4,450	(2,435)	2,435
	Total return after taxation	(4,479)	4,479	(2,456)	2,456
	Net assets	(4,479)	4,479	(2,456)	2,456
	Net asset value per Ordinary share	(100.58)p	100.58p	(78.69)p	78.69p

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:

		2017 Balance sheet £’000	2017 Maximum exposure £’000	2016 Balance sheet £’000	2016 Maximum exposure £’000
	Fixed assets – listed investments at fair value through profit and loss	160,637	81,820	97,065	40,118
	Debtors – amounts due from custodian, dividends and interest receivable	565	565	326	326
	Cash at bank	9,121	9,121	10,756	10,756
		170,323	91,506	108,147	51,200

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 2017 of £169,445,000 (2016: £107,920,000) 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.

  16 Related-party transactions

  Related-party transactions with Mr A R Laing, director of the Company, for the year ended 5 April 2017 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 2017, and do not constitute the statutory accounts for that year. The Company's Annual Report and Accounts for the year ended 5 April 2017 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2017 annual financial statements is unqualified and does not contain a statement under section 498 of the Companies Act 2006.

The 2016 figures and financial information are extracted from the published statutory accounts for the year ended 5 April 2016 and do not constitute the statutory accounts for that year. The 2016 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 2017 will be posted to shareholders in June 2017. The Annual Report will be also available on the Company's website www.capitalgearingtrust.com and on request from the company secretary:

Steven Cowie

PATAC Limited

21 Walker Street

Edinburgh

EH3 7HX

Telephone: [phone]

Email: [e-mail]

Annual General Meeting ("AGM")

The Company's AGM will be held on Monday, 10 July 2017 at 11am at the offices of Smith & Williamson Investment Management Limited, 25 Moorgate, London EC2R 6AY.

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]