Final Results

Capital Gearing Trust PLC
07 June 2006


Chairman's Statement

I am pleased to report another year of growth in the assets of your company. In
the year to 5th April 2006 the net asset value per share increased from 1692p
(restated) to 1937p or by 14.5%. This follows a 13.6% gain in 2005 and a 20.7%
gain in 2004.

The latest reporting period represents the 22nd consecutive year of growth in
net asset value and is consistent with our stated objective of delivering
capital growth in absolute terms rather than performance relative to any stock
market index. As a matter of record, during the year to 5th April 2006 the FTSE
Equity Investment Instruments Index rose by 39.5%, the FTSE All Share Index by
24.5% and the FTSE Government All Stock Index by 2%.

As mentioned in previous reports, our investment policy is as much geared to the
preservation of shareholders' wealth as it is to achieving capital growth. As
such during relatively short periods of sharply rising markets, asset growth may
not be as great as that recorded by a particular stock market index. Equally in
more volatile and or falling markets we would expect to perform relatively well.
Looking at our long term record of asset growth and taking into account the
potential downside risks at current market levels, we believe that this policy
will continue to serve investors well.

The table showing the overall asset allocation of the investment portfolio can
be found on page 7 of the accounts. Over the year, there has been little change
in the broad composition save that the exposure to zero dividend preference
shares has been reduced as a result of holdings being redeemed.  Although the
equity content has increased, in part as a result of market movements, the
cautious strategy that is  being adopted continues to be reflected in high
weightings in defensive areas  such as the Index Linked and Fixed Interest
holdings.

Earnings per share for the period amounted to 17.9p compared with 16.7p last
year.

Last year, a total distribution of 13p was paid made up of 11p plus a special
dividend of 2p. This year the board recommends a total distribution of 13.5p,
made up of 11.5p plus a special dividend of 2p.  The special dividend reflects
the income generated from the high bond content of the portfolio that at some
later stage might be switched into lower yielding capital growth orientated
securities if market levels become attractive.

There are many benefits of operating within a closed-end investment trust
structure but the Board is also aware that as a result of market supply and
demand imbalances, investment trust share prices do not always fairly reflect
net asset value.  To address this particular issue the Board has for some time
and with shareholder approval effected an informal discount/premium control
mechanism, issuing shares at a premium to net assets and buying back shares at a
discount.  Last year, shareholders approved resolutions seeking authority to
issue up to 10% of share capital on a non pre-emptive basis. During the year I
am pleased to confirm that in order to satisfy investor demand a total of 40,000
shares were issued at prices that represented a 15% premium to the then
prevailing asset value. The Board will be putting forward a similar resolution
at this year's AGM.  Having on previous occasions indicated to shareholders our
readiness to buy in shares providing the price paid was at a discount to net
asset value we will also be seeking shareholders' authority to buy in stock
within the terms set out in the resolution in the Notice of the AGM.

As reported last year full attention is given to all matters of corporate
governance. In this respect, the Board has given consideration to the updated
guidance issued earlier this year by the Association of Investment Trust
Companies and continues to aim to strike an appropriate balance between full
compliance and the ability to manage the company's affairs to the optimum
benefit of shareholders. A full statement regarding corporate governance is
contained in the Directors' Report.

Although our name may suggest something to the contrary, the company has no
structural gearing at present. This is a deliberate policy and is based upon our
medium term outlook for financial markets.  However, should conditions change
and it was thought to be in the interest of shareholders, the Board would not be
averse to introducing leverage.

As mentioned in the Company Summary on page 2 of the Report, it is the Board's
intention to offer shareholders the opportunity to realise their investment in
the company, at a price that fairly reflects the underlying net asset value in
2008. However, for the sake of clarity, I would like to reassure all
shareholders that providing there is sufficient ongoing support, the company
will continue in its present form after 2008.

It is always going to be difficult if nigh on impossible to predict just when
any  market bubble is about to burst. There is no doubt that world stock markets
and indeed asset prices in general have benefited from easy access to cheap
money.  Indeed, excess liquidity from trade surpluses generated from the
manufacturing based industries of China, India and other developing nations has
effectively financed the ever increasing indebtedness of the US consumer and as
a result world economic growth rates have been revised upwards. Rampant takeover
activity and high levels of financial speculation have further fuelled share
prices. Eventually, some of these imbalances will be unwound. Already monetary
policy is being tightened by most central banks and interest rates are trending
upwards. High oil and commodity prices will eventually impact on output prices
as well as reducing net disposable income of consumers. The rapid rise in the US
housing market already looks to have turned over.  All these factors lead us to
believe that the market outlook is uncertain at best and we are therefore
comfortable maintaining our defensive position.

Since our interim report, the Board and I am sure many long standing
shareholders were sorry to learn of the death of Lt Col. Chris Harding who along
with his brother Cecil was one of the founders of Capital Gearing Trust. Chris
served as Company Secretary and Director for many years and was a valuable
contributor to its early success.




Tony Pattison
6 June 2006



Investment Manager's Report

In the year to 5 April 2006, the net asset value per share of Capital Gearing
increased by 14.5%.  Following changes in accounting rules, the portfolio is now
valued on a bid basis which would have reduced the NAV by about three quarters
of a per cent at the previous year end.  That return, satisfactory for an
absolute return fund, is well behind the returns yielded by equities and
property but better than fixed interest markets over the period.

The year was most interesting.  The world economy did well.  It had seemed that
the surging energy prices associated with Hurricane Katrina in the autumn might
undermine the vigour of the American consumer, the single pillar on which all
other growth depended.  However, he (or she) responded magnificently by taking
the savings rate to negative levels (not seen since the 1930's).  Together with
the benefits of reconstruction in New Orleans, this led to a reacceleration in
growth worldwide.  Corporate profits did well in general against that
background, but particularly as a result of a boom in commodity prices in
response to voracious demand in China and India.  Furthermore the valuation put
on those earnings, especially where they can be considered stable, has been
raised by the wave of mergers and acquisitions.  This continuing process has
meant that most stocks are priced by consideration of what a private equity
buyer might pay for the company.  Not only that, but private equity buyers can
pay far more than previously because the banks and loan providers ask for low
credit spreads and are willing to finance gearing of 8:1 rather than 4:1.

Until the end of 2005, a further aid to market valuations in the UK came from a
collapse in long risk free real interest rates; 50 year index-linked gilts
traded at less than 1/2% real yields (they have returned to over 1% now).  This
made property as well as equity seem attractive and very large sums were
allocated to the sector, driving yields down to less than 5% on a broad index by
the end of the first quarter of 2006.  Returns were thus typically in the high
teens despite very modest moves in rents.

Conventional and index-linked bonds saw a substantial correction in 2006 to
date, as central banks tightened in response to more rapid than expected growth
and bond holders felt less able to look through the peak of short term interest
rates.

With the world economy growing at a good rate and animal spirits running wild,
the path of least resistance for equities still looks to be up.  Yet we remain
cautious, as we have been throughout the last year, because of the unprecedented
disequilibria in the real economy and the extravagant leverage that prevails in
the financial system.  The American household sector is borrowing 7% of GDP per
annum - this sector is normally in reasonable surplus.  The counter party is the
US current account deficit of the same size.  Neither deficit is sustainable and
it seems unlikely, although possible, that the correction of them will be
anything other than painful. Elements to the resolution including a weakening of
the US dollar against Asian currencies, especially that of China, and a
substantial increase in the savings rate.  Neither is bullish for corporate
profits or for world growth in general.

A key contributor to the ability of US consumers to borrow so much has been the
strength of the housing market, which has allowed owners to extract equity via
mortgage refinancing.  If the housing market merely flattens out, that ability
becomes more constrained, particularly if short and long term interest rates are
rising.  All this seems to be happening now, so this thesis could be tested over
the balance of 2006.

There is some hope that growth in capital expenditure in the US and domestic
consumption in Asia, and possibly Europe, could replace the consumer as an
engine of growth.  Unfortunately, both sources of demand look ultimately to be
derived from US domestic consumption, so that while they may reinforce any
further upswing, they seem unlikely to do much to offset a downturn.

Of course, all this could merely lead to a normal recession.  The fear, though,
must be that eight years of exceptionally accommodative monetary policy have
encouraged speculation and leverage to a degree that might prove damaging in a
difficult environment.  Credit Default Swaps, for example, have reached $17
trillion; that is to say that credit risk of that value has been traded between
institutions.  Recent experience of bond and loan defaults has been
exceptionally favourable; this has led to pricing in both the CDS and junk bond
markets that would look irrational in normal markets.  High gearing pervades the
US economy with credit having grown six times as fast as nominal GDP since 2000.

If this combination of economic and financial problems were to occur, the
Federal Reserve would likely act with vigour to ease monetary policy, including
printing money if necessary.  That would provide a bullish background for
index-linked bonds, which thus provides a good insurance policy for the
portfolio.  In Europe, conventional government bonds should also do well,
especially since the ECB is not a good candidate for printing.  Equities may be
weak.

The outlook for commercial property values in the UK remains positive for the
time being; there remain substantial funds allocated to the sector that should
drive yields down yet further, notwithstanding a rather modest outlook for
rents.  Further support should be provided by the introduction of REITS at the
end of the year, though that may well mark the peak.

The portfolio is well placed to deal with the pitfalls that potentially face the
US and world economy.  If instead the world is able to muddle through, a
reasonable return can be expected.




RPA Spiller
6 June 2006




Income Statement for the year ended 5 April 2006

                                                         2006                                     2005
                                   Revenue    Capital   Total           (Restated)   (Restated)   (Restated)
                                                                        Revenue      Capital      Total

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

Gains on investments               -          6,926     6,926           -            5,889        5,889
Income                             948        -         948             876          -            876
GROSS RETURN                       948        6,926     7,874           876          5,889        6,765
Investment management fees         (152)      (354)     (506)           (131)        (308)        (439)
Transaction costs                  -          (74)      (74)            -            (72)         (72)
Other expenses                     (240)      -         (240)           (234)        -            (234)
RETURN ON ORDINARY ACTIVITIES      556        6,498     7,054           511          5,509        6,020
BEFORE TAXATION



Tax on ordinary activities         (59)       59        -               (50)         50           -
RETURN ATTRIBUTABLE TO
EQUITY SHAREHOLDERS                497        6,557     7,054           461          5,559        6,020

RETURN PER ORDINARY SHARE                               253.92p                                   218.52p




The total 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.



Reconciliation of Movements in Shareholders' Funds for the year ended 5 April 2006


                      Called
                      up         Share        Capital       Capital       Capital                    
                      share      premium      redemption    reserve       reserve        Revenue
                      capital    reserve      reserve       -unrealised   realised       reserve        Total
                      £'000      £'000        £'000          £'000         £'000          £'000          £'000

Balance at 6 April    689        7,296        16             7,994         30,078         532            46,605
2005 as previously
reported

Prior year adjustment -          -            -              -             -              358            358
- FRS 21

Prior year adjustment
- FRS 26              -          -            -              (351)         -              -              (351)

Balance at 6 April    689        7,296        16             7,643         30,078         890            46,612
2005 as restated

Issue of shares       10         -            -              -             -              -              10

On issue of shares    -          818          -              -             -              -              818

Exchange gains on     -          -            -              444           11             -              455
investments

Net  gains on         -          -            -              -             1,139          -              1,139
realisation of
investments

Net increase in       -          -            -              5,332         -              -              5,332
unrealised
appreciation

Transfer on disposal  -          -            -              (2,649)       2,649          -              -
of investments

Transaction costs     -          -            -              (63)          (11)           -              (74)

Costs charged to      -          -            -              -             (354)          -              (354)
capital

Tax on costs charged  -          -            -              -             59             -              59
to capital

Net revenue for the              -            -              -             -              497            497
year

Dividends                        -            -              -             -              (358)          (358)

Balance at 5 April    699        8,114        16             10,707        33,571         1,029          54,136
2006



Prior year adjustments:

In accordance with FRS 21, 'Events after the balance sheet date', dividends are
not accrued in the accounts unless they have been declared before the balance
sheet date.

The Income Statement no longer reflects the payment of dividends. These are
shown in the reconciliation of movements in shareholders' funds in the period
in which they are declared and paid. The financial  statements for the year
ended 5 April 2005 have been restated to recognise the final proposed dividend
for the year ended 5 April 2005 of £358,000 in the current year and to recognise
the proposed final dividend for the year ended 5 April 2004 of £344,000. The
final proposed dividend of £377,000 for the current year will be recognised when
paid in the year to 5 April 2007.

The effect of the change in accounting policy to adopt FRS 26 was to value
investments at their fair value, considered to be their bid value.  Investments
were formerly valued at middle market prices.  As a result prior year's figures
have been adjusted and this has resulted in:

(a) a reduction in net assets attributable to shareholders at 5 April 2005 of £
351,000 and

(b) an increase in the net return to shareholders for the year ended 5 April
2005 of £ 88,000.




Balance sheet - 5 April 2006

                                                                             2006             2005
                                                                                              (Restated)
FIXED ASSETS                                                                 £'000            £'000

Investments:
  Listed investments                                                         53,008           45,258
CURRENT ASSETS
Debtors                                                                      1,193            1,378
Cash at bank                                                                 145              151
                                                                             1,338            1,529
CREDITORS: amounts falling due within one year                               210              175
NET CURRENT ASSETS                                                           1,128            1,354

NET ASSETS                                                                   54,136           46,612


CAPITAL AND RESERVES
Called up share capital                                                      699              689
Share premium account                                                        8,114            7,296
Capital redemption reserve                                                   16               16
Capital reserve - unrealised                                                 10,707           7,643
Capital reserve - realised                                                   33,571           30,078
Revenue reserve                                                              1,029            890
TOTAL SHAREHOLDERS' FUNDS - EQUITY                                           54,136           46,612

NET ASSET VALUE PER ORDINARY SHARE                                           1,937.0p         1,692.0p




Cash Flow Statement for the year ended 5 April 2006


                                                                            2006             2005
                                                                            £'000            £'000

NET CASH INFLOW FROM OPERATING ACTIVITIES                                   103              186


CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire investments                                             (16,595)         (15,634)
Receipts from sale of investments                                           15,697           16,245
                                                                            (898)            611


EQUITY DIVIDENDS PAID                                                       (358)            (344)


MANAGEMENT OF LIQUID RESOURCES

Cash with brokers awaiting investment                                       319              (433)



FINANCING

Issue of new shares                                                         828              -



(DECREASE)/INCREASE IN CASH                                                 (6)              20





The financial information set out above does not constitute the company's
statutory accounts for the years ended 5 April 2006 or 2005. The financial
information for the year ended 5 April 2005 is derived from the statutory
accounts for that year which have been delivered to the Registrar of Companies.
The auditors reported on those accounts and their report was unqualified and did
not contain a statement either under Article 245(2) or Article 245(3) of the
Companies (Northern Ireland) Order 1986. Other than as impacted by the adoption
of FRS 21 and FRS 26 (see Reconciliation of Movements in Shareholder funds
above), the financial information for the year ended 5 April 2006 has been
prepared using the same accounting policies as adopted in the company's
statutory accounts for the year ended 5 April 2005. The statutory accounts for
the year ended 5 April 2006 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Registrar of Companies following the company's Annual
General Meeting.



The dividend will be paid on 28 July 2006 to shareholders on the register as at
30 June 2006.



For queries, please contact

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

Campbell Morton, Senior Independent Director                02890 763 631









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