Interim Results

Keystone Investment Trust plc                         

                  Preliminary Announcement of Interim Results                  

                          Six Months to 31 March 2003                          

Chairman's Statement

Performance

The Company's shares gave a return of 10% (with dividend reinvested) over the
six months from 30th September 2002 to 31st March 2003. During the same period,
the net asset value per share ('NAV') declined by 1.6%, compared with a fall of
1.9% in the Company's benchmark for performance measurement purposes, the FTSE
All-Share Index. Between 1st January 2003 and 31st March 2003, the NAV fell by
9.2% and the benchmark by 7.2%. (All these figures are with income reinvested.)
The rise in the share price over the six month period reflects a significant
narrowing in the discount, mainly attributable to the response by the market to
the appointment of a new manager. From 31st March 2003 to the date of this
report, the share price has risen by a further 16.2%.

Manager

This is the Company's first report since the appointment of INVESCO Asset
Management as manager of the Company's assets, with effect from 1st January
2003. The INVESCO team - Mark Barnett and his colleagues based at the former
Perpetual office in Henley - will manage the portfolio in the way which we
think is most likely to achieve good performance in the long run. The team's
approach, in line with the board's stated philosophy, is that the portfolio
should reflect their judgment on the merit of individual holdings and its
composition should not be driven primarily by the make-up of the index used for
performance measurement.

In making the selection, the board was looking for an able manager, clear
accountability for decisions in the right environment, and the minimum of
restrictive portfolio construction paraphernalia designed to limit the degree
to which the portfolio might underperform (or outperform) an index, without
much regard to the risk of losing (or making) money. We feel confident in our
choice. But it must be emphasised that large divergence in the composition of
the portfolio from that of the index will sometimes result in significant
short-term underperformance of the index. No manager can outperform in every
quarter. As it happens, there has been mild underperformance in the new
manager's first quarter, and in noting this we should also note that the
retiring manager, Merrill Lynch Investment Managers, outperformed the index in
their last quarter (to December) of management. We reiterate our thanks to them
for their service to the Company over many years both as company secretary and
as investment manager.

New terms

The terms of the new arrangements with INVESCO include a basic management fee
for management and company secretarial work of 0.8% per annum of the market
capitalisation of the Company. The basic management fee of the outgoing manager
was 0.5% per annum of gross assets (including borrowings). The result of this
change, based on values at the time that it was made and now, is a reduction in
the amount payable. The board felt that a fee linked with market
capitalisation, and therefore share price, was preferable to one linked with
assets including borrowings. There is also a performance fee, in essence the
same as the previous manager's, payable to INVESCO if the total return of net
assets is more than 2% ahead of that of the benchmark for performance
measurement purposes.

The transitional arrangements included a payment to Merrill Lynch Investment
Managers of £412,811 in compensation for the termination of the Company's
contract with them; and the receipt from INVESCO of £548,120, effectively
returning to the Company their anticipated first year's basic management fee.
We made every effort to keep all transitional costs low, and the total amount
paid to the Company's lawyers, investment bank, and a consultant in connection
with the change of manager was in the order of £20,000.

Name

The Company's name, Keystone Investment Trust, is a reversion to the name by
which the Company was known from its foundation in 1954 until 1993, at which
time the Company could look back on nearly 40 successful years, with a
philosophy then as now focused firmly on stock selection.

Board

Peter Stormonth Darling, having reached his 70th birthday, decided not to seek
re-election as a director of the Company at the annual general meeting in
December. He has been a pillar of wisdom for others on the board over many
years and for me as a new chairman, and we are very grateful for his
contribution.

Gearing

The board's role includes the setting of prudential maximum limits for
borrowing. The limits which we have set are that the manager must make no net
purchases if equity exposure is more than 115 percent of net assets, and must
make sales if (as a result of market movements) equity exposure exceeds 120
percent of net assets. It is then up to the manager to decide where the
portfolio should be positioned subject to those limits. The new manager decided
to reduce gearing significantly, initially to zero. This has meant that the
Company's long-term borrowings, in the form of debentures, have been balanced
by the equivalent amounts of cash deposits. Maintaining, with an interest rate
higher than that available on cash, long-term borrowings which are not used for
investment in the stock market is not an ideal policy. If it appeared that the
purchase of the debentures could be carried out at materially advantageous
prices, this would be done, but otherwise not: we will not buy back these
debentures if doing so is more painful for shareholders than keeping them.

The board has decided during recent months that the equity exposure may be
supplemented by a limited corporate bond portfolio, of not more than £15
million. The manager made a convincing case that in current circumstances there
are opportunities in this field which will increase the capital growth of the
Company's assets. Such corporate bonds also generate higher levels of income,
but that is not an explicit objective of the policy.

Dividend

We recognise the importance of the dividend and last year reduced it very
reluctantly. Group earnings for the interim period have been 8.57p, compared
with 8.56p for the same period last year. The board has declared an interim
dividend of 8.50p, the same level as last year.

Outlook

In 2004, the Company will have reached its 50th anniversary. We are trying to
make sure, within the confines of a difficult market, that we have something to
celebrate. In my last report I said that we felt that the Company would do much
better for shareholders, in terms both of rising net asset value and of a
narrowing discount of the share price to net asset value, over the next two or
three years. We still feel this.

Richard Oldfield

Chairman

13 May 2003

Manager's Report

INVESCO's Investment Process

The investment process employed by the management team combines top down
assessment of economic and market conditions with stock selection. Fundamental
analysis forms the basis of the Company's stock selection process, with an
emphasis on sound balance sheets, good cash flows, the ability to pay and
sustain dividends, good asset bases and market positions. The process is
complemented by constant assessment of market valuations. It is extremely
important to have a sense of a company's realistic valuation which, to some
extent, will be independent of the price at which that company currently trades
in the market. The management team will not overpay for an investment.

Overall, the process is aiming to achieve absolute return through a genuinely
active fund management approach. It is not in the manager's philosophy to
regard the Company's index as a benchmark for portfolio construction. This can
therefore result in a portfolio which looks substantially different from the
index. However, this process has the potential to achieve significant
outperformance of the Company's benchmark.

Review

The six months under review were an exceptionally challenging time for
equities, characterised by extreme volatility due to mounting anxieties about
war with Iraq and the faltering global economy, with the US in particular
failing to recover as swiftly as expected. The British economy remained
reasonably robust over the period thanks to relatively strong domestic
consumption, even though consumer spending softened towards the close of the
period. Although manufacturing continued to suffer, employment remained strong
and Government spending, particularly on public sector wages, grew. The
property market showed signs of weakening in the southeast, but elsewhere in
the UK remained fairly robust. The Bank of England appeared increasingly
sensitive to the potential detrimental influence of global economic weakness
and external deflationary factors on the UK economy, reducing interest rates by
0.25%.

Equity market falls in the period were often exacerbated by liquidity issues.
The growing risk aversion of life companies and pension funds - large owners of
UK equities - set up a vicious circle where equity market falls prompted these
funds to cut their exposure to equities, but the scale of their sales of equity
holdings had a profound impact on the market, driving it still lower.

Strategy

The new management of the fund commenced on 1 January 2003. The fund was
changed to reflect differences in the management style and economic outlook.
This portfolio switch was wide reaching as the restructured fund contained only
three of the inherited holdings. This reorganisation took place during a period
when the market was broadly indiscriminate in marking down share prices. Share
price momentum has been more influential than business fundamentals. The
manager's view is that companies with good cash flow, resilient profit
performance and secure dividends look more desirable than ever. Encouragingly,
there are plenty of companies with these characteristics available at very
depressed valuations.

The manager remains bearish on the prospects for global economic recovery
occurring in 2003, in particular within the US. However, in the UK, the manager
believes that the economy can once again outperform (relative to its peers) in
2003. The strong domestic, consumer-led growth of 2002 should be able to
continue over the medium-term. We expect that retail spending and UK
house-price inflation will remain reasonably robust, albeit at lower levels
than those witnessed in 2002, buoyed by historically low interest rates,
inflation, unemployment and increased government spending.

The portfolio was restructured into more defensive areas of the market with
large weightings in non-cyclical consumer stocks and utilities. Companies such
as BAT, Tesco and National Grid Transco operate in areas unlikely to be
affected by any slowdown whilst simultaneously offering high levels of cash
generation and highly attractive valuations. BT is now emerging from a period
of restructuring and is in a position to pay out a rapidly growing dividend.
The portfolio is also geared towards the UK consumer where market valuations
are already discounting a much weaker outlook. This is achieved through a large
weighting in retailers and house builders. The portfolio has furthermore
acquired positions in the mid-cap non-life insurance companies. Following huge
claims, the insurance industry's underwriting capacity has shrunk, resulting in
strong increases in insurance premiums.

The manager has established significant exposures to small and medium sized
companies and believes that the majority of the largest, FTSE 100 companies are
still overvalued. Therefore, the portfolio has largely avoided these stocks.
The portfolio is concentrated on those areas of the UK stock market which are
less highly valued and offer opportunities for the medium-term or longer-term
investor. The manager's relatively cautious view on the stockmarket has meant
that the fund is lowly geared. However, a proportion of the cash held in the
fund to offset the fixed gearing is being invested in a small number of high
yielding corporate bonds. The manager believes that the corporate bond market
offers a lower risk area to enhance the total return.

Outlook

The UK economy is likely to be supported by continuing consumer and government
spending, and a looser monetary policy to help protect growth. Industrial
production is likely to remain weak, but a scenario of unbalanced growth is
better than no growth at all.

Although the manager hopes for stabilisation in the markets as the year
progresses, it would be over-optimistic to expect a strong equity market
recovery. Over the longer term, sector and corporate fundamentals will again
attain their traditional importance in market valuations. The manager's
approach of looking for undervalued companies, with the resilience and
financial strength to survive the current economic weakness, will benefit the
fund over the medium term.

Mark Barnett

Investment Manager

13 May 2003

Consolidated Statement of Total Return
(Incorporating the Revenue Account)

Six months ended 31 March 2003

(Unaudited)

Revenue Capital Total

£'000 £'000 £'000

Gains on investments - unrealised - 16,620 16,620

Losses on investments - realised - (18,491) (18,491)

Exchange rate losses - (3) (3)

Losses on currency hedges - unrealised - note 1 - (22) (22)

Income

  UK dividends 987 - 987

  Overseas dividends 353 - 353

  UKunfranked investment income 153 - 153

  Deposit interest 247 - 247

Investment management fee (51) (153) (204)

Other expenses (160) - (160)

Net return before finance costs

and taxation 1,529 (2,049) (520)

Interest payable and similar charges (378) (1,134) (1,512)

Return on ordinary activities

before taxation 1,151 (3,183) (2,032)

Tax on ordinary activities - - -

Return on ordinary activities

after taxation 1,151 (3,183) (2,032)

Dividends in respect of non-equity shares (6) - (6)

Return attributable to equity shareholders 1,145 (3,183) (2,038)

Dividends in respect of equity shares (1,136) - (1,136)

Transfer to/(from) reserves 9 (3,183) (3,174)

Return per ordinary share - note 2

Basic 8.57p (23.81)p (23.74)p

The revenue column of this statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the
period.

Consolidated Statement of Total Return
(Incorporating the Revenue Account)

Year to

Six months ended 30 September

31 March 2002 2002

(Unaudited) (Audited)

Revenue Capital Total Total

£'000 £'000 £'000 £'000

Gains on investments - unrealised - 19,715 19,715 (10,579)

Losses on investments - realised - (7,585) (7,585) (17,924)

Exchange rate losses - - - -

Losses on currency hedges - unrealised - - - -

Income

  UK dividends 1,610 - 1,610 3,103

  Overseas dividends 2 - 2 2

  UKunfranked investment income - - - 9

  Deposit interest 204 - 204 672

Investment management fee (120) (365) (485) (713)

Other expenses (77) - (77) (187)

Net return before finance costs

and taxation 1,619 11,765 13,384 (25,617)

Interest payable and similar charges (379) (1,138) (1,517) (3,044)

Return on ordinary activities

before taxation 1,240 10,627 11,867 (28,661)

Tax on ordinary activities (45) 45 - -

Return on ordinary activities

after taxation 1,195 10,672 11,867 (28,661)

Dividends in respect of non-equity shares (6) - (6) (12)

Return attributable to equity
shareholders 1,189 10,672 11,861 (28,673)

Dividends in respect of equity shares (1,147) - (1,147) (3,420)

Transfer to/(from) reserves 42 10,672 10,714 (32,093)

Return per ordinary share - note 2

Basic 8.56p 76.86p 85.42p (210.03)p

Consolidated Balance Sheet

At At At

31 March 30 September 31 March

2003 2002 2002

(Unaudited) (Audited) (Unaudited)

£'000 £'000 £'000

Fixed assets

  Listed investments at market value 89,036 90,486 144,304

  Unlisted investments at directors' valuation 66 83 101

89,102 90,569 144,405

Current assets

  Amounts due from brokers 698 - 431

  Tax recoverable 19 - 41

  Prepayments and accrued income 772 526 1,004

  Cash at bank 27,400 30,230 18,189

28,889 30,756 19,665

Creditors: amounts falling due within one year

  Amounts due to brokers 260 - -

  Tax payable - 32 24

  Accruals and deferred income 1,660 944 1,178

  Proposed dividends 1,136 2,273 1,147

  Unrealised loss on forward contracts - note 1 22 - -

3,078 3,249 2,349

Net current assets 25,811 27,507 17,316

Total assets less current liabilities 114,913 118,076 161,721

Creditors: amounts falling due after more than

one year 39,551 39,540 39,529

Net assets 75,362 78,536 122,192

Capital and reserves

Called up share capital 6,685 6,685 6,747

Share premium account 1,258 1,258 1,258

Capital redemption reserve 466 466 404

Other reserves:

  Capital reserve - unrealised (8,297) (24,892) 5,402

  Capital reserve - realised 71,609 91,387 103,934

Revenue reserve 3,391 3,382 4,197

Equity shareholders' funds 75,112 78,286 121,942

Non-equity shareholders' funds:

Cumulative preference shares 250 250 250

Total shareholders' funds 75,362 78,536 122,192

Net asset value per ordinary share - note 3

Basic 561.84p 585.59p 903.69p

Consolidated Cash Flow Statement

Six months to Year to Six months to

31 March 30 September 31 March

2003 2002 2002

(Unaudited) (Audited) (Unaudited)

£'000 £'000 £'000

Cash flow from operating activities 1,150 2,946 1,025

Returns on investments and servicing of finance (865) (2,985) (1,468)

Capital expenditure and financial investment

  Purchase of fixed asset investments (105,969) (83,602) (67,681)

  Proceeds from sale of fixed asset investments 105,127 115,318 85,764

Equity dividends paid (2,273) (3,966) (2,819)

Net cash (outflow)/inflow before management of

liquid resources and financing (2,830) 27,711 14,821

Management of liquid resources (967) (24,169) (10,060)

Financing - (5,386) (4,537)

Increase in cash in the period 2,102 22,325 10,284

Increase in debt (11) (22) (11)

Cash outflow from decrease in liquid resources 967 24,169 10,060

Movement in net debt in the period (2,841) 22,303 10,273

Net debt at beginning of period (9,310) (31,613) (31,613)

Net debt at end of period (12,151) (9,310) (21,340)

Reconciliation of Movement in Shareholders' Funds

Six months to Year to Six months to

31 March 30 September 31 March

2003 2002 2002

(Unaudited) (Audited) (Unaudited)

£'000 £'000 £'000

Revenue return for the period 9 (773) 42

Capital return for the period (3,183) (31,320) 10,672

Repurchase of ordinary shares - (5,386) (4,537)

Net movement in Shareholders' funds (3,174) (37,479) 6,177

Opening Shareholders' funds 78,536 116,015 116,015

Closing Shareholders' funds 75,362 78,536 122,192

Notes to the Interim Accounts

1. The equity portfolio includes £1,693,000 of equities denominated in
currencies other than pounds sterling. In order to crystallise the value of
these holdings in sterling terms, the Manager has hedged their currency
exposure into sterling through the use of forward foreign exchange contracts.
The loss to date on these contracts is more or less exactly offset by the
increase in value of the equity investments due to currency movements.

2. The returns per ordinary share are based on the net revenue return
attributable to equity shareholders and on 13,368,799 (30 September 2002:
13,652,165, 31 March 2002: 13,885,117) ordinary shares, being the weighted
average number of ordinary shares in issue in the period.

3. The basic net asset value per ordinary share of 561.8p is calculated on net
assets attributable to equity shareholders of £75,112,000 (30 September 2002: £
78,286,000, 31 March 2002: £121,942,000) and on 13,368,799 (30 September 2002:
13,368,799, 31 March 2002: 13,493,799) shares in issue.

4. The Directors have declared an interim dividend of 8.50p (2002: 8.50p) per
Ordinary Share in respect of the six months ending 31 March 2003 payable on 26
June 2003 to ordinary shareholders registered on 23 May 2003.

5. It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust company
set out in section 842 of the Income and Corporation Taxes Act 1988.

6. The foregoing information at 30 September 2002 is an abridged version of the
Company's full Accounts which carry an unqualified Auditor's report and have
been filed with the Registrar of Companies.

7. On 1 January 2003 the registered office of the Company changed to 30
Finsbury Square, London EC2A 1AG.

8. The Board expects to announce the results for the year ending 30 September
2003 in mid-November 2003; copies of the preliminary announcement can be
obtained from the Secretary on 020 7065 4517. The annual report should be
available by the end of November, with the Annual General Meeting being held on
15 December 2003.

By order of the Board

INVESCO Asset Management Limited

Secretary

13 May 2003