Keystone Positive Change Investment Trust : Annual Report and Financial Statements 30 September 2022

Share Price (pence)

Share price

NAV and Benchmark

(figures rebased to 100 at 30 September 2021)

NAV total return (after deducting borrowings at fair/market value*)

Benchmark† total return

400

350

300

250

200

150

120

110

100

90

80

70

60

50

Strategic Report

Chair's Statement

The past year has been characterised by turmoil in the financial markets, high inflation and rising interest rates. Much of it has been due to the challenging measures introduced globally in response to the pandemic and the effects of the war in Ukraine. Keystone Positive Change ('KPC') has two objectives of equal importance: to generate attractive long-term returns and to invest in companies instrumental in contributing to solutions

in areas such as healthcare, education, social inclusion and

the environment. The Positive Change team have an investment horizon of five years and beyond for these structural themes to play out. Notwithstanding the extremely disappointing financial performance of the Company during the year under review, your Board remains confident in the long-term investment and strategic rationale behind the positive change strategy and the team implementing it. As you would expect, your Board has closely monitored the Manager's rationale and belief in the operational strength of the portfolio companies, ensuring that the process includes regular challenge of the initial theses for investment. We are confident that the high conviction portfolio will come good.

Performance

Over the year to 30 September 2022, the Company's net asset value ('NAV') total return (in sterling terms) was -35.2% compared to -3.7% for the comparative index, the MSCI All Country World Index. The Managers' Report on pages 4 to 6 provides further detail on the main contributors to performance over the period.

The share price total return was -43.3%, as the discount widened from 0.9% to 13.2% reflecting a widening of discounts across investment companies generally, and exacerbated by a broader deterioration in sentiment towards growth style mandates.

The Company has the power to buy back its own shares and will do so when the Board considers that such activity will benefit ongoing shareholders. The Board does not consider that buying back shares during periods when market sentiment is universally negative will improve the Company's rating. Shrinking the asset base, thereby increasing the ongoing charges ratio and reducing the shares' liquidity, may however be detrimental. The Board will, of course, be mindful of the range of options at its disposal to address, where possible, the discount at which the Company's shares trade relative to its NAV.

Impact

The Company is focused on listed and private companies for whom solving a social or environmental challenge is core to their business. Amid a backdrop of uncertainty we believe that now, more than ever, investing for positive change is important and full of opportunity. We aim to invest in exceptional companies whose products, services and behaviour generate meaningful improvements. Companies held in the portfolio must be positioned to make a significant contribution to solutions in one of four impact areas:

-­ Social Inclusion and Education; -­ Environment and Resources;

-­ Healthcare and Quality of Life; and

-­ Base of the Pyramid (addressing the needs of the poorest four billion people in the world).

The Manager's impact analysis is based on robust, bottom-up research that is independent from, but complementary to, the investment analysis. Two senior impact analysts form part of the decision-making team, with additional impact analysts providing support. Further details of the Manager's approach are provided on the following pages.

In August 2022, the Company published its inaugural KPC Impact Report on the contribution that all companies within the portfolio have made towards a more sustainable and inclusive world, through monitoring and measuring the impact that their products and services are having on society and the environment. The Impact Report is available on the Company's website.

Gearing

The Company started the financial year with net gearing of 4.6%, having drawn down £10 million of a £25 million multi-currency revolving credit facility provided by The Royal Bank of Scotland International Limited. At 30 September 2022, net gearing stood at 10.6%, the Company having drawn down an additional £5 million during December 2021 and dollar strength increasing the value of the US$ element of the loan in sterling terms. The Company

is expected to continue to maintain a modest level of structural gearing, which should enhance shareholder returns over the long term.

Costs

Under the new management arrangements, the annual management fee is 0.70% on the first £100 million of market capitalisation, 0.65% on the next £150 million of market capitalisation and 0.55% on the remaining market capitalisation. Baillie Gifford waived their management fee for the first six months following their appointment in February 2021.

The ongoing charges for the year to 30 September 2022 were 0.90%. Last year, the ongoing charges were 0.51% (and would have been 0.82% without Baillie Gifford's fee waiver). The Board expects the Company to grow, and benefit increasingly from the lower rate of management fee at the upper tier as it does so.

The higher base fee recognises the Manager's investment of time and resource in pursuit of the Company's twin objectives, and the Board is confident that long-term performance, in financial and impact terms, will justify the level of ongoing charges in

the meantime. No performance fee is payable under the new management arrangements.

Dividend

KPC's investment objective is to generate returns from the Company's portfolio, predominantly from capital growth. A change to the Company's dividend policy was approved at the Annual General Meeting ('AGM') in February 2022, such that no interim dividends will be paid, and any annual dividends will be paid only to the extent needed for the Company to maintain its investment trust status. In accordance with the dividend policy, the Board is recommending a final dividend of 0.4p per share. This will be proposed for shareholders' approval at the AGM to be held on 8 February 2023 and, if approved, will be paid on 15 February 2023 to shareholders on the register at close of business on 20 January 2023.

The Board

Andrew Fleming was appointed as a Director on 1 March 2022 to replace John Wood, who retired at the last AGM. John's wise counsel will be missed, but Andrew brings considerable fund management, investment trust and impact investment experience to the Board. The Company is compliant with the gender representation requirements of the FCA's recently published new rules on diversity and inclusion on company boards, which target that at least 40% of directors will be women and at least one of the senior positions on each board will be held by a woman. The most recent recruitment process had a shortlist that comprised 50% women and 33% candidates of a non-white ethnic background.

Strategic Report

Annual General Meeting

We anticipate welcoming shareholders to the AGM in London on 8 February 2023. Notwithstanding the relaxation of government controls, Covid-19 related rules might tighten at short notice in the event of a winter resurgence, restricting the meeting to the minimum number. To ensure your votes are counted in that eventuality, I would ask shareholders to submit their votes by proxy before the applicable deadline on 6 February 2023 and

to submit any questions for the Board or Manager in advance by email to trustenquiries@bailliegifford.com or by calling

0800 917 2112 (Baillie Gifford may record your call). This will not impede your subsequent attendance in person should you wish to be present, assuming regulations permit. Any changes to the AGM arrangements will be announced to the London Stock Exchange regulatory news service and made available at keystonepositivechange.com.

Outlook

The Positive Change team's investment horizon of five years and beyond allows the team to focus on long-term structural trends which present compelling investment opportunities in support of a sustainable and inclusive world. The Board supports the team in making full use of the unique features of the investment trust structure, including investing in both public and private companies. We are grateful for the continued support of our long-term shareholders and we are delighted to welcome our many new shareholders.

Karen Brade

Chair

29 November 2022