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The Big Picture Kenneth Warnock Co-Manager Alliance Trust UK Equity Income Fund October 2011

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Page 1: Alliance trust

The Big Picture

Kenneth WarnockCo-ManagerAlliance Trust UK Equity Income Fund

October 2011

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Summary

• Economic Volatility will remain high

• Stock Correlation will remain high

• Stock-picking alone will not be enough to generate consistent outperformance

• Successful Investors will be those with resources and experience to manage

both macro and stock risk

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Economic Volatility will remain high

“It was fun while it lasted”Dylan Grice, Global Strategist, SocGen

Source: Reuters EcoWin/Alliance Trust

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Stock Correlation will remain high

“The lesson that I have learned is that it isn’t reasonable to be agnostic about the big picture”David Einhorn, Founder, Greenlight Capital

Source: BofAML/Alliance Trust

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UK Equity Market – Source of Revenue

“Why are you looking at research on China?”Undisclosed!

Source: Alliance Trust July 2010

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Stock Picking didn’t help!

Company Peak Trough % Decline % Dividend Cut

Barratt Developments 845p 26p 97% -100%

Bellway 1690p 378p 78% -79%

Bovis Homes 1204p 271p 77% -100%

Persimmon 1533p 189p 88% -100%

Redrow 553p 76p 86% -100%

Taylor Wimpey 394p 4p 99% -100%

FTSE All-Share 3478.99 1789.13 49% -25%

UK Housebuilding Sector 2007-2009

Source: Alliance Trust/MF Global

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“Top 10 greatest trades of all time”

1) John Paulson’s bet against subprime mortgages

2) Jesse Livermore’s call on the Crash of 1929

3) John Templeton’s foray into Japan

4) George Soros’ breaking of The Bank of England

5) Paul Tudor Jones’ shorting of Black Monday

6) Andrew Hall’s $100 oil prediction

7) David Tepper’s 2009 bet on financials

8) Jim Chanos’ prescient shorts

9) Jim Rogers’ early call on commodities

10) Louis Bacon’s geopolitical play

9 out of 10 were macro trades

Source: Ritholtz/IBT

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Macro themes that won’t go away soon

• Debt – Political path of least resistance is inflation?

• Oil – Peak oil = The end of “cheap” oil?

• China – Chinese banks are biggest “Ponzi scheme” in history?

• Middle East – Social unrest is globalised?

• Food – The next crisis?

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• UK Equity Team with over 60 years of portfolio construction experience

• Four people/One strategy: The right ratio

• Alliance Trust Investment Team covers all relevant disciplines:

Four regional equity teams

Global Equity Team

Fixed Income Team

Economic Research Team

Strategy/Risk/Performance Analysis Team

Alliance Trust – Resourced to succeed

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Alliance Trust UK Equity Income Fund

Source: Financial Express

Past performance is not a guide to future performance. Income can fall as well as rise as a result of market and currency fluctuations. Capital growth may be constrained or eroded with annual charges and any performance fee chargeable being deducted from capital.

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Alliance Trust UK Equity Income Fund

Monthly Portfolio Performance vs FTSE All-Share Index

Source: Alliance Trust

Past performance is not a guide to future performance. Income can fall as well as rise as a result of market and currency fluctuations. Capital growth may be constrained or eroded with annual charges and any performance fee chargeable being deducted from capital.

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Appendices

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Alliance Trust Asset Management

• New firm benefiting from 120 years of investment history

• Opportunity to access the Trust’s extensive investment capabilities

• Proven, established investment process

• Open-ended funds and segregated client portfolios

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Alliance Trust PLC

• Diversified global investment company

• Managing investments since 1888 - one of the UK’s oldest investment trusts

• Largest generalist UK investment trust on the London Stock Exchange

• Gross assets of £2.7 billion*

• 43 years of uninterrupted dividend growth

* As at 31/08/2011Source: Alliance Trust PLC

These figures are based on gross assets

Alliance Trust is geared to a level of 9.5% of its gross assets

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In-depth Global Investment Coverage

North American Equities, Dundee

Matthew Strachan

Andrew Murray

Iain Smith

Tim Gibbens

Colin Burchell

Global Equities, London

Ilario Di Bon

Juergen Lanzer

Sam Ford

Laurie Don

UKEquities, Edinburgh

Neil Tong

Stephen Porteous

Kenneth Warnock

Paul Weyers

European Equities, Edinburgh

Fiona MacRae

Athole Skinner

Tommy Bryson

Asian Equities & Emerging Market Equities, Dundee

Jonathan Bolton

Kevin Craig

John Ewart

Justin Atkinson

David OsfieldGlobal Fixed

Income, Edinburgh

Rod Davidson

Gareth Quantrill

Stuart McMaster

Stuart Steven

ResearchCentre, Dundee

Shona Dobbie

Linsey Thomson

Stefano Silvestrin

Dugald Wallace

Strategy, Performance

Attribution & Risk, Dundee

Andrew KilleanGeorge Renouf

Ho LiangDuncan Smart

MeridithGlasse-Davies

Katherine Garrett-Cox

Chief Executive

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UK Equity Team

UK Equity Team

Name Position Sector CoverageCompany

ExperienceIndustry

Experience

Neil Tong Head of TeamOil Majors & Services, Industrials, Utilities, Banks,

Life Insurance14 24

Stephen PorteousInvestment Manager

Oil E&P, Mining, Chemicals, Food & General Retail, Telecoms 6 23

Kenneth WarnockInvestment Manager

Consumer Goods, Pharma, Travel & Leisure, Media,General Financials, Real Estate

4 16

Paul Weyers Investment Analyst Banks, Insurance, Technology 3 3

• Over 60 years’ portfolio management experience

• Focused on a limited number of core portfolios

• Based in Edinburgh

Highly Experienced Team of Portfolio Managers

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UK Equity Team

• Experienced, but Small Team

- over 60 years’ portfolio management experience

- ensures active and constructive debate

• Fundamental, but Flexible Process

- fundamental analysis combined with flexible & dynamic decision making

- non-bureaucratic culture allows free flow of ideas between other AT Teams

• Institutional Infrastructure, but Boutique Culture

- best-in-class information systems and back-office support

- fully resourced geographic and economic research teams

A Boutique Culture within an Institutional Infrastructure

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Investment Philosophy

Our objective is to:

i. outperform the benchmark and peers through:

a proven investment process that combines macroeconomic, industry and

company analysis

a concentrated portfolio of market leading companies, operating in structurally growing industries (currently 32 holdings)

independent risk management ensures appropriate risk/reward structure

ii. be top quartile in peer group over rolling 3 year periods

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Source: Financial Express

All Fund performance figures are to 31.08.2011 and are net of total expenses.

% 3 months 1 year 2 yearsSince

Inception

UK Equity Income Fund (A Class Acc Shares) -10.2 8.8 19.5 30.8

Sector IMA UK Equity Income

FTSE All-Share Index

-9.8

-9.4

7.1

7.3

15.9

18.6

35.6

42.1

Quartile 3 2 2 3

Alliance Trust UK Equity Income Fund Performance since inception (February 2009)

Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. You may not get back the amount you invested.

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Kenneth Warnock - Investment Manager - UK Equities

Kenneth Warnock is an Investment Manager in the UK Equities Team at Alliance Trust and is also Co-Fund Manager of the Alliance Trust UK Equity Income Fund.

Kenneth joined Alliance Trust in October 2007, initially as an analyst on the Trust’s UK Mid Cap Equity portfolio.

Kenneth started his career in 1994 at Johnson Fry, where he managed UK and Global Equity Funds, before joining Jupiter Asset Management in 2000 to manage retail and institutional portfolios investing in UK equities.

Prior to joining Alliance Trust, Kenneth was an Investment Manager at Premier Asset Management.

Kenneth has a BSc (Hons) in Mathematics for Business Analysis from Glasgow Caledonian University

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Investment Process – “Key Investment Developments & Catalysts”

• Bespoke Template focusing of key variables for Reward and Risk

• Detailed Balance Sheet and Income forecasts

• Archived centrally for cross-department access

Source: Alliance Trust PLC, FactSet, Bloomberg

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Investment Process – Research Centre

• In-house Economics Team

• Stimulates debate on macro strategy

• Daily analytics as economic data is released

• Periodic & Bespoke Research

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Fund Risk/Return Characteristics as at 31st August 2011

Characteristics Index

Benchmark FTSE All-Share Index

Constituents 625

Historic Yield 3.51%

Targets Fund

Total return

Dividend Yield

Benchmark +2%

110% of Benchmark

Portfolio holdings 30-45

Max Stock Over/Under Weight +/-5%

Tracking Error target 3-5%

Derivative capability EPM only

Source: Style Research, FactSet 31 August 2011

Characteristics Current

Fund Size

Fund Holdings

£43.9m

32

Historic Yield 3.2%

Fund Beta 0.98

Tracking Error 2.9%

Derivatives None

Source: FactSet, Financial Times

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Portfolio Style Analysis as at 31st August 2011

Source: Style Research

• High Yield

• High Return on Equity (ROE)

• Value

• Large Cap

Portfolio Style Skyline Style Distribution

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Sector active weightings as at 31st August 2011

Source: Alliance Trust PLC

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Stock active weightings as at 31st August 2011

Source: Alliance Trust PLC

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Important information

• This presentation is intended for investment professionals only. It must not be distributed to, or relied upon by, retail investors.

• Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. You may not get back the amount invested.

• Some of the funds have underlying holdings which are denominated in currencies other than sterling and therefore may be affected by movements in exchange rates. Consequently, the value of these investments may rise or fall in line with exchange rates.

• Where a fund invests in a single country or a narrow range of securities, there is an increased risk of volatility which may result in frequent rises and falls in the fund’s share price.

• Where annual management charges or performance fees are taken from capital, this may have the effect of constraining capital growth and may lead to capital erosion. Investors may be subject to tax on distributions.

• Whilst care has been taken in compiling the content of this presentation, no representation or warranty, express or implied, is made by Alliance Trust Asset Management Limited as to its accuracy or completeness. Some slides have been compiled from external sources. Whilst these sources are believed to be reliable, the information has not been independently verified and therefore no representation is made as to its accuracy or completeness.

• Nothing said or covered by this presentation should be construed as being an invitation or inducement to engage in investment activity. No advice is given by Alliance Trust Asset Management Limited.

• Alliance Trust Asset Management Limited is authorised and regulated by the Financial Services Authority and is entered on their register under number 479764 (www.fsa.gov.uk).

Alliance Trust Asset Management Ltd8 West MarketgaitDundee, DD1 1QNTel. 01382 321000www.alliancetrust.co.uk/assetmanagement