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Opportunities in a Changing Japan International Investment – Italian Forum 2007 November 2007 Stephen Tong President and CEO, AllianceBernstein Japan Team Leader, Japan Growth Equities The sale of shares in AllianceBernstein funds may be restricted in certain jurisdictions. In particular, no shares may be acquired by persons in the U.K. except in certain circumstances and shares may not be offered or sold, directly or indirectly, in the United States or to U.S. Persons, as described in the Fund’s prospectus. Further details may be obtained from the Distributor. AllianceBernstein investment portfolios are part of ACMBernstein, a mutual investment fund (fonds commun de placement) or ACMBernstein SICAV (société d'investissement à capital variable), an open-ended investment company organized under the laws of Luxembourg, which conducts business outside of Germany, Austria and Switzerland under the name AllianceBernstein. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice. For financial representative use only. Not for inspection by, distribution or quotation to, the general public. Opportunities in a Changing Japan Surging BRICs economies supporting high growth of export-related equities. Stable domestic economic recovery should support stable growth in domestic-oriented names. Through their distinct fundamental research capabilities, our AllianceBernstein Japan Growth investment team and our AllianceBernstein Japan Strategic Value investment team are both finding compelling investment opportunities. Current analysis does not guarantee future results. As of October 2007 Source: AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 1 What’s Changed? More Consistent Domestic Contribution to GDP Percent Contribution to GDP Growth Contribution to GDP Growth Export Growth – Consumption Growth 3.0 12 2.5 10 2.0 8 6 1.5 4 1.0 2 0.5 0 0.0 (2) (0.5) (4) (1.0) Domestic (1.5) Exports (2.0) FY1997 2000 2003 2006 (6) (8) (10) FY1997 2000 2003 2006 Current analysis and estimates do not guarantee future results. As of October 2007 Source: Goldman Sachs and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 2 Half of the Japan Equity Market is Exports Global-related Pharmaceuticals Machinery Resources-related 100 Exports 90 80 Cap Ex Auto-related Percent of 70 Government 60 Technology 50 Domestic-related Other Food Retail Transportation Utilities Info/Communication Chemicals Financials 40 30 Consumption 20 10 0 GDP TOPIX Current analysis does not guarantee future results. As of October 2007 Source: Bank of Japan, Tokyo Stock Exchange and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 3 Exporters Delivering Robust Recurring Profit Growth This Year 18% Recurring Profit Growth (%) 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008E Domestic Export Current analysis and estimates do not guarantee future results. As of October 2007 Source: I/B/E/S, Tokyo Stock Exchange and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 4 Large Business Confidence Steady: Tankan Survey BOJ Tankan 60 Corporate Forecasts Diffusion Index (%) 40 20 0 -20 -40 -60 90 91 92 93 94 95 96 Large Manufacturing Small Manufacturing 97 98 99 00 01 02 03 04 05 06 07Q4 07 Large Nonmanufacturing Small Nonmanufacturing Current analysis and estimates do not guarantee future results. Through October 2007 Source: Japan Cabinet Office and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 5 BRICs-bound Exports Have Surpassed US-bound Exports Export Value Bound for the US and BRICs Exports to BRICs 1.8 300 140 US-Bound Exports 1.6 120 250 General Machinery Exports 100 Yen Billions 1.2 1.0 0.8 200 80 60 150 Yen Billions Yen Trillions 1.4 40 0.6 100 0.4 Car Exports BRICs-Bound Exports 0.2 50 93 95 97 99 01 03 05 07 20 0 96 98 00 02 04 06 Current analysis does not guarantee future results. Through February 2007 Source: Japan Ministry of Finance and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 6 Investment Opportunity: Nickel Price Forecasts Nickel Price (Left Scale) 2,500 LME Inventories 2,000 (Right Scale) 1,500 1,000 500 0 89 92 95 160 120 80 40 1,000 Tonnes Nickel prices have surged to record highs on supply constraints, falling inventories and strong demand for stainless steel, which consumes some 65% of the world’s nickel USc/lb Nickel Price vs. LME Inventory 0 98 01 04 07 08 China’s Role in World Nickel Demand 2004 Others 27% While there are concerns that de-stocking of stainless steel inventories in the US may start pressuring nickel prices, we believe growing nickel demand from China continue to underpin the market 2007 North America 11% China 12% Europe 36% North America 11% Others 24% China 21% Japan 14% Europe 32% Japan 12% Nickel Price Forecast Longer-term, sustained difficulties in developing greenfield nickel projects are likely to keep prices supported for longer than widely assumed US$/lb Nickel LME 2,650 2,150 1,650 1,150 650 150 Spot/Forward Curve Alliance Growth Equities Estimates Consensus Current analysis and estimates do not guarantee future results. 88 90 92 94 96 98 00 02 04 06 For illustrative purposes; the stock example above is intended only to illustrate the application of our investment philosophy, and this particular security may or may not be held in the current Japan Growth portfolio. The reader should not assume that this was, or will be, a profitable investment. Please read Disclosure on Stock Examples. As of March 2007 Source: Bloomberg, LME, Morgan Stanley and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 7 Investment Opportunity: Stock Example Pacific Metals, Sumitomo Metal Mining Our EPS Estimates vs. Consensus: Pacific Metals Pacific Metals, Japan’s largest ferronickel producer, is likely to benefit most from strong nickel prices and sustained revisions in consensus expectations 207 175 151 153 Mar 07E Alliance Forecasts Mar 08E Consensus Forecasts World Nickel Reserve Potential by Ore Type 120 100 Mt Sumitomo Metal Mining’s innovative technologies* in processing nickel from low-grade laterite ore will enable aggressive production growth; The firm aims to double annual nickel production to 100,000 tonnes by 2013, with more upside potential 80 Laterite Ore (Low grade) 60 40 Sulfide Ore (High grade) 20 0 Existing Mines Undeveloped Mines Current analysis and estimates do not guarantee future results. For illustrative purposes; the stock example above is intended only to illustrate the application of our investment philosophy, and this particular security may or may not be held in the current Japan Growth portfolio. The reader should not assume that this was, or will be, a profitable investment. Please read Disclosure on Stock Examples. *Some of those technologies include the Matte Chlorine Leach Electrowinning (MCLE) method, which enables more efficient leaching of nickel using less energy, and the High Pressure Acid Leach (HPAL) technology, which facilitates nickel extraction from low-grade laterite ore As of March 2007 Source: Commonwealth Scientific Industrial Research Organization, BEST, JOGMEC and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 8 Interest Rate Differential Limits Yen Strength, Benefitting Exporters Dollar/Yen and Interest Rate Differential 10-Yr Treasury vs 10-Yr JGB (Right Scale) 125 3.3 Weaker Yen 120 115 2.9 110 Dollar/Yen (Left Scale) Percentage Points Dollar/Yen 3.1 2.7 105 Stronger Yen 100 12/04 2.5 3/05 6/05 9/05 12/05 3/06 6/06 9/06 12/06 3/07 6/07 9/07 Current analysis does not guarantee future results. As of October 2007 Source: Bloomberg For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 9 Slow Pace of Monetary Policy Normalization Sustains Rate Differential Estimated Neutral Policy Rate 2.0 1.5 % Point Real Interest Rates Forecast Interest Rates 1.0 0.5 0.0 (0.5) 99 00 01 02 03 04 05 06 07 08 Current analysis and estimates do not guarantee future results. As of October 2007 Source: Bloomberg, Japan Ministry of Internal Affairs and Communication and AllianceBernstein. For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 10 GDP Growth Steady But Lower Than Other Regions GDP Growth 8.8% 8.8% Non-Japan Asia 6.6 EEMEA* 6.2 4.9 Latin America 4.2 3.5 3.4 Global Euro Area Japan US 2.7 2.2 2.0 2.0 2007E 2.0 2.6 2008E Current analysis and estimates do not guarantee future results. As of October 2007 *Eastern Europe, Middle East and Africa Source: AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 11 Strong Employment Growth Should Support Consumption … Regular Employment and Estimates on Wage Income Consumption Composite Index 6 August 111 5 4 109 Regular Employment 2 107 1 Index YoY % Change 3 0 105 (1) (2) 103 (3) Cash Salary (3mma) (4) 101 (5) 91 93 95 97 99 01 03 05 07 03 04 05 06 07 Current analysis does not guarantee future results. Through April 2007 Source: Japan Cabinet Office, Ministry of Health, Labor and Welfare and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 12 … But the Population is Set to Decline Population 0.0 140 (0.2) 130 (0.4) Millions (0.6) 110 (0.8) YoY % Change 120 100 (1.0) 90 (1.2) 80 (1.4) 05 10 15 20 25 30 35 40 45 50 55 Current analysis and estimates do not guarantee future results. As of September 2007 Source: National Institute of Population and Social Security Research and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 13 Steady Decline in Cross-Shareholdings Distribution Percent of Market Value Owned by Type of Shareholder 35 Business Corporations 30 25 Individuals Percent 20 15 Banks (ex Trust banks) 10 Foreigners Pension Plan Trusts 5 Investment Trusts Public/Governments 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 Current analysis does not guarantee future results. Through December 2006 Source: Daiwa, Tokyo Stock Exchange and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 14 Iro No Pu n & nf lp S er & te ro P el u a Re s M per al eta C Te O h Est ls xt the em ate ile r s Pr ica & o ls Ap d uc p a ts M re et Pr ec La al P Fo ls isi nd ro od on T d s u In r an cts s s El G ec R trum por la ss tri e ta e t & M c A il n ts Ce ari pp Tra r a n e lia d e m T nc Ru ics r an es bb Pr sp o o Ph er P du rt In fo c a r r m o d ts rm a c uc at io eu ts n M Fi & ac tic sh h al Co ,A W Se ine m a r S gr r eh e icu O mu rvic y c n t e o u u ltu he ic s sin ritie r e r F at g s & in ion & & F an H Co ore ce ar m s bo m tr Tr r T od y an C W sp h o ran ity or o ns sp t le t O atio sa ru c or t il n le t io & Co Eq Tra n a l uip de m Ai Pro e n El r T du t ec tri r a ct c ns s Po p w B or t er an & k In G s su as ra n M ce in in g Percent of Sector Market Cap 16% of TOPIX Market Cap Has Adopted Takeover Defense Measures 100 80 60 40 20 0 Current analysis does not guarantee future results. As of 31 May 2007 Source: ISS, Tokyo Stock Exchange and AllianceBernstein. For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 15 Japan Market Valuations Have Normalized P/E 80 MSCI Japan MSCI North America MSCI Europe MSCI Pacific ex JP Percent 60 40 20 0 87 90 93 96 99 02 05 Current analysis does not guarantee future results. As of August 2007 P/E is based on I/B/E/S 12-month forecast. Source: I/B/E/S, MSCI and Morgan Stanley Research For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 16 Japan More Attractive After Pacific Ex-Japan Re-Rating EPS Growth & Price-to-Earnings Pacific ex-Japan High 1.0 5.0 P/E (Pacific ex-Japan / Japan) (right scale) 40 4.5 0.8 4.0 ROE 3.5 20 0 0.4 -20 3.0 Ratio 0.6 Ratio of P/E Difference of EPS Growth (Percent) 60 Ratio of ROE & Price-to-Book (Pacific ex-Japan / Japan) 2.5 2.0 1.5 0.2 -40 Japan High -60 88 91 94 EPS Growth (Pacific ex-Japan – Japan) (left scale) 0.0 97 00 03 06 1.0 P/B 0.5 0.0 88 91 94 97 00 03 06 Current analysis does not guarantee future results. Through September 2007 Source: IBES, MSCI, Morgan Stanley Research and AllianceBernstein For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 17 Future Style Leadership Within Japan Not Clear Relative Style Index Valuation Ratio of MSCI Japan Growth P/B to MSCI Japan Value P/B 3.0 2.5 2.0 1.5 1.0 89 91 94 97 00 03 06 Current analysis, estimates and valuations do not guarantee future results. As of August 2007 Source: FactSet, I/B/E/S and MSCI For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 18 Value Opportunity is at a Low Discount to Fair Value* 60 50 Percent 40 30 20 10 0 71 73 76 79 82 85 88 91 94 97 00 03 06 Current analysis, estimates and valuations do not guarantee future results. Discount to Fair Value = As of 1 January 2007; P/E, P/B = As of 31 May 2007 *Chart represents the amount by which the most attractively priced quintiles of Japanese stocks sell below overall market valuations. The proportion of Bernstein investments in stocks from this group will vary over time but will typically be high. Bernstein’s estimates of fair value of these stocks may not be realized for variety of reasons. Source: Compustat, DataStream, DRI, FactSet, I/B/E/S, MSCI and Bernstein estimates For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 19 AllianceBernstein: Japan Equity Portfolios Alliance Bernstein─J apan Strategic Value 50% 50% AllianceBernstein─ Japan Equity Blend Alliance Bernstein─ Japan Growth Japan Strategic Value Japan Equity Blend Japan Growth High-alpha Value strategy High-alpha Core strategy High-alpha Growth strategy Invests in companies that are valued at a discount relative to their long-term earnings power Initial combination of 50% Growth and 50% Value strategies Invests in the “Dynamic Gap”: Growth companies that are set to deliver earning growth that is higher than market expectations High-conviction portfolio of 30-50 stocks Maintains high-conviction stockpicking of style-based strategies High information ratio as premium of the Value strategy is not correlated with that of the Growth strategy, and therefore mitigates style risk High-conviction portfolio of 40-50 stocks Systematic rebalancing when mix reaches 55%/45% High-conviction portfolio of 55-85 stocks Investment policies apply under normal market conditions. As of 30 September 2007 For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 20 Disclosure on Stock Examples References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AllianceBernstein. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. For financial representative use only. Not for inspection by, distribution or quotation to, the general public. AllianceBernstein 21