1. www.institutional.alliancebernstein.com May 3, 2005 Giulio Martini Chief Investment Officer— Currency and Quantitative Strategies US Economic and Capital Markets Outlook NFSA 100 th Anniversary

2. NFSA_ Capital Markets 2 Liquidity Flows Liquidity* Flows vs. Real GDP Growth Recent US Economic Momentum Is Sustainable *Liquidity is a measure of real money growth, growth in business and consumer credit, growth in short-term liquid assets, foreign purchases of US securities, net cash flow into bond and stock funds Source: Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income (YoY % chg) Real GDP Growth

3. NFSA_ Capital Markets 3 Real Final Sales vs. Real Inventory Positions Inventory Rebuilding Still Lags Final Demand Source: Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income Final Sales Inventory Positions

4. NFSA_ Capital Markets 4 Investment Is Key Driver of Economic Growth 2004 Real GDP Growth Source: Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income Real GDP Structures Imports

5. NFSA_ Capital Markets 5 Nonresidential Construction Usually Rises Steadily 1991 Source: US Department of Commerce, Haver Analytics and AllianceBernstein Quarters from Trough Index Average of 5 expansions

6. NFSA_ Capital Markets 6 1991 Recovery Was Weaker and More Gradual 1991 Source: US Department of Commerce, Haver Analytics and AllianceBernstein Quarters from Trough Index 1991 Average of 5 expansions

7. NFSA_ Capital Markets 7 Current Recovery Very Modest Source: US Department of Commerce, Haver Analytics and AllianceBernstein Quarters from Trough Index Current Expansion 1991 Average of 5 expansions

8. NFSA_ Capital Markets 8 Sprinklers Defy Construction Trend Annualized Growth: 1980–2004

9. NFSA_ Capital Markets 9 Employment and Income Trends Are Improving Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Haver Analytics Payroll Employment Household Employment Payroll and Household Employment (Year-over-Year Change) Disposable Income vs. Wages (Year-over-Year Change) Wage & Salary Income Disposable Income

10. NFSA_ Capital Markets 10 Personal Saving at All-Time Low, But Wealth at Record Levels Personal Saving Rate Source: Bureau of Economic Analysis, Federal Reserve Board and Haver Analytics Household Net Worth

11. NFSA_ Capital Markets 11 Housing Market Supported By Strong Fundamentals Existing-Home Sales (left scale) Housing Affordability (right scale) Source: Federal Housing Finance Board, Office of Housing Enterprise Oversight, National Association of Realtors, Haver Analytics and Alliance Capital Fixed Income Home Sales and Affordability Mortgage Rate House Price Index (YoY % chg) Rates vs. Prices

12. NFSA_ Capital Markets 12 Housing Starts Are Strong and Inventories Are Low Source: Census Bureau and Haver Analytics Month’s Supply of New Homes at Current Sales Rate Housing Starts January 2005

13. NFSA_ Capital Markets 13 ($ Billions) Net Cash Flow vs. Business Investment in Equipment and Software Cash Flow Investment $287 Billion WOW!! War Chest of Free Cash Flow; Bright Capital Spending Outlook *Three-year sum. Source: Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income Ratio of Free Cash Flow* to Capital Spending

14. NFSA_ Capital Markets 14 Strong Capex Cycle Is Underway, and It’s Broad Based 2004 Business Spending on Equipment and Software (Year-over-Year Percent Change) Source: Census Bureau, Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income Total 12-Month Dollar Change in Order Backlogs: February 2005 ($ Billions)

15. NFSA_ Capital Markets 15 Source: Department of Commerce, Haver Analytics and Alliance Capital Fixed Income Trade Deficit Is Large and Structural in Nature Trade Deficit Imports As a Percent of Domestic Shipments

16. NFSA_ Capital Markets 16 US Runs a Deficit in Every Product Category With Every Region By Product By Region Through November 2004 *Includes Venezuela and Indonesia. Source: Department of Commerce 2004 US Trade Deficit Composition Capital Goods 2% Miscellaneous 2% Agricultural Goods 1% Pacific Rim 44% North America 17% Latin America 6% Other 5% Western Europe 17% OPEC* 11% Consumer Goods 41% Petroleum 25% Autos 22% Industrial Supplies 7%

17. NFSA_ Capital Markets 17 Source: International Monetary Fund Haver Analytics and Alliance Capital Fixed Income US Relies on Foreign Capital To Fund Its Investment Needs Current Account Balance As a Percent of GDP Savings and Investment as a Percent of GDP Investment Savings F Current Account Imbalance

18. NFSA_ Capital Markets 18 Foreign Capital Flows into US Are Strong, Especially From Asia Source: International Monetary Fund Savings and Investment of Newly Industrialized Asian Economies as a Percent of GDP Investment Savings F Foreign Purchases of US Financial Assets (4-Quarter Moving Average) Total Official Private

19. NFSA_ Capital Markets 19 Foreigners Have Lost Interest in US Equity Investments… Source: Federal Reserve Board Flow of Funds Stocks 20002004 $194 Bil. Plant, Equipment, etc. $321 Bil. $163 Bil. $33 Bil.

20. NFSA_ Capital Markets 20 …and Have Turned to Bonds Stocks Government Corporate 20002004 Fixed Income $194 Bil. $371 $1,019 Bil. $282 Source: Federal Reserve Board Flow of Funds Plant, Equipment, etc. $321 Bil. Agency Fed Funds & Other $163 Bil. $33 Bil.

21. NFSA_ Capital Markets Foreign Ownership of US Financial Assets Growing December 2004 Source: Federal Reserve Board 46% US Treasury Bonds Owned by Foreigners Fed Funds (Overnight Liquidity) Stocks 42% US Corporate Bonds 24% 11%

22. NFSA_ Capital Markets 22 Real-Dollar Exchange Rate Still Above Prior Lows Mar 73=100 Through March 31, 2005 Source: Federal Reserve Board and Haver Analytics 76 Real Trade-Weighted Dollar Index 87 83

23. NFSA_ Capital Markets 23 Sources of New Supply (Million Barrels per Day) 1999–2004 FSU All Other OPEC 6.5 Growth in Oil Demand Met Largely by Former Soviet Union (FSU) Source: BP Statistical Review, International Energy Agency (IEA), OPEC, and Bernstein

24. NFSA_ Capital Markets 24 Discoveries (Bil. bbl) Source: HIS Energy, IEA, and Bernstein Russian Output Growth Not Based on New Discoveries Reserve Discoveries vs. Production Production (Mil. bbl/day) Production Few discoveries since the 1980s Discoveries

25. NFSA_ Capital Markets 25 (Bil. bbl) Source: HIS Energy, IEA, and Bernstein Cumulative Reserves Discovered Russian Production Rising, but Reserves Falling Current Reserves

26. NFSA_ Capital Markets 26 (%) Source: BP Statistical Review, IEA, and Bernstein Oil Production Growth Outside OPEC and FSU Very Disappointing

27. NFSA_ Capital Markets 27 Growth in Oil Demand Accelerating due to Asia +3.2 +3.4 +4.990.8 All Other Demand +3.3 New Asian Demand 82.5 76.0 Million Barrels per Day Source: BP Statistical Review, IEA, and Bernstein

28. NFSA_ Capital Markets 28 Sources of New Supply Million Barrels per Day 1999–20042004–2009E FSU Demand for OPEC Oil to Rise Sharply All Other OPEC 8.3 6.5 Source: BP Statistical Review, International Energy Agency, OPEC, and Bernstein

29. NFSA_ Capital Markets 29 China’s Entry into Global Business Cycle Has Broad Implications China GDP Growth Year-over-Year Percent Change Nominal GDP Growth Source: China National Bureau of Statistics and CEIC Data Real GDP Growth

30. NFSA_ Capital Markets 30 China Has Altered Global Pricing Patterns Journal of Commerce Industrial Price Index* Cumulative Percent Change in Commodity and Goods Prices During Business Cycles *The Journal of Commerce industrial price index includes prices of textiles, metals, petroleum products and miscellaneous products such as hides and flooring. Source: Bureau of Labor Statistics, Economic Cycle Research Institute, Haver Analytics and Alliance Capital Fixed Income US Core Consumer Goods Prices

31. NFSA_ Capital Markets 31 Low Import Inflation Has Kept Core Inflation & Interest Rates Low Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Board, Haver Analytics and Alliance Fixed Income Import Price of Consumer Goods Excluding Autos 10-Year Treasury Yield Total CPI (YoY chg) Core CPI (YoY chg) Inflation and the 10-Year Treasury Yield

32. NFSA_ Capital Markets 32 Hourly Compensation3.8%4.4% Productivity(0.6)3.0 Unit Labor Cost4.4%1.4% First Two Years of Recovery Underlying Inflation: Labor Costs Contained 1990–1991 Recession Annual Rates Source: US Department of Commerce and AllianceBernstein

33. NFSA_ Capital Markets 33 Hourly Compensation3.8%4.4% Productivity(0.6)3.0 Unit Labor Cost4.4%1.4% First Two Years of Recovery Underlying Inflation: Labor Costs Contained 1990–1991 Recession Annual Rates 2001 Recession Hourly Compensation3.2%2.7% Productivity4.04.8 Unit Labor Cost(0.8)%(2.1)% Source: US Department of Commerce and AllianceBernstein

34. NFSA_ Capital Markets 34 Labor Costs Still Contained Hourly Compensation3.2%2.7%4.2% Productivity4.04.82.7 Unit Labor Cost(0.8)(2.1)1.4 First Two Years of Recovery 2001 Recession Latest Year

35. NFSA_ Capital Markets 35 (%) Equity Risk Premium* Through March 31, 2005 Treasury securities are guaranteed by the U.S. government as to the timely payment of principal and interest if held to maturity. *Difference between expected return on equities as represented by the S&P 500 and 10-Year U.S. Treasuries Source: Federal Reserve and Bernstein How Attractive Is the Stock Market? About Average Stocks Very Attractive Bonds Very Attractive +1 Std. Dev. -1 Std. Dev. Average

36. NFSA_ Capital Markets 36 (%) After-Tax Margins Recession US nonfinancial corporations Source: Bureau of Economic Analysis Economic Underpinnings Still Strong: Corporate Profit Margins at 30-Year High Average

37. NFSA_ Capital Markets 37 Operating Earnings$74 Adjustments Recurring “Nonrecurring” Charges (6) Stock-Option Expense (3) Lower Pension-Fund Returns (1) Available Earnings$64 Earnings Retained for 6% Growth 24 Available for Dividends$403.4% Yield Current Dividend$191.6% Yield S&P 500 One-Year Forward Estimate As of January 31, 2005 Source: Bernstein estimates Potential for Dividend Growth Unusually Large

38. NFSA_ Capital Markets 38 Conclusions  U.S. economy very sound  Construction spending should improve gradually  Dollar will weaken further  Oil prices will stay relatively high  Stock market reasonably valued