www.institutional.alliancebernstein.com

May 3, 2005

Giulio MartiniChief Investment Officer—Currency and Quantitative Strategies

US Economic and Capital Markets Outlook

NFSA 100th Anniversary

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(6)

(4)

(2)

0

2

4

6

8

10

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

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 fundsSource: Bureau of Economic Analysis, Haver Analytics and Alliance Capital Fixed Income

(YoY % chg)

Real GDP Growth

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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

InventoryPositions

(4)%

(2)%

0%

2%

4%

6%

8%

10%

60 65 70 75 80 85 90 95 00

(YoY chg)

4

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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

(0.0)%

1.6%

3.0%

5.9%

6.5%

(9.8)%

3.9%

3.8%

14.5%

Government

Inventories

Consumption

Exports

Residential

Equipment and Software

Structures

Imports

5

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Nonresidential Construction Usually Rises Steadily

60

80

100

120

140

160

0 2 4 6 8 10 12 14 16 18 20

1991

Source: US Department of Commerce, Haver Analytics and AllianceBernstein

Quarters from Trough

Index

Average of 5 expansions

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1991 Recovery Was Weaker and More Gradual

60

80

100

120

140

160

0 2 4 6 8 10 12 14 16 18 20

1991

Source: US Department of Commerce, Haver Analytics and AllianceBernstein

Quarters from Trough

Index

1991

Average of 5 expansions

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Current Recovery Very Modest

60

80

100

120

140

160

0 2 4 6 8 10 12 14 16 18 20

Source: US Department of Commerce, Haver Analytics and AllianceBernstein

Quarters from Trough

Index

Current Expansion

1991

Average of 5 expansions

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Sprinklers Defy Construction Trend

Annualized Growth: 1980–2004

(0.3)%

4.0%

Nonresidential Construction

(Infation-Adjusted)

Sprinklers

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Employment and Income Trends Are Improving

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

91 93 95 97 99 01 03 05

Jobs (000s)

Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Haver Analytics

Payroll Employment

HouseholdEmployment

Payroll and Household Employment

(Year-over-Year Change)

Disposable Income vs. Wages

(Year-over-Year Change)

Wage & SalaryIncome

DisposableIncome

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

91 93 95 97 99 01 03

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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

15

20

25

30

35

40

45

50

90 92 94 96 98 00 02 04

($ Trillions)

Household Net Worth

0

1

2

3

4

5

6

7

8

9

90 92 94 96 98 00 02 04

(%)

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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

0

2

4

6

8

10

12

14

16

18

76 79 82 85 88 91 94 97 00 03

(%)

Mortgage RateHouse Price Index

(YoY % chg)

Rates vs. Prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

75 79 83 87 91 95 99 03

(000s)

0

20

40

60

80

100

120

140

160Index

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500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

80 83 86 89 92 95 98 01 04

Units (Thousand)

Housing Starts Are Strong and Inventories Are Low

Source: Census Bureau and Haver Analytics

0

2

4

6

8

10

12

75 78 81 84 87 90 93 96 99 02

Ratio

Month’s Supply of New Homesat Current Sales Rate

Housing Starts

January2005

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0

200

400

600

800

1,000

1,200

1,400

80 84 88 92 96 00 04

($ Billions)

Net Cash Flow vs. Business Investmentin Equipment and Software

Cash Flow

Investment

$287Billion

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

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

60 68 76 84 92 00

Ratio

Ratio of Free Cash Flow*to Capital Spending

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$14.5 $14.8$14.0

Metals &Machinery

Technology TransportationEquipment

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)

8.1%

10.6%

13.1%

14.6%

20.1%

25.5%

14.5%

OtherTechnology

Industrial

Software

OtherEquipment

Transportation

Computers

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Source: Department of Commerce, Haver Analytics and Alliance Capital Fixed Income

Trade Deficit Is Large and Structural in Nature

(700)

(600)

(500)

(400)

(300)

(200)

(100)

0

80 83 86 89 92 95 98 01 04

($ Billions)

Trade DeficitImports As a Percent

of Domestic Shipments

10

15

20

25

30

1992 1995 1997 2002 2004

(%)

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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 Rim44%

North America

17%

Latin America

6%

Other5%

Western Europe

17%

OPEC*11%

Consumer Goods

41%

Petroleum25%

Autos22%

Industrial Supplies

7%

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Source: International Monetary Fund Haver Analytics and Alliance Capital Fixed Income

US Relies on Foreign Capital To Fund Its Investment Needs

(7)

(6)

(5)

(4)

(3)

(2)

(1)

0

1

90 92 94 96 98 00 02 04

(%)

Current Account BalanceAs a Percent of GDP

Savings and Investment as a Percent of GDP

12

13

14

15

16

17

18

19

20

21

22

98 99 00 01 02 03 04

(%)

Investment

Savings

F

CurrentAccountImbalance

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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

22

24

26

28

30

32

34

98 99 00 01 02 03 04

(%)

Investment

Savings

F

Foreign Purchases of US Financial Assets(4-Quarter Moving Average)

(100)

0

100

200

300

400

500

600

700

94 96 98 00 02 04

($ Billions)

Total

Official

Private

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Foreigners Have Lost Interest in US Equity Investments…

Source: Federal Reserve Board Flow of Funds

Stocks

2000 2004

$194 Bil.

Plant, Equipment,etc.

$321 Bil.

$163 Bil.

$33 Bil.

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$133

$233

…and Have Turned to Bonds

Stocks

Government

Corporate

2000 2004

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.

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Foreign Ownership of US Financial Assets Growing

December 2004Source: Federal Reserve Board

46%

US Treasury Bonds

Owned byForeigners

Fed Funds (Overnight Liquidity)

Stocks

42%

US CorporateBonds

24%11%

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80

90

100

110

120

130

73 77 81 85 89 93 97 01 05

Real-Dollar Exchange Rate Still Above Prior Lows

Mar 73=100

Through March 31, 2005Source: Federal Reserve Board and Haver Analytics

76

Real Trade-Weighted Dollar Index

8783

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3.7

1.5

1.3

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

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5

10

15

20

25

30

1932 44 56 68 80 92 04E

0

2

4

6

8

10

12

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

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50

100

150

200

250

32 44 56 68 80 92 04E

(Bil. bbl)

Source: HIS Energy, IEA, and Bernstein

Cumulative Reserves Discovered

Russian Production Rising, but Reserves Falling

Current Reserves

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0

2

4

6

8

66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

(%)

Source: BP Statistical Review, IEA, and Bernstein

Oil Production Growth Outside OPEC and FSU Very Disappointing

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Growth in Oil Demand Accelerating due to Asia

+3.2

+3.4

+4.9 90.8

All OtherDemand +3.3

New AsianDemand

82.5

76.0

Million Barrels per Day

Source: BP Statistical Review, IEA, and Bernstein

60

70

80

90

1999 2004 2009E

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3.7

2.0

1.5

4.8

1.5

1.3

Sources of New SupplyMillion Barrels per Day

1999–2004 2004–2009E

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

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China’s Entry into Global Business Cycle Has Broad Implications

9.7

5.2 4.8

9.0 8.88.1

11.5

16.4

97 98 99 00 01 02 03 04

China GDP GrowthYear-over-Year Percent Change

Nominal GDP Growth

Source: China National Bureau of Statistics and CEIC Data

8.87.8

7.18 7.5

8.39.3 9.5

97 98 99 00 01 02 03 04

Real GDP Growth

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100

105

110

115

120

0 6 12 18 24 30 36 42

1975198219912001

Months from economic trough

(%) Cycle

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

90

100

110

120

130

140

150

160

170

0 6 12 18 24 30 36 42

1975198219912001

Months from economic trough

(%) Cycle

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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

(2)%

(1)%

0%

1%

2%

3%

4%

5%

6%

90 92 94 96 98 00 02 04

(YoY chg of Index)

Import Price of Consumer GoodsExcluding Autos

0

1

2

3

4

5

6

7

8

9

10

90 93 96 99 02

(%)

10-Year Treasury Yield

Total CPI (YoY chg)

CoreCPI (YoY chg)

Inflation and the 10-Year Treasury Yield

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Hourly Compensation 3.8% 4.4%

Productivity (0.6) 3.0

Unit Labor Cost 4.4% 1.4%

First Two Years of Recovery

Underlying Inflation: Labor Costs Contained

1990–1991 Recession

Annual Rates

Source: US Department of Commerce and AllianceBernstein

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Hourly Compensation 3.8% 4.4%

Productivity (0.6) 3.0

Unit Labor Cost 4.4% 1.4%

First Two Years of Recovery

Underlying Inflation: Labor Costs Contained

1990–1991 Recession

Annual Rates

2001 Recession

Hourly Compensation 3.2% 2.7%

Productivity 4.0 4.8

Unit Labor Cost (0.8)% (2.1)%

Source: US Department of Commerce and AllianceBernstein

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Labor Costs Still Contained

Hourly Compensation 3.2% 2.7% 4.2%

Productivity 4.0 4.8 2.7

Unit Labor Cost (0.8) (2.1) 1.4

First Two Years of Recovery

2001Recession

LatestYear

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0

2

4

6

8

60 65 70 75 80 85 90 95 00 05

(%) Equity Risk Premium*

Through March 31, 2005Treasury 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. TreasuriesSource: 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

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(%)

After-Tax Margins

Recession

US nonfinancial corporationsSource: Bureau of Economic Analysis

Economic Underpinnings Still Strong:Corporate Profit Margins at 30-Year High

Average

2

4

6

8

10

70 73 76 79 82 85 88 91 94 97 00 03

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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 $40 3.4% Yield

Current Dividend $19 1.6% Yield

S&P 500One-Year Forward Estimate

As of January 31, 2005Source: Bernstein estimates

Potential for Dividend Growth Unusually Large

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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