Presented by: Robert F. DeLucia, C.F.A. Senior Economist Quarterly Economic And Financial Market Outlook November 2004

Color for Elec background & LB text accent color Executive Summary Prudential Retirement  The U.S. Economic Outlook Can Be Best Characterized As A Powerful Tug-Of-War Between Steadily Improving Underlying Economic Fundamentals Versus High And Rising Energy Costs.  Recent Surge In World Oil Prices Appears Excessive And Not Sustainable, But A Trend Reversal In Oil Prices Awaits A Sustained Rebuilding Of Petroleum Inventories.  Current Record Oil Prices Resulting In A Clear Moderation In The Rate Of Economic Growth. However, An Outright Recession Appears Unlikely Unless Oil Prices Move Substantially Higher.  Credit Availability, Liquidity, And Financial Conditions Remain Highly Expansionary And Supportive Of Sustained Economic Growth.

Color for Elec background & LB text accent color Executive Summary (continued) Prudential Retirement  Corporate Sector Fundamentals Remain Excellent: Profitability, Cash Flow, And Balance Sheets. Business Sector Well Positioned To Boost Economic Growth Through Investment Spending And Employment. However, Business Executives Still Overly Cautious In Pursuing Expansion Plans.  Inflationary Pressures Have Recently Subsided, But Will Likely Build Gradually And Become An Increasing Risk During 2005 And Early  Current Federal Reserve Monetary Tightening Cycle Should Proceed At A Measured Pace. Fed Likely To Err On The Side Of Caution. Moderate Tightening During The Next Six Months Should Be Followed By A More Aggressive Tightening During Late 2005 And Early  World Oil Prices, Inflation, Federal Reserve Policy, Economic Growth In Europe And Japan, China’s Management Of It’s Economic Boom, Cautious Business Sector, And Terrorism Are The Critical Variables For Continued Sustained Healthy Economic Growth.

Color for Elec background & LB text accent color  Oil Prices A Major Economic Risk. However, Strong World Oil Production Should Lead To A Steady Rise In World Petroleum Inventories Necessary For Declining Oil Prices Over The Next 6-12 Months. However, A Secular Rise In Energy Costs Is A Legitimate Longer Term Economic Risk.  Investment Environment Benign For Remainder Of 2004 And Early 2005, But Becoming Increasingly Challenging Later In Equities Should Outperform Bonds Until Fed Begins To Tighten Monetary Conditions More Aggressively During The Second Half Of Absolute Portfolio Returns Will Likely Be Moderate During The Next 1-2 Years. Prudential Retirement Executive Summary (continued)

Color for Elec background & LB text accent color Economic Forecast: Critical Elements Prudential Retirement  Slower Economic Growth Likely During The Next Several Quarters In Response To The Recent Surge In Energy Costs. Real GDP Growth Should Average 4.2% In 2004 And 3.0% In  The Quarterly Growth Rate In Corporate Earnings Has Peaked For This Cycle. Profit Margins Are Near Historical Peaks, And Unlikely To Move Much Higher. Growth Rate In Profits Will Decelerate Over The Next 4-5 Quarters. Forecast Assumption Is Profit Growth Of 20% In 2004 But Only 5-7% During  2005 Economic Sector Leadership: Capital Goods, Exports, Manufacturing And Basic Industry, Non-Residential Construction, Services, And Small Business Sector.  Labor Markets: Understaffed Business Sector Implies Rising Demand For Labor And Solid Job Creation During 2005; Declining Unemployment Rate; Accelerating Growth In Wage And Salary Income.

Color for Elec background & LB text accent color Economic Forecast: Critical Elements (continued) Prudential Retirement  Stabilization In Inflation Near Term With Core Consumer Inflation Averaging 2% During The Next 6-9 Months. Inflation Is Likely To Accelerate During Period Toward A Cyclical Peak Of 3% During Global Deflationary Forces Currently Prevailing.  Steady Rise In Interest Rates Next Months; Moderate Rise Next Six Months Followed By Accelerating Rise In Rates During Yield Curve Should Gradually Flatten During  Global Economic Expansion Is Sustainable, Led By The U.S. And China. Japan, Latin America, And Emerging Asia Should Also Exhibit Solid Growth. More Moderate Economic Growth In Europe. Strong Growth In World Trade, Which Will Continue To Exceed Growth In Global GDP.

Color for Elec background & LB text accent color Investment Implications Prudential Retirement  Increasingly Challenging Investment Environment. Most Asset Classes Fairly Valued, And Will Become Increasingly Vulnerable To Tightening Monetary Conditions Anticipated During  Equity Markets Should Perform Best During The Next 6-9 Months, Albeit With Moderate Absolute Percentage Gains. Temporary Equity Market Setback Likely During 2005, In Response To A More Restrictive Monetary Environment. Domestic Equities Should Generate High Single-Digit Returns Over 3-5 Year Horizon.  Bear Market In Bonds Will Resume In Absolute Losses Likely In Most Sectors Of The Fixed Income Markets, Both Investment- Grade And High-Yield Bonds. Lackluster 4-5%Total Returns In Fixed Income Markets Likely Over The Next 3-5 Years.  U.S. Dollar Still Moderately Overvalued And Remains In Multi-Year Bear Market. Future Depreciation Of The Dollar Primarily Versus The Undervalued Asian Currencies.

Color for Elec background & LB text accent color Investment Implications (continued) Prudential Retirement  Best Equity Group Relative Performance Next Two Years: Cyclical And Industrial Stock Groups; Energy-Related Investments; Capital Goods Producers; Japanese And Emerging Asian Equity Markets. Traditional U.S. Multinational Blue Chip Growth Stocks Offer Attractive Valuations On a Risk-Adjusted Basis.  The Extended Period Of Small Cap Equity Outperformance Nearing An End. Relative Valuations, U.S. Dollar Weakness, And Monetary Policy Outlook All Favor Large Cap Equities During The Next Several Years.