the ric report - merrill edge

BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 32 to 34. 11500148

The RIC Report

Curb your enthusiasm

Investment Strategy | Global 14 April 2015

Research Investment Committee MLPF&S Martin Mauro Fixed Income Strategist MLPF&S Cheryl Rowan Portfolio Strategist MLPF&S

Matthew Trapp, CFA Investment Strategist MLPF&S

See Team Page for Full List of Contributors

Click the image above to watch the video.

Table of Contents Financial markets recap 2 Curb your enthusiasm 3 Dollar dilemma 7 Feed the World 11 RIC asset class views 15 Fixed Income, Econ, Commodities, Currencies: views & risks

16

Global equity markets: views & risks 17 Asset allocation for individual investors 18 Portfolio of the month 24 Stock lists 25 Economic forecast summary 28 Global economic forecast summary 29 Interest rate forecast summary 29 FX rate forecast summary 29 Team Page 35

Shifting to a more defensive posture

We are shifting some allocation from stocks to cash. US equity valuations continue to climb and do not look as attractive as they have in the past few years. Further, muted economic growth, a stronger dollar and lower oil prices contribute to expectations for slower earnings growth.

Slight shift to cash We are raising our allocation to cash slightly because we view cash as a good place to hide out for the time being. Also, returns should improve modestly once the Fed begins raising rates. We would become more inclined to maintain or expand our new cash position if we changed to a more aggressive view of Fed rate hikes.

Dollar dilemma Economist Emanuella Enenajor writes about what the strength in the dollar means for US economic growth, Fed policy, inflation, and US long-term competitiveness.

Challenges in feeding the world of the future Investment Strategist Matt Trapp looks at the challenges and opportunities of feeding the growing world population, which is forecast to increase by a third to 9.6 billion by 2050. The combination of rising incomes and changing diets mean that by 2050, the world needs to produce 70% more food globally.

.

http://research1.ml.com/C?q=PjPCUVcv8QeEq-iE8NJ56g

http://research1.ml.com/C?q=PjPCUVcv8QeEq-iE8NJ56g

The RIC Repor t 14 Apr i l 2015

2

Financial markets recap Table 1: Total returns (%) As of 31 March 2015 Asset class 1mo 3mo 12mo YTD 3yr2 5yr2 10yr2 2014 Equity Indices (%, US dollar terms) S&P 500 -1.6 1.0 12.7 1.0 16.1 14.5 8.0 13.7 NASDAQ Comp -1.2 3.8 18.1 3.8 18.1 16.7 10.5 14.7 FTSE 100 -5.7 -0.7 -5.4 -0.7 6.7 6.8 4.6 -5.3 TOPIX 1.9 10.1 12.3 10.1 9.7 6.4 3.4 -3.0 Hang Seng 0.8 6.0 17.2 6.0 10.8 7.0 10.0 5.5 DJ Euro Stoxx 50 -1.5 4.5 -6.4 4.5 9.6 3.3 3.1 -8.7 MSCI EAFE -1.4 5.0 -0.5 5.0 9.5 6.6 5.4 -4.5 MSCI Emerging Markets -1.4 2.3 0.8 2.3 0.7 2.1 8.8 -1.8 Size & Style (%, US dollar terms) Russell 2000 1.7 4.3 8.2 4.3 16.3 14.6 8.8 4.9 S&P 500 Citigroup Growth -1.7 2.5 16.1 2.5 16.9 15.8 9.0 14.9 S&P 500 Citigroup Value -1.5 -0.7 9.1 -0.7 15.3 13.1 6.9 12.4 S&P 600 Citigroup Growth 2.2 6.6 10.6 6.6 17.6 17.5 10.4 3.9 S&P 600 Citigroup Value 0.9 1.3 6.7 1.3 16.9 15.1 9.0 7.5 S&P 500 Sectors (%, US dollar terms) Consumer Discretionary -0.5 4.8 18.3 4.8 20.7 20.1 10.2 9.7 Consumer Staples -2.0 1.0 16.5 1.0 15.7 15.0 10.8 16.0 Energy -1.9 -2.9 -11.1 -2.9 4.1 8.0 7.4 -7.8 Financials -0.6 -2.1 10.0 -2.1 17.3 10.5 0.6 15.2 Health Care 0.9 6.5 26.2 6.5 26.9 20.1 11.4 25.3 Industrials -2.6 -0.9 8.7 -0.9 16.7 14.5 7.9 9.8 Information Technology -3.3 0.6 18.1 0.6 13.6 14.6 9.8 20.1 Materials -4.7 1.0 5.0 1.0 11.9 10.8 7.5 6.9 Telecom Services -3.7 1.5 4.1 1.5 10.6 12.8 7.5 3.0 Utilities -1.0 -5.2 11.1 -5.2 12.5 13.0 8.5 29.0 BofA Merrill Lynch Global Research Bond Indices (%, US dollar terms) 10-Year Treasury 0.8 2.6 9.9 2.6 3.7 6.4 5.6 10.7 2-Year Treasury 0.2 0.5 1.0 0.5 0.6 1.0 2.7 0.7 TIPS -0.5 1.5 3.8 1.5 0.8 4.5 4.6 4.5 Municipals* 0.3 1.1 6.9 1.1 4.2 5.3 5.0 9.8 US Corporate Bonds 0.4 2.3 6.8 2.3 5.3 6.5 5.9 7.5 US High Yield Bonds -0.5 2.5 2.1 2.5 7.5 8.4 8.0 2.5 Emerging Market Corporate Bonds 0.2 1.2 1.1 1.2 4.1 5.7 6.4 2.3 Emerging Market Sovereign Bonds -0.3 0.1 1.8 0.1 4.4 6.1 7.4 5.2 Preferreds 0.8 3.3 11.5 3.3 7.0 7.9 3.2 15.4 Foreign exchange** (%, in local currencies) US dollar 2.3 7.0 19.3 7.0 8.9 4.2 1.3 11.8 British pound -1.6 1.8 4.6 1.8 3.2 2.8 -1.3 3.6 Euro -2.2 -9.1 -12.9 -9.1 -2.9 -3.2 -1.0 -4.9 Yen 1.5 4.3 -5.2 4.3 -9.1 -3.3 -0.4 -7.2 Commodities** (%, US dollar terms) CRB Index -5.5 -7.9 -30.5 -7.9 -11.8 -5.0 -3.9 -17.9 Gold -2.5 -0.3 -8.0 -0.3 -10.8 1.2 10.7 -1.4 WTI Crude Oil -4.3 -10.6 -53.1 -10.6 -22.7 -10.7 -1.5 -45.9 Brent Crude Oil -11.9 -3.9 -48.9 -3.9 -23.5 -7.8 0.2 -48.3 Alternative Investments† (%, US dollar terms) Hedge Fund - CS Tremont¹ 1.1 1.9 4.6 1.9 7.0 6.1 5.9 4.1 Hedge Fund - HFRI Fund of Funds¹ 1.8 2.3 4.1 1.9 5.7 3.7 3.1 3.4 Notes: *Not tax adjusted. **BoE calculated effective FX indices. ¹Data lagged by one month; 23yr, 5yr, and 10yr returns are annualized; CS AUM-weighted, HFRI equal-weighted; †AI data not comparable to other asset classes because of reporting delays, lack of standardized reporting, and survivorship and self-selection biases. Crude oil prices are spot USD. Source: S&P, MSCI, Bloomberg, FactSet, BofAML Bond Indices (US Treasury Current 10yr, Current 2yr, Inflation-Linked; Muni Master, US Corp Master, US HY Master II, EM Corp Plus Index; EM External Debt Sovereign Index; US Preferred Stock Index).

First Quarter 2015 review Japan was the strongest equity market in the first quarter, with the TOPIX up 10.1%. The Hang Sang gained 6.0% and the Euro Stoxx 50 was up 4.5%, while the S&P 500 was up only 1.0%. Small caps were much stronger than large caps in the first quarter, gaining 4.3%. Growth was well ahead of value in the quarter in both large caps and small caps. As for US sectors, Health Care was on top at 6.5%, followed by Discretionary at 4.8%. Utilities was at the back of the pack, at -5.2%, followed by Energy at -2.9%, and Financials at -2.1%. Every sector of the bond market was in positive territory, led by preferreds at 3.3%, with 10-year Treasuries at 2.6%, and high yield at 2.5%. In FX markets, the dollar was up 7.0% and the euro declined 9.1%. Commodities were weak in the quarter, with WTI crude down 10.6%, the CRB at -7.9%, while Gold fell slightly.


3

Curb your enthusiasm US equities remain our asset class of choice, but we are becoming more cautious for a number of reasons.

Valuations continue to climb, and the stock market no longer looks as attractively priced as in the past few years.

Earnings growth is likely to be slower this year, as muted global economic growth and lower oil prices weigh on corporate profits.

Expectations for ongoing dollar strength present another challenge for earnings of global companies.

We are therefore paring back our equity allocation for moderate investors by 2%. Since bonds do not appear any more attractive than stocks as long as yields are forecast to rise, we are adding 2% to our cash allocation – looking for an opportunity to re-deploy back into stocks or bonds at some point.

Valuation and earnings suggest caution US Equity Strategist Savita Subramanian examines valuation of the S&P 500 across a variety of metrics, relative to its own historical levels and versus other asset classes. Valuation is important because, according to Subramanian, it has a very high predictive power over long-term returns, but minimal efficacy over the near term. She also finds that current valuations appear elevated across most metrics historically and vs other asset classes, with the exception of bonds (Table 2). Although market valuations are not suggesting as much upside as they did a few years ago, all metrics still imply positive 10-year annualized returns S&P 500 Relative Value Cheat Sheet: Higher valuations: a harbinger of doom or a non-event? 25 March 2015.

Table 2: S&P 500 valuation metrics (as of 3/31/15)

Metric Current Average Min Max

% Above (below) average History

Trailing PE 17.7 16.0 6.7 30.5 11% 1960-present Forward Consensus PE 16.6 15.1 9.7 25.1 10% 1986-present Trailing Normalized PE 19.0 19.0 9.2 33.9 0% 9/1987-present Shiller PE 27.0 16.6 4.8 44.2 62% 1881-present P/BV 2.92 2.87 1.6 5.9 2% 1986-present EV/EBITDA 10.3 9.9 6.3 15.1 4% 1986-present Trailing PEG 1.64 1.55 1.1 2.4 6% 2001-present Forward PEG 1.54 1.32 1.0 1.8 16% 2001-present P/OCF 12.0 10.5 5.5 19.6 14% 1986-present P/FCF 23.3 28.4 13.1 65.8 -18% 1986-present EV/Sales 2.08 1.80 0.9 2.9 16% 1986-present ERP (Market-Based) 756 450 136.0 880.0 68%* 11/1980-present Normalized ERP 495 275 -96.3 946.8 80%* 1987-present S&P 500 in WTI terms 43.2 22.5 2.7 109.0 92% 1960-present S&P 500 in Gold terms 1.75 1.52 0.2 5.5 15% 1975-present S&P 500 vs R2000 Fwd. P/E 0.87 0.93 0.7 1.4 -6% 1986-present *ERP above average implies equities are attractively valued relative to bonds Note: Market-based ERP based on DDM-implied return for S&P 500 less AAA corp bond yield. Normalized ERP based on normalized EPS yield less normalized real risk-free rate. Normalized EPS is based on a log-linear regression of S&P 500 operating EPS and the normalized risk-free rate is the difference between 1) the avg. of the 30-yr Treasury yield and the 5-year rolling avg. of the 10 year-Treasury yield, and 2) the 10yr TIPS spread and the 5-year rolling average CPI inflation rate. Source: BofA Merrill Lynch US Equity & US Quant Strategy, S&P, Compustat, First Call, Bloomberg

Martin Mauro Fixed Income Strategist

Cheryl Rowan Portfolio Strategist


4

Despite headwinds from a strong US dollar and collapsing oil prices, S&P 500 earnings still grew by 5% in 4Q 2014. Subramanian sees the potential for more risk to earnings early in 2015, however, as the dollar has continued to strengthen and oil prices remain depressed. She recently lowered her estimate for this year’s S&P 500 earnings by $2.00 to $117.50, which if accurate would be the first year of negative EPS growth since 2009.

According to our US Equity Strategy team, the three-month earnings estimate revision ratio for the S&P 500 fell for the eighth consecutive month to 0.47, the lowest level since April 2009. Currently, the ratio indicates that there are twice as many downward revisions for every upward revision, and all market sectors are experiencing more negative than positive revisions to earnings estimates. Revisions have deteriorated for both domestic and multinational companies; the US continues to have the worst ratio of all major global regions, according to Global Quantitative Strategist Nigel Tupper.

In addition to our tempered view of US stocks based on earnings and valuation, we note that the S&P 500 is only 4.5% away from our Equity Strategy team’s forecast year-end market level. And the market index has not experienced a correction in excess of 10% since June 2012 (Chart 1). It seems prudent to marginally reduce exposure to stocks at this time; we are shifting 2% from stocks to cash in our moderate asset allocation mix for the US and Global models (Tables 3 and 4).

Table 3: RIC asset allocation changes for US clients with a Tier 0 liquidity profile Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Previous New Diff. Previous New Diff. Previous New Diff. Previous New Diff. Previous New Diff. Stocks 23% 22% -1% 44% 42% -2% 66% 64% -2% 78% 76% -2% 86% 84% -2% Large Cap Growth 9% 9% 0% 17% 16% -1% 25% 24% -1% 28% 27% -1% 27% 27% 0% Large Cap Value 12% 12% 0% 18% 17% -1% 25% 24% -1% 28% 27% -1% 24% 22% -2% Small Growth 0% 0% 0% 2% 2% 0% 2% 2% 0% 3% 3% 0% 6% 6% 0% Small Value 0% 0% 0% 1% 1% 0% 1% 1% 0% 2% 2% 0% 5% 5% 0% International: Developed 1% 1% 0% 5% 5% 0% 11% 11% 0% 14% 14% 0% 20% 20% 0% International: Emerging 1% 0% -1% 1% 1% 0% 2% 2% 0% 3% 3% 0% 4% 4% 0% Bonds 53% 53% 0% 46% 46% 0% 30% 30% 0% 19% 19% 0% 11% 11% 0% Cash 24% 25% 1% 10% 12% 2% 4% 6% 2% 3% 5% 2% 3% 5% 2% Source: BofA Merrill Lynch Global Research

Table 4: Global model asset allocation changes for clients with a Tier 0 liquidity profile Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Previous New Diff. Previous New Diff. Previous New Diff. Previous New Diff. Previous New Diff. Global Equities 24% 23% -1% 45% 44% -1% 66% 64% -2% 78% 75% -3% 90% 87% -3% North America 10% 9% -1% 22% 21% -1% 31% 29% -2% 36% 33% -3% 41% 38% -3% Europe (ex UK) 5% 5% 0% 8% 8% 0% 12% 12% 0% 15% 15% 0% 18% 18% 0% UK 2% 2% 0% 4% 4% 0% 5% 5% 0% 6% 6% 0% 7% 7% 0% Japan 2% 2% 0% 4% 4% 0% 8% 8% 0% 8% 8% 0% 9% 9% 0% Pac Rim (ex Japan) 1% 1% 0% 1% 1% 0% 2% 2% 0% 3% 3% 0% 3% 3% 0% Emerging Markets 4% 4% 0% 6% 6% 0% 8% 8% 0% 10% 10% 0% 12% 12% 0% Global Fixed Income 56% 54% -2% 47% 47% 0% 32% 32% 0% 20% 20% 0% 8% 8% 0% Govt Bonds 34% 34% 0% 26% 26% 0% 18% 18% 0% 11% 11% 0% 1% 1% 0% Inv. Grade Credit 8% 8% 0% 9% 9% 0% 6% 6% 0% 4% 4% 0% 3% 3% 0% High Yield Credit 2% 1% -1% 2% 2% 0% 1% 1% 0% 1% 1% 0% 1% 1% 0% Collateralized Debt 12% 11% -1% 10% 10% 0% 7% 7% 0% 4% 4% 0% 3% 3% 0% Cash (USD) 20% 23% 3% 8% 9% 1% 2% 4% 2% 2% 5% 3% 2% 5% 3% Source: BofA Merrill Lynch Global Research

Chart 1: Almost 3 years since last 10% pullback

Source: BofA Merrill Lynch Global Research, Bloomberg

12001300140015001600170018001900200021002200

Dec-11Sep-12Jun-13 Mar-14Dec-14

S&P 500


5

The economic backdrop may also pose a challenge for stocks. Our economics group pegs first quarter GDP growth at 2.0%, but the data releases are tracking in the mid-1% range. We think temporary effects held back first quarter activity. Our base case is for GDP to grow a bit above 3% for the rest of the year, although downward risks remain. See US Economic Weekly: Growth gut check 09 April 2015.

And, we have scaled back our long-term expectations for oil prices, which tend to be positively linked with corporate profits. We do not expect oil prices to return to their mid-2014 levels for at least the next few years. Our target for the price of Brent crude oil in 2018 is about $80 per barrel. Energy: Taking the long term oil debate: the strip is not enough 13 April 2015, see page 2.

Why not add to the bond allocation? We still view intermediate-term maturities as the sweet spot in the bond market, but there is not a good case for adding more exposure now. The reward for extending maturity does not look as attractive as it has in the recent past because the yield curve has flattened considerably. The yield on the 10-year Treasury note is about 1.90 percentage points (190 basis points) above the yield on the 3-month Treasury bill. That’s roughly the historical average, but a good bit less than a year ago (Chart 2). For us to raise our allocation to bonds, we would need to see that portion of the yield curve steepen, or more simply, higher intermediate-term yields.

Chart 2: 10-year yield pickup about average


Cash is a good place to hide We are raising our allocation to cash by 2% mostly because we view cash as a good place to hide out for the time being. Also, returns on cash should improve modestly once the Fed begins raising rates. We would become more inclined to maintain or expand our new cash position if we changed to a more aggressive view of Fed rate hikes.

History shows that cash tends to do well during periods of Fed-induced rate increases, but there are two differences now that could limit the gains: The Fed raised rates much more in previous tightening cycles than what we expect this time, and the yields on Treasury bills began at higher levels than today’s level of near zero.

-100-50

050

100150200250300350400 10 yr - 3 mo Tsy yield

Average

The yield pickup from cash to 10-year Treasuries is about average in historical terms.

Returns on cash should improve modestly once the Fed begins raising rates.


6

The returns on cash ranged from 4.4-6.2% during the last three Fed tightening periods (Table 5). If we are correct that the federal funds rate at the end of 2016 is about 1.75%, then the return on cash for the next 21 months should be a bit above 1.0% – less than our expectation for inflation.

Table 5: Performance of cash in past three Fed tightening cycles 3-month Treasury bill

First hike Last hike Fed funds range Chg in yield Return Feb 4, 1994 Feb 1, 1995 3.00% - 6.00% +2.86 +4.4% Jun 30, 1999 May 16, 2000 4.75% - 6.50% +1.39 +4.7% Jun 30, 2004 Jun 29, 2006 1.00% - 5.25% +3.61 +6.2%

Source: BofA Merrill Lynch Global Research


7

Dollar dilemma In mid 2014, upside surprises in US economic data triggered the start of persistent appreciation in the dollar. We have argued that the currency’s appreciation was an endogenous response to underlying economic fundamentals, suggesting little reason to fret.

But recently, there has been a string of disappointments in the economic data. In spite of the weak economic news, the currency continued to rally (Chart 3). A more cautious tone from the Fed recently has taken some shine off of the greenback, but the trend is still up. And our FX Strategy team sees further upside in the USD. In our view, there are two key factors driving these trends. The first factor is central bank easing abroad. The second factor has been investors’ extrapolative expectations of a continued rally on Fed hawkishness. Neither of these two factors are a reflection of strengthening US growth.

1. Global central bank easing: Disinflationary risks combined with downside risks to growth have triggered central bank easing in key trading partners such as Canada and the Eurozone. The associated declines in their currencies have, by default, boosted the value of the trade-weighted US dollar.

2. One-track-minded markets: Although the Fed has emphasized data dependency, it largely has been dismissive of the dollar’s ascent. As a result, the dollar has been on a tear. Markets may be putting too much emphasis on the solid labor market trends, ignoring weakness elsewhere.

While the Fed may have happily looked past the USD rally last year, as it was an endogenous response to stronger growth, the more recent domestic data have been notably weak. Also, as we said in a recent Ethanomics, The war against deflation, the US faces similar disinflationary risks that global central banks are now battling, and markets are not putting enough emphasis on the possibility of delay in the Fed exit to September or beyond. If the dollar continues to rally as our FX team expects, the risks are growing that the Fed will start to view the USD rally as an exogenous headwind rather than an endogenous signal of stronger growth.

Modest growth headwind The USD rally is a drag to the tradeable sectors of the economy. Our recent research quantified industry exposure to the dollar using a measure called “net external orientation” (NEO) developed by Fed researcher Linda Goldberg.1 This indicator measures the export share of revenues minus imports in production costs for a given industry. Sectors with an elevated NEO should be hit the hardest from the USD rally. But if we look at annual growth in output, there is no clear underperformance among high-NEO sectors (Chart 4). That suggests the currency’s ascent is not exerting a drag on activity in a discernable way (at least yet), or stronger external demand is providing a robust offset to the currency drag. Admittedly, these effects are challenging to disentangle.

1 Goldberg, L. and Crockett, K. 1998. “The Dollar and US Manufacturing,” NY Fed Current Issues.

Chart 3: USD diverges with economic fundamentals


Chart 4: Industries with high external exposure have not underperformed recently (weighted average yoy growth in industrial production)*

*Note: we use a weighted average (weighted by shipments) of industrial production of the top 5 and bottom 5 net external orientation sectors. Source: BofA Merrill Lynch Global Research, BLS, BEA, Census Bureau

75

80

85

90

95

100

-0.6-0.4-0.20.00.20.40.60.81.0

Mar-1

4Ap

r-14

May-1

4Ju

n-14

Jul-1

4Au

g-14

Sep-

14Oc

t-14

Nov-1

4De

c-14

Jan-

15Fe

b-15

Mar-1

5

US economic surprise index (L)

US dollar (R)

-30%

-20%

-10%

0%

10%

20%

Q1-2001 Q3-2005 Q1-2010 Q3-2014

Low net external orientation sectors

High net external orientation sectors

Emanuella Enenajor Canada and US Economist


8

Profit problems will not derail our capex call Income from the rest of the world accounted for a third of US corporate pre-tax profits in 2014, and just under 5% of national income, according to data from the BEA (Chart 5). But with slowing global growth and the drag from the USD, the share of foreign profits to national income has bucked its rising trend. Our US Equity Strategists estimate that every 10% rise in the dollar results in a $3-4 headwind to S&P 500 EPS. They recently reduced their 2015 S&P 500 EPS by $2 to $117.50 to reflect the stronger dollar. Although weaker profits could hurt capex, we think the greatest risk is that US firms curtail foreign (not domestic) capex, suggesting a muted GDP impact.

Longer-term competitiveness issues The sharp USD rally is out of place with the fundamentals of trade. The current account, the broadest measure of trade flows, has been in a chronic deficit of about 2.3% of GDP for nearly a year. The currency’s appreciation would only exacerbate the trade imbalance. Services trade is in surplus, and the energy trade deficit is shrinking rapidly, as oil imports are falling due to the shale boom. However, the non-energy goods trade deficit continues to worsen (Chart 6). For now, the dollar is being pushed higher by capital flows that are offsetting the chronic dumping of dollars on the trade side. That sows the seeds for export weakness ahead, which suggests net trade should be a drag on growth.

What it all means for growth Although there are clear risks to foreign-derived corporate profits and overall trade competitiveness due to USD appreciation, the US is a relatively closed economy, with exports accounting for 13% of GDP and imports 16%. Thus, the overall impact on growth is likely to be contained. Our recent research Who’s afraid of the US$ rally? and The weight of a stronger dollar point to GDP downside of about half a percent arising from a 20% increase in the currency. In our view, the currency’s rise will likely be a modest headwind to growth this year and next, but should not derail the 3% or so real GDP trajectory that we expect for 2015 and 2016.

The dollar and inflation US dollar appreciation affects inflation both directly and indirectly, as shown in Exhibit 1. Currency strength directly restrains import prices. Also, a rising dollar indirectly holds back inflation by encouraging consumers to substitute to cheaper foreign imports, weighing on domestic prices and production (including wages).

Imported disinflation is spreading Year-on-year consumer import prices are tracking -0.3% as of February 2015. Import prices and PCE inflation exhibit a very close correlation (Chart 7). In fact, data since 1993 show a solid 65% correlation between annual changes in PCE inflation and consumer goods import prices. Dynamics in the latter can be driven by a number of factors including the currency, good prices in the exporting country, changes in import source country/region, changes in tariffs rules, etc.

A quick look at broad import prices shows a notable and pervasive weakening across the board. Here, we include not only sectors denoted as “consumer goods” by the Bureau of Labor Statistics, but we also include autos, food and gasoline for a broader picture of import price dynamics. As seen in, the number of categories in negative territory has been rising over the past couple of years (Chart 8). In our view, that points to a broadening of disinflationary pressure, likely driven by a common factor: USD appreciation.

Chart 5: Foreign-derived corporate profits as a share of national income has flat-lined

Source: BofA Merrill Lynch Global Research, Federal Reserve, Bureau of Economic Analysis

Chart 6: Weakening non-energy goods trade signals competitiveness issues (trade balance as a % of GDP)

Source: BofA Merrill Lynch Global Research, US Census Bureau, US Bureau of Economic Analysis

0%

1%

2%

3%

4%

5%

1960 1978 1996 2014

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Q1-2004 Q3-2007 Q1-2011 Q3-2014

Services Income

Petroleum

Non-petroleum goods


9

Chart 7: PCE inflation and consumer goods import prices

The BLS definition of “consumer goods” excludes some notable categories of goods consumed by households in PCE such as autos, energy and food. Source: BofA Merrill Lynch Global Research, BLS, BEA

Chart 8: Negative import inflation is widespread (% of consumer-related import price categories with yoy declines, 3-mo moving average)

Note: Consumer-related imports include “consumer goods” as defined by the BLS, as well as the categories of energy, food and autos. Source: BofA Merrill Lynch Global Research, BLS

Exhibit 1: How USD appreciation slows inflation

Source: BofA Merrill Lynch Global Research, adapted from Laflèche, T. 1996. “The impact of exchange rate movements on consumer prices.” Bank of Canada Review, Winter 1996-1997, 21-32.

Gauging the impact on domestic inflation There is a rich literature on exchange rate pass-through to domestic prices. The consistent finding is that in the US and other developed nations, the pass-through to consumer prices from currency moves is small and has diminished in recent years. Authors Gagnon and Ihrig (2004) find a substantial reduction in the pass-through since the 1980s, with the impact falling from 0.16 to 0.05 (ie, a 10% move in the USD is associated with an inflation response of only 0.5% recently).2

More recent research by An and Wang (2011) at the Dallas Fed finds similar results, citing a pass-through of only 0.01 over a 15-month horizon.3 That result is consistent with our own research of only a 0.5pp hit to core PCE from a 20% USD appreciation. Why is the pass-through so weak? The literature mostly chalks it up

2 Gagnon, J. and Ihrig, J. 2004. “Monetary Policy and Exchange Rate Pass-Through,” International Journal of Finance and Economics, vol 9 (October), pp. 315-38. 3 An, L. and Wang, J. 2011.“Exchange Rate Pass-through: Evidence Based on Vector Autoregression with Sign Restrictions”, Dallas Fed working paper.

-2%

-1%

0%

1%

2%

3%

4%

5%

Nov-2001 Dec-2005 Jan-2010 Feb-2014

PCE price index (yoy) Consumer goods import prices (yoy) 0%

10%

20%

30%

40%

50%

60%

70%

Nov-2001 Dec-2005 Jan-2010 Feb-2014

USD appreciation

Import prices fall US demand for imports rises

Demand for US substitute goods

falls, hurting prices

Foreign demand for US exports falls

Demand for US labor falls, slowing

wages

Inflation slows

DIRECT INDIRECT


10

to stable monetary policy, which has anchored inflation expectations, making deviations more challenging.

However, there are notable uncertainties in the pass-through to prices. For example, there may be non-linearities in price response. Foreign firms exporting to the US may initially pocket the small profit gains from the USD appreciation. However, as profitability expands, firms may lower prices more aggressively to expand market share. If this triggers more competition, then the downward pressure on prices may accelerate, creating a non-linear price-adjustment response. That leaves the risks skewed to the downside for inflation if the pace of USD appreciation accelerates.

The Fed’s question: how transitory is it? There is no central banking rulebook on how monetary policy should react to currency moves. However, the general stance for an inflation targeting central bank has been to view the currency move as a one-time transitory shock requiring no policy response.

However, we are not convinced that the Fed will ignore the currency’s moves as its central banking counterparts have done. We highlight three key reasons for this view:

1. The direction of the shock: A stronger dollar exerts downward pressure on inflation, in contrast to the shocks faced by the Bank of England (BoE) and Bank of Canada (BoC). As we have said, central banks are acting in an environment of asymmetric risks where downside inflation risks are more serious than upside inflation risks.

2. The Fed’s report card looks bad: The Fed already has had chronically misses to the downside on its inflation target, so weaker import prices would only push the Fed further away from its target. Given lags in price response, the bulk of the currency impact on PCE inflation still lies ahead.

3. Inflation expectations are vulnerable: Inflation expectations are backward-looking, and recent research from Michael Ehrmann (2014) from the BoC suggests that during persistently low inflation, expectations can become even more dependent on lagged inflation.4 Thus, downside inflation shocks from the currency may not be entirely “transitory.”

Although the Federal Reserve has not raised much concern over the dollar’s trajectory to date, it is still an important variable in determining overall financial conditions. And given below-target inflation, asymmetric policy risks and the autoregressive nature of inflation expectations, we think the Fed will begin to pay closer attention to the dollar’s rise.

As we have said, the Fed will need to feel assured that inflation is going to pick up within its forecast horizon before lifting rates. A tightening jobs market and signs of wage pickup could signal stronger inflation ahead, justifying a liftoff this year. But given weak inflation, we think the Fed will wait until September to hike rates, with a super-slow hiking cycle of only 25bp every other meeting. Data dependency means that if inflation fails to pick up over time, the Fed may delay the exit further or slow the pace of rate hikes even more than our assumed pace of 25bp every other meeting – a risk that markets may not be fully taking into account. 4 Ehrmann, M. 2014. “Targeting Inflation from Below – How Do Inflation Expectations Behave?” Bank of Canada Working Paper No. 2014–52.


11

Feed the World The global population is expected to increase by one-third by 2050, growing from 7.2 billion to 9.6 billion. Today, 805 million people are chronically undernourished; hunger and under-nutrition reduces global GDP by 2-3% (approximately US$2 trillion). In addition to the growing population, the combination of rising incomes and changing diets mean that by 2050, the world needs to produce 70% more food globally. This will create challenges and opportunities to feed the world.

Global challenges include declining yields (1.4% today vs 3.2% in 1960), limited land remaining to be cultivated (1.4 billion hectares), peak water (agriculture is 70% of water use), extreme weather and climate change (25% of wheat yields at risk), and the protein challenge (2% annual growth in meat demand to 2030E).

Agriculture yields are on the decline While yields have been the mainstay of production increases in the past, they are on the decline for major crops. Globally the rate of growth in yields of the major cereal crops has been steadily declining. It dropped from 3.2% per year in 1960 to 1.5% in 2000 (source: Food and Agriculture Organization of the UN). It is expected to fall to 1.4% per year from 2013-2027E (source: USDA, FAPRI, Syngenta). This is posing questions about the capacity of world agriculture to produce enough food for the growing population. That said, there remains significant potential for further gains from productivity increases in increased agricultural output and agricultural incomes. Chart 9: Rolling 10-year average growth in crop yield for corn, soybean, rice, wheat (%)

Source: BofA Merrill Lynch Global Research, USDA

Crop protection, key to raising yields Annually up to 40% of the world's potential crop production is lost due to weeds, pests and diseases (source: FAO). Crop protection products help avoid damage from weeds, disease and insect pressure – as well as limiting the spread of disease to people and livestock. The global market for agrochemical products including non-crop uses was estimated at US$55bn in 2012 – up 30% vs 2007 and doubling since 2000. The crop protection market was the most important segment, worth US$49bn in 2012.

Fertilizers responsible for 30-50% of yield Commercial fertilizers are thought to be responsible for 30-50% of crop yields (source: International Plant Nutrition Institute). The return on investment for a given input of nitrogen fertilizer is thought to be greater than 7x in terms of monetary value of yield (source: Yara International). Total fertilizer industry revenues were estimated at US$175bn in 2013 and are projected to grow at a 2.1% CAGR reaching US$194bn by 2018E (source: MarketLine).

A Transforming World

Matthew Trapp Investment Strategist

The content for this article is excerpted from an in-depth primer report written by our Thematic Strategist Sarbjit Nahal titled: Thematic Investing: Feed the World: global food security primer 30 March 2015.


12

US$46bn seeds market, US$60 billion by 2020 The global market for seeds was estimated at US$46bn in 2012, with growth having tripled since 2000, including ~100% growth for conventional seeds and ~600% for genetically-modified (GM) seeds (source: Syngenta, Context). The market for GM seeds containing herbicide tolerant and/or insect resistant crop traits has been one of the fastest growing sectors in the agricultural industry over the last decade. The seed market is expected to grow to US$60bn by 2020E with drivers including continued seed quality improvements, hybridization and GM penetration (source: Syngenta).

Land, limited scope for expansion Another challenge is the lack of arable land for crops. There is little scope for easy expansion of agricultural land globally. There are only 1.4 billion hectares of prime land (classed as very suitable) and good land (classed as suitable and moderately suitable) that could be brought into cultivation if needed, albeit often at the expense of pastures and requiring considerable development investments, eg, infrastructure, fighting diseases, etc. (source: FAO).

Given global food security challenges – and efforts to identify real and sustainable value asset classes – international farmland is gaining increasing traction with investors. The range of opportunities for investors encompasses the pioneer countries of sub-Saharan Africa to the more mature markets of Western Australia, New Zealand and Western Europe. Central Europe and the Baltic States fall somewhere in between (source: Savills).

More efficient equipment and automation of processes Agricultural equipment and technology are key to meeting the food security challenge by increasing productivity and reducing losses (eg, 1 farmer in mechanized countries can feed 155 people today, and this is expected to rise to 200 by 2020E vs ratios of 1:25 in 1960 and 1:2.5 in the early 20th century). More efficient equipment and automation of farming processes will lead to greater efficiency, reduce manpower demands and lower production costs. The global market for agricultural machinery reached a record US$130bn in 2013 and is estimated to reach $208 billion by 2018.

Automation is gaining increasing traction due to the agricultural labor crisis (ageing farmers, lack of young skilled farmers/workers) and the tendency toward larger scale farms. Autonomous technology (eg, driverless tractors) and the use of drones for agriculture (US$2bn mkt) are two examples seeing large scale take-up. The “Agribot” – agricultural robot – market was estimated at US $817mn in 2013 and is expected to grow to US$16.3bn by 2020E (source: WinterGreen).

Global water crisis: a perfect storm is brewing Water crises have been recognized as the number one global risk in terms of impact in the World Economic Forum’s (WEF) Global Risks 2015 report. Increasing water demand, water pollution and water stress mean that demand is set to overshoot supply by 40% in the next 20 years. Some 50% of the world’s population will be living in conditions of “water stress” by 2030 and 40% in “severe water stress” by 2050. Global water stress will have huge impacts on food security with risk factors including scarcity, uneven distribution, surging demand, changes in diet, and climate change and extreme weather.

Agriculture is the largest single user of freshwater in the world, accounting for 70% of total water use. This will significantly exacerbate the imbalance between

There is little scope for easy expansion of agricultural land globally.

Agricultural equipment and technology are key to meeting the food security challenge by increasing productivity and reducing losses.

Water crises have been recognized as the number one global risk in terms of impact in the World Economic Forum’s (WEF) Global Risks 2015 report.


13

water demand and supply given that by 2050, food demand is expected to have increased by 70%.

California: world’s #5 food supplier running out of water California is the world’s fifth largest producer of food – producing virtually all of the US’ almonds, artichokes, lemons, pistachios, and processed tomatoes – and is in the midst of its worst drought in recent times. This year California concluded its warmest winter with temperatures 4.4° warmer than the 20th century average, the snowpack at 12% of normal levels, and its reservoirs potentially running out of water within one year. Agriculture accounts for 80% of water use in California.

Water is a US$600bn market and 7%+ CAGR Water is a US$600bn market today, which is delivering a CAGR of 7%, well above global growth rates. We believe that water will represent a combined US$1tn+ market by 2020. We see the fastest 3-5Y growth coming from the lowest-hanging fruit (water treatment and recycling), countries incentivizing private sector actors (Brazil, China, the US), the more “crop per drop” theme, smart metering and big data/technology-based solutions, and water-friendly forms of energy (wind and solar).

Climate change: unprecedented challenge The severity and pace of climate change in the 21st century is presenting an unprecedented challenge for agriculture. Current global surface temperatures are now about 0.6°C higher than the average for the last century. Extreme temperature events are also becoming more frequent, causing increasing damage to ecosystems, agriculture, the future availability of water, and human health. The international scientific consensus are that these trends will intensify in this century if emissions of greenhouse gases continue to follow a business-as-usual scenario, with global atmospheric surface temperatures predicted to rise by up to 4°C by 2100E.

Recent studies have found that agriculture is one of the economic sectors most exposed to extreme weather and climate change impacts. Global wheat production is estimated to fall by 6% for each degree Celsius of further temperature increase and become more variable over space and time.

Protein challenge: rising incomes and changing diets Increasing wealth and purchasing power – especially in Emerging Markets – are being accompanied by an increase in the consumption of meat, dairy and fish. This offers opportunities to improve nutrition and agricultural incomes. There has been increased pressure on the livestock sector to meet the growing demand for high-value animal protein. Annual meat production has risen 6x since 1950 and 3.5x since 1970 (source: FAO). According to the USDA, growth in world meat consumption is projected to increase 2% per year during 2014-2023, and meat shipments from major exporters rise nearly 3% per year.

The growth in demand for livestock products suggests that there will be a consequent rise in demand for animal feed, not only of cereals but of other feeds and particularly proteins (source: FAO). The type of protein consumed affects grain demand. For example, 1kg of beef requires 7kg of grain to feed the animal vs 4kg for pork and 2kg for chicken (source: Syngenta).

US$741bn meat, fish and poultry industry The global meat, fish and poultry market had total revenues of US$740.5bn in 2013, representing a CAGR of 2.6% between 2009 and 2013. The market is

Table 6: More than half of US fruits, vegetables and nuts are grown in California

California crops Almonds 99% Celery 95% Artichokes 99% Apricots 94% Dates 99% Wine Grapes 92% Figs 99% Strawberries 90% Kiwifruit 99% Cauliflower 90% Olives 99% Avocados 87% Clingstone Peach 99% Lemons 89% Pistachios 99% Carrots 88% Pomegranates 99% Lettuce 78% Walnuts 99% Spinach 62% Garlic 97% Chilli Peppers 57% Plums 97% Bell Peppers 49% Broccoli 96% Rice 26% Nectarines 96% Sweet Potatoes 23% Tomatoes, Canned 96% Milk & Cream 21% Source: California Department of Food and Agriculture

Increasing wealth and purchasing power – especially in Emerging Markets – are being accompanied by an increase in the consumption of meat, dairy and fish.


14

expected to grow at a similar rate to reach US$843.5bn by 2018E (source: MarketLine). The global dairy industry had estimated sales of US$335.8bn in 2014 and is expected to grow at 5% CAGR to reach US$ 442.3bn in 2019E (source: Gyan).

Stock List Our Thematic Strategist Sarbjit Nahal has put together a list of Primer Picks that have exposure to the feed the world theme. To be included as a Primer Pick, the stock must be ranked as having “material” – either High or Medium -- exposure to the relevant theme, the stock must also be covered by BofA Merrill Lynch Global Research fundamental analysts and must have a Buy rating as of the date he publishes the report.

Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decisions. The full rationale and investment thesis for our fundamental analyst’s recommendation on each stock is contained in the most recent report on the company, which we urge you to read.

Table 7: BofAML Global Food Security Primer Picks Stocks BofAML Ticker Company Location

Price 4/10/2015

Mkt. cap US$m Q-R-Q Food security subsector

Food security exposure Footnote^

ADM Archer Daniels United States 47.96 30,164 B-1-7 Agribusiness, Protein & Dairy High Bbijopsv ALG Alamo Group United States 61.98 702 C-1-7 Agricultural Equipment High Bbgijopsv CF CF Industries United States 284.52 13,629 C-1-7 Agricultural Inputs High Bbijops

FMC FMC Corp United States 58.38 7,795 B-1-7 Agricultural Inputs High Bbijopsv MON Monsanto United States 120.14 57,199 B-1-7 Agricultural Inputs High Bbgijopsvw MOS Mosaic United States 45.85 17,206 C-1-7 Agricultural Inputs High Bbijopsvw SYT Syngenta AG Switzerland 70.67 32,842 A-1-7 Agricultural Inputs High Bbijopsv

TSCO Tractor Supply United States 87.28 11,912 B-1-7 Agricultural Inputs Medium Bbijopsvw ECL Ecolab Inc United States 116.36 34,600 A-1-7 Food Safety & Animal Health Medium Bbijopsvw IDXX IDEXX United States 153.56 7,193 B-1-9 Food Safety & Animal Health Medium Bbijopvw PAHC Phibro Animal Health United States 34.48 1,344 C-1-7 Food Safety & Animal Health Medium Bbijops ZTS Zoetis United States 47.17 23,616 C-1-7 Food Safety & Animal Health Medium Bbijopsvw SFM Sprouts Farmers Mkt United States 35.03 5,337 C-1-9 Healthy Eating High Bbijpsv

WWAV WhiteWave United States 46.36 8,114 C-1-9 Healthy Eating High Bbgijopsv WFM Whole Foods Mkt. United States 51.53 18,590 C-1-7 Healthy Eating High Bbijpvw HAIN Hain Celestial United States 65.95 6,708 B-1-9 Healthy Eating Medium Bbijopsvw KR The Kroger Co. United States 77.07 37,850 B-1-7 Healthy Eating Medium Bbgijopsv

UNFI United Natural Foods United States 74.56 3,733 B-1-9 Healthy Eating Medium Bbijopsvw BERY Berry Plastics United States 36.05 4,286 C-1-9 Reducing Food Waste Medium Bbijopsv GPK GraphicPackaging United States 14.66 4,825 C-1-9 Reducing Food Waste Medium Bbijopsv MWV Meadwestvaco United States 49.07 8,216 B-1-7 Reducing Food Waste Medium Bbijopsv PKG Packaging Corp United States 78.75 7,738 B-1-7 Reducing Food Waste Medium Bbgijopsvw RKT Rock-Tenn United States 63.37 8,867 B-1-7 Reducing Food Waste Medium Bbijopsv SEE Sealed Air Corp United States 46.30 9,781 B-1-7 Reducing Food Waste Medium Bbgijopsv SON Sonoco Products United States 46.12 4,650 B-1-7 Reducing Food Waste Medium Bbijopsvw AWK American Water Works United States 54.18 9,747 A-1-7 Water High Bbijopsvw SBS Sabesp-ADR Brazil 5.66 3,869 C-2-7 Water High Bbp

SRCL Stericycle United States 141.93 12,056 A-1-9 Water High Bbgijopsvw DHR Danaher United States 84.98 60,091 B-1-7 Water Medium Bbijopsvw ECL Ecolab Inc United States 116.36 34,600 A-1-7 Water Medium Bbijopsvw ICA Empresas ICA Mexico 3.28 498 C-1-9 Water Medium Bbgijopsv

MON Monsanto United States 120.14 57,199 B-1-7 Water Medium Bbgijopsvw NGL NGL Energy Partners United States 26.96 2,825 B-1-7 Water Medium Bbgijopsvw SYT Syngenta AG Switzerland 70.67 32,842 A-1-7 Water Medium Bbijopsv

*FTW Exposure = BofAML estimates of current sales derived from products, services, technologies and solutions related to feeding the world. ^ Please see page 31 for Footnote Key. Source: BofA Merrill Lynch Global Research


15

RIC asset class views Table 8: Research Investment Committee asset class views

Asset Class RIC view (+ / = / –) Comments

Equity markets US equities + Low but rising rates, tame inflation strong dollar sweet spot for stocks, but slowing EPS growth suggests protecting some gains. Consumer Discretionary – Low oil prices a plus, but over-owned by PMs, labor-intensive sector hurt by rising rates, expensive while margins are stretched. Consumer Staples = Best defensive sector with high quality, good yield and higher non-US exposure; beneficiary of low oil prices. Energy = Valuations attractive but not based on forward P/E; oil price volatility will collapse multiples; lower oil prices a negative. Financials = Benefits from housing, US cyclical recovery; outperforms with rising dollar; risks are regulatory reform. Healthcare = Preferred defensive sector, benefits from demographics; pharma good yield play; HC reform benefits many services stocks. Industrials + Benefits from US manufacturing/global economic growth. Prefer large cap multinational; Europe recovery a risk. Info Technology + Favorite sector; benefits from cyclical recovery; highest foreign exposure; more cash than debt; low EPS volatility. Materials = Watch overcapacity and China; benefits as global economy recovers but generally underperforms when dollar rises. Telecom – Best dividend yield sector, but not much dividend growth as payout ratios high; worst risk/reward trade-off. Utilities – Low EPS growth, higher expected rates keep us UW. Growth = Not much value in “growth vs value” trade, more sensitivity to GDP growth, growth should do better as profit growth slows. Value = Scarcity of yield gives credence to value stocks; favor Industrials and selected Energy. Small cap = Valuations remain high; higher volatility works against small caps, prefer larger and higher quality segment. Large cap + Large global cyclicals look attractively valued vs small or mid caps; prefer stocks with good dividend growth potential.

Europe (ex. UK) + QE appears to have “jump started” economies, as credit growth is rising and we raised our inflation forecast; still favor more defensive, large cap, high quality stocks until recovery appears more certain.

United Kingdom = Mixed economic data likely to keep BoE on hold; prefer high quality, defensive stocks here.

Japan + Lower corporate tax rates, higher inflation expected; look for consumption and GDP recovery. ROEs are higher. BoJ could lower rates again if data suggest slowdown or lower inflation. Prefer industries that benefit from higher domestic demand.

Asia Pac (ex. Japan) – Region dependent on easing from PBoC or strong global recovery; inflation data look weaker and should prompt further interest rate cuts; lower oil prices are a positive as most are net importers.

Emerging markets = Continued central bank easing positive for EM. Latam weaker currencies and government reform could benefit Brazil. Favor India for rate cuts and reforms. Also like Taiwan, Asian exporters to Europe.

Fixed income markets Treasuries – Intermediate and long-term yields should be slightly higher by the end of the year. Agencies / MBS = A shortage of new supply should contain yields. TIPS + Inflation likely to remain low, but yields and breakevens on TIPS now look attractive. US IG Corporates = Preferable to Treasuries for conservative investors. We favor average quality, and intermediate maturities. US HY Corporates = Risk from lower energy prices appears to have subsided. Fed rate hikes pose some risk. Preferred securities = Favor QDI payers and fixed-to-floating structures. Non-US DM Sovereigns – Yields are low, and currency translation should work against dollar-based investors. EM $ Sovereigns + Possible slowing in China presents a risk, but yields are relatively attractive. EM local crncy Sovereigns = Strengthening dollar should hold back performance. Gold = We see strong support at $1200/oz. Our YE 2017 target is $1500/oz. Oil = We expect prices to rise on balance for the next few years, but not reach old highs. Our 2018 target is $80/bbl. US dollar + Greenback should strengthen against most developed and EM currencies. Source: BofA Merrill Lynch Research Investment Committee

Notes to RIC views Ratings designations are as follows: (+) favorable view; (=) neutral view; (-) unfavorable view. Ratings reflect the Research Investment Committee’s view for an investment time horizon of 12 months. Typically, the RIC view will agree with regional/product strategists, but at times there may a difference of opinion based on investor suitability or time frame.


16

Fixed Income, Econ, Commodities, Currencies: views & risks Table 9: Regional Strategist views & associated risks Views Risks Global Economics (Ethan Harris, Alberto Ades) US growth should remain solid amid continued weak inflation, resulting in the Fed patiently waiting to raise interest rates in September 2015. Growth in other developed markets has remained stable recently and should improve in 2015. EM is likely to benefit from stronger DM growth but low commodity prices pose headwinds.

Downside risks: US capex softness, geopolitical crises, Greece exit, Chinese financial crisis and weak corporate investment in Japan. Upside risks: stronger US labor market recovery, lower oil prices, faster EM growth.

Global Rates (Priya Misra, Ralf Preusser) US: Even though we are looking for the 10y to rise to 2.35% by year-end, we are neutral long-end rates at current levels. Improving global growth and increasing oil prices are two pre-conditions for a significant sell-off in the long end of the curve, both of which do not appear imminent. We recommend being short the front end of the curve as a better risk reward trade.

US: Continued decline in inflation expectations, strengthening dollar and weaker stock markets are risks to our higher rates call.

Europe: A month into QE, the market is slowly realizing the extent of the liquidity injection to come. This is leading the front-end to rally and we still see value in 2y1y Eonia. We stay bullish peripherals and Bunds vs swaps, given the shortage of cash assets to invest in.

Europe: The risk to the peripheral view is that of an accident in Greece, which could put pressure on spreads. Increased swapped EUR issuance is the risk to our Bund ASW widener.

Global Commodities (Francisco Blanch) We still see commercial inventory levels across the OECD increasing from 2,700 million at the end of 4Q14 to 2,880 million by the end of 3Q15 and believe downward pressure on petroleum prices will likely continue. Meanwhile WTI weakness has become extremely pronounced even against nearby domestic grades like Light Louisiana Sweet. We have an end of 2Q15 target of $41 and $48 for WTI and Brent, respectively - so we remain bearish. We are bearish aluminum and have an average 2015 aluminum price forecast by 7.8% to $1,818/t (82c/lb); in fact, we see a risk that aluminum will touch $1,650/t (74c/lb) in the coming weeks. We also have a global average premium forecast to $300/t this year. The weak aluminum outlook is driven by a confluence of factors. Most notably perhaps, aluminum semi exports from China have remained at elevated levels, partially because authorities are reluctant to tackle shipments that illegitimately attract tax rebates.

Very high inventory levels are perhaps the main micro reason to remain cautious on oil prices. Since crude oil is a very cyclical commodity, and demand and supply are inelastic in the short run, OPEC’s formalized policy shift will mean much more volatile oil prices going forward, with a range of $80/bbl. The possible return of Iranian production creates downside risk for 2016. Looking further ahead to the next five years, technical and political challenges in large oil producers such as Kazakhstan, Russia, Iran and Iraq, combined with capex cuts in response to recently low oil price, put investments in oil production growth here at risk. This should continue to put upward pressure on long-dated crude oil prices.

Global Credit (Michael Contopoulos, Hans Mikkelsen) We expect US high grade and high yield credit spreads to widen in 2015 and produce zero and low-single-digit returns, respectively. Globally we recommend quality positioning. Upside risks to the US economy, leading to an earlier rate hiking cycle, have increased. Rising interest rates are typically positive for credit spreads. However, we believe interest rates will increase too rapidly at times and lead to periods of wider credit spreads. In HY, we expect low single-digit returns for high yield this year. Globally, we recommend high quality positioning. The case for loan outperformance over bonds keeps getting stronger. Loan issuance this quarter is running 54% lower than same time last year, while CLO supply is up by 30%.

The biggest risk to US IG is the possibility of wider credit spreads following fund outflows and institutional repositioning, should interest rates rise meaningfully in the front end of the curve. The most underappreciated HY risk over a 12-18 months horizon in our view, is that global growth improves, the dollar weakens, and the Fed raises rates more aggressively than the market expects.

Municipals (Municipal Strategy Group) Puerto Rico: The governor signed tax amnesty legislation in an effort to close the commonwealth’s current $153mn budget gap for the fiscal year-to-date. Meanwhile, PREPA and its forbearing creditors agreed to a 15-day extension of the forbearance agreements, now terminating 15 April. The bondholders also offered PREPA $2bn in additional financing, though it remains unclear if the Authority could afford it. PREPA’s chief restructuring officer believes PREPA and its bondholders can reach a consensual restructuring. PREPA’s trustee, however, notes that it does not have sufficient money to make PREPA’s 1 July debt service obligations. Lastly, the GDB’s Economic Activity Index fell, on a year-over-year basis, in both January and February, continuing a 26-month trend. Illinois: An Illinois committee heard testimony on a bill to allow local governments to file for Chapter 9 protection. Federal eligibility requirements are stringent, however, and we do not anticipate a rush to the courthouse even if the bill is passed. Separately, S&P warns that it could downgrade Chicago’s GOs, currently rated A+, if the city fails to articulate and implement a plan by the end of 2015 to sustainably fund its pension system.

We continue to expect 2015 issuance to hit $400bn. The tax risk to munis lies at the margin this year. In order to finance some other governmental objectives, constraints to the municipal bond tax exemption may be attempted. Muni defaults and bankruptcies in 2015 should continue to remain low as tax revenues rise at both the state and local level.

Global FX (David Woo, Alberto Ades) We continue to look for a stronger USD, targeting parity for end-2015 EUR-USD, and generally expect a higher dollar across the board.

An upside surprise to persistently low US inflation could induce expectations of faster Fed normalization, higher yields, and thereby a higher USD.

Look for the USD to strengthen against G10 on strong US growth, concomitantly higher US yields, and chronic European weakness.

Downside risk for EUR-USD comes from the possibility of more aggressive QE moves from the ECB and falling oil prices.

EM currencies could remain on the back foot due to strengthening USD. However, we would expect Asia FX to outperform in general.

Growth concerns in China and Europe, as well as rising UST yields remain the main risks for EM currencies.

Source: BofA Merrill Lynch Research Investment Committee


17

Global equity markets: views & risks Table 10: Regional Strategist views & associated risks Views Risks Global Equities (Michael Hartnett) The MSCI All-Country World Index is up 4% YTD; our year-end 2015 target is 470. We are bullish stocks, bullish US dollar, and bearish rates. We are opportunistic in EM and Commodities. The investment regime will change from High Liquidity & Low Growth to Higher Growth & Lower Liquidity. We believe the modest normalization of monetary policy will not lead to lower growth. It will likely raise volatility; gold is suitable hedge against this risk.

A rate shock in either the US or Europe, and/or a worsening US EPS trends in 2015 would be catalysts for asset prices to surprise on downside. On the upside an uber-dovish Fed could fuel speculative activity in risk asset prices.

United States (Savita Subramanian) 2015 YE S&P 500 target is 2200, which 18.7x our 2015 EPS forecast of $117.50 and 17.5x our 2016 EPS of $126. Valuations have normalized from cheap to fair value, but stocks still look attractive relative to bonds. The bull market is not over, but it is time to be selective. Positioning should continue to matter in 2015, and we see the biggest opportunities in two areas of the market: 1) High Quality stocks, and 2) “Big, Old & Ugly” stocks. Sector preferences: OW Tech and Industrials. UW Utilities, Telecom Services and Consumer Disc.

Risks: global growth continues to disappoint, global recession, US growth does not reaccelerate, oil prices continue to fall, corporates continue to hoard their cash. A risk-off trade that drives Treasury yields even lower could cause bond proxies to outperform. The path to 2200 may not be a straight line; 5% pullbacks happen on average 3x per year.

Europe (Manish Kabra) Earnings downgrades slowing in Europe; increasing money supply supports further recovery. Increased EPS revision ratios can keep equity markets on stretched valuations. However, lack of optimism in Banks implies that most upgrades driven by zero-sum FX games. Wait for Style Cycle to enter Recovery phase before rotating into cyclicals. In sectors, we favor the defensives: Pharmaceuticals, Staples and the consumer sectors of Personal Goods, Travel, Retail and Media. In countries, we prefer the defensive regions of the UK and Switzerland over France and Germany. In terms of style, our preference is for higher quality, large-cap companies with low earnings/dividend dispersion. Low risk DY stocks could see valuation bubbles from inflows into bond proxies and depressed financing costs.

Downside risks: 1) collapse in Chinese demand, triggering economic recession and political turmoil; 2) Europe slips deeper into deflation and economic data are worse than expected. Upside risks: 1) Unexpectedly strong domestic credit growth, driving demand, inflation and nominal earnings; 2) more aggressive monetary stimulus from the PBoC feeds into an investment-led recovery in China. This would be significant enough to kick-start the European business cycle and global commodity cycle, providing strong boost to European earnings.

Japan (Ajay Kapur) We remain structurally bullish, as we believe the weaker yen, higher inflation, high operating leverage, possible lower taxes, continued buybacks and rising corporate leverage, and low interest costs will result in higher earnings growth and higher ROE. With wages picking-up after Shunto negotiations, this should help achieve the BoJ’s 2% target inflation objective. We favorably view stocks conducting share buybacks as we are enter April-May, historically a high season for buyback announcements.

Downside risks Strong consensus USD bullishness is a contrary negative for yen and Japan equities. The inflation target not being met in the given timeframe due to lower oil dampening inflation expectations.

Asia-Pac ex-Japan (Ajay Kapur) Our key theme is that central bankers globally are underestimating the deflation threat, and they will be surprised at how much they have to ease to fight it. Falling growth and collapsing inflation expectations should lead to nervous central banks that would ease policy – this should be positive for Asian equities. We cut our China recommendation to neutral, as economic data and company fundamentals are weak and slower capex AND consumer cycle are visible in its inflation data. We believe anti-corruption measures and the current softening in the property market are likely to continue to slow consumer spending. If Chinese authorities recognize how close debt deflation is and how tight policy is, and respond with aggressive monetary easing, we would re-examine our new neutral weighting. Key investment ideas: 1) Buy India – benefitting from lower oil, the easing cycle should continue as inflation abates. 2) Buy Asian exporters to Europe, which should benefit from an improving European economy. 3) Buy Asia high yield stocks OW: Taiwan, India UW: The Philippines, Malaysia, Hong Kong and Korea.

Downside risks China slowdown worsens and the government stays away from broad easing. Higher US interest rates.

Emerging Markets (Ajay Kapur) Easing global monetary policy should be positive for EM equities as they are a derivative play on world inflation expectations. Expanding balance sheets of major central banks is generally positive for risk assets. A stronger US$ is negative for commodity producers but is positive for commodity consumers. EMEA and LatAm suffer while Asia benefits. EM in total would keep underperforming DMs if the US$ keeps rising. Our LatAm strategist, Felipe Hirai, is more constructive on Brazil despite weak domestic activity, high inflation and tightening Central Bank, given the potential success of new economic policies. He believes that key macro catalysts are fiscal, politics, FX and Petrobras. Our Russian economist, Vladimir Osakovskiy, thinks that growth will likely remain very weak even in the medium term, though it should lower domestic rates due to a much lower inflation rate. With a projected 500bp in rate cuts this year, falling local rates are one of his main investable macro themes in Russia. OW: India, Taiwan, South Africa, Brazil; UW: The Philippines, Malaysia, Chile, Mexico, Turkey and Korea.

Downside risks Simultaneous slowdowns in China and the US would be detrimental to EM exporters. Any unexpected rise in US bond yields and stronger USD, which will reverse the carry flow and hurt dollar-short EM countries. If lower oil prices are a sign of global growth recession and not due to extra supply, EMs and their earnings are likely to go down with falling oil prices.

Source: BofA Merrill Lynch Research Investment Committee


18

Asset allocation for individual investors The tables below represent asset allocation recommendations by investor profile (Conservative – Aggressive). Strategic allocations are long-term, 20-30 year benchmarks developed by Merrill Lynch Global Wealth Management. RIC allocations have a 12-month horizon, and are provided by the BofA Merrill Lynch Global Research Investment Committee.

Asset allocation for US clients Table 11: Strategic and RIC allocations without alternative assets (Tier 0 liquidity)

Conservative Moderately

Conservative Moderate Moderately Aggressive Aggressive

Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Traditional Assets Stocks 20% 22% 40% 42% 60% 64% 70% 76% 80% 84% Bonds 55% 53% 50% 46% 35% 30% 25% 19% 15% 11% Cash 25% 25% 10% 12% 5% 6% 5% 5% 5% 5% Alternative Assets 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Table 12: Strategic and RIC allocations with alternative assets (Tier 1 liquidity)



Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Traditional Assets Stocks 20% 22% 40% 42% 55% 58% 65% 71% 70% 73% Bonds 50% 48% 45% 41% 30% 26% 20% 14% 10% 6% Cash 25% 25% 10% 12% 5% 6% 5% 5% 5% 6% Alternative Assets Real Assets* 1% 1% 1% 1% 2% 2% 2% 2% 6% 6% Hedge Fund Strategies 4% 4% 4% 4% 8% 8% 8% 8% 9% 9% Private Equity 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% * “Real Assets” defined to include commodities, TIPS and Real estate, including REITS; Figures may not sum to 100 because of rounding.









Notes: The Strategic Profile Asset Allocation Models with Alternative Assets were developed by Merrill Lynch Global Wealth Management for private clients. The Strategic allocations are identified by Merrill Lynch Global Wealth Management and are designed to serve as guidelines for a 20-30 year investment horizon. The RIC allocations are provided by the BofA Merrill Lynch Global Research Investment Committee. The Merrill Lynch Global Wealth Management models allocate assets among specified asset classes and, within each class, reflect broad investment diversification. The models offer benchmarks for traditional asset class allocation (stocks, bonds and cash), as well as models for allocations among traditional and alternative asset classes reflecting portfolios targeting varying liquidity levels. The models are designed to provide allocation benchmarks based on risk/return profiles. Merrill Lynch Global Wealth Management defines liquidity as the percentage of assets, by invested value, within a portfolio that can be reasonably expected to be liquidated within a given time duration under typical market conditions. Given the less-liquid nature of certain alternative assets, BofA Merrill Lynch Global Research does not make RIC allocation recommendations for portfolios that include these asset classes. Merrill Lynch Global Wealth Management clients should consult with their financial advisor about these allocations.

Tier 0 (highest liquidity): Highest liquidity needs with none of the portfolio invested in less liquid alternative asset categories. Tier 0 clients can also reference the Tier 1 strategic allocations if fulfilling the Alternative Assets allocation with liquid forms of alternative investments (including non-traditional funds). Tier 1 (higher liquidity): Up to 10% of the portfolio may be unavailable for 3–5 years. Tier 2 (moderate liquidity): Up to 20% of the portfolio may be unavailable for 3–5 years. Tier 3 (lower liquidity) Up to 30% of the portfolio may be unavailable for 3–5 years.


19

Fixed-income allocation for US clients Table 15: Combined municipal and taxable recommended sector allocations by Investor Profile Conservative Moderate** Aggressive Federal tax bracket Sector <25%* 28% 43.4% <25%* 28% 43.4% <25%* 28% 43.4% Munis 0% 45% 50% 0% 58% 63% 0% 75% 80% Treasuries & CDs 40% 22% 20% 32% 13% 12% 30% 8% 6% TIPS 3% 2% 2% 6% 3% 2% 4% 2% 1% Agencies (GSEs) 35% 19% 17% 0% 0% 0% 0% 0% 0% Mortgages 2% 1% 1% 24% 10% 9% 21% 5% 4% Corporates 20% 11% 10% 22% 9% 9% 21% 4% 4% Preferreds 0% 0% 0% 1% 1% 0% 1% 0% 0% High Yield* 0% 0% 0% 6% 3% 2% 9% 2% 2% International: Developed Markets 0% 0% 0% 1% 0% 0% 1% 0% 0% International: Emerging Markets USD 0% 0% 0% 5% 2% 2% 7% 2% 2% International: Emerging Markets Local 0% 0% 0% 3% 1% 1% 6% 2% 1% TOTALS 100% 100% 100% 100% 100% 100% 100% 100% 100% TAXABLE-Maturity 1-4.99 years 100% 100% 100% 42% 42% 42% 38% 38% 38% 5-14.99 years 0% 0% 0% 51% 51% 51% 53% 53% 53% 15+ years 0% 0% 0% 7% 7% 7% 9% 9% 9% TOTALS 100% 100% 100% 100% 100% 100% 100% 100% 100% TAX EXEMPT-Maturity 1-4.99 years 90% 90% 10% 10% 10% 10% 5-9.99 years 10% 10% 40% 40% 20% 20% 10-14.99 years 0% 0% 25% 25% 35% 35% 15+ years 0% 0% 25% 25% 35% 35% TOTALS 100% 100% 100% 100% 100% 100% * Including tax-deferred accounts like IRAs and 401(k)s. ** The Moderate Category applies to the "Moderately Conservative", "Moderate", and "Moderately Aggressive" Profiles. Changes from last month are highlighted in bold. Source: BofA Merrill Lynch Global Research

US Equity sector allocation models Table 16: Portfolio Strategy team's US equity sector weightings by investor profile

Weight in


Moderate Moderately

Aggressive S&P 500 conservative aggressive Consumer Discretionary 12.6% 10.0% 6.0% 11.0% 12.0% 13.0% Consumer Staples 9.7% 25.0% 15.0% 12.0% 8.0% 4.0% Energy 8.0% 9.0% 12.0% 10.0% 10.0% 11.0% Financials 16.2% 12.0% 14.0% 15.0% 8.0% 6.0% Health Care 14.9% 15.0% 11.0% 11.0% 17.0% 18.0% Industrials 10.4% 11.0% 12.0% 16.0% 18.0% 15.0% Info Technology 19.7% 6.0% 8.0% 14.0% 24.0% 27.0% Materials 3.2% 0.0% 2.0% 2.0% 3.0% 3.0% Telecom Services 2.3% 3.0% 10.0% 3.0% 0.0% 3.0% Utilities 3.0% 9.0% 10.0% 6.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: BofA Merrill Lynch Research Portfolios, S&P; S&P 500 Sector Weights are as of previous month end; weights may not add up to 100% due to rounding.


20

A closer look at asset allocation for US clients: size, style and international The tables below present in-depth size and style recommendations for US clients using the stocks, bonds and cash weights from the most liquid (Tier 0) liquidity profile on the previous page.

Table 17: Strategic and RIC allocations without alternatives Conservative Moderately conservative Moderate Moderately aggressive Aggressive Strategic RIC Strategic RIC Strategic RIC Strategic RIC Strategic RIC Stocks 20.0% 22.0% 40.0% 42.0% 60.0% 64.0% 70.0% 76.0% 80.0% 84.0% Lg. Cap Growth 8% 9% 16% 16% 23% 24% 25% 27% 27% 27% Lg. Cap Value 12% 12% 16% 17% 23% 24% 25% 27% 21% 22% Small Growth 0% 0% 2% 2% 2% 2% 3% 3% 6% 6% Small Value 0% 0% 2% 1% 2% 1% 3% 2% 6% 5% Intl: Developed 0% 1% 3% 5% 8% 11% 11% 14% 16% 20% Intl: Emerging 0% 0% 1% 1% 2% 2% 3% 3% 4% 4% Bonds 55% 53% 50% 46% 35% 30% 25% 19% 15% 11% Tsys, CDs & GSEs 35% 41% 27% 17% 13% 11% 6% 7% 2% 4% Mortgage Backed 14% 1% 13% 11% 9% 7% 6% 5% 4% 2% IG Corp & Preferred 6% 11% 10% 11% 9% 7% 9% 4% 5% 2% High Yield 0% 0% 0% 3% 2% 2% 1% 1% 2% 1% International 0% 0% 0% 4% 2% 3% 3% 2% 2% 2% Cash 25% 25% 10% 12% 5% 6% 5% 5% 5% 5% Source: BofA Merrill Lynch Global Research

Table 18: Stocks – by size and style Conservative Moderately conservative Moderate Moderately aggressive Aggressive Strategic RIC Strategic RIC Strategic RIC Strategic RIC Strategic RIC Large cap growth 40% 41% 40% 39% 38% 38% 35% 36% 33% 32% Large cap value 60% 55% 40% 41% 38% 38% 35% 35% 26% 26% Small growth 0% 0% 4% 4% 4% 3% 4% 4% 8% 7% Small value 0% 0% 4% 2% 4% 2% 4% 3% 8% 6% International: Developed 0% 4% 10% 12% 13% 16% 18% 18% 20% 24% International: Emerging 0% 0% 2% 2% 3% 3% 4% 4% 5% 5% Source: BofA Merrill Lynch Global Research

Table 19: Bonds – by sector Conservative Moderately conservative Moderate Moderately aggressive Aggressive Strategic RIC Strategic RIC Strategic RIC Strategic RIC Strategic RIC Tsys, CDs & GSEs 65% 78% 55% 37% 40% 38% 25% 38% 15% 36% Mortgage Backed 25% 2% 25% 24% 25% 24% 25% 24% 25% 22% IG Corp & Preferred 10% 20% 20% 23% 25% 23% 35% 23% 40% 20% High yield 0% 0% 0% 7% 5% 6% 5% 6% 10% 8% International 0% 0% 0% 9% 5% 9% 10% 9% 10% 14% Source: BofA Merrill Lynch Global Research

Notes: Figures may not sum to 100 because of rounding The Investor Profile Asset Allocation Model was developed by Merrill Lynch Global Wealth Management for private clients. The Strategic allocations are identified by Merrill Lynch Global Wealth Management and are designed to serve as guidelines for a 20-30-year investment horizon. The RIC allocations are provided by the BofA Merrill Lynch Global Research Investment Committee and reflect the group’s outlook over the next 12 months.


21

Asset allocation for global investors The Asset Allocation for Global Clients is designed to reduce “home country bias” and introduce a currency perspective. RIC recommendations are based on qualitative views from our BofAML Global Research strategists, translated into recommendations with a quantitative optimization model. Strategic allocations are based on market cap weights for the MSCI All-Country World and BofAML Global Fixed Income Markets Indices (12/31/2010). Both allocations are for individual investors.

Table 20: Strategic and RIC allocations without alternatives (Tier 0 liquidity)


conservative Moderate Moderately Aggressive Aggressive

Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Global Equities 20% 23% 40% 44% 60% 64% 70% 75% 80% 87% North America 8% 9% 19% 21% 28% 29% 32% 33% 37% 38% Europe (ex UK) 4% 5% 7% 8% 11% 12% 13% 15% 15% 18% UK 2% 2% 4% 4% 5% 5% 6% 6% 7% 7% Japan 2% 2% 3% 4% 5% 8% 6% 8% 7% 9% Pac Rim (ex Japan) 1% 1% 2% 1% 3% 2% 4% 3% 4% 3% Emerging Markets 3% 4% 5% 6% 8% 8% 9% 10% 10% 12% Global Fixed Income 55% 54% 50% 47% 38% 32% 28% 20% 18% 8% Govt Bonds 34% 34% 30% 26% 24% 18% 18% 11% 10% 1% Inv. Grade Credit 8% 8% 8% 9% 6% 6% 4% 4% 3% 3% High Yield Credit 2% 1% 2% 2% 1% 1% 1% 1% 1% 1% Collateralized Debt 11% 11% 10% 10% 7% 7% 5% 4% 4% 3% Cash (USD) 25% 23% 10% 9% 2% 4% 2% 5% 2% 5% Global Real Assets* 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Global Hedge Fund Strat 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Global Private Equity 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% *Real Assets include commodities, TIPs, Real estate, incl. REITS; Figures may not sum to 100 because of rounding; collateralized debt includes MBS Table 21: Strategic and RIC allocations with alternatives (Tier 1 liquidity)



Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Global Equities 18% 21% 38% 42% 56% 60% 66% 71% 73% 77% North America 8% 9% 18% 20% 26% 27% 30% 31% 34% 34% Europe (ex UK) 3% 4% 7% 8% 10% 11% 12% 14% 14% 15% UK 2% 2% 3% 3% 5% 5% 6% 6% 6% 6% Japan 2% 2% 3% 4% 5% 8% 6% 8% 6% 8% Pac Rim (ex Japan) 1% 1% 2% 1% 3% 2% 3% 2% 4% 3% Emerging Markets 2% 3% 5% 6% 7% 7% 9% 10% 9% 11% Global Fixed Income 52% 51% 50% 47% 32% 26% 22% 14% 10% 3% Govt Bonds 32% 32% 30% 26% 20% 14% 14% 7% 6% 0% Inv. Grade Credit 8% 8% 8% 9% 5% 5% 3% 3% 2% 2% High Yield Credit 2% 1% 2% 2% 1% 1% 1% 1% 0% 0% Collateralized Debt 10% 10% 10% 10% 6% 6% 4% 3% 2% 1% Cash (USD) 25% 23% 7% 6% 2% 4% 2% 5% 2% 5% Global Real Assets* 1% 1% 1% 1% 2% 2% 6% 6% 12% 12% Global Hedge Fund Strat 4% 4% 4% 4% 8% 8% 4% 4% 3% 3% Global Private Equity 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% ^The RIC does not make RIC allocations to these categories due to their long term, less liquid nature Strategic benchmark weights are reflected in both columns *Real Assets include commodities, TIPs, Real estate, incl. REITS; Figures may not sum to 100 because of rounding; collateralized debt includes MBS

Notes: Merrill Lynch Global Wealth Management’s Strategic Profile Asset Allocation Models were developed for private Merrill Lynch Global Wealth Management Clients. The Strategic allocations are identified by Merrill Lynch Global Wealth Management are designed to serve as guidelines for a 20-30 year investment horizon. The RIC allocations are provided by the BofA Merrill Lynch Global Research Investment Committee. The Merrill Lynch Global Wealth Management models allocate assets among specified asset classes and, within each class, reflect broad investment diversification. The models offer benchmarks for traditional asset class allocation (stocks, bonds and cash), as well as models for allocations among traditional and alternative asset classes reflecting portfolios targeting varying liquidity levels. The models are designed to provide allocation benchmarks based on risk/return profiles. Merrill Lynch Global Wealth Management defines liquidity as the percentage of assets, by invested value, within a portfolio that can be reasonably expected to be liquidated within a given time duration under typical market conditions. Given the less-liquid nature of certain alternative assets, BofA Merrill Lynch does not make RIC allocation recommendations for portfolios that include these asset classes. Merrill Lynch Global Wealth Management clients should consult with their financial advisor about these allocations.

Tier 0 (highest liquidity): Highest liquidity needs with none of the portfolio invested in less liquid alternative asset categories. Tier 0 clients can also reference the Tier 1 strategic allocations if fulfilling the Alternative Assets allocation with liquid forms of alternative investments (including non-traditional funds).

Tier 1 (higher liquidity): Up to 10% of the portfolio may be unavailable for 3–5 years. Note: The RIC does not provide core allocations to Alternative Investments due to their less liquid nature. Recommended allocations in these categories reflect strategic allocations.


22

Asset allocation for global clients (continued)

Table 22: Strategic and RIC allocations with alternatives (Tier 2 liquidity)



Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Global Equities 14% 17% 35% 39% 45% 49% 51% 56% 53% 60% North America 6% 7% 16% 18% 21% 22% 24% 25% 24% 25% Europe (ex UK) 3% 4% 6% 7% 8% 9% 9% 11% 10% 13% UK 1% 1% 3% 3% 4% 4% 4% 4% 5% 5% Japan 1% 1% 3% 4% 4% 7% 4% 6% 4% 6% Pac Rim (ex Japan) 1% 1% 2% 1% 2% 1% 3% 2% 3% 2% Emerging Markets 2% 3% 5% 6% 6% 6% 7% 8% 7% 9% Global Fixed Income 51% 50% 48% 45% 33% 27% 27% 19% 15% 5% Govt Bonds 31% 31% 30% 26% 21% 15% 17% 10% 9% 0% Inv. Grade Credit 8% 8% 7% 8% 5% 5% 4% 4% 2% 2% High Yield Credit 2% 1% 2% 2% 1% 1% 1% 1% 1% 1% Collateralized Debt 10% 10% 9% 9% 6% 6% 5% 4% 3% 2% Cash (USD) 25% 23% 7% 6% 2% 4% 2% 5% 2% 5% Global Real Assets* 2% 2% 2% 2% 4% 4% 4% 4% 8% 8% Global Hedge Fund Strat 6% 6% 6% 6% 9% 9% 4% 4% 6% 6% Global Private Equity 2% 2% 2% 2% 7% 7% 12% 12% 16% 16% ^The RIC does not make RIC allocations to these categories due to their long term, less liquid nature Strategic benchmark weights are reflected in both columns. *Real Assets include commodities, TIPs, Real estate, incl. REITS; Figures may not sum to 100 because of rounding; collateralized debt includes MBS

Table 23: Strategic and RIC allocations with alternatives (Tier 3 liquidity)



Strat. RIC Strat. RIC Strat. RIC Strat. RIC Strat. RIC Global Equities 12% 15% 32% 36% 41% 45% 47% 52% 46% 50% North America 5% 6% 14% 16% 19% 20% 22% 23% 21% 21% Europe (ex UK) 2% 3% 6% 7% 8% 9% 9% 11% 9% 11% UK 1% 1% 3% 3% 4% 4% 4% 4% 4% 4% Japan 1% 1% 3% 4% 3% 6% 4% 6% 4% 6% Pac Rim (ex Japan) 1% 1% 2% 1% 2% 1% 2% 1% 2% 1% Emerging Markets 2% 3% 4% 5% 5% 5% 6% 7% 6% 7% Global Fixed Income 48% 47% 48% 45% 27% 21% 21% 13% 7% 1% Govt Bonds 30% 30% 30% 26% 17% 11% 13% 6% 5% 0% Inv. Grade Credit 7% 7% 7% 8% 4% 4% 3% 3% 1% 1% High Yield Credit 2% 1% 2% 2% 1% 1% 1% 1% 0% 0% Collateralized Debt 9% 9% 9% 9% 5% 5% 4% 3% 1% 0% Cash (USD) 25% 23% 5% 4% 2% 4% 2% 5% 2% 4% Global Real Assets* 3% 3% 3% 3% 6% 6% 7% 7% 15% 15% Global Hedge Fund Strat 9% 9% 9% 9% 16% 16% 11% 11% 14% 14% Global Private Equity 3% 3% 3% 3% 8% 8% 12% 12% 16% 16% ^The RIC does not make RIC allocations to these categories due to their long term, less liquid nature Strategic benchmark weights are reflected in both columns. *Real Assets include commodities, TIPs, Real estate, incl. REITS; Figures may not sum to 100 because of rounding; collateralized debt includes MBS

Notes: The Strategic Asset Allocation Model was developed by Merrill Lynch Global Wealth Management. The Strategic allocations are identified by Merrill Lynch Global Wealth Management and are designed to serve as guidelines for a 20-30 year investment horizon for Merrill Lynch Global Wealth Management clients The RIC allocations are provided by the BofA Merrill Lynch Global Research Investment Committee and reflect their outlook over the next 12 months.

Tier 2 (moderate liquidity): Up to 20% of the portfolio may be unavailable for 3–5 years. Note: The RIC does not provide core allocations to Alternative Investments due to their less liquid nature. Recommended allocations in these categories reflect strategic allocations.

Tier 3 (lower liquidity): Up to 30% of the portfolio may be unavailable for 3–5 years. Note: The RIC does not provide core allocations to Alternative Investments due to their less liquid nature. Recommended allocations in these categories reflect strategic allocations.


23

US Equity Strategy Sector Views Table 24: Sector Weightings (Sectors listed in order of preference)

Sector Weight in S&P 500

BofAML Weight (+ / = / -) Comments

Industry Preferences / Themes

Information Technology 19.7% +

Cash rich - dividend, buyback, capex beneficiary Attractive valuation –20% implied upside to return to historical average relative forward P/E Geographic diversity / highest foreign exposure, offers both secular and cyclical growth, lower

EPS volatility vs history Stock pickers' industries: Tech Hardware and Software Risks: Capex recovery could stall, no acceleration in global growth

“Old Tech”, Semis

Industrials 10.4% + Less risky than might be expected: second-highest percentage of high quality stocks after

Consumer Staples GDP-sensitive, capex exposure, global exposure; beneficiary of recovery in Europe Risks: Capex recovery could stall, no acceleration in global growth

Industrial Conglomerates, Aerospace & Defense, and other high quality multinationals

Energy 8.0% =

Risk-reward looks balanced; our strategists expect oil to decline further in 2Q before rebounding the remainder of the year

Trading at a large discount to history on several valuation metrics (though looks expensive on forward P/E as estimates cuts have more than caught up with negative price action )

Record underweight by large cap mutual funds (since 2008). Risks: oil prices continue to fall, no reacceleration in global growth

High quality mega caps with attractive dividend yields and low oil betas

Health Care 14.9% =

Large cap pharmaceuticals are our preferred yield play (underowned, not stretched on valuation)

Beneficiary of aging demographics – both due to increased drug demand and baby boomers’ need for income

Attractive across valuation metrics Health Care Reform benefits hospitals, Medicaid managed care, labs, and PBMs Risks: Most government exposure of any sector, overweight by mutual funds; implementation

risk around HC Reform

Pharmaceuticals, Biotechnology, aging demographics beneficiaries

Consumer Staples 9.7% =

Contrarian - underowned by fund managers, inexpensive vs history across valuation metrics High quality, dividend yield, and dividend growth potential (lower payout ratio than

Utilities/Telecom) Beneficiary of lower oil prices (low-end consumption) Higher foreign exposure and less government risk than the other defensive sectors Risks: inflation, upside surprise to profits growth

Low-end retailers and supermarkets (beneficiaries of lower oil prices)

Financials 16.2% =

Benefits from US cyclical recovery / housing recovery, cash deployment potential, outperforms in rising dollar environments

Attractively valued on relative P/B, but remains expensive vs history on relative fwd P/E High beta, deteriorated in quality, likely to underperform mid/late cycle Tailwind to banks from refinancing boom and from lower credit costs have likely ended Risks: continued litigation, regulatory reform, stress in European financial system, US recession

Banks and Insurance (balance sheet strength, cash return potential, rising rates beneficiaries) Avoid mortgage plays (slowing housing cycle)

Materials 3.2% = Poor risk-reward vs other non-financial cyclicals (high beta but lower LTG) Risks: no bottoming in China growth (more leveraged to improvement in China than Industrials,

which is also highly exposed to improvement in Europe as well as EM), underperforms in rising dollar environments

Avoid Metals & Mining (overcapacity)

Consumer Discretionary 12.6% -

Overweight by active managers, expensive across various valuation metrics, deteriorating management guidance

Rising rates may drive shift from spending to saving and may slow housing recovery Consumers may save rather than spend extra disposable income from lower oil prices, and

more beneficiaries of low-end spending are found within Consumer Staples Historically underperforms mid/late cycle Most labor-intensive sector and operating margins near peak levels

Discount retailers over luxury retailers Avoid labor-intensive stocks trading near peak margins

Telecom 2.3% - High payout ratios (little room to raise dividends as rates rise) Highest dividend yield, hedge against macro uncertainty, low intra-stock correlations Worst risk-reward tradeoff of all ten sectors, should underperform as interest rates rise

Utilities 3.0% - Most expensive sector vs history on rel. fwd. P/E, no growth, high payout ratios (little room to

raise dividends as rates rise) High dividend yield, underowned by fund managers, hedge against macro uncertainty, purely

domestic Should underperform as interest rates rise

*Weights in S&P 500 as of previous month-end. May not add to 100% due to rounding. Source: BofA Merrill Lynch US Equity & US Quant Strategy

Core Portfolio The Equity Core Portfolio attempts to achieve capital gains over a 1-2 year time horizon by combining tactical sector weighting decisions from our US Equity Strategy team with stock selections that offer attractively valued growth potential. For recent changes and current holdings, please see the following: Research Portfolios: Equity Core Portfolio Snapshot Monthly 09 April 2015


24

Portfolio of the month Equity International The primary objective is to obtain an ongoing secure income stream from dependable sources with some emphasis on protection

of principal.

Equity focus is not just on the statistical yield, but also on the potential for dividend growth as an offset against inflation.

Table 25: Equity Income Portfolio Price

Sectors/Target Weights Symbol Proposed Weight Close 4/10/2015 Average Cost Yield † QRQ Rating Footnote Consumer Discretionary (6%) Thomson Reuters TRI 2% 41.67 $31.34 3.22% B-1-7 Bbgijopsvw McDonald's Corp MCD 4% 96.85 $87.16 3.51% B-1-7 Bbgijopsvw Consumer Staples (17%) Kimberly-Clark KMB 3% 107.16 $55.60 3.28% A-2-7 Bbijopvw Coca Cola KO 3% 40.89 $40.29 3.23% A-1-7 Bbgijopsvw AB InBev BUD 4% 125.54 $114.75 2.58% XRVW Bbijopsv Kraft Foods Group KRFT 3% 88.38 $39.54 2.49% B-1-7 Bbijopsvw Altria Group MO 2% 51.62 $20.39 4.03% B-1-7 Bbjpw Philip Morris Intl PM 2% 77.24 $53.54 5.18% B-2-7 Bbjpw Energy (12%) BP plc BP 4% 40.77 $42.98 5.89% B-1-7 BObijopsv Occidental OXY 4% 76.60 $86.12 3.76% B-1-7 Bbijopsvw Spectra Energy SE 4% 36.73 $28.37 4.03% B-2-7 Bbijopsvw Financials (14%) Ventas Inc. VTR 4% 75.10 $50.16 4.45% B-1-7 Bbijopsvw JP Morgan Chase JPM 3% 61.05 $43.01 2.62% B-1-7 BObgijopsvw Digital Realty DLR 4% 66.37 $60.95 5.12% B-2-7 Bbijpsvw TD Bank TD 3% 43.58 $33.90 3.61% B-1-7 Bbgijopsv Health Care (11%) AbbVie ABBV 4% 58.81 $30.50 3.47% B-2-7 BObijopsvw Eli Lilly & Co. LLY 3% 72.15 $59.85 2.77% A-2-7 BObgijopsvw AstraZeneca AZN 4% 69.88 $72.03 4.05% B-1-7 Bbijopsv Industrials (12%) Lockheed Martin LMT 4% 200.81 $149.45 2.99% B-1-7 BObgijopsvw General Electric GE 4% 25.01 $22.93 3.68% B-1-7 Bbijopsvw PACCAR Inc PCAR 4% 62.76 $42.30 3.35% B-2-7 Bbijopsvw Information Technology (8%) ADP ADP 4% 86.57 $76.76 2.26% B-1-7 Bbijopsvw Intel INTC 4% 31.31 $23.05 3.07% A-1-7 Bbijopsvw Materials (0%) Telecomm. Services (10%) CenturyLink CTL 3% 35.50 $38.56 6.08% B-1-7 BObgijopsvw Verizon Comm VZ 4% 49.13 $36.35 4.48% A-1-7 BObgijopsvw AT&T T 3% 32.65 $28.64 5.76% A-2-7 BObgijopsvw Utilities (10%) PPL Corp. PPL 3% 34.08 $29.69 4.37% A-1-7 Bbijopsvw American Elec Power AEP 3% 55.98 $47.10 3.79% A-1-7 Bbijoprsvw Dominion D 4% 71.75 $72.51 3.61% A-1-7 BObgijopsvw Cash (0%) 0% 100% 3.80% Source: Bloomberg, BofA Merrill Lynch Global Research †: Yields are estimated based on historical information. There is no assurance that the yield will remain the same or increase. Yields may decrease. Yields do not reflect transaction costs/fees or taxes and may be affected by currency fluctuations. One or more analysts responsible for selecting the securities held in the International Portfolio own such securities: Intel, Verizon


25

Stock lists US 1 List (link to latest report) Table 26: US 1 list (10 April 2015) Ticker Company Rating Date added Price when added Price as of 10 April Footnotes AIG AIG C-1-7 02/03/15 51.22 56.59 BObgijopsv ACM AECOM Technology C-1-9 08/12/14 35.08 32.63 Bbgijopsvw BLK BlackRock, Inc. B-1-7 02/10/15 368.51 369.45 BCbijopsvw C Citigroup B-1-7 02/10/15 49.39 52.43 BObgijopsvw CCE CCE A-1-7 03/24/15 44.06 45.72 Bbijopsvw CELG Celgene Corp. B-1-9 10/28/14 105.70 117.07 Bbgijopsvw CHKP Check Point C-1-9 11/18/14 76.53 84.93 Bbijosw CMCSA Comcast Corp A-1-7 11/25/14 56.15 59.81 #Bbgijopsvw CYH Community Health C-1-9 05/20/14 37.79 52.77 Bbijopsvw DIS Disney Walt B-1-7 02/25/15 105.57 106.95 Bbijoprsvw EIX Edison Int'l A-1-7 07/08/14 55.64 63.79 BObijopv EQIX Equinix B-1-9 06/17/14 197.63 239.65 Bbgijopsvw FDX FedEx Corp. B-1-7 12/02/14 179.98 174.37 Bbgijopsvw GGP General Growth Prop B-1-7 02/03/15 30.35 28.64 Bbijopsv KMI Kinder Morgan C-1-7 09/23/14 37.37 42.93 BObgijopsvw KORS Michael Kors B-1-9 09/30/14 71.39 64.60 Bbijopvw MMM 3M B-1-7 02/25/15 168.89 167.07 Bbgijopsvw NWL Newell C-1-7 10/21/14 33.34 40.04 Bbgijopsvw NXPI NXP C-1-9 11/18/14 74.55 101.34 Bbgijopsvw OXY Occidental B-1-7 09/24/14 92.73 78.45 Bbijopsvw PCP Precision Cast B-1-7 01/21/15 208.72 213.00 Bbijopsvw PNRA Panera Bread C-1-9 09/30/14 162.72 166.30 Bbijopsw SIVB SVB Financial B-1-9 03/27/15 121.73 126.33 Bbgijopsw STJ St Jude Medical B-1-7 04/29/14 62.33 68.17 Bbijopsvw TMO Thermo Fisher A-1-7 03/05/15 131.31 133.73 Bbgijopsvw VZ Verizon Comm A-1-7 03/05/15 48.37 49.22 BObgijopsvw WHR Whirlpool B-1-7 09/23/14 151.31 195.67 Bbgijopsvw Note: Please see the original report for details, including price objectives and investment rationale. Please see Footnote Key at the back of this report. One or more members of the US 1 Committee (or a household member) owns stock of one or more companies on the US 1 list. Source: BofA Merrill Lynch Global Research.

Endeavor, the Small Cap US Buy List (link to latest report) Table 27: Endeavor Stocks / US Small Cap Buy List (10 Apr 2015) MLSCR Model Scores (100=best; 1=worst)

GICS Sector Company Symbol BofA-ML Opinion

Price 4/10/15

Mkt Value ($ Millions) Aurora

Enhanced Contrarian Add Date

Price on Add date Footnote

Consumer Discr American Axle & Mfg Holdings AXL C-1-9 25.57 1,938 96 99 8/9/2010 10.37 Bbgijopsvw Consumer Discr Jack In The Box Inc JACK C-1-7 95.95 3,650 50 22 7/9/2012 27.62 Bbijpsvw Consumer Discr Stage Stores Inc SSI C-1-7 21.61 684 77 91 3/9/2015 21.06 Bbijpvw Financials Coresite Realty Corp COR C-1-7 50.52 1,099 100 94 5/14/2012 24.65 Bbijpvw Financials Endurance Specialty Holdings ENH C-2-7 62.25 2,787 76 88 7/15/2014 53.43 Bbjopw Financials Selective Ins Group Inc SIGI B-2-7 28.50 1,613 84 84 3/9/2015 26.73 Bbijopvw Health Care Molina Healthcare Inc MOH B-1-9 66.66 3,315 100 95 8/15/2013 34.48 Bbijopsvw Health Care Pharmerica Corp PMC C-1-9 28.20 849 35 71 1/19/2009 16.21 Bbijpsvw Health Care Surgical Care Affiliates Inc SCAI C-1-9 35.43 1,369 99 100 4/13/2015 35.39 Bbg Industrials Swift Transportation Co SWFT C-1-9 25.64 3,643 83 85 8/15/2013 17.50 Bbijopsvw Industrials Curtiss-Wright Corp CW B-1-8 77.08 3,693 65 61 2/11/2014 59.41 Bbijopsw Industrials West Corp WSTC C-1-7 33.29 2,802 72 87 8/13/2014 26.66 BObgijopsw Industrials Greenbrier Companies Inc GBX C-1-7 61.53 1,626 98 96 11/12/2014 62.45 Bbijopsw Information Technology

Advanced Energy Inds Inc AEIS C-1-9 26.07 1,059 82 87 2/5/2015 26.32 Bbw

Info Technology Mentor Graphics Corp MENT C-1-7 25.03 2,898 72 88 5/14/2012 14.05 Bbijopsvw Info Technology Take-Two Interactive Sftwr TTWO C-1-9 25.27 2,233 88 66 3/13/2014 20.88 Bbjopw Materials AK Steel Holding Corp AKS C-1-9 4.60 815 16 84 10/13/2014 5.78 Bbgijopsvw Materials Berry Plastics Group Inc BERY C-1-9 36.05 4,283 90 82 6/14/2013 23.44 Bbijopsv Source: BofA Merrill Lynch Small Cap Research


26

US High Quality & Dividend Yield Screen (methodology) Table 28: High Quality and Dividend Yield Screen (April 2015) Date Added Ticker Name Sector ROE (%) Debt/ Equity Yield (%) Quality Market Val ($mn) Cost Price Price QRQ FCF/ DIV Footnotes 4/1/2012 ADP ADP Information

Technology 24.4 0.4 2.3 A 40,692 55.19 85.64 B-1-7 1.7 Bbijopsvw

3/2/2015 BA Boeing Industrials 46.3 1.0 1.9 A- 105,715 155.57 150.08 B-2-7 2.4 Bbgijopsv 2/2/2015 CHRW C.H. Robinson Industrials 45.3 1.1 2.0 A+ 10,714 75.23 73.22 B-1-7 2.3 Bbijopsw 3/2/2015 CMI Cummins Inc Industrials 21.6 0.2 2.0 A- 25,108 145.36 138.64 B-1-7 2.7 Bbijopsvw 11/3/2014 DOV Dover Corp Industrials 17.1 0.8 2.2 A 11,270 79.09 69.12 B-2-7 3.6 Bbijopsvw 3/1/2013 JNJ Johnson & Johnson Health Care 22.7 0.3 2.7 A+ 279,717 76.70 100.60 A-2-7 2.1 Bbgijopsvw 10/1/2012 LLTC Linear Technology Information

Technology 38.8 0.0 2.3 A- 11,194 31.82 46.80 B-2-7 1.8 Bbjpw

5/1/2014 MMM 3M Industrials 32.4 0.5 2.1 A+ 104,702 140.12 164.95 B-1-7 2.2 Bbgijopsvw 2/3/2014 NSC Norfolk Southern Industrials 16.9 0.8 2.2 A 31,639 91.79 102.92 A-2-7 1.3 Bbijopvw 2/1/2013 PG Procter & Gamble Consumer Staples 16.3 0.5 3.1 A+ 221,280 75.92 81.94 A-1-7 1.3 Bbgijopsvw 4/1/2012 PAYX Paychex Information

Technology 36.0 0.0 3.0 A 18,018 30.99 49.62 A-2-7 1.2 Bbijopvw

12/1/2014 QCOM QUALCOMM Information Technology

21.3 0.0 2.3 A- 114,380 73.32 69.34 C-2-7 3.0 Bbijopsvw

8/1/2013 RTN Raytheon Co. Industrials 21.2 0.6 2.2 A+ 33,575 75.65 109.25 A-2-7 3.1 Bbgijopsvw 6/2/2014 UTX United Tech Industrials 19.7 0.6 2.0 A+ 104,139 117.82 117.20 B-1-7 3.0 BObijopsvw 12/3/2012 WMT Wal*Mart Stores Consumer Staples 20.5 0.6 2.3 A+ 265,107 72.02 82.25 A-1-7 2.2 Bbgijopsv 2/1/2012 XOM ExxonMobil Energy 18.7 0.2 3.2 A 356,549 83.74 85.00 A-1-7 1.4 Bbgijopsvw Average: 26.2 0.5 2.4 108,362 2.2 S&P 500 benchmark: 15.1 1.1 1.9 Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch US Quantitative Strategy, FactSet, S&P Note: Calculations are based on data from the last 12 months. Financials stocks are excluded because they typically have very high Debt/Equity ratios that have nothing to do with their capital structure. We calculate the benchmark S&P 500 ROE by taking the average of the aggregate ROE (S&P 500 EPS ÷ by book value per share) and the median ROE. Disclaimer: These stocks have been selected according to the specified screening criteria and do not constitute a recommended list. Investors looking for a high quality dividend yield oriented investment can consider this analysis as one part of their decision making process, but should also consider other factors including fundamental opinions, financial risk, investment risk, management strategies and operating and financial outlooks.

International Low Volatility & Dividend Yield Screen (link to latest report) Table 29: International Low Volatility & Dividend Yield screen (April 2015)

Ticker Company Country Sector Market Value

Price as of

Apr 10

LT Debt /

Equity†

Gross Div.

Yield†1

5 Year Annualized

Dividend Growth† QRQ Footnote

ABB ABB Switzerland Industrials 49,860 21.54 43.6 2.8 12.1 A-2-7 Bbijopsv AZN AstraZeneca United Kingdom Health Care 88,316 69.91 42.7 5.5 4.0 B-1-7 Bbijopsv BMO Bank of Montreal Canada Financials 40,284 62.26 13.9 4.2 1.4 B-2-7 Bbgijopsv BHP BHP Billiton Ltd-Spon ADR Australia Materials 118,830 45.82 35.5 5.4 8.4 A-2-7 BObijopsv CAJ Canon Japan Information Technology 49,923 37.43 0.0 4.0 2.5 A-2-7 Bbijopsv ABEV Companhia de Bebidas das Americas (AmBev) Brazil Consumer Staples 99,753 6.35 3.7 4.3 15.0 B-2-7 Bb NVS Novartis Switzerland Health Care 280,307 103.58 19.5 2.8 7.7 A-2-7 Bbijopsv DCM NTT DoCoMo Japan Telecommunication Services 75,014 18.36 3.9 2.9 0.2 A-2-7 Bbijopsv PSO Pearson United Kingdom Consumer Discretionary 17,677 21.55 31.5 4.9 8.7 A-1-7 Bbijopsv PHG Philips NV Netherlands Industrials 27,839 29.10 33.8 3.2 3.1 B-1-7 Bbijopsv RY Royal Bank of Canada Canada Financials 91,277 63.27 14.4 4.0 7.3 B-1-7 BObgijopsv SNY Sanofi France Health Care 138,679 52.35 23.6 3.2 5.8 A-1-7 Bbijopsv BNS Scotiabank Canada Financials 61,959 51.22 9.9 4.3 4.6 B-2-7 Bbgijopsv SKM SK Telecom Korea, Republic Of Telecommunication Services 19,752 27.18 38.0 3.6 5.1 B-1-7 Bbijopsv STM STMicroelectronics NV France Information Technology 8,598 9.44 31.7 4.3 27.2 B-1-7 Bbijopsv SLF Sun Life Financial Inc. Canada Financials 19,208 31.34 26.6 3.7 0.0 B-2-7 Bbgijopsv SU Suncor Energy Incorporated Canada Energy 45,611 31.56 30.0 3.0 23.3 B-2-7 Bbgijopsv SYT Syngenta AG Switzerland Materials 32,842 70.67 33.4 3.4 16.8 A-1-7 Bbijopsv TD The Toronto-Dominion Bank Canada Financials 81,289 43.95 13.8 3.7 7.8 B-1-7 Bbgijopsv TRI Thomson Reuters Canada Consumer Discretionary 33,345 41.89 51.7 3.3 3.2 B-1-7 Bbgijopsvw UL Unilever PLC United Kingdom Consumer Staples 129,453 42.87 50.4 3.2 6.2 A-1-7 Bbijopsv Average: 26.3 3.8 8.1 MSCI ACWI ex-USA index: 82.6 2.6 This is a screen and not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances / objectives before making any investment decisions. 1Investors should be aware that foreign governments sometimes withhold a percentage of dividends paid to US shareholders, which may adversely impact an investor who is following the list and may affect the yield received when compared to the stated yield for a security. † Data as of prior month-end. Source: Bloomberg; FactSet Research Systems; BofA Merrill Lynch Global Research


27

Research portfolios and stock lists Stock lists Regional Focus or 1 Lists are best investment ideas chosen among our Buy-rated stocks.

US Europe

Technical Titans List– Designed to identify common stocks that are attractive based on technical analysis, the objective of this list is to capture short to intermediate-term (3-6 month) price appreciation, but positions can be held longer term.

Growth 10 & Value 10– Consists of 10 stocks each, chosen by the highest five-year EPS growth rate (Growth 10) or lowest trailing 12-month P/E ratio (Value 10) after quantitative screening criteria.

Stock portfolios US Large Cap Equity Five portfolios offerings are available to match each of the client profiles of Capital Preservation, Income, Income & Growth, Growth and Aggressive Growth. A sixth portfolio called the Core Portfolio is designed to reflect weighting decisions of our US equity strategy team. Each of these portfolios employs a combination of top-down sector weightings and bottom-up stock selection focusing on the 10 GICS sectors.

Holdings Primer

US Mid Cap Equity Launched in April 2010, this portfolio invests in stocks between $2-12 billion that are selected using a combination of fundamental, quantitative and portfolio management tools, and is built on the GICS sector framework.

Holdings Primer

International Equity This portfolio consists of ADRs and US-listed shares of non-US companies representing all major regions outside the US: Europe/Middle East/Africa, Asia, Latin America and Canada, and is built on the GICS sector framework.

Holdings Primer

Thematic Equity Launched in June 2014, this portfolio invests in stocks that are expected to benefit from one or more investment themes.

Holdings Primer

Note: Please be aware that links on this page are directed to lists that are updated as of the date of this publication. There may have been updates to one or more lists. Financial Advisors should check for the latest available constituents.

14 April 2015

The RIC Report

28

Economic forecast summary Real Economic Activity, % SAAR 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 2013 2014 2015 2016 Real GDP 1.8 4.5 3.5 -2.1 4.6 5.0 2.2 2.0 3.5 3.2 3.2 2.2 2.4 3.1 3.1 % Change, Year Ago 1.8 2.3 3.1 1.9 2.6 2.7 2.4 3.4 3.2 2.7 3.0 Final Sales 1.5 3.0 3.9 -1.0 3.2 5.0 2.1 2.5 3.5 3.4 3.1 2.2 2.3 3.1 3.1 Domestic Demand 1.9 2.3 2.7 0.7 3.4 4.2 3.2 2.2 3.8 3.6 3.4 1.9 2.4 3.3 3.3 Consumer Spending 1.8 2.0 3.7 1.2 2.5 3.2 4.2 2.9 4.0 3.9 3.5 2.4 2.5 3.5 3.2 Residential Investment 19.0 11.2 -8.5 -5.3 8.8 3.3 3.3 3.0 8.0 8.0 8.5 11.9 1.6 5.3 8.9 Nonresidential Investment 1.6 5.5 10.4 1.6 9.7 8.9 4.8 3.2 5.1 4.2 4.3 3.0 6.3 5.1 4.8 Structures 7.3 11.1 12.8 2.9 12.6 4.8 5.0 -4.0 1.0 -3.0 -3.0 -0.5 8.1 0.8 -0.5 Equipment 1.5 4.7 14.1 -1.0 11.2 11.0 0.9 5.0 8.0 8.0 8.0 4.6 6.5 6.4 7.8 Intellectual Property -1.9 2.8 3.6 4.7 5.5 8.8 10.9 6.0 4.0 4.0 4.0 3.4 4.9 6.4 4.0 Government 0.2 0.2 -3.8 -0.8 1.7 4.4 -1.8 -1.5 1.0 1.0 1.0 -2.0 -0.2 0.3 1.0 Exports 6.3 5.1 10.0 -9.2 11.0 4.6 3.2 -5.5 4.0 4.0 4.0 3.0 3.1 1.9 4.3 Imports 8.5 0.6 1.3 2.2 11.3 -0.9 10.1 -6.5 5.5 5.0 5.0 1.1 4.0 2.6 5.0 Net Exports (Bil 09$) -446 -425 -384 -447 -460 -431 -476 -463 -477 -488 -499 -420 -454 -482 -522 Contribution to growth (ppts) && -0.5 0.6 1.1 -1.7 -0.3 0.8 -1.2 0.3 -0.3 -0.3 -0.3 0.2 -0.2 -0.2 -0.2 Inventory Accumulation (Bil 09$) 43.4 95.6 81.8 35.2 84.8 82.2 88.4 68.4 69.4 60.4 60.4 63.6 72.7 64.7 60.4 Contribution to growth (ppts) () 0.3 1.5 -0.3 -1.2 1.4 0.0 0.1 -0.5 0.0 -0.2 0.0 0.0 0.1 -0.1 0.0 Nominal GDP (Bil $, SAAR) 16619 16872 17078 17044 17328 17600 17701 17769 17864 18083 18340 16768 17418 18014 18940 % SAAR 2.9 6.2 5.0 -0.8 6.8 6.4 2.3 1.5 2.1 5.0 5.8 3.7 3.9 3.4 5.1 Key Indicators Industrial Production (% SAAR) 1.9 2.4 5.0 3.9 5.7 4.2 4.3 -0.4 1.9 4.2 4.8 2.9 4.2 2.7 3.8 Capacity Utilization (%) 77.8 77.9 78.4 78.6 79.1 79.3 79.4 78.9 78.7 78.9 79.3 78.0 79.1 78.9 79.6 Nonfarm Payrolls (Avg mom change, 000s) 178 190 217 193 284 237 324 197 225 250 250 199 260 231 213 Civilian Unemployment Rate (%) 7.5 7.3 7.0 6.6 6.2 6.1 5.7 5.6 5.4 5.2 5.0 7.4 6.2 5.3 4.7 Civilian Participation Rate (%) 63.4 63.2 62.9 63.0 62.8 62.8 62.8 62.8 62.8 62.8 62.9 63.2 62.9 62.8 63.0 Productivity (% SAAR) 0.5 3.6 3.3 -4.5 2.9 3.7 -1.8 0.9 1.2 1.4 1.5 0.9 0.8 1.0 1.5 Personal Savings Rate (%) 5.2 5.2 4.4 4.9 5.1 4.8 4.7 5.3 5.0 4.9 4.9 4.9 4.9 5.0 5.1 Light Vehicle Sales (Millions SAAR) 15.5 15.6 15.6 15.7 16.5 16.7 16.7 16.6 17.4 17.5 17.7 15.5 16.4 17.3 18.1 Housing Starts (Thous. SAAR) 865 882 1025 925 985 1030 1063 1004 1126 1198 1271 930 1001 1150 1350 Current Account (% of GDP) -2.4 -2.4 -2.3 -2.4 US Budget Balance ($bn, Fiscal Year) -680 -483 -475 -525 Inflation GDP Price Index (% SAAR) 1.2 1.7 1.5 1.3 2.1 1.4 0.1 -0.6 -1.3 1.8 2.6 1.5 1.5 0.3 2.0 % Change, Year Ago& 1.5 1.4 1.4 1.4 1.7 1.6 1.2 0.8 -0.1 0.0 0.6 Core PCE Chain Prices (% SAAR) 1.0 1.4 1.3 1.2 2.0 1.4 1.1 0.9 1.3 1.4 1.4 1.3 1.4 1.2 1.6 % Change, Year Ago$ 1.3 1.3 1.3 1.2 1.5 1.5 1.4 1.3 1.2 1.2 1.3 CPI, Consumer Prices (% SAAR) -0.1 2.3 1.4 2.1 2.4 1.2 -0.9 -3.0 2.4 1.8 2.2 1.5 1.6 0.2 2.4 % Change, Year Ago! 1.4 1.5 1.2 1.4 2.1 1.8 1.2 0.0 -0.1 0.1 0.8 CPI ex Food & Energy ( % SAAR) 1.1 1.9 1.7 1.8 2.2 1.4 1.5 1.6 1.7 1.8 1.8 1.8 1.7 1.7 2.0 % Change, Year Ago@ 1.7 1.7 1.7 1.6 1.9 1.8 1.7 1.7 1.6 1.7 1.8 Shaded regions represent BofA Merrill Lynch US Economics Research forecast Source: BofA Merrill Lynch US Economics Research


29

Global economic forecast summary GDP growth, % CPI inflation, % Short-term interest rates, % 2013 2014 2015F 2016F 2013 2014 2015F 2016F Current 2014 2015F 2016F Global 3.4 3.4 3.4 3.9 3.5 3.5 3.6 4.0 4.11 4.23 4.00 4.30 Global ex US 3.6 3.6 3.4 4.1 4.0 3.9 4.3 4.4 5.01 5.16 4.76 4.90 Euro Area -0.4 0.9 1.5 1.6 1.4 0.4 -0.2 1.0 0.05 0.05 0.05 0.05 UK 1.7 2.8 2.6 2.8 2.6 1.5 0.4 1.9 0.50 0.50 0.75 1.25 Japan 1.6 -0.1 1.3 1.9 0.4 2.7 0.8 1.4 0.10 0.10 0.10 0.10 Canada 2.0 2.5 1.9 2.1 1.0 1.9 1.0 1.8 0.75 1.00 0.50 1.00 Emerging EMEA 2.7 2.3 1.1 2.7 4.8 5.5 7.8 5.2 10.50 10.17 7.84 7.45 Latin America 2.8 1.0 0.9 2.5 7.8 10.7 15.6 14.4 9.23 8.92 11.68 13.14 Brazil 2.7 0.2 -0.5 1.8 6.2 6.3 8.0 5.7 12.75 11.75 12.75 11.50 Emerging Asia 6.4 6.5 6.1 6.3 4.6 3.5 3.0 3.7 5.51 6.01 5.20 5.17 China 7.7 7.4 7.0 6.8 2.6 2.1 1.7 2.8 5.35 5.96 4.85 4.85 Shaded regions represent BofA Merrill Lynch Global Economics Research forecast. Source: BofA Merrill Lynch Global Economics Research

Interest rate forecast summary (% EOP) 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2013 2014 2015 2016 Fed Funds 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.25-0.50 0.50-0.75 0.75-1.00 0-0.25 0-0.25 0.50-0.75 1.50-1.75 Fed effective 0.07 0.06 0.07 0.06 0.09 0.07 0.06 0.06 0.07 0.27 0.52 0.78 0.07 0.06 0.52 1.53 3-Month T-Bill 0.03 0.01 0.07 0.03 0.02 0.02 0.04 0.02 0.02 0.20 0.45 0.72 0.07 0.04 0.45 1.40 3-Month LIBOR 0.27 0.25 0.25 0.23 0.23 0.24 0.26 0.27 0.27 0.52 0.77 1.05 0.25 0.26 0.77 1.80 2-Year T-Note 0.36 0.32 0.38 0.42 0.46 0.57 0.66 0.56 0.80 1.00 1.20 1.40 0.38 0.66 1.20 2.00 5-Year T-Note 1.39 1.38 1.74 1.72 1.63 1.76 1.65 1.37 1.70 1.80 1.90 2.00 1.74 1.65 1.90 2.50 10-Year T-Note 2.49 2.61 3.03 2.72 2.53 2.49 2.17 1.92 2.20 2.25 2.35 2.50 3.03 2.17 2.35 2.85 30-Year T-Bond 3.50 3.68 3.97 3.56 3.36 3.20 2.75 2.54 2.85 2.90 3.00 3.10 3.97 2.75 3.00 3.40 2-Year swap 0.51 0.46 0.49 0.55 0.58 0.82 0.90 0.81 1.09 1.31 1.53 1.73 0.49 0.90 1.53 2.40 5-year swap 1.57 1.54 1.79 1.80 1.70 1.93 1.77 1.53 1.88 1.99 2.10 2.20 1.79 1.77 2.10 2.75 10-year swap 2.70 2.77 3.09 2.84 2.63 2.64 2.28 2.02 2.35 2.43 2.55 2.70 3.09 2.28 2.55 3.10 30-year swap 3.45 3.66 3.93 3.54 3.33 3.19 2.70 2.39 2.76 2.83 2.95 3.05 3.93 2.70 2.95 3.45 Shaded regions represent BofA Merrill Lynch US Rates Research forecast. Source: BofA Merrill Lynch US Rates Research

FX rate forecast summary

Spot 15-Jun 15-Sep 15-Dec 16-Mar 16-Jun 16-Sep G3 EUR-USD 1.07 1.05 1.02 1.00 1.00 1.00 1.00 USD-JPY 121 119 121 123 125 127 125 EUR-JPY 129 125 123 123 125 127 125 Dollar Bloc USD-CAD 1.26 1.29 1.31 1.30 1.27 1.26 1.25 AUD-USD 0.77 0.77 0.75 0.73 0.73 0.72 0.70 NZD-USD 0.76 0.72 0.70 0.68 0.67 0.66 0.66 Europe EUR-GBP 0.72 0.73 0.71 0.71 0.70 0.70 0.70 GBP-USD 1.47 1.44 1.44 1.41 1.43 1.43 1.43 EUR-CHF 1.04 1.08 1.09 1.10 1.10 1.11 1.12 USD-CHF 0.98 1.03 1.07 1.10 1.10 1.11 1.12 EUR-SEK 9.34 9.30 9.20 9.10 9.00 8.90 8.80 USD-SEK 8.76 8.86 9.02 9.10 9.00 8.90 8.80 EUR-NOK 8.64 8.50 8.40 8.30 8.20 8.10 8.00 USD-NOK 8.10 8.10 8.24 8.30 8.20 8.10 8.00 Note: Spot exchange rate as of day before publishing. The left of the currency pair is the denominator of the exchange rate. Forecasts for end of period. Source: BofA Merrill Lynch Global FX Rates & Commodities Research


30

Methodology: US High Quality & Dividend Screen We list a screen of preferred securities that meet specified selection criteria and have relatively high yields for their credit rating and industry sector. The US High Quality & Dividend Yield Screen is not a recommended list.

Screening criteria We combined our two secular themes through the following criteria. In our view, these screening factors were likely to uncover higher-quality companies that offered relatively secure dividend yield. The stocks are selected from the S&P 500.

S&P Common Stock Rank of A+, A, or A-. The S&P Common Stock Rankings are our main measure of quality. These rankings are based primarily on the growth and stability of earnings and dividends over a 10-year period.

Return on Equity (ROE) greater than the average S&P 500 ROE.

Debt/Equity lower than the S&P 500.

Dividend yield greater than the S&P 500.

BofA Merrill Lynch Research Investment Opinion indicates Buy or Neutral as well as the likelihood that the dividend will remain the same or be increased (ie, a dividend rating of “7”).

The ratio of the last 12 months’ free cash flow to dividends must be greater than 1.0.

Methodology: International Low Volatility & Dividend Yield Screen We list a screen of preferred securities that meet specified selection criteria and have high yields relative to their index. The International Low Volatility & Dividend Yield Screen is not a recommended list.

This monthly screen selects low volatility and high dividend yield stocks from the universe of non-US stocks that have ordinary shares or ADRs that trade on the NYSE or NASDAQ, are covered by BofA Merrill Lynch Global Research, and are constituent members of the MSCI AC World ex-USA Index. The screen uses the following criteria to uncover low volatility companies that offer relatively secure dividend yield.

BofAML Investment Rating indicates Buy or Neutral.

BofAML Volatility Risk Rating is A-low or B-medium.

BofAML Income Rating is 7, which indicates the dividend is expected to remain the same or be increased.

The dividend yield is greater than the MSCI AC World ex-USA index.

The debt/equity ratio is less than the MSCI AC World ex-USA index.

The five-year annualized dividend growth rate is =>0%.


31

Footnote key /#/ One or more analysts responsible for covering the securities in this report owns such securities. /b/ MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report. /g/ MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months. /i/ The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates. /j/ MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months. /o/ The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates. /p/ The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates. /q/ In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. /r/ An officer, director or employee of MLPF&S or one of its affiliates is an officer or director of this company. /s/ MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months. /v/ MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months. /w/ MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at the end of the second month preceding the date of the report. /x/ Customers of MLPF&S in the US can receive independent, third-party research on companies covered in this report, at no cost to them, if such research is available. Customers can access this independent research at http://www.ml.com/independentresearch or can call 1-800-637-7455 to request a copy of this research. /z/ The country in which this company is organized has certain laws or regulations that limit or restrict ownership of the company's shares by nationals of other countries. /A/ One of the analysts covering the company is a former employee of the company and, in that capacity, received compensation from the company within the past 12 months. /B/ MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis. /C/ Merrill Lynch is affiliated with an NYSE specialist organization that specializes in one or more securities issued by the subject companies. This affiliated NYSE specialist organization makes a market in, and may maintain a long or short position in or be on the opposite side of orders executed on the Floor of the NYSE in connection with one or more of the securities issued by these companies. /N/ The company is a corporate broking client of Merrill Lynch International in the United Kingdom. /O/ MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 10th day of a month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 10th day of a month reflect a significant financial interest at the end of the second month preceding the date of the report


32

Important Disclosures

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*

Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock.

BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

Other Important Disclosures

This report may refer to fixed income securities that may not be offered or sold in one or more states or jurisdictions. Readers of this report are advised that any discussion, recommendation or other mention of such securities is not a solicitation or offer to transact in such securities. Investors should contact their BofA Merrill Lynch representative or Merrill Lynch Financial Global Wealth Management financial advisor for information relating to fixed income securities

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf. "BofA Merrill Lynch" includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates. Investors should contact their BofA

Merrill Lynch representative or Merrill Lynch Global Wealth Management financial advisor if they have questions concerning this report. "BofA Merrill Lynch" and "Merrill Lynch" are each global brands for BofA Merrill Lynch Global Research.

Information relating to Non-US affiliates of BofA Merrill Lynch and Distribution of Affiliate Research Reports: MLPF&S distributes, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France):

Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd., Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd.; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLI (UK): Merrill Lynch International; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd.; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co., Ltd.; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): OOO Merrill Lynch Securities, Moscow; Merrill Lynch (Turkey I.B.): Merrill Lynch Yatirim Bank A.S.; Merrill Lynch (Turkey Broker): Merrill Lynch Menkul Değerler A.Ş.; Merrill Lynch (Dubai): Merrill Lynch International, Dubai Branch; MLPF&S (Zurich rep. office): MLPF&S Incorporated Zurich representative office; Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V.; Merrill Lynch (Brazil): Bank of America Merrill Lynch Banco Multiplo S.A.; Merrill Lynch KSA Company, Merrill Lynch Kingdom of Saudi Arabia Company.

This research report has been approved for publication and is distributed in the United Kingdom to professional clients and eligible counterparties (as each is defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority) by Merrill Lynch International and Bank of America Merrill Lynch International Limited, which are authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, and is distributed in the United Kingdom to retail clients (as defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority) by Merrill Lynch International Bank Limited, London Branch, which is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority - details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co., Ltd., a registered securities dealer under the Financial Instruments and Exchange Act in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong SFC and the Hong Kong Monetary Authority is issued and distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in India by DSP Merrill Lynch Limited; and is issued and distributed in Singapore to institutional investors and/or accredited investors (each as defined under the Financial Advisers Regulations) by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. (Company Registration No.’s F 06872E and 198602883D respectively). Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority of Singapore. Bank of America N.A., Australian Branch (ARBN 064 874 531), AFS License 412901 (BANA Australia) and Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), AFS License 235132 (MLEA) distributes this report in Australia only to 'Wholesale' clients as defined by s.761G of the Corporations Act 2001. With the exception of BANA Australia, neither MLEA nor any of its affiliates involved in preparing this research report is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this report in Brazil and its local distribution is made by Bank of America Merrill Lynch Banco Múltiplo S.A. in accordance with applicable regulations. Merrill Lynch (Dubai) is authorized and regulated by the Dubai Financial Services Authority (DFSA). Research reports prepared and issued by Merrill Lynch (Dubai) are prepared and issued in accordance with the requirements of the DFSA conduct of business rules.

Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin.


33

This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates. Hong Kong recipients of this research report should contact Merrill Lynch (Asia Pacific) Limited in respect of any matters relating to dealing in securities or provision of specific advice on securities. Singapore recipients of this research report should contact Merrill Lynch International Bank Limited (Merchant Bank) and/or Merrill Lynch (Singapore) Pte Ltd in respect of any matters arising from, or in connection with, this research report.

General Investment Related Disclosures: Taiwan Readers: Neither the information nor any opinion expressed herein constitutes an offer or a solicitation of an offer to transact in any securities or other

financial instrument. No part of this report may be used or reproduced or quoted in any manner whatsoever in Taiwan by the press or any other person without the express written consent of BofA Merrill Lynch.

This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering, and not on this report.

Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and, derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change.

This report may contain a short-term trading idea or recommendation, which highlights a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Short-term trading ideas and recommendations are different from and do not affect a stock's fundamental equity rating, which reflects both a longer term total return expectation and attractiveness for investment relative to other stocks within its Coverage Cluster. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity rating.

BofA Merrill Lynch is aware that the implementation of the ideas expressed in this report may depend upon an investor's ability to "short" securities or other financial instruments and that such action may be limited by regulations prohibiting or restricting "shortselling" in many jurisdictions. Investors are urged to seek advice regarding the applicability of such regulations prior to executing any short idea contained in this report.

Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in such securities and instruments, including ADRs, effectively assume currency risk.

UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated by BofA Merrill Lynch entities located outside of the United Kingdom. BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

MLPF&S or one of its affiliates is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. MLPF&S or one of its affiliates may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.

BofA Merrill Lynch, through business units other than BofA Merrill Lynch Global Research, may have issued and may in the future issue trading ideas or recommendations that are inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect the different time frames, assumptions, views and analytical methods of the persons who prepared them, and BofA Merrill Lynch is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this report.

In the event that the recipient received this report pursuant to a contract between the recipient and MLPF&S for the provision of research services for a separate fee, and in connection therewith MLPF&S may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom MLPF&S has contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by MLPF&S). MLPF&S is and continues to act solely as a broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report.

Copyright and General Information regarding Research Reports: Copyright 2015 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks

of Bank of America Corporation. iQanalytics®, iQcustom®, iQdatabase® are registered service marks of Bank of America Corporation. This research report is prepared for the use of BofA Merrill Lynch clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of BofA Merrill Lynch. BofA Merrill Lynch Global Research reports are distributed simultaneously to internal and client websites and other portals by BofA Merrill Lynch and are not publicly-available materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets) without first obtaining expressed permission from an authorized officer of BofA Merrill Lynch.

Materials prepared by BofA Merrill Lynch Global Research personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch, including investment banking personnel. BofA Merrill Lynch has established information barriers between BofA Merrill Lynch Global Research and certain business groups. As a result, BofA Merrill Lynch does not disclose certain client relationships with, or compensation received from, such companies in research reports. To the extent this report discusses any legal proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult their own legal advisers as to issues of law relating to the subject matter of this report. BofA Merrill Lynch Global Research personnel’s knowledge of legal proceedings in which any BofA Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by, discussed with, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch in connection with the legal proceedings or matters relevant to such proceedings.

This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or warranty on behalf of the issuer(s). BofA Merrill Lynch Global Research policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis.

Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.


34

The information herein (other than disclosure information relating to BofA Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy. This report may contain links to third-party websites. BofA Merrill Lynch is not responsible for the content of any third-party website or any linked content contained in a third-party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this report. The inclusion of a link in this report does not imply any endorsement by or any affiliation with BofA Merrill Lynch. Access to any third-party website is at your own risk, and you should always review the terms and privacy policies at third-party websites before submitting any personal information to them. BofA Merrill Lynch is not responsible for such terms and privacy policies and expressly disclaims any liability for them.

Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision.

In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of any kind. Sales persons and financial advisors affiliated with MLPF&S or any of its affiliates may not solicit purchases of securities or financial instruments that are Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies.

Neither BofA Merrill Lynch nor any officer or employee of BofA Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.


35

Team Page Research Investment Committee (RIC) Alberto Ades GEM FI/FX Strategy, Economist MLPF&S Francisco Blanch Commodity & Deriv Strategist MLPF&S Jill Carey Hall, CFA Equity Strategist MLPF&S Michael Contopoulos HY Credit Strategist MLPF&S Steven G. DeSanctis, CFA Small-Cap Strategist MLPF&S Philip Fischer Municipal Research Strategist MLPF&S Christina Giannini, CFA Small-Cap Strategist MLPF&S Ethan S. Harris Global Economist MLPF&S Michael Hartnett Chief Investment Strategist MLPF&S Manish Kabra, CFA >> Quantitative Strategist MLI (UK) Ajay Singh Kapur, CFA >> Equity Strategist Merrill Lynch (Hong Kong) Martin Mauro Fixed Income Strategist MLPF&S Hans Mikkelsen Credit Strategist MLPF&S Priya Misra Rates Strategist MLPF&S Ralf Preusser, CFA Rates Strategist MLI (UK)

Kristen Pulley, CFA Portfolio Strategist MLPF&S Cheryl Rowan Portfolio Strategist MLPF&S Savita Subramanian Equity & Quant Strategist MLPF&S Stephen Suttmeier, CFA, CMT Technical Research Analyst MLPF&S Dan Suzuki, CFA Equity Strategist MLPF&S Matthew Trapp, CFA Investment Strategist MLPF&S Nigel Tupper >> Strategist Merrill Lynch (Hong Kong) Mark Ulrich Portfolio Strategist MLPF&S David Woo FX and Rates Strategist MLPF&S >> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions.

the ric report - merrill edge

Documents