MLWM Core Deck Presentation - Merrill Lynch...Strategies Performance & Earnings Estimate Revision Great Rotation Active Managers Sector Performance Fixed Income ... as the percentage

Q1 2013

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2

Executive Summary

Market Outlook

Market Review

Macroeconomic Update

Economic Conditions

Unemployment

Fed and Inflation

Fiscal Challenges

Policy Uncertainty, Consumer Spending & Sentiment

Consumer Credit Growth

Trade Balance

Housing Recovery

Pend Up Demand

Equities

US Equity Market Performance

Equity Fundamentals

Strategies Performance & Earnings Estimate Revision

Great Rotation

Active Managers

Sector Performance

Fixed Income

A Low Yield Environment

Credit Risk over Duration Risk

Fixed Income Market Update

Alternative Investments

Hedge Funds

Private Equity

Commodities

Currencies

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Table of Contents

Portfolio Management

Potential Risks to Capital Markets

Merrill Lynch Strategic Asset Allocation (Tier 0)

Merrill Lynch Dynamic Asset Allocation (Tier 0)

Merrill Lynch Strategic Asset Allocation (Tier 3)

Merrill Lynch Current Capital Market Return Assumptions

Historical Asset Class Performance

In Focus

Chinese Rebound

Reflating Japan’s Economy

US Energy Independence

Appendix

28

29

30

31

32

33

34

35

36

37

3

600

800

1,000

1,200

1,400

1,600

1997 1999 2001 2003 2005 2007 2009 2011 2013

70

80

90

100

110

120

130

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US

D/J

PY

USDJPY 200-day MA

In Focus Appendix Macroeconomic Update

Equities Fixed Income Alternative Investments


Executive Summary

Risk assets continue to rally in Q1 of 2013 as global

economic recovery displays regional divergences.

• US economy continues to show resilience despite fiscal

headwinds (higher taxes and spending cuts).

• Europe continues to muddle through its debt crisis

dealing with flare ups along the way. Cyprus was the

latest country to receive a bailout.

• Japan’s central bank took cues from the Fed by

implementing an aggressive monetary stimulus to

reflate its economy currently mired by low growth and

deflation.

• Emerging markets activity was affected by China

weakness and higher inflation expectations compared

to 2012.

S&P 500 Index sets new record high as Developed

Markets outperform Emerging Markets.

• The S&P 500 Index closed at 1,569 for the quarter, up

10.6% on a total return basis exceeding other major

markets. MSCI Pacific Index, which was up 9.8%,

benefited from the rally in the Japanese equity markets.

• The US Large Cap Russell 1000 Index and Russell

Midcap Index rose 11% and 13%, respectively. Large

Cap Value stocks outperformed Large Cap Growth. The

Russell 1000 Value Index was up 12.3%, compared to a

9.5% gain in the Russell 1000 Growth Index.

• Emerging Markets (EM) lagged Developed Markets, with

the MSCI Emerging Markets Index down 1.6% for the

quarter compared to the MSCI EAFE Index, which was

up 5.2%.

Investors continue to favor riskier, lower quality bonds led

by high yield bonds.

• ML US Broad Market Index posted a -0.11% return for

the quarter - the first negative quarter since 4Q 2010.

The 10-year US Treasury yield averaged 1.91% and rose

to a high of 2.06% during the quarter before dropping to

1.86% at the end of Q1.

• The best-performing sectors in Q1 2013 were HY Corps

(+2.9%), Preferreds (+2.8%), Municipals (+0.5%). The

worst performing sectors were Non-US IG Sovereigns

and Emerging Market debt posting returns of -4.0% and

-2.2%.

US Economy continues to heal with Fed support

• With unemployment slowly declining and inflation

under control, the FED reiterated support for

continuation of its bond buying program.

• Consumer confidence bounced back to 78.6 in March

from 72.9 in December given improving economic

outlook and rallying equity and housing markets.

• Housing recovery shows continued momentum with

various housing fundamentals such as household

formation, home prices, housing starts, housing

inventory, etc point to an improvement in the sector.

BofA ML expects home prices (as measured by Case

Shiller home price index) to rise by 8.0% (Q4/Q4) in

2013.

YEN’S WEAKNESS INCREASES JAPANESE

COMPETITIVENESS

QUARTERLY RECAP S&P 500 INDEX AT RECORD HIGH

BofA ML RESEARCH KEY FORECASTS

Executive Summary

HOUSING RECOVERY

Gross Domestic Product (%)

2013E 2014 E

Global 3.1 3.9

US 1.8 2.6

Euro Area -0.5 0.8

Emerging Markets 5.2 5.7

US Interest Rates (%)

Jun 2013 E Sept 2013 E

Fed Funds 0-0.25 0-0.25

10-Yr T-Note 1.75 2.00

Currencies

Jun 2013E Sept 2013 E

EUR/USD 1.28 1.26

USD/JPY 93 94

USD/CAD 1.02 1.01

E = Estimate

Source: National Association of Realtors, Haver Analytics, IMG.

Source: Bloomberg, IMG.

Source: Bloomberg, IMG.

4

Market Outlook

• We believe we may be entering the early innings

of a “Great Rotation” to equities.

• We anticipate global growth to re-accelerate

modestly this year and in 2014. Major sources of

strength and stability remain a robust US housing

recovery, continued quantitative easing around

the world and increasing stability in Europe and

Asia.

• Global equity valuations remain attractive, while

strong corporate earnings and balance sheets

should support increased capital spending,

dividends and share buybacks.

• We encourage investors to “globalize” portfolios

and think beyond traditional US-centric

allocations. Other developed equity markets

outside the US are poised to continue their recent

strong performance, while emerging markets

offer superior secular growth despite recent Q1

underperformance.

• While equity valuations remain attractive today,

bonds are expensive – most rates are at

extremely low levels following a 30-year bull

market in credit. We only expect a modest rise in

rates this year, but think risks skew to the upside.

• We would reduce duration risk (or exposure to

rising rates) in fixed income portfolios by

diversifying to shorter-term instruments, despite

the limited yields.

• Other considerations: For income – high yield

bonds, convertible and emerging market bonds

as well as dividend-paying equities. For portfolio

diversification – absolute return strategies and

private equity, and real assets.

• We continue to like municipal bonds for yield and

tax advantages.

BENCHMARK

STRATEGIC

ASSET

ALLOCATION1

Alternatives2

20%

Cash 2%

Global Equities

45%

Global Fixed Income

33%

Global Equities: Overweight

In developed markets,

valuations are fair and they

are becoming attractive in

Emerging Markets. Focus on

growth, yield and quality.

Preferred sectors include

tech, energy, and

industrials.

Real Assets: Overweight

Recently upgraded on improved

global growth outlook. Prefer direct

real estate and REITs.

US Treasuries: Underweight

Negative real returns and Fed

intervention have created

highly overvalued and

unattractive conditions.

US Municipals: Overweight

Valuations relative to

Treasuries remain attractive,

and tax-exempt status recently

re-affirmed.

Emerging Markets: Overweight

Focus on regional opportunities in

Asia and LATAM

US Large Cap

US Mid & Small

Cap

US Treasuries

US Munis

US Invest. Grade

US HY & Collateralized

Non-US Corp. Non-US

Sovereigns EM

Debt

Emerging Markets

Int’l Developed

Commod./

Private Equity Real

Assets

Hedged Strategies3

Currencies

ML CIO OFFICE TACTICAL POSITIONING RELATIVE TO STRATEGIC ASSET ALLOCATION

(MODERATE GLOBAL ALLOCATION TIER 2 LIQUIDITY) LOOKING AHEAD

1Moderate Global Allocation Tier 2 Liquidity (up to 20% of the portfolio may be unavailable for 3-5 years). 2Certain alternative investments are available only to pre-qualified clients. 3Hedged strategies include non-traditional mutual funds.

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 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, IMG does not include alternative investments in all SAA model portfolios. Clients should consult with their financial advisor about these allocations.




Executive Summary

5

DJ-UBS TR

Global NAREIT Gold

HFRX Global

HF

Russell 1000

Growth

Russell 1000 Value

Russell 2000

Growth

Russell 2000 Value

Russell Midcap Growth

Russell Midcap Value

S&P 500

US Broad Market Treasury TIPS Municipal Corp.

High Yield

Non-US IG

Emerging Markets Mortgage

Asset-Backed

IG Preferred

–Fixed

IG Preferred–Floating

As of 3.29.13 Quarterly % Chg 2012 % Chg

DJIA 14,578.5 11.9% 10.2%

NASDAQ 3,267.5 8.5% 17.5%

S&P 500 1,569.2 10.6% 16.0%

S&P 400 Mid Cap 1,153.7 13.5% 17.9%

Russell 2000 951.5 12.4% 16.3%

MSCI World 1,434.5 7.9% 16.5%

MSCI EAFE 1,674.3 5.2% 17.9%

MSCI Emerging Mkts 1,034.9 -1.6% 18.6%

S&P 500 SECTOR RETURNS

BOND MARKET RETURNS


ML US Broad Market Master 261.6 -0.1% 4.5%

ML US Treasury Master 1487.0 -0.3% 2.2%

ML Agency Master 179.5 0.1% 2.5%

ML Muni Master 477.5 0.5% 7.3%

ML US Corp Master 2450.8 0.1% 10.4%

ML High Yield 979.5 2.9% 15.6%


DJ-UBS Total Return 276.7 -1.1% -1.1%

Gold Spot* 1598.8 -4.6% 7.1%

Silver Spot* 28.3 -6.1% 8.2%

Copper Spot* 340.2 -6.9% 6.3%

WTI Crude $/Barrel* 97.2 5.9% -7.1%


Global NAREIT 2117.0 6.3% 28.7%

US NAREIT 2,525.4 7.1% 18.2%

Alerian MLP 454.5 19.7% 4.8%

HFRX Global Hedge Fund 1184.3 3.1% 3.5%


EUR/USD 1.2819 -2.8% 1.8%

USD/JPY 94.22 8.6% 12.8%

GBP/USD 1.5198 -6.5% 4.6%

USD/CHF 0.9492 3.7% -2.4%

BONDS

COMMODITIES

CURRENCIES*

ALTERNATIVES

Markets Review

CROSS ASSET RETURNS

Returns calculated are total returns unless otherwise stated (*indicates spot returns). All bond indexes represented by BofA Merrill Lynch Global Bond Indexes.

STOCKS WORLD BY REGION

-5%

0%

5%

10%

15%

20%

25%

S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPE

MSCI EMERGING

MARKETS MSCI PACIFIC

0%

10%

20%

30%

Healthcare Cons Staples Utilities Cons Disc Financials Industrials Energy Telecom Materials Info Tech

-5%

0%

5%

10%

15%

20%

25%

-10%

0%

10%

20%

30%

-5%

0%

5%

10%

15%

20%

S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPEMSCI EMERGING


Q1 2013

2012

-5%

0%

5%

10%

15%

20%



Q1 2013

2012

-5%

0%

5%

10%

15%

20%



Q1 2013

2012




Executive Summary

-5%

0%

5%

10%

15%

20%



Q1 2013

2012

6

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2011 2012 2013 2014

Global xU.S. Euro Area Japan Emerging Markets

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Economic conditions around the world are improving

US REAL GDP GROWTH, QoQ ANNUALIZED

BofA ML Forecasts:

1Q 2013: 3.0%

2Q 2013: 1.3%

3Q 2013: 1.5%

4Q 2013: 2.5%

2013: 1.8%

6 Source: (Top left) BEA, BofA ML Global Research. (Top right and bottom left) IMF, IMG. (Bottom right) BofA ML Global Research, IMG.

EMERGING MARKET GROWTH TO RISE IN 2013 AND 2014

INFLATION IS UNDER CONTROL GLOBALLY

BofA ML GLOBAL FINANCIAL STRESS INDEX AT LOWEST

SINCE 2007

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

World Advanced economies EM and Developing Countries

Forecasts

0

50

100

150

200

250

300

350

400

450

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2006 2007 2008 2009 2010 2011 2012

MS

CI A

C W

orld

Ind

ex

GFS

In

de

x

GFSI Index (LHS) MSCI AC World Index (RHS)

In Focus Appendix Equities Fixed Income Alternative Investments


Executive Summary


7

7.6%

13.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1970 1976 1982 1988 1994 2000 2006 2012

Recession Unemployment Rate

Historical Average Broader Unemployment Rate (U-6)

Historical U-6 Average FED Target Unemployment

US unemployment rate remains elevated, but improving

PARTICIPATION RATE LOWEST SINCE MAY 1979

Average: 10.5%

Average: 5.8%

Source: (Left) Bureau of Labor Statistics, Haver Analytics, IMG. Unemployment rate is seasonally adjusted. (Top Right) Bureau of Labor Statistics, Haver Analytics, IMG. (Bottom Right) US Department of Labor, Haver Analytics, IMG.

UNEMPLOYMENT RATE TOTAL PRIVATE PAYROLL

-1000k

-800k

-600k

-400k

-200k

0k

200k

400k

600k

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Over 6 million

jobs created

Over 8 million

jobs lost

56%

58%

60%

62%

64%

66%

68%

1948 1952 1957 1962 1966 1971 1976 1980 1985 1990 1994 1999 2004 2008

Recession Labor Participation Rate Average



Executive Summary


8

INFLATION RATE VS FED BALANCE SHEET

Expansion of the Fed’s balance sheet has had a muted effect on inflation so far…

Source: Federal Reserve Board, Bureau of Labor Statistics, Haver Analytics, IMG. CPI figures reflect year-over-year % change.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1990 1992 1995 1997 2000 2002 2005 2007 2010 2012

Infla

tion

Ra

te

Fe

d B

ala

nce

Sh

ee

t, in

Billio

ns

Fed Assets (LHS) Headline CPI (RHS) Core CPI (RHS)



Executive Summary


9 9

But US fiscal challenges remain absent a comprehensive plan to increase revenue and rein in spending

PUBLIC DEBT AS % OF GDP FEDERAL SPENDING AND REVENUE AS % of GDP

Source: (Top Left) CBO, IMG (Bottom Left) Age Wave, Inc, IMG. (Top Right/Bottom Right) CBO, IMG.



Executive Summary


POPULATION GROWTH THE NEXT 10-20 YEARS

10%

15%

20%

25%

30%

1989 1993 1997 2001 2005 2009 2013 2017 2021

% o

f G

DP

Recession Revenue as % of GDP (LHS) Spending as % of GDP (LHS)

DRIVERS OF SPENDING

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015 2020

% o

f G

DP

CBO's Baseline Alternative

FORECAST FORECAST

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

% o

f G

DP

Social Security Major Health Programs Other Mandatory

Defense Discretionary Nondefense Discretionary Net Interest

6%

-3%

11% 9%

-10%

8%

42%

10%

2%

10%

20%

-1% 0%

75%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

<15 15-24 25-34 35-44 45-54 55-64 65+

Ch

an

ge

in

Ag

e G

rou

ps

Age Groups

2013-2023

2013-2033

10

8

10

12

14

16

18

20

22

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

In M

illio

ns,

SA

AR

0

50

100

150

200

250

300

50

60

70

80

90

100

110

120

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Univ of Mich Consumer Sentiment (LHS)

Univ of Mich Consumer Sentiment Average

Policy Uncertainty Index (RHS)

10

Despite political gridlock in Washington, consumers show resilience

RETAIL SALES CONTINUE TO STABILIZE (YoY %)

CONSUMER SENTIMENT INDEX VS. POLICY

UNCERTAINTY INDEX

MOTOR VEHICLE SALES IMPROVING

Average: 14.9

Correlation: -0.70

Source: (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Right) Autodata, Haver Analytics, IMG.. (Left) University of Michigan, www.policyuncertainty.com, Haver Analytics, IMG. Policy Uncertainty Index measures policy-related economic

uncertainty constructed from three types of underlying components: newspaper coverage of policy-related economic uncertainty, number of federal tax code provisions set to expire in future years, and disagreement among economic forecasters as a

proxy for uncertainty using the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters. For more information on the index methodology, please visit www.policyuncertainty.com.

-15%

-10%

-5%

0%

5%

10%

15%

20%

1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012



Executive Summary


11

-10%

-5%

0%

5%

10%

15%

20%

25%

8%

9%

10%

11%

12%

13%

14%

15%

1980 1984 1988 1992 1996 2000 2004 2008 2012

Household Debt Service Ratio (LHS) Consumer Credit Growth (RHS)

As households continue to delever, consumer credit growth is driven primarily by non-revolving debt (i.e. installment loans)

CONSUMER CREDIT VS. HOUSEHOLD DEBT SERVICE RATIO

Source: (Left) Federal Reserve Board, Haver Analytics, IMG. Household debt service ratio is an estimate of debt payments to disposable income. Consumer credit is an annualized quarter-over-quarter calculation. (Top Right) Federal Reserve, Haver

Analytics, IMG. (Bottom Right) FRBNY Consumer Credit Panel/Equifax, IMG. Non-revolving debt includes auto loans, student loans, mortages, etc. These loans can be both secured or unsecured.



Executive Summary


6.4

8.0

0.5

0.6

0.7

0.8

0.7

0.7

0.3

1.0 Total: $9.0 T

Total: $11.3T

$0

$2

$4

$6

$8

$10

$12

2004 2012

To

tal C

on

su

me

r D

eb

t (i

n $

Tillio

ns)

Mortgage HE Revolving Auto Loan Credit Card Student Loan Other

+180%

+26%

GROWTH OF REVOLVING DEBT VS. NON-REVOLVING DEBT

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012

Ro

llin

g 3

M G

row

th A

ve

rag

e

Recession Revolving Credit Non-revolving Credit

STUDENT LOANS DRIVE NON-REVOLVING DEBT

12

PETROLEUM ACCOUNTS FOR 35% OF TRADE BALANCE TRADE BALANCE CONTINUES TO IMPROVE

Source: (Left) BEA, Federal Reserve, Haver Analytics, IMG. (Right) US Census Bureau, Haver Analytics, IMG

US trade balance narrows due to export strength and decrease in petroleum imports



Executive Summary


-$100

-$50

$0

$50

$100

$150

$200

$250

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

In B

illio

ns

Trade Balance Exports Imports

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Petroleum as % of Trade Balance

13

Housing recovery in progress

Source: (Top Left) Federal Housing Finance Agency, S&P, Haver Analytics, IMG. (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Left) FRBNY Consumer Credit Panel/Equifax, IMG. (Bottom Right) National Association of Realtors, Haver Analytics,

IMG.

HOME PRICES TRENDING UPWARD

100

110

120

130

140

150

160

170

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ind

exe

d t

o 2

00

2=

10

0

Case-Shiller 20 City,

+6.9% in 2012

Case-Shiller National,

+7.3% in 2012

FHFA House Price Index,

+5.6% in 2012

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1,000K

2,000K

3,000K

4,000K

5,000K

6,000K

7,000K

8,000K

Supply in Months Total Existing Home Sales Housing Inventory

EXISTING HOME SALES AND INVENTORY

Market Peak: 3.6

months of supply

Months of supply of

existing homes

Existing Homes Sales

Existing Home Inventory

CONSTRUCTION JOBS LAG HOUSING STARTS

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

400K

600K

800K

1,000K

1,200K

1,400K

1,600K

1,800K

2,000K

2,200K

2,400K

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Housing Starts, Lagged 5Qs (LHS) Construction jobs as % of Labor Force (RHS)

MORTGAGE DELINQUENCIES IMPROVING

0

2

4

6

8

10

12

14

03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1

% o

f B

ala

nce

90

+ D

ays D

elin

qu

en

t b

y

Lo

an

Typ

e

MORTAGE HELOC AUTO CC STUDENT LOAN



Executive Summary


14

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Recession New Orders: Nondefense Capital Goods ex Aircraft (YoY%)

Average

3%

4%

5%

6%

7%

8%

9%

10%

11%

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

Recession Corporate Profits as % of GDP

Corporations, with large cash balances and healthy balance sheets are beginning to spend

Source: (Top Left) Bureau of Economic Analysis, Haver Analytics, IMG. (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Left) BofA ML Global Research. (Bottom Right) S&P, Haver Analytics, IMG.

$15

$17

$19

$21

$23

$25

$27

$29

$31

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2011 2012

Share Buybacks (in $billions, LHS) Dividends per Share (12 Months, RHS)

USE OF CASH: SHARE BUYBACKS AND DIVIDENDS AMONG

S&P 500 COMPANIES

CORPORATE PROFITS SOAR CAPEX SPENDING HAS NOT KEPT PACE

UPTICK IN M&A ACTIVITY

$0

$100

$200

$300

$400

$500

$600

$700

20

01

Q1

20

01

Q3

20

02

Q1

20

02

Q3

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

Vo

lum

e (

US

D, in

Billio

ns)

US Volume Recession Average



Executive Summary


15

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US Equity Market Performance: S&P 500 Index closes out 1Q at an all-time high of 1,569

1,,569.19 as

of 3/28/13

132% -58% 102%

-49%

Tech Bubble

9/11

Market Peak,

October 2007

Financial

Crisis

S&P

Downgrades

US Debt

Source: Bloomberg, IMG

S&P 500 INDEX(Jan 1997 – Mar 2013)

In Focus Appendix Fixed Income Alternative Investments


Executive Summary


Equities

16

13%

6%

7%

8%

9%

10%

11%

12%

13%

14%

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

As earnings surge and fundamentals remain strong, the S&P 500 is still relatively undervalued

S&P 500 INDEX: FORWARD PRICE TO EARNINGS RATIO 1

CASH HOARDING: CASH AS A % OF TOTAL ASSETS AMONG

S&P 500 COMPANIES

Source: (Top Left and Right) BofA ML Global Research, IMG. (Bottom Left) S&P, Haver Analytics, IMG. (Bottom Right) Factset, IMG. 1. S&P 500 Forward PE is based on the bottom-up consensus for the next twelve months EPS.

S&P 500 EARNINGS PER SHARE FORECAST TO GROW

$0

$20

$40

$60

$80

$100

$120

2005 2006 2007 2008 2009 2010 2011 2012E 2013E

Q1 2013: 13.2X

Average: 15.1X

5X

10X

15X

20X

25X

30X

1988 1992 1996 2000 2004 2008 2012

Forward P/E



Executive Summary


Equities

% Weight ROE LTM (%) Average Net Margin (%) Average Financial

Leverage Average

S&P 500 100.00 14.87 14.79 9.06 7.15 4.64 5.19

Consumer

Disc 11.62 21.46 13.29 7.86 4.17 3.14 3.68

Consumer

Staples 10.96 24.32 27.15 6.13 6.36 2.73 3.01

Energy 10.92 15.62 16.86 8.24 7.10 2.09 2.31

Financials 15.93 7.93 12.21 13.30 10.28 8.5 12.51

Health Care 12.53 18.03 21.97 8.56 10.26 2.39 2.49

Industrials 10.11 18.33 16.73 8.48 6.95 3.87 4.01

Information

Technology 18.02 22.17 16.55 16.26 9.63 1.95 2.04

Materials 3.43 15.49 13.62 6.65 6.04 2.8 2.89

Telecom 2.97 7.58 13.04 3.76 8.29 3.79 3.15

Utilities 3.51 9.02 11.06 8.28 7.60 3.72 3.74

IMPROVING FUNDAMENTALS (DEC 1994 – MAR 2013)

17

% EPS beat % Sales beat Both EPS & Sales beat

Cons. Disc 60% 53% 39%

Staples 62% 50% 33%

Energy 53% 65% 40%

Financials 56% 64% 43%

Health Care 62% 69% 42%

Industrials 57% 65% 38%

Technology 70% 59% 51%

Materials 47% 63% 30%

Telecom 13% 50% 13%

Utilities 52% 29% 23%

S&P 500 58% 59% 39%

1.04

0.96 0.91

0.86 0.84 0.81 0.74

0.66

0.54

0.28 0.20

0.40

0.60

0.80

1.00

1.20

1.40

Strategies performance & earnings estimate revisions

S&P 500 3 MONTH EARNINGS ESTIMATE REVISION RATIO

(MAR 2013)

HISTORICAL S&P 500 3-MONTH EARNINGS ESTIMATE

REVISION RATIO

Source: BofA ML Global Research, IMG. Earnings Revision Ratio measures the total number of earnings estimate increases divided by total number of earnings-estimate decreases during the past three months.

4Q12 EPS AND SALES BEATS BY SECTOR

0.0

0.5

1.0

1.5

2.0

2.5

1989 1992 1995 1998 2001 2004 2007 2010 2013

3m ERR

Average



Executive Summary


Equities

VALUATION BASED STRATEGIES PERFORMED BEST IN 1Q13

6.7% 5.8%

5.0% 6.3% 6.5%

18.1% 17.8% 17.6% 17.5% 16.9% 16.7%

27.4%

18.5%

22.0% 22.0%

0%

5%

10%

15%

20%

25%

30%

Forward Earnings

Yield

Low Price to Sales Alpha Surprise

Model1

Share Repurchase Price Returns (3

M)

1M 3M 12M

18

With the “Great Rotation” setting in, equity inflows are set to rise

Source: (Left) Investment Company Institute, IMG. (Right) S&P, Haver Analytics, IMG. Equity risk premium is defined as the difference between the earnings yield and the 10 Yr US Treasury yield.

STOCKS ATTRACTIVELY PRICED RELATIVE TO BONDS

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Equity Risk Premium

+1 Standard Deviation

RECORD INVESTOR FLOWS INTO BOND FUNDS SINCE 2007



Executive Summary


Equities

-600

-400

-200

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011 2012 2013

Cu

mu

lati

ve

Ne

t C

ash

Flo

w (

$b

il)

Total Equity Flows Total Bond Flows

-1 Standard Deviation

19

Active managers continue to struggle despite decreasing correlations

Source: BofA ML Global Research, IMG. Cross-asset represented by S&P 500 Index, Russell 2000 Index, MSCI EAFE Index, MSCI Emerging Markets Index, HFRI FoF Composite, LPX50, FTSE NAREIT Composite Index, Dow Jones-UBS Commodity Index ,

and US 30 Day Tbill TR Index.

CROSS-ASSET CORRELATION BEGINS TO NORMALIZE S&P 500 PAIRWISE CORRELATION (Q1 2000 – Q1 2013)



Executive Summary


Equities

20%

30%

40%

50%

60%

70%

80%

90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sp

rea

d b

etw

ee

n t

op

an

d b

ott

om

de

cile

s

Abundant alpha

Scarce alpha

S&P 500 PERFORMANCE DISPERSION (Q1 2000 – Q1 2013)

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Avg

pa

ir-w

ise

S&

P 5

00

Co

rre

lati

on

Clustered / macro market

Differentiated / stock picker's

market

0%

10%

20%

30%

40%

50%

60%

70%

1994 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012

12M Rolling Correlation 10Yr Rolling Correlation

20

Equity sector performance: Defensive sectors lead the way in Q1 2013

S&P 500 INDEX MSCI ALL-COUNTRY WORLD INDEX Ex US

Source: Bloomberg, IMG. Returns calculated are total returns.

14.8%

15.0%

18.3%

4.6%

15.3%

28.8%

23.9%

1.3%

10.8%

17.9%

4.6%

4.8%

9.5%

10.2%

10.7%

11.4%

12.2%

13.0%

14.6%

15.8%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Info Tech

Materials

Telecom

Energy

Industrials

Financials

Cons Disc

Utilities

Cons Staples

Healthcare

Q1 2013 2012

10.6%

2.4%

4.7%

5.2%

18.1%

30.1%

17.1%

23.2%

19.5%

18.8%

-7.2%

-2.2%

-0.2%

2.6%

3.1%

4.2%

5.0%

5.6%

9.1%

12.3%

-10% -5% 0% 5% 10% 15% 20% 25% 30% 35%

Materials

Energy

Utilities

Telecom

Info Tech

Financials

Industrials

Cons Disc

Cons Staples

Health Care

Q1 2013 2012



Executive Summary


Equities

21

-2%

0%

2%

4%

6%

8%

10%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Fixed Income: Despite a modest rise in rates, a low yield environment is likely to persist as the Fed remains a major buyer

NOMINAL VS. REAL YIELDS (JAN 1990 - MAR 2013) S&P 500 DIVIDEND YIELD MINUS 10YR YIELD

Negative Real Yields

10-Yr Nominal Yield

10-Yr Real Yield

Source: (Top) BofA ML Global Research, IMG. (Bottom Left) Bloomberg, BofA ML Global Research, IMG. (Bottom Right) Bloomberg, BofA ML Global Research, IMG. Real yields are calculated using monthly nominal 10-year US Treasury yield minus core

inflation.

2-YR, 10-YR YIELDS ON US TREASURIES

0%

1%

2%

3%

4%

5%

6%

2007 2008 2009 2010 2011 2012 2013

2 YR Yields

10 YR Yields

QE 1: $1.72T QE 2: $600B Operation Twist:

$667B

QE 3:

$40B/Month

In Focus Appendix Alternative Investments


Executive Summary


Equities Fixed Income

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Instances where S&P 500 dividend

yield was higher than the 10-YR Yield

22

Taking on credit risk over duration risk

Source: Bloomberg, IMG. * Par weighted coupon = The average of the index constituent security coupons, weighted by face value. Effective Duration is a metric that accounts for the sensitivity of a bond’s price to changes in interest rate after adjusting for the possibility that

bonds can be called before maturity. The longer the duration of a bond, the more sensitive the price will be to changes in interest rates.

Returns Volatility Sharpe Ratio Max Drawdown

(DD)

EM Sovereign Debt (USD) 9.7% 10.3% 0.79 -22.9%

U.S. High Yield Debt 9.1% 12.0% 0.65 -33.2%

EM Sovereign Debt (LCL) 8.5% 10.5% 0.67 -20.0%

EM Corporates (USD) 8.1% 10.2% 0.66 -25.6%

US IG Debt 6.8% 6.4% 0.80 -16.1%

EM Equities 5.9% 26.5% 0.29 -62.7%

US Treasuries 5.5% 4.2% 0.92 -3.5%

US Equities 4.1% 16.6% 0.23 -50.9%

Developed Non-US

Sovereign Debt 3.6% 2.7% 0.70 -3.3%

EM & HY DEBT OUTPEFORM OTHER ASSET CLASSES (2006 - 2012)

0.76 0.73

0.64 0.61

0.41

-0.27 -0.29 -40%

-20%

0%

20%

40%

60%

80%

100%

U.S. HY EM Svgn (Lcl

FX)

EM Svgn

(USD)

EM Corp

(USD)

U.S. IG Corp DM Non-US

Svgn

U.S. Tsys

EM & HY DEBT PROVIDE HIGH CORRELATION TO S&P 500 (2006 - 2012)

Moderate Recommended

Allocation Par Weighted Coupon* Effective Duration* 25 BPS Change 50 BPS Change 75 BPS Change 100 BPS Change

U.S. Treasuries

Treasuries 11% 2.5% 6.0 -1.5% -3.0% -4.5% -6.0%

TIPS 2% 1.4% 6.2 -1.5% -3.1% -4.6% -6.2%

U.S. Municipals 58% 4.7% 7.5 -1.9% -3.8% -5.6% -7.5%

U.S. Investment Grade 11% 4.9% 6.8 -1.7% -3.4% -5.1% -6.8%

U.S. High Yield & Collateralized

High Yield 3% 7.7% 4.2 -1.1% -2.1% -3.2% -4.2%

Mortgage Backed Sec's 10% 4.2% 3.2 -0.8% -1.6% -2.4% -3.2%

Preferreds 1% 6.8% 6.4 -1.6% -3.2% -4.8% -6.4%

Non-U.S. Sovereigns 1% 2.8% 7.5 -1.9% -3.8% -5.7% -7.5%

Emerging Market Debt

Emerging Market: USD 1% 6.9% 7.3 -1.8% -3.7% -5.5% -7.3%

Emerging Markets: Local 2% 6.4% 5.2 -1.3% -2.6% -3.9% -5.2%

Price Return -1.7% -3.3% -5.0% -6.6%

Total Return 4.5% 2.9% 1.2% -0.5% -2.1% *As of 3/31/2013; BofA ML Bond Indexes used to represent the various

sectors of the Bond Market

BENEFITS OF DIVERSIFICATION IN A RISING RATE ENVIRONMENT



Executive Summary



23 H

igh

Yie

ld M

aste

r II

B-r

ate

d

Em

erg

ing

Ma

rke

t (L

CL)

BB

-ra

ted

Em

erg

ing

Ma

rke

t (U

SD

)

Flo

ati

ng

IG

Pre

ferr

ed

s

Fix

ed

IG

Pre

ferr

ed

s

BB

B-r

ate

d

30

Ye

ar

Tre

asu

ry

Co

rpo

rate

IG

Ma

ste

r

Mu

nic

ipa

l M

aste

r

A-r

ate

d

AA

-ra

ted

AA

A-r

ate

d

Mo

rtg

ag

e M

aste

r

10

Ye

ar

Tre

asu

ry

Int'

l D

eve

lop

ed

Tre

asu

ry M

aste

r

AB

S

Ag

en

cy

Ma

ste

r

2 Y

ea

r Tre

asu

ry

3 M

on

th T

rea

su

ry B

ills

0%

2%

4%

6%

8%

10%

12%

14%

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2000 2002 2004 2006 2008 2010 2012

Average: 0.94

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0

100

200

300

400

500

600

700

2000 2002 2004 2006 2008 2010 2012

Fixed income market update

2-YR/10-YR TREASURY SPREAD

LOW DEFAULT RATES IN HIGH YIELD

SECTOR

CORPORATE SPREADS (OAS)

MUNI/TREASURY RATIO1

CREDIT SPREADS TIGHTEN

High Yield Investment Grade

Spread in basis points

Source: Bloomberg, BofA ML Global Research, IMG; Yields represented by BofA Merrill Lynch Global Bond Indexes. Default rates based on BofA ML High Yield Index. 1Ratio of Moody’s AAA Municipal Bond yield to 10-Year Treasury

YIELDS

CCC and lower rated

847

471

352

201

119

88

63

0 200 400 600 800 1000 1200

CCC

B

BB

BBB

A

AA

AAA

Spread in basis points

0%

2%

4%

6%

8%

10%

12%

14%

16%

2000 2002 2004 2006 2008 2010 2012

US HY Global HY

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Current as of 3/31/2013:

US HY: 2.0%

Global HY: 1.4%



Executive Summary



24

Hedge Funds Strategies Underperform the S&P 500 Index

RELATIVE VALUE AND GLOBAL MACRO STRATEGY ATTRACTS

NET INFLOWS1

CORRELATION TO S&P 500 (OCT 2004 – FEB 2013)

Source: Hedge fund indexes represented by Dow Jones Credit Suisse AllHedge Indexes as of 12/31/2012. Net inflows based on HFR Global Hedge Fund Industry Report as of 12/31/2012. 3Cross asset volatility represented by BofA Merrill Lynch

IMktRisk Index. 1. Macro category includes Global Macro and Managed Futures. Emerging Markets strategy involves equity and fixed income investing and is included in equity hedge and relative value categories.

HEDGE FUND STRATEGIES PERFORMANCE IN 2012

-7.6%

29.0%

71.0% 71.4% 71.8% 77.3%

83.8%

-20%

0%

20%

40%

60%

80%

100%

Managed

Futures

Global

Macro

Relative

Value

Event

Driven

Emerging

Markets

DJ CS

AllHedge

Index

Equity

Long/Short

-$10 $0 $10 $20 $30 $40 $50

Equity Hedge

Event-Driven

Macro

Relative Value

Q4 2012

2012

-1

0

1

2

3

4

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Global QE &

China fiscal

stimulus

Coordinated CB

USD liquidity

swap facilities

QE2

Operation

Twist

3y LTRO

Draghi

CROSS ASSET CLASS VOLATILITY REMAINS LOW 1

4.8% 3.8%

2.3% 1.1% 1.0%

-0.4% -1.5%

-3.4%

11.5% 12.2%

5.5% 6.3% 5.7%

16.0%

-0.1%

-3.3% -5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Emerging

Markets

Equity

Long/Short

Event

Driven

Relative

Value

DJ CS

AllHedge

Index

S&P 500 Global

Macro

Managed

Futures

Q4 2012 2012

In Focus Appendix Portfolio Management

Executive Summary



25

Private equity deal volume down compared to peak years

GLOBAL DEAL VOLUME DOWN 58% FROM 2006 PEAK

Source: (Top Left) Cambridge Assoicates, data as of 6/30/12. (Top Right) Thomson Reuters. (Bottom) Preqin.

PRIVATE EQUITY HAS OUTPERFORMED PUBLIC EQUITIES 1

$0

$100

$200

$300

$400

$500

$600

$700

$800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Down 58% from 2006

$403 $406

$560

$801

$1,005 $1,071 $1,064

$989 $927 $922

$0

$200

$400

$600

$800

$1,000

$1,200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

GLOBAL PE FIRMS HAVE CLOSE TO $1 TRILLION OF UNDEPLOYED CASH

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

5 Yr 10 Yr 20 Yr

Top Quartile All Buyouts S&P 500


Executive Summary



26

$35

$55

$75

$95

$115

$135

$155

2008 2009 2010 2011 2012 2013

WTI Brent

0

50

100

150

200

250

Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Ind

exe

d t

o D

ec 2

00

8 =

10

0

GSCI GOLD TR S&P 500 TR S&P GSCI TR Index

Commodities continue to struggle in 2013 as the global economic recovery remains tepid

ENERGY SECTOR POSTS POSTIVE RETURNS PRICE OF OIL: BRENT VS WEST TEXAS INTERMEDIATE (WTI)

AFTER MULTI-YEAR RALLY, GOLD PRICES REMAIN RANGE BOUND

Source: Commodity indexes represented by DJ-UBS Commodity Indexes.

QE 1 QE 2 Operation Twist/QE3

-1.1%

-3.2%

7.1%

-7.8%

-6.4% -5.5%

-1.1%

4.0%

-9.4%

0.7%

-3.5%

6.3%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

DJUBS TR

Index Agriculture Energy Industrials Livestock

Precious

Metals

Q1 2013 2012


Executive Summary



27

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

US Dollar continues to strengthen

PERFORMANCE AGAINST US DOLLAR

70.00

75.00

80.00

85.00

90.00

75

85

95

105

115

1.15

1.35

1.55

1.75

1.30

1.50

1.70

1.90

2.10

US Dollar Index:

Up 4% YTD

Yen: Down 9% YTD

Euro: Down 3% YTD

British Pound:

Down 7% YTD

Australian Dollar:

Up 1% YTD

CORRELATIONS OF MAJOR CURRENCY PAIRS WITH WORLD

EQUITY MARKETS (JAN 2000 – MAR 2013)

Dollar Index Euro Japanese

Yen

British

Pound

Australian

Dollar Swiss Franc

Canadian

Dollar

S&P 500 -0.36 0.34 0.04 0.27 0.59 -0.17 -0.60

Euro Stoxx 500 -0.21 0.20 0.19 0.15 0.43 -0.04 -0.49

Nikkei 225 -0.18 0.18 0.30 0.18 0.45 -0.07 -0.44

FTSE 100 -0.28 0.27 0.08 0.09 0.53 -0.13 -0.52

Swiss Market

Index -0.06 0.05 0.16 0.05 0.31 0.11 -0.31

S&P/TSX

Composite -0.32 0.29 0.07 0.27 0.57 -0.16 -0.57

S&P/ASX 200 -0.28 0.27 0.19 0.21 0.51 -0.12 -0.50

MSCI ACWI -0.51 0.48 0.02 0.39 0.72 -0.32 -0.68

IMPACT OF CURRENCIES ON RETURNS: JAPANESE EQUITIES


Executive Summary



Source: Bloomberg, IMG..

90

95

100

105

110

115

120

125

130

Oct-12 Nov-12 Nov-12 Dec-12 Dec-12 Jan-13 Jan-13 Feb-13 Feb-13 Mar-13 Mar-13

Ind

exe

d,

No

v 1

, 2

01

2 =

10

0

MSCI Daily TR Net Japan Index WisdomTree Japan Hedged Equity TR Index

28

Potential Risks to Capital Markets

EUROPEAN CONTAGION RISKS REMAIN DESPITE CALM

GETTING U.S. FISCAL HOUSE IN ORDER

Source: (Top ) Haver Analytics, CBO, IMG

In Focus Appendix Executive Summary




•Political gridlock in the U.S. leading to fiscal drag

• Slow job growth and budget cutbacks at the federal,

state and local levels

• Slowdown in consumer spending

• Inflation (or deflation) dynamics

• Declining corporate margins

• Europe:

• Sovereign debt contagion in periphery

• Recession at the core

• Weak growth in Emerging Markets

• Geopolitical tensions: Iran, Syria, North Korea

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

10%

15%

20%

25%

30%

1989 1993 1997 2001 2005 2009 2013 2017 2021

$, in

Billio

ns

% o

f G

DP

Debt Held by the Public (RHS) Revenue as % of GDP (LHS)

Spending as % of GDP (LHS)

Forecasts

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

10

20

30

40

50

60

2009 2010 2011 2012 2013

10

Yr

Bo

nd

Yie

lds

Eu

ro S

toxx 5

0 V

ola

tility

In

de

x

Euro Stoxx 50 Volatility Index (LHS) Greek 10 Yr Bond Yields (RHS)

29

Merrill Lynch Strategic Asset Allocation (Tier 0 - High Liquidity, Jan 1994- Feb 2013)

STATISTICS RISK & RETURN

ROLLING 12 MONTH RETURNS

Conservative Mod

Conservative Moderate

Mod

Aggressive Aggressive S&P 500

Annualized Returns 7.2% 8.1% 8.5% 8.5% 8.4% 8.4%

Annualized Volatility 6.0% 7.6% 9.5% 10.8% 12.2% 15.4%

Sharpe Ratio 0.69 0.69 0.60 0.54 0.48 0.41

Max Drawdown -10.2% -19.0% -30.5% -36.1% -41.4% -50.9%

Num of Pos Months 150 154 150 148 147 148

Num of Neg Months 80 76 80 82 83 82

Avg Pos Months 1.5% 1.8% 2.3% 2.5% 2.8% 3.4%

Avg Neg Months -1.1% -1.7% -2.2% -2.5% -2.9% -3.9%

-60%

-40%

-20%

0%

20%

40%

60%

2008 2009 2010 2011 2012

Ro

llin

g 1

2m

Re

turn

s

Conserative Moderately Conservative Moderate Moderately Aggressive Aggressive S&P 500





Conservative

Mod Conser

Moderate

Mod Agg

Aggressive

S&P 500

Tbills

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

An

nu

alize

d R

etu

rn

Annualized Standard Deviation

Source: Bloomberg, IMG. Past performance is no guarantee of future results. Risk profiles based on Tier 0 (highest liquidity). Conservative (Stocks = 20%, Bonds = 55%, Cash=25%), Moderately Conservative (Stocks = 40%, Bonds = 50%, Cash = 10%),

Moderate (Stocks = 60%, Bonds = 35%, Cash = 5%), Moderately Aggressive (Stocks = 70%, Bonds = 25%, Cash = 5%), Aggressive (Stocks = 80%, Bonds = 15%, Cash = 5%) Stocks represented by S&P 500 TR Index. Bonds represented by a composite of

US Long Term Government Bond TR Index (60%) and US Long Term Corporate Bond TR Index (40%). Cash represented by 30 Day Tbills TR Index. The market indexes presented are unmanaged and considered representative of specific segments of the

markets. Indexes are not available for direct investment. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs, taxes and fees. Hypothetical performance results have certain inherent

limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if any, of certain market factors. Hypothetical performance is designed

with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an investment product and cannot be purchased through one investment

vehicle.

30

Merrill Lynch Dynamic Asset Allocation (3-Month, Tier 0 - High Liquidity, Jan 1994- Feb 2013)1


ROLLING 12 MONTH RETURNS

Conservative Mod

Conservative Moderate

Mod

Aggressive Aggressive S&P 500

Annualized Returns 7.5% 9.0% 10.1% 10.4% 10.8% 8.4%

Annualized Volatility 4.8% 7.4% 10.5% 11.9% 13.4% 15.4%

Sharpe Ratio 0.93 0.81 0.69 0.65 0.62 0.41

Max Drawdown -8.2% -17.8% -28.7% -32.2% -36.5% -50.9%

Num of Pos Months 163 157 151 150 146 148

Num of Neg Months 67 73 79 80 84 82

Avg Pos Months 1.3% 1.9% 2.6% 2.8% 3.2% 3.4%

Avg Neg Months -1.0% -1.7% -2.4% -2.8% -3.0% -3.9%





Conservative

Mod Conser

Moderate

Mod Agg

Aggressive

S&P 500

Tbills

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

An

nu

alize

d R

etu

rn


-60%

-40%

-20%

0%

20%

40%

60%

2008 2009 2010 2011 2012 2013

Ro

llin

g 1

2m

Re

turn

s

Conserative Moderately Conservative Moderate Moderately Aggressive Aggressive S&P 500

Source: Bloomberg, IMG. Past performance is no guarantee of future results. 1Dynamic asset allocation (DAA) is a systematic process for navigating shorter-term investment opportunities while maintaining a view toward longer-term financial goals.

Unlike Strategic Asset Allocation which develops assumptions based on a 20-30 year investment horizon, DAA models operate based on two investment horizons: 3 months and 5 years. Risk profiles based on Tier 0 (highest liquidity). Data reflects

performance and risk characteristics of the Dynamic Asset Allocation model portfolios (3-month) for US-oriented, U.S. Dollar investors (Tier 0 liquidity preference). Please refer to the Dynamic Asset Allocation whitepaper and the latest Dynamic Asset

Allocation Update publication for further information on the model portfolios. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs, taxes and fees. Hypothetical performance results have

certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if any, of certain market factors. Hypothetical

performance is designed with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an investment product and cannot be

purchased through one investment vehicle.

31

Merrill Lynch Strategic Asset Allocation (Tier 3 - Low Liquidity, Jan 1994- Feb 2013)


ASSET ALLOCATION FOR TIER 3 (LOW LIQUIDITY)

Conservative Moderate Aggressive S&P 500 Fixed Income

Composite

Annualized Returns 7.3% 8.7% 8.9% 8.4% 7.9%

Annualized Volatility 5.5% 9.2% 12.1% 15.4% 9.7%

Sharpe Ratio 0.8 0.6 0.5 0.4 0.5

Max Drawdown -11.6% -34.7% -48.1% -50.9% -12.3%

Num of Pos Months 157 155 153 148 138

Num of Neg Months 73 75 77 82 92

Avg Pos Months 1.4% 2.2% 2.7% 3.4% 2.4%

Avg Neg Months -1.1% -2.2% -3.0% -3.9% -1.9%





15%

45%

25%

10%

2% 3%

Tier 3 - Conservative

40%

25%

5%

14%

7%

9%

Tier 3 - Moderate

40%

10% 5%

14%

20%

11%

Tier 3 - Aggressive

Equity

Fixed Income

Cash

Hedge Funds

Private Equity

Real Assets

Conservative

Aggressive Moderate

S&P 500 Fixed Income

Comp

T-Bills

2%

3%

4%

5%

6%

7%

8%

9%

10%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

An

nu

alize

d R

etu

rn


Source: Bloomberg, IMG. Past performance is not indicative of future results. Risk profiles based on Tier 3 (lowest liquidity, up to 30% of the portfolio may not be available for 3-5 years). Equity represented by S&P 500 TR Index. Fixed Income represented

by a composite of US Long Term Government Bond TR Index (60%) and US Long Term Corporate Bond TR Index (40%). Cash represented by 30 Day Tbills TR Index. Hedge funds represented by Dow Jones Credit Suisse Hedge Fund Index. Real Assets

represented by a composite of 46% NAREIT Global Total Return, 36% DJ-UBS Commodity TR Index, and 18% ML U.S. Treasury Inflation-Linked Securities. Private Equity represented by LPX50 Total Return Index. The market indexes presented are

unmanaged and considered representative of specific segments of the markets. Indexes are not available for direct investment. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs,

taxes and fees. Hypothetical performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if

any, of certain market factors. Hypothetical performance is designed with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an

investment product and cannot be purchased through one investment vehicle.

32

Merrill Lynch Current Capital Market Return Assumptions

Source: IMG Investment Analytics





Asset Class Index Proxies

Annualized

Expected

Return

Annualized .

Expected

Volatility

US

La

rge

Ca

p G

row

th

US

La

rge

Ca

p V

alu

e

US

Sm

all C

ap

Gro

wth

US

Sm

all C

ap

Va

lue

Inte

rna

tio

na

l E

qu

ity

Em

erg

ing

Ma

rke

ts

Ta

xa

ble

FI

Sh

ort

Te

rm (

1-3

Ye

ar)

Ta

xa

ble

FI

Int.

Te

rm (

3-1

0 Y

ea

r)

Ta

xa

ble

FI

Lo

ng

Te

rm (

10

+)

Hig

h Y

ield

Inte

rna

tio

na

l F

ixe

d I

nco

me

Ca

sh

/N

ea

r C

ash

He

dg

e F

un

ds

Pri

va

te E

qu

ity

Re

al A

sse

ts

US Large Cap Growth Russell 1000 Growth TR 9.9% 20.5% 1.00 0.84 0.83 0.71 0.58 0.59 0.10 0.10 0.15 0.51 0.14 -0.01 0.41 0.48 0.45

US Large Cap Value Russell 1000 Value TR 9.2% 16.5% 0.84 1.00 0.70 0.81 0.59 0.60 0.14 0.15 0.19 0.55 0.16 0.00 0.41 0.44 0.56

US Small Cap Growth Russell 2000 Growth TR 11.5% 28.8% 0.83 0.70 1.00 0.87 0.52 0.62 0.00 -0.01 0.04 0.49 0.06 -0.04 0.46 0.55 0.48

US Small Cap Value Russell 2000 Value TR 9.8% 20.4% 0.71 0.81 0.87 1.00 0.51 0.61 0.06 0.05 0.09 0.56 0.06 -0.03 0.44 0.51 0.57

International Equity MSCI Daily TR Net EAFE USD* 10.0% 21.2% 0.58 0.59 0.52 0.51 1.00 0.59 0.07 0.06 0.09 0.45 0.45 -0.03 0.46 0.60 0.66

Emerging Markets MSCI Daily TR Net EM USD* 12.2% 31.5% 0.59 0.60 0.62 0.61 0.59 1.00 -0.01 -0.04 0.01 0.48 0.10 -0.03 0.58 0.43 0.62

Taxable FI Short Term (1-3 Year) ML US Treasuries TR 1-3yr 4.2% 3.6%

0.10 0.14 0.00 0.06 0.07 -0.01 1.00 0.91 0.76 0.35 0.50 0.33 0.19 -0.25 0.20

Taxable FI Int. Term (3-10 Year) ML US Treasuries TR 3-10yr 5.3% 6.1% 0.10 0.15 -0.01 0.05 0.06 -0.04 0.91 1.00 0.92 0.33 0.55 0.14 0.18 -0.26 0.21

Taxable FI Long Term (10+) ML US Treasuries TR 10yr+ 5.6% 12.2% 0.15 0.19 0.04 0.09 0.09 0.01 0.76 0.92 1.00 0.36 0.50 0.06 0.19 -0.22 0.20

High Yield ML High Yield Master (Cash Pay) TR 6.9% 10.4% 0.51 0.55 0.49 0.56 0.45 0.48 0.35 0.33 0.36 1.00 0.29 -0.06 0.41 0.28 0.56

International Fixed Income ML Global Broad Market TR ex USD 5.0% 11.3% 0.14 0.16 0.06 0.06 0.45 0.10 0.50 0.55 0.50 0.29 1.00 -0.10 0.06 0.05 0.42

Cash/Near Cash Ibbotson’s 30–Day T-Bill TR Index 3.0% 0.9% -0.01 0.00 -0.04 -0.03 -0.03 -0.03 0.33 0.14 0.06 -0.06 -0.10 1.00 0.13 -0.06 -0.09

Hedge Funds CS-Tremont Hedge Funds 7.2% 9.7% 0.41 0.41 0.46 0.44 0.46 0.58 0.19 0.18 0.19 0.41 0.06 0.13 1.00 0.38 0.51

Private Equity LPX 50 (USD) TR 11.0% 23.0% 0.48 0.44 0.55 0.51 0.60 0.43 -0.25 -0.26 -0.22 0.28 0.05 -0.06 0.38 1.00 0.56

Real Assets Real Assets Composite (i) 6.2% 14.1% 0.45 0.56 0.48 0.57 0.66 0.62 0.20 0.21 0.20 0.56 0.42 -0.09 0.51 0.56 1.00

33

Historical Asset Class Performance

Source: Bloomberg, IMG. Cash, Commodities, Gold, Hedge Funds, Reits, US Fixed Income, and US Treasuries represented by the BofA ML 3-Month Treasury Bills Index, DJUBS Commodity Total Return Index, GOLDS Index, HFRX Global Hedge Fund Index,

UNGL Index, BofA ML Broad Market Bond Index, and BofaML Treasury Master Index, respectively. Returns calculated are total returns with exception of Gold returns (spot returns).





2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Commodities

31.8%

Hedge funds

8.7%

Commodities

25.9%

MSCI EM

56.3%

REITS

32.0%

MSCI EM

34.5%

REITS

37.5%

MSCI EM

39.8%

US Treasuries

14.0%

MSCI EM

79.0%

Gold

29.5%

Gold

10.1%

REITS

28.3%

Hedge funds

14.3%

US Fixed Inc

8.3%

Gold

24.8%

MSCI EAFE

39.2%

MSCI EM

26.0%

Commodities

21.4%

MSCI EM

32.6%

Gold

31.0%

Gold

5.8%

MSCI EAFE

32.5%

REITS

19.5%

US Treasuries

9.8%

MSCI EM

18.6%

US Treasuries

13.4%

US Treasuries

6.7%

US Treasuries

11.6%

MSCI World

33.8%

MSCI EAFE

20.7%

Gold

17.9%

MSCI EAFE

26.9%

Commodities

16.2%

US Fixed Inc

4.5%

REITS

31.7%

MSCI EM

19.2%

US Fixed Inc

7.8%

MSCI EAFE

17.9%

US Fixed Inc

11.7%

Cash

4.4%

US Fixed Inc

10.3%

REITS

33.5%

MSCI World

15.2%

MSCI EAFE

14.0%

Gold

23.2%

MSCI EAFE

11.6%

Cash

2.1%

MSCI World

-30.8%

Commodities

16.8%

S&P 500

2.1%

MSCI World

16.5%

REITS

8.5%

Gold

2.5%

Hedge funds

4.7%

S&P 500

28.7%

S&P 500

10.9%

REITS

10.7%

MSCI World

20.7%

MSCI World

9.6%

Hedge funds

-23.3%

S&P 500

26.5%

S&P 500

15.1%

Cash

0.1%

S&P 500

16.0%

Cash

6.2%

MSCI EM

-2.4%

Cash

1.8%

Commodities

23.9%

Commodities

9.1%

MSCI World

10.0%

S&P 500

15.8%

US Treasuries

9.1%

Commodities

-35.6%

Gold

24.4%

MSCI World

12.3%

MSCI World

-5.0%

Gold

7.1%

Gold

-5.9%

REITS

-7.8%

REITS

-2.4%

Gold

19.4%

Gold

5.5%

S&P 500

4.9%

Hedge funds

9.3%

US Fixed Inc

7.0%

S&P 500

-37.0%

Commodities

18.9%

MSCI EAFE

8.2%

REITS

-5.7%

US Fixed Inc

4.5%

S&P 500

-9.1%

S&P 500

-11.9%

MSCI EM

-6.0%

Hedge funds

13.4%

US Fixed Inc

4.3%

Cash

3.1%

Cash

4.9%

S&P 500

5.5%

MSCI World

-40.3%

Hedge funds

13.4%

US Fixed Inc

6.8%

Hedge funds

-8.9%

Hedge funds

3.5%

MSCI World

-12.9%

MSCI World

-16.5%

MSCI EAFE

-15.7%

US Fixed Inc

4.1%

US Treasuries

3.5%

US Treasuries

2.8%

US Fixed Inc

4.4%

Cash

5.0%

MSCI EAFE

-43.1%

US Fixed Inc

6.1%

US Treasuries

5.9%

MSCI EAFE

-11.7%

US Treasuries

2.2%

MSCI EAFE

-14.0%

Commodities

19.5%

MSCI World

-19.5%

US Treasuries

2.3%

Hedge funds

2.7%

Hedge funds

2.7%

US Treasuries

3.1%

Hedge funds

4.2%

REITS

-50.2%

Cash

0.2%

Hedge funds

5.2%

Commodities

-13.3%

Cash

0.1%

MSCI EM

-30.9%

MSCI EAFE

-21.2%

S&P 500

-22.1%

Cash

1.1%

Cash

1.3%

US Fixed Inc

2.6%

Commodities

2.1%

REITS

-10.0%

MSCI EM

-53.2%

US Treasuries

-3.7%

Cash

0.1%

MSCI EM

-18.2%

Commodities

-1.1%

34

In Focus: Chinese Rebound

Source: BofA-ML Research, Bloomberg, Haver Analytics, IMG. *For 2012

ESTIMATED CONTRIBUTION TO GLOBAL GROWTH BY REGION*

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013

BofA ML Forecasts:

1Q 2012: 7.9%

2Q 2013: 8.1%

3Q 2013: 8.0%

4Q 2013: 8.0%

CHINA REAL GDP FORECASTS (%, YoY)

EXPORTS EXPECTED TO INCREASE 12.1 % YoY IN 2013

US, 12%

EU, -1%

UK, 0%

Japan, 4%

DM Others, 9%

China, 40%

India, 12% Brazil, 3%

Russia, 3%

EM Other, 18%

EM, 76%

CONSUMPTION EXPECTED TO LEAD CHINESE GROWTH

5.4%

4.8%

-0.4%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2006 2007 2008 2009 2010 2011

Net Exports

Investments

Consumption

Appendix Executive Summary




In Focus

-$20

-$10

$0

$10

$20

$30

$40

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012

Trade Surplus (in $billions), RHS Export Growth (YoY%), LHS

35

In Focus: Reflating Japan’s Economy

Source: (Top Left) Bloomberg, BofA ML Global Research,. (Top Right) Bloomberg, IMG. (Bottom Left) Bloomberg, IMG. (Bottom Right) BofA ML Global Research, IMG.

JAPANESE EQUITIES SURGE: UP 20% IN 1Q 2013 YEN’S WEAKNESS INCREASES JAPANESE COMPETITIVENESS

JAPAN LAST 15 YEARS: LOW GROWTH AND DEFLATION

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1998 2000 2002 2004 2006 2008 2010 2012

Real GDP Growth Real GDP Average CPI

BANK OF JAPAN PLANS TO ADOPT STIMULUS POLICIES

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

¥40,000

¥60,000

¥80,000

¥100,000

¥120,000

¥140,000

¥160,000

¥180,000

1998 2000 2002 2004 2006 2008 2010 2012

BOJ Balance Sheet (LHS) Policy Rate

600

650

700

750

800

850

900

950

1,000

1,050

1,100

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13

Nikkei Index (LHS) Topix Index (RHS)

Nikkei and Topix up

approximately 39%

since November 2012.





In Focus

70

80

90

100

110

120

130

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US

D/JP

Y

USDJPY 200-day MA

36

FLAT DEMAND COUPLED WITH RISING

SUPPLY

9.4%

13.5%

21.4%

30.7%

0%

5%

10%

15%

20%

25%

30%

35%

2007 2008 2009 2010

0

3

5

8

10

13

15

18

20

23

2005 2007 2009 2011 2013 2015

US Demand US Supply

BofA ML Forecasts Oil (millions of barrels/day)

40

80

120

1980 1990 2000 2010 2020 2030

Consumption

22%

13%

Production Forecast

Total Energy (quadrillion BTU)

Net Imports

-1,000 0 1,000 2,000

Mexico

Norway

UK

Russia

India

Columbia

Biofuels

Canada

Brazil

United States

Thousands of

barrels/day

0

100

200

300

400

500

600

700

800

900

2002 2004 2006 2008 2010 2012

US Rest of World Index

In Focus: US Energy Independence

US TO SUPPLY A LARGE PORTION OF NON-

OPEC SUPPLY GROWTH BETWEEN 2011-2016

NET ENERGY IMPORTS FORECAST TO

DECLINE

SHALE AS A % OF NATURAL GAS

RESERVES

ENERGY COST ADVANTAGE

100

150

200

250

300

350

15

17

19

21

23

25

27

29

31

33

1980 1986 1992 1998 2004 2010

Oil (billion barrels) Natural gas (trillion cubic feet)

ADVANCEMENT IN TECHNOLOGY BOOSTS US

OIL AND NATURAL GAS PROVED RESERVES

Source: US Energy Information Administration, BofA ML Global Research, IMG.





In Focus

37

Appendix

Executive Summary




In Focus Appendix

38

US Equity Sector Performance (S&P 500)

2012 2013

Q4 2012 Q1 2013

Source: Bloomberg, IMG. US Equities represented by the S&P 500 Index. Returns calculated are total returns.

1.3%

4.6%

10.8%

14.8%

15.0%

15.3%

17.9%

18.3%

23.9%

28.8%

0% 5% 10% 15% 20% 25% 30%

Utilities

Energy

Cons Staples

Info Tech

Materials

Industrials

Healthcare

Telecom

Cons Disc

Financials

-6.0%

-5.7%

-2.9%

-2.7%

-1.7%

0.1%

2.1%

2.7%

3.7%

5.9%

-8% -6% -4% -2% 0% 2% 4% 6% 8%

Telecom

Info Tech

Utilities

Energy

Cons Staples

Healthcare

Cons Disc

Materials

Industrials

Financials

4.6%

4.8%

9.5%

10.2%

10.7%

11.4%

12.2%

13.0%

14.6%

15.8%

0% 5% 10% 15% 20%

Info Tech

Materials

Telecom

Energy

Industrials

Financials

Cons Disc

Utilities

Cons Staples

Healthcare

4.6%

4.8%

9.5%

10.2%

10.7%

11.4%

12.2%

13.0%

14.6%

15.8%

0% 5% 10% 15% 20%

Info Tech

Materials

Telecom

Energy

Industrials

Financials

Cons Disc

Utilities

Cons Staples

Healthcare

Executive Summary




In Focus Appendix

39

US Equities: Historical Sector Performance

Source: Bloomberg, IMG. US Equities represented by the S&P 500 Index. Returns calculated are total returns.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Utilities

57.2%

Materials

3.5%

Cons Staples

-4.3%

Info Tech

47.2%

Energy

31.5%

Energy

31.4%

Telecom

36.8%

Energy

34.4%

Cons Staples

-15.4%

Info Tech

61.7%

Cons Disc

27.7%

Utilities

19.9%

Financials

28.8%

Healthcare

37.1%

Cons Disc

2.8%

Materials

-5.5%

Materials

38.2%

Utilities

24.3%

Utilities

16.8%

Energy

24.2%

Materials

22.5%

Healthcare

-22.8%

Materials

48.6%

Industrials

26.7%

Cons Staples

14.0%

Cons Disc

23.9%

Financials

25.7%

Industrials

-5.7%

Energy

-11.1%

Cons Disc

37.4%

Telecom

19.9%

Financials

6.5%

Utilities

21.0%

Utilities

19.4%

Utilities

-29.0%

Cons Disc

41.3%

Materials

22.2%

Healthcare

12.7%

Telecom

18.3%

Cons Staples

16.8%

Cons Staples

-6.4%

Financials

-14.6%

Industrials

32.2%

Industrials

18.0%

Healthcare

6.5%

Financials

19.2%

Info Tech

16.3%

Telecom

-30.5%

Industrials

20.9%

Energy

20.5%

Telecom

6.3%

Healthcare

17.9%

Energy

15.7%

Financials

-9.0%

Healthcare

-18.8%

Financials

31.0%

Cons Disc

13.2%

Materials

4.4%

Cons Disc

18.6%

Cons Staples

14.2%

Cons Disc

-33.5%

Healthcare

19.7%

Telecom

19.0%

Cons Disc

6.1%

Industrials

15.3%

Industrials

5.9%

Energy

-10.4%

Cons Disc

-23.8%

Utilities

26.3%

Materials

13.2%

Cons Staples

3.6%

Materials

18.6%

Industrials

12.0%

Energy

-34.9%

Financials

17.2%

Cons Staples

14.1%

Energy

4.7%

Materials

15.0%

Materials

-15.7%

Healthcare

-11.9%

Industrials

-26.3%

Energy

25.6%

Financials

10.9%

Industrials

2.3%

Cons Staples

14.4%

Telecom

11.9%

Industrials

-39.9%

Cons Staples

14.9%

Financials

12.1%

Info Tech

2.4%

Info Tech

14.8%

Cons Disc

-20.0%

Telecom

-12.2%

Utilities

-30.0

Healthcare

15.1%

Cons Staples

8.2%

Info Tech

1.0%

Industrials

13.3%

Healthcare

7.2%

Info Tech

-43.1%

Energy

13.8%

Info Tech

10.2%

Industrials

-0.6%

Cons Staples

10.8%

Telecom

-38.8%

Info Tech

-25.9%

Telecom

-34.1%

Cons Staples

11.6%

Info Tech

2.6%

Telecom

-5.6%

Info Tech

8.4%

Cons Disc

-13.2%

Materials

-45.7%

Utilities

11.9%

Utilities

5.5%

Materials

-9.8%

Energy

4.6%

Info Tech

-40.9%

Utilities

-30.4%

Info Tech

-37.4%

Telecom

7.1%

Healthcare

1.7%

Cons Disc

-6.4%

Healthcare

7.5%

Financials

-18.6%

Financials

-55.3%

Telecom

8.9%

Healthcare

2.9%

Financials

-17.1%

Utilities

1.3%

Executive Summary




In Focus Appendix

40

International Equities: Sector Performance (MSCI ACWI ex US)

2012

Q4 2012

Source: Bloomberg, IMG. Global equities represented by MSCI ACWI ex US. Returns calculated are total returns.

2013

Q1 2013

2.4%

4.7%

5.2%

10.6%

17.1%

18.1%

18.8%

19.5%

23.2%

30.1%

0% 5% 10% 15% 20% 25% 30% 35%

Energy

Utilities

Telecom

Materials

Industrials

Info Tech

Health Care

Cons Staples

Cons Disc

Financials

-2.4%

-0.6%

1.6%

2.2%

4.1%

5.9%

7.5%

7.9%

10.3%

10.4%

-4% -2% 0% 2% 4% 6% 8% 10% 12%

Telecom

Energy

Utilities

Health Care

Cons Staples

Materials

Info Tech

Industrials

Cons Disc

Financials

-7.2%

-2.2%

-0.2%

2.6%

3.1%

4.2%

5.0%

5.6%

9.1%

12.3%

-10% -5% 0% 5% 10% 15%

Materials

Energy

Utilities

Telecom

Info Tech

Financials

Industrials

Cons Disc

Cons Staples

Health Care

-7.2%

-2.2%

-0.2%

2.6%

3.1%

4.2%

5.0%

5.6%

9.1%

12.3%

-10% -5% 0% 5% 10% 15%

Materials

Energy

Utilities

Telecom

Info Tech

Financials

Industrials

Cons Disc

Cons Staples

Health Care

Executive Summary




In Focus Appendix

41

International Equities: Historical Sector Performance

Source: Bloomberg, IMG. Global equities represented by MSCI ACWI ex US. Returns calculated are total returns.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Healthcare

14.8%

Energy

-4.9%

Materials

3.5%

Materials

52.7%

Utilities

32.0%

Energy

31.5%

Utilities

49.5%

Materials

40.9%

Healthcare

-18.6%

Materials

76.3%

Cons Disc

22.1%

Healthcare

5.7%

Financials

30.1%

Cons Staples

3.8%

Materials

-7.5%

Energy

0.8%

Industrials

50.0%

Energy

26.5%

Materials

27.4%

Materials

35.1%

Telecom

41.0%

Utilities

-29.7%

Info Tech

51.4%

Industrials

22.0%

Cons Staples

4.1%

Cons Disc

23.2%

Financials

-1.5%

Cons Staples

-10.0%

Utilities

-0.2%

Info Tech

49.5%

Financials

25.8%

Industrials

25.3%

Telecom

33.0%

Energy

32.3%

Cons Staples

-31.2%

Energy

51.2%

Materials

21.9%

Telecom

-0.9%

Cons Staples

19.5%

Utilities

-1.6%

Utilities

-12.8%

Cons Staples

-0.8%

Financials

48.9%

Industrials

22.9%

Financials

18.3%

Cons Staples

30.2%

Utilities

25.6%

Telecom

-35.7%

Financials

48.6%

Cons Staples

16.0%

Energy

-7.7%

Healthcare

18.8%

Energy

-4.7%

Healthcare

-15.1%

Financials

-12.6%

Telecom

40.4%

Materials

20.8%

Info Tech

13.9%

Financials

29.8%

Cons Staples

24.4%

Cons Disc

-46.0%

Cons Disc

45.4%

Info Tech

14.7%

Cons Disc

-13.5%

Info Tech

18.1%

Industrials

-11.3%

Cons Disc

-17.2%

Healthcare

-14.4%

Cons Disc

39.1%

Telecom

20.6%

Healthcare

13.8%

Industrials

26.5%

Industrials

23.7%

Industrials

-46.9%

Cons Staples

36.4%

Telecom

10.4%

Industrials

-16.3%

Industrials

17.1%

Materials

-16.5%

Financials

-21.9%

Cons Disc

-14.8%

Utilities

35.4%

Cons Staples

19.3%

Utilities

13.7%

Cons Disc

23.9%

Info Tech

8.3%

Energy

-46.9%

Industrials

35.6%

Energy

6.7%

Utilities

-16.5%

Materials

10.6%

Cons Disc

-23.7%

Industrials

-24.0%

Industrials

-17.8%

Energy

34.0%

Cons Disc

18.9%

Cons Disc

12.5%

Energy

20.3%

Cons Disc

6.2%

Info Tech

-47.9%

Healthcare

19.9%

Financials

4.5%

Info Tech

-17.8%

Telecom

5.2%

Info Tech

-37.6%

Telecom

-30.1%

Telecom

-21.1%

Healthcare

28.9%

Healthcare

14.0%

Cons Staples

11.4%

Healthcare

17.0%

Financials

3.8%

Materials

-52.6%

Telecom

19.4%

Healthcare

3.8%

Financials

-19.4%

Utilities

4.7%

Telecom

-41.3%

Info Tech

-38.9%

Info Tech

-22.5%

Cons Staples

24.7%

Info Tech

6.8%

Telecom

-5.0%

Info Tech

13.0%

Healthcare

2.6%

Financials

-54.0%

Utilities

10.9%

Utilities

-1.4%

Materials

-23.9%

Energy

2.4%

Executive Summary




In Focus Appendix

42

Fixed Income Returns

Source: Bloomberg, BofA ML Global Research, IMG; All indexes represented by BofA Merrill Lynch Global Bond Indexes and calculated using total returns.

2012

Q4 2012

2013

Q1 2013

1.5%

2.2%

2.6%

3.2%

4.5%

7.3%

7.3%

10.4%

13.6%

15.6%

18.3%

24.3%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Non-US IG

Treasury

Mortgage

Asset-Backed

US Broad Market

Municipal

TIPS

Corporates

IG Preferreds - Fixed

High Yield

Emerging Markets

IG Preferreds - Floating

-2.5%

-0.3%

-0.1%

0.3%

0.4%

0.5%

0.7%

0.8%

1.2%

1.9%

3.2%

3.2%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Non-US IG

Mortgage

Treasury

US Broad Market

Asset-Backed

Municipal


TIPS

Corporates


High Yield

Emerging Markets

-4.0%

-2.2%

-0.6%

-0.3%

-0.1%

-0.1%

0.1%

0.3%

0.5%

2.3%

2.8%

2.9%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Non-US IG

Emerging Markets

TIPS

Treasury

US Broad Market

Mortgage

Corporates

Asset-Backed

Municipal



High Yield

-4.0%

-2.2%

-0.6%

-0.3%

-0.1%

-0.1%

0.1%

0.3%

0.5%

2.3%

2.8%

2.9%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Non-US IG

Emerging Markets

TIPS

Treasury

US Broad Market

Mortgage

Corporates

Asset-Backed

Municipal



High Yield

Executive Summary




In Focus Appendix

43

Glossary

Consumer Price Index (CPI) Level: Base Year 1982-84: 100. The CPI represents changes in prices of all good and services purchased for consumption by urban households. User fees and sales

and excised taxes paid by the consumer are also included. Income taxes and investment items are not included.

CPI Core Index Level: Base year 1982-84; it excludes food and energy items from the Consumer Price Index Level.

Current Account Deficit: Occurs when a country's total import of goods, services and transfers is greater than the country's total export of goods, services and transfers; this situation makes a

country a net debtor to the rest of the world.

GDP Nominal: Gross Domestic Product (GDP) equals the total income of everyone in the economy or the total expenditure on the economy’s good and services. GDP includes only the value of

final goods and services. Nominal GDP measures the value of goods and services at current dollar prices.

GDP Real: The chain weighted GDP measure of good and services at constant dollar prices. The base year changes continuously over time (e.g., 1995, process measures real growth from 1995-

1996). The figures are then linked to a chain that can compare goods and services in any two years. Chain weighted figures never let prices get too far out of date.

Jobless Claims: Average weekly initial claims for unemployment insurance: measures the average number of new claims for unemployment compensation per week.

US Employees Non-Farm Private Payrolls: A statistic that represents the total number of paid US workers except for farm workers, general government employees, employees of nonprofit

organizations that provide assistance to individuals, and private household employees. The Non-Farm Private Payroll represents about 80% of the workers who produce the US Gross Domestic

Product.

Executive Summary




In Focus Appendix

44

Index Definitions

Alerian MLP Index is a composite of the 50 most prominent energy master limited partnerships and will be calculated by Standard & Poor’s using a float-adjusted, market capitalization-

weighted methodology. The total return index is calculated on an end-of-day basis and will be disseminated daily through its ticker symbol, “AMZX” on the New York Stock Exchange.

Barclays Capital US Aggregate Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market, including Treasuries,

government-related and corporate securities, MBS (agency fixed rated and hybrid ARM passthroughs), ABS, and CMBS.

Barclays Capital US Treasury Index includes public obligations of the US Treasury. Treasury bills are excluded by the maturity constraint.

Barclays Capital US Agency Index includes native currency agency debentures from issuers such as Fannie Mae, Freddie Mac, and Federal Home Loan Bank.

Copper reflects the copper spot price and is quoted in USD per pound.

Corn reflects the USDA Grain Export-Chicago No. 2 Yellow Corn Spot Price. The price is quoted in USD per bushel and is traded intraday.

Dow Jones/Credit Suisse Hedge Fund Indexes:

Aggregate Index®: The methodology utilized in the Dow Jones / Credit Suisse Hedge Fund Index starts by defining the universe it is measuring. The Index Universe is defined as funds with: a

minimum of US $50 million assets under management, a minimum one-year track record, and, current audited financial statements. Funds are separated into ten primary subcategories

based on their investment style. The Index in all cases represents at least 85% of the AUM in each respective category of the Index Universe.

Global Macro Index®: Global macro managers carry long and short positions in any of the world’s major capital or derivative markets.

Distressed Index®: Fund managers in this non-traditional strategy invest in the debt, equity or trade claims of companies in financial distress or already in default.

Long-Short Equity Index®: The directional strategy involves equity-oriented investing on both the long and short sides of the market. The objective is not to be market neutral. Managers

have the ability to shift form Value to Growth, from Small to Mid to Large Cap stocks, and form a net long position to a net short position. Mangers may use futures and options to hedge.

The manager’s focus may be regional or sector specific.

Dedicated Short Bias Index®: The strategy is to maintain net short, as opposed to pure short, exposure. Short-biased managers take short positions mostly in equities and derivatives. The

short bias of a manger’s portfolio must be greater than zero to be classified in this category.

Convertible Arbitrage Index®: The strategy is identified in the convertible securities of a company. Positions are designed to generate profits from the fixed income security as well as the

short sale of stock, while protecting principle from market moves.

Dow Jones Industrial Average (DJIA) measures the performance of 30 leading US blue-chip companies.

Dow Jones – UBS Commodity Indexes:

DJ Agriculture is the Dow Jones - UBS Agriculture Total Return Sub-Index reflects exposure to coffee, corn, cotton, soybeans, soybean oil, sugar, and wheat. The total return index is

calculated on an end-of-day basis and is quoted in USD.

DJ Energy is the Dow Jones - UBS Energy Total Return Index reflects exposure to crude oil, heating oil, natural gas and unleaded gas. The total return index is calculated on an end-of-day

basis and is quoted in USD.

DJ Grain Index is the Dow Jones - UBS Grains Total Return Index reflects exposure to corn, soybeans and wheat. The total return index is calculated on an end-of-day basis and is quoted in

USD.

DJ Industrial Metals is the Dow Jones - UBS Industrial Metals Total Return Index reflects exposure to aluminum, copper, nickel and zinc. The total return index is calculated on an end-of-day

basis and is quoted in USD.

DJ Livestock is the Dow Jones - UBS Livestock Sub-Index Total Return Index reflects exposure to lean hogs and live cattle. The total return index is calculated on an end-of-day basis and is

quoted in USD.

Executive Summary




In Focus Appendix

45

Index Definitions

DJ Petroleum Index is the Dow Jones - UBS Commodity Index Petroleum Sector Sub-Index Total Return Index reflects exposure to crude oil, heating oil and unleaded gasoline commodities

traded on US exchange. The total return index is calculated on an end-of-day basis and is quoted in USD.

DJ Precious Metals is the Dow Jones - UBS Precious Metal Sub-Index Total Return reflects exposure to gold and silver. The total return index is calculated on an end-of-day basis and is

quoted in USD.

DJ Softs Index is the Dow Jones - UBS Softs Sub-Index Total Return Index reflects exposure to coffee, cotton, and sugar. The total return index is calculated on an end-of-day basis and is

quoted in USD.

Dow Jones - UBS Commodity Total Return Index is a broadly diversified index that allows investors to track a diversified set of commodity futures through a single, simple measure. The total

return index reflects the return on fully collateralized positions in the underlying commodity futures.

FTSE NAREIT US Real Estate Index is a performance index based on publicly traded real estate investment trusts (REITs), that span commercial real estate space across the US economy. The

index series provides investors with exposure to all investment and property sectors. A REIT is a company that owns, and in most cases, operates income-producing real estate such as

apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. To qualify as a REIT, a company must distribute at least 90 percent of its

taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most

REITs remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax.

FTSE®EPRA®/NAREIT® Global Index is a free float, market capitalization-weighted real estate index designed to represent publicly traded equity REITs and listed property companies globally.

Gold reflects the gold spot price and is quoted in USD per Troy Ounce.

HFRX Global Hedge Fund Index is an asset-weighted index that includes over 55 constituent funds. All funds must be open to new investments, have at least $50 Million under management

and have a 24-month track record. The index is rebalanced quarterly. The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe.

ML US Broad Market Index tracks the performance of US dollar denominated investment grade Government and Corporate public debt issued in the US Domestic bond market, including

collateralized products such as Mortgage Pass-Through and Asset Backed securities.

ML US Corporate Master Index tracks the performance of US dollar-denominated investment grade corporate public debt issued in the US domestic bond market. Qualifying bonds must have at

least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $150 million. Bonds must be rated investment grade based on a composite of

Moody’s and S&P.

ML Municipal Masters Index tracks the performance of the investment grade US tax-exempt bond market.

ML Global Sovereign Broad Market Index tracks the performance of local currency denominated debt of investment grade rated Sovereign issuers.

ML Global Emerging Markets Sovereign and Corporate Index tracks the performance of US dollar denominated debt of sovereign and corporate issuers domiciled in countries with a BB or lower

foreign currency long-term sovereign debt rating.

ML High Yield Master Index tracks the performance of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic market. “Yankee” bonds (debt of

foreign issuers issued in the US domestic market) are included in the Index provided the issuer is domiciled in a country having an investment grade foreign currency long-term debt rating

(based on a composite of Moody’s and S&P).

ML Mortgage Master Index tracks the performance of US dollar denominated 30-year, 15-year and balloon pass-through mortgage securities having at least $150 million outstanding per

generic production year.

ML 91 Day T-Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month, that issue is sold and rolled into a newly

selected issue.

Executive Summary




In Focus Appendix

46

Index Definitions

MSCI® World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of July 2009 the MSCI World Index

consisted of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,

Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.

MSCI® EAFE (Europe, Australasia, and Far East) Index comprises 21 MSCI country indexes, representing the developed markets outside of North America.

MSCI® Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of July 2009,

the MSCI Emerging Markets Index consisted of the following 25 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea,

Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

MSCI® Europe non-UK Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of July 2009, the MSCI Europe

Index consisted of the following 15 developed market country indexes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain,

Sweden, and Switzerland.

MSCI® Pacific non Japan Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of July 2009, the MSCI

Pacific Index consisted of the following 4 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore.

Muni Yields uses the Moody’s Municipal Bond Yield Average AAA 10 Year. Derived from pricing data on unenhanced newly issued general obligation bonds each observation is an unweighted

average.

NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired

in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being

pension funds. As such, all properties are held in a fiduciary environment.

Oil reflects the Bloomberg West Texas Intermediate Crushing Crude Oil Spot Price. The price is derived by adding spot market spreads to the NYMEX contract. Units are in USD per barrel and is

traded intraday.

Russell 1000 Growth Index® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000 Value Index® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

Russell 2000 Growth Index. The index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values

Russell 2000 Value Index. The index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

Silver reflects the silver spot price and is quoted in USD per Troy Ounce.

S&P 500 Index is widely regarded as the best single gauge of the US equities market, this world-renowned index includes a representative sample of 500 leading companies in leading

industries of the US economy. Although the S&P 500 focuses on the large-cap segment of the market, with approximately 75% coverage of US equities, it is also an ideal proxy for the total

market. An investor cannot invest directly in an index.

S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries

Ten-Year Treasury relates the yield on a security to its time to maturity and is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

VIX Index is the Chicago Board Options Exchange Standard and Poor’s Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for

a wide range of strikes.

Executive Summary




In Focus Appendix

47

The opinions expressed herein are those of the Merrill Lynch GWM Investment Management & Guidance as of December 31, 2012 and are subject to change. It is provided as general market

commentary only, and it does not consider the specific investment objectives, financial situation or particular needs of any one client. It should not be considered a recommendation or solicitation to

purchase or sell any security. There is no guarantee that any future event discussed herein will come to pass. When reading this commentary, you should consider that investments in securities

involve risk and you could lose some or all of the amounts you have invested. The information herein was obtained from various sources, which we believe to be reliable, but we do not guarantee its

accuracy or completeness. The indexes referenced herein are unmanaged and are not available for direct investment; returns assume no management, transaction or other expenses and also

assume reinvestment of dividends, interest and/or capital gains. Past performance does not guarantee or indicate future results.

MERRILL LYNCH ASSUMES NO RESPONSIBILITY FOR ANY OF THE FOREGOING PERFORMANCE INFORMATION, WHICH HAS BEEN PROVIDED BY THE INDEX SPONSOR. NEITHER MERRILL LYNCH NOR

THE INDEX SPONSOR CAN VERIFY THE VALIDITY OR ACCURACY OF THE SELF-REPORTED RETURNS OF THE MANAGERS USED TO CALCULATE THE INDEX RETURNS. MERRILL LYNCH DOES NOT

GUARANTEE THE ACCURACY OF THE INDEX RETURNS AND DOES NOT RECOMMEND ANY INVESTMENT OR OTHER DECISION BASED ON THE RESULTS PRESENTED.

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the

companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject

to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk

and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain

industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying

properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an

investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

Alternative Investments are speculative and subject to a high degree of risk. Although risk management policies and procedures can be effective in reducing or mitigating the effects of certain risks,

no risk management policy can completely eliminate the possibility of sudden and severe losses, illiquidity and the occurrence of other material adverse effects. Some or all alternative investment

programs may not be suitable for certain investors. Many alternative investment products, specifically private equity and most hedge funds, require purchasers to be “qualified purchasers” within the

meaning of the federal securities laws (generally, individuals who own at least $5 million in “investments” and institutional investors who own at least $25 million in “investments,” as such term is

defined in the federal securities laws). No assurance can be given that any alternative investment’s investment objectives will be achieved. In addition to certain general risks, each product will be

subject to its own specific risks, including strategy and market risk.

AR8F6021

Documents

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