AN EXPLORATION OF IDENTITY RE-CREATION IN THE CONTEXT OF INTERNET

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 15 to 17. 11503731

S&P 500 Relative Value Cheat Sheet

What do oil and high beta stocks have in common?

Equity and Quant Strategy | United States 15 April 2015

Savita Subramanian Equity & Quant Strategist MLPF&S Dan Suzuki, CFA Equity Strategist MLPF&S Alex Makedon Quantitative Strategist MLPF&S

Jill Carey Hall, CFA Equity Strategist MLPF&S

An historical guide to sector & industry valuation For those interested in examining relative value across and within sectors, we provide a “cheat sheet” that includes Price to Book (P/B), Price to Operating Cash Flow (P/OCF), and Price to Fwd. Earnings (P/E) of each sector and industry.

We present these as relative multiples vs. the S&P 500 and calculate implied upside based on where the sector/industry trades vs. its historical average. We also provide charts of sectors’ absolute and relative multiples over time.

See page 13 for a breakout of S&P stocks in each industry.

Asset allocators: how about some oil?

One reason our S&P 500 return forecast this year is less ebullient than in prior years is that the asset allocation decision is no longer as clear cut as it has been in the recent past. While stocks still look cheap relative to bonds, other asset classes are starting to look extremely undervalued relative to the S&P 500, like oil. Based on the ratio between the S&P 500 and WTI spot prices, crude oil now looks cheaper than it has ever been relative to the S&P 500 excluding the distorted Tech Bubble era. Whether this is a sign of hyperdeflation or a regime change in the price of oil, the straight math suggests a 90% mean reversion opportunity to get back to normal (Table 2 inside). Our Energy team’s long-term (2018+) oil price outlook assumes $75 for WTI and $80 for Brent.

Multiple compression for Industrials and Materials Valuations generally flat-lined across most sectors last month, with the exception of Industrials and Materials, which each saw their P/Es compress by a multiple point. Industrials stocks are now trading at a 10% discount to the market and their long-term average relative multiple, the cheapest level in two years. Materials has gone from being expensive relative to history to now trading in-line with its historical average.

Chart of the month: High Beta vs. Low Beta multiples While market valuations have normalized and valuation dispersion is low, one of the few significant valuation gaps is that between high and low beta stocks. Investors have bid up low beta stocks based on yield or perceived safety, and they now trade at a 7% premium to the market when they have historically traded at a slight discount. And conversely, high beta stocks trade at more than a 20% discount to the market – when historically they have traded at a 10% premium.

Chart 1: Relative forward P/E of high beta and low beta S&P 500 stocks (1986-3/2015)

Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

High Beta Quintile Next Year Est P/E Relative to the S&P 500Low Beta Quintile Next Year Est P/E Relative to the S&P 500

S&P 500 Rela t ive Va lue Cheat Sheet 15 Apr i l 2015

2

Relative valuation by sector

Table 1: Relative valuation (vs. S&P 500) by sector (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Sector Current Average Implied upside Current Average Implied upside Current Average Implied upside S&P 500 (absolute metrics) 2.92 2.87 -2% 11.96 10.47 -12% 16.96 15.17 -11% Consumer Discretionary 1.70 1.03 -39% 1.16 0.92 -21% 1.13 1.07 -5% Consumer Staples 1.80 1.75 -3% 1.21 1.29 7% 1.14 1.11 -3% Energy 0.58 0.89 53% 0.55 0.75 37% 1.58 0.99 -37% Financials 0.49 0.63 30% N/A N/A N/A 0.83 0.78 -7% Health Care 1.57 1.78 13% 1.48 1.71 15% 1.04 1.13 8% Industrials 1.28 1.05 -18% 1.02 0.99 -3% 0.91 1.01 10% Information Technology 1.41 1.35 -5% 1.09 1.31 20% 0.94 1.19 26% Materials 1.21 0.89 -27% 0.99 0.89 -9% 0.99 0.99 -1% Telecommunication Services 1.16 0.93 -20% 0.49 0.64 29% 0.80 1.03 28% Utilities 0.60 0.60 1% 0.61 0.64 4% 0.97 0.86 -11% Source: FactSet/FirstCall, Compustat, BofA Merrill Lynch US Equity & US Quant Strategy

Definitions of valuation metrics Price/Book: Month-end market cap divided by total common equity as of the

most recent fiscal quarter Price/Operating Cash Flow: Month-end market cap divided by the last

twelve months cash flow from operations as of the most recent fiscal quarter. Note: All industries’ multiples are relative to the S&P 500 ex. Fins. for P/OCF.

Forward Price/Earnings: Month-end market cap dividend by I/B/E/S consensus next twelve months earnings.

Methodology Implied upside is based on comparison between current relative multiple and historical average relative multiple. Industries with less than 10 years of valuation data history are excluded. Boxes highlight sectors/industries with the highest implied upside and greatest implied downside.

S&P 500: cheap or expensive? In addition to the metrics contained in this report, we have examined the S&P 500 across a wide variety of valuation measures—we look at 16—to gauge whether US stocks look cheap vs. history. Here we provide an update of this analysis.

Table 2: S&P 500 Valuations (as of 2/28/15) -- borders denote metrics trading above their historical average Current Average Avg. ex. Tech Bubble Min Max % Above (below) avg Z-Score History Trailing PE 17.7 16.0 15.2 6.7 30.5 11% 0.4 1960-present Forward Consensus PE 16.6 15.1 14.0 9.7 25.1 10% 0.4 1986-present Trailing Normalized PE 19.0 19.0 17.4 9.2 33.9 0% 0.0 9/1987-present Shiller PE 27.0 16.6 15.9 4.8 44.2 62% 1.6 1881-present P/BV 2.92 2.87 2.57 1.65 5.87 2% 0.1 1986-present EV/EBITDA 10.3 9.9 9.5 6.3 15.1 4% 0.2 1986-present Trailing PEG 1.64 1.55 1.55 1.07 2.42 6% 0.4 2001-present Forward PEG 1.54 1.32 1.31 0.98 1.82 16% 1.4 2001-present P/OCF 12.0 10.5 9.5 5.5 19.6 14% 0.5 1986-present P/FCF 23.3 28.4 24.8 13.1 65.8 -18% -0.4 1986-present EV/Sales 2.08 1.80 1.68 0.86 2.92 16% 0.6 1986-present ERP (Market-Based) 756 450 464 136 880 68%* 1.8 11/1980-present Normalized ERP 495 275 322 -96 947 80%* 1.0 1987-present S&P 500 in WTI terms 43.2 22.5 19.5 2.7 109.0 92% 1.4 1960-present S&P 500 in Gold terms 1.75 1.52 1.19 0.17 5.53 15% 0.2 1975-present S&P 500 vs. R2000 Fwd. P/E 0.87 0.93 0.89 0.73 1.35 -6% -0.5 1986-present *ERP above average implied equities are attractive relative to bonds. Note: Trailing P/E based on GAAP EPS from 1960-77, Operating EPS from 1978-87, Pro forma EPS 1988-now. Market-baed ERP based on DDM-implied S&P 500 return less AAA corp bond yield. Normalized ERP based on normalized EPS yield less normalized real firks-free rate. Source: S&P, Compustat, Bloomberg, FactSet/First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Today, the S&P no longer looks cheap vs. history on most metrics, but still looks cheap vs. bonds and small caps.


3

Consumer Discretionary Table 3: Relative Valuation (vs. S&P 500) for Consumer Discretionary industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Consumer Discretionary (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Auto Components (4) 1.31 0.83 -37% 1.14 0.75 -34% 0.78 0.82 4% Automobiles (3) 0.76 0.87 15% 0.45 0.27 -41% 0.54 0.73 36% Distributors (1) 1.49 1.12 -25% 1.52 1.29 -15% 1.12 1.05 -6% Hotels Restaurants & Leisure (11) 2.08 1.31 -37% 1.28 1.14 -11% 1.28 1.18 -8% Household Durables (9) 1.01 0.79 -22% 2.69 1.07 -60% 0.96 0.89 -7% Internet & Catalog Retail (5) 4.09 3.02 -26% 2.08 2.53 21% 3.59 2.94 -18% Leisure Products (2) 1.23 1.08 -12% 0.98 0.90 -8% 0.96 0.89 -8% Media (16) 1.35 0.89 -34% 1.01 1.17 16% 1.01 1.53 51% Multiline Retail (7) 1.44 1.01 -30% 1.00 1.04 4% 1.06 1.06 0% Specialty Retail (17) 2.92 1.34 -54% 1.33 1.35 1% 1.19 1.14 -4% Textiles Apparel & Luxury Goods (9) 2.04 1.05 -48% 1.75 1.26 -28% 1.34 0.95 -29% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 2: Consumer Discretionary P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 3: Consumer Discretionary P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 4: Consumer Discretionary Fwd. P/E and Relative Fwd. P/E, 1986-March 2015

Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

1.0x1.5x2.0x2.5x3.0x3.5x4.0x4.5x5.0x5.5x

0.6x0.8x1.0x1.2x1.4x1.6x1.8x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Discretionary Relative P/B (lhs) Consumer Discretionary P/B (rhs)

Current P/B: 4.9x Min: 1.4x Max: 5.0x Avg: 2.8x

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

0.2x0.4x0.6x0.8x1.0x1.2x1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Discretionary Relative P/OCF (lhs) Consumer Discretionary P/OCF (rhs)

Current P/OCF: 13.8x Min: 5.0x Max: 14.3x Avg: 9.4x

8.0x12.0x16.0x20.0x24.0x28.0x32.0x

0.6x0.8x1.0x1.2x1.4x1.6x1.8x2.0x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Discretionary Relative Fwd. P/E (lhs) Consumer Discretionary Fwd. P/E (rhs)

Current Fwd. P/E: 19.1x Min: 8.0x Max: 27.9x Avg: 16.3x


4

Consumer Staples

Table 4: Relative Valuation (vs. S&P 500) for Consumer Staples industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Consumer Staples (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Beverages (8) 2.16 2.00 -8% 1.36 1.52 12% 1.23 1.27 3% Food & Staples Retailing (7) 1.26 1.26 0% 0.98 1.03 6% 1.12 1.08 -3% Food Products (14) 1.28 1.58 24% 1.25 1.23 -1% 1.14 1.10 -4% Household Products (4) 1.83 1.79 -2% 1.31 1.37 5% 1.17 1.15 -2% Personal Products (1) 2.97 3.11 5% 1.41 1.74 23% 1.40 1.31 -7% Tobacco (4) -12.99 1.79 NM 1.50 0.95 -37% 1.03 0.73 -29% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 5: Consumer Staples P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 6: Consumer Staples P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 7: Consumer Staples Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


2.0x

4.0x

6.0x

8.0x

10.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2.2x

2.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Staples Relative P/B (lhs) Consumer Staples P/B (rhs)


6.0x8.0x10.0x12.0x14.0x16.0x18.0x20.0x22.0x

0.4x0.6x0.8x1.0x1.2x1.4x1.6x1.8x2.0x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Staples Relative P/OCF (lhs) Consumer Staples P/OCF (rhs)


10.0x

14.0x

18.0x

22.0x

26.0x

0.7x0.8x0.9x1.0x1.1x1.2x1.3x1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Consumer Staples Relative Fwd. P/E (lhs) Consumer Staples Fwd. P/E (rhs)



5

Energy

Table 5: Relative Valuation (vs. S&P 500) for Energy industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Energy (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Energy Equipment & Services (11) 0.58 0.97 68% 0.61 1.48 142% 1.22 1.28 4% Oil Gas & Consumable Fuels (30) 0.58 0.86 47% 0.54 0.68 27% 1.67 0.91 -46% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 8: Energy P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 9: Energy P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 10: Energy Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

0.5x

0.7x

0.9x

1.1x

1.3x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Energy Relative P/B (lhs) Energy P/B (rhs)


3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

0.4x0.5x0.6x0.7x0.8x0.9x1.0x1.1x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Energy Relative P/OCF (lhs) Energy P/OCF (rhs)


5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Energy Relative Fwd. P/E (lhs) Energy Fwd. P/E (rhs)



6

Financials

Table 6: Relative Valuation (vs. S&P 500) for Financials industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Financials (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Capital Markets (14) 0.57 0.64 12% N/A N/A N/A 0.83 0.84 2% Banks (15) 0.38 0.59 55% N/A N/A N/A 0.66 0.70 6% Consumer Finance (4) 0.68 0.81 20% N/A N/A N/A 0.70 0.90 29% Diversified Financial Services (7) 0.57 0.62 9% N/A N/A N/A 1.15 0.77 -34% Insurance (21) 0.37 0.54 45% N/A N/A N/A 0.65 0.78 20% Real Estate Investment Trusts (REITs) (22) 1.14 0.87 -24% N/A N/A N/A 2.48 1.42 -43% Thrifts & Mortgage Finance (2) 0.36 0.48 35% N/A N/A N/A 1.83 0.97 -47% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 11: Financials P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 12: Financials Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


0.5x

1.5x

2.5x

3.5x

4.5x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Financials Relative P/B (lhs) Financials P/B (rhs)


5.0x

8.0x

11.0x

14.0x

17.0x

20.0x

0.5x0.6x0.7x0.8x0.9x1.0x1.1x1.2x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Financials Relative Fwd. P/E (lhs) Financials Fwd. P/E (rhs)



7

Health Care

Table 7: Relative Valuation (vs. S&P 500) for Health Care industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Health Care (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Biotechnology (7) 3.09 1.99 -36% 1.76 1.91 8% 1.03 1.31 27% Health Care Equipment & Supplies (13) 1.51 1.37 -9% 1.60 1.62 1% 1.12 1.20 8% Health Care Providors & Services (17) 1.30 1.09 -16% 1.05 1.20 14% 1.01 0.94 -8% Pharmaceuticals (13) 1.43 1.80 26% 1.58 1.59 1% 1.02 1.08 6% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 13: Health Care P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 14: Health Care P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 15: Health Care Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

1.0x

1.4x

1.8x

2.2x

2.6x

3.0x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Health Care Relative P/B (lhs) Health Care P/B (rhs)


6.0x

12.0x

18.0x

24.0x

30.0x

36.0x

1.0x

1.3x

1.6x

1.9x

2.2x

2.5x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Health Care Relative P/OCF (lhs) Health Care P/OCF (rhs)


5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

0.6x

0.8x

1.0x

1.2x

1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Health Care Relative Fwd. P/E (lhs) Health Care Fwd. P/E (rhs)



8

Industrials Table 8: Relative Valuation (vs. S&P 500) for Industrials industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Industrials (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Aerospace & Defense (11) 1.65 0.91 -45% 1.18 0.97 -18% 0.98 0.86 -13% Air Freight & Logistics (4) 2.60 0.92 -65% 1.14 0.60 -48% 1.04 1.03 -1% Airlines (3) 2.06 0.62 -70% 0.81 0.52 -36% 0.45 1.20 166% Building Products (2) 5.70 1.29 -77% 1.49 0.99 -33% 1.21 0.94 -22% Commercial Services & Supplies (7) 1.25 1.18 -6% 0.95 1.01 7% 1.17 1.11 -5% Construction & Engineering (3) 0.60 0.80 34% 1.19 1.32 12% 0.75 0.83 10% Electrical Equipment (4) 1.10 1.12 1% 1.15 1.27 10% 0.89 1.06 19% Industrial Conglomerates (4) 0.88 1.10 25% 0.94 0.92 -2% 0.95 1.08 13% Machinery (15) 1.14 0.93 -19% 0.90 1.03 14% 0.94 0.91 -3% Road & Rail (5) 1.21 0.62 -48% 0.94 0.69 -26% 0.93 0.85 -8% Trading Companies & Distributors (3) 1.88 0.97 -48% 0.97 1.33 37% 0.95 1.02 7% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 16: Industrials P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 17: Industrials P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 18: Industrials Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

0.8x0.9x1.0x1.1x1.2x1.3x1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Industrials Relative P/B (lhs) Health Care P/B (rhs)


4.0x6.0x8.0x10.0x12.0x14.0x16.0x18.0x

0.6x

0.8x

1.0x

1.2x

1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Industrials Relative P/OCF (lhs) Industrials P/OCF (rhs)


8.0x

11.0x

14.0x

17.0x

20.0x

23.0x

0.7x

0.8x

0.9x

1.0x

1.1x

1.2x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Industrials Relative Fwd. P/E (lhs) Industrials Fwd. P/E (rhs)



9

Information Technology

Table 9: Relative Valuation (vs. S&P 500) for Information Technology industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Information Technology (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Communication Equipment (6) 0.96 1.14 18% 1.13 1.56 37% 0.78 1.20 54% Technology Hardware Storage & Peripherals (7) 1.60 1.07 -33% 0.79 0.99 25% 0.77 1.00 30% Electronic Equipment Instruments & Components (4) 0.88 0.86 -2% 0.91 1.38 53% 0.98 1.08 10% Internet Software & Services (8) 1.27 2.31 82% 1.62 3.32 105% 1.38 2.98 116% IT Services (15) 2.41 1.31 -46% 1.25 1.13 -10% 0.98 1.10 12% Semiconductors & Semiconductor Equipment (16) 1.21 1.19 -2% 0.91 1.14 25% 0.87 1.17 35% Software (11) 1.44 1.84 27% 1.06 1.70 60% 0.98 1.27 29% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 19: Tech P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 20: Tech P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 21: Tech Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

0.6x

1.0x

1.4x

1.8x

2.2x

2.6x

3.0x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Tech Relative P/B (lhs) Tech P/B (rhs)


5.0x

15.0x

25.0x

35.0x

45.0x

55.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Tech Relative P/OCF (lhs) Tech P/OCF (rhs)


10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

0.8x1.0x1.2x1.4x1.6x1.8x2.0x2.2x2.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Tech Relative Fwd. P/E (lhs) Tech Fwd. P/E (rhs)



10

Materials

Table 10: Relative Valuation (vs. S&P 500) for Materials industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Materials (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Chemicals (16) 1.59 1.07 -33% 1.09 0.92 -15% 0.99 0.97 -3% Construction Materials (2) 0.83 0.79 -5% 2.70 1.13 -58% 1.76 1.43 -18% Containers & Packaging (5) 1.64 0.77 -53% 1.37 0.79 -42% 1.03 0.90 -12% Metals & Mining (5) 0.43 0.65 50% 0.53 0.81 52% 0.93 0.93 0% Paper & Forest Products (1) 1.58 0.57 -64% 0.64 0.66 2% 0.82 0.97 18% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 22: Materials P/B and Relative P/B, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 23: Materials P/OCF and Relative P/OCF, 1986-March 2015

Source: Compustat, BofA Merrill Lynch US Equity & US Quant Strategy Chart 24: Materials Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

0.3x

0.5x

0.7x

0.9x

1.1x

1.3x

1.5x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Materials Relative P/B (lhs) Materials P/B (rhs)


4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

0.3x

0.5x

0.7x

0.9x

1.1x

1.3x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Materials Relative P/OCF (lhs) Materials P/OCF (rhs)


6.0x

10.0x

14.0x

18.0x

22.0x

26.0x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Materials Relative Fwd. P/E (lhs) Materials Fwd. P/E (rhs)



11

Telecommunication Services

Table 11: Relative Valuation (vs. S&P 500) for Telecom Services industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Telecom (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Diversified Telecommunication Services (6) 1.16 0.88 -24% 0.49 0.58 17% 0.80 0.95 19% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 25: Telecom P/B and Relative P/B, 1986-March 2015


Chart 26: Telecom P/OCF and Relative P/OCF, 1986-March 2015


Chart 27: Telecom Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


0.0x

2.0x

4.0x

6.0x

8.0x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Telecom Relative P/B (lhs) Telecom P/B (rhs)


2.0x

6.0x

10.0x

14.0x

18.0x

22.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Telecom Relative P/OCF (lhs) Telecom P/OCF (rhs)


10.0x

15.0x

20.0x

25.0x

30.0x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Telecom Relative Fwd. P/E (lhs) Telecom Fwd. P/E (rhs)



12

Utilities

Table 12: Relative Valuation (vs. S&P 500) for Utilities industries (based on data from 1986-3/31/15) Price to Book (Relative) Price to Operating Cash Flow (Relative) Forward P/E (Relative) Utilities (# of co's) Current Average Implied upside Current Average Implied upside Current Average Implied upside Electric Utilities (13) 0.55 0.55 0% 0.57 0.58 3% 0.94 0.80 -14% Gas Utilities (1) 0.54 0.72 33% 0.76 0.69 -8% 1.00 0.99 -1% Multi-Utilities (14) 0.70 0.60 -13% 0.71 0.65 -7% 1.04 0.90 -13% Source: Compustat, First Call, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 28: Utilities P/B and Relative P/B, 1986-March 2015


Chart 29: Utilities P/OCF and Relative P/OCF, 1986-March 2015


Chart 30: Utilities Fwd. P/E and Relative Fwd. P/E, 1986-March 2015


1.0x

1.5x

2.0x

2.5x

3.0x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Utilities Relative P/B (lhs) Utilities P/B (rhs)


4.0x

6.0x

8.0x

10.0x

12.0x

0.3x

0.5x

0.7x

0.9x

1.1x

1.3x

1.5x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Utilities Relative P/OCF (lhs) Utilities P/OCF (rhs)


8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Utilities Relative Fwd. P/E (lhs) Utilities Fwd. P/E (rhs)



13

Table 13: Company Distribution of S&P 500 by MSCITM-S&P Sector/Industry Classifications as of 3/31/15 Sector/Industry Wgt Sector/Industry Wgt Sector/Industry Wgt Sector/Industry Wgt CONSUMER DISCRETIONARY 12.60% AUTOZONE INC 0.12% ENERGY EQUIP & SVS 1.27% STATE STREET CORP 0.17%

AUTO COMPONENTS 0.42% BED BATH & BEYOND INC 0.08% BAKER HUGHES INC 0.15% T ROWE PRICE GROUP INC 0.12% BORGWARNER INC 0.07% BEST BUY CO INC 0.06% CAMERON INTERNATIONAL CORP 0.05% THE BANK OF NEW YORK MELLON CORP 0.24% DELPHI AUTOMOTIVE PLC 0.13% CARMAX INC 0.08% DIAMOND OFFSHORE DRILLING 0.01% CONSUMER FINANCE 0.79% GOODYEAR TIRE & RUBBER CO 0.04% GAMESTOP CORP A 0.02% ENSCO PLC - CL A 0.03% AMERICAN EXPRESS CO 0.37% JOHNSON CONTROLS INC 0.18% GAP INC 0.06% FMC TECHNOLOGIES INC 0.05% CAPITAL ONE FINANCIAL 0.24%

AUTOMOBILES 0.70% HOME DEPOT INC 0.82% HALLIBURTON CO 0.20% DISCOVER FINANCIAL SERVICES 0.14% FORD MOTOR CO 0.35% L BRANDS INC 0.13% HELMERICH & PAYNE INC 0.04% NAVIENT CORP 0.04% GENERAL MOTORS COMPANY 0.28% LOWE'S COS INC 0.40% NATIONAL OILWELL VARCO INC 0.11% DIVERSIFIED FINANCIAL SVS 2.07% HARLEY-DAVIDSON INC 0.07% O'REILLY AUTOMOTIVE 0.12% NOBLE CORP PLC 0.02% BERKSHIRE HATHAWAY B 1.44%

DISTRIBUTORS 0.08% ROSS STORES INC 0.12% SCHLUMBERGER LTD 0.58% CME GROUP INC 0.16% GENUINE PARTS CO 0.08% STAPLES INC 0.06% TRANSOCEAN LTD 0.03% INTERCONTINENTAL EXCHANGE INC 0.14%

DIVERSIFIED CON. SVS 0.05% TIFFANY & CO 0.05% OIL GAS & CONSUMABLE FUELS 6.78% LEUCADIA NATIONAL CORP (NY) 0.04% BLOCK H & R INC 0.05% TJX COS INC 0.26% ANADARKO PETROLEUM CORP 0.23% MCGRAW HILL FINANCIAL INC 0.15%

HOTELS REST LEIS 1.72% TRACTOR SUPPLY CO 0.06% APACHE CORP 0.12% MOODY'S CORP 0.10% CARNIVAL CORP 0.12% URBAN OUTFITTERS 0.02% CABOT OIL & GAS A 0.07% NASDAQ OMX GROUP/THE 0.03% CHIPOTLE MEXICAN GRILL INC. 0.11% TEXTILES APPAREL & LUX 0.92% CHESAPEAKE ENERGY CORP 0.04% INSURANCE 2.68% DARDEN RESTAURANTS INC 0.05% COACH INC 0.06% CHEVRON CORP 1.08% ACE LIMITED 0.20% MARRIOTT INTL A 0.09% FOSSIL GROUP INC 0.02% CIMAREX ENERGY CO 0.06% AFLAC INC 0.15% MCDONALD'S CORP 0.51% HANESBRANDS INC 0.07% CONOCOPHILLIPS 0.42% ALLSTATE CORP 0.16% ROYAL CARIBBEAN CRUISES LTD 0.07% MICHAEL KORS HOLDINGS LTD 0.07% CONSOL ENERGY INC 0.04% AMERICAN INTL GROUP INC 0.41% STARBUCKS CORP 0.39% NIKE INC B 0.38% DEVON ENERGY CORP 0.13% AON PLC 0.15% STARWOOD HOTEL & RESORT WORLD 0.08% PVH CORP 0.05% EOG RESOURCES 0.27% ASSURANT INC 0.02% WYNDHAM WORLDWIDE CORP 0.06% RALPH LAUREN CORP 0.04% EQT CORPORATION 0.07% CHUBB CORP 0.13% WYNN RESORTS LTD 0.06% UNDER ARMOUR INC A 0.07% EXXON MOBIL CORP 1.95% CINCINNATI FINANCIAL CORP 0.04% YUM! BRANDS INC 0.19% VF CORP 0.14% HESS CORP 0.09% GENWORTH FINANCIAL INC 0.02%

HOUSEHOLD DURABLES 0.47% CONSUMER STAPLES 9.69% KINDER MORGAN INC 0.39% HARTFORD FINL SERVICES GROUP 0.10% GARMIN LTD 0.03% BEVERAGES 2.14% MARATHON OIL CORP 0.10% LINCOLN NATIONAL CORP 0.08% HARMAN INTL INDUSTRIES INC 0.05% BROWN-FORMAN CORP B 0.08% MARATHON PETROLEUM CORP. 0.15% LOEWS CORP 0.07% HORTON D.R. INC 0.05% COCA-COLA CO 0.87% MURPHY OIL CORP 0.04% MARSH & MCLENNAN COMPANIES 0.17% LEGGETT & PLATT 0.03% COCA-COLA ENTERPRISES 0.05% NEWFIELD EXPLORATION CO 0.03% METLIFE INC 0.31% LENNAR CORP 0.05% CONSTELLATION BRANDS INC A 0.11% NOBLE ENERGY INC 0.10% PRINCIPAL FINANCIAL GROUP 0.08% MOHAWK INDUSTRIES INC 0.06% DR PEPPER SNAPPLE GROUP 0.08% OCCIDENTAL PETROLEUM 0.31% PROGRESSIVE CORP 0.08% NEWELL RUBBERMAID INC 0.06% MOLSON COORS BREWING CO B 0.07% ONEOK INC 0.05% PRUDENTIAL FINANCIAL INC 0.20% PULTE GROUP INC 0.04% MONSTER BEVERAGE CORP 0.11% PHILLIPS 66 0.23% TORCHMARK CORP 0.04% WHIRLPOOL CORP 0.09% PEPSICO INC 0.77% PIONEER NATURAL RESOURCES 0.13% TRAVELERS COS INC 0.19%

INTERNET & CATALOG RETAIL 1.34% FOOD & STAPLES RETAILING 2.54% QEP RESOURCES 0.02% UNUM GROUP 0.05% AMAZON.COM INC 0.77% COSTCO WHOLESALE CORP 0.36% RANGE RESOURCES CORP 0.05% XL GROUP PLC 0.05% EXPEDIA 0.05% CVS HEALTH CORPORATION 0.63% SOUTHWESTERN ENERGY CO 0.05% REITS 2.54% NETFLIX INC 0.14% KROGER CO 0.21% SPECTRA ENERGY CORP 0.13% AMERICAN TOWER CORP A 0.22% THE PRICELINE GROUP INC 0.33% SYSCO CORP 0.12% TESORO CORP 0.06% APARTMENT INVESTMENT & MGMT 0.03% TRIPADVISOR INC. 0.05% WALGREENS BOOTS ALLIANCE INC 0.40% THE WILLIAMS COMPANIES INC 0.19% AVALONBAY COMMUNITIES INC 0.13%

LEISURE PRODUCTS 0.08% WAL-MART STORES 0.71% VALERO ENERGY CORP 0.18% BOSTON PROPERTIES INC 0.12% HASBRO INC 0.04% WHOLE FOODS MARKET INC 0.10% FINANCIALS 16.21% CROWN CASTLE INTL CORP 0.15% MATTEL INC 0.04% FOOD PRODUCTS 1.67% BANKS 5.76% EQUITY RESIDENTIAL 0.15%

MEDIA 3.52% ARCHER-DANIELS-MIDLAND CO 0.16% BANK OF AMERICA CORP 0.88% ESSEX PROPERTY TRUST 0.08% CABLEVISION SYSTEMS CO A 0.02% CAMPBELL SOUP CO 0.05% BB&T CORP 0.15% GENERAL GROWTH PROPERTIES INC 0.10% CBS CORP B 0.15% CONAGRA FOODS INC 0.09% CITIGROUP INC 0.85% HCP INC 0.11% COMCAST CORP 0.78% GENERAL MILLS INC 0.19% COMERICA INC (MI) 0.04% HEALTH CARE REIT INC 0.15% DIRECTV 0.23% HERSHEY FOODS CORP 0.08% FIFTH THIRD BANCORP (OH) 0.08% HOST HOTELS & RESORTS INC 0.08% DISCOVERY COMMUNICATIONS INC A 0.02% HORMEL FOODS CORP 0.04% HUNTINGTON BANCSHARES (OH) 0.05% IRON MOUNTAIN INC 0.04% DISCOVERY COMMUNICATIONS INC C 0.04% KELLOGG CO 0.09% JP MORGAN CHASE & CO 1.23% KIMCO REALTY CORP 0.06% GANNETT CO INC 0.05% KEURIG GREEN MOUNTAIN INC 0.07% KEYCORP 0.07% MACERICH CO 0.06% INTERPUBLIC GROUP COS 0.05% KRAFT FOODS GROUP INC. 0.28% M&T BANK CORP 0.09% PLUM CREEK TIMBER CO 0.04% NEWS CORPORATION 0.04% MCCORMICK & CO 0.05% PNC FINL SERVICES GROUP 0.27% PROLOGIS INC 0.12% OMNICOM GROUP 0.11% MEAD JOHNSON NUTRITION CO 0.11% REGIONS FINANCIAL CORP 0.07% PUBLIC STORAGE 0.16% SCRIPPS NETWORKS INTERACTIVE 0.04% MONDELEZ INTERNATIONAL INC 0.33% SUNTRUST BANKS INC (GA) 0.12% SIMON PROPERTY GROUP 0.33% TIME WARNER CABLE INC 0.23% SMUCKER J.M. CO 0.06% US BANCORP 0.42% SL GREEN REALTY CORP 0.07% TIME WARNER INC 0.38% TYSON FOODS INC A 0.06% WELLS FARGO & CO 1.39% VENTAS INC 0.13% TWENTY-FIRST CENTURY FOX, INC 0.34% HOUSEHOLD PRODUCTS 1.82% ZIONS BANCORP (UT) 0.03% VORNADO REALTY TRUST 0.11% VIACOM INC B 0.14% CLOROX CO 0.08% CAPITAL MARKETS 2.24% WEYERHAEUSER CO 0.10% WALT DISNEY CO 0.90% COLGATE-PALMOLIVE CO 0.32% AFFILIATED MANAGERS GRP 0.06% REAL ESTATE M&D 0.06%

MULTILINE RETAIL 0.81% KIMBERLY-CLARK 0.21% AMERIPRISE FINANCIAL INC 0.13% CBRE GROUP INC. 0.06% DOLLAR GENERAL CORP 0.12% PROCTER & GAMBLE 1.21% BLACKROCK INC 0.25% THRIFTS & MORTGAGE 0.05% DOLLAR TREE INC 0.09% PERSONAL PRODUCTS 0.10% E*TRADE FINANCIAL CORP 0.05% HUDSON CITY BANCORP 0.03% FAMILY DOLLAR STORES INC 0.04% ESTEE LAUDER COS. 0.10% FRANKLIN RESOURCES INC 0.11% PEOPLE'S UNITED FINANCIAL INC 0.03% KOHL'S CORP 0.09% TOBACCO 1.42% GOLDMAN SACHS GROUP INC 0.42% HEALTH CARE 14.93% MACY'S INC 0.12% ALTRIA GROUP INC 0.54% INVESCO LTD 0.09% BIOTECHNOLOGY 3.04% NORDSTROM INC 0.06% LORILLARD INC 0.13% LEGG MASON INC 0.03% ALEXION PHARMACEUTICALS INC 0.19% TARGET CORP 0.29% PHILIP MORRIS INTERNATIONAL 0.64% MORGAN STANLEY 0.30% AMGEN INC 0.66%

SPECIALTY RETAIL 2.49% REYNOLDS AMERICAN INC 0.12% NORTHERN TRUST CORP (IL) 0.08% BIOGEN INC 0.54% AUTONATION INC 0.03% ENERGY 8.04% SCHWAB CHARLES CORP 0.19% CELGENE CORP 0.50%

Source: BofA Merrill Lynch US Equity & US Quant Strategy


14

Table 14: Company Distribution of S&P 500 by MSCITM-S&P Sector/Industry Classifications as of 03/31/2015 Sector/Industry Wgt Sector/Industry Wgt Sector/Industry Wgt Sector/Industry Wgt

GILEAD SCIENCES INC 0.80% FEDEX CORP 0.24% CORNING INC 0.16% EASTMAN CHEMICAL CO 0.06% REGENERON PHARMACEUTICALS INC 0.18% UNITED PARCEL SERVICE INC B 0.37% FLIR SYSTEMS INC 0.02% ECOLAB INC 0.17% VERTEX PHARMACEUTICALS INC 0.16% AIRLINES 0.57% TE CONNECTIVITY LTD. 0.16% FMC CORP 0.04%

HEALTH EQUIP & SUPPLIES 2.19% AMERICAN AIRLINES GROUP INC. 0.21% INTERNET SOFTWARE & SVS 3.40% INTL FLAVORS & FRAGRANCES 0.05% ABBOTT LABORATORIES 0.38% DELTA AIR LINES 0.20% AKAMAI TECHNOLOGIES INC 0.07% LYONDELLBASELL INDUSTRIES N.V. 0.19% BARD C.R. INC 0.07% SOUTHWEST AIRLINES CO 0.16% EBAY INC. 0.35% MONSANTO CO. 0.30% BAXTER INTL INC 0.20% BUILDING PRODUCTS 0.08% EQUINIX INC 0.07% MOSAIC CO 0.08% BECTON DICKINSON & CO 0.16% ALLEGION PLC 0.03% FACEBOOK INC 0.94% PPG INDUSTRIES INC 0.17% BOSTON SCIENTIFIC CORP 0.13% MASCO CORP 0.05% GOOGLE INC A 0.87% PRAXAIR INC 0.19% DENTSPLY INTL 0.04% COMMERCIAL SVS 0.45% GOOGLE INC C 0.86% SHERWIN-WILLIAMS CO 0.13% EDWARDS LIFESCIENCES CORP 0.08% CINTAS CORP 0.04% VERISIGN INC 0.04% SIGMA-ALDRICH CORP 0.09% INTUITIVE SURGICAL INC 0.10% PITNEY BOWES INC 0.03% YAHOO INC 0.21% CONSTRUCTION MATERIALS 0.11% MEDTRONIC PLC 0.61% REPUBLIC SERVICES INC 0.06% IT SVS 3.36% MARTIN MARIETTA MATERIALS 0.05% ST JUDE MEDICAL INC 0.10% STERICYCLE INC 0.07% ACCENTURE PLC 0.32% VULCAN MATERIALS CO 0.06% STRYKER CORP 0.15% THE ADT CORP. 0.04% ALLIANCE DATA SYSTEMS CORP 0.10% CONTAINERS & PACKAGING 0.20% VARIAN MEDICAL SYSTEMS INC 0.05% TYCO INTL 0.10% AUTOMATIC DATA PROCESSING 0.22% AVERY DENNISON CORP 0.03% ZIMMER HOLDINGS INC 0.11% WASTE MANAGEMENT INC 0.13% COGNIZANT TECH SOLUTIONS CORP 0.21% BALL CORP 0.05%

HEALTH PROVIDERS & SVS 2.80% CONSTR & ENGINEERING 0.11% COMPUTER SCIENCES 0.05% MEADWESTVACO CORP 0.05% AETNA INC 0.20% FLUOR CORP 0.05% FIDELITY NATIONAL INFORMATION 0.11% OWENS-ILLINOIS INC 0.02% AMERISOURCEBERGEN CORP 0.13% JACOBS ENGINEERING GROUP INC 0.03% FISERV INC 0.10% SEALED AIR CORP 0.05% ANTHEM INC 0.23% QUANTA SERVICES INC 0.03% INTL BUSINESS MACHINES CORP 0.81% METALS & MINING 0.35% CARDINAL HEALTH INC 0.16% ELECTRICAL EQUIP 0.54% MASTERCARD INC A 0.46% ALCOA INC 0.09% CIGNA CORPORATION 0.18% AMETEK INC 0.07% PAYCHEX INC 0.09% ALLEGHENY TECHNOLOGIES INC 0.02% DAVITA HEALTHCARE PARTNERS INC 0.08% EATON CORP PLC 0.18% TERADATA CORP 0.04% FREEPORT-MCMORAN INC 0.11% EXPRESS SCRIPTS HOLDING CO. 0.34% EMERSON ELECTRIC CO 0.21% TOTAL SYSTEM SERVICES INC 0.03% NEWMONT MINING CORP 0.06% HCA HOLDINGS INC 0.12% ROCKWELL AUTOMATION INC 0.09% VISA INC 0.69% NUCOR CORP 0.08% HUMANA INC 0.15% IND CONGLOMERATES 2.32% WESTERN UNION CO 0.06% PAPER & FOREST PRODUCT 0.13% LAB CORP OF AMERICA HLDGS 0.07% 3M CO 0.57% XEROX CORP 0.07% INTL PAPER CO 0.13% MCKESSON CORP 0.29% DANAHER CORP 0.28% SEMICONDUCTORS 2.41% TELECOMMUNICATION SERVICES 2.28% PATTERSON COS INC 0.02% GENERAL ELECTRIC CO 1.36% ALTERA CORP 0.07% DIVERSIFIED TELECOM 2.28% QUEST DIAGNOSTICS 0.06% ROPER INDUSTRIES INC 0.09% ANALOG DEVICES INC 0.11% AT&T INC 0.93% SCHEIN HENRY INC 0.06% MACHINERY 1.46% APPLIED MATERIALS INC 0.15% CENTURYLINK INC 0.11% TENET HEALTHCARE 0.03% CATERPILLAR INC 0.27% AVAGO TECHNOLOGIES LTD 0.18% FRONTIER COMMUNICATIONS CORP 0.04% UNITEDHEALTH GROUP INC 0.62% CUMMINS INC 0.13% BROADCOM CORP A 0.13% LEVEL 3 COMMUNICATIONS 0.08% UNIVERSAL HEALTH SERVICES B 0.06% DEERE & CO 0.16% FIRST SOLAR INC 0.02% VERIZON COMMUNICATIONS INC 1.10%

HEALTH CARE TECH 0.12% DOVER CORP 0.06% INTEL CORP 0.81% WINDSTREAM HOLDINGS INC 0.02% CERNER CORP 0.12% FLOWSERVE CORP 0.04% KLA-TENCOR CORPORATION 0.05% UTILITIES 3.04%

LIFE SCIENCES TOOLS 0.46% ILLINOIS TOOL WORKS INC 0.19% LAM RESEARCH CORP 0.06% ELECTRIC UTILITIES 1.73% AGILENT TECHNOLOGIES INC 0.08% INGERSOLL-RAND PLC 0.10% LINEAR TECHNOLOGY CORP 0.06% AMERICAN ELECTRIC POWER 0.15% PERKINELMER INC 0.03% JOY GLOBAL INC 0.02% MICROCHIP TECHNOLOGY INC 0.05% DUKE ENERGY CORP 0.30% THERMO FISHER SCIENTIFIC 0.29% PACCAR INC 0.12% MICRON TECHNOLOGY INC 0.16% EDISON INTL 0.11% WATERS CORP 0.06% PALL CORP 0.06% NVIDIA CORP 0.06% ENTERGY CORP 0.08%

PHARMACEUTICALS 6.33% PARKER-HANNIFIN CORP 0.09% SKYWORKS SOLUTIONS INC 0.10% EVERSOURCE ENERGY 0.09% ABBVIE INC. 0.51% PENTAIR PLC 0.06% TEXAS INSTRUMENTS INC 0.33% EXELON CORP 0.16% ACTAVIS PLC 0.63% SNAP ON INC 0.05% XILINX INC 0.06% FIRSTENERGY CORP 0.08% BRISTOL-MYERS SQUIBB 0.59% STANLEY BLACK & DECKER 0.08% SOFTWARE 3.59% NEXTERA ENERGY INC 0.25% ENDO INTERNATIONAL PLC 0.09% XYLEM INC 0.03% ADOBE SYSTEMS INC 0.19% PEPCO HOLDINGS INC 0.04% HOSPIRA INC 0.08% PROFESSIONAL SERVICES 0.21% AUTODESK INC 0.07% PINNACLE WEST CAPITAL (AZ) 0.04% JOHNSON & JOHNSON 1.53% DUN & BRADSTREET CORP 0.03% CA INC 0.06% PPL CORP 0.12% LILLY ELI & CO 0.39% EQUIFAX INC 0.06% CITRIX SYSTEMS INC 0.06% SOUTHERN CO 0.22% MALLINCKRODT PLC 0.08% NIELSEN NV 0.08% ELECTRONIC ARTS 0.10% XCEL ENERGY INC 0.10% MERCK & CO INC 0.89% ROBERT HALF INTL INC 0.04% INTUIT INC 0.15% GAS UTILITIES 0.03% MYLAN NV 0.12% ROAD & RAIL 0.96% MICROSOFT CORP 1.82% AGL RESOURCES 0.03% PERRIGO COMPANY PLC 0.13% CSX CORP 0.18% ORACLE CORP 0.76% INDEPENDENT POWER 0.09% PFIZER INC 1.16% KANSAS CITY SOUTHERN INC 0.06% RED HAT INC 0.08% AES CORP 0.05% ZOETIS INC 0.13% NORFOLK SOUTHERN CORP 0.17% SALESFORCE.COM 0.22% NRG ENERGY 0.05%

INDUSTRIALS 10.37% RYDER SYSTEM INC 0.03% SYMANTEC CORP 0.09% MULTI-UTILITIES 1.19% AEROSPACE & DEFENSE 2.76% UNION PACIFIC CORP 0.52% TECHNOLOGY HARDWARE 4.88% AMEREN CORP 0.06%

BOEING CO 0.54% TRADING CO. & DISTR 0.19% APPLE INC. 3.96% CENTERPOINT ENERGY INC 0.05% GENERAL DYNAMICS 0.23% FASTENAL CO 0.06% EMC CORP 0.28% CMS ENERGY CORP 0.05% HONEYWELL INTL INC 0.45% GRAINGER W.W. INC 0.08% HEWLETT-PACKARD CO 0.31% CONSOLIDATED EDISON INC 0.10% L-3 COMMUNICATIONS HOLDINGS 0.06% UNITED RENTALS INC 0.05% NETAPP INC 0.06% DOMINION RESOURCES INC 0.23% LOCKHEED MARTIN 0.30% INFORMATION TECHNOLOGY 19.68% SANDISK CORP 0.07% DTE ENERGY CO 0.08% NORTHROP GRUMMAN CORP 0.17% COMMUNICATIONS EQUIP 1.60% SEAGATE TECHNOLOGY 0.09% INTEGRYS ENERGY GROUP INC 0.03% PRECISION CASTPARTS CORP 0.16% CISCO SYSTEMS INC 0.77% WESTERN DIGITAL CORP 0.11% NISOURCE INC 0.08% RAYTHEON CO 0.18% F5 NETWORKS INC 0.05% MATERIALS 3.16% PG&E CORPORATION 0.14% ROCKWELL COLLINS 0.07% HARRIS CORP 0.04% CHEMICALS 2.37% PUBLIC SERVICE ENTERPRISE GRP 0.12% TEXTRON INC 0.07% JUNIPER NETWORKS INC 0.04% AIR PRODUCTS & CHEMICALS INC 0.16% SCANA CORP 0.04% UNITED TECHNOLOGIES CORP 0.53% MOTOROLA SOLUTIONS INC 0.07% AIRGAS INC 0.04% SEMPRA ENERGY 0.14%

AIR FREIGHT & LOGISTICS 0.72% QUALCOMM INC 0.62% CF INDUSTRIES HOLDINGS 0.07% TECO ENERGY INC 0.02% CH ROBINSON WORLDWIDE INC 0.06% ELECTRONIC EQUIP, INSTR & COMP 0.44% DOW CHEMICAL 0.29% WISCONSIN ENERGY CORP 0.06% EXPEDITORS INTL OF WA INC 0.05% AMPHENOL CORP A 0.10% E. I. DU PONT DE NEMOURS AND COMPANY 0.35% 0 0.00%

Source: BofA Merrill Lynch US Equity & Quant Strategy


15

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

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. 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


16

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.

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


17

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.

Documents

AN EXPLORATION OF IDENTITY RE-CREATION IN THE CONTEXT OF INTERNET