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BofA Merrill Lynch does and seeks to do business with issuers 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 12 to 13. 11616954 Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively on the topic of quality, and it continues to be one of our key themes, not just for the next 12 months, but for the next 12 years as well. In this report, we lay out six key facts that investors should know about Quality: 1. Don’t be fooled: Low Beta ≠ High Quality There are numerous ways to define quality, and low beta is often misconstrued for high quality, but we consider earnings volatility (fundamental beta) to be a better measure of quality than price volatility (beta). Much of our work on quality relies on the S&P Common Stock Ratings, which are based on ten years of earnings and dividend stability. Stocks with the lowest price betas tend to underperform, and have higher earnings volatility, more leverage and lower returns on investment than those with low fundamental betas. 2. High Quality has been working & should continue to work Even excluding dividends, which are a bigger contribution to higher quality stock returns, high quality stocks have outperformed low quality stocks in 2014, 2015 and year-to-date, and have outperformed by over 40ppt since early 2011 and by over 160ppt since early 2000. 3. Still cheap and unloved As tends to be typical when an asset outperforms, the popularity of investment products focused on high quality stocks has increased. Yet valuations for higher quality stocks are still compelling despite their outperformance, and large cap fund managers continue to overweight lower quality stocks. Part of the disconnect may be due to the focus on low beta strategies discussed above, as the valuation premium on low beta stocks is at historical extremes. 4. The best hedge against rising volatility Given the slow-growth, higher volatility macro backdrop in which credit conditions and monetary policy are tightening, we expect to see more frequent spikes in volatility. There is a very strong correlation between volatility and High Quality outperformance. 5. A great hedge for the next bear market While our economists still see a low probability of a recession in the near-term, we are in the third-longest bull market in history, global growth remains sluggish and macro risks abound. For investors concerned about a bear market, moving up the quality spectrum has historically provided some protection. During the last four bear markets since 1986, high quality stocks have outperformed low quality stocks every time, with average and median annualized outperformance of 11ppt and 7ppt, respectively. Even in the latest correction, we saw outperformance of 18ppt (23ppt annualized). 6. Sector exposure has changed, but same conclusion In the wake of the Financial Crisis, we have seen a substantial shift in the sector composition of stocks rated B+ or higher. In particular, there has been a big increase in the exposure to Tech and Health Care at the expense of Financials and Discretionary. Despite the big sector shifts, the characteristics of the high quality stocks have remained generally consistent. In fact, relative to its historical average (since 1990), the median ROE has increased, while earnings volatility and leverage have both decreased. Critically, the characteristics of the high quality basket have been remarkably consistent over time, particularly relative to the lower quality basket, which sees its earnings volatility, leverage and earnings quality fluctuate significantly over the course of the cycle. Equity and Quant Strategy United States Savita Subramanian Equity & Quant Strategist MLPF&S Dan Suzuki, CFA Equity & Quant Strategist MLPF&S Alex Makedon Equity & Quant Strategist MLPF&S Jill Carey Hall, CFA Equity & Quant Strategist MLPF&S Marc Pouey Equity & Quant Strategist MLPF&S Christina Giannini, CFA Equity & Quant Strategist MLPF&S Benjamin Wang, CFA Equity & Quant Strategist MLPF&S

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Page 1: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

BofA Merrill Lynch does and seeks to do business with issuers 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 12 to 13. 11616954

Strategy Snippet

Six reasons to stick with Quality

01 April 2016

Quality works…stay long Over the years, we have written extensively on the topic of quality, and it continues to be one of our key themes, not just for the next 12 months, but for the next 12 years as well. In this report, we lay out six key facts that investors should know about Quality:

1. Don’t be fooled: Low Beta ≠ High Quality There are numerous ways to define quality, and low beta is often misconstrued for high quality, but we consider earnings volatility (fundamental beta) to be a better measure of quality than price volatility (beta). Much of our work on quality relies on the S&P Common Stock Ratings, which are based on ten years of earnings and dividend stability. Stocks with the lowest price betas tend to underperform, and have higher earnings volatility, more leverage and lower returns on investment than those with low fundamental betas.

2. High Quality has been working & should continue to work Even excluding dividends, which are a bigger contribution to higher quality stock returns, high quality stocks have outperformed low quality stocks in 2014, 2015 and year-to-date, and have outperformed by over 40ppt since early 2011 and by over 160ppt since early 2000.

3. Still cheap and unloved As tends to be typical when an asset outperforms, the popularity of investment products focused on high quality stocks has increased. Yet valuations for higher quality stocks are still compelling despite their outperformance, and large cap fund managers continue to overweight lower quality stocks. Part of the disconnect may be due to the focus on low beta strategies discussed above, as the valuation premium on low beta stocks is at historical extremes.

4. The best hedge against rising volatility Given the slow-growth, higher volatility macro backdrop in which credit conditions and monetary policy are tightening, we expect to see more frequent spikes in volatility. There is a very strong correlation between volatility and High Quality outperformance.

5. A great hedge for the next bear market While our economists still see a low probability of a recession in the near-term, we are in the third-longest bull market in history, global growth remains sluggish and macro risks abound. For investors concerned about a bear market, moving up the quality spectrum has historically provided some protection. During the last four bear markets since 1986, high quality stocks have outperformed low quality stocks every time, with average and median annualized outperformance of 11ppt and 7ppt, respectively. Even in the latest correction, we saw outperformance of 18ppt (23ppt annualized).

6. Sector exposure has changed, but same conclusion In the wake of the Financial Crisis, we have seen a substantial shift in the sector composition of stocks rated B+ or higher. In particular, there has been a big increase in the exposure to Tech and Health Care at the expense of Financials and Discretionary. Despite the big sector shifts, the characteristics of the high quality stocks have remained generally consistent. In fact, relative to its historical average (since 1990), the median ROE has increased, while earnings volatility and leverage have both decreased. Critically, the characteristics of the high quality basket have been remarkably consistent over time, particularly relative to the lower quality basket, which sees its earnings volatility, leverage and earnings quality fluctuate significantly over the course of the cycle.

Equity and Quant Strategy United States Savita Subramanian Equity & Quant Strategist MLPF&S Dan Suzuki, CFA Equity & Quant Strategist MLPF&S Alex Makedon Equity & Quant Strategist MLPF&S Jill Carey Hall, CFA Equity & Quant Strategist MLPF&S Marc Pouey Equity & Quant Strategist MLPF&S Christina Giannini, CFA Equity & Quant Strategist MLPF&S Benjamin Wang, CFA Equity & Quant Strategist MLPF&S

Page 2: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

2 Strategy Snippet | 01 April 2016

Stick with Quality Table 1: Relative price performance of B+ or Better vs. B or Worse stocks

Period Performance Spread (ppt) 3 months 9.9 6 months 14.4 12 months 16.7 Year to date 8.7 2 years 26.2 3 years 25.9 5 years 40.5 10 years 21.6 15 years 55.4 Source: BofA Merrill Lynch US Quantitative Strategy, Standard & Poor's As of February 29, 2016

QUALITY HAS BEEN A LONG TERM OUTPERFORMER

High quality (B+ or higher) stocks have outperformed low quality (B or lower) stocks year to date and over the past one, two, five, 10 and 15 years.

Chart 1: Relative Fwd. P/E high quality (B+ or better) and low quality (B or worse) stocks

Source: S&P, BofA Merrill Lynch US Equity & US Quant Strategy

…BUT IT’S STILL CHEAP

As a result of the outperformance, the valuation gap has been closing, but High Quality still remains cheap relative to Low Quality.

Table 2: Price performance during prior bear markets (including latest correction)

Period B + or Better (annualized)

B or Worse (annualized)

Relative Performance: B+ or Better vs B or Worse (annualized)

Aug '87 - Nov '87 -74.9% -79.2% 4.3% Jun '90 - Oct '90 -53.1% -61.7% 8.6% Mar '00 - Sep '02 2.8% -20.8% 23.6% Oct '07 - Feb '09 -42.2% -48.2% 6.0% May '15 – Feb ‘16 -8.5% -31.0% 22.5% Average -35.2% -48.2% 13.0% Median -42.2% -48.2% 8.6% Source: BofA Merrill Lynch US Quantitative Strategy, Standard & Poor's

….AND IS A GOOD BEAR MARKET HEDGE

High quality stocks have consistently outperformed in each of the last four bear markets and during the most recent market correction.

Chart 2: BofAML Quality Indices 12m Performance Correlation to 12m Changes in CBOE VIX (1986 to present)

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, Standard & Poor's

…AND THE BEST HEDGE AGAINST VOLATILITY

High Quality is the best hedge against rising volatility…

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High QualityLow Quality Fed rate cut

Fiscal TARP QE2 LTRO QE3

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Page 3: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

Strategy Snippet | 01 April 2016 3

Chart 3: CBOE VIX and Inverted Slope of Yield Curve (1986 to present)

Source: CBOE, BEA, BofA Merrill Lynch US Equity & US Quantitative Strategy

VOLATILITY MIGHT BE ON THE HORIZON

…and the yield curve suggests that volatility will continue to trend higher over the next year or two.

Chart 4: B+ or Higher vs. B or Lower and 3m Avg VIX

Source: BofAML US Equity & Quant Strategy, S&P, FactSet, CBOE

…AND THIS FAVORS HIGHER QUALITY

Quality has behaved in line with historical trends over the last few years, with nearly every spike in volatility coinciding with the outperformance of higher quality stocks. This relationship has held true over the last 5 and 10 years.

Table 3: High Quality vs. Low Quality and 3-month average VIX Correlation Since 1990 25.6% Last 10 years 38.7% Last 5 years 28.8% Source: BofAML US Equity & Quant Strategy, S&P, FactSet, CBOE

Chart 5: Relative fund positioning of stocks with A+ and C&D ratings

Source: BofA Merrill Lynch US Equity & US Quant Strategy, Lionshares, Standard & Poor’s

YET INVESTORS ARE OVERWEIGHT LOW QUALITY

Despite the outperformance of High Quality, large cap fund managers have become increasingly overweight Low Quality.

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Page 4: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

4 Strategy Snippet | 01 April 2016

Low beta has historically had a much weaker risk-return profile than other high quality/low risk factors. Chart 6: High and Low Quality Strategies Reward vs. Risk Average annualized return vs. annualized volatility (standard deviation) of returns (3/31/86-12/31/15)

Source: BofA Merrill Lynch US Equity and Quantitative Strategy

Chart 7: High and Low Quality Strategies Reward vs. Downside Risk Average annualized return vs. probability of loss (3/31/86-12/31/15)

Source: BofA Merrill Lynch US Equity and Quantitative Strategy

Chart 8: Difference between 1-year vs. 5-year beta for S&P 500 sectors

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

BETA IS A LESS CONSISTENT FACTOR

Beta tends to be inconsistent and volatile over the course of a cycle, making it a less reliable defensive factor.

Chart 9: Relative performance of S&P 500 bottom beta decile stocks

Source: BofA Merrill Lynch US Equity & US Quant Strategy

….AND LOW BETA TENDS TO UNDERPERFORM

Low beta strategies tend to underperform most of the time.

High ROE

Low ROE High Beta

Low Beta

EPS Uncertainty

(High Estimate Dispersion)

EPS Certainty (Low Estimate

Dispersion)

Small Size

Mega Caps

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30

50

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150

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Equal-Weighted Relative Cumulative Performance vs. Equal-Weighted S&P 500

Avg annual relative performance: -2.9ppt

Page 5: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

Strategy Snippet | 01 April 2016 5

Table 4: Quality (fundamental stability) vs. Low Beta (price stability)

Metric Beta (Lowest

Decile Median) B+ or Better

(Median) Diff (%) EPS Volatility 27% 20% 34.9% EPS Stability (lower = more stable) 17.5 13.3 31.6% DPS Vol 3% 9% -68.3% Max 5-yr EPS Decline 30% 11% 181.6% Max 5-yr Price Decline 16% 18% -14.7% Net Debt/EBITDA 3.21 1.31 145.0% ROCE 5% 11% -55.7% ROE 10% 19% -46.6% Beta 0.49 0.94 -47.7% Quality Score (lower = higher quality) 4.00 3.00 33.3% Source: BofA Merrill Lynch US Equity & US Quant Strategy, S&P, Compustat

LOW BETA ≠ QUALITY

Stocks with the lowest beta tend to have higher earnings volatility, more leverage and lower returns on investment than those based on fundamental beta.

Chart 10: Relative Fwd. P/E of S&P 500 Low Beta and High Beta Quintiles

Source: BofA Merrill Lynch US Equity & US Quant Strategy

LOW VS HIGH BETA AT EXTREMES

In contrast to High Quality, the valuation premium on Low Beta relative to High Beta is at a record high.

Chart 11: Price risk (5yr beta) vs. earnings risk (market-weighted % of low quality stocks) for S&P 500 sectors (as of 2/29/16)

Note: Earnings risk based on S&P Quality Ranks (stocks ranked B or worse classified as low quality) based on last 10 years Source: S&P BofA Merrill Lynch US Equity & US Quant Strategy

…AND MISPRICES THE RISK

A fundamental mispricing of risk: Quality ≠ Defensive

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Page 6: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

6 Strategy Snippet | 01 April 2016

In the wake of the Financial Crisis, we have seen a substantial shift in the sector composition of stocks rated B+ or higher. In particular, the percentage of Technology stocks is the highest in our data history (13%), while Health Care is just off the all-time highs, also at 13%. Additionally, Industrials is now tied with Consumer Discretionary for the sector with the most high quality stocks, a title that the Financials held until 2009.

Chart 12: B+ or Better sector exposure over time based on number of cos

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, S&P

Chart 13: B+ or Better current sector weight vs. historical avg (ppt)

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, S&P

Chart 14: S&P 500 relative median mkt cap: B+ or Higher vs. B or Lower

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, S&P

HIGHER QUALITY IS USUALLY BIGGER

Since 1992, the median High Quality stock has generally had a market cap between 1.3x and 2.1x the size of the median Low Quality stock.

At 1.6x, the relative median market cap is slightly below the middle of that range.

Table 5: Median B+ or Higher attributes vs. historical average since July 1990

B+ or Better Historical Avg Diff

EPS Volatility 20% 26% -6% EPS Stability (lower = more stable) 13.3 18.4 -5.1 DPS Vol 9% 6% 3% Max 5-yr EPS Decline 11% 9% 1% Max 5-yr Price Decline 18% 25% -7% Net Debt/EBITDA 1.31 1.12 0.19 ROCE 11% 12% 0% ROE 19% 17% 2% Beta 0.94 0.91 0.03 5-yr Proforma vs. GAAP EPS 5.7% 5.5% 0.2% 5-yr Proforma vs. FCFE/Sh 9.6% 40.6% -30.9% Quality Score (low = high quality) 3.00 2.93 0.07 Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, Compustat, IBES, S&P

…AND CONSISTENT OVER TIME

Relative to its historical average (since 1990), the median ROE has increased despite a drop in earnings volatility and leverage.

Meanwhile, the beta and dividend volatility have increased a bit, while the average quality rating has dipped.

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Page 7: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

Strategy Snippet | 01 April 2016 7

Relative to Low Quality stocks, High Quality stocks have higher returns on investment and EPS stability, lower leverage, lower beta and lower EPS volatility (Chart 15). Compared to history, the relative ROE and quality of earnings of High Quality vs. Low Quality stocks is higher today (Chart 16). Chart 15: Current B+ or Higher vs. B or Lower attributes (relative)

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, Compustat, IBES, S&P

Chart 16: B+ or Higher vs. B or Lower attributes (relative) vs. history

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, Compustat, IBES, S&P

Chart 17: B+ or Higher vs. B or Lower standard deviation of attributes since July 1990

Source: BofA Merrill Lynch US Equity and Quantitative Strategy, FactSet, Compustat, IBES, S&P

….IN CONTRAST TO LOWER QUALITY

Most importantly, the characteristics of the high quality basket have been remarkably consistent over time, particularly relative to the lower quality basket, which sees its earnings volatility, leverage and earnings quality fluctuate significantly over the course of the cycle.

Quality ratings vs. credit ratings In examining the relationship between credit and quality ratings, we found that there is a relationship in that both are impacted by the underlying fundamentals of the companies. If the profits decline meaningfully, it can reduce the earnings and dividend stability of the company as well as the company’s ability to meet their financial obligations. In aggregate, we did see a coincident relationship between overall credit and quality rating changes.

-100% -50% 0% 50% 100% 150%

EPS VolatilityMax 5-yr EPS Decline

5-yr Proforma vs. FCFE/Sh5-yr Proforma vs. GAAP EPS

DPS VolEPS Stability (lower = more stable)

Max 5-yr Price DeclineQuality Score (lower = higher quality)

BetaNet Debt/EBITDA

ROEROCE

High Quality vs. Low Quality

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0

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Quality Score (lower = higher quality)EPS Volatility

ROCEMax 5-yr EPS Decline

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Net Debt/EBITDAROE

Compared to History: High Quality vs. Low Quality

-100% -80% -60% -40% -20% 0%

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St Deviation of Metrics: High Quality vs. Low Quality

Page 8: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

8 Strategy Snippet | 01 April 2016

Chart 18: Net quality and credit rating upgrades/downgrades

Source: BofAML US Equity & Quant Strategy, S&P

Keep an eye on credit downgrades At the company level, we saw a tendency for credit downgrades to lead quality rating downgrades, which makes sense given that quality ratings are based on ten years of quantitative history, while the credit ratings are a qualitative assessment of the current and future outlook. However, this trend was far from consistent. A company’s credit risk can improve or worsen independently of the profit trends based on how the company allocates its capital. In the past ten years, roughly 40 of the current S&P 500 constituents had their credit rating downgraded to non-investment grade status. For those that had sufficient quality and credit rating history, we examined how the quality ratings trended from the beginning of their credit downgrade cycles. About 38% had their quality rating downgraded within a year of the first credit downgrade, while 55% were unchanged.

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Page 9: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

Strategy Snippet | 01 April 2016 9

S&P 500 stocks by S&P Quality Rank Below we list all S&P 500 stocks by S&P Common Stock Rank, our preferred measure of quality, as of 3/30/16.

Table 6: S&P 500 Stocks by S&P Common Stock Rank

Ticker Company Sector

S&P Qual Rtg Ticker Company Sector

S&P Qual Rtg Ticker Company Sector

S&P Qual Rtg

MMM 3M CO Industrials A+ SNA SNAP ON INC Industrials A AET AETNA INC NEW Health Care B+ AAP ADVANCE AUTO PARTS INC Consumer Discretionary A+ TMK TORCHMARK CORP Financials A AKAM AKAMAI TECHNOLOGIES INC Information Technology B+ CHRW C H ROBINSON WORLDWIDE INC Industrials A+ UHS UNIVERSAL HLTH SVCS INC Health Care A ADS ALLIANCE DATA SYSTEMS CORP Information Technology B+ CHD CHURCH & DWIGHT INC Consumer Staples A+ VFC V F CORP Consumer Discretionary A AXP AMERICAN EXPRESS CO Financials B+ CVS CVS HEALTH CORP Consumer Staples A+ WMT WAL-MART STORES INC Consumer Staples A ADI ANALOG DEVICES INC Information Technology B+ EMR EMERSON ELEC CO Industrials A+ WEC WEC ENERGY GROUP INC Utilities A ANTM ANTHEM INC Health Care B+ GPS GAP INC DEL Consumer Discretionary A+ ABT ABBOTT LABS Health Care A- AAPL APPLE INC Information Technology B+ HRL HORMEL FOODS CORP Consumer Staples A+ AFL AFLAC INC Financials A- ADM ARCHER DANIELS MIDLAND CO Consumer Staples B+ IBM INTERNATIONAL BUSINESS MACH Information Technology A+ GAS AGL RES INC Utilities A- AIZ ASSURANT INC Financials B+ LMT LOCKHEED MARTIN CORP Industrials A+ APD AIR PRODS & CHEMS INC Materials A- T AT&T INC Telecommunication Services B+ MKC MCCORMICK & CO INC Consumer Staples A+ GOOGL ALPHABET INC Information Technology A- AVB AVALONBAY CMNTYS INC Financials B+ NKE NIKE INC Consumer Discretionary A+ MO ALTRIA GROUP INC Consumer Staples A- BBBY BED BATH & BEYOND INC Consumer Discretionary B+ OMC OMNICOM GROUP INC Consumer Discretionary A+ AEP AMERICAN ELEC PWR INC Utilities A- BIIB BIOGEN INC Health Care B+ PX PRAXAIR INC Materials A+ AMP AMERIPRISE FINL INC Financials A- BCR BARD C R INC Health Care B+ ROST ROSS STORES INC Consumer Discretionary A+ AMGN AMGEN INC Health Care A- CPB CAMPBELL SOUP CO Consumer Staples B+ TJX TJX COS INC NEW Consumer Discretionary A+ APH AMPHENOL CORP NEW Information Technology A- KMX CARMAX INC Consumer Discretionary B+ UNP UNION PAC CORP Industrials A+ AZO AUTOZONE INC Consumer Discretionary A- CERN CERNER CORP Health Care B+ UTX UNITED TECHNOLOGIES CORP Industrials A+ BAX BAXTER INTL INC Health Care A- CF CF INDS HLDGS INC Materials B+ UNH UNITEDHEALTH GROUP INC Health Care A+ BDX BECTON DICKINSON & CO Health Care A- CVX CHEVRON CORP NEW Energy B+ GWW GRAINGER W W INC Industrials A+ BA BOEING CO Industrials A- CMG CHIPOTLE MEXICAN GRILL INC Consumer Discretionary B+ DIS DISNEY WALT CO Consumer Discretionary A+ CAT CATERPILLAR INC DEL Industrials A- CINF CINCINNATI FINL CORP Financials B+ YUM YUM BRANDS INC Consumer Discretionary A+ CI CIGNA CORPORATION Health Care A- CSCO CISCO SYS INC Information Technology B+ ARG AIRGAS INC Materials A CTAS CINTAS CORP Industrials A- CTXS CITRIX SYS INC Information Technology B+ AME AMETEK INC NEW Industrials A CTSH COGNIZANT TECHNOLOGY SOLUTI Information Technology A- CME CME GROUP INC Financials B+ ADP AUTOMATIC DATA PROCESSING I Information Technology A DRI DARDEN RESTAURANTS INC Consumer Discretionary A- CMS CMS ENERGY CORP Utilities B+ BLL BALL CORP Materials A DE DEERE & CO Industrials A- COH COACH INC Consumer Discretionary B+ BLK BLACKROCK INC Financials A XRAY DENTSPLY SIRONA INC Health Care A- CCE COCA COLA ENTERPRISES INC N Consumer Staples B+ BF.B BROWN FORMAN CORP Consumer Staples A DFS DISCOVER FINL SVCS Financials A- ED CONSOLIDATED EDISON INC Utilities B+ CLX CLOROX CO DEL Consumer Staples A DOV DOVER CORP Industrials A- CMI CUMMINS INC Industrials B+ KO COCA COLA CO Consumer Staples A DTE DTE ENERGY CO Utilities A- DVA DAVITA HEALTHCARE PARTNERS Health Care B+ CL COLGATE PALMOLIVE CO Consumer Staples A DNB DUN & BRADSTREET CORP DEL N Industrials A- DLTR DOLLAR TREE INC Consumer Discretionary B+ CMCSA COMCAST CORP NEW Consumer Discretionary A ES EVERSOURCE ENERGY Utilities A- DD DU PONT E I DE NEMOURS & CO Materials B+ COST COSTCO WHSL CORP NEW Consumer Staples A XOM EXXON MOBIL CORP Energy A- EMN EASTMAN CHEM CO Materials B+ CSX CSX CORP Industrials A FRT FEDERAL REALTY INVT TR Financials A- EW EDWARDS LIFESCIENCES CORP Health Care B+ DHR DANAHER CORP DEL Industrials A HSIC SCHEIN HENRY INC Health Care A- EA ELECTRONIC ARTS INC Information Technology B+ ECL ECOLAB INC Materials A ITW ILLINOIS TOOL WKS INC Industrials A- LLY LILLY ELI & CO Health Care B+ EL LAUDER ESTEE COS INC Consumer Staples A IFF INTERNATIONAL FLAVORS&FRAGR Materials A- EMC E M C CORP MASS Information Technology B+ EXPD EXPEDITORS INTL WASH INC Industrials A JBHT HUNT J B TRANS SVCS INC Industrials A- ETR ENTERGY CORP NEW Utilities B+ FAST FASTENAL CO Industrials A K KELLOGG CO Consumer Staples A- EFX EQUIFAX INC Industrials B+ GD GENERAL DYNAMICS CORP Industrials A KMB KIMBERLY CLARK CORP Consumer Staples A- ESRX EXPRESS SCRIPTS HLDG CO Health Care B+ GIS GENERAL MLS INC Consumer Staples A KIM KIMCO RLTY CORP Financials A- EXR EXTRA SPACE STORAGE INC Financials B+ GPC GENUINE PARTS CO Consumer Discretionary A LLL L-3 COMMUNICATIONS HLDGS IN Industrials A- FFIV F5 NETWORKS INC Information Technology B+ HAS HASBRO INC Consumer Discretionary A LLTC LINEAR TECHNOLOGY CORP Information Technology A- FIS FIDELITY NATL INFORMATION S Information Technology B+ HSY HERSHEY CO Consumer Staples A LOW LOWES COS INC Consumer Discretionary A- FISV FISERV INC Information Technology B+ HD HOME DEPOT INC Consumer Discretionary A MCK MCKESSON CORP Health Care A- FLIR FLIR SYS INC Information Technology B+ HON HONEYWELL INTL INC Industrials A MSFT MICROSOFT CORP Information Technology A- FLS FLOWSERVE CORP Industrials B+ SJM SMUCKER J M CO Consumer Staples A MCO MOODYS CORP Financials A- FLR FLUOR CORP NEW Industrials B+ JNJ JOHNSON & JOHNSON Health Care A ORCL ORACLE CORP Information Technology A- FMC F M C CORP Materials B+ MCD MCDONALDS CORP Consumer Discretionary A QCOM QUALCOMM INC Information Technology A- FTI FMC TECHNOLOGIES INC Energy B+ MON MONSANTO CO NEW Materials A RSG REPUBLIC SVCS INC Industrials A- BEN FRANKLIN RES INC Financials B+ NEE NEXTERA ENERGY INC Utilities A COL ROCKWELL COLLINS INC Industrials A- GE GENERAL ELECTRIC CO Industrials B+ JWN NORDSTROM INC Consumer Discretionary A SO SOUTHERN CO Utilities A- GILD GILEAD SCIENCES INC Health Care B+ NSC NORFOLK SOUTHERN CORP Industrials A SYK STRYKER CORP Health Care A- HBI HANESBRANDS INC Consumer Discretionary B+ NOC NORTHROP GRUMMAN CORP Industrials A TROW PRICE T ROWE GROUP INC Financials A- HOG HARLEY DAVIDSON INC Consumer Discretionary B+ PH PARKER HANNIFIN CORP Industrials A TGT TARGET CORP Consumer Discretionary A- HRS HARRIS CORP DEL Information Technology B+ PAYX PAYCHEX INC Information Technology A TIF TIFFANY & CO NEW Consumer Discretionary A- HP HELMERICH & PAYNE INC Energy B+ PEP PEPSICO INC Consumer Staples A TSCO TRACTOR SUPPLY CO Consumer Discretionary A- HPQ HP INC Information Technology B+ PG PROCTER & GAMBLE CO Consumer Staples A TRV TRAVELERS COMPANIES INC Financials A- HUM HUMANA INC Health Care B+ RL RALPH LAUREN CORP Consumer Discretionary A WBA WALGREENS BOOTS ALLIANCE IN Consumer Staples A- INTC INTEL CORP Information Technology B+ RTN RAYTHEON CO Industrials A WFC WELLS FARGO & CO NEW Financials A- ICE INTERCONTINENTAL EXCHANGE I Financials B+ ROP ROPER TECHNOLOGIES INC Industrials A HCN WELLTOWER INC Financials A- INTU INTUIT Information Technology B+ SCG SCANA CORP NEW Utilities A XEL XCEL ENERGY INC Utilities A- ISRG INTUITIVE SURGICAL INC Health Care B+ SHW SHERWIN WILLIAMS CO Materials A XLNX XILINX INC Information Technology A- JCI JOHNSON CTLS INC Consumer Discretionary B+

Source: S&P, BofA Merrill Lynch US Equity & US Quant Strategy Note: This screen is not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decision.

Page 10: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

10 Strategy Snippet | 01 April 2016

Table 7: S&P 500 Stocks by S&P Common Stock Rank (continued)

Ticker Company Sector

S&P Qual Rtg Ticker Company Sector

S&P Qual Rtg Ticker Company Sector

S&P Qual Rtg

JPM JPMORGAN CHASE & CO Financials B+ VAR VARIAN MED SYS INC Health Care B+ ILMN ILLUMINA INC Health Care B KSU KANSAS CITY SOUTHERN Industrials B+ VIAB VIACOM INC NEW Consumer Discretionary B+ IP INTL PAPER CO Materials B GMCR KEURIG GREEN MTN INC Consumer Staples B+ WAT WATERS CORP Health Care B+ IPG INTERPUBLIC GROUP COS INC Consumer Discretionary B KSS KOHLS CORP Consumer Discretionary B+ WU WESTERN UN CO Information Technology B+ JEC JACOBS ENGR GROUP INC DEL Industrials B KR KROGER CO Consumer Staples B+ WRK WESTROCK CO Materials B+ JNPR JUNIPER NETWORKS INC Information Technology B LB L BRANDS INC Consumer Discretionary B+ WHR WHIRLPOOL CORP Consumer Discretionary B+ KLAC KLA-TENCOR CORP Information Technology B LH LABORATORY CORP AMER HLDGS Health Care B+ WFM WHOLE FOODS MKT INC Consumer Staples B+ LM LEGG MASON INC Financials B LEG LEGGETT & PLATT INC Consumer Discretionary B+ WYN WYNDHAM WORLDWIDE CORP Consumer Discretionary B+ LEN LENNAR CORP Consumer Discretionary B MTB M & T BK CORP Financials B+ ADBE ADOBE SYS INC Information Technology B LUK LEUCADIA NATL CORP Financials B M MACYS INC Consumer Discretionary B+ AES AES CORP Utilities B MAC MACERICH CO Financials B MAR MARRIOTT INTL INC NEW Consumer Discretionary B+ AMG AFFILIATED MANAGERS GROUP Financials B MLM MARTIN MARIETTA MATLS INC Materials B MMC MARSH & MCLENNAN COS INC Financials B+ ALL ALLSTATE CORP Financials B MRK MERCK & CO INC NEW Health Care B MA MASTERCARD INC Information Technology B+ AEE AMEREN CORP Utilities B MET METLIFE INC Financials B MAT MATTEL INC Consumer Discretionary B+ AMT AMERICAN TOWER CORP NEW Financials B MCHP MICROCHIP TECHNOLOGY INC Information Technology B TAP MOLSON COORS BREWING CO Consumer Staples B+ ABC AMERISOURCEBERGEN CORP Health Care B MHK MOHAWK INDS INC Consumer Discretionary B MDLZ MONDELEZ INTL INC Consumer Staples B+ AMAT APPLIED MATLS INC Information Technology B MSI MOTOROLA SOLUTIONS INC Information Technology B MNST MONSTER BEVERAGE CORP NEW Consumer Staples B+ AN AUTONATION INC Consumer Discretionary B MUR MURPHY OIL CORP Energy B MOS MOSAIC CO NEW Materials B+ AVY AVERY DENNISON CORP Materials B NDAQ NASDAQ INC Financials B NI NISOURCE INC Utilities B+ BK BANK NEW YORK MELLON CORP Financials B NOV NATIONAL OILWELL VARCO INC Energy B NTRS NORTHERN TR CORP Financials B+ BBT BB&T CORP Financials B NTAP NETAPP INC Information Technology B ORLY O REILLY AUTOMOTIVE INC NEW Consumer Discretionary B+ BRK.B BERKSHIRE HATHAWAY INC DEL Financials B NFLX NETFLIX INC Consumer Discretionary B OKE ONEOK INC NEW Energy B+ BWA BORGWARNER INC Consumer Discretionary B NWL NEWELL RUBBERMAID INC Consumer Discretionary B PCAR PACCAR INC Industrials B+ BXP BOSTON PROPERTIES INC Financials B NBL NOBLE ENERGY INC Energy B PDCO PATTERSON COMPANIES INC Health Care B+ BMY BRISTOL MYERS SQUIBB CO Health Care B NRG NRG ENERGY INC Utilities B PBCT PEOPLES UNITED FINANCIAL IN Financials B+ CA CA INC Information Technology B NVDA NVIDIA CORP Information Technology B PFE PFIZER INC Health Care B+ CVC CABLEVISION SYS CORP Consumer Discretionary B POM PEPCO HOLDINGS INC Utilities B PNW PINNACLE WEST CAP CORP Utilities B+ CAM CAMERON INTERNATIONAL CORP Energy B PKI PERKINELMER INC Health Care B PNC PNC FINL SVCS GROUP INC Financials B+ COF CAPITAL ONE FINL CORP Financials B PCG PG&E CORP Utilities B PPG PPG INDS INC Materials B+ CAH CARDINAL HEALTH INC Health Care B PBI PITNEY BOWES INC Industrials B PCLN PRICELINE GRP INC Consumer Discretionary B+ CBG CBRE GROUP INC Financials B PPL PPL CORP Utilities B PFG PRINCIPAL FINL GROUP INC Financials B+ CBS CBS CORP NEW Consumer Discretionary B PGR PROGRESSIVE CORP OHIO Financials B PEG PUBLIC SVC ENTERPRISE GROUP Utilities B+ CELG CELGENE CORP Health Care B PWR QUANTA SVCS INC Industrials B PSA PUBLIC STORAGE Financials B+ CNP CENTERPOINT ENERGY INC Utilities B SEE SEALED AIR CORP NEW Materials B PVH PVH CORP Consumer Discretionary B+ CTL CENTURYLINK INC Telecommunication Services B SWN SOUTHWESTERN ENERGY CO Energy B DGX QUEST DIAGNOSTICS INC Health Care B+ SCHW SCHWAB CHARLES CORP NEW Financials B SPLS STAPLES INC Consumer Discretionary B O REALTY INCOME CORP Financials B+ CMA COMERICA INC Financials B HOT STARWOOD HOTELS&RESORTS WRL Consumer Discretionary B RHT RED HAT INC Information Technology B+ CAG CONAGRA FOODS INC Consumer Staples B SYMC SYMANTEC CORP Information Technology B RAI REYNOLDS AMERICAN INC Consumer Staples B+ COP CONOCOPHILLIPS Energy B TE TECO ENERGY INC Utilities B RHI ROBERT HALF INTL INC Industrials B+ STZ CONSTELLATION BRANDS INC Consumer Staples B TDC TERADATA CORP DEL Information Technology B ROK ROCKWELL AUTOMATION INC Industrials B+ GLW CORNING INC Information Technology B TSO TESORO CORP Energy B R RYDER SYS INC Industrials B+ D DOMINION RES INC VA NEW Utilities B VLO VALERO ENERGY CORP NEW Energy B SRE SEMPRA ENERGY Utilities B+ DOW DOW CHEM CO Materials B VTR VENTAS INC Financials B SPG SIMON PPTY GROUP INC NEW Financials B+ DUK DUKE ENERGY CORP NEW Utilities B VZ VERIZON COMMUNICATIONS INC Telecommunication Services B SWKS SKYWORKS SOLUTIONS INC Information Technology B+ EBAY EBAY INC Information Technology B VNO VORNADO RLTY TR Financials B LUV SOUTHWEST AIRLS CO Industrials B+ EIX EDISON INTL Utilities B WM WASTE MGMT INC DEL Industrials B STJ ST JUDE MED INC Health Care B+ EQT EQT CORP Energy B WDC WESTERN DIGITAL CORP Information Technology B SWK STANLEY BLACK & DECKER INC Industrials B+ EQR EQUITY RESIDENTIAL Financials B WMB WILLIAMS COS INC DEL Energy B SBUX STARBUCKS CORP Consumer Discretionary B+ ESS ESSEX PPTY TR INC Financials B WYNN WYNN RESORTS LTD Consumer Discretionary B STT STATE STR CORP Financials B+ EXC EXELON CORP Utilities B XRX XEROX CORP Information Technology B SRCL STERICYCLE INC Industrials B+ EXPE EXPEDIA INC DEL Consumer Discretionary B ZBH ZIMMER BIOMET HLDGS INC Health Care B SYY SYSCO CORP Consumer Staples B+ FDX FEDEX CORP Industrials B A AGILENT TECHNOLOGIES INC Health Care B- TXN TEXAS INSTRS INC Information Technology B+ FITB FIFTH THIRD BANCORP Financials B AA ALCOA INC Materials B- TMO THERMO FISHER SCIENTIFIC IN Health Care B+ FSLR FIRST SOLAR INC Information Technology B ALXN ALEXION PHARMACEUTICALS INC Health Care B- TWC TIME WARNER CABLE INC Consumer Discretionary B+ FE FIRSTENERGY CORP Utilities B AMZN AMAZON COM INC Consumer Discretionary B- TWX TIME WARNER INC Consumer Discretionary B+ F FORD MTR CO DEL Consumer Discretionary B AIG AMERICAN INTL GROUP INC Financials B- TSS TOTAL SYS SVCS INC Information Technology B+ FTR FRONTIER COMMUNICATIONS COR Telecommunication Services B APC ANADARKO PETE CORP Energy B- FOXA TWENTY FIRST CENTY FOX INC Consumer Discretionary B+ GME GAMESTOP CORP NEW Consumer Discretionary B APA APACHE CORP Energy B- TSN TYSON FOODS INC Consumer Staples B+ GS GOLDMAN SACHS GROUP INC Financials B AIV APARTMENT INVT & MGMT CO Financials B- USB US BANCORP DEL Financials B+ HRB BLOCK H & R INC Consumer Discretionary B BHI BAKER HUGHES INC Energy B- UA UNDER ARMOUR INC Consumer Discretionary B+ HAL HALLIBURTON CO Energy B BAC BANK AMER CORP Financials B- UPS UNITED PARCEL SERVICE INC Industrials B+ HAR HARMAN INTL INDS INC Consumer Discretionary B BBY BEST BUY INC Consumer Discretionary B- UNM UNUM GROUP Financials B+ HES HESS CORP Energy B COG CABOT OIL & GAS CORP Energy B- URBN URBAN OUTFITTERS INC Consumer Discretionary B+ HBAN HUNTINGTON BANCSHARES INC Financials B XEC CIMAREX ENERGY CO Energy B-

Source: S&P, BofA Merrill Lynch US Equity & US Quant Strategy Note: This screen is not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decision.

Page 11: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

Strategy Snippet | 01 April 2016 11

Table 8: S&P 500 Stocks by S&P Common Stock Rank (continued)

Ticker Company Sector

S&P Qual Rtg Ticker Company Sector

S&P Qual Rtg

C CITIGROUP INC Financials B- ALLE ALLEGION PUB LTD CO Industrials N.A. CXO CONCHO RES INC Energy B- AGN ALLERGAN PLC Health Care N.A. CNX CONSOL ENERGY INC Energy B- AAL AMERICAN AIRLS GROUP INC Industrials N.A. CCI CROWN CASTLE INTL CORP NEW Financials B- AON AON PLC Financials N.A. DHI D R HORTON INC Consumer Discretionary B- BXLT BAXALTA INC Health Care N.A. DVN DEVON ENERGY CORP NEW Energy B- AVGO BROADCOM LTD Information Technology N.A. DO DIAMOND OFFSHORE DRILLING I Energy B- CCL CARNIVAL CORP Consumer Discretionary N.A. DISCA DISCOVERY COMMUNICATNS NEW Consumer Discretionary B- CB CHUBB LIMITED Financials N.A. ETFC E TRADE FINANCIAL CORP Financials B- CFG CITIZENS FINL GROUP INC Financials N.A. EOG EOG RES INC Energy B- CPGX COLUMBIA PIPELINE GROUP INC Energy N.A. EQIX EQUINIX INC Financials B- CSRA CSRA INC Information Technology N.A. GGP GENERAL GROWTH PPTYS INC NE Financials B- DLPH DELPHI AUTOMOTIVE PLC Consumer Discretionary N.A. GT GOODYEAR TIRE & RUBR CO Consumer Discretionary B- DAL DELTA AIR LINES INC DEL Industrials N.A. HIG HARTFORD FINL SVCS GROUP IN Financials B- DG DOLLAR GEN CORP NEW Consumer Discretionary N.A. HCP HCP INC Financials B- DPS DR PEPPER SNAPPLE GROUP INC Consumer Staples N.A. HST HOST HOTELS & RESORTS INC Financials B- ETN EATON CORP PLC Industrials N.A. IRM IRON MTN INC NEW Financials B- ENDP ENDO INTL PLC Health Care N.A. KEY KEYCORP NEW Financials B- ESV ENSCO PLC Energy N.A. LRCX LAM RESEARCH CORP Information Technology B- FB FACEBOOK INC Information Technology N.A. LVLT LEVEL 3 COMMUNICATIONS INC Telecommunication Services B- GRMN GARMIN LTD Consumer Discretionary N.A. LNC LINCOLN NATL CORP IND Financials B- GM GENERAL MTRS CO Consumer Discretionary N.A. L LOEWS CORP Financials B- HCA HCA HOLDINGS INC Health Care N.A. MRO MARATHON OIL CORP Energy B- HPE HEWLETT PACKARD ENTERPRISE Information Technology N.A. MAS MASCO CORP Industrials B- IR INGERSOLL-RAND PLC Industrials N.A. MU MICRON TECHNOLOGY INC Information Technology B- IVZ INVESCO LTD Financials N.A. MS MORGAN STANLEY Financials B- KMI KINDER MORGAN INC DEL Energy N.A. NAVI NAVIENT CORP Financials B- KHC KRAFT HEINZ CO Consumer Staples N.A. NEM NEWMONT MINING CORP Materials B- LYB LYONDELLBASELL INDUSTRIES N Materials N.A. NUE NUCOR CORP Materials B- MNK MALLINCKRODT PUB LTD CO Health Care N.A. OXY OCCIDENTAL PETE CORP DEL Energy B- MPC MARATHON PETE CORP Energy N.A. OI OWENS ILL INC Materials B- MHFI MCGRAW HILL FINL INC Financials N.A. PXD PIONEER NAT RES CO Energy B- MJN MEAD JOHNSON NUTRITION CO Consumer Staples N.A. PLD PROLOGIS INC Financials B- MDT MEDTRONIC PLC Health Care N.A. PRU PRUDENTIAL FINL INC Financials B- KORS MICHAEL KORS HLDGS LTD Consumer Discretionary N.A. PHM PULTE GROUP INC Consumer Discretionary B- MYL MYLAN N V Health Care N.A. QRVO QORVO INC Information Technology B- NWSA NEWS CORP NEW Consumer Discretionary N.A. RRC RANGE RES CORP Energy B- NLSN NIELSEN HLDGS PLC Industrials N.A. REGN REGENERON PHARMACEUTICALS Health Care B- PYPL PAYPAL HLDGS INC Information Technology N.A. RF REGIONS FINL CORP NEW Financials B- PNR PENTAIR PLC Industrials N.A. SNDK SANDISK CORP Information Technology B- PRGO PERRIGO CO PLC Health Care N.A. SLG SL GREEN RLTY CORP Financials B- PM PHILIP MORRIS INTL INC Consumer Staples N.A. STI SUNTRUST BKS INC Financials B- PSX PHILLIPS 66 Energy N.A. TGNA TEGNA INC Consumer Discretionary B- RCL ROYAL CARIBBEAN CRUISES LTD Consumer Discretionary N.A. TXT TEXTRON INC Industrials B- SLB SCHLUMBERGER LTD Energy N.A. UAL UNITED CONTL HLDGS INC Industrials B- SNI SCRIPPS NETWORKS INTERACT I Consumer Discretionary N.A. URI UNITED RENTALS INC Industrials B- STX SEAGATE TECHNOLOGY PLC Information Technology N.A. VRSN VERISIGN INC Information Technology B- SIG SIGNET JEWELERS LIMITED Consumer Discretionary N.A. VMC VULCAN MATLS CO Materials B- SE SPECTRA ENERGY CORP Energy N.A. WY WEYERHAEUSER CO Financials B- SYF SYNCHRONY FINL Financials N.A. YHOO YAHOO INC Information Technology B- TEL TE CONNECTIVITY LTD Information Technology N.A. ZION ZIONS BANCORPORATION Financials B- RIG TRANSOCEAN LTD Energy N.A. ADSK AUTODESK INC Information Technology C TRIP TRIPADVISOR INC Consumer Discretionary N.A. BSX BOSTON SCIENTIFIC CORP Health Care C TYC TYCO INTL PLC Industrials N.A. CHK CHESAPEAKE ENERGY CORP Energy C VRSK VERISK ANALYTICS INC Industrials N.A. FCX FREEPORT-MCMORAN INC Materials C V VISA INC Information Technology N.A. NFX NEWFIELD EXPL CO Energy C WLTW WILLIS TOWERS WATSON PUB LT Financials N.A. CRM SALESFORCE COM INC Information Technology C XL XL GROUP PLC Financials N.A. THC TENET HEALTHCARE CORP Health Care C XYL XYLEM INC Industrials N.A. VRTX VERTEX PHARMACEUTICALS INC Health Care C ZTS ZOETIS INC Health Care N.A. ABBV ABBVIE INC Health Care N.A. ACN ACCENTURE PLC IRELAND Information Technology N.A. ATVI ACTIVISION BLIZZARD INC Information Technology N.A. ADT THE ADT CORPORATION Industrials N.A.

Source: S&P, BofA Merrill Lynch US Equity & US Quant Strategy Note: This screen is not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decision.

Page 12: Strategy Snippet Six reasons to stick with Quality...Strategy Snippet Six reasons to stick with Quality 01 April 2016 Quality works…stay long Over the years, we have written extensively

12 Strategy Snippet | 01 April 2016

Disclosures 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 report 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. The analyst(s) responsible for this report may also receive compensation based upon, among other factors, the overall profitability of the Bank’s sales and trading businesses relating to the class of securities or financial instruments for which such analyst is responsible.

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://go.bofa.com/coi. "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. 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