3. Four Basic States of an Economy RECOVERY (2) REFLATION (1) OVERHEAT (3) Source: Merrill Lynch Research. The Investment Clock, Special Report dated Nov 10, 2004 : Making Money from Macro Inflation climbs, productive capacity becomes limited. Productivity growth eases off, but GDP remains buoyant. Yield curves flatten and shift higher. STAGFLATION (4) Economic growth gathers momentum on the easing of central bank monetary policy. However inflation continues to fall and productivity moves up sharply. GDP growth falls but inflation continues to rise. Corporate earnings fall sharply. Central bank policy is fighting inflation GDP Growth is weak and inflation falls as a result of declining commodity prices and unused capacity. Two Fundamental Macroeconomic Variables – Real Economic Growth & Inflation

5. Portfolio Asset Allocation: Tactical Changes over Market Cycles Sample Client Portfolio Allocation Asset Class Description Recovery Overheat Stagflation Reflation Income US & International Fixed Income 35% 25% 35% 45% Growth US & International, Large & Small Cap, Value & Growth 45% 35% 25% 25% Real Assets REITS, Commodities, TIPS 20% 30% 10% 0% Safety Ultra Short Fixed Income 0% 10% 30% 30%

6. Sample Global Balanced Portfolio Asset Class Description Weight Income (35%) Loomis Sayles Bond Lord Abbett Dev Local Markets Principal Preferred Calamos Convertible Templeton Global Bond 10% 5% 5% 5% 10% Growth (45%) Vanguard Growth Vanguard Value Tradewinds Global Value Rydex Security Mid Cap Value iShares Global Financials WisdomTree International x Financials American EuroPacific Growth Lazard Emerging Markets SPDR Emerging Markets Small Cap 5% 5% 5% 5% 5% 5% 5% 5% 5% Real Assets (20%) ING Clarion Global Real Estates Ivy Global Natural Resources Credit Suisse Commodities SPDR Gold Trust 5% 2.5% 2.5% 10% Safety Ultra Short Fixed Income 0%

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