global fund manager survey

Highlights

Most negative growth expectations since 2001The past two months have seen a dramatic reassessment of both theinvestment strategy and the economic backdrop. The contrast with the viewsthat were held in early March is truly breathtaking. Investors now think verydifferently about where we stand in the global business cycle. A majority ofthe fund managers on our panel (52%) now believe that we have entered the‘late-cycle’ phase of the economic cycle.

Investors have become a lot gloomier about the prospects for economicgrowth, corporate profits, and margins. The net balance of managers that arepositive on growth has gone from plus 11% in March to minus 32% in May,while the prospects for corporate profits have swung from plus 4% in Marchto minus 34% in May. These two readings are the most negative since 2001.Moreover, the net balance expecting corporate margins to decline has shotup from 18% in March to 40% in May. A fifth of our panel expects zero and/ornegative global EPS growth over the coming year.

Investors still can’t bring themselves to buy bondsAs worries about profit margins have intensified, so anxiety about inflationhas diminished. In the past two months, the net balance worried about anacceleration in ‘core’ inflation has fallen from 73% to 45%. This has beenaccompanied by a significant change in investors’ interest rate expectations.The net balance expecting global short rates to be higher a year from nowhas fallen from 94% in March to 80% in May. There has been a similar shiftin long-rate expectations. Worryingly though, the majority of our panel is stilllooking for more negatively sloped yield curves a year from now. However,although the macro prospects have deteriorated, and the inflation fears aresubsiding, it has not stopped investors from believing that bonds areovervalued. Only 25% of our panel believe bonds are ‘fairly’ or ‘under’ valued– the comparable number for equities is 83%

Investors in love with pharma again; less out-of-love with US stocksInvestors are less negative on US stocks and less positive on equities inJapan and the eurozone. They have also become more concerned about theeuro, which is now seen as the currency most likely to depreciate over thecoming year. Global sector rotation shifted predictably against the industrials,the banks and the discretionary names, and to the benefit of pharma, staplesand utilities. Pharmaceuticals are now the most loved global sector, whilediscretionary stocks and banks are now the least liked.

GLOBAL

Contributors

David BowersChief Investment Strategist+44 20 7996 [email protected]

Sarah FranksStrategy Analyst+1 212 449 [email protected]

17 May 2005 GlobalFund Manager SurveyFrom a “Mid-cycle” to “Late-cycle” Mindset

Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be awarethat 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 34.

Global Securities Research & Economics Group Global Fundamental Equity Research DepartmentRC#40413701

Global Fund Manager Survey – 17 May 2005

Refer to important disclosures on page 34. 2

1. Survey Sound BitesThe fieldwork began on Friday 6th May (after the April USnon-farm payroll data was released) and closed onThursday 12th (before the April US retail sales werepublished).

Table 1: Markets Between Fieldwork Periods

Fieldwork Dates 5/5-12/5 8/4-14/4 4/3-10/3 4/2-10/2change from last month:

World Equities (%) -1.3 -3.4 3.2 1.3Dow Jones (%) -1.2 -4.3 1.6 1.3US 10-Year (bps) -18 1 35 -20Commodities (%) -0.8 -3.1 10.6 0.2Trade Weight Dollar (%) -0.4 2.8 -2.3 2.1

Source: Datastream

The past two months have seen a dramaticreassessment of investment strategy and the economicbackdrop as global equities have sold off (down some5%). The contrast with the views that were held inearly March is truly breathtaking. Here are some of themain talking points from this month’s survey.

1. Investors now think very differently about where westand in the global business cycle. A majority of thefund managers on our panel (52%) now believe thatwe have entered the ‘late-cycle’ phase of the globalbusiness cycle. There has been a pronounced changein perceptions over the past two months (15 ‘degrees’in our business cycle clock), far greater than theaggregate change in the preceding six months. Whenyou get shifts of this magnitude, you know that‘macro’ is having a major impact on markets.

2. Investors have become a lot gloomier about theprospects for economic growth, corporate profits, andmargins – certainly compared with two months ago.The net balance of managers that are positive ongrowth has gone from plus 11% in March to minus32% in May, while the prospects for corporate profitshave swung from plus 4% in March to minus 34% inMay. These two readings are the most negative since2001. Moreover, the net balance expecting corporatemargins to decline has shot up from 18% in March to40% in May. A fifth of our panel expects zero and/ornegative global EPS growth over the coming year.

3. As concerns about profit margins have intensified, soanxiety about inflation has diminished. This is a majorchange. A net 20% of our panel believe that the worldis operating below trend. A net 12% believe thatcommodity prices (as measured by the CRB index)will be lower a year from now. In the past twomonths, the net balance worried about an accelerationin ‘core’ inflation has fallen from 73% to 45%. Thishas been accompanied by a significant change ininvestors’ interest rate expectations. A net 30% stillbelieve monetary policy to be too stimulative (downfrom 41% in March), but the net balance expecting

global short rates to be higher a year from now hasfallen from 94% in March to 80% in May. There hasbeen a similar shift in long-rate expectations.Worryingly though, the majority of our panel is stilllooking for more negatively sloped yield curves a yearfrom now. Investors are also unchanged in their beliefthat Fed Funds has to rise to around 3.75% to beconsistent with a neutral policy stance.

4. Although the macro prospects have deteriorated, andthe inflation concerns are subsiding, it has not stoppedinvestors from believing that bonds are overvalued.Only 25% of our panel believe bonds are ‘fairly’ or“under” valued – the comparable number for equities is83%. History tells us that such a preference for equitiesover bonds will only pay off if corporate earningssurprise positively. We have our doubts.

5. More managers are overweight cash than was the caselast month (net balance 23% vs. 17% in May), but theaverage cash balance actual fell slightly to 4.1%. Thelast time that liquidity was high enough to trigger aliquidity-driven rally in the markets was August 2004,when the net balance ‘overweight cash’ stood at 30%and the average cash balance was 4.8%.

6. There has been a modest shift in regional preferences.Investors are less negative on US equities, and moreconcerned about Japan and the eurozone region. Theyhave also become more concerned about the euro,which is now seen as the currency that is most likelyto depreciate over the coming year. Asset allocatorsregard the euro as the most overvalued currencyamong the majors.

7. Investors are starting to reassess their view on China.This month sees a sharp downgrade in investors’perceptions of both the growth and inflation outlook,although they remain firmly convinced that therenminbi is overvalued. Once again, we askedinvestors what might they do if the renminbi wasrevalued 10% against the dollar. The results aresimilar to last month’s poll only more pronounced.They think it will be bad for US treasuries, bad for thedollar, good for the Yen, bad for the euro, and bad forglobal liquidity. Interestingly and just like last month,they remain deeply divided as to whether a revaluationis good or bad for commodity prices.

8. Global sector rotation shifted predictably against theindustrials, the banks and the discretionary names, andto the benefit of pharmaceuticals, staples and utilities.Pharmaceuticals are now the most loved global sector,while discretionary stocks and banks are now the leastliked. Pharmaceuticals continue to be the sector thatinvestors continue to see as most undervalued,followed by insurance and telecoms.

9. A net 71% of asset allocators think that govt. bondswill outperform corporates over the coming year. Thatmay reflect perceptions that companies are still under-leveraged and the LBO window is still open.



CONTENTS

� Section Page

Editorial 1 Key Highlights from the Survey 2

Dare to be Different! 2 Your Checklist – How Consensus Are You? 4

Profit Expectations 3 Economic Cycle Phase and Growth Expectations; Commodity Prices,EPS Estimates; Demands on Cash Flow; Contributors to Earnings

5

Inflation & Monetary Policy 4 Expectations for Inflation; Assessment of Interest Rates; Outlook forBond Yields; Expectations of Fed Policy; Neutral Fed Policy

8

Equity Valuation 5 Valuation of Global Equities and Bonds; Investing Time Horizons;Small-Caps vs Large-Caps; Risk Appetite

11

Measures of Risk 6 Beta Exposure; Investing Time Horizons; Small-Caps vs Large-Caps;Risk Appetite

13

Cash Positions 7 Overweight / Underweight vs Benchmark and Absolute Cash Positions;Cash by Fund Type; Fund Inflows

14

Regional Preferences 8 Profit Outlook; Earnings Quality; Equity Valuation; Regional Rotationof Five Regions; Most and Least Favorite Currency

16

China 9 Growth and Inflation Outlook for China; Currency ValuationAssessment

18

Sectors 10 Sector Positioning and Valuation; Sector Position and RelativePerformance

19

Asset Allocation 11 Equity Weightings; Bond Preferences; Return on Assets; Equity RiskPremium; Asset Positioning; Equity Market Positioning;

24

Currency 12 Currency Valuation, Currency Hedging 29

Demographics 13 The Composition of Our Panel 31

Equity vs Debt Investors 14 Comparing Equity Fund Managers’ and Debt Fund Managers’Assessment of Bond Valuation and Interest Rate Expectations

32



2. Dare to be Different!Every month we contact around 300 fund managers from around the world.We ask them what they think about the macro outlook and how they havepositioned their investment portfolios. This table summarizes some of theirmost commonly held views. As you go through the list, you might like toexamine how different you are from the consensus by ticking one of the twocolumns.

Table 2: How Different Are You from Consensus?

I Agree I DisagreeThis Month, Fund Managers and Asset Allocators . . .

1 See the global economy as in the late part of the economic cycle o o

2 Think the global economy will weaken over the next year o o

3 See the profit outlook as deteriorating over the next year o o

4 Expect around 5% earnings growth over the next 12 months o o

5 See higher selling prices as the main driver of earnings growth, overtaking higher volumes o o

6 Expect a contraction in operating margins o o

7 Want corporate cash flow to be returned to shareholders rather than used for capex o o

8 Think corporate balance sheets are under-leveraged o o

9 Believe the global economy is operating with a negative output gap o o

10 Think commodity prices will be lower in a year o o

11 Expect core consumer price inflation to be higher a year from now o o

12 Think global monetary policy is too stimulative o o

13 Expect global short-term and long-term interest rates to be higher in 12 months time o o

14 Think yield curves will flatten over the next year o o

15 See a "neutral" Fed rate at 3.7% o o

16 On balance see equities as undervalued o o

17 Think that bond markets are overvalued o o

18 Prefer large-caps to small-caps o o

19 Have shorter-than-normal time horizons o o

20 Have lower-than-normal risk appetites o o

21 Are overweight cash, with just over 4% in portfolios o o

22 Think Emerging Markets have the best profit outlook. o o

23 Think UK equities have the least favorable profit outlook. o o

24 See US equities as having the highest earnings quality, GEM equities the lowest o o

25 See the most value in Eurozone equities o o

26 Think the yen will appreciate the most over the next 12 months o o

27 Think the euro is more likely to depreciate than the US$ o o

28 Would most want to overweight Japan over the next year o o

29 Would most want to underweight US equities o o

30 Expect China’s economy to be weaker in a year’s time, think inflation will be higher o o

31 See the RMB as around 8% undervalued o o

32 Think a RMB revaluation would have an initial negative impact on US treasuries o o

33 Are most overweight the Pharma sector o o

34 Are most underweight Discretionary o o

35 Think Tech is the most overvalued sector, and pharma is the most undervalued o o

36 Do not expect corporate bonds to outperform governments o o

37 Are overweight equities and underweight bonds o o

38 Are most overweight Eurozone equities, are most underweight US equities o o

39 See the EUR and GBP as the most overvalued currencies o o

40 Have the most unhedged currency exposure to GEM currencies o o



3. Profit Expectations

Table 3: At This Time, in Which Phase of the Economic Cycle Would YouSay the Global Economy is?% saying: May Apr Mar FebEarly-cycle 2 3 3 3Mid-cycle 44 51 58 57Late-cycle 52 43 39 37Recession 0 0 0 0Where Are We (In Terms of Degrees*) 227 O 217 O 212 O 211 O

Don’t know 2 3 0 2* To track how managers think we are progressing through the economic cycle, we’ve expressed their answer as ifpositioned on a circle. We have positioned “recession” at 0O, “early cycle” at 90O, “mid-cycle” at 180O and “late cycle” at270O and calculated an overall position from those four locations.

Chart 1: Phases of the Global Economic Cycle, In Degrees*

Mid Cycle

Recession

Late CycleEarly Cycle

FebMar Apr May Jun Jul

AugSep

Oct NovDec

Mar-05

Jan-05

Feb-05

Apr-05

May-05

* To track how managers think we are progressing through the economic cycle, we’ve expressed their answer to thequestion above as if positioned on a circle. We have positioned “recession” at 0O, “early cycle” at 90O, “mid-cycle” at 180O

and “late cycle” at 270O and calculated an overall position from those four locations. This chart tracks how managers’views of where we are in the cycle has changed this year – there’s been a steady climb upward from “early-cycle” to “mid-cycle”.

52% think the economy is in the“late-cycle” phase – the firstmonth more than half of thepanelists expressed this view

This chart tracks, in“degrees”, how managers’

assessment of where we are inthe economic cycle has

changed over time. When weasked in February, the answer

was firmly in “early-cycle”range; it is now into mid-

cycle.

Investor opinions as to wherewe are in the cycle have

moved forward, closer to‘late-cycle’ range



Table 4: How do You Think the Global Real Economy Will Develop Overthe Next 12 Months?% saying: May Apr Mar FebGet a Lot Stronger 0 2 4 1Get a Little Stronger 23 29 41 34Stay the Same 20 18 21 21Get a Little Weaker 53 46 32 43Get a Lot Weaker 3 4 1 2Net % Expecting Stronger Economy -32 -20 11 -10DK/Refused 1 1 0 0

Chart 2: Expectations for Economic Growth vs Expectations for Inflation

199519961997 199819992000 200120022003 200420052006-80

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% Stronger Economy% Higher Inflation

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Source: DATASTREAM

Table 5: Over the Next 12 Months, Do You Think the Outlook forCorporate Profits World-Wide Will …% saying: May Apr Mar FebImprove Strongly 0 2 2 1Improve Slightly 25 33 41 41Remain Unchanged 14 12 16 14Deteriorate Slightly 55 48 38 42Deteriorate Strongly 5 4 1 3Net % Expecting Corporate Profits to Improve -34 -17 4 -3DK/Refused 2 2 1 1

Chart 3: Profit Expectations and EPS Forecasts5-12-05

199519961997 199819992000 200120022003 200420052006-80

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0

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Net % Expecting Profit Outlook to Improve12-mth eps growth est %(R.H.SCALE)

Source: DATASTREAM

Economic expectationscontinue to soften. A net 32% of

investors think that economicgrowth will be slower over the

next twelve months

Table 6: What is Your % Forecastfor Global EPS Growth Over theNext 12 Months?% saying: May Apr MarMinus 25% or less 0 0 0Minus 20% 0 1 0Minus 15% 1 0 1Minus 10% 4 3 1Minus 5% 7 6 4Zero 7 3 5Plus 5% 39 36 32Plus 10% 34 38 47Plus 15% 2 4 4Plus 20% 0 0 1Plus 25% or more 0 0 0Average EPS % 5.1 5.8 6.9DK / Refused 6 8 4

Investors expect around 5.1% eps growth

Managers are much morecautious on the profit outlook, anet 34% expect it to deteriorate.

Investors have also downgradedtheir eps growth assumptions,

from 5.8% to 5.1%.

economic expectations

inflationexpectations



Table 7: What Do You See as the Most Positive Contributor to GlobalCorporate Earnings Over the Next Twelve Months?% saying: May Apr Mar FebHigher Volumes 29 40 50 44Higher Selling Prices 39 33 30 29Lower Costs 27 21 16 23DK/Refused 5 6 4 5

Chart 4: What’s the Most Positive Contributor to Earnings Over the Next Twelve Months?

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h igher v o lume s

low e r costs

h igher se lling p r ices

Table 9: What Would You Most Like to See Companies Doing With CashFlow at the Current Time?% saying: May Apr Mar FebIncrease capital spending 30 36 36 33Improve balance sheets (e.g. repay debt, top up company pension plan) 17 14 14 14Return cash to shareholders (increased share buybacks / dividends) 49 44 47 49Don’t Know / Refused / Other 5 5 3 4

Chart 5: What Would You Most Like to See Companies Doing With Cash Flow?

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rebuild balance sheets

increase capex

return cash to shareholders

Higher volumes as an earningsdriver falls sharply – now

overtaken by higher sellingprices (though lower costs also

on the rise!)

A net 40% of investorsanticipate margin contraction

over the next 12 months

Table 8: Over the next 12months, do you think corporateoperating margins will…% saying May Apr MarIncrease 14 18 22Decrease 54 49 40Stay the same 31 30 36Net % Say Improve -40 -30 -18DK/Refused 2 3 2

49% of the panel wantcorporate cash returned to

shareholders

A net 35% of investors thinkcorporate balance sheets are

under-leveraged

Generally speaking, do you thinkthat corporate balance sheetsare currently…% saying: May AprOver-leveraged 6 6Under-leveraged 41 44Appropriately Leveraged 47 44Net % Say Under-Leveraged 35 38DK/Refused 6 7



4. Inflation & Monetary Policy

Table 10: At This Time, Do You Think the Global Economy is Operating …

% saying May Apr Mar FebWith a positive output gap (i.e. output above its long-term sustainable growth path) 22 26 21 24With a negative output gap (i.e. output below its long-term sustainable growth path) 42 37 43 38With a zero output gap (i.e. output in line with its long-term sustainable growth path) 31 31 29 32% See Positive Output Gap - % See Negative -20 -10 -22 -15Don’t know 5 6 7 6

Chart 6: Net % See a Positive (Negative) Output Gap

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-25

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-15

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-5

0

Aug-04 Sep-04 Oc t-04 N ov -04 Dec -04 J an-05 F eb-05 M ar-05 Apr-05 M ay -05

N et % S ee a Pos itiv e O utput Gap

Table 11: In 12 months' time, do you think that commodity prices (astracked by the CRB index) will be…?

% saying May AprA Lot Higher (+15% or more) 0 2Moderately Higher (+5-15%) 29 31Broadly Unchanged (between +/- 5%) 28 29Moderately Lower (-5-15%) 36 28A Lot Lower (-15% or less) 5 7Net % Expect Commodity Prices to be Higher -12 -3Average % Expected Change in CRB Index -1 -1Don’t know 2 3

A net 12% of investors thinkcommodity prices will be lowerin a year’s time, on average by

around 1%

On balance, investorsbelieve the global economyto be operating below trend



Chart 7: Expectations for Inflation and Assessment of Interest Rates

199519961997 199819992000 200120022003 200420052006-60

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Net % Expecting Higher InflationNet % Saying Global Monetary Policy Too Stimulative

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Source: DATASTREAM

Chart 8: Outlook for Rates

5-12-05

199519961997 199819992000 200120022003 200420052006-80

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Net % Expecting Short-Term Rates to be Higher in 12 MonthsNet % Expecting Long-Term Rates to be Higher in 12 Months

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Source: DATASTREAM

Table 12: Inflation & MonetaryPolicy% saying: May Apr Mar

A Lot Higher 2 3 4Slightly Higher 59 67 74Unchanged 22 21 15Slightly Lower 16 8 5

In 12m,WillGlobalCoreInflationBe... A Lot Lower 0 0 0Net % Saying Higher 45 62 73

TooStimulative 34 41 43About Right 61 55 53

Do YouThinkGlobalMonetaryPolicy is...

TooRestrictive 3 1 2

Net % Saying TooStimulative 30 39 41

Table 13: Outlook for Rates% saying: May Apr Mar


In 12Months,Will Short-TermInterestRates Be... A Lot Lower 0 0 0Net % Saying Higher 80 90 94


In 12Months,Will Long-TermInterestRates Be...

A Lot Lower2 1 0

Net % Expect Higher 63 69 79

63% expect long ratesto rise

80% think short rateswill be higher in a year

Inflation expectationsdecline

monetary policyseen as stimulative



Table 14: In 12 months’ time, do you think yield curves (i.e. 10-year minus3-month rates) will…

% saying May Apr Mar FebFlatten (become more negatively sloped) 54 57 52 66Steepen (become more positively sloped) 23 24 29 20Remain the same 19 14 16 11Net % Expect Flatter Yield Curves 31 33 23 46DK/Refused 4 6 4 3

Chart 9: At this time, what do you consider to be a neutral Fed Funds rate (i.e. one that isneither stimulative nor restrictive)?

2.8

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Equity FM Debt FM

A net 31% of investors thinkyield curves will flatten over the

next year

What’s a “Neutral” Fed FundsRate?

% saying:Equity Fund

ManagersDebt FundManagers*

2% or lower 1 12.25% 0 02.5% 1 02.75% 0 03.0% 7 33.25% 9 53.5% 28 273.75% 12 174.0% 22 294.25% 3 64.5% 7 84.75% or higher 5 2“Neutral” FedRate 3.7 3.8* Results from the ML FX and Debt Survey

Both equity and debt investors see a “neutral”rate around 3.7-3.8%



5. Equity Valuation

Table 15: Do You Think Global Equity Markets are Currently . . .

% saying: May Apr Mar FebOvervalued 15 14 12 10Fairly Valued 54 63 66 62Undervalued 29 20 22 27Net % Saying “Overvalued” -15 -6 -10 -17DK/Refused 2 3 1 1

Table 16: Do You Think Global Bond Markets are Currently . . .% saying: May Apr Mar FebOvervalued 71 70 76 74Fairly Valued 22 20 16 20Undervalued 3 4 3 3Net % Say Overvalued 68 67 73 71DK/Refused 5 6 4 3

Chart 10: Equity Valuation vs Bond Market Valuation

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1998 1999 2000 2001 2002 2003 2004 2005 2006-50

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Net % Think Global Equities are OvervaluedNet % Think Bonds are Overvalued

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75

Source: DATASTREAM

On balance, a net 15% thinkglobal equities are

undervalued

Bonds seen as overvalued

Stocks seen as undervalued

68% think bonds areovervalued

(to see what fixed incomemanagers think see the last

pages)



Chart 11: Equity Valuation and Net % of Managers Overweight Cash

Apr-01

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Jan-02

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-45

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<- Underweight Cash // Overweight Cash ->

<- U

nder

valu

ed //

Ove

rval

ued

->

Table 17: In the Current Environment, Do You Prefer Large-Cap or SmallCap Stocks?% saying: May Apr Mar FebLarge-Cap 69 64 60 55Small-Cap 9 8 9 13No Preference 16 23 26 26Net Preferring Small Caps -60 -55 -52 -43DK/Refused 6 5 4 6

Chart 12: Net % Preferring Small Caps and Relative Performance

5-12-05

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NET % PREFERRING SMALL CAPS OVER LARGE CAPSSMALL CAPS REL TO WORLD(R.H.SCALE)

Source: DATASTREAM

Large-caps preferred to small-caps

Cash on hand and anundervalued market (points in

the lower right corner of thechart) can be a powerful

combination

On this chart we’ve markedwhere the +/-1 standard

deviation bands lie, showing“extremes” in the cash & value

combination



6. Measures of Risk

Chart 13: Risk Appetite & Investing Time Horizons

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Net % Longer Time HorizonsNet % Higher Risk

longer time horizons . . . higher risk appetite

shorter time horizons . . . lower risk appetite

Chart 14: Investing Time Horizons and Risk Appetite

<<short<< TIME HORIZONS >>long>>

<<lo

w<<

RIS

K A

PPET

ITE

>>h

igh>

>

May 2005

+1 st dev (risk)

-1 st dev (risk)

+1 st dev (time)

-1 s

t dev

(tim

e)

Table 18: Risk Appetite &Investing Time Horizons% saying: May Apr MarHow would you describe your current investment

time horizon?

Longer than normal 9 6 4Normal 62 67 65Shorter than normal 24 21 27Net % Say LongerThan Normal -16 -15 -23DK/Refused 5 5 4

What level of risk are you currently taking in yourinvestment strategy / portfolio, relative to your

benchmark?

Higher than normal 10 12 15Normal 51 51 59Lower than normal 34 34 22Net % Say HigherThan Normal -23 -21 -7DK/Refused 6 4 4

A net 23% of our panel have alower-than-normal risk appetite,

a net 16% have a shorter-than-normal investing time horizon

The shaded boxes represent ‘extremes’ in risktaking (upper right) or risk aversion (lower left).While investors currently have low risk appetite,their time horizons are not extreme



7. Cash Positions

Table 19: Are You Currently Overweight, Underweight or Neutral CashRelative to Your Benchmark?

% saying: May Apr Mar FebOverweight 34 29 28 26Neutral 41 42 42 38Underweight 11 12 16 20Net Balance Overweight 23 17 12 6Not Applicable/DK 14 16 14 16

Table 20: Which of the Following Comes Closest to Your Current CashPosition?

% saying: May Apr Mar Feb0% 15 18 20 182% 26 23 24 284% 22 20 18 216% 7 10 10 108% 4 3 4 310% 4 4 5 312% or more 9 10 11 8Mean Cash Balance (%) 4.1 4.2 4.2 3.9Not Applicable/DK 14 13 8 9

Chart 15: Net Overweight Cash and Mean Cash Balance

1998 1999 2000 2001 2002 2003 2004 2005 2006-50

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Net % Overweight CashAverage Cash Balance %(R.H.SCALE)

Source: DATASTREAM

A net 23% of the panel areoverweight cash

Average cash in portfolios isaround 4.1% - broadly

unchanged from last month

More investors say they’re overweight cash (though% balances are broadly unchanged)



Chart 16: Net Overweight Cash and Mean Cash Balance

Aug-04

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Oct-01

Nov -01

Apr-02

Oct-02

Mar-03

Jun-03

Sep-03

Dec-03Jan-04

Feb-05

May -05

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

(5) - 5 10 15 20 25 30 35 40 45<= net % overweight cash =>

aver

age

cash

bal

ance

(%)

Chart 17: Cash Balances By Type of Fund*

2

4

6

8

10

12

14

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Institutional Retail Hedge

institutional fund: 3.3%

hedge fund: 8.0%

retail funds: 4.1%

*Please note that the sample of hedge funds is low, please use the hedge fund results as indicative only.

The upper right hand corner ofthis chart shows months wherecash has been plentiful (above

1 standard deviation), the lowerleft shows months where cash

has been scarce.

The current month’s reading isin neither of those ranges.



8. Regional PreferencesChart 18: Net % Saying Profit Outlook is Most Favorable

5-12-05

2001 2002 2003 2004 2005 2006-80

-60

-40

-20

0

20

40

60

USEUROZONEUK

JAPANGEM

-80

-60

-40

-20

0

20

40

60

Source: DATASTREAM

Chart 19: Net % Saying Earnings are Highest Quality5-12-05

2001 2002 2003 2004 2005 2006-60

-40

-20

0

20

40

60

USEUROZONEUK

JAPANGEM

-60

-40

-20

0

20

40

60

Source: DATASTREAM

Chart 20: Net % Saying Region is Most Overvalued5-12-05

2001 2002 2003 2004 2005 2006-60

-40

-20

0

20

40

60

80

USEUROZONEUK

JAPANGEM

-60

-40

-20

0

20

40

60

80

Source: DATASTREAM

Where is the Outlook for Corporate ProfitsMost / Least Favourable?% saying: May Apr MarMost US 20 15 13

Eurozone 18 20 18UK 3 5 3Japanese 19 24 20Global Emg Mkt 27 26 35

Least US 25 30 29Eurozone 25 18 24UK 16 18 17Japanese 10 9 7Global Emg Mkt 10 11 5

Net US -5 -15 -16Eurozone -7 1 -5UK -13 -13 -14Japanese 9 15 13Global Emg Mkt 18 16 30

In Which Region is the Quality* of Earnings theBest / Worst?% saying: May Apr MarBest US 39 38 38


Worst US 12 11 9Eurozone 5 7 8UK 2 2 2Japanese 15 16 19Global Emg Mkt 42 43 42

Net US 27 27 29Eurozone 7 8 8UK 18 16 18Japanese -9 -11 -13Global Emg Mkt -39 -39 -39

* Most / Least Volatile Earnings

Which of the Following Equity Markets is MostOvervalued / Most Undervalued?% saying: May Apr MarOver US 59 58 58


Under US 5 3 3Eurozone 28 26 25UK 6 5 5Japanese 22 27 24Global Emg Mkt 25 27 28

Net US 54 56 55Eurozone -21 -21 -19UK 2 4 5Japanese -15 -21 -19Global Emg Mkt -18 -19 -21

US

Euro

UK

Japan

GEM

US

US

UK

Euro

Japan

GEM

UK

EuroGEM

Japan

US improvement – Japan and Eurozone decline



Chart 21: Net % Think Currency Will Appreciate / Depreciate the Most5-12-05

2001 2002 2003 2004 2005-80

-60

-40

-20

0

20

40

60

80

EUROUS DOLLARYEN Source: DATASTREAM

Chart 22: Net % Would Overweight the Region on a 12-month View5-12-05

2001 2002 2003 2004 2005 2006-60

-50

-40

-30

-20

-10

0

10

20

30

40

USEUROZONEUK

JAPANGEM

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Source: DATASTREAM

Chart 23: Implied Currency Pair Trade (Selected Trades)

0

5

10

15

20

25

30

35

40

45

50

5/01

8/01

11/0

1

2/02

5/02

8/02

11/0

2

2/03

5/03

8/03

11/0

3

2/04

5/04

8/04

11/0

4

2/05

5/05

8/05

long $-short ¥

long E-short $

long ¥-short $

long $-short E

Over the next 12 months, which currency doyou expect to appreciate / depreciate the moston a trade-weight basis?% saying: May Apr MarAppreciate USD 29 30 26

EUR 11 19 23YEN 37 33 38

Depreciate USD 38 42 50EUR 34 29 27YEN 5 9 4

Net USD -8 -12 -24EUR -23 -10 -4YEN 32 24 34

Over the next 12 months, which region wouldyou most like to overweight / underweight?% saying: May Apr MarMost US 12 7 6


Least US 47 52 52Eurozone 11 9 10UK 11 10 15Japanese 7 7 7Global Emg Mkt 14 10 6

Net US -35 -45 -45Eurozone 13 21 15UK -3 -3 -10Japanese 18 25 24Global Emg Mkt 9 6 19

Table 21: Implied FX Pair Trade“Short”

“Long” USD EUR JPYDon’tKnow

USD 22 5 2EUR 11 0 0JPY 25 11 1Don’t Know 2 1 0 19

Japan

Euro

GEM

UK

US

U.S. $

¥

Japan and Eurozone equities most would overweight

Net optimism on the US$ overtakes the Euro (though the Yen is stillexpected to appreciate the most)



9. Questions on China

Table 22: Assessment of China’s Growth & InflationMay Apr Mar Feb

Get a lot stronger 4 7 8 7Get a little stronger 18 25 24 22Stay the same 33 32 37 31Get a little weaker 39 29 29 37

How do you thinkthat China’seconomy willdevelop over thenext 12 months?*

Get a lot weaker 2 2 0 1Net % Say Stronger -18 0 3 -9A lot higher 5 6 7 5A little higher 56 63 53 53the Same 25 17 24 26A little lower 8 6 11 13

In 12 months’ timedo you thinkChina’s inflationrate (in year-on-year terms) willbe... A lot lower 0 1 0 1

Net % Say Higher 52 61 48 44* includes Asia-ex-Japan panelists.

Table 23: Based on current fundamentals, do you think the ChineseRenminbi is . . .

May Apr Mar FebSignificantly overvalued (more than 15%) 4 4 4 7Moderately overvalued (between 5% & 15%) 16 16 11 12Fairly valued (between + / - 5%) 5 7 9 9Moderately undervalued (between 5% & 15%) 40 35 40 36Significantly undervalued (more than 15%) 26 26 26 27Net % Say Overvalued -47 -41 -50 -44Average % Over/Undervalued -8 -7 -8 -7Don’t Know 9 12 11 9

Table 24: If China revalued the Renminbi 10% against the US Dollartomorrow, what do you think the short-term impact on the following assetclasses might be?

% sayingPositiveImpact

NegativeImpact

No Signif.Impact

Net %SayingPositive

(LastMonth’sResults)

Don’tKnow

US Bond Prices 9 59 18 -51 -38 14US Equities 37 20 29 16 16 14Commodity Prices in USD (CRBIndex) 31 30 21 1 0 18Trade Weighted Dollar 20 52 9 -32 -15 19Trade-Weighted Yen 51 17 13 34 16 20Trade-Weighted Euro 17 30 30 -13 0 23Global Liquidity Conditions 7 43 29 -36 -28 22

Investors expect China’seconomy to weaken

A net 52% think China’sinflation will be higher over the

next year

Chart 24: Net % See Stronger ChineseEconomy / Higher Inflation Over Next12-Months

-40

-20

0

20

40

60

80

Feb-

03

Mar

-03

Apr-0

3

May

-03

Jun-

03

Jul-0

3

Aug-

03

Sep-

03

Oct

-03

Nov

-03

Dec

-03

Jan-

04

Feb-

04

Mar

-04

Apr-0

4

May

-04

Jun-

04

Jul-0

4

Aug-

04

Sep-

04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb-

05

Mar

-05

Apr-0

5

May

-05

Net % See Stronger EconomyNet % See Higher Inflation

A net 47% of investors think theChinese renminbi is

undervalued; on average, theysee this undervalution at

around 8%

Investors think the near-termimpact of a renminbi

revaluation would be mostnegative for US bond prices and

for global liquidity conditions



10. Global Sectors

Chart 25: This Month’s Snapshot – Current Sector Positioning

Discretionary

Banks

Utilities

Tech

Insurance

Materials

Industrials

Staples

Telecoms

Energy

Pharma

-35 -25 -15 -5 +5 +15 +25 +35<= underweight // overweight =>

� Sector Positions and Sector Performance Relative to World

Chart 26: Net % Overweight Banks5-12-05

2002 2003 2004 2005-25

-20

-15

-10

-5

0

5

10

15

84

86

88

90

92

94

96

98

100

102

NET % OVERWEIGHT BANKSBANKS (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 27: Net % Overweight Energy5-12-05

2002 2003 2004 2005-10

-5

0

5

10

15

20

25

30

35

75

80

85

90

95

100

105

110

NET % OVERWEIGHT ENERGYENERGY (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Table 25: Current SectorPositions

May-05 Apr-05 Mar-05Banks -20 -14 -9Discretionary -29 -15 -11Energy +24 +21 +29Industrials +4 +12 +20Insurance +0 +4 +3Materials +2 +5 +11Pharma +33 +14 +10Staples +8 +0 -7Tech -9 -11 -3Telecoms +10 +10 +12Utilities -13 -21 -25

Banks% saying: May Apr MarAggressively Overweight 1 3 2Moderately Overweight 11 14 15Neutral 24 18 24Moderately Underweight 25 26 22Aggressively Underweight 7 5 4Net % Overweight -20 -14 -9

Energy% saying: May Apr MarAggressively Overweight 8 9 12Moderately Overweight 27 26 26Neutral 23 20 21Moderately Underweight 9 11 7Aggressively Underweight 2 3 2Net % Overweight 24 21 29

Pharma weight surges –now the sector most

overweight!

Underweight banks

Still overweight energy



Chart 28: Net % Overweight General Industries5-12-05

2002 2003 2004 2005-15

-10

-5

0

5

10

15

20

25

30

35

40

88

90

92

94

96

98

100

102

NET % OVERWEIGHT GENERAL INDUSTRIALSGENERAL INDUS. (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 29: Net % Overweight Insurance5-12-05

2002 2003 2004 2005-30

-25

-20

-15

-10

-5

0

5

10

15

20

90

95

100

105

110

115

120

NET % OVERWEIGHT INSURANCEINSURANCE (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 30: Net % Overweight Basic Materials5-12-05

2002 2003 2004 2005-10

-5

0

5

10

15

20

25

30

35

40

70

75

80

85

90

95

100

105

NET % OVERWEIGHT BASIC MATERIALSBASIC MATS (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 31: Net % Overweight Pharma/Health5-12-05

2002 2003 2004 2005-15

-10

-5

0

5

10

15

20

25

30

35

95

100

105

110

115

120

125

130

135

140

NET % OVERWEIGHT PHARMA/HEALTHCAREPHARMAS (-3M=100)(R.H.SCALE)

Source: DATASTREAM

General Industrials% saying: May Apr MarAggressively Overweight 4 6 7Moderately Overweight 19 23 24Neutral 27 21 25Moderately Underweight 17 15 10Aggressively Underweight 2 2 1Net % Overweight 4 12 20

Insurance% saying: May Apr MarAggressively Overweight 4 5 3Moderately Overweight 16 19 19Neutral 28 22 25Moderately Underweight 18 15 14Aggressively Underweight 2 5 5Net % Overweight 0 4 3

Basic Materials% saying: May Apr MarAggressively Overweight 4 7 8Moderately Overweight 21 19 20Neutral 20 21 22Moderately Underweight 17 13 13Aggressively Underweight 6 8 4Net % Overweight 2 5 11

Pharma / Healthcare% saying: May Apr MarAggressively Overweight 11 6 5Moderately Overweight 29 25 24Neutral 20 19 20Moderately Underweight 5 13 12Aggressively Underweight 2 4 7Net % Overweight 33 14 10

Small overweight insurance

Materials weight falls

Pharma overweight surges this month!

Industrials weight declines



Chart 32: Net % Overweight Consumer Staples5-12-05

2002 2003 2004 2005-40

-30

-20

-10

0

10

20

30

95

100

105

110

115

120

125

130

NET % OVERWEIGHT CONSUMER STAPLESSTAPLES (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 33: Net % Overweight Technology5-12-05

2002 2003 2004 2005-50

-40

-30

-20

-10

0

10

20

30

80

90

100

110

120

130

140

150

160

NET % OVERWEIGHT TECHNOLOGYTECHNOLOGY (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 34: Net % Overweight Telecoms5-12-05

2002 2003 2004 2005-50

-40

-30

-20

-10

0

10

20

30

88

90

92

94

96

98

100

102

104

106

108

110

NET % OVERWEIGHT TELECOMSTELECOMS (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 35: Net % Overweight Utilities5-12-05

2002 2003 2004 2005-50

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

86

88

90

92

94

96

98

100

102

104

NET % OVERWEIGHT UTILITIESUTILITIES (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Consumer Staples% saying: May Apr MarAggressively Overweight 5 3 1Moderately Overweight 21 20 18Neutral 23 21 23Moderately Underweight 15 18 19Aggressively Underweight 3 5 7Net % Overweight 8 0 -7

Tech% saying: May Apr MarAggressively Overweight 2 2 3Moderately Overweight 17 17 16Neutral 21 18 26Moderately Underweight 18 19 15Aggressively Underweight 10 11 7Net % Overweight -9 -11 -3

Telecoms% saying: May Apr MarAggressively Overweight 5 3 4Moderately Overweight 23 23 24Neutral 22 26 23Moderately Underweight 12 13 13Aggressively Underweight 6 3 3Net % Overweight 10 10 12

Utilities% saying: May Apr MarAggressively Overweight 4 3 0Moderately Overweight 10 10 10Neutral 27 22 22Moderately Underweight 19 24 22Aggressively Underweight 8 10 13Net % Overweight -13 -21 -25

Overweight telecoms

Underweight utilities

Underweight tech

Overweight staples



Global Sector Valuation

Table 26: Which Sector is the MostOver/Undervalued?

Net % Saying Over(Under) May-05 Apr-05 Mar-05 Feb-05Banks +1 +2 -3 -3Discretionary +1 +5 +5 -1Energy +1 -2 +11 -1Industrials -1 -4 -5 -3Insurance -6 -11 -14 -6Materials +11 +7 +8 +11Pharma -34 -30 -31 -28Staples +5 +3 +2 +2Tech +25 +27 +21 +29Telecoms -6 -3 -5 -8Utilities +2 +6 +10 +9

Chart 36: Sector Valuation Assessment

Tech

Materials

Staples

Utilities

Discretionary

Energy

Banks

Industrials

Telecoms

Insurance

Pharma

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

undervalued // overvalued

� Global Sector Positions vs Sector Valuation

Chart 37: Banks Weight & Valuation

M ay Apr

MarFeb

Jan

D ec

N ov

OctSep

Aug

Jul

Jun

-15

-10

-5

0

5

-25 -20 -15 -10 -5 0 5 10 15 20 25

UnderweightOvervalued

OverweightOvervalued

UnderweightUndervalued

OverweightUndervalued

Chart 38: Energy Weight & Valuation

Jun

Jul

Aug

Sep Oct

Nov

D ecJan

F eb

Apr

Mar

May

-15

-10

-5

0

5

10

15

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





Chart 39: Industrials Weight & Valuation

Jun

Jul

Aug

Sep

Oct

N ov

Dec

Jan

F eb

Mar

Apr

May

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

-5 0 5 10 15 20 25





Chart 40: Insurance Weight & Valuation

Jun

Jul

Aug

Sep

Oct

Nov

D ec

JanF eb

Mar

Apr

May

-15

-10

-5

0

5

10

15

-5 -3 -1 1 3 5 7 9





Tech is seen asexpensive

Pharma seen ascheap



Chart 41: Materials Weight & Valuation

May

Apr

Mar

F eb

JanDec

N ov

Oct

Sep

Aug

Jul

Jun

-10

-5

0

5

10

15

-5 0 5 10 15 20





Chart 42: Pharma Weight & Valuation

Jun

Jul

Aug

Sep

Oct

N ov

D ec

Jan

Feb

M ar Apr May

-35

-30

-25

-20

-15

-10

-5

0

5

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





Chart 43: Staples Weight & Valuation

May

AprMar

F ebJan

Dec

N ov

oct

Sep

Aug

Jul

Jun

-10

-5

0

5

10

15

-25 -20 -15 -10 -5 0 5 10





Chart 44: Technology Weight & Valuation

Jun

Jul

Aug

Sep

Oct

N ov

Dec

Jan

Feb

Mar

Apr

May

-20

-10

0

10

20

30

40

50

-25 -20 -15 -10 -5 0 5 10 15 20 25





Chart 45: Telecoms Weight & Valuation

May

Apr

Mar

Feb

Jan

D ecN ov

Oct

Sep

Aug

Jul

Jun

-12

-10

-8

-6

-4

-2

0

2

4

-10 -5 0 5 10 15 20 25





Chart 46: Utilities Weight & Valuation

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

SepAug

Jul

Jun

-10

-5

0

5

10

15

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10

UnderweightOvervalued Overweight

Overvalued





Asset Allocation

Investors who answer this section are involved with the global assetallocation of their fund.

The sample size is slightly smaller.



11. Asset Allocation

Table 27: What is Your Current Equity Weighting in a Global Mixed Fund?% saying: May Apr Mar Feb25% or less 5 4 4 530% 4 2 3 335% 5 6 6 440% 3 3 2 345% 7 7 5 450% 12 9 10 1255% 15 17 16 1160% 8 13 12 1765% 12 9 14 1270% 7 7 4 675% or more 7 7 7 8Mean Weight (%) 53 54 54 55DK / Refused 16 18 16 15

Table 28: Over the next 12 months, do you expect corporate / high yield bondsto outperform government (sovereign) bonds?% saying: May Apr Mar FebYes 12 18 19 24No 73 60 52 51No preference - total returns will be similar 12 15 19 17Net % Think Corporates Will Outperform -61 -42 -33 -27Don’t Know 4 7 11 8

Chart 47: % Think Corporates Will Beat Governments

-80

-60

-40

-20

+0

+20

+40

+60

Feb-

03

Apr-0

3

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-0

4

Jun-

04

Aug-

04

Oct

-04

Dec

-04

Feb-

05

Apr-0

5

Corp v Govt

Asset allocators have a 53%weighting in equities (in a

cash/bond/equity fund), thelowest since November.

Asset allocators don’t expectcorporate bonds to outperform

governments over the next year



� Assets: Current Position & Future Intentions

Chart 48: Equities

-10

0

10

20

30

40

50

60

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05

Aggressive Over(Under)Moderate Over(Under)Net % Increasing Position

Chart 49: Bonds

-70

-60

-50

-40

-30

-20

-10

0

10

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Chart 50: Cash

-40

-30

-20

-10

0

10

20

30

40

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Note: all data prior to April 2001 is estimated from regional asset allocationdata.

Equities% saying: May Apr MarAggressively Overweight 4 3 7Moderately Overweight 50 56 61Neutral 21 17 15Moderately Underweight 14 13 6Aggressively Underweight 3 3 3Net % Overweight 37 43 59Increase 23 18 24Decrease 20 26 20Net % Increasing 3 -8 4

Bonds% saying: May Apr MarAggressively Overweight 2 1 1Moderately Overweight 7 6 7Neutral 18 17 14Moderately Underweight 44 52 50Aggressively Underweight 16 13 15Net % Overweight -51 -58 -57Increase 16 17 9Decrease 18 17 24Net % Increasing -2 0 -15

Cash% saying: May Apr MarAggressively Overweight 7 4 3Moderately Overweight 31 29 25Neutral 35 44 40Moderately Underweight 13 9 17Aggressively Underweight 1 2 2Net % Overweight 24 22 9Increase 16 21 19Decrease 22 14 13Net % Increasing -6 7 6

Current net % overweight equities equalslevel in November



� Equity Allocation: Position & Intentions

Chart 51: US Equities

-50

-40

-30

-20

-10

0

10

20

30

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Chart 52: Eurozone Equities

-20

-10

0

10

20

30

40

50

60

70

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Chart 53: UK Equities

-40

-30

-20

-10

0

10

20

30

40

50

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


U.S. Equities% saying: May Apr MarAggressively Overweight 2 1 1Moderately Overweight 18 14 16Neutral 19 16 21Moderately Underweight 35 39 38Aggressively Underweight 17 19 15Net % Overweight -32 -43 -36Increase 18 12 15Decrease 12 16 11Net % Increasing 6 -4 4

Eurozone Equities% saying: May Apr MarAggressively Overweight 9 11 9Moderately Overweight 44 45 48Neutral 22 25 23Moderately Underweight 14 9 11Aggressively Underweight 2 1 1Net % Overweight 37 46 45Increase 12 13 15Decrease 14 18 15Net % Increasing -2 -5 0

UK Equities% saying: May Apr MarAggressively Overweight 3 3 1Moderately Overweight 19 22 19Neutral 35 32 39Moderately Underweight 25 26 26Aggressively Underweight 5 6 6Net % Overweight -8 -7 -12Increase 13 10 7Decrease 9 14 11Net % Increasing 4 -4 -4

Underweight US equities

Overweight Eurozone equities

Very small underweight on UK



Chart 54: Japanese Equities

-60

-40

-20

0

20

40

60

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Chart 55: Global Emerging Market Equities

-30

-20

-10

0

10

20

30

40

50

60

1/99

5/99

9/99

1/00

5/00

9/00

1/01

5/01

9/01

1/02

5/02

9/02

1/03

5/03

9/03

1/04

5/04

9/04

1/05

5/05


Chart 56: Current Country Overweights vs Valuation Perceptions (Asset Allocators)

GEM equities

Eurozone equities

UK equities

Japan equities

US equities

-60

-40

-20

+0

+20

+40

+60

+80

-50 -40 -30 -20 -10 +0 +10 +20 +30 +40 +50

unde rwe ig htove rvalued

unde rwe ig htund e rvalue d

ove rwe ightove rvalued

ove rwe ig htund e rvalue d

Japanese Equities% saying: May Apr MarAggressively Overweight 7 7 9Moderately Overweight 35 42 38Neutral 34 24 27Moderately Underweight 10 12 12Aggressively Underweight 4 4 6Net % Overweight 28 33 29Increase 15 15 22Decrease 14 14 9Net % Increasing 1 1 13

GEM Equities% saying: May Apr MarAggressively Overweight 10 8 10Moderately Overweight 35 34 39Neutral 26 30 27Moderately Underweight 11 7 9Aggressively Underweight 4 4 2Net % Overweight 30 31 38Increase 14 9 14Decrease 16 18 15Net % Increasing -2 -9 -1

US equities are seen as themost expensive – asset

allocators are underweight

Eurozone, Japan and GEMare all overweight and

undervalued

GEM weight continues to decline

Japan weight falls decline



12. Currency Valuation

Table 29: Based on current fundamentals, do you think each of the followingcurrencies are . . .

May Apr Mar FebOvervalued 38 38 39 34Fairly Valued 20 21 18 23Undervalued 31 31 34 31Net % Saying Overvalued 7 7 5 3

U.S. Dollar

Don’t Know 11 10 10 12Overvalued 15 17 18 16Fairly Valued 24 25 19 27Undervalued 46 46 48 41Net % Saying Overvalued -31 -29 -30 -25

Japanese Yen

Don’t Know 15 12 15 16Overvalued 49 50 53 46Fairly Valued 27 24 25 26Undervalued 14 16 13 16Net % Saying Overvalued 35 34 40 30

Euro

Don’t Know 10 9 10 12Overvalued 41 40 37 39Fairly Valued 35 36 40 35Undervalued 8 8 5 8Net % Saying Overvalued 33 32 32 31

Sterling

Don’t Know 16 17 18 17Overvalued 8 8 5 6Fairly Valued 13 24 15 16Undervalued 49 40 50 48Net % Saying Overvalued -41 -32 -45 -42

Global Emerging MarketCurrencies

Don’t Know 30 27 30 30

Chart 58: USD Valuation & Trade Weight Chart 59: Euro Valuation & Trade Weight5-12-05

2002 2003 2004 2005-20

-10

0

10

20

30

40

50

60

95

100

105

110

115

120

125

130

135

% say US$ OvervaluedTrade Weight $ (-3M=100)(R.H.SCALE)

Source: DATASTREAM

5-12-05

2002 2003 2004 2005-80

-60

-40

-20

0

20

40

60

82

84

86

88

90

92

94

96

98

100

102

104

% say Euro OvervaluedTrade Wgt Euro (-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 60: Yen Valuation & Trade Weight Chart 61: Sterling Valuation & Trade Weight5-12-05

2002 2003 2004 2005-40

-30

-20

-10

0

10

20

30

40

92

93

94

95

96

97

98

99

100

101

102

103

% say Yen OvervaluedTrade Wgt Yen (-3M=100)(R.H.SCALE)

Source: DATASTREAM

5-12-05

2002 2003 2004 20050

5

10

15

20

25

30

35

40

45

94

96

98

100

102

104

106

%say Sterling OvervaluedTrade Wght GBP(-3M=100)(R.H.SCALE)

Source: DATASTREAM

Chart 57: FX Valuation Snapshot

EUR GBP

USD

JPY

GEM-45

-35

-25

-15

-5

5

15

25

35

45

undervalued Yen Overvalued sterling

Yen & GEM currencies seenas cheap – euro, sterling

overvalued



Table 30: Relative to your benchmark, do you currently have unhedgedexposure to any of the following currencies?

May Apr Mar FebOverweight 15 17 11 19Underweight 31 26 34 31None 22 25 27 20Net % Overweight -16 -9 -23 -12

U.S. Dollar

Not Applicable / Don’t Know 32 32 29 31Overweight 25 22 26 22Underweight 12 12 10 13None 32 32 34 32Net % Overweight 13 10 16 9

Japanese Yen


Euro

Not Applicable / Don’t Know 34 34 29 33Overweight 14 12 14 12Underweight 20 16 17 19None 33 38 40 35Net % Overweight -6 -4 -3 -7

Sterling


Global Emerging MarketCurrencies

Not Applicable / Don’t Know 37 38 37 40

Chart 62: Currency Positions (Net % With Unhedged Exposure)

GEM

JPY EUR

GBP

USD-20

-15

-10

-5

0

5

10

15

20

25

Investors are underweight thedollar

Overweight the Yen . . .

Overweight the Euro

Underweight sterling

Overweight emerging marketcurrencies



13. Demographic Data

Table 31: Position / Institution / Approach to Global Equity Strategy% saying: May Apr Mar FebStructure of the Panel(# saying)Global Specialists 153 152 141 149Regional Specialists With A Global View 92 87 84 93Regional Specialists Only 94 84 76 77Total # of Respondents to Global Questions 246 240 226 243Total number involved in Global Asset Allocation 182 181 176 186Which of the Following Best Describes the Type of Money You are Running?(% saying)Institutional Fund 58 56 55 56Hedge Fund 8 8 9 7Retail Fund 25 26 28 28Other 9 9 9 10What Do You Estimate to be the Total Current Value of Assets Under Your Direct Control?(% saying)Up to $250mn 14 15 17 17Around $500mn 13 12 13 12Around $1bn 16 13 13 12Around $2.5bn 8 8 9 10Around $5bn 8 8 6 9Around $7.5bn 2 5 5 4Around $10bn or more 18 18 18 17No Funds Under Direct Control 21 22 20 19Total Responding to Global Questions (USDbn) 688 709 659 701Total, Including Regional Specialists (USDbn) 1057 1060 994 1067

� Additional information on how the survey works

Taylor Nelson Sofres (TNS) begins fieldwork on the day the U.S. payroll data isreleased. Fieldwork continues through the following week and is closed on thefollowing Thursday. TNS sends a link containing the unprocessed results to itssurvey panelists on Friday. If you would like to become a panelist, please [email protected] or contact Sarah Franks. All bona fide institutional fund managersare invited to participate in the panel.

If you have a moment, we do recommend you take a look at the Taylor NelsonSofres (TNS) web site that displays all the results from the latest survey (the URLfor the site is below). The results site has a breakdown of global specialists andregional specialists, and also features the results from the regional questionnaires.

See the May 2005 results in English at:http://online.tns-global.com/multimedia/ml/may2005_xp2.htm

and in Japanese at:http://online.tns-global.com/multimedia/ml/may2005_xpj.htm

Merrill Lynch makes no representations or warranties whatsoever as to the dataand information provided in any referenced website and shall have no liability orresponsibility arising out of or in connection with any referenced website. MerrillLynch did not gather the data for this survey. The content displayed on the websiteis the responsibility of Taylor Nelson Sofres (TNS).



14. Comparing the Fund Manager Survey andthe Global Investor Survey

About The Global Fixed Income Investor Survey

The Merrill Lynch Global FX & Debt Investor Survey (“Global Investor Survey”) isa long-running survey for fixed income managers. The fieldwork for the GlobalInvestor Survey and the Fund Manager Survey is conducted at the same time – buteach survey has a completely separate panel of respondents. There are five“crossover” questions that we ask both groups of investors. On these two pages, wecompare their responses to these five questions.

Table 32: Equity Fund Managers vs Fixed Income Managers

May Apr Mar Feb JanNet % Think Bonds Are OvervaluedEquity Fund Managers 68 67 73 71 71Bond Fund Managers 76 56 55 77 55Net % Prefer Corporate Bonds to Government BondsEquity Fund Managers -61 -42 -33 -27 -37Bond Fund Managers -54 -53 -37 -42 -33Net % Expecting Higher Short Rates in 12M TimeEquity Fund Managers 80 90 94 89 90Bond Fund Managers 91 95 92 96 93Net % Expecting Higher Long Rates in 12M TimeEquity Fund Managers 63 69 79 66 77Bond Fund Managers 71 70 71 61 70



Chart 63: Net % Think Bonds are Overvalued

-40

-30

-20

-10

0

10

20

30

40

50

60

70

80

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-0

4

Jun-

04

Aug-

04

Oct

-04

Dec

-04

Feb-

05

Apr-0

5

Equity FMsBond FMs

overvalued

undervalued

Chart 64: Net % Think Corporate/High-Yield Bonds WillOutperform Government Bonds

-45

-35

-25

-15

-5

5

15

25

35

45

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-0

4

Jun-

04

Aug-

04

Oct

-04

Dec

-04

Feb-

05

Apr-0

5

Equity FMsBond FMs

expect corp/HY to outperform

Chart 65: Net % Think Short Rates Will Be Higher in 12m

-40

-20

0

20

40

60

80

100

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-0

4

Jun-

04

Aug-

04

Oct

-04

Dec

-04

Feb-

05

Apr-0

5

Equity FMsBond FMs

expect higher short rates

expect lower short rates

Chart 66: Net % Think Long Rates Will Be Higher in 12m

0

10

20

30

40

50

60

70

80

90

6/03

8/03

10/0

3

12/0

3

2/04

4/04

6/04

8/04

10/0

4

12/0

4

2/05

4/05

Equity FMsBond FMs

expect higher long rates



Important Disclosures

Investment Rating Distribution: Global Group (as of 31 March 2005)Coverage Universe Count Percent Inv. Banking Relationships* Count PercentBuy 1060 39.91% Buy 368 34.72%Neutral 1379 51.92% Neutral 403 29.22%Sell 217 8.17% Sell 44 20.28%

* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months.

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, indicators of expected total return (price appreciationplus yield) within the 12-month period from the date of the initial rating, are: 1 - Buy (10% or more for Low and Medium Volatility Risk Securities - 20% or more forHigh Volatility Risk securities); 2 - Neutral (0-10% for Low and Medium Volatility Risk securities - 0-20% for High Volatility Risk securities); 3 - Sell (negativereturn); and 6 - No Rating. 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.

The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of MerrillLynch, including profits derived from investment banking revenues.

Copyright 2005 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has beenprepared and issued by MLPF&S and/or one of its affiliates and has been approved for publication in the United Kingdom by Merrill Lynch Pierce, Fenner & Smith Limited,which is authorized and regulated by the Financial Services Authority; has been considered and distributed in Australia by Merrill Lynch Equities (Australia) Limited (ABN 65006 276 795), licensed under the Australian Corporations Act, AFSL No 235132; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co, Ltd, aregistered securities dealer under the Securities and Exchange Law in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Ltd, which is regulated by the HongKong SFC; and is distributed in Singapore by Merrill Lynch International Bank Ltd (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd (Company Registration No.198602883D), which are regulated by the Monetary Authority of Singapore. The information herein was obtained from various sources; we do not guarantee its accuracy orcompleteness.

This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives,financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness ofinvesting in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not berealized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors mayreceive back less than originally invested. Past performance is not necessarily a guide to future performance.

Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts.Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in

securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

global fund manager survey

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