Merrill Lynch Introduces New Institutional Tactical Asset Allocation Product

Business Wire, March 3, 2000

Business Editors

NOTE TO MEDIA: Chart and Photo available on BW PhotoWire/AP

PhotoExpress, NewsCom, PressLink and on

Business Wire's Web site at www.businesswire.com

NEW YORK--(BUSINESS WIRE)--March 3, 2000

Merrill Lynch today introduced its new Institutional Tactical Asset Allocation, a one-year asset allocation product created by David Bowers, Chief Global Investment Strategist, and his team, as a benchmark for U.S. institutional clients.

The asset allocation weights stocks 50%, bonds 30%, commodities 5% and cash 15%.

This model is distinct from the five Investor Profile asset allocation models used for the firm's Private Client investors, which take into account an individual's overall investment objective and risk tolerance over a three- to five-year period. Those models are: Aggressive Growth (80% stocks, 10% bonds, 10% cash); Long Term Growth (60%-70% stocks, 25%-30% bonds, 5%-10% cash); Income & Growth (40%-45% stocks, 45%-50% bonds, 10% cash); Current Income (30% stocks, 60% bonds, 10% cash); and Capital Preservation (10% stocks, 55% bonds, 35% cash).

"As you can see our largest weighting, 50%, is in equities," said Mr. Bowers. "While growth and inflation expectations are still rising, we think it is too early to overweight bonds and therefore we believe it is prudent to maintain 15% in cash in the event that monetary policy may be tightened more than expected."

The institutional asset allocation is based on a new "Merrill Lynch Investment Clock(SM)"(see attached chart(1)), a process that links both asset class and sector rotation to the current position of the business cycle. The "Clock" is divided into four phases, each of which is dominated by a particular asset class: stocks, commodities, bonds or cash:

- Phase I (defensive growth) starts when inflation expectations peak some time
in an economic downturn. This environment tends to be bond-friendly. It is a
phase that would favor financially sensitive sectors, such as insurance and
non-cyclical growth sectors as the pharmaceuticals. This is an environment when
pricing power is weakening.

- Phase II (cyclical growth) begins once expectations for economic growth have
responded to the easing of monetary policy and leading indicators, such as the
yield curve slope turning upward. At this stage of the cycle, there is
substantial spare capacity in the economy and no fear of inflation. It tends to
be an attractive environment for equities, such as telecom, media and
technology, and can be a particularly poor environment for cash.

- Phase III (cyclical value) is when cyclical and resource stocks, such as
mining, oil and paper should start to outperform. It tends to be characterized
by a tightening of monetary policy. This phase eventually ends when leading
indicators turn down and the yield curve flattens.

- Phase IV (defensive growth) is characterized by economic stagnation and
inflation. It starts when growth expectations peak but rising inflation
expectations do not. This phase tends to occur when central banks slam on the
brakes when an economy is booming which causes deterioration in productivity
and a "hard landing". The sectors that outperform are defensive value sectors
such as utilities, food producers, and tobacco.

"The recent sector rotation in the market," Mr. Bowers explained, "leaves little doubt that the market is convinced it is in Phase II with its emphasis on economically sensitive growth stocks, epitomized by the outperformance in telecom-media-technology and the chronic underperformance of many of the traditional defensives."

However, Mr. Bowers observed that macroeconomic indicators increasingly suggest that the "Clock" may have already moved into Phase III, and that commodities have beaten the three traditional asset classes over the past 12 months. "This could be a growing source of tension in the marketplace," he said.

Merrill Lynch is one of the world's leading financial management and advisory companies with offices in 43 countries and total client assets exceeding $1.7 trillion. As an investment bank, it is the top global underwriter and market maker of debt and equity securities and a leading strategic advisor to corporations, governments, institutions, and individuals worldwide. Through its Asset Management Group, the company is one of the world's largest managers of financial assets, which total approximately $557 billion.

A full copy of Mr. Bowers' report is available upon request.

(1) (Chart and photo are available via Associated Press Photo wire.)

Note: Chart and Photo are available at URL: http://www.businesswire.com/cgi-bin/photo.cgi?pw.030300/bw1