Preferred securities Investment ideas after this week's action

Chief Investment Office GWM | 28 February 2020 5:29 pm EST Frank Sileo, CFA, Sr. Credit Strategist Americas, frank.sileo@.com; Daniel Kelsh, Sr. Credit Strategist Americas, [email protected]; Barry McAlinden, CFA, Sr. Credit Strategist Americas, [email protected]; Sangeeta Marfatia, Senior CEF Strategist Americas, [email protected]

• Over the past week, preferreds have sold off along with other risk assets as investors aggressively re-price risk and push yield premiums higher. With Treasury rates falling dramatically and preferred yields climbing, relative value has improved considerably. • If one believes that we're in a new, long-term 10-year Treasury yield range (below 1.5%) then, in that context, coupled with the gapping out of yield premiums, the preponderance of bank preferreds look quite attractive at these levels. However, we continue to apply our framework, in which we look for preferreds with attractive yields on the basis of both a yield- to-call and yield-to-perpetuity / current yield. • For High Yield Issuer preferreds, trading volatility has produced incremental yield opportunities. We caution investors that ETFs and investment vehicles may still become forced sellers introducing downward pressure on trading levels.

Better value Over the past week, preferreds have sold off along with other risk assets as investors aggressively re-price risk and push yield premiums (credit spreads) higher. The sector went into this decline from somewhat 'overvalued' levels (we have had a slight Underweight position since the end of 2019). However in the wake of this week's pull back, the sector valuation has become considerably more attractive.

The ICE Core Plus Preferred Index tracks USD 25 par preferreds totaling about $140bn. Two weeks ago, 96% of the index traded at a premium over par with about 9% of the total trading with a negative yield-to-call (YTC). In the wake of this week's pullback, valuation has improved with 88% trading at premiums and just under 4% with negative YTC. Two weeks ago, the average yield on USD 25 pars reached historic lows of roughly 3 ½%. Since then, it has climbed by 50 to 70bps while the 10 year Treasury yield has fallen by about 40 bps (see Figure 1).

The spreads on preferred securities have widened out more than their underlying credit fundamentals would suggest. The credit spreads for US banks senior unsecured bonds have widened by 17bps over the past week, which is in line with the broad IG corporate market. The selling pressure that has impacted preferreds stems from a widening of subordination premiums, which is

This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures begin on page 6.

Preferred securities

the additional spread that the preferred provides above senior unsecured bonds. For example, JPM pr C with a YTC Fig. 1: Preferred yields have risk while Treasury rates have dropped of 4% to a 3/1/24 call date has a spread-to-call ratio of 5x 10-year Tsy yield, USD25 par preferred yield in % that of JPM senior bond maturing at the same time. The spread ratio normally averages about 3-4x in more stable 6.0 market conditions (see Figure 2). 5.0 4.0 In this report we identify specific preferred securities for 3.0 investor consideration. Additionally, closed-end fund (CEF) 2.0 analyst Sangeeta Marfatia notes that preferred CEFs have not 1.0 been spared from the selloff. Funds in her coverage universe US Treasury Preferreds were trading at premiums until late last week. Investors tend to sell funds trading at a premium at a much faster pace. In Source: Bloomberg, ICE, as of 27 February 2020. Note: Adjusted yield on the ICE Core Plus Preferred INdex addition, leverage adds further volatility in times like these.

Preferred funds were down 10% on average this week alone, much more than their underlying net asset value (NAV) decline of 5%. This often happens due to leverage Fig. 2: Ratio of YTC spread / senior bond spread and illiquidity of the CEF market. Sangeeta further notes that JPM pr C vs JPM 3.875% 2/01/24 these funds were up well over 30% in 2019. This group is 6.0 trading at a slight discount but still not cheap in our opinion. 5.0 Please refer to the table below for list of preferred funds covered and relevant data. 4.0 3.0

Specific ideas 2.0 The declines in Treasury yields have been nothing short of breathtaking. The key question is, "how sustainable is this 1.0 move?" If one believes that we're in a new, long-term 0.0 regime with a 10-year Treasury yield range of 1.0% - 1.25% Feb-19 May-19 Aug-19 Nov-19 Feb-20 then in that context, coupled with the gapping out of yield premiums, the preponderance of bank preferreds look quite Source: ICE, UBS, as of 28 February 2020 attractive at these levels. However we continue to apply our valuation framework in which we look for preferreds with attractive yields on the basis of both a yield to call and yield- to-perpetuity / current yield. This allows us to identify recommendations that should offer better price stability if preferreds extend beyond the first call date if market yields continue to rise. A further rise in preferreds yields may be attributable to a continued climb in risk premiums (near- term) or potentially due to inflation concerns (longer-term). The preferred ideas offer relative value along the YTC – YTP spectrum. Additionally, we've long believed that the discounted, perpetual floor-coupon preferreds can provide good trading opportunities. Some of these look attractive on a pure YTP / current yield basis (these have very low call probability, with little chance of floating). A word of caution: The current market action appears similar to that which we saw in November and December 2018, which provided an opportunistic buy-opportunity for nimble investors. However, that crisis was arguably created by Fed miscommunication and was thus easily corrected when the Fed took an 180 degree turn in messaging. In the current scenario, it is less clear what statement, action or news item will provide the catalyst for risk premium compression.

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Preferred securities

Investment ideas – 28 February 2020 Issuer Symbol/ 18-Feb-2020 28-Feb-2020 Price CUSIP Price USD YTC (%) CY (%) Price USD YTC (%) CY (%) Change Core Issuers QDI / Not NRA-eligible Brighthouse Financial BHFAP $28.41 3.3% 5.8% $26.50 5.1% 6.2% (6.7%) Huntington Bancshares HBANN $26.36 2.7% 5.6% $25.51 5.0% 5.7% (3.2%) J.P. Morgan Chase JPM pr C $27.84 2.9% 5.4% $26.86 4.0% 5.6% (3.5%) #N/A Invalid KeyCorpSecurity KEY pr K $27.66 2.7% 5.2% $25.88 5.3% 5.5% (6.5%) Goldman Sachs (perpetual floor) GS pr A $22.90 n/a 4.1% $21.00 n/a 4.5% (8.3%) Interest income / NRA-eligible Brighthouse BHFAL $27.50 3.6% 5.7% $25.77 5.4% 6.0% (6.3%) Unum Group UNMA $27.51 3.4% 5.7% $25.82 5.5% 6.0% (6.1%) Source: Bloomberg, UBS, as of 28 February 2020 YTW = "yield to worst" is the lowest estimated yield among possible redemption date scenarios QDI = indicates that the security pays dividend income that qualifies for the reduced dividend tax rates to individuals. NRA-eligible = non-US holders are not subject to additional withholding Not NRA-eligible = non-US holders are subject to additional withholding (unless relevant IRS forms are filed).

Investment ideas – 28 February 2020 Issuer Symbol/ 18-Feb-2020 28-Feb-2020 Price CUSIP Price USD YTC (%) CY (%) Price USD YTC (%) CY (%) Change High Yield Issuers Interest income / NRA-eligible NuStar Logistics NSS $26.45 (52.4%) 8.1% $24.65 n/a 8.7% (6.8%) Teekay LNG Partners TGP pr B $25.58 8.2% 8.3% $23.88 9.5% 8.9% (6.7%) REITs / Partnerships / Not NRA-eligible AGNC Investment Corp AGNCO $25.91 5.7% 6.3% $24.88 6.8% 6.5% (4.0%) Annaly Capital Mgmt NLY pr F $26.16 5.4% 6.6% $25.02 6.5% 6.9% (4.4%) DCP Midstream LP (K-1) DCP pr B $25.05 8.3% 7.9% $22.04 12.3% 8.9% (12.0%) Energy Transfer Part. (K-1) ETP pr D 7.0% 7.5% 9.8% 8.1% (7.9%) $25.52 $23.49 Source: Bloomberg, UBS, as of 28 February 2020 YTW = "yield to worst" is the lowest estimated yield among possible redemption date scenarios QDI = indicates that the security pays dividend income that qualifies for the reduced dividend tax rates to individuals. NRA-eligible = non-US holders are not subject to additional withholding Not NRA-eligible = non-US holders are subject to additional withholding (unless relevant IRS forms are filed).

Preferred close-end funds Premium Distribution Fund Symbol Rating Price NAV (Discount) Dividend rate (a) Leverage Cohen & Steers Limited Duration Preferred Income Fund LDP Hold $ 25.41 $ 26.31 -3.4% $ 1.87 7.4% 29% Cohen & Steers Select Preferred and Income Fund PSF Hold $ 29.35 $ 27.14 8.1% $ 2.06 7.0% 28% John Hancock Preferred Income HPI Hold $ 21.15 $ 20.76 1.9% $ 1.48 7.0% 34% John Hancock Preferred Income II HPF Hold $ 20.22 $ 20.43 -1.0% $ 1.48 7.3% 34% John Hancock Preferred Income III HPS Hold $ 18.06 $ 18.17 -0.6% $ 1.32 7.3% 34% Nuveen Preferred Securities Income Fund JPS Hold $ 9.50 $ 10.08 -6% $ 0.67 7.1% 35% Source: Bloomberg, UBS, as of 27 February 2020. (a) Distribution Rate: Annualized based on most recent monthly/quarterly distribution rate, as declared by the fund, divided by the current price. The rate may include investment income, short-term capital gain, long-term capital gain and or return of capital.

Credit commentary Name Investment Thesis AGNC Investment Corp. AGNC Investment Corp. is one of the largest mortgage REITs and is almost exclusively invested Issuer type: High Yield in agency MBS. AGNC was carved out from American Capital in 2016 and is now internally Issuer risk: Medium managed better aligning credit investor interests with management. Management has demonstrated experience in navigating a variety of interest rate environments.

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Preferred securities Annaly Capital Management Annaly Ca pital Management is the world's largest mortgage REIT with greater than USD Issuer type: High Yield 100bn of assets. NLY has expanded its operations via acquisition in recent years. In 2016, NLY Issuer risk: Medium completed the acquisition of Hatteras Financial increasing the company's scale and expanding its presence in adjustable rate mortgages. In 2018, NLY completed the acquisition of MTGE Investment Corp further expanding the company's asset portfolio. Brighthouse Financial Brighthouse Financial is a prov ider of annuities and life insurance products in the US. The Issuer type: Core company was a spin-off of MetLife's US retail business in August 2017. As part of a carve-out, Issuer risk: Medium management is tasked with building brand awareness as they do not benefit from the same familiarity with consumers as was afforded under the MetLife umbrella. The legacy MetLife organization does provide BHF with strong infrastructure and the rating agencies have cited the company's inherited hedging practices as a credit strength. DCP Midstream DCP Midstream is headquartered in Denver, CO and is an MLP engaged in the gathering, Issuer type: High Yield compressing, treating, processing, transporting, and storing natural gas, and fractionating, Issuer risk: Medium transporting, and storing NGLs. DCP has a diverse asset profile and is focused on fee-based activities in natural gas and NGLs which provide stability to cash flow. DCP Midstream issues K-1s. Energy Transfer Energy Transfer is an MLP that owns one of the l argest and most diverse portfolios of Issuer type: Core midstream energy assets in the US. The company owns approximately 70,000 miles of natural Issuer risk: Medium gas and natural gas liquids pipelines, as well as storage, fractionation, and related assets. The partnership's credit profile should remain stable as capital spending declines in 2020, driving balance sheet improvement. ET targets a leverage ratio between 4.0x and 4.5x and distribution coverage ratio between 1.6x and 1.9x, consistent with mid-BBB bond level ratings. Energy Transfer issues K-1s Goldman Sachs Goldman Sachs is an , securities and investment management firm that Issuer type: Core occupies market leading positions globally. Compared to deposit-oriented rivals, GS derives Issuer risk: Medium less of its revenue from net interest margin although the company's strategic plan calls for greater emphasis to be placed on consumer products. The company's meaningful exposure to advisory and capital markets activities make its earnings susceptible to volatility. Huntington Bancshares Huntington Bancshares (HBAN) is a bank holding company, doing business via its subsidiary Issuer type: Core Huntington National Bank. The company offers commercial, small business, consumer and Issuer risk: Medium mortgage banking services with a retail presence of greater than 750 branches in six states. JPMorgan Chase JPMorgan Chase is the largest US bank by assets and is among the largest banks globally. The Issuer type: Core bank is well diversified both geographically and by business mix, with significant revenues Issuer risk: Medium from corporate and consumer clients. This geographic footprint and business mix creates a balanced revenue stream that is able to take advantage of the interest rate environment and capital markets volatility. However, this business mix also results in a large balance sheet with significant risk-weighted assets and the largest supply of debt and capital securities among peers. KeyCorp KeyCorp (KEY) is a bank holding company headquartered in Cleveland, OH, doing business via Issuer type: Core its subsidiary KeyBank National Association. KEY provides a range of retail and commercial Issuer risk: Medium banking, commercial leasing, investment management, consumer , commercial mortgage servicing and special servicing, and investment banking products. NuStar Logistics NuStar Logistics (NSS) is the operating subsidiary of NuStar Energy (NS) and is the entity that Issuer type: High Yield holds midstream operating assets. NSS funds its own debt service and then dividends cash for Issuer risk: Medium NuStar Energy for distribution to common equity holders. NSS assets operate transportation and storage facilities under long-term contracts providing insulation from volatility in commodity prices. Teek ay LNG Partners Teekay LNG Partners is a Bermuda -based provider of marine transportation of liquefied natural Issuer type: High Yield gas (LNG), liquefied petroleum gas (or LPG) and crude oil products. Teekay LNG is one of Issuer risk: Medium several Teekay sister companies operating under its parent company, Teekay Corp. Collectively, these companies act as a significant player in the global commodity market positioning them well with customers. TGP benefits from positive industry tailwinds as many global import / export projects are set to come online in coming years improving the demand profile for marine transportation of LNG.

Unum Group Unum Group Is a US based provider of group plans for disability insurance, l ife insurance, and Issuer type: Core payroll deducted voluntary benefits. Although disability insurance is a niche segment of the Issuer risk: Medium industry, UNM is a dominant player in that space with a recognized brand and focuses on short-term coverage which limits potential liabilities.

Source: UBS, as of 28 February 2020

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Preferred securities

Terms and Abbreviations

Symbol / CUSIP The preferred security’s trading symbol if applicable. Otherwise, cusip is displayed.

Next Call Date The next date that the issuer has the option to redeem the security. Once a preferred security’s first call date has passed, the issuer can redeem the security at any time within 30 days' notice.

(Yield to Call). The YTC is the internal rate of return that equates the security’s strip price with YTC the sum of its total discounted cash flows to the next call date.

(Current Yield). CY is the security’s current yield as calculated by the annual dividend divided CY by the strip price.

"NRA-eligible" means non-US holders are not subject to additional withholding and NOT NRA Eligible NRA-eligible means non-US holders are subject to additional withholding (unless relevant IRS forms are filed).

Qualified dividend income. Indicates that the security pays dividend income that qualifies for

the reduced dividend tax rates to individuals. QDI

Qualified business income is a designation created by the 2017 Tax Cuts and Jobs Act and

relates to certain investment income, typical generated by REITs or partnerships, that may be QBI taxed at a more advantageous rate.

Issuer Type Definitions Core: Issuers that have investment grade ratings. Note: the credit rating agencies typically notch the rating of preferred securities lower than that of the issuer rating (or senior debt rating) to reflect the subordination of preferreds in an issuer's . Therefore, Core issuers may have non-investment grade rated preferreds. High Yield: Issuers we deem to be "high yield issuers," even if they are not actually rated by the credit rating agencies are those that may have non-rated or high yield rated senior debt. CIO Category List Definitions Attractive: Preferred securities on the Attractive List are those that we view favorably based on (1) fundamental credit quality, (2) valuation and (3) structure (security characteristics). Neutral: We believe that issuers of preferreds on the Neutral List are likely to meet the coupon payment but we do not deem the preferreds to fit the definition of our Attractive or Unattractive Lists. Unattractive: We may deem the preferred securities on the Unattractive List to be Unattractive for fundamental reasons, for valuation reasons, or because of their structure. In the case of fundamental drivers, we have concerns that the credit profile may deteriorate. Sector considerations may also be a factor. In the case of valuation, we believe that price/yield levels do not adequately compensate investors for the risks. Refinanceable: Currently callable, premium preferreds cannot be analyzed with traditional relative value calculations such as YTC or OAS, and cannot be placed on our Attractive, Neutral or Unattractive lists.

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Appendix

Statement of Risk Fixed income - Bond market returns are difficult to forecast because of fluctuations in the economy, investor psychology, geopolitical conditions and other important variables. Corporate bonds are subject to a number of risks, including credit risk, interest rate risk, liquidity risk, and event risk. Though historical default rates are low on investment grade corporate bonds, perceived adverse changes in the credit quality of an issuer may negatively affect the market value of securities. As interest rates rise, the value of a fixed coupon security will likely decline. Bonds are subject to market value fluctuations, given changes in the level of risk-free interest rates. Not all bonds can be sold quickly or easily on the open market. Prospective investors should consult their tax advisors concerning the federal, state, local, and non-U.S. tax consequences of owning any securities referenced in this report.

Preferred securities - Prospective investors should consult their tax advisors concerning the federal, state, local, and non-U.S. tax consequences of owning preferred . Preferred stocks are subject to market value fluctuations, given changes in the level of interest rates. For example, if interest rates rise, the value of these securities could decline. If preferred stocks are sold prior to maturity, price and yield may vary. Adverse changes in the credit quality of the issuer may negatively affect the market value of the securities. Most preferred securities may be redeemed at par after five years. If this occurs, holders of the securities may be faced with a reinvestment decision at lower future rates. Preferred stocks are also subject to other risks, including illiquidity and certain special redemption provisions.

Closed-End Funds - Investment Risk: Performance results reflect past performance and is no assurance that a Fund will meet its investment objective. Market Risk: The market value, net asset value (NAV) and distribution rate of a fund’s shares will fluctuate with market conditions. Leverage Risk: Each Fund’s use of leverage (borrowing to increase investments) creates the possibility of higher volatility and greater risk for the Fund’s per share NAV, market price, distributions and returns. Credit Risk: Refers to the possibility that the issuer of the bond will not be able to make principal and interest payments (default). Prepayment Risk: Issuers may exercise their option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities. Interest Rate Risk: Fixed-income securities will decline in value if market interest rates rise. Reinvestment Risk: If market interest rates decline, income earned from the Fund’s portfolio may be reinvested at rates below that of the original bond that generated the income. Liquidity Risk: This is the risk that the fund may not be able to sell securities in its portfolio at the time or price desired by the Fund. Below Investment Grade Risk: Investments rated below investment grade (typically referred to as “junk”) are generally subject to greater price volatility and illiquidity than higher rated investments. Adjustable Rate Loan Risk: Some of the adjustable rate loans in which the Fund may invest will be unsecured or insufficiently collateralized, thereby increasing the risk of loss to the Fund in the event of issuer default. Non-U.S. Securities Risk: Investments in non-U.S. securities involve special risks not typically associated with domestic investments including currency risk and adverse political, social and economic development. These risks often are magnified in emerging markets. Management risk: The risk that investment management decisions may not produce the desired results.

Required Disclosures

Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Issuer credit risk rating definitions The UBS CIO issuer credit risk rating reflects the opinion of the relevant UBS CIO analyst regarding an issuer's risk of a near- to intermediate-term dividend deferral on preferred securities, and/or issuer payment default on debt obligations.

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Appendix

Low Risk: The issuer is considered to be in solid financial condition with strong credit fundamentals and low likelihood of a near- to intermediate-term dividend deferral, and/or issuer payment default. The issuer's securities are of generally high quality. Medium Risk: The issuer is considered to be in adequate financial condition with satisfactory credit fundamentals relative to the near- to intermediate-term dividend deferral, and / or issuer payment default. The issuer's securities are of medium to weaker credit quality and may have higher volatility than those of Low Risk issuers. These instruments should therefore only be held by risk tolerant investors. High Risk: The issuer is considered to be in weak financial condition with deteriorating credit fundamentals or the state of the issuer's financial condition and credit fundamentals may be uncertain due to volatile market conditions. Sector considerations may be a dominating factor. There is a high likelihood of a near- to intermediate-term dividend deferral, and / or issuer payment default. The issuer's securities are speculative. Note: Distinctions in the credit quality of individual security instruments may vary based on the maturity of the instrument, as well as the relative priority within an issuer's capital structure. These distinctions will be discussed in our future credit reports, as applicable. In regions outside the United States, the UBS CIO office will map these distinctions to security- level risk flags. Issuer credit outlook definitions The UBS CIO issuer credit outlook reflects the opinion of the relevant CIO analyst regarding an issuer's credit quality outlook over the succeeding 12 months. For rated securities, this may include the likelihood of a change in the published rating by a nationally recognized credit rating agency/statistical rating organization. Improving: We expect the credit profile of the issuer to improve, to an extent that may justify upgrades by rating agencies. Stable: We do not expect the credit profile of the issuer to change meaningfully. Deteriorating: We expect the credit profile of the issuer to deteriorate, to an extent that may result in single-notch or even multi-notch credit rating downgrades by rating agencies. CIO WMR Closed-End Funds Rating Definitions Buy: Higher stability of principal and higher stability of distribution. Hold: Potential loss of principal, lower degree of distribution stability. Sell: High potential for loss of principal and distribution risk. Restricted: Issuing of research on a company by WMR can be restricted due to legal, regulatory, contractual or best business practice obligations which are normally caused by UBS Investment Bank’s involvement in an investment banking transaction in regard to the concerned company. Closed-End Funds Key Definitions Closed-End Fund: A closed-end fund (CEF) is a publicly traded investment company registered under the SEC Investment Company Act of 1940. Capital is raised through an IPO and the proceeds are invested in securities as determined by the investment objectives set by the particular fund’s prospectus. The shares of a CEF trade on major exchanges such as NYSE and AMEX. Net Asset Value: Net Asset Value (NAV) = (total assets – total liabilities)/shares outstanding. The NAV of a CEF fluctuates as the value of the underlying portfolio changes. Market Price: As CEFs are publicly traded securities, the market price of a CEF fluctuates depending on the supply and demand in the market. Discount/Premium: When demand exceeds supply, CEFs trade at a premium to the NAV. When supply exceeds demand, the shares of the CEF may trade at a discount to its NAV (i.e., the share price will be less than the fund’s NAV). Example: Market Price: $9, NAV: $10, Discount: 10%, Premium/discount = (market price/NAV) -1 Leverage: Many funds use leverage to enhance income and returns to shareholders by borrowing capital at a lower rate (possibly by issuing senior securities such as preferred or debentures) than the fund’s earnings on investments. Leverage Adjusted Duration: Duration is a rough measure of a bond’s sensitivity to changes in interest rates. It is adjusted for the effect of leverage by increasing the duration by leverage percentage. Qualified dividend income (QDI): Some or all of the fund's dividend income qualifies for the reduced dividend tax rates to individuals. For a complete set of required disclosures relating to the companies that are the subject of this report, please mail a request to UBS CIO Global Wealth Management Business Management, 1285 Avenue of the Americas, 8th Floor, Avenue of the Americas, New York, NY 10019.

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Appendix

Disclosures (28 February 2020) AGNC Investment Corp 1, 2, 3, 4, 5, 6, 7, 8, Annaly Capital Mgmt Inc 1, 2, 3, 4, 5, 7, 8, 11, Cohen & Steers Select Preferred and Income Fund, Inc. 5, 8, DCP Midstream Partners LP 5, Goldman Sachs 1, 3, 5, 7, 9, 10, 11, Huntington Bancshares Inc. 1, 3, 4, 5, 9, 10, John Hancock Preferred Income 3, 5, 7, 8, 9, 10, John Hancock Preferred Income II 3, 5, 7, 8, 9, 10, John Hancock Preferred Income III 3, 5, 7, 8, 9, 10, JPMorgan 1, 3, 4, 5, 6, 7, 9, 10, 11, 12; KeyCorp 1, 2, 3, 4, 5, NuStar Logistics LP 5, 8, Nuveen Quality Preferred Income II 5, 8, 9, 10, Unum Group 3, 5, 7, 9, 10, 1. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity or one of its affiliates. 2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the or placement of securities of this company/entity or one of its affiliates within the past 12 months. 3. Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products and services other than investment banking services from this company/entity. 4. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided. 5. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 6. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 7. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided. 8. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company's common equity securities as of last month's end (or the prior month's end if this report is dated less than 10 days after the most recent month's end). 9. This company/entity is, or within the past 12 months has been, a client of UBS Financial Services Inc, and non- investment banking securities-related services are being, or have been, provided. 10. Within the past 12 months, UBS Financial Services Inc has received compensation for products and services other than investment banking services from this company. 11. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided. 12. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month's end (or the prior month's end if this report is dated less than 10 working days after the most recent month's end).

Preferred Securities Ratings Definitions Rating Definition Preferred securities on the Attractive List are those that we view favorably based on (1) fundamental Attractive credit quality, (2) valuation and (3) structure (security characteristics). We believe that issuers of preferreds on the Neutral List are likely to meet the coupon payment but we Neutral do not deem the preferreds to fit the definition of our Attractive or Unattractive Lists. We may deem these preferred securities to be Unattractive for fundamental reasons, for valuation reasons, or because of their structure. In the case of fundamental drivers, we have concerns that the Unattractive credit profile may deteriorate. Sector considerations may also be a factor. In the case of valuation, we believe that price/yield levels do not adequately compensate investors for the risks.

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Appendix

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