Preferred Stock Strategist - September Update 12 September

UBS Preferred Stock Strategist
September Update

The Following is a summary of a UBS report, Preferred Stock Strategist, dated September 12, 2006

Steady Advance
Preferred securities posted strong returns during August as the price of fixed-rate preferreds rose by 2.15% and have edged into positive territory year-to-date. The best performing preferred segment was tax-advantaged issues, while prices of floating rate preferreds remained mostly unchanged.

Market Outlook
We look for total returns to be stable during the months ahead.

Upgrade two fully taxable preferreds to Buy
We upgrade USB prI and MSJ to Buy from Neutral. Despite last month's bond rally, yields on these newer preferreds declined less than those of their peers. As a result, their option adjusted spreads have risen above average. With higher relative income and overall yield, they are likely to outperform, in our view.

Initiations and additional ratings changes
This month we initiated coverage on CCT, HBA prH, and PSA I with Neutral ratings. We reclassified HIG prC, HI prV, NRS, ONE prW, STI, and USB prC to Refinanceable from Neutral now that their first call dates are approaching. We also reclassified DCQ and DMG prA to Uncertain Refi from Neutral.

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