Financial Pacific - Investor activity accelerate as buying to rent is more attractive (third party)

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UBS Investment Research Morning Expresso - United States Tuesday 21 June 2011 Global Equity Research Americas Equity Strategy Market Comment 21 June 2011 www.ubs.com/investmentresearch U.S. Equity Product Management 212-713-2400 Morning Expresso This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 25. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that 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. ab

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Transcript of Financial Pacific - Investor activity accelerate as buying to rent is more attractive (third party)

Page 1: Financial Pacific - Investor activity accelerate as buying to rent is more attractive (third party)

UBS Investment Research

Morning Expresso - United States

Tuesday 21 June 2011

Global Equity Research

Americas

Equity Strategy

Market Comment

21 June 2011

www.ubs.com/investmentresearch

U.S. Equity Product Management

212-713-2400

Morning Expresso

This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 25. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that 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.

ab

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Morning Meeting Agenda ProLogis Rating: Buy Target: US$37.00 Price: US$34.07 RIC: PLD.N

Prior: Neutral Prior: US$35.00 Mkt Cap: US$14.4bn BBG: PLD US

Real Estate Analyst: Ross T. Nussbaum Tel: +1-212-713 2484

An Industrial Giant Emerges; Upgrading to Buy Double Digit AFFO Growth Story We are upgrading ProLogis to Buy following the completion of the AMB/PLD merger based on a stronger combined

growth profile. The ‘new’ ProLogis should be capable of generating above average AFFO growth of ~12% through a myriad of drivers including: continued lease up of the core portfolio and non-stabilized developments, steadily improving market rents, a ramping development pipeline, and continued acquisitions.

A Best in Class Global Industrial Powerhouse At a combined equity market cap of ~$14.5B, PLD now stands as the dominant player in global industrial real estate. We believe the shares should reflect this market presence and diversity. ProLogis currently trades in-line with our NAV estimate. We see the stock moving to a premium valuation as the double digit growth rate becomes more visible.

Adjusting Estimates to Reflect Merger We are adjusting our “core” FFO estimates to reflect the completion of the AMB/PLD merger. Our 2011/2012 core FFO estimates are now $1.57/1.84 (+9% and +19% respectively). We note that Q2 will likely include a wealth of noise including one-time charges and transaction costs.

Valuation: Raising Price Target to $37 (+$2) We are increasing our PT to $37, which is based on a ~10% premium to our forward NAV estimate of $33 and DCF of $35.

Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$34.07 on 20 Jun 2011 16:42 EDT

US Homebuilding

Home Construction Analyst: David Goldberg Tel: +1-212-713 9427

Quick Hits: Update on Las Vegas While Conditions Remain Challenging, Rate of Deterioration Slowing We recently hosted another local market call, focusing on Las Vegas. Our

expert—Ken Perlman from John Burns Real Estate Consulting—noted that converting traffic to sales remains difficult given: 1) tight underwriting, 2) many buyers are still facing the impacts of a foreclosure/short sale on their credit, & 3) unrealistic price expectations. That said, the rate of deterioration has slowed lately, as builders have adjusted their products and price points to offer more compelling values.

Investor Activity Accelerates As "Buying to Rent" Is More Attractive Mr. Perlman noted that ~1/4 homes in Vegas are in some form of foreclosure & could eventually add to supply. In turn, while the level of for-sale inventory isn't alarming today, the potential impact from the shadow supply could be material. That said, there are reasons for optimism, as >50% of existing home sales are to cash buyers, in part reflecting increased investor activity. Mr. Perlman believes that most of these transactions are “buy to rent”, as home prices have declined significantly enough to make this investment free cash flow positive.

Land Transactions Few and Far Between Although the number of land transactions in LV remains limited, deals that are closing are for: 1) either finished lots or raw land in “A” locations; 2) typically smaller parcels. With limited new development underway, we believe a potential land shortage could develop in the best submarkets when demand recovers.

Valuation: PTs Are Based on 1.1x Our Trough BV Estimates We still believe the HB stocks remain susceptible to a pullback into summer. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 21 June 2011 Global Technology Strategy

Technology Analyst: Nikos Theodosopoulos Tel: +1-212-713 3286

Tech 10 List: add Cree as Least Preferred Add Neutral-rated Cree as a least preferred name to Tech 10 list We add Cree as a least preferred name to Tech 10 given potential for further

pricing pressure on LED chips driven in part by increasing competition from producers in China. UBS analyst Stephen Chin’s checks show industry-wide pricing pressure for LED chips likely continues in 2Q-3Q11, potentially limiting its gross margin expansion in the near term.

Remove Neutral-rated Cisco Systems as least preferred In order to add Cree, we are removing Cisco, which is down 10.5% since adding it as a least preferred name on 18-April.

Prefer secular growers over co’s w/ mkt share & margin challenges We prefer a mix of secular growers in IT (Check Point, Informatica, Accenture), smartphone/tablet ICs (Qualcomm), and LED equipment (Veeco) over names with market share & margin challenges including Cree, Hon Hai, MediaTek, RIMM, and Texas Instruments.

Tech 10 list +37% YTD and +97% since inception Dec-08 Tech 10, a market-neutral basket of five most and five least preferred global equities, is up 36.5% year-to-date vs. a 0.9% increase in the HFRI Equity Market Neutral Index this year. Since inception in Dec-08, Tech 10 is up 97.0% vs. a 1.9% decline for the HFRI Market Neutral Index of global hedge funds.

Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

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U.S. Life Insurance

Insurance, Life Analyst: Andrew Kligerman Tel: +1-212-713 2492

Life Group Navigating Thru Stormy 2Q11 2Q11 feels like a déjà vu of 2Q10, but… It’s been a difficult 2Q11 for our life group—with the 10-year U.S. Treasury yield retreating (49) bps quarter-

to-date, S&P500 down ~(4)% since March-end, and resumed European sovereign uncertainty. …our note details solid shape by company (capital, leverage, investment)… Despite weak macro data points weighing on life group’s near-term

performance, longer-term outlook remains positive per our note, which details, by company, solid capitalization, manageable equity market and interest rate sensitivity, and quality investment portfolios, including low European sovereign debt exposure.

…and valuation is compelling with the life group at P/B of ~0.9x Our U.S. life group is trading at an undemanding ~0.9x trailing BVPS (ex-aoci)—well-off the pre-mid-2008 trough of 1.2x and 10-year average of 1.9x. Although prospects for multiple expansion hinge on macros, the group deserves to trade at least at BV since it is well-capitalized and realized investment losses have abated.

Buy-rated MET and PRU are our top defensive plays We project MET to attain a 13% operating ROE in ’13 (vs. peers’ 11%)—supported by its Alico acquisition, underwriting improvements, and cost savings. PRU seems on-track for a 13-14% operating ROE in ’13—given growth in its higher-return asset mgmt and international businesses, the Star/Edison integration, and capital mgmt (including $1.5B repurchase program). Our $60 and $77 price targets for MET and PRU, respectively, reflect ~10% premiums to our 1.1x target life group P/B on 2Q12E BVPS (ex-aoci) on stronger ROEs and capital cushions.

Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 21 June 2011

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MACRO AND STRATEGY RESEARCH Overwriting Monthly

Strategist: Mitchell S. Revsine Tel: +1-212-713 1416

Market at Inflection Point, Overwrite with Caution Overwriting environment less favorable vs. last month While sentiment continues to be dour and implied volatility has moved higher, we believe

overwriters have increased reason to be cautious. The recent market correction increases the chances of a near-term bounce, and without stock-specific catalysts until 2Q earnings we expect the market to be driven by macro headlines and sentiment. Earnings is another major factor overwriters did not face last month.

Waiting for Superman (i.e. Q2 earnings) With the market near its lows, we believe an inflection point has been reached. Our economists and strategists, who anticipated the current soft patch, believe the current malaise is temporary. Our equity strategists look to Q2 earnings as a catalyst that may reinsure investors of a sustainable economic recovery. However, if company fundamentals appear to be deteriorating, upside will indeed be limited.

Sell calls on CAT, FCX, HOT, LYB, WMB. Avoid ANR, C, RVBD, SNDK. We recommend 16 stocks for tactical covered call writing, and suggest overwriters be generally more selective when picking strikes due to the significant selloff in many stocks and importance of 2Q earnings. This month, we advocate an “active” overwriting strategy and caution against overwriting 12 stocks.

What’s new in this report? We take a look at performance, volatility and selected near-term investment themes at the industry group level on page 6. Disclosure: Options, structured derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky

and may be appropriate only for sophisticated investors. Past performance is not necessarily indicative of future results. Various theoretical explanations of the risks associated with these instruments have been published. Prior to buying or selling an option, and for the complete risks relating to options, you must receive a copy of "The Characteristics and Risks of Standardized Options." You may read the document at http://www.optionsclearing.com/about/publications/character-risks.jsp rbor ask your salesperson for a copy.

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

US Daily Economic Comment

Economist: Maury N. Harris Tel: +1-212-713 2472

Weak existing home sales forecast Preview: Existing home sales forecast -7.9% m/m to 4.65M (1) The 11.6% m/m decline in the pending home sales index (PHSI) in April signals a

drop in existing home sales (UBSe 4.65M, consensus 4.80M, after 5.05M). The level that we forecast, 4.65M, would be the lowest since November. (The PHSI, based on initial signings of sales contracts, tends to lead the existing home sales data, based on sales closings, by a month or two. The weakness in the PHSI in April in part appears to have reflected natural disasters—with particular weakening in the PHSI in the South, -17.2% m/m, and Midwest, -10.4%.)

(2) Weekly store sales measures have softened in early June. (3) The Fed begins the first of its two-day FOMC meeting. Review No data were reported on Monday. Investors continued to focus on the possibility of a Greek sovereign debt default. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

Global Risk Radar

Strategist: Jeffrey Palma Tel: +1-203-719 1135

Risk appetite finally goes negative Risk Appetite Indicator moves into negative territory The UBS Equity Risk Appetite Indicator fell considerably last week, to -0.48 from 0.16 the

week prior, as the MSCI AC World Index dropped 0.8%. All three components of the indicator fell. This is the first time our indicator has been in negative territory since mid-March, despite global equity markets falling in 6 of the last 7 weeks.

Equity option volatility component decreases significantly The VIX Index increased to 21.9 from 18.9 the week prior, resulting in a sharp decrease in the option volatility component of our indicator.

Credit & FX component falls The credit & FX component decreased, as interest rate swap spreads widened considerably in the US and the Euro markets, and FX volatility increased.

Equities positioning component also lower The equities positioning component decreased, as defensives outperformed cyclicals. Among regions, US and Europe ex UK outperformed while Emerging markets was one of the worst performing regions. The positioning component of the indicator remains in positive territory.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

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GLOBAL SECTOR RESEARCH

UBS Global I/O®:Telecom Equipment

Communications Technology Analyst: Gareth Jenkins Tel: +44-20-7567 3950

Implications of Sprint-Lightsquared deal Sprint-Lightsquared network deal: ramifications for the vendors The WSJ reported Sprint and Lightsquared (L2) signed a 15 year agreement

under which they will jointly build/operate a wireless network (we believe using LTE on 1.5GHz). We understand Sprint will build/manage the network and be responsible for capex. L2 had earlier signed an 8 year agreement with NSN as sole equipment vendor. We believe Sprint's Network Vision upgrade contract and vendors remain intact. Our checks indicate vendors for joint network have not been finalized but with Sprint managing, there is a distinct possibility that its incumbent vendors win rather than NSN (we believe NSN may continue as core network supplier to L2).

Potential negative implications for NSN We believe if NSN is dropped from this build (for the radio part) it will have negative implications and further marginalise it in the US (post AT&T-TMO US). Further, if this becomes Sprint’s main 4G plan, Clearwire's WiMAX build will be under increasing uncertainty (NSN main supplier here). This along with news (Reuters) Samsung is gaining entry into LTE build at KDDI is negative for NSN.

Broadly neutral for the other vendors We believe Sprint's CDMA upgrade vendor selection remains unaffected by this. If NSN is dropped by L2 then we believe it is likely Sprint's incumbent vendors will be used for this build, which would be positive for Alcatel-Lucent and Ericsson. However, Samsung's recent contract wins are concerning for industry competition.

Continue to prefer Ericsson on positive capex trends We continue to highlight Ericsson as preferred way to play wireless capex theme. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

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BASIC MATERIALS Weyerhaeuser Rating: Sell Target: US$18.00 Price: US$20.34 RIC: WY.N

Prior: Unchanged Prior: Unchanged Mkt Cap: US$10.9bn BBG: WY US

Forest Products Analyst: Gail S. Glazerman, CFA Tel: +1-212-713 3486

Small asset sale Selling hardwood lumber operations WY has reached an agreement to sell their hardwood lumber operations to American Industrial Partners (a

private equity firm). Terms were not disclosed. They expect the deal to close in August. Not a surprise: assets were previously identified as non core The company had previously identified this as a non core asset potentially available

for sale. At their May analyst meeting management estimated that hardwood lumber and ocean shipping (another non core op) were worth a combined $150-200 million. We estimate the shipping assets are valued on par with the $60mm WY generated from selling their shortline railroads last year. We assume hardwood lumber is worth $100-150mm.

Business represents just under 10% of Wood Products sales WY’s hardwood lumber ops generated $223mm of sales in 2010 ($58mm in 1Q11) and ran at 66%. The business consists of 334mm board feet of capacity across 7 facilities. WY does not disclose profitability by product line but we assume this was not making much contribution, in line with the entire segment. We expect essentially cash breakeven results for WY’s Wood Product business in 2Q11.

Valuation With little visibility into timing/pace of recovery in US housing markets and signs of slowing momentum in Western log markets, we remain cautious. Our $18 12-month price target assumes the shares trade on a blend of 8x 2011e EV/EBITDA and our estimate of underlying asset value ($23).

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$20.34 on 20 Jun 2011 17:42 EDT

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CONSUMERS US Household & Personal Care

Household Products, Non-Durable Analyst: Nik Modi Tel: +1-212-713 2204

A Tax Break On Luxury Goods In China? China Might Be Looking To Cut Import Duties On Luxury Goods A recent media article pointed out that the Chinese government may be looking to

lower import duties on luxury goods in an effort to drive domestic consumption of these products higher. The article indicated China (currently the world’s second-largest luxury goods market) has a 50% import duty on cosmetics and a 30% duty on high-end watches. Such taxes force many Chinese consumers to buy their goods abroad in Hong Kong, London and Paris shifting business away from mainland China. Timing for the tax changes is expected to be as early as October of this year (before National Day in China).

Estée Lauder and P&G Would Benefit From A Lower Tax Structure Should China decide to lower import taxes on luxury goods, we believe such a move would be beneficial to companies like Estée Lauder and P&G. As a reminder, China represents c. 5% of these companies’ sales but we believe the margins are likely higher than the corporate average (given heavier skew towards skin care). Additionally we point out that beauty brands for these companies have a higher appeal among a younger consumers relative to those found in the developed markets. Needless to say, China has been a significant revenue driver for both companies (though PG has recently run into some problems with its Olay franchise due to competition). On page 2 we provide some recent quotes from EL and PG management regarding growth in China.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

Bed Bath & Beyond Rating: Neutral Target: US$58.00 Price: US$52.59 RIC: BBBY.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$13.2bn BBG: BBBY US

Retailers, Broadline Analyst: Michael Lasser Tel: +1-212-713 2440

1Q’11 Preview: Focused on the Outlook Expecting good 1Q’11 results; focus will be on the outlook & gross margin BBBY is scheduled to report 1Q’11 results on Wednesday (6/22) after

the market closes. We expect that BBBY will report good first quarter results. The market has become accustomed to outperformance from this well run retailer. For us, the most interesting part of the release will be the company’s commentary and its outlook for the rest of the year, which we think will inspire some near-term caution.

For 1Q’11, our EPS estimate of $0.63 is in line with the consensus For 1Q’11, our sales of $2,078 mm is in-line with the consensus estimate. Our sales estimate is driven by a 5.0% comp assumption. We expect 50 bps of EBIT margin expansion driven solely by expense leverage as we assume a flat gross margin. These assumptions drive our $0.63 EPS estimate, which is also in-line with the consensus.

Slowing share gains & near-term gross margin outlook keeps us sidelined Over the next of quarters, we expect that Bed Bath will see less of a benefit from market share gains. In this note, we show that BBBY’s results over the last year have been boosted by an under-appreciated amount of consolidation in the home furnishings market. The other source of near-term uncertainty is how well the company can manage through a challenging sourcing cost environment.

Valuation: PT $58 supported by blend of DCF and multiples Our $58 price target reflects 14x our CY’12 EPS estimate of $4.09. We would wait for more visibility on the near-term uncertainties before becoming more aggressive with the stock

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$52.59 on 20 Jun 2011 18:42 EDT

Brown-Forman Rating: Neutral Target: US$72.00 Price: US$73.00 RIC: BFb.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$10.5bn BBG: BF/B US

Distillers & Brewers Analyst: Kaumil S. Gajrawala Tel: +1-212-713 9318

Improving Topline ex. Hopland Assets Estimates: Removing the Contribution from Fetzer/Hopland Assets In order to remove the contribution of Hopland wine assets, we adjusted the

prior year’s annual revenue of $156m, using STZ's seasonality as a proxy. Similarly, we estimated gross margins for the Hopland assets to be on par with industry margins of roughly 35%. We did not allocate meaningful SG&A expenses to the divestiture, but assumed advert. rates on par with total company. As such, we estimate that the divestiture of Hopland to be $0.17 dilutive in FY’12.

Underlying Growth Remains Strong We are adjusting our 2012 EPS estimate to $3.70, from $3.78 (guided $3.45-$3.85). After adjusting for the $0.17 in dilution related to the Hopland assets, our estimate is actually a $0.09 increase. We are projecting 3% vol. growth, led by 1Q’s rollout of Jack Daniel’s Tennessee Honey. Additionally, we are expecting 2% pricing growth on less promo activity vs. the year prior. Input costs are likely to be a drag, with gross profit expected to grow slower than revenue, and comparable guided EBIT growth to be mid-high single digit.

We remain positive on Spirits We believe US spirits trends should improve throughout the year, with the return to trading up, continued share gains vs. beer, and a reduction in promo activity year-over-year. Brown-Forman is well positioned to take advantage of these trends. However, we believe these tailwinds are properly reflected in the share price.

Valuation: Neutral Rating; Price Target $72 Our DCF derived price target of $72 implies 19.5x our FY12 EPS of $3.70. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$73.00 on 20 Jun 2011 14:44 EDT

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Weekly Gaming Draw

Casinos Analyst: Robin M. Farley Tel: +1-212-713 2060

Weekly Gaming Draw Upcoming Events July 7 State Of The Consumer Sector With the UBS Consumer Team. Please join the UBS Consumer Research team for an

update on Gaming, Lodging and Cruise Lines, and other consumer sectors. 10:00AM ET. 1-800-926-5230; Code 21528632 Industry News Online Poker Gains Conservative Supporters; Interior Department Removes Bush-era Directive For Off-reservation Casinos; Ohio

Strikes A Tax Deal, Allows Racinos. Asian Gaming MPEL: Transformation Continues With Macau Studio City Project; Marina Bay Sands Not Allowed To Sell Mall Until 2017; Sands China

Announces $3.5B Debt Refinancing; Permira May Sell $1.7B stake in Galaxy. Company Updates Checking in with MBS in Singapore: Takeaways from Meetings With Mgmt; Highlights From UBS Gaming Investment Forum In

Macau: LVS, MGM, IGT, Galaxy, SJM, MPEL. IGT: Revising Estimates For '12; UBS UK: Bwin.party, Joining The Afterparty. Upgrade To BUY; BYI To Implement iView On Caesars’ Gaming Devices Across Multiple Manufacturers; Paradise Casino Has The Option To Buy Isle’s Crown Riverboat in Lake Charles; TPG And Leonard Green Take Ownership Of Palms Casino In Vegas; Boyd To Acquire IP Casino Resort Spa in Biloxi, MS For $288 In Cash; Yonkers Racing Corp Adds 66k Sq. Ft. And 400 Electronic Table Games.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

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ENERGY Natural Gas Storage

Oil & Gas Exploration Analyst: William A. Featherston Tel: +1-212-713 9701

Forecasting an 80-90 Bcf Injection for Week Ended June 17th Forecasting an 80-90 Bcf injection to be reported this week We expect the EIA to report an 80-90 Bcf injection, in line with the year ago’s 81 Bcf

injection and the 5-year average of 86 Bcf. We estimate inventories increased to 2,341 Bcf, leaving the deficits vs. 2010 and the 5-year average little changed at 283 Bcf and 118 Bcf, respectively.

Weather cooler than last year and the 5-year average Last week, weather was 17% and 3% cooler than the year ago and the 5-year average, respectively.

Forecasting storage to enter next winter at 3.65 Tcf We estimate the weather-adjusted S/D balance loosened ~1.5 Bcfd WoW for the week ending 6/17, and has been roughly 0.9 Bcfd oversupplied vs. the 5-year average but 0.9 Bcfd tighter than 2010 over the last month. We estimate storage volumes peak on October 31 at 3.65 Tcf (0.05 Tcf above the normal level).

E&Ps are discounting $5.05/Mcf long-term, normalized natural gas prices This compares to the 2011 and long-dated (2015) futures curves of $4.34/MMBtu and $5.78/MMBtu. Our top E&P picks are: APC, NBL, OXY and APA.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 21 June 2011

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FINANCIALS Chubb Corp. Rating: Buy Target: US$70.00 Price: US$62.30 RIC: CB.N

Prior: Unchanged Prior: US$71.00 Mkt Cap: US$18.2bn BBG: CB US

Insurance, Property & Casualty Analyst: Brian Meredith Tel: +1-203-719 2899

Reducing 2011E EPS on storm losses Chubb pre-announces catastrophe losses for April and May Chubb pre-announced pre-tax losses of $250 – 310 million (or $0.55 -$0.68 per share

after tax) related to the April and May storms. Chubb previously pre-announced its estimate for April catastrophe losses of $175 - $225 milion. Chubb’s storm losses significantly below its peers The mid-point of Chubb’s loss estimate equates to 1.2% of equity, significantly below the pre-

announced losses at ALL (6.7% of equity) and TRV (4.0% of equity). As a percentage of our forecasted net premiums earned, Chubb’s pre-announced catastrophe losses are at 9.9%, below 31.0% at ALL and 27.5% at TRV.

Reducing 2011E to $5.35 from $5.60 We are reducing our full-year 2011 EPS estimate from $5.60 to $5.35, reflecting an increase in our 2Q11 catastrophe loss estimate to $302 million (prior $204 million). We maintain our 2012 EPS estimate of $5.95. Our 2Q11 EPS estimate is now $1.05 (vs. consensus of $1.31) and assumes favorable loss reserve development of $0.26 per share and buyback of 8 million shares in the quarter. Chubb will report its 2Q11 results after the close on July 21st.

Valuation: Reducing price target to $70 from $71 Our price target of $70 assumes CB shares trade at 1.3x of our 12-month forward estimate of BVPS excluding unrealized investment gains/losses of $52.56.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$62.30 on 20 Jun 2011 18:12 EDT

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HEALTHCARE Par Pharmaceutical Rating: Buy Target: US$39.00 Price: US$33.19 RIC: PRX.N

Prior: Unchanged Prior: Unchanged Mkt Cap: US$1.16bn BBG: PRX US

Pharmaceuticals Analyst: Ami Fadia Tel: +1-212-713 3242

Generics Strength Eclipsed by Strativa What’s new? Updating model for May TRxs and higher R&D cost ests. We highlight the performance of key products. (1) Rythmol had ~69.6%

mkt. share and growing. (2) Lotrel’s share grew to ~41.4% ahead of competition in July. (3) Par remains the only player in Imitrex. (4) Toprol XL remained steady. (5) Megace ES TRxs grew +2.7% vs. Apr. and Nascobal’s mkt. share grew to 2.5% vs. 2.1% in April. (6) Zuplenz and Oravig continued to disappoint. We are also raising our 2011 R&D cost estimate by ~$6M to reflect increased R&D activity based on feedback from mgt. This reduced our 2011 EPS est. by $0.03.

Our takeaways: Branded cost structure continues to be a drag on earnings We est. Par can deliver an EPS of $0.80 ($0.79 cons.) in 2Q11 and $3.10 in 2011 ($3.14 cons.). There could be an upside of ~$0.07 to our ests. with delayed competition for Rythmol and Imitrex (we conservatively assume 4Q11) which is quite likely. On the branded side, while Nascobal and Megace ES are responding to recent tactical changes to detailing, Oravig and Zuplenz remain disappointing. We look for mgt. to cut back on the 60 reps it had hired for these new launches which could be immediately accretive to earnings by about $0.15/year.

Thoughts on the stock: Lack of catalysts may stump near term upside There are no new launches for the remainder of the year and spending seems to be increasing. We look for mgt. to drive near term earnings growth through new busi. dev. and/or SG&A rationalization.

Valuation: Maintaining a Buy rating and a price target of $39 Our DCF based PT uses a 10% WACC, 5% intermediate and 2% terminal growth. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$33.19 on 20 Jun 2011 18:42 EDT

Momenta Pharma Rating: Neutral Target: US$18.50 Price: US$18.59 RIC: MNTA.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.92bn BBG: MNTA US

Pharmaceuticals Analyst: Ami Fadia Tel: +1-212-713 3242

Preclinical Data on M402 Published What’s new? Preclinical data for M402 published in the PLoS One journal While the anti-tumor property of Heparin is well known, its development

has been constrained by its dose limiting anti-coagulation activity. M402 is a heparin sulphate glycosaminoglycan (HSPG) engineered to have potent anti-metastatic activity with low anticoagulation. Tumor cells secrete soluble factors which are involved in tumor progression and metastasis. HSPG can bind to many of these soluble factors (e.g. VEGF, PIGF, TNF-a) thus effecting multiple tumor pathways.

Positive data supports a novel approach to targeting multiple pathways Key results were: (1) M402 demonstrated much lower anticoagulation activity vs. heparin (plasma anti-factor Xa activity of 56.9 min.IU/ml vs. 835.5 min.IU/ml). (2) One injection of drug in mice selectively accumulated in the primary tumor for up to 8 days. (3) It reduced microvessel density in the tumor suggesting an anti-angiogenesis mechanism. (4) It normalized myeloid derived suppressor cell levels circulating in the blood, lymph nodes etc. (5) Chronic use alone or in combo w/cisplatin or docetaxel, inhibited spontaneous metastasis and prolonged survival

Thoughts on the stock: Incremental positive for the stock While these results are promising, M402 is still in early stages of development and we include only minimal value for it in our model. Further, as the top line data was released previously, we do not expect this news to impact the stock.

Valuation: Maintaining Neutral rating and changing PT to $18.50 Our DCF-based price target uses cash flows projections through 2021, a WACC of 12.5%, and a terminal growth of 5%.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$18.59 on 20 Jun 2011 18:42 EDT

Auxilium Pharma Rating: Buy Target: US$30.00 Price: US$19.45 RIC: AUXL.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.93bn BBG: AUXL US

Pharmaceuticals Analyst: Ami Fadia Tel: +1-212-713 3242

Updating Model for Testim TRx Trends What’s new? While Testim lost share in May, its total TRxs grew Testim lost ~30bps of mkt. share in May; however, its TRxs actually grew from

56,652 in April to 58,126. The share erosion was slightly more than what we had projected and so, we are now factoring in faster erosion into our model. We now est. Testim ends the year with a mkt. share of 12.5% (13% prev.) and reaches ~$200M in sales ($203M prev.); in-line with the low end of mgt’s guidance of $200-210M. This changed our 2011E EPS from -$0.71 to -$0.73 and had a ripple effect in the outer years.

Our takeaways: Mkt. growth should continue to offset share erosion While Testim lost share, its TRxs actually grew in absolute terms driven by growth in the market by 20%. We expect this growth to continue to more than offset market share erosion. Separately, we note that since the launch of Fortesta (in March) and Axiron (in April), Testim has lost less share (-0.7%) than Androgel (-1.6%) since February, which is a good sign for Auxilium. That said, it is still early in the launch and we continue to watch the TRxs closely.

Thoughts on the stock: No change to investment thesis AUXL has been weak recently likely due to lack of near term catalysts. We remain patient and look for (1) Testim and Xiaflex sales trends; (2) Visibility into plans for new indications before YE11; and (3) a CPT code decision in 4Q11.

Valuation: Maintaining Buy rating and a price target (PT) of $30 We derive our PT from a DCF analysis based on cash flow projections through 2021, a ~10% WACC, and a 2% terminal growth rate.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$19.45 on 20 Jun 2011 18:42 EST

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INDUSTRIALS

Bombardier Rating: Buy Target: C$8.25 Price: C$6.92 RIC: BBDb.TO Prior: Unchanged Prior: Unchanged Mkt Cap: C$12.1bn BBG: BBD/B CN

Aerospace Analyst: Tasneem Azim Tel: +1-416-814 3678

Paris Air Show 2011 – Day 1 CSeries order for 10 CS100s worth US$616m ($1.01b incl. options) Although the size of the order is small in terms of units, we see this as a

cumulative step in the right direction with BBD effectively securing a launch customer for the CS100. Based on BBD's expected production trajectory after EIS, we estimate the 113 firm orders in the backlog represents ~2yrs worth of production.

Qatar Airways – indefinite indecision The deferral of a CSeries order by Qatar Airways today was a disappointment. Though this customer has proven fickle, the order has not been ruled out completely. BBD remains in advanced negotiations with more than 7 customers, with management indicating a strong likelihood for future order announcements for the balance of the year.

Key takeaway from transportation mtg: Europe demand remains robust BBD believes that it can grow its European Transportation revenues faster than the overall market given its plentiful backlog (US$34b) and potential new tenders (Euro transport market is ~$35b and expected to grow in line with GDP). Despite the sovereign debt crisis in regions such as Greece, Portugal and Ireland, BBD's backlog and demand remains intact given limited exposure to these particular regions. However, management noted that the loss of the Thameslink contract may make the achievement of a 1x book-to-bill in 2011 more challenging.

Valuation: Buy rated; $8.25 price target Our $8.25 price target is based on sum-of-the parts valuation. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of C$6.92 on 20 Jun 2011 18:12 EST

U.S. Aerospace

Aerospace Analyst: David E. Strauss Tel: +1-212-713 6185

Day One Orders Update 188 day one orders/commitments for Boeing and Airbus We count 188 Day 1 orders/commitments for large aircraft at Paris including 142 for

Airbus and 46 for Boeing, roughly in line with 189 on Day 1 last year at Farnborough. Also similar to last year, most Day 1 orders came from the leasing companies including split buy from Air Lease for 77 total aircraft and GECAS order for 60 A320neos (Table 1). Airbus picked up additional orders from SAS (30 neos) and Saudi (four A330s), while Boeing announced two new 747-8 orders and 15 747-8 commitments, all for unidentified customers. Qatar announcement for six 777s already reflected in backlog as unidentified order from earlier this year.

39 orders/commitments for Bombardier/Embraer Bombardier added 10 CS-100s to backlog for an unidentified "major network carrier" now seen as its CSeries launch customer. Meanwhile, Embraer picked up 29 new E-190 orders/commitments including 10 new orders from Sriwijaya (in addition to 10 already announced), 10 for Kenyan, five for Air Lease and two each for GECAS and Air Astana.

Other news In other news, Embraer increased its 20-year RJ delivery forecast by 5%, while Air Lease voiced support for an all-new Boeing narrowbody, indicating it might act as launch customer.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

USDA Crop Progress Report

Heavy Machinery Analyst: Henry Kirn, CFA Tel: +1-212-713 4895

Corn crop condition improves slightly Corn crop condition improves slightly, but remains below last year’s level Today, USDA reported 70% of the corn crop is in "good" or "excellent"

condition, slightly above last week’s 69%, but below last year’s 75%. See page 2 for a chart depicting this year’s corn crop condition compared with that of prior years.

Corn, soybeans and wheat futures prices declined last week Corn prices declined 10% last week, largely on ethanol legislation concerns, but are 97% above year ago levels. Soybean prices declined 3% last week, but are up 39% YoY, while wheat prices declined 11% over the past week, but are up 43% YoY.

We continue to see solid farm profitability for 2011 We note that corn, soybean and wheat prices remain well above historical averages. Accordingly, USDA forecasts farmer cash net income to increase 8% YoY in 2011.

We continue to favor Key Call Buy rated DE for exposure to the NA ag cycle We remain bullish on the farm equipment cycle, as our channel checks indicate both improving demand and pricing. DE remains a UBS Key Call and our preferred way to play the farm equipment cycle as we continue to see beats over the next few quarters as a catalyst for outperformance. Additionally, we maintain our Buy ratings on AGCO and CNH as we expect recent strength in farm commodity prices to be a likely positive catalyst for shares. For more on our channel checks, please see Part 2 of our 28th semiannual agricultural equipment dealer survey entitled “Dealers see robust and resilient demand” published May 26.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 20 June 2011

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TECHNOLOGY Microsoft Rating: Buy Target: US$32.00 Price: US$24.47 RIC: MSFT.O

Prior: Unchanged Prior: Unchanged Mkt Cap: US$210bn BBG: MSFT US

Software Analyst: Brent Thill Tel: +1-415-352 4694

W8 Conference Call Highlights Call Recap with Analyst Michael Cherry from Directions-on-Microsoft We hosted a conference call to get an update on W7 adoption and a primer

on Windows 8. Other key topics included the reaction by the Windows developer community to W8 as well as the prospects for Lync and Office365. Replay 800-633-8284/402-977-9140, passcode 21528407. Transcript available upon request.

W8 Key Takeaways, More Positive in Strategic Direction 1) 1/3 of enterprises have migrated to W7 and DoM is advising clients to move to W7 now vs. waiting for W8. 2) Sept ‘11 developer conf. suggests W8 release window of 4Q12-1Q13 (bias later vs. earlier as MSFT has only 1 chance to get W8 right with battery life/performance/app support on par with iOS/Android). 3) Expect the x86/ARM versions to launch simultaneously. 4) W8 enterprise appeal will initially be as an iPad-alt ARM-based tablet OS. 5) Overall more positive on strategic direction as MSFT appears to finally ‘get’ smartphones and tablets.

Developer/Lync/Office365 Key Takeaways 1) Windows Developers – Lack of .NET/Silverlight W8 details deafening. MSFT should address in advance of Sept. dev conf. Concern that HTML5/JavaScript W8 support may alienate Windows developers and move them to other platforms. 2) Lync (unified communications) – the key is it makes Exchange stickier in an enterprise (locking in MSFT). 3) Office365 (hosted Office) – should prove popular with SMBs/enterprises on a divisional basis. Unlikely to replace desktop Office.

Valuation: 8.5x FY12E EPS vs. 16% EPS CAGR FY10-13E $32 PT = 10x $3.22 EPS in 5-8 qtrs. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$24.47 on 20 Jun 2011 17:42 EDT

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UBS Key Calls - US Live Key Call Portfolio

Stock Name RIC Rating Price Target Date of call Current Price Analyst Apple Inc. AAPL.O Buy US$510 02-Jun-11 US$315.32 Maynard Um

Baker Hughes Inc. BHI.N Buy US$95 07-Jun-11 US$69.29 Angie Sedita

Cardinal Health, Inc. CAH.N Buy US$51 18-Jan-11 US$44.46 Steven Valiquette

Celgene Corporation CELG.O Buy US$69 09-Dec-10 US$59.59 Matthew Roden, PhD

Citigroup Inc C.N Buy US$56 03-May-11 US$38.16 William Tanona, CFA

Deere & Co. DE.N Buy US$115 18-Jan-11 US$80.06 Henry Kirn, CFA

Dow Chemical DOW.N Buy US$46.5 21-Mar-11 US$34.96 Andrew Cash

Ford Motor Co. F.N Buy US$22 10-Jan-11 US$12.94 Colin Langan, CFA

General Electric Co. GE.N Buy US$23 10-Jan-11 US$18.48 Jason Feldman

Google Inc. GOOG.O Buy US$765 10-May-10 US$484.58 Brian Pitz

Joy Global Inc. JOYG.O Buy US$112 28-Feb-11 US$84.79 Henry Kirn, CFA

McDonalds Corp. MCD.N Buy US$93 09-Feb-11 US$82.69 David Palmer

Prudential Financial Inc. PRU.N Buy US$77 19-Apr-10 US$59.65 Andrew Kligerman

Qualcomm Inc. QCOM.O Buy US$70 26-Apr-11 US$53.48 Parag Agarwal

SanDisk Corp. SNDK.O Buy US$62 21-Mar-11 US$41.79 Uche Orji

Source: Reuters, UBS. Prices as at market close on June 20, 2011.

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Rating & PT Changes Key Rating and Price Target Changes: US

Company Name Directional Indicator/Rationale Reuters Code Current Share Price

New Rating New PT Prior

Rating Prior PT

Chubb Corporation Reiterate Buy, lower PT CB.N US$62.3 Buy US$70 Buy US$71

ProLogis Upgrade to Buy, increase PT PLD.N US$34.07 Buy US$37 Neutral US$35

Source: Reuters, UBS. Prices as at market close on June 20, 2011.

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Markets, Events and Newsflow Today’s Company Events

Company Name Event Reuters code Rating PT Notes

None

Source: Reuters, UBS. Prices as at market close on June 20, 2011.

Today’s Macroeconomic Events: US

Indicator Time (ET) UBS forecast Previous Consensus

Weekly ICSC Store Sales (Jun 11)wow 08:45 na na na

Redbook Store Sales (Jun 11)mom 09:55 na na na

Existing Home Sales (May)lvl 11:00 na 5.05 mil na

FOMC Meeting (Day 1 of 2) na na na

Source: Bloomberg, UBS

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Today’s UBS Hosted Corporate Roadshow: Company Event Location

International Paper 1X1 meeting hosted by Gail S. Glazerman United Kingdom

KLA-Tencor Corp 1X1 meeting hosted by Stephen Chin Asia

Today’s UBS Hosted Fieldtrip:

Company Event Location

None

Today’s UBS Hosted Conference:

Company Event Location

None

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Latest Market Movements: Country/Region Market Latest Price/Last Close 1-day % Change YTD % Change

Americas

United States Dow Jones 12080.4 0.63 4.34

United States S&P 500 1278.4 0.54 1.65

United States Nasdaq 2629.7 0.50 -0.87

United States S&P VIX 19.99 -8.51

Europe

Europe FTSE Eurofirst300 1089.5 0.76 -2.87

Belgium BEL 20 2549.9 0.20 -1.11

Germany DAX 7215.9 0.92 4.36

France CAC 3842.8 1.13 1.00

Italy MIB 30 19857.8 0.84 -1.56

Netherlands AEX 333.3 0.49 -6.01

Portugal PSI 20 7171.3 0.90 -5.50

Spain IBEX 10166.4 1.28 3.12

Switzerland SMI 6139.1 0.42 -4.61

UK FTSE 100 5740.0 0.82 -2.71

Asia

Hong Kong Hang Seng 21850.6 1.16 -5.14

India BSE Sensex 17634.4 0.73 -14.02

Japan Nikkei 225 9459.7 1.13 -7.52

Source: UBS, Reuters. Indices in Americas as at market close on June 20, 2011. Indices in Europe and Asia as at 04:35 EDT on June 21, 2011

Latest FX Movements: Name Currency Latest Price/Last Close 1-day % Change 1-month % Change YTD % Change

Euro €/$ 1.431 0.68% 0.0% 6.9%

UK £/$ 1.620 0.00% -0.2% 3.8%

Canada CAD/$ 1.021 0.00% -1.2% 1.9%

Switzerland CHF/$ 1.178 0.00% 3.8% 10.0%

China Yuan/$ 0.155 0.00% 0.5% 1.8%

Brazil BRL/$ 0.626 0.00% 1.2% 3.9%

India INR/$ 0.022 0.00% 0.4% -0.2%

Mexico MXN/$ 0.084 0.00% -2.4% 3.6%

Japan $/JPY 0.801 0.00% -2.0% -1.4%

Australia AUD/$ 1.063 0.00% -0.4% 3.9%

Source: UBS, Reuters. Prices as at market close on June 20, 2011.

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Latest Commodity Movements: Name Latest Price 1-day % Change 1-month % Change YTD % Change

Gold ($/oz) 1544 0.42 3.57 9.48

Brent Crude spot, $/bbl 114.58 0.00 1.90 21.61

WTI Crude spot, $bbl 94.54 1.37

Natural Gas, $MMBTU 4.39 0.0 8.40 4.03

Source: UBS, Reuters. Prices as at market close June 20, 2011.

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Today’s UBS Event

ab

Expert Access Conference Call

UBS Infrastructure Conference Call Series with HNTB Experts

Topic #2: Tolling US Roadways: A Real Option for DOTs

Host: Steven Fisher - UBS US Engineering & Construction Analyst

Guest Speaker

Mr. Jack Finn

PE, Senior Vice President of HNTB Corporation and Chair of HNTB’s Toll Services Practice

Topics of Discussion:

• Are Americans ready for more toll roads? When is tolling acceptable? • Are people ready to accept tolls on existing interstates and highways? • What are the arguments for and against tolling? • Open-road/all electronic tolling versus traditional cash tolling? • Are more toll roads inevitable? What is standing in the way of more toll roads?

Date & Time: Tuesday, June 21, 2011, 11:00 am ET

Dial-in Details:

Toll Free: 800-954-0585 Toll: 212-231-2928

Code: 21526874

Replay Details: Toll Free: 800-633-8284

Toll: 402-977-9140 Code: 21526874

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Recent UBS Event

ab

Expert Access Conference Call

US Hardline Retail Sector Initiation

Host: Michael Lasser, UBS US Hardline Retail Analyst

Topics of Discussion:

• Taking a Hard Stance for Softer Trends: With the demand environment slowing,

• We recommend being selective

• Initiation on 16 hardline retail companies, 6 Buys, 9 Neutral, 1 Sell

Date & Time:

Thursday, June 16th, 2011, 10:30 AM ET

Dial-in Details: Toll Free: US: 800-935-9319 UK 08005280707

Toll: 212-231-2922 Code: 21528541

Replay Details:

Toll Free: 800-633-8284 Toll: 402-977-9140

Code: 21528541

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Forthcoming UBS Event

ab Conference

UBS & NYSSA Frontier Markets Luncheon UBS and The New York Society of Securities Analysts (NYSSA) would like to invite you to a luncheon seminar on Investment Opportunities in Frontier Markets. The lunch is designed for DOR’s, CIO’s, PM’s and Analysts and will also include a small group from NYSSA.

Hosted by: Nicholas Smithie - UBS Global Emerging Markets Strategist

Speakers:

• Marc Ginsberg - Senior VP of APCO Worldwide and Former U.S. Ambassador to Morocco and White House Advisor on the Middle East • Caglar Somek - Portfolio Manager for The Caravel Fund (International) Ltd • Larry Speidell - founding Partner and CIO of Frontier Market Asset Management • Daniel Sternhoff - Senior Managing Director, Emerging Markets and Energy groups, Medley Global Advisors • Christine Tessier - Investment Consultant at Mercer

Date & Time: Tuesday, June 28, 2011

12:00pm – 1:30pm

Location: UBS

1285 Avenue of the Americas New York, NY

RSVP:

Your UBS Sales Representative or Sebastien Leon (212) 713-9359.

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Forthcoming UBS Event

ab Conference

Sustainable Innovation and Growth ConferenceA UBS Q-Series® Event In partnership with Accenture

Special Keynote Speaker Professor Michael E. Porter

We are delighted to announce that Professor Michael E. Porter, indisputably the foremost authority on modern competitive strategy, will be joining as our Keynote Speaker at the UBS Q-Series® Event: Sustainable Innovation, Transformation and Growth Conference

Date & Venue: Wednesday, October 19, 2011

Bloomberg Headquarters, 731 Lexington Avenue, 7th Floor New York City

Conference Topics: With leading corporations, consultants, policy experts, analysts, strategists and economists, our panel-based discussions will focus on key questions including:

• What are some examples of how sustainability and resource optimization are driving innovation and growth today?

• How is Technology enabling sustainable competitive advantage across global sectors? • How can Innovation in Energy Efficiency contribute to growth across global sectors? • What sustainability projects are paying off? • Why is the "Political Economy" so integral to sector investment outlooks? • What companies are best positioned to innovate and penetrate the Emerging Market

Opportunity? • How is "Sustainability" defining the future leaders in Healthcare and Consumer Innovation? • What are the opportunities across Infrastructure, Industrials and Real Estate?

Conference information

For further information please contact:

Conference organizer Jen Gray

Tel +1-212-713 3148 [email protected]

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UBS 24

Further Information

Morning Expresso – United States Welcome to the Morning Expresso, an early morning summary of the key ideas and issues presented from UBS for the day ahead. Its contents include:

- key items from UBS’ United States Morning Meeting

- highlighted recommendation and price target changes

- today’s anticipated company, sector and macro-economic catalysts from the US Contextual Diary

- company and client events, conferences and conference calls from UBS

- overnight global market, forex and commodity movements

Morning Expresso is designed to give you all that you ‘need to know’ each morning.

Data presented is accurate as at 06:00 EDT on Tuesday, June 21, 2011.

Contacts & Feedback For further details concerning today’s Morning Expresso – United States note, please visit www.ubs.com/investmentresearch or speak to your UBS contact. This note is not intended to be static and it will evolve over time. Feedback welcomed on email to

[email protected]

Statement of Risk

Forecasting earnings and corporate financial behavior is difficult because it is affected by a wide range of economic, financial, accounting and regulatory trends, as well as changes in tax policy.

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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 were prepared in an independent manner, including with respect to UBS, 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.

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Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2

Buy Buy 52% 41%Neutral Hold/Neutral 40% 37%Sell Sell 8% 20%UBS Short-Term Rating Rating Category Coverage3 IB Services4

Buy Buy less than 1% 30%Sell Sell less than 1% 17%

1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 31 March 2011. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition

Buy Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.

Sell Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.

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KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows.

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Company Disclosures

Company Name Reuters 12-mo rating Short-term rating Price Price date Accenture plc4a, 6a, 6b, 6c, 7, 16 ACN.N Buy N/A US$53.96 20 Jun 2011 AGCO Corp.16 AGCO.N Buy N/A US$45.98 20 Jun 2011 Alcatel-Lucent5a, 6c, 7, 8, 16, 18e, 22 ALUA.PA Neutral N/A €3.65 20 Jun 2011 Alpha Natural Resources4a, 5a, 6a, 13,

16 ANR.N Buy N/A US$40.98 20 Jun 2011

Anadarko Petroleum Corp.2, 3a, 4a,

5a, 6a, 6c, 7, 13, 16 APC.N Buy N/A US$69.65 20 Jun 2011

Apache Corporation2, 4a, 5a, 6a, 16 APA.N Buy N/A US$116.80 20 Jun 2011 Apple Inc.6c, 7, 16, 18a AAPL.O Buy N/A US$315.32 20 Jun 2011 Auxilium Pharmaceuticals Inc16 AUXL.O Buy N/A US$19.45 20 Jun 2011 Baker Hughes Inc.2, 4a, 6a, 6b, 6c, 7, 13,

16 BHI.N Buy N/A US$69.29 20 Jun 2011

Bed Bath & Beyond Inc.16 BBBY.O Neutral N/A US$52.59 20 Jun 2011 Bombardier Inc.2, 4a, 4b, 5b, 6a, 18f, 20 BBDb.TO Buy (CBE) N/A C$6.92 20 Jun 2011 Brown-Forman Corp.16 BFb.N Neutral N/A US$73.50 20 Jun 2011 bwin.party BPTY.L Buy N/A 136p 20 Jun 2011 Cardinal Health, Inc.2, 4a, 6a, 6c, 7, 16,

18b, 22 CAH.N Buy N/A US$44.46 20 Jun 2011

Caterpillar Inc.3b, 6b, 7, 13, 16, 18g CAT.N Neutral N/A US$98.18 20 Jun 2011 Celgene Corporation6c, 7, 16 CELG.O Buy N/A US$59.59 20 Jun 2011 Check Point Software Technologies Ltd16 CHKP.O Buy N/A US$52.80 20 Jun 2011

Chubb Corporation6b, 7, 16 CB.N Buy N/A US$62.30 20 Jun 2011 Cisco Systems Inc.2, 4a, 6a, 6b, 6c, 7, 8,

16, 18h CSCO.O Neutral N/A US$15.14 20 Jun 2011

Citigroup Inc2, 4a, 5a, 6a, 6b, 6c, 7, 16 C.N Buy N/A US$38.16 20 Jun 2011 CNH Global NV2, 4a, 6a, 6b, 6c, 7, 16, 20 CNH.N Buy (CBE) N/A US$36.66 20 Jun 2011 Cree Inc.13, 16 CREE.O Neutral N/A US$33.15 20 Jun 2011 Deere & Co.16 DE.N Buy N/A US$80.06 20 Jun 2011 Dow Chemical4a, 6a, 6b, 6c, 7, 13, 16, 22 DOW.N Buy N/A US$34.96 20 Jun 2011 Ericsson16 ERICb.ST Buy N/A SKr86.75 20 Jun 2011 Ford Motor Co.4a, 6a, 6b, 6c, 7, 13, 14, 16, 18c F.N Buy N/A US$12.94 20 Jun 2011

Freeport-McMoRan4a, 5a, 6a, 13, 16 FCX.N Buy N/A US$47.41 20 Jun 2011 General Electric Co.4a, 5a, 6a, 6b, 6c, 7, 16, 18i, 22 GE.N Buy N/A US$18.48 20 Jun 2011

Google Inc.2, 4a, 5a, 6a, 6b, 6c, 7, 16, 18d GOOG.O Buy N/A US$484.58 20 Jun 2011 Hon Hai Precision 2317.TW Sell N/A NT$98.40 20 Jun 2011 Informatica Corporation16 INFA.O Buy N/A US$55.45 20 Jun 2011 International Game Technology4a, 6a, 16 IGT.N Buy N/A US$16.56 20 Jun 2011

Joy Global Inc.4a, 5a, 6a, 13, 16, 20 JOYG.O Buy (CBE) N/A US$84.79 20 Jun 2011 Lennar2, 4a, 5a, 6a, 6b, 7, 16, 20, 22 LEN.N Neutral (CBE) N/A US$17.59 20 Jun 2011 LyondellBasell Industries6b, 7, 16 LYB.N Buy N/A US$36.56 20 Jun 2011 McDonalds Corp.6b, 7, 13, 16 MCD.N Buy N/A US$82.69 20 Jun 2011 MediaTek Inc. 2454.TW Sell N/A NT$295.00 20 Jun 2011 Melco Crown Entertainment4a, 5a,

16, 20 MPEL.O Buy (CBE) N/A US$10.56 20 Jun 2011

MetLife2, 4a, 5a, 6a, 6b, 6c, 7, 13, 16 MET.N Buy N/A US$40.52 20 Jun 2011 Microsoft Corp.4a, 5a, 6a, 6b, 6c, 7, 16, 18j,

22 MSFT.O Buy N/A US$24.47 20 Jun 2011

Momenta Pharmaceuticals Inc2, 4a, 6a, 16 MNTA.O Neutral N/A US$18.59 20 Jun 2011

Noble Energy, Inc.2, 4a, 5a, 6a, 6c, 7, 16 NBL.N Buy N/A US$83.56 20 Jun 2011

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Company Name Reuters 12-mo rating Short-term rating Price Price date Occidental Petroleum Corp.2, 4a, 6a,

16, 18k OXY.N Buy N/A US$101.50 20 Jun 2011

Par Pharmaceutical Companies Inc.16 PRX.N Buy N/A US$33.19 20 Jun 2011

ProLogis16 PLD.N Buy N/A US$34.07 20 Jun 2011 Prudential Financial Inc.2, 4a, 6a, 6b,

6c, 7, 16, 22 PRU.N Buy N/A US$59.65 20 Jun 2011

Qualcomm Inc.16 QCOM.O Buy N/A US$53.48 20 Jun 2011 Research in Motion Limited5b, 13, 16,

20 RIMM.O Neutral (CBE) N/A US$25.89 20 Jun 2011

Riverbed Technology6c, 7, 16, 20 RVBD.O Neutral (CBE) N/A US$31.62 20 Jun 2011 SanDisk Corp.13, 16, 20 SNDK.O Buy (CBE) N/A US$41.79 20 Jun 2011 Sprint Nextel Corporation16, 20 S.N Neutral (CBE) N/A US$5.21 20 Jun 2011 Starwood Hotels & Resorts Worldwide, Inc16, 22 HOT.N Buy N/A US$52.16 20 Jun 2011

Texas Instruments Inc.8, 16 TXN.N Neutral N/A US$31.28 20 Jun 2011 Toll Brothers16, 20 TOL.N Buy (CBE) N/A US$20.26 20 Jun 2011 Veeco Instruments Inc.13, 16 VECO.O Buy N/A US$49.00 20 Jun 2011 Weyerhaeuser16, 22 WY.N Sell N/A US$20.34 20 Jun 2011 Williams Cos Inc.13, 16, 22 WMB.N Buy N/A US$28.54 20 Jun 2011 Williams-Sonoma, Inc.16 WSM.N Neutral N/A US$35.83 20 Jun 2011

Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of

this company/entity or one of its affiliates within the past 12 months. 3a. UBS Securities LLC is acting as advisor to BP Plc on it announced agreement to sell its stake in the Wattenberg

processing plant to Anadarko Petroleum Corp. 3b. UBS Securities LLC is acting as advisor to Bucyrus International Inc. on its announced agreement to be acquired by

Caterpillar Inc. 4a. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking

services from this company/entity. 4b. Within the past 12 months, UBS Securities Canada Inc or an affiliate has received compensation for investment banking

services from this company/entity. 5a. 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. 5b. UBS Securities Canada Inc or an affiliate expect to receive or intend to seek compensation for investment banking

services from this company/entity within the next three months. 6a. 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. 6b. 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. 6c. 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. 7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than

investment banking services from this company/entity. 8. The equity analyst covering this company, a member of his or her team, or one of their household members has a long

common stock position in this company. 13. 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).

14. UBS Limited acts as broker to this company. 16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.

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18a. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Apple, Inc.

18b. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Cardinal Health, Inc.

18c. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Ford Motor, Co.

18d. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Google, Inc.

18e. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Alcatel-Lucent.

18f. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Bombardier, Inc.

18g. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Caterpillar Inc.

18h. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Cisco Systems Inc.

18i. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in General Electric.

18j. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Microsoft Corp.

18k. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Occidental Petroleum Corp.

20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 10% (compared with 6% under the normal rating system).

22. 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).

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration. Additional Prices: International Paper, US$27.44 (20 Jun 2011); KLA-Tencor Corp., US$38.18 (20 Jun 2011); Source: UBS. All prices as of local market close.

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