Closed-end fund update

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ab Closed-end fund update Update on Convertible Funds: Asset Composition UBS Wealth Management Research / 29 July 2008 Lead Analyst Sangeeta Marfatia Highlights In recent weeks we have seen pressure from several directions on the convertible funds we cover. This note provides an update on these funds and a breakdown of the assets in them. This will help in understanding the recent weakness in the funds prices and net asset values. We cover three convertible funds -- NCV, NCZ and CHI -- and the CSQ total return fund, all of which have exposure to convertible and high-yield securities. Convertible securities holdings include both convertible bonds and convertible preferreds (see Table 2 for the breakdown). Recent weakness in the underlying preferred securities market since the proposed plan regarding of Fannie Mae and Freddie Mac and the downgrade of their preferred securities by the rating agencies have led to weakness in the preferred market overall. This has put pressure on the convertible preferred holdings of the funds. The pullback in the equity markets also hurt convertible bond prices. As of yesterday s close, convertible funds were trading at a 3% discount, with a yield of almost 13 percent. We believe the dividends are stable at this level based on the current yields on NCV, NCZ and CHI. CSQ is trading at a 12% discount versus its 52-week average discount of 10% and yielding 11.4%. The decline in NAV is largely due to the weakness in equities and convertible securities in the portfolio. Table 1: Convertible Funds Asset Composition Ticker Convertible High-Yield Other CHI 35% 54% 11% NCV 54 41 5 NCZ 55 41 4 CSQ 24 22 52 (47 stock)) Table 2: Convertible Holdings Breakdown Synthetic Ticker Bonds Preferreds Preferreds CHI 19 14 2 NCV 9 45 - NCZ 9 46 - CSQ 11 10 3 Table 3: PIM and PPT Asset composition Ticker High-Yield US Govt Securities Int l/emerging Mkts PIM 34 46 20 PPT 31 46 23 Action: Our top picks in the taxable sector are the two nonleveraged Putnam funds listed below (see Table 3 for the asset breakdown). These funds have recently increased dividends and trade at attractive valuations. Table 4: Coverage Universe Fund Name Ticker Rating Price NAV Premium (Discount) Dividend Yield Calamos Convertible Opport & Income CHI Hold $13.34 $13.30 0.3% $1.68 12.6% Nicholas-Applegate Convertible& Inc NCV Hold $10.94 $11.28-3.0% $1.50 13.7% Nicholas-Applegate Convertible&Inc Fd II NCZ Hold $10.61 $11.11-4.5% $1.43 13.4% Calamos Strategic Total Return Fund CSQ Buy $10.80 $12.27-12.00% $1.23 11.4% Putnam Master Intermediate Incme Trust PIM Buy $5.92 $6.44-8.1% $0.54 9.1% Putnam Premier Income Trust PPT Buy $5.88 $6.54-10.1% $0.52 8.8% Source: Bloomberg and UBS as of July 28, 2008 This report has been prepared by UBS Financial Services Inc. (UBS FS). ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 4.

Statement of Risk Both credit risk and interest rate risk exist for the funds we cover. Market risk is also a factor since closed-end funds can and do trade above or below their NAVs. Terms and Abbreviations Terms / Abbreviation Closed-End Fund Net Asset Value Market Price Discount/Premium Description / Definition 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 (NAV) = (total assets total liabilities)/shares outstanding. The NAV of a CEF fluctuates as the value of the underlying portfolio changes. As CEFs are publicly traded securities, the market price of a CEF fluctuates depending on the supply and demand in the market. 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: USD 9 NAV: USD 10 Discount: 10% Premium/discount = (market price/nav) -1 Leverage Duration Qualified dividend income (QDI) 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 stock or debentures) than the fund s earnings on investments. Duration is a rough measure of a bond s sensitivity to changes in interest rates. Some or all of the fund's dividend income qualifies for the reduced dividend tax rates to individuals and is set to expire on 31 December 2010. Closed End Fund Report 2

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. If the date of this report is not current, the investment opinion and contents may not reflect the analyst's current thinking. For a complete set of required disclosures relating to the companies that are the subject of this report, please mail a request to UBS Wealth Management Research Business Management, 1285 Avenue of the Americas, 13th Floor, Avenue of the Americas, New York, NY 10019. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. UBS Financial Services Inc. is a subsidiary of UBS AG. Closed End Fund Report 3

Stock Recommendation System Analysts provide two ratings, an absolute rating and a relative rating. The absolute rating is based on the current Estimated Fair Value Range (EFVR) for the stock and the recent trading price for that stock. The relative rating is based on the stock s total return potential against the total estimated return of the appropriate sector benchmark over the next year. The EFVR is the price range within which the analyst estimates the stock to be fairly valued. The estimation of the EFVR is based on methods such as discounted cash flow valuation or valuation multiples comparison. In the definition of the EFVR analysts take into account the risk profile (predictability) of the stock. Absolute Stock Rating System Buy We believe the stock is undervalued relative to current market prices. Hold We believe the stock's current market valuation is within a fair range. Sell We believe the stock is overvalued relative to current market prices. Under review Upon special events that require further analysis, the stock rating may be flagged as "Under review" by the analyst. Suspended If data is not valid anymore, the stock rating may be flagged as "Suspended" by the analyst. 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. Industry Sector Relative Stock View Outperform (OUT) Expected to outperform the benchmark Marketperform (MKT) Expected performance in line with the benchmark Underperform (UND) Expected to underperform the benchmark Current WMR Global Rating Distribution Buy 27%** (48%*) Outperform 32%*** (53%*) Hold 62%** (54%*) Marketperform 46%*** (46%*) Sell 2%** (44%*) Underperform 12%*** (45%*) *Percentage of companies within this rating for which investment banking services were provided by [UBS AG or UBS Securities LLC] or its affiliates within the past 12 months Source: UBS WMR, as of 1 June 2008 ** At present, not all securities in WMR's global coverage universe have been assigned an Absolute Stock Rating in a Corporate Report. The Absolute Stock Rating distribution calculation includes only securities that have been assigned an Absolute Stock Rating as of the last month-end. *** Under our Industry Sector Relative Stock View system, "Outperform" most closely corresponds with a "Buy" recommendation, "Marketperform" most closely corresponds with a "Hold" recommendation, and "Underperform" most closely corresponds with a "Sell" recommendation. UBS Closed-End Funds Ratings: Definitions and Allocations UBS Financial Services Rating Definition and Criteria % of companies under coverage with this rating % for which IB services have been provided Buy Higher stability of principal and higher stability of dividends 36 38 Hold Potential loss of principal, lower degree of dividend stability 61 31 Sell High potential for loss of principal and dividend risk 3 33 Source: UBS WMR, as of 17 July 2008 Closed End Fund Report 4

Disclaimer In certain countries UBS AG is referred to as UBS SA. This publication is for our clients information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation and needs of any specific recipient. We recommend that recipients take financial and/or tax advice as to the implications of investing in any of the products mentioned herein. We do not provide tax advice. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Other than disclosures relating to UBS AG, its subsidiaries and affiliates, all information expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. 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Bahamas: This Publication is distributed to private client of UBS (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations. Hong Kong: This publication is distributed to clients of UBS AG Hong Kong Branch by UBS AG Hong Kong Branch, a licensed bank under the Hong Kong Banking Ordinance and a registered institution under the Securities and Futures Ordinance. Singapore: Distributed by UBS AG Singapore Branch, an exempt Financial Adviser under the Singapore Financial Advisers Act. Australia: Distributed by UBS Wealth Management Australia Ltd (Holder of Australian Financial Services Licence No. 231127), Chifley Tower, 2 Chifley Square, Sydney, New South Wales, NSW 2000. UBS 1998-2008. The key symbol and UBS are registered and unregistered trademarks of UBS. All rights reserved. Closed End Fund Report 5