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Moody’s Asset Management Conference: Will There Be A Great Rotation? April 26, 2013 Moody’s Asset Management Conference: Will There Be A Great Rotation? April 26, 2013

WELCOME Moody’s Asset Management Conference: Will There Be A Great Rotation? 2 WELCOME Moody’s Asset Management Conference: Will There Be A Great Rotation? 2

TODAY’S AGENDA 9: 00 AM - 9: 45 PM Economic Outlook and Prospects for TODAY’S AGENDA 9: 00 AM - 9: 45 PM Economic Outlook and Prospects for Capital Formation John Lonski, Chief Capital Markets Economist, Moody's Analytics 9: 45 AM - 10: 30 AM Panel Discussion: Debt Issuers Perspective Sector Views: “Specter of rising rates, curse or a blessing? ” Daniel Serrao, Associate Managing Director, Managed Investments Group (Moderator) Public Finance and Pensions - Timothy Blake, Managing Director Leveraged Finance - Chris Padgett, Senior Vice President REITs - Philip Kibel, Senior Vice President 10: 30 AM - 10: 45 AM Break 10: 45 AM - 11: 15 PM Liquidity Impact: Money Markets New Directions for Cash Investors in a Changing Environment, Rates, Supply and Investor Behavior Robert Callagy, Vice President and Senior Analyst, Managed Investments Group 11: 15 AM - 11: 45 AM Asset Class Perspectives: Closed-End Funds “Can the Carry Trade Carry-On? ” Income to growth and product innovation case studies; Perspectives on leverage Neal Epstein, Vice President and Senior Credit Officer, Managed Investments Group 11: 45 AM - 12: 30 PM Panel Discussion: Spotlight on Rotation Scenarios and Implications for Manager Credit Profiles Risks and Rewards Considered in “making the call”, Asset rebalancing in a time of transition, Achieving Investment Objectives in Periods of Asset Migration, “Fixed Income to Equities” Daniel Serrao, Associate Managing Director, Managed Investments Group (Moderator) Michael F. Mazier, Senior Fixed Income Strategist, Van Eck Associates Corporation William T. Meyers, Managing Director, Nuveen Investments, LLC Leah Modigliani, Senior Vice President, Neuberger Berman Group, LLC Moody’s Asset Management Conference: Will There Be A Great Rotation? 3

Rising Rates of Resource Utilization to Lift Profits and Yields John Lonski, Managing Director Rising Rates of Resource Utilization to Lift Profits and Yields John Lonski, Managing Director and Chief Capital Markets Economist, Capital Markets Research Group

1 Fiscal Austerity Moody’s Capital Markets Research Group, April 2013 1 Fiscal Austerity Moody’s Capital Markets Research Group, April 2013

US Enters Into Uncharted Demographic Territory. . . Average Annual Growth Rates During Next US Enters Into Uncharted Demographic Territory. . . Average Annual Growth Rates During Next 10 Years Will Slow to 0. 5% for Working Age Population and 3. 2% for Those 65 Years and Older Average annualized growth rates of 10 -year spans, actual & predicted Moody’s Capital Markets Research Group, April 2013 6

Real Federal Government Spending Should Drop Moody’s Capital Markets Research Group, April 2013 7 Real Federal Government Spending Should Drop Moody’s Capital Markets Research Group, April 2013 7

Real State & Local Government Spending Should Decline Moody’s Capital Markets Research Group, April Real State & Local Government Spending Should Decline Moody’s Capital Markets Research Group, April 2013 8

Cost of Insuring State & Local Government Debt Sinks: Cost of Insuring $10, 000 Cost of Insuring State & Local Government Debt Sinks: Cost of Insuring $10, 000 of Debt Moody’s Capital Markets Research Group, April 2013 9

2 Global Prospects Moody’s Capital Markets Research Group, April 2013 2 Global Prospects Moody’s Capital Markets Research Group, April 2013

Eurozone Is a Major, Disinflationary Drag on World Economic Activity: Contraction < 50, Expansion Eurozone Is a Major, Disinflationary Drag on World Economic Activity: Contraction < 50, Expansion > 50; source: Markit, JPMorgan, MCMRG Moody’s Capital Markets Research Group, April 2013 11

2013 Will Be 14 th Straight Year In Which Emerging Markets Outrun Advanced Economies. 2013 Will Be 14 th Straight Year In Which Emerging Markets Outrun Advanced Economies. . . A/A/G/Rs of 10 -years-ended 2012 = 1. 6% for Developed Countries and 6. 6% for Emerging Markets : yy % changes Moody’s Capital Markets Research Group, April 2013 12

Plunge by Net Exports as Percent of US GDP to 2005 -2006's Record Low Plunge by Net Exports as Percent of US GDP to 2005 -2006's Record Low Hints of Loss of Global Competitiveness Moody’s Capital Markets Research Group, April 2013 13

US Merchandise Exports Grew by 2. 5% yearover-year During 3 -months-ended February 2013 as US Merchandise Exports Grew by 2. 5% yearover-year During 3 -months-ended February 2013 as … 1. Exports to Latin America grew by 6. 9% 2. Exports to Emerging Market Asia grew by 7. 3% that included an 8. 3% increase by sales to China. 3. Exports to the EU contracted by -6. 8%. 4. Exports to Japan dipped by -1. 6%. Moody’s Capital Markets Research Group, April 2013 14

Composite Index of Export Orders Hints of Modest Growth for US Exports Moody’s Capital Composite Index of Export Orders Hints of Modest Growth for US Exports Moody’s Capital Markets Research Group, April 2013 15

Revitalized Exports Would Improve Prospects for Core Business Sales: yy % change of moving Revitalized Exports Would Improve Prospects for Core Business Sales: yy % change of moving 3 -month sums Moody’s Capital Markets Research Group, April 2013 16

3 Capital Spending Moody’s Capital Markets Research Group, April 2013 3 Capital Spending Moody’s Capital Markets Research Group, April 2013

Q 1 -2013 -to-date's Sales & Operating Profits Have Been Sluggish…About 34% of S&P Q 1 -2013 -to-date's Sales & Operating Profits Have Been Sluggish…About 34% of S&P 500 Has Reported for Q 1 -2013 Income from Continuing Income from Sales: S&P 500 Operations: S&P 500 Sales: S&P 500 Continuing excluding financial Operations: S&P 500 companies 1 2 3 4 10 Q 1 12. 3 52. 4 12. 5 38. 0 10 Q 2 8. 9 48. 5 11. 4 39. 6 10 Q 3 8. 5 30. 8 9. 6 25. 1 10 Q 4 8. 4 33. 2 8. 5 18. 3 11 Q 1 9. 2 19. 9 11. 1 20. 4 11 Q 2 11. 1 16. 2 12. 9 18. 9 11 Q 3 10. 2 14. 9 11. 7 17. 9 11 Q 4 6. 9 4. 9 8. 1 7. 1 12 Q 1 5. 4 6. 2 5. 7 4. 4 12 Q 2 -0. 1 0. 0 -0. 6 -0. 8 12 Q 3 1. 0 4. 6 0. 5 -1. 7 12 Q 4 3. 3 8. 0 2. 7 4. 0 1. 5 3. 5 1. 9 1. 1 13 Q 1 to date Sources: Bloomberg News, MCMRG Moody’s Capital Markets Research Group, April 2013 18

Modest Outlook for Nominal GDP Growth May Also Apply to the Business Sales Proxy: Modest Outlook for Nominal GDP Growth May Also Apply to the Business Sales Proxy: yy % changes Moody’s Capital Markets Research Group, April 2013 19

Deceleration by Business Sales Proxy Softens Outlook for Business Spending on Capital Equipment: yy Deceleration by Business Sales Proxy Softens Outlook for Business Spending on Capital Equipment: yy % changes Moody’s Capital Markets Research Group, April 2013 20

Core Capital Goods Orders Shrink: yy% change, nsa Moody’s Capital Markets Research Group, April Core Capital Goods Orders Shrink: yy% change, nsa Moody’s Capital Markets Research Group, April 2013 21

4 Household Spending Moody’s Capital Markets Research Group, April 2013 4 Household Spending Moody’s Capital Markets Research Group, April 2013

Very Strong Correlation of 0. 86 Between the Yearly Percent Changes of a Business Very Strong Correlation of 0. 86 Between the Yearly Percent Changes of a Business Sales Proxy and Private-Sector Payrolls: yy % changes Moody’s Capital Markets Research Group, April 2013 23

Nearly 4 Years into the Current Upturn, Payrolls Still Trail Their Previous Cycle High Nearly 4 Years into the Current Upturn, Payrolls Still Trail Their Previous Cycle High of January 2008 Moody’s Capital Markets Research Group, April 2013 24

Employment Growth has Been Skewed Toward Workers Aged 55 Years and Older Average annualized Employment Growth has Been Skewed Toward Workers Aged 55 Years and Older Average annualized % changes: Total Household Employment: 16 to Survey Employment 54 years of age 1 2 Employment: 55 years of age and older 3 Number of Workers Aged 55 years and Older as % Total Employment 4 1991 -2000 Upturn 1. 6% 1. 4% 2. 6% 12% 2002 -2007 Upturn 1. 2% 0. 5% 5. 3% 16% Current Upturn 0. 6% -0. 2% 3. 8% 22% Moody’s Capital Markets Research Group, April 2013 25

Consumers' Exceptionally Low Income Expectations Weigh On Retail Sales Moving 5 -year observations Moody’s Consumers' Exceptionally Low Income Expectations Weigh On Retail Sales Moving 5 -year observations Moody’s Capital Markets Research Group, April 2013 26

Employment Income's Subpar Pace Limits the Upside for Retail Sales Growth: yearly % change Employment Income's Subpar Pace Limits the Upside for Retail Sales Growth: yearly % change of mov. 3 mo. avgs. Moody’s Capital Markets Research Group, April 2013 27

Number of New Car and Light Truck Sales Are Extraordinarily Low Compared to Real Number of New Car and Light Truck Sales Are Extraordinarily Low Compared to Real Disposable Personal Income Moody’s Capital Markets Research Group, April 2013 28

Number of Homes Sold Are Very Low Relative to Real Disposable Personal Income Actual Number of Homes Sold Are Very Low Relative to Real Disposable Personal Income Actual & projected Moody’s Capital Markets Research Group, April 2013 29

Record Home Affordability, Yet Home Sales Are Back Where They Were in 1997 -1998 Record Home Affordability, Yet Home Sales Are Back Where They Were in 1997 -1998 Moving 3 month averages Moody’s Capital Markets Research Group, April 2013 30

For Q 1 -2013, Only Sales of Autodealerships, Restaurants and Non. Stores Topped Core For Q 1 -2013, Only Sales of Autodealerships, Restaurants and Non. Stores Topped Core Retail Sales' 3. 2% Annual Gain: yy % changes Moody’s Capital Markets Research Group, April 2013 31

5 Interest Rate Outlook Moody’s Capital Markets Research Group, April 2013 5 Interest Rate Outlook Moody’s Capital Markets Research Group, April 2013

Blue Chip Consensus Expects 10 -year Treasury Yield Will Top 20032007's Average During 2017 Blue Chip Consensus Expects 10 -year Treasury Yield Will Top 20032007's Average During 2017 through 2024 Moody’s Capital Markets Research Group, April 2013 33

Success at Cutting Federal Debt Vis-a-vis GDP Would Allow the 10 -year Treasury Yield Success at Cutting Federal Debt Vis-a-vis GDP Would Allow the 10 -year Treasury Yield to Trail Nominal GDP Growth by 1. 5 to 2. 0 Percentage Points, or What Generally Occurred in 1954 -1965: moving yearlong averages in %, actual & Blue Chip projections Moody’s Capital Markets Research Group, April 2013 34

Sluggish Unit Labor Costs Imply Persistently Rapid Price Inflation Is Most Unlikely Moody’s Capital Sluggish Unit Labor Costs Imply Persistently Rapid Price Inflation Is Most Unlikely Moody’s Capital Markets Research Group, April 2013 35

In Summary, Fiscal & Monetary Policies Cannot Indefinitely Compensate for the Primary Drivers of In Summary, Fiscal & Monetary Policies Cannot Indefinitely Compensate for the Primary Drivers of an Economy’s Long-Term Performance, Which Include… 1. DEMOGRAPHY: population growth, age distribution of population 2. TECHNOLOGY & RESOURCES: labor productivity 3. PROPERTY RIGHTS: legal, regulatory & tax framework 4. GLOBAL COMPETITIVENESS Moody’s Capital Markets Research Group, April 2013 36

© 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights © 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling. Moody’s Capital Markets Research Group, April 2013

Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or blessing? ”

Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or blessing? ” Timothy Blake

Financial Stress Continues Across Municipal Sectors » Municipal market is broad and has diversity Financial Stress Continues Across Municipal Sectors » Municipal market is broad and has diversity of credit risks » States and local governments continue to be stressed through the weak recovery, and some are exposed to risks from the federal budget situation » Moody’s has maintained negative outlooks on state and local government sectors for five years; outlooks also negative for hospitals, universities, and transportation credits » Downgrades have outpaced upgrades for 16 consecutive quarters Rating Changes by Number 300 Downgrades Upgrades 250 200 150 100 50 0 1 Q 08 2 Q 08 3 Q 08 4 Q 08 1 Q 09 2 Q 09 3 Q 09 4 Q 09 1 Q 10 2 Q 10 3 Q 10 4 Q 10 1 Q 11 2 Q 11 3 Q 11 4 Q 11 1 Q 12 2 Q 12 3 Q 12 4 Q 12 Source: Moody’s Investors Service Moody’s Asset Management Conference: Will There Be A Great Rotation? 40

Budget pressures persist due to weak tax revenue trend Source: U. S. Census Bureau Budget pressures persist due to weak tax revenue trend Source: U. S. Census Bureau Moody’s Asset Management Conference: Will There Be A Great Rotation? 41

Municipal market issuance suppressed in past two years Source: U. S. Census Bureau, Thomson Municipal market issuance suppressed in past two years Source: U. S. Census Bureau, Thomson Municipal Market Data Moody’s Asset Management Conference: Will There Be A Great Rotation? 42

Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or blessing? ” Chris Padgett

Leveraged Finance Credit Environment Current Market Activity Ø Market access remains robust; strong demand Leveraged Finance Credit Environment Current Market Activity Ø Market access remains robust; strong demand evidenced by low yields across the Leveraged Finance rating spectrum. Loan issuance is particularly strong, perhaps as investors evaluate the risk of rising interest rates. Ø Based on our Covenant Office’s most recent report, bond deals reflect the weakest covenants of the past 2 years. Cov-lite loans are proliferating. Ø Credit fundamentals remain mostly solid and liquidity remains a stabilizing factor as the economy, while expected to grow modestly is vulnerable to a number of event risks. Ø Current Credit Strengths: Ø Strong Liquidity, Low interest costs, Modest economic growth Ø Current Credit Weaknesses: Ø Increasing leverage, Weak covenant protection, High degree of event risk Moody’s Asset Management Conference: Will There Be A Great Rotation? 44

Leveraged Finance Credit Environment Liquidity, Covenant Stress Indexes Are Leading Indicators of Changes in Leveraged Finance Credit Environment Liquidity, Covenant Stress Indexes Are Leading Indicators of Changes in the Default Rate Liquidity-Stress Index remains at all time low, well below historical average Moody’s Asset Management Conference: Will There Be A Great Rotation? 45

Leveraged Finance Credit Environment Cov Lite Loans Ø Institutional cov-lite loan volume was significant Leveraged Finance Credit Environment Cov Lite Loans Ø Institutional cov-lite loan volume was significant at close to $80 billion for 1 Q 2013. This compares to just over $80 billion for all of 2012. Ø Cov lite loans in complex capital structures are expected to disproportionately hurt bondholder recovery because of significant debt cushion for secured lenders. Source: Moody’s Investors Service; Data from Moody’s Ultimate Recovery Database, which includes about 1, 000 defaults of US nonfinancial companies dating back to 1988. Moody’s Asset Management Conference: Will There Be A Great Rotation? 46

Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or blessing? ” Philip Kibel

Outlooks for Property Sectors Ratings Market Fundamentals Retail Stable Office Stable Industrial Stable Multifamily Outlooks for Property Sectors Ratings Market Fundamentals Retail Stable Office Stable Industrial Stable Multifamily Stable Positive Healthcare Stable Lodging Stable Sector Moody’s Asset Management Conference: Will There Be A Great Rotation? 48

Sector Strengths » Platforms are stronger than ever: US REITs, particularly investment grade, continue Sector Strengths » Platforms are stronger than ever: US REITs, particularly investment grade, continue to expand in size, scope and diversity while culling older, less productive assets » Many REITs have adopted a “back to basics” business strategy through simplified business models, which provides increased transparency » Liquidity is strong: manageable, near-term debt maturities, ample bank line capacity, large unencumbered asset pools, and access to all capital market quadrants » Financial flexibility due to balance sheet strength » Operating fundamentals are tracking the U. S. economy as it continues to grow - despite U. S. fiscal drama Moody’s Asset Management Conference: Will There Be A Great Rotation? 49

Sequestration and Rising Interest Rates » Sequestration and other US fiscal drags – Spending Sequestration and Rising Interest Rates » Sequestration and other US fiscal drags – Spending cuts » Effects will be felt most severely in 2 Q and 3 Q – Tax increases » “strength” in consumer spending during Q 1 driven by higher utilities spending; impact expected to become more apparent in 2 Q – Affordable Care Act » Potential impediment for employment growth in retail, leisure, hospitality and professional services industries – Debt Ceiling by August » Rising Interest Rates – Sufficiently low leverage and strong cash flows will buffer impact of refinancing debt at higher rates – Rising interest rates generally follow improving economy which means strength in rental rate growth Moody’s Asset Management Conference: Will There Be A Great Rotation? 50

Evolving Business Platforms and Growth » Reducing non-strategic, domestic joint ventures » Exiting non-core Evolving Business Platforms and Growth » Reducing non-strategic, domestic joint ventures » Exiting non-core businesses » Targeting narrower, more dominant markets » REIT Investment Diversification and Empowerment Act of 2007 (RIDEA) » (Re)Development – Pipelines grew in multi-family, industrial and office during 2012; expect trend to continue – Focus on size and associated business risk » International Investment – Often through JVs or funds, but seeing more whole investment – Focus on earnings potential, platform expansion vs. transparency, business risk, control Moody’s Asset Management Conference: Will There Be A Great Rotation? 51

Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or Panel Discussion Debt Issuers Perspective: Sector Views – “Specter of rising rates, curse or blessing? ” Al Remeza

5 $2, 000 0 $0 Jan-12 Jan-12 Jan-12 Jan-12 Feb-12 Feb-12 Feb-12 Feb-12 Mar-12 5 $2, 000 0 $0 Jan-12 Jan-12 Jan-12 Jan-12 Feb-12 Feb-12 Feb-12 Feb-12 Mar-12 Mar-12 Mar-12 Mar-12 Apr-12 Apr-12 Apr-12 Apr-12 May-12 May-12 May-12 May-12 Jun-12 Jun-12 Jun-12 Jun-12 Jul-12 Jul-12 Jul-12 Jul-12 Aug-12 Aug-12 Aug-12 Aug-12 Sep-12 Sep-12 Sep-12 Sep-12 Oct-12 Oct-12 Oct-12 Oct-12 Nov-12 Nov-12 Nov-12 Nov-12 Dec-12 Dec-12 Dec-12 Dec-12 Jan-13 Jan-13 Jan-13 Jan-13 Feb-13 Feb-13 Feb-13 Mar-13 Mar-13 Mar-13 Mar-13 Apr-13 Apr-13 Apr-13 Apr-13 May-13 US CLO Issuance Over Time January 2012 – May 2013 30 # of Deals Source: Moody's Investors Service bps 200 180 Source: JP Morgan Effective Date Par (millions) $14, 000 25 $12, 000 20 $10, 000 15 $8, 000 $6, 000 10 $4, 000 Date Effective Date Target Par ($Mil) # of Deals Aaa CLO Spreads Over Time January 2012 - February 2013 160 140 120 100 80 60 40 20 0 1/3/2012 3/29/2012 4/26/2012 5/24/2012 6/21/2012 7/19/2012 8/16/2012 9/13/2012 11/10/2012 8/11/2012 6/12/2012 3/1/2013 1/31/2013 Date GLOBAL CLO Historical Average Impairment Rate ALL TRANCHES Moody’s Asset Management Conference: Will There Be A Great Rotation? ONE YEAR 0. 25% FIVE YEAR 1. 90% INVESTMENT GRADE ONE YEAR 0. 08% FIVE YEAR 0. 78% * Total of 4267 tranches since 1993. Source: Moody's Investors Service 53

Key Metrics Show CLOs Are Stronger US CLO Average WARF and Senior OC Level Key Metrics Show CLOs Are Stronger US CLO Average WARF and Senior OC Level by Year WARF Senior OC (Median) Senior OC 3000 130. 00 2900 128. 00 2800 126. 00 2700 124. 00 2600 122. 00 2500 120. 00 2400 118. 00 2300 116. 00 2200 114. 00 2100 112. 00 2000 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 110. 00 Source: Moody's Investors Service Moody’s Asset Management Conference: Will There Be A Great Rotation? 54

Fundamentals Drive Loan Performance U. S. Trailing 12 -Month Speculative-Grade Default Rate Over Time Fundamentals Drive Loan Performance U. S. Trailing 12 -Month Speculative-Grade Default Rate Over Time Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 Optimistic Forecast May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Pessimistic Forecast Nov-12 Oct-12 Sep-12 Aug-12 Baseline Forecast Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Actual Jul-12 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: Moody's Investors Service In Billions of USD Historical Refunding Needs Profile By Maturity $350 $300 $250 $200 $150 $100 $50 $0 2007 $17 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Totals 2007 Study $24 $41 $82 2008 Study $13 $29 $45 $86 2009 Study 25. 6957328799999 119. 61482328 44. 31061755 189. 62117371 2010 Study 20. 83941152 79. 09393473 155. 14195216 338. 176306981998 211. 853821108 805. 1054265 2011 Study 26. 3645222399999 66. 7647357476297 136. 37162693624183. 613580490695 279. 592705690526 692. 707171105091 2012 Study 26. 90768832611 66. 9798672324868 161 246 668 Source: Moody's Investors Service 2013 Study 21. 006873 79. 032572678 186. 705593071 644. 635938394999 100. 381612 257. 509287646 Moody’s Asset Management Conference: Will There Be A Great Rotation? 55

Moody’s Investors Service is the source for all numbers, facts, and figures presented in Moody’s Investors Service is the source for all numbers, facts, and figures presented in this report, unless otherwise noted. Moody’s Asset Management Conference: Will There Be A Great Rotation? 56

PANEL: DEBT ISSUERS PERSPECTIVE: SECTOR VIEWS – “SPECTER OF RISING RATES, CURSE OR BLESSING? PANEL: DEBT ISSUERS PERSPECTIVE: SECTOR VIEWS – “SPECTER OF RISING RATES, CURSE OR BLESSING? ” Daniel Serrao, Associate Managing Director, Managed Investments (Moderator) Timothy Blake, Managing Director, Public Finance Group Philip Kibel, Senior Vice President, REIT’s Chris Padgett, Senior Vice President, Leverage Finance Al Remeza, Senior Vice President, CLO’s Moody’s Asset Management Conference: Will There Be A Great Rotation? 57

BREAK Moody’s Asset Management Conference: Will There Be A Great Rotation? 58 BREAK Moody’s Asset Management Conference: Will There Be A Great Rotation? 58

Liquidity Impact: New Directions for Cash Investors in a Changing Environment Robert Callagy, Vice Liquidity Impact: New Directions for Cash Investors in a Changing Environment Robert Callagy, Vice President and Senior Analyst - Managed Investments

MMFs: Rates, Supply, New Directions for Cash Investors 1. Rising Rates, When? 2. Impact MMFs: Rates, Supply, New Directions for Cash Investors 1. Rising Rates, When? 2. Impact of Rising Rates on MMFs 3. Supply/Demand Dynamics 4. Regulatory Developments 5. New Directions for Cash Investors Moody’s Asset Management Conference: Will There Be A Great Rotation? 60

1 Rising Rates, When? Moody’s Asset Management Conference: Will There Be A Great Rotation? 1 Rising Rates, When? Moody’s Asset Management Conference: Will There Be A Great Rotation? 61

Low Interest Rates Environment to Persist through End of 2014 Source: Moody’s Analytics Moody’s Low Interest Rates Environment to Persist through End of 2014 Source: Moody’s Analytics Moody’s Asset Management Conference: Will There Be A Great Rotation? 62

FOMC’s Participants Assessment of Appropriate Monetary Policy Source: Moody’s Investors Service Moody’s Asset Management FOMC’s Participants Assessment of Appropriate Monetary Policy Source: Moody’s Investors Service Moody’s Asset Management Conference: Will There Be A Great Rotation? 63

Fed’s Exit Will be Unprecedented Steps outlined in June 2011 FOMC Minutes » Stop Fed’s Exit Will be Unprecedented Steps outlined in June 2011 FOMC Minutes » Stop purchasing new SOMA assets via LSAPs; » Cease reinvesting some or all payments of principal on the securities holdings in SOMA; » Modify forward guidance on the path of federal funds rate and initiate temporary reserve-draining operation » Raise the target federal funds rate » Sell agency securities from SOMA over period of 3 -5 years Source: Minutes of the Federal Open Market Committee, June 2011 Moody’s Asset Management Conference: Will There Be A Great Rotation? 64

MMF Assets Have Shown Great Resiliency 2, 500 Prime Government Treasury Tax-Exempt ($) Billions MMF Assets Have Shown Great Resiliency 2, 500 Prime Government Treasury Tax-Exempt ($) Billions 2, 000 1, 500 1, 000 500 0 Jan- Jul- Jan- Jul- Jan 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 Source: i. Money. Net Moody’s Asset Management Conference: Will There Be A Great Rotation? 65

Despite Low Yields, Investors Continue to Hold Cash Corporate Cash Balances at U. S. Despite Low Yields, Investors Continue to Hold Cash Corporate Cash Balances at U. S. non-financial companies Source: Moody’s Investors Service Moody’s Asset Management Conference: Will There Be A Great Rotation? 66

Sustained Trend Towards the Allocation of Cash to Safety Products 90% 80% 70% 60% Sustained Trend Towards the Allocation of Cash to Safety Products 90% 80% 70% 60% 78% 73% 74% 60% 56% 51% 50% 37% 40% 30% 78% 74% 23% 27% 42% 25% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 % of short-term investments in bank deposits, MMFs and Treasury Bills % of short-term investments in bank deposits Source: Association for Financial Professionals Global Liquidity Survey, July 2012 Moody’s Asset Management Conference: Will There Be A Great Rotation? 67

2 Impact of Rising Rates Moody’s Asset Management Conference: Will There Be A Great 2 Impact of Rising Rates Moody’s Asset Management Conference: Will There Be A Great Rotation? 68

Changes in Interest Rates and Cash Flows Influence Mt. M NAV Source: Investment Company Changes in Interest Rates and Cash Flows Influence Mt. M NAV Source: Investment Company Institute Moody’s Asset Management Conference: Will There Be A Great Rotation? 69

2010 Reforms – Reduced MMFs Exposure to Interest Rate Risk? Interest Risk Profile Benefited 2010 Reforms – Reduced MMFs Exposure to Interest Rate Risk? Interest Risk Profile Benefited from 2010 Reforms » Reduced WAMs to 60 days » Increased Liquidity Levels » Imposed Stress Testing Requirements Moody’s Asset Management Conference: Will There Be A Great Rotation? 70

What Happens When MMFs Meet Rising Rates? 2, 000 Prime MMF Assets Fed Funds What Happens When MMFs Meet Rising Rates? 2, 000 Prime MMF Assets Fed Funds Rate 1, 800 7% 6% 1, 600 5% ($) Billions 1, 400 1, 200 4% 1, 000 3% 800 600 2% 400 1% 200 0 Jan- Jul-01 Jan- Jul-02 Jan- Jul-03 Jan- Jul-04 Jan- Jul-05 Jan- Jul-06 Jan- Jul-07 01 02 03 04 05 06 07 0% Source: Federal Reserve, i. Money. Net Moody’s Asset Management Conference: Will There Be A Great Rotation? 71

How Do Managers Insulate Funds from Interest Rate Risk » Roll back WAMs » How Do Managers Insulate Funds from Interest Rate Risk » Roll back WAMs » Increase investment in floaters, Fed Funds- or Libor-based » New daily Mt. M NAV disclosures likely to increase managers vigilance around interest rate risk management Moody’s Asset Management Conference: Will There Be A Great Rotation? 72

Rising Rates Will Provide Relief to MMF Sponsors Source: Investment Company Institute Moody’s Asset Rising Rates Will Provide Relief to MMF Sponsors Source: Investment Company Institute Moody’s Asset Management Conference: Will There Be A Great Rotation? 73

2 Supply/Demand Dynamics Moody’s Asset Management Conference: Will There Be A Great Rotation? 74 2 Supply/Demand Dynamics Moody’s Asset Management Conference: Will There Be A Great Rotation? 74

Supply and Demand Imbalance in the Short-End A reduction in supply of assets to Supply and Demand Imbalance in the Short-End A reduction in supply of assets to investors » Reduced short dated bank issuance » Limited issuance from highly rated corporates » Reduction in eligible issuers Moody’s Asset Management Conference: Will There Be A Great Rotation? 75

MMFs Challenged to Find Supply of Eligible High-Quality Short-Term Debt Source: SIFMA, 4 Q MMFs Challenged to Find Supply of Eligible High-Quality Short-Term Debt Source: SIFMA, 4 Q large time deposits not available Moody’s Asset Management Conference: Will There Be A Great Rotation? 76

Supply and Demand Imbalance in the Short-End Changing demand factors…. . » Reduction in Supply and Demand Imbalance in the Short-End Changing demand factors…. . » Reduction in the number of approved issuers » Changes to MMF regulation » Increase in collateralized lending by MMFs Moody’s Asset Management Conference: Will There Be A Great Rotation? 77

3 Regulatory Reform Moody’s Asset Management Conference: Will There Be A Great Rotation? 78 3 Regulatory Reform Moody’s Asset Management Conference: Will There Be A Great Rotation? 78

Timeline of Key Money Market Fund Reforms Source: Moody’s Investors Service Moody’s Asset Management Timeline of Key Money Market Fund Reforms Source: Moody’s Investors Service Moody’s Asset Management Conference: Will There Be A Great Rotation? 79

Broad Resistance to VNAV, Capital and Holdback Proposed Reforms (Nov 2012) » Convert to Broad Resistance to VNAV, Capital and Holdback Proposed Reforms (Nov 2012) » Convert to Floating NAV, exception – Treasury MMFs OR » Maintain Constant NAV, BUT – Hold Capital Reserves – Require Redemption Holdback Responses to FSCO MMF Proposals Source: Financial Stability Oversight Committee (FSOC) Moody’s Asset Management Conference: Will There Be A Great Rotation? 80

What Fund Types Would Be Most Impacted? Likely Excluded » Treasury MMFs Jury Still What Fund Types Would Be Most Impacted? Likely Excluded » Treasury MMFs Jury Still Out » Government MMFs » Tax-Exempt MMFs » Retail Prime MMFs Expected to be Included » Institutional Prime MMFs Moody’s Asset Management Conference: Will There Be A Great Rotation? 81

Value Proposition of MMF Could be Changing Likely Response to VNAV 33% No bearing Value Proposition of MMF Could be Changing Likely Response to VNAV 33% No bearing on organizations willingness to invest Likely Response to Holdback Monitor and sell 23% funds if/when NAV falls below $1 20% 43% Stop Investing but maintain holdings Stop investing and reduce but not eliminate holdings Stop 7% investing and divest of all holdings Likely Response to Capital Requirements 30% 25% Stop Investing but maintain holdings 7% Stop investing and reduce but not eliminate holdings 14% 23% No bearing on organizations willingness to invest 34% 11% No bearing on organizations willingness to invest Stop Investing but maintain holdings Stop investing and divest 30%of all holdings Stop investing and reduce but not eliminate holdings Stop investing and divest of all holdings Source: Association of Financial Professionals Moody’s Asset Management Conference: Will There Be A Great Rotation? 82

Cash Flow Impact of MMF Regulatory Reform Likely to affect investor behavior but hard Cash Flow Impact of MMF Regulatory Reform Likely to affect investor behavior but hard to speculate…. » Uncertainty around accounting and tax » Greatest cash flow sensitivity in prime fund segment » Likely to see balances move from prime mmfs to govt funds » ? Moody’s Asset Management Conference: Will There Be A Great Rotation? 83

4 New Directions for Cash Investors Moody’s Asset Management Conference: Will There Be A 4 New Directions for Cash Investors Moody’s Asset Management Conference: Will There Be A Great Rotation? 84

New Directions for Cash Investors » Go Direct » Separately managed accounts » Low New Directions for Cash Investors » Go Direct » Separately managed accounts » Low Duration/ Ultra Short Bond Funds » Bank Deposit Products » ETFs Moody’s Asset Management Conference: Will There Be A Great Rotation? 85

Rory Callagy +1 212 553 -4374 robert. callagy@moodys. com Managed Investments Group’s Website www. Rory Callagy +1 212 553 -4374 robert. [email protected] com Managed Investments Group’s Website www. moodys. com/managedinvestments Moody’s Asset Management Conference: Will There Be A Great Rotation? 86

Asset Class Perspectives: Closed End Funds – Can The Carry Trade Carry On? Neal Asset Class Perspectives: Closed End Funds – Can The Carry Trade Carry On? Neal Epstein, Vice President and Senior Credit Officer - Managed Investments

CEFs: Can the Carry Trade Carry On? 1. Recent Performance 2. Product Activity 3. CEFs: Can the Carry Trade Carry On? 1. Recent Performance 2. Product Activity 3. Leverage 4. Financial Management Moody’s Asset Management Conference: Will There Be A Great Rotation? 88

1 Recent Performance Moody’s Asset Management Conference: Will There Be A Great Rotation? 89 1 Recent Performance Moody’s Asset Management Conference: Will There Be A Great Rotation? 89

What fuels leveraged CEF performance? » Performance of underlying asset classes –boosts NAV » What fuels leveraged CEF performance? » Performance of underlying asset classes –boosts NAV » Scarcity of portfolio assets – sustains premium pricing » Investors’ desire to hold higher-yielding securities – reduces trading discounts » Slope of yield curve – fuels carry trade, augments fund income. All these impacts are “credit positive” for investors in CEF leverage… Moody’s Asset Management Conference: Will There Be A Great Rotation? 90

What fuels leveraged CEF performance? » But what if monetary policy is the source What fuels leveraged CEF performance? » But what if monetary policy is the source of these “benefits“? Moody’s Asset Management Conference: Will There Be A Great Rotation? 91

Performance of CEF equities year to date » Quantitative easing supports markets, keeping interest Performance of CEF equities year to date » Quantitative easing supports markets, keeping interest rates low. » Demand for relatively-higher yielding investments, including speculative-grade fixed income and dividend-paying equities » Inflation hedges, including real estate, energy; metals are in decline. Source: CEFA, Moody’s. Weighted average returns of underlying Lipper categories to 17 April, comprising 625 funds and $245 billion of net assets. . Moody’s Asset Management Conference: Will There Be A Great Rotation? 92

Closed End Fund “Flows”: Looking for Rotation Source: Bloomberg. Millions of dollars. Moody’s Asset Closed End Fund “Flows”: Looking for Rotation Source: Bloomberg. Millions of dollars. Moody’s Asset Management Conference: Will There Be A Great Rotation? 93

2 Product Activity Moody’s Asset Management Conference: Will There Be A Great Rotation? 94 2 Product Activity Moody’s Asset Management Conference: Will There Be A Great Rotation? 94

Product Activity: Fund Launches and Mergers » Current IPO activity concentrated in taxable fixed Product Activity: Fund Launches and Mergers » Current IPO activity concentrated in taxable fixed income area (eg. , PCI) » Mergers prominent among muni CEFs – cost savings a positive » Some drivers: – Demand for underlying asset class => yield, “exotic” diversification – CEF “census” – first mover advantages – Need to overcome short-term performance drag of IPO: underwriters’ spread impacts NAV, market discounting further affects price. – Leverageable returns available, but market appears crowded. – Munis: declining portfolio income, as older bonds are called Moody’s Asset Management Conference: Will There Be A Great Rotation? 95

CEF IPO Activity – Last Six Months’ Total = $10. 1 billion Source: CEFA, CEF IPO Activity – Last Six Months’ Total = $10. 1 billion Source: CEFA, CEFConnect Moody’s Asset Management Conference: Will There Be A Great Rotation? 96

Municipal CEF Fund Mergers – Leverage Consolidation Month Funds Security Type Surviving Fund $ Municipal CEF Fund Mergers – Leverage Consolidation Month Funds Security Type Surviving Fund $ Amount Apr NUO, NXI, Nuveen Ohio Quality Income NBJ, NVJ Municipal Fund, Inc. (NUO) MTP $74. 00 Apr NAZ, NFZ, Nuveen Arizona Premium NKR, NXE Income Municipal Fund (NAZ) MTP $51. 00 Jan NUM, NMP, NZW Nuveen Michigan Quality VMTP, Income Municipal Fund (NUM), MTP $70. 20 Moody’s Asset Management Conference: Will There Be A Great Rotation? 97

3 Leverage Moody’s Asset Management Conference: Will There Be A Great Rotation? 98 3 Leverage Moody’s Asset Management Conference: Will There Be A Great Rotation? 98

Closed-End Fund Leverage – Structural Leverage Source: Thomson-Reuters, Moody’s. 357 funds as of March Closed-End Fund Leverage – Structural Leverage Source: Thomson-Reuters, Moody’s. 357 funds as of March 2013. Moody’s Asset Management Conference: Will There Be A Great Rotation? 99

State Municipal Bond Fund Total Leverage Source: Moody’s. 161 rated state municipal-bond funds as State Municipal Bond Fund Total Leverage Source: Moody’s. 161 rated state municipal-bond funds as of January 2013. Moody’s Asset Management Conference: Will There Be A Great Rotation? 100

Leverage Arithmetic RNAV = (rportfolio – ileverage) * Portfolio / NAV rportfolio = 5. Leverage Arithmetic RNAV = (rportfolio – ileverage) * Portfolio / NAV rportfolio = 5. 0% ileverage = 0. 75% Leverage = 1. 6 RNAV = 6. 8% Moody’s Asset Management Conference: Will There Be A Great Rotation? 101

TOB Leverage » A source of portfolio leverage » Arbitrages the slope of yield TOB Leverage » A source of portfolio leverage » Arbitrages the slope of yield curve » Economic break-even a function of costs of funding and program costs. » Cost of floating rate issuance is: Yield: SIFMA (23 bps as of 17 April) + 20 to 25 bps. Sponsorship: 30 to 60 bps. SFIMA All-in: SIFMA + 50 to 85 bps. » Current long-term muni yields exceed 3%, total return ? Moody’s Asset Management Conference: Will There Be A Great Rotation? 102

TOB Leverage Source: Nuveen Investments Moody’s Asset Management Conference: Will There Be A Great TOB Leverage Source: Nuveen Investments Moody’s Asset Management Conference: Will There Be A Great Rotation? 103

Yield Curve Shift, Year To Date, Has Been Insignificant US Muni General Obligation AA+ Yield Curve Shift, Year To Date, Has Been Insignificant US Muni General Obligation AA+ Curve Source: Bloomberg Moody’s Asset Management Conference: Will There Be A Great Rotation? 104

4 Financial Management Moody’s Asset Management Conference: Will There Be A Great Rotation? 105 4 Financial Management Moody’s Asset Management Conference: Will There Be A Great Rotation? 105

Financial Management » Leverage issuers have used variable and fixed dividend rates. » Relative Financial Management » Leverage issuers have used variable and fixed dividend rates. » Relative cost of liquidity providers and remarketing a factor » In a low rate environment, incentive exists to “term out” fixed-rate financing » Issuance of “term trust” versus perpetual versus a marketing consideration, given rising rate expectations. Moody’s Asset Management Conference: Will There Be A Great Rotation? 106

Variable Rate Demand Preferred Shares » Variable Rate Demand Preferred (VRDP) shares are issued Variable Rate Demand Preferred Shares » Variable Rate Demand Preferred (VRDP) shares are issued by CEF » Bank enters into VRDP Purchase Agreements to provide liquidity support to the VRDP shares. » The liquidity provider agrees to purchase any rated shares that have been tendered for and not successfully remarketed on the 7 th day after notice of tender. » The VRDP shares' short-term ratings are based on the liquidity support from the VRDP Purchase Agreement provider i. e. , linked to the short-term rating of the relevant bank » Long-term ratings are based on usual methodology Moody’s Asset Management Conference: Will There Be A Great Rotation? 107

Bank credit pressure and VRDP substitution Rating Action: Moody's assigns Aa 2/P-1 ratings to Bank credit pressure and VRDP substitution Rating Action: Moody's assigns Aa 2/P-1 ratings to preferred shares issued by two New Jersey closed-end funds managed by Nuveen Global Credit Research - 17 Apr 2013 New York, April 17, 2013 -- Moody's Investors Service ("Moody's") has assigned Aa 2 longterm ratings and P-1 short-term ratings to Variable Rate Demand Preferred (VRDP) shares issued by two state-specific closed-end funds managed by Nuveen Fund Advisors, LLC (Nuveen). Royal Bank of Canada (RBC), acting through its WFC, New York, Branch (Aa 3/P -1, stable), has entered into VRDP Purchase Agreements to provide liquidity support to the VRDP shares. The VRDP shares' short-term ratings are based on the liquidity support from the VRDP Purchase Agreement provider and are therefore linked to the short-term rating of the Royal Bank of Canada. … The VRDP shares issued by NNJ and NQJ were exchanged for previously outstanding VRDP shares with a Purchase Agreement that had been provided by Citibank, N. A. A 3/P-2. Upon the completion of the exchange, the old VRDP shares will be terminated and their ratings withdrawn. Moody’s Asset Management Conference: Will There Be A Great Rotation? 108

Municipal Term Trust » » » Trust matures on a date certain (eighteen years) Municipal Term Trust » » » Trust matures on a date certain (eighteen years) and may choose to target liquidation at par. Portfolio durations may be managed to minimize mismatch of final valuations and target, (with no guarantee). Attractive to fund investors concerned about secular turn in interest rates Moody’s Asset Management Conference: Will There Be A Great Rotation? 109

RVRMTP – Best of both worlds? Rating Action: Moody's assigns an Aa 1 rating RVRMTP – Best of both worlds? Rating Action: Moody's assigns an Aa 1 rating to Remarketable Variable Rate Muni Term Preferred Shares issued by the Black. Rock Municipal Target Term Trust (BTT) Global Credit Research - 10 Jan 2013 $750 million new RVMTP shares to be issued New York, January 10, 2013 -- Moody's Investors Service has assigned a rating of Aa 1 to Remarketable Variable Rate Muni Term Preferred Shares (RVMTP Shares) issued by the Black. Rock Municipal Target Term Trust (BTT), Description of RVMTP The RVMTP are similar to other municipal term preferred stock, which is issued by municipal closed-end funds to leverage the returns earned by their common share holders. The shares will mature on 12/31/2030, which is the date of maturity of the term trust. The dividend rate will be set at the SIFMA Municipal Swap Rate plus an applicable spread. The securities can be remarketed every six months, and a new applicable spread may be set at each remarketing. The ability to remarket the shares can be at the option of the fund or the RVMTP shareholders. Moody’s Asset Management Conference: Will There Be A Great Rotation? 110

Neal M Epstein, CFA +1 212 553 -3799 neal. epstein@moodys. com Managed Investments Group’s Neal M Epstein, CFA +1 212 553 -3799 neal. [email protected] com Managed Investments Group’s Website www. moodys. com/managedinvestments Moody’s Asset Management Conference: Will There Be A Great Rotation? 111

Panel Discussion Great Rotation: Risks and Rewards Considered in “Making The Call” Panel Discussion Great Rotation: Risks and Rewards Considered in “Making The Call”

PANEL: GREAT ROTATION: RISKS AND REWARDS CONSIDERED IN “MAKING THE CALL” Daniel Serrao, Associate PANEL: GREAT ROTATION: RISKS AND REWARDS CONSIDERED IN “MAKING THE CALL” Daniel Serrao, Associate Managing Director, Managed Investments (Moderator) Michael Mazier, Senior Fixed Income Strategist, Van Eck Associates Corporation Leah Modigliani, Senior Vice President, Neuberger Berman Group, LLC William T. Meyers, Managing Director, Nuveen Investments Moody’s Asset Management Conference: Will There Be A Great Rotation? 113

THANK YOU Asset Management Conference: Will There Be A Great Rotation? THANK YOU Asset Management Conference: Will There Be A Great Rotation?

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