Private Wealth Management Monthly Investment



Monthly Investment Guide

Portfolio Advisory Group (PAG) November 2011

Published 11/07/11 Private Wealth Management

Contributors

Members of the Portfolio & Wealth Advisory Group

Anthony Roth Head of Wealth Management Strategies

Portfolio Advisory Group Wealth Advisory Group

Michael Crook, CAIA® Richard Hollmann, CFA® Executive Director Executive Director

Brian Nick, CAIA® Christopher Bryan, CIMA® Director Director

Diana Chen Christian Capasso Director Associate Director

Andrea Fisher Sujata Hingorani Associate Director Analyst

Kaitlyn Fischer Carly Sharon Analyst Analyst

UBS Wealth Management Americas Investment Committee

Mihir Bhattacharya Michael Ryan, CFA® Head, Strategic Projects and Services Chief Investment Strategist and Head of WMR

Anne Briglia, CFA® Thomas Troy Fixed Income Strategist, WMR-A Head, Market Executions

Stephen Freedman, CFA® Jeremy Zirin, CFA® Head of WMR Investment Strategy Head, Equities, WMR-A

Anthony Roth Head of Wealth Management Strategies

Introduction The Portfolio Advisory Group (PAG) is pleased to provide our valued clients the November 2011 Monthly Investment Guide. The Guide sets out key economic and market data from the past month and offers forward-looking UBS views over a wide range of market and investment areas. Unless otherwise noted, all opinions, projections and forecasts found within this Guide are taken from research conducted and published by UBS Wealth Management Research- Americas and/or UBS Investment Research. Unless otherwise noted, all information in the Monthly Investment Guide, including allocations, is as of November 7, 2011. The investment ideas presented in this Guide are for informational purposes only. In the context of making actual investment decisions, clients should work with their Private Wealth Advisors to customize their portfolios to meet their unique financial and life circumstances, taking into account age, risk tolerance, financial commitments and short-term liquidity needs. In addition, each UBS program, product or service is subject to specific eligibility and suitability requirements, each of which must be met in order for a client to invest. Please see the following pages for a general discussion of risk disclosures and other important information.

CFA® is a trademark owned by the CFA Institute. ® CIMA is a registered certification mark of the Investment Management Consultants Association. 1 CAIA® is a professional designation offered by the CAIA Association.

Table of Contents & Editorial

Economic and 3 Tragedies Only End One Way – Tragically Market Outlook The human oddity of any tragedy – Greek or otherwise – is the maintenance of suspense in the face of the inevitable. By definition, we know the basic outcome, but withhold belief or Monthly Spotlight: 5 acceptance until the final act. With the fate of Greece – and indeed Europe itself – hanging in Greece & the the balance, financial markets spasm with the revelation of each new hope or misery, only to reverse course again with the next twist or turn. But in the end, the outcome for Greece can Eurozone only be misery, and that for Europe further protraction of its own sufferings. Strategic and 7 The basic tragic form involves the commencement of fate upon an inevitable course of ruin by Tactical Asset an initial act of folly, and the modern epic at hand follows the form. In joining the European Allocation Models monetary unit, Greece imagined for itself a level of wealth and prosperity that was simply undeserved given the underlying absence of any degree of efficiency, productivity or entrepreneurship in its economy. Now, Greece must choose between two profoundly Asset Class 11 unattractive outcomes: either remain in the EMU and endure years of economic contraction, Outlook Summary declining levels of real income and social malaise; or, still worse, withdraw from the EMU and suffer more acute levels of economic failure, widespread private and public bankruptcy, Investment Ideas 13 international isolation and pervasive social upheaval. While we believe overwhelmingly that Greece will choose the former course and avoid the Economic 15 certain chaos of the latter, it is virtually impossible to say which would better serve the country Snapshot over the long term. But more germane for financial markets now, neither outcome will bring with it an immediate abatement of the broader economic instability within Europe. In our Important 16 view, it will take years for the structural imbalances afflicting Europe to resolve themselves. In Information and the end, and in fits and starts, Europe is very likely to move towards a more integrated Glossary political, fiscal and economic union, one that should enjoy greater economic uniformity and stability. In the meantime, investors must acclimate themselves to the enormous volatility of today’s financial markets – we do not expect it to subside any time soon. Indeed, we view the recently announced bailout package as a short-term fix. The combination of a 50% haircut on Greek bonds, a 9% core Tier 1 capital ratio requirement for banks, and an expansion of the European Financial Stability Facility should provide some breathing room, but the measures appear to treat the symptoms rather than the illness. What’s more, economic expansion in the Eurozone – a necessary ingredient in any long-term fix – currently looks tenuous at best, as noted by UBS economists who forecast that the region will fall into recession in the first half of 2012. In any case, we do view as a positive that the plan appears to ring-fence Eurozone banks, which would theoretically curtail the systemic contagion risk to the global financial sector. In light of the economic instability emanating from Europe and the recent acute equity market rally, we continue to recommend an underweight to risk assets, which we view as overbought. Further, we advise clients to consider rebalancing portfolios that may now reflect an above- benchmark position in these assets after last month's run-up. We also retain an overweight cash allocation to deploy should market conditions improve. Last, we now favor high yield fixed income, whose spreads appear attractive given the relatively low expected default rates for the market.

Anthony Roth Christian Capasso Head, Wealth Management Strategies Wealth Advisory Specialist UBS Wealth Management Americas UBS Wealth Management Americas

Portfolio Advisory Group Economic & Market Outlook Monthly Investment Guide

In October, global equity markets experienced one of their largest Brian Nick monthly gains in decades. At the start of November, many investors Senior Portfolio Strategist are asking whether it is finally safe to start adding more exposure to 212-713-6146 risk assets. Global risks still loom, particularly in the Eurozone, but brian.nick@ubs.com the outlook for the U.S. economy appears a bit brighter after a period of mostly positive economic releases. Andrea Fisher As long as Greek politicians seem determined to provide higher 212-713-6241 market volatility for the remainder of the year, we believe that [email protected] market swings will continue to produce dislocations, and thus opportunities, in select risk assets. Investors who are significantly underweight U.S. equities should consider adding selective exposure at this time to bring their portfolio weight to neutral. In addition, we recommend adding an overweight in U.S. high yield credit, Figure 1: Consumer sentiment troughs can which remains partially dislocated after a sharp sell-off this summer. signal a buying opportunity for stocks

A Tale of Two Economies 170 120 160 110 Over the past few weeks, two major factors have changed the investment landscape. Most notably, the agreement on a crisis fix in 150 100 the euro area healed some of the damage inflicted on the markets 140 90 during the past few months. However, as discussed in the Spotlight, this temporary tailwind has already partially reversed course, as 130 80 closer analysis highlights the challenges in implementing the 120 70 proposed fixes. In addition, UBS economists now expect a euro area 110 60 recession in the first half of next year, further complicating policymakers' tasks in the region. 100 50 On this side of the pond, the 2.5% rate of U.S. GDP in Q3 implies 90 40 that the recession risk in the U.S. is receding. U.S. consumers and 78 81 84 87 90 93 96 99 02 05 08 11 companies have proven resilient to political turmoil and higher S&P 500 (LHS Log Scale) U. of Michigan Consumer Sentiment (RHS) commodity prices. The majority of corporate profits beat Q3 expectations and personal consumption levels are healthy despite Source: Bloomberg, as of Oct. 31, 2011. dismal but improving sentiment. Indeed, Figure 1 shows that consumer sentiment bottoms have historically been good entry Figure 2: Disappointing U.S. economic points for stock owners. While the recovery in the U.S. remains recovery frustratingly subpar (Figure 2), it is still vastly preferable to a recession. We expect U.S. growth to strengthen modestly over the 15.0 $ trillions next few years. 14.5 Potential GDP Strong Preference for U.S. Stocks over Europe 14.0 Real GDP 13.5 As Figure 3 shows, U.S. equity markets have been closely tracking economic data surprises. We expect that as the recovery continues, 13.0 continued positive economic indicators will boost investor sentiment 12.5 and provide support to equity markets. While GDP alone is not a 12.0 good predictor of equity returns, the wide gap between our forecasted growth rates for the U.S. and euro area in 2012 (2.3% 11.5 vs. 0.2%) warrants investors' attention. Overall, we have a strong 11.0 preference for U.S. equities over non-U.S. developed market 10.5 equities, and our underweight is concentrated in the Eurozone, where positive economic surprises should be harder to come by. This 10.0 tactical stance makes the overall equity portfolio more defensive, 2000 2002 2004 2006 2008 2010 particularly when factoring in the currency risk for U.S. investors. Source: Bloomberg, as of Oct. 31, 2011

Economic & Market Outlook

Given the current geopolitical risks, we recommend focusing on Figure 3: Equities tracking economic data companies that offer high dividends and secular rather than cyclical 130 Jan 06 = 100 > 0 is Positive 3 growth opportunities. Our earnings growth expectations for next year are below consensus, and we believe that income will be a 2 larger-than-normal component of equity total returns. 110 1 We currently prefer defensive to cyclical sectors, with technology the 90 lone exception. Most technology firms continue to beat expectations, 0 and forward guidance for the sector has been healthier than the rest of the market. As Figure 4 shows, technology has not participated in -1 70 the recent broader trend downward in 2012 earnings expectations. Despite this, the sector appears no more expensive relative to the -2 entire market than it did earlier this year. We strongly favor 50 technology over the more commodity-driven cyclical sectors, energy -3 and materials. S&P 500 (LHS) Economic Surprise (RHS) 30 -4 U.S. High Yield Opportunity Far From Over 06 07 08 09 10 11 Our sole asset allocation change this month reduces but maintains Source: UBS Investment Research, Bloomberg, as of Oct. 31, 2011 the moderate overweight in investment grade credit and adds a new Figure 4: Stronger 2012 earnings estimates moderate overweight in high yield corporate bonds. This reverses a for undervalued technology sector move the Investment Committee made in August. We believe high yield is once again worth owning for two reasons. First, spreads have 106 2012 Consensus Estimates, March = 100 still not compressed to their June levels despite the better economic 104 outlook and low expected default rates (Figure 5). Second, high yield credit carries less interest rate risk than other types of fixed income, 102 which becomes more desirable as economic data gradually improves. 100 High yield has exhibited high correlation to equity markets with significantly less volatility. Normally at these low valuation levels, we 98 would advocate an overweight to U.S. equities, but we cannot 96 ignore the overhang of event risk from Europe. In the first few days of November, the trans-Atlantic rumor mill has resumed its 94 No significant net change in "Tech Premium" domination of daily trading. While high yield bonds do not present the same return opportunities as U.S. stocks, their fundamental 92 strength derives from the same source: the health of U.S. Mar Apr May Jun Jul Aug Sep Oct Nov corporations. We recommend professional active management of Tech/S&P PE Technology EPS S&P 500 EPS high yield bond portfolios given the importance of extensive credit Source: Bloomberg, as of Oct. 31, 2011 analysis, security selection, and ability to quickly adapt to changing market conditions. Figure 5: Default forecasts do not justify wide high yield spreads Conclusion 20% As we approach the end of 2011, the growth dispersion across 18% HY OAS developed markets appears to be widening. While we expect the 16% euro area to contract and slip back into a recession during the first HY Default Rate 14% half of 2012, we are cautiously optimistic that the U.S. recovery will Moody's Forecast Default Rate continue to push on, though at a sluggish pace. We deem the best 12% risk-adjusted opportunities to be in select U.S. equity sectors and 10% high yield credit. 8% 6%

0% 94 96 98 00 02 04 06 08 10 12 Source: Bloomberg, as of Oct. 31, 2011 4

Monthly Spotlight Portfolio Advisory Group Greece and the Eurozone, An Unstable Equilibrium Monthly Investment Guide

In recent weeks a number of positive developments brightened the global economic and market outlook. Eurozone policymakers laid out a comprehensive plan to address the Greek sovereign debt crisis, 3Q U.S. economic growth was better than expected, and employment growth trended in the right direction. Within markets, equities rallied considerably but valuations remain attractive relative to bonds. Volatility across markets has also subsided to some extent, and contracting credit spreads indicates a more favorable road ahead. Positives aside, one principal factor continues to drive markets: the status of the Greek bailout plan. At its core, the plan is simply a systematic way to prevent Greece from being the first euro area country to default on its debt. However, even as we write this report, commitment to the Greek bailout plan already shows signs of waning. Although his actual motivations remain unclear, Greek Prime Minister George Papandreou's decision to hold a public referendum on the plan signaled a willingness to back out of the plan under the guise of public opinion. Why? The detail-light plan offers a solution, but it also appears to fall hardest on Greek banks and the national pension system, which face substantial losses. At the same time, leaders of the G20 have pledged to withhold €8B of bailout money due in November until there is an affirmative referendum vote. Although a bailout package appears to be in the best interest of both Greece and the rest of the Eurozone, policymakers are frequently acting as if that is not the case. These actions might appear reckless at first approximation, but we believe analyzing the decision making of Greek and EU policymakers through the prism of game theory can help clarify the motivation for such posturing and offer guidance for the days, weeks, and months ahead. The Prisoner’s Dilemma Suppose that two men have been arrested for a crime they committed, but the detective lacks sufficient evidence for a full conviction. The detective meets with each separately and offers the following: "If you testify against your partner and he proclaims innocence, you will go free and he will receive a ten-year sentence. If you testify against one another, you will both receive a three-year sentence. If neither testifies you will both receive a 1 year sentence.” What should they do? This coordination game, known as the Prisoner’s Dilemma, illustrates why self-interested individuals might not pursue an outcome that appears to be in their joint best interest, which in this case means neither partner testifying against the other. The decision matrix (Figure 1) illustrates the payoff for each possible pair of actions for the scenario described above. Analyzing the decision matrix is straightforward: select the best option for a player based on each possible action of the other player. If the choice is the same for both, no matter what choice the other partner makes, there is a stable equilibrium. In this example betraying the partner is always the optimal outcome - leading both criminals to wind up in jail for three year. Therein lies the dilemma. Posturing around the bailout package can be analyzed under a similar coordination game framework. In this case, accepting/offering or rejecting a bailout package is the decision under consideration for both Greece and the Eurozone. This leads to four basic outcomes with very different results for each Greece and the EU: (1) the Eurozone offers and Greece accepts the bailout plan, (2) the Eurozone offers and Greece rejects, (3) Greece accepts but the Eurozone rejects, and (4) they both reject the bailout plan. We devise a scale between +5 and -5 to quantify the payoff for each choice. Figure 1: Prisoner's Dilemma Decision Matrix Man B Accept Reject Michael Crook Head, Portfolio Advisory Group 212-649-8153 -3B -10B [email protected] 0 Accept -3A A Katie Fischer 212-713-8451 Man A [email protected]

0B -1B

Reject -10A -1A

5 1Poundstone, W. (1992) Prisoner's Dilemma Doubleday, NY NY.

Monthly Spotlight Portfolio Advisory Group Greece and the Eurozone, An Unstable Equilibrium Monthly Investment Guide

Possible Outcomes: (1) Status quo: Eurozone offers, Greece accepts Success in implementing the current bailout package, which requires banks jointly writing down Greek debt by 50%, then a new IMF and Eurozone loan, and a bank recapitalization (by June 2012), appears to be the best possible outcome at this point. However, such a path will not be easy for Greece, which will have to accept further austerity measures as part of the package. The Eurozone fares better by incurring a large short-term cost in exchange for avoiding the follow-on impact of an unruly Greek default. On the +5 to -5 scale, we rate this a -3 for Greece and 0 for the Eurozone. (2) Greece votes No: Eurozone offers but Greece rejects Another possibility is that Greece decides to reject the current bailout package, but rather than allow the crisis to spiral out of control the Eurozone decides to provide a much larger package. This would clearly be a best-case outcome for Greece, which we rank at +1. It’s more costly for the rest of the Eurozone, but still guards against further contagion – an outcome we put at -2. (3) The deal falls apart: Greece accepts but the Eurozone rejects The feasibility of the current deal remains in question. Even if Greece complies fully, the complexity, size, and specific sequencing of the deal makes it possible that the Eurozone will not be able to follow through. The result will likely be additional attempts at a resolution, but both parties will have wasted time and resources working toward the failed resolution. We judge this as -3 for both parties. (4) Collapse: Greece Rejects/ Eurozone rejects The final possibility is that Greece rejects the bailout plan and the Eurozone allows the default to proceed. Such an event violates European Monetary Union rules and without extraordinary measures, results in the exit of Greece from the Eurozone. Contagion issues in Italy and Spain are also highly likely – forcing expensive and immediate policymaker action. We rate this outcome as -5 for both Greece and the Eurozone. An Unstable Equilibrium An analysis of the payoff matrix indicates that the status quo represents an unstable equilibrium. A solution will only hold if one player has no better strategy, considering the likely action of the other player. Europe is always better off by offering a Greek bailout, but Greece can make itself better off by rejecting the current proposal in hopes of something better. In order to stabilize this equilibrium, the Eurozone must credibly signal that the probability of a new deal is zero. The only way to do so is to push Greece to the brink of immediate bankruptcy. Eurozone leaders have started that process by removing aid until the bailout plan has been accepted, but it is likely that this scenario will play out many times going forward. Current Greek political turmoil, which seems to unfold by the hour, also heightens the probability that the government is unable or unwilling to credibly accept a package in any form. This would result in the catastrophic "collapse" scenario. The takeaway: A resolution to this crisis cannot be considered final until it is actually final. Expect days, weeks, and months of uncertainty until we have reached that point. Figure 2: Greece/EU Prisoner's Dilemma Example Greece Accept Reject

-3G +1G

Offer 0EU -2EU

-3G -5G

Reject -3EU -5EU

Ultra High Net Worth Portfolio Advisory Group Asset Allocation Models Monthly Investment Guide

Portfolios with net Conservative Mod Cons Moderate Growth Aggressive Asset Class consumption >5% Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical with Equity 19.0 17.0 33.5 30.5 41.5 37.5 50.0 45.0 58.0 52.0 non-traditional U.S. Equity 14.0 14.0 24.0 24.0 29.0 29.0 34.0 34.5 40.0 40.5 asset classes Large Growth 5.5 6.5 9.0 11.0 10.0 13.0 9.5 13.5 9.5 14.0 Large Value 8.5 7.5 9.0 8.5 10.0 9.0 9.5 8.5 9.5 8.0 Mid Growth 0.0 0.0 2.0 2.0 2.5 2.5 3.5 3.5 4.5 4.5 Mid Value 0.0 0.0 2.0 1.5 2.5 2.0 3.5 3.0 4.5 4.0 Small Growth 0.0 0.0 1.0 0.5 1.0 0.5 2.0 1.0 3.0 2.0 Small Value 0.0 0.0 1.0 0.5 1.0 0.0 2.0 1.0 3.0 2.0 Convertibles 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 6.0 6.0 Non-U.S. Equity 5.0 3.0 9.5 6.5 12.5 8.5 16.0 10.5 18.0 11.5 Developed Equity 5.0 3.0 9.5 6.5 10.5 6.5 12.5 7.5 13.5 7.5 Emerging Equity 0.0 0.0 0.0 0.0 2.0 2.0 3.5 3.0 4.5 4.0 Fixed Income 67.0 67.0 48.0 48.0 38.0 38.0 25.0 25.0 11.5 11.5 U.S. Fixed Income 67.0 67.0 48.0 48.0 38.0 38.0 25.0 25.0 11.5 11.5 We increased high U.S. Tax Exempt 67.0 60.0 48.0 42.5 35.0 31.0 20.0 17.5 6.5 5.5 yield exposure to Fixed Income U.S. Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 moderately Securities overweight Investment Grade 0.0 3.5 -3.5 0.0 3.0 -2.5 0.0 2.0 -2.0 0.0 1.5 -1.0 0.0 0.5 -0.5 High Yield 0.0 3.5 3.5 0.0 2.5 2.5 3.0 5.0 2.0 5.0 6.0 1.0 5.0 5.5 0.5 Non-U.S. Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income Developed Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 We reduced Income Emerging Market 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 exposure to Fixed Income Non-Traditional investment grade 12.0 11.0 16.5 14.5 18.5 16.5 23.0 21.0 28.5 25.5 Asset Classes but remain Hedge Funds 9.0 9.0 9.0 9.0 10.0 10.0 13.0 13.0 15.0 15.0 Tactical Trading moderately 1.0 1.0 1.0 1.0 2.0 2.0 3.0 3.0 4.0 4.0 (Macro, CTA) overweight Relative Value (Arb Strategies ex-Merger 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Arb, Equity Market Neutral) Credit Strategies (Hedged Credit, 2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0 Distressed) Event Driven (Merg Arb, Special 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 Situations) Equity Hedge 2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0 (Long/Short) Private Equity 0.0 0.0 2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 LBO (Secondaries) 0.0 0.0 2.0 2.0 2.0 2.0 1.0 1.0 1.0 1.0 Venture Capital 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 2.0 2.0 Real Estate 0.0 0.0 1.5 1.5 1.5 1.5 4.0 4.0 4.5 4.5 Public Real Estate 0.0 0.0 1.5 1.5 1.5 1.5 2.0 2.0 2.5 2.5 Remain (REITs) Private Real Estate 0.0 0.0 0.0 0.0 0.0 0.0 2.0 2.0 2.0 2.0 overweight cash Commodities 3.0 2.0 4.0 2.0 5.0 3.0 4.0 2.0 6.0 3.0 Cash 2.0 5.0 2.0 7.0 2.0 8.0 2.0 9.0 2.0 11.0 Strategic Asset Allocation Estimated Hypothetical Portfolio Analytics Conservative Mod Cons Moderate Growth Aggressive

Estimated Return 5.59% 6.76% 7.40% 8.26% 9.05%

Estimated Standard 5.23% 7.32% 8.71% 10.42% 12.18% Deviation

Estimated Sharpe Ratio 0.30 0.38 0.39 0.41 0.42

Numbers in blue/red indicate a positive/negative change, in percentage, of allocation to any asset class on a tactical level since previous month's asset allocation table. Source: Asset allocation models are current as of October 27, 2011. See page entitled Important Information: UBS Strategic and Tactical Asset Allocation Models for information regarding how the models are developed. Estimated hypothetical portfolio analytics are based on UBS's estimated returns and standard deviations and are calculated by weighting the return assumptions for each asset class in the same proportion as that shown in the respective strategic asset allocation model. See page entitled Important Information: Portfolio Analytics for a more detailed explanation. 7

Ultra High Net Worth Asset Allocation Models

Portfolios with net Conservative Mod Cons Moderate Growth Aggressive Asset Class consumption <5% Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical with Equity 17.0 15.0 30.5 27.5 35.5 31.5 42.0 37.0 48.5 42.5 non-traditional U.S. Equity 13.0 13.0 22.0 22.0 25.0 25.0 30.0 30.5 34.0 34.5 asset classes Large Growth 5.0 6.0 8.0 10.0 8.0 11.0 8.0 12.0 8.0 12.5 Large Value 8.0 7.0 8.0 7.5 8.0 7.0 8.0 7.0 8.0 6.5 Mid Growth 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.0 3.5 3.5 Mid Value 0.0 0.0 2.0 1.5 2.0 1.5 3.0 2.5 3.5 3.0 Small Growth 0.0 0.0 1.0 0.5 1.5 1.0 2.0 1.0 3.0 2.0 Small Value 0.0 0.0 1.0 0.5 1.5 0.5 2.0 1.0 3.0 2.0 Convertibles 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 5.0 5.0 Non-U.S. Equity 4.0 2.0 8.5 5.5 10.5 6.5 12.0 6.5 14.5 8.0 Developed Equity 4.0 2.0 7.5 4.5 8.5 4.5 9.0 4.0 11.0 5.0 Emerging Equity 0.0 0.0 1.0 1.0 2.0 2.0 3.0 2.5 3.5 3.0 Fixed Income 67.0 67.0 48.0 48.0 37.0 37.0 25.0 25.0 10.5 10.5 U.S. Fixed Income 67.0 67.0 48.0 48.0 37.0 37.0 25.0 25.0 10.5 10.5 We increased high U.S. Tax Exempt 67.0 60.0 48.0 42.5 34.5 30.5 21.5 18.5 8.0 7.0 yield exposure to Fixed Income U.S. Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 moderately Securities overweight Investment Grade 0.0 3.5 -3.5 0.0 3.0 -2.5 0.0 2.0 -2.0 0.0 1.5 -1.5 0.0 0.5 -0.5 High Yield 0.0 3.5 3.5 0.0 2.5 2.5 2.5 4.5 2.0 3.5 5.0 1.5 2.5 3.0 0.5 Non-U.S. Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income Developed Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 We reduced Income Emerging Market 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 exposure to Fixed Income Non-Traditional investment grade 14.0 13.0 20.5 18.5 26.5 24.5 32.0 30.0 40.0 37.0 Asset Classes but remain Hedge Funds 9.0 9.0 10.0 10.0 12.0 12.0 15.0 15.0 19.0 19.0 Tactical Trading moderately 2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 (Macro, CTA) overweight Relative Value (Arb Strategies ex-Merger 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Arb, Equity Market Neutral) Credit Strategies (Hedged Credit, 1.0 1.0 2.0 2.0 2.0 2.0 2.5 2.5 4.0 4.0 Distressed) Event Driven (Merg Arb, Special 2.0 2.0 2.0 2.0 2.0 2.0 2.5 2.5 3.0 3.0 Situations) Equity Hedge 2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 (Long/Short) Private Equity 2.0 2.0 3.0 3.0 6.0 6.0 9.0 9.0 11.5 11.5 LBO (Secondaries) 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 6.5 6.5 Venture Capital 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 5.0 5.0 Real Estate 0.0 0.0 3.5 3.5 3.5 3.5 4.0 4.0 4.5 4.5 Public Real Estate 0.0 0.0 1.5 1.5 1.5 1.5 1.0 1.0 0.0 0.0 Remain (REITs) Private Real Estate 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.0 4.5 4.5 overweight cash Commodities 3.0 2.0 4.0 2.0 5.0 3.0 4.0 2.0 5.0 2.0 Cash 2.0 5.0 1.0 6.0 1.0 7.0 1.0 8.0 1.0 10.0 Strategic Asset Allocation Estimated Hypothetical Portfolio Analytics Conservative Mod Cons Moderate Growth Aggressive

Estimated Return 5.57% 6.81% 7.52% 8.32% 9.18%

Estimated Standard 5.24% 7.21% 8.58% 10.13% 11.67% Deviation

Estimated Sharpe Ratio 0.30 0.39 0.41 0.43 0.44

Ultra High Net Worth Portfolio Advisory Group Asset Allocation Models Monthly Investment Guide

Without Conservative Mod Cons Moderate Growth Aggressive Asset Class alternative Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical investments1 Equity 22.0 20.0 39.0 36.0 50.0 46.0 61.0 56.0 77.0 71.0 U.S. Equity 16.0 16.0 28.0 28.0 35.0 35.0 42.0 42.5 53.0 53.5 Large Growth 6.5 7.5 10.0 12.0 12.0 15.0 12.0 16.0 13.0 17.5 Large Value 9.5 8.5 10.0 9.5 12.0 11.0 12.0 11.0 13.0 11.5 Mid Growth 0.0 0.0 2.5 2.5 3.0 3.0 4.5 4.5 6.5 6.5 Mid Value 0.0 0.0 2.5 2.0 3.0 2.5 4.5 4.0 6.5 6.0 Small Growth 0.0 0.0 1.5 1.0 1.5 1.0 2.5 1.5 4.0 3.0 Small Value 0.0 0.0 1.5 1.0 1.5 0.5 2.5 1.5 4.0 3.0 Convertibles 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 6.0 6.0 Non-U.S. Equity 6.0 4.0 11.0 8.0 15.0 11.0 19.0 13.5 24.0 17.5 Developed Equity 6.0 4.0 9.5 6.5 12.5 8.5 15.0 10.0 18.0 12.0 We increased high Emerging Equity 0.0 0.0 1.5 1.5 2.5 2.5 4.0 3.5 6.0 5.5 yield exposure to Fixed Income 76.0 76.0 57.5 57.5 46.0 46.0 33.0 33.0 15.0 15.0 moderately U.S. Fixed Income 76.0 76.0 57.5 57.5 46.0 46.0 33.0 33.0 15.0 15.0 U.S. Tax Exempt 76.0 69.0 57.5 52.0 43.5 39.5 28.0 25.5 10.0 9.0 overweight Fixed Income U.S. Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Securities Investment Grade 0.0 3.5 -3.5 0.0 3.0 -2.5 0.0 2.0 -2.0 0.0 1.5 -1.0 0.0 0.5 -0.5 We reduced High Yield 0.0 3.5 3.5 0.0 2.5 2.5 2.5 4.5 2.0 5.0 6.0 1.0 5.0 5.5 0.5 Non-U.S. Fixed exposure to 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income investment grade Developed Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 but remain Income Emerging Market 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 moderately Fixed Income Non-Traditional overweight 0.0 0.0 1.5 1.5 2.0 2.0 4.0 4.0 6.0 6.0 Asset Classes Real Estate 0.0 0.0 1.5 1.5 2.0 2.0 4.0 4.0 6.0 6.0 Public Real Estate 0.0 0.0 1.5 1.5 2.0 2.0 4.0 4.0 6.0 6.0 Remain (REITs) Cash 2.0 4.0 2.0 5.0 2.0 6.0 2.0 7.0 2.0 8.0 overweight cash

Strategic Asset Allocation Estimated Hypothetical Portfolio Analytics Conservative Mod Cons Moderate Growth Aggressive

Estimated Return 5.08% 6.26% 7.00% 7.90% 9.03%

Estimated Standard 5.43% 7.51% 9.18% 11.35% 14.33% Deviation

Estimated Sharpe Ratio 0.20 0.30 0.33 0.34 0.35

Numbers in blue/red indicate a positive/negative change, in percentage, of allocation to any asset class on a tactical level since previous month's asset allocation table. 1Alternative investments referenced above include hedge funds, private equity, private real estate and commodities. Source: Asset allocation models are current as of October 27, 2011. See page entitled Important Information: UBS Strategic and Tactical Asset Allocation Models for information regarding how the models are developed. Estimated hypothetical portfolio analytics are based on UBS's estimated returns and standard deviations and are calculated by weighting the return assumptions for each asset class in the same proportion as that shown in the respective strategic asset allocation model. See page entitled Important Information: Portfolio Analytics for a more detailed explanation. 9

Ultra High Net Worth Asset Allocation Models

Tax-exempt Conservative Mod Cons Moderate Growth Aggressive Asset Class entities Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Equity 17.0 15.0 30.5 27.5 35.5 31.5 42.0 37.0 48.5 42.5 U.S. Equity 13.0 13.0 22.0 22.0 25.0 25.0 30.0 30.5 34.0 34.5 Large Growth 5.0 6.0 8.0 10.0 8.0 11.0 8.0 12.0 8.0 12.5 Large Value 8.0 7.0 8.0 7.5 8.0 7.0 8.0 7.0 8.0 6.5 Mid Growth 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.0 3.5 3.5 Mid Value 0.0 0.0 2.0 1.5 2.0 1.5 3.0 2.5 3.5 3.0 Small Growth 0.0 0.0 1.0 0.5 1.5 1.0 2.0 1.0 3.0 2.0 Small Value 0.0 0.0 1.0 0.5 1.5 0.5 2.0 1.0 3.0 2.0 Convertibles 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 5.0 5.0 Non-U.S. Equity 4.0 2.0 8.5 5.5 10.5 6.5 12.0 6.5 14.5 8.0 Developed Equity 4.0 2.0 7.5 4.5 8.5 4.5 9.0 4.0 11.0 5.0 Emerging Equity 0.0 0.0 1.0 1.0 2.0 2.0 3.0 2.5 3.5 3.0 Fixed Income 67.0 67.0 48.0 48.0 37.0 37.0 25.0 25.0 10.5 10.5 We increased high U.S. Fixed Income 59.0 59.0 40.0 40.0 29.0 29.0 20.0 20.0 8.0 8.0 U.S. Government 47.0 40.0 24.0 19.0 17.0 13.0 7.5 4.5 0.0 0.0 yield exposure to Securities moderately Investment Grade 12.0 15.5 -3.5 10.0 12.5 -2.5 7.0 9.0 -2.0 7.5 9.0 -1.5 5.5 5.5 High Yield 0.0 3.5 3.5 6.0 8.5 2.5 5.0 7.0 2.0 5.0 6.5 1.5 2.5 2.5 overweight Non-U.S. Fixed 8.0 8.0 8.0 8.0 8.0 8.0 5.0 5.0 2.5 2.5 Income Developed Fixed 8.0 8.0 8.0 8.0 8.0 8.0 5.0 5.0 2.5 2.5 Income Emerging Market 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 We reduced Fixed Income Non-Traditional exposure to 14.0 13.0 20.5 18.5 26.5 24.5 32.0 30.0 40.0 37.0 Asset Classes investment grade Hedge Funds 9.0 9.0 10.0 10.0 12.0 12.0 15.0 15.0 19.0 19.0 Tactical Trading but remain 2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 (Macro, CTA) moderately Relative Value (Arb Strategies ex-Merger overweight 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Arb, Equity Market Neutral) Credit Strategies (Hedged Credit, 1.0 1.0 2.0 2.0 2.0 2.0 2.5 2.5 4.0 4.0 Distressed) Event Driven (Merg Arb, Special 2.0 2.0 2.0 2.0 2.0 2.0 2.5 2.5 3.0 3.0 Situations) Equity Hedge 2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 (Long/Short) Private Equity 2.0 2.0 3.0 3.0 6.0 6.0 9.0 9.0 11.5 11.5 LBO (Secondaries) 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0 6.5 6.5 Venture Capital 0.0 0.0 0.0 0.0 2.0 2.0 4.0 4.0 5.0 5.0 Real Estate 0.0 0.0 3.5 3.5 3.5 3.5 4.0 4.0 4.5 4.5 Public Real Estate 0.0 0.0 1.5 1.5 1.5 1.5 1.0 1.0 0.0 0.0 Remain (REITs) Private Real Estate 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.0 4.5 4.5 overweight cash Commodities 3.0 2.0 4.0 2.0 5.0 3.0 4.0 2.0 5.0 2.0 Cash 2.0 5.0 1.0 6.0 1.0 7.0 1.0 8.0 1.0 10.0

Strategic Asset Allocation Estimated Hypothetical Portfolio Analytics Conservative Mod Cons Moderate Growth Aggressive

Estimated Return 6.18% 7.40% 7.94% 8.58% 9.27%

Estimated Standard 5.10% 7.59% 8.81% 10.27% 11.69% Deviation

Estimated Sharpe Ratio 0.43 0.45 0.45 0.45 0.45

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Portfolio Advisory Group Asset Class Outlook Summary Monthly Investment Guide

Asset Class Tactical View U.S. Equities Neutral  While corporations have posted stronger-than-expected earnings results and P/E multiples are below long-term averages, we retain a cautious stance on risk assets because we are not convinced that the current set of proposals by European leaders will effectively solve or even defuse concerns about sovereign debt levels.  Within U.S. equities, our overweight is concentrated in large-cap growth, as we look for more attractively valued companies with a larger exposure to sales from abroad.  Our most preferred sectors are consumer staples and technology; we also favor utilities, healthcare and telecom as we look for lower beta and higher dividends. Non-U.S. Developed Equity Underweight  Although valuations are more attractive overseas, the abnormally high level of risk in the eurozone merits an underweight exposure.  Avoid eurozone equities given sharply reduced earnings forecasts and increasingly probable default of Greece  Within non-U.S. equities, we remain overweight U.K. equities based on attractive valuations, dividend yield of more than 3% and exposure to sales from abroad, including emerging markets.  We are neutral on Australia, Canada, and Switzerland due to strong long-term growth prospects and solid financial foundations. In addition, the recent rally of the USD has partially mitigated their overvalued currency.  Remain neutral Japanese stocks; while valuations appear inexpensive, poor long-term economic prospects will weigh on performance. Emerging Market Equity Neutral  Emerging market (EM) equities are attractive from a fundamental perspective; however they will likely underperform if global markets come under renewed pressure  EM policymakers still face challenges in balancing inflation and growth dynamics, but tightening cycles in most EM countries appear to be at or near completion.  Within EMs, we favor India and China given their long term growth prospects and on a tactical basis, Thailand and the Czech Republic. U.S. Convertibles Neutral  Convertibles have exhibited a high correlation to risk assets, particularly equities, in 2011.  Investors should focus on relative value opportunities and issuers with strong fundamentals.  Convertible bonds are also a good way for more conservative investors to add indirect exposure to equities.

U.S. Municipals Moderate  A surge in new issuance drove municipal yields higher in the past few weeks. Underweight  Relative to corporates, munis are favorably valued.  Concern over ratings agency action have not weighed on this asset class as heavily as we might have feared following the S&P downgrade of U.S. government debt.  Spreads may not narrow immediately, as state and local government issuers face fiscal challenges that will likely persist beyond 2011.  Consider high-quality revenue bonds in the water/sewer and utility sector, special tax and state GO bonds.  UBS WMR favors the 7- to 12-year range, although investors with longer investment time horizons who are willing to take interest rate risk can find value in the 18- to 20-year range as well. U.S. Government Securities Moderate  We expect range bound rates over the next three to six months, followed by somewhat higher yields in the Underweight longer-term.  The euro debt situation and the strength of the economic outlook are likely to continue to drive Treasury yields.  Most yield pickup continues to be found in the 4- to 7-year portion of the curve.  Higher rates would negatively impact TIPS, therefore they should be held to maturity. Investment Grade Corporate Debt Moderately  We remain overweight IG credit as we see further value in the sector. Overweight  It has a mixture of upside potential and downside protection.  Favor 4- to 10-year maturities as Fed policy mitigates near-term interest rate risk.  BBB-rated bonds offer best risk-return tradeoff.  Continue to favor non-financials over financials as financials are more sensitive to macro risks.

Source: UBS Wealth Management Americas Investment Committee as expressed in the UBS WMR Investment Strategy Guide: A long and winging road, as of October 26, 2011. See page entitled Important Information: UBS Strategic and Tactical Asset Allocation Models. Please note tactical views represent the tactical positioning for the overall allocation model. 11 *See page entitled Important Information: Investment Risks – Non-Traditional Asset Classes.

C:\DPS NEW\Pres\PPT\PresPrint.pot Asset Class Outlook Summary

Asset Class Tactical View High Yield Fixed Income Moderate  Recent stronger high yield performance has been driven by the eurozone rescue plan and strengthening U.S. Overweight economic data.  HY spreads have widened significantly, suggesting valuations are favorable.  With less rate sensitivity, high yield debt can perform well even if Treasuries sell off, however spreads are still sensitive to macro risks.  Improving default rates and strong investor appetite remain supportive of the sector. Non-U.S. Fixed Income Neutral  We are neutral on non-U.S. developed fixed income and emerging market fixed income. We believe international bonds provide both diversification and currency exposure in the current environment.  We recommend avoiding eurozone bonds as the short-term liquidity prospects and long-term economic prospects remain uncertain.  We recommend buying bonds of developed countries with strong fundamentals, not necessarily bonds with the highest yields. Hedge Funds* Neutral  Neutral relative value: We believe it will be a challenging period ahead for this strategy since it relies on leverage to generate returns, which is currently difficult. The strategy is less attractive at the moment, but we expect managers to increase exposure to this strategy opportunistically.  Neutral long/short equity: Intra-market equity correlation remains high, making it difficult for long-only managers to generate significant alpha. Managers with the ability to go short have an additional degree of freedom to outperform, but long/short managers tend to retain some beta to equity markets, so the risks of a U.S. recession, a European fiscal crisis or a geopolitical shock may all hurt returns.  Neutral tactical trading: Global macro and managed futures strategies are positioned to outperform in the current economic environment. Alternative betas such as momentum can provide important diversification properties to portfolios heavy in interest rate or equity risk. While we do not necessarily expect strongly trending markets going forward, we are more disposed to macro managers, who should be well-positioned to take advantage of market dislocations, policy uncertainty and well-timed directional trading.  Neutral event-driven: Distressed funds have negatively impacted the performance of this strategy, namely post re-org and European-distressed funds. This strategy could gain traction when the macro backdrop stabilizes.  Neutral credit strategies: We expect capital structure arbitrage to outperform catalyst-driven or long-biased credit strategies in the current market environment. Managers find credit at the top of the capital structure to be attractive, but they are positioned defensively due to technical factors. Private Equity* Neutral  Due to the prolonged period of dislocation in the business sector and in the securities market, we expect opportunistic PE funds to benefit from general market consolidations.  Within the U.S., distressed assets have been substantially marked down, and we believe this creates opportunities for distressed PE funds.  Our long-term secular outlook for EM PE funds remains robust due to deteriorating growth forecast and financial risks in developed nations. Real Estate* Neutral  U.S. residential and commercial real estate markets are still struggling to recover, although the most recent data is somewhat more encouraging than it was earlier in the year  Ongoing distress brings new opportunities in undervalued loan investments.  An excess of unsold homes, continued foreclosure activity and negative housing equity conditions do not bode well for the housing sector.  REITs yield of 5% is more appealing than the marginal interest rates in the fixed income market, however REIT dividends could fall if the economy enters into a renewed downturn. Commodities* Moderate  Due to the sluggish growth, we expect global demand for commodity to decelerate further and thus maintain Underweight a moderate underweight allocation.  Growth slow-down in non-U.S. developed and emerging markets is especially likely to impact commodities.  While we are underweight, we favor gold and platinum as well as select agricultural commodities.

Source: UBS Wealth Management Americas Investment Committee as expressed in the UBS WMR Investment Strategy Guide: A long and winging road, as of October 26, 2011. See page entitled Important Information: UBS Strategic and Tactical Asset Allocation Models. Please note tactical views represent the tactical positioning for the overall allocation model. 12 *See page entitled Important Information: Investment Risks – Non-Traditional Asset Classes.

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Portfolio Advisory Group Investment Ideas Monthly Investment Guide

Recommendation Investment Case High Yield Ex ♦ Corporate bonds are increasingly attractive in both absolute and relative terms Financials Fixed ♦ The pressure on risk assets should be lessened due to: Income - Rescue plan to address the eurozone debt situation - Stronger U.S. economic data ♦ More optimistic environment and lessening risk of U.S. recession has led to stronger HY performance ♦ Fund flows have accelerated into the HY asset class, however sector selection is important Buy ♦ Stay away from Financials, which remain under regulatory and ratings pressure Covered Calls on ♦ Implied volatility levels across asset classes is elevated and near term expectations for equity market Large-Cap Dividend returns are muted Stocks ♦ Option premiums increase in value as the implied future volatility of the underlying investment increases, all else equal ♦ Therefore, we currently recommend selling volatility via covered call option strategies ♦ A covered call option strategy consists of writing (selling) out-of-the money call options on an existing long position Buy ♦ The strategy's upside potential is capped by the call's strike price while downside mitigation is limited to premium received from selling calls Asia Ex-Japan ♦ The macro-driven sell-off in emerging currencies in September provided a good entry point for Asian Sovereign Debt & debt and currencies Currencies ♦ Asian economies (ex-Japan) continue to outpace most of the rest of the world; China appears likely to avoid a hard landing ♦ Tightening cycles in most countries appear to be nearing an end as inflation pressures ease ♦ Most EM Asian currencies are significantly undervalued vs. USD on a purchasing-power parity basis; sell- offs in KRW and IDR look particularly overdone ♦ Asian debt continues to offer higher yields than most developed sovereigns Buy ♦ Further event risk out of Europe is a notable headwind Allocate to Specific ♦ High intra-market correlations make the need for alternative sources of diversification (or "alternative Alternative Beta beta") critical Strategies ♦ Elevated market volatility creates an opportunistic environment for relative value ♦ Macroeconomic uncertainty and valuation extremes increase the portfolio value of trend-following strategies, particularly managed futures ♦ Recent market uncertainty has dampened corporate activity, but additional corporate action is likely to be supported by: - Healthy corporate balance sheets - Low and stable interest rates Buy - Capitalization-based earnings growth discrepancies Sell Gold Volatility ♦ Implied volatility is at near-term highs in the gold market, creating an attractive entry point for selling gold volatility ♦ The option premium can also serve as downside protection in the case of a near-term decline ♦ Therefore, we recommend selling out of the money covered call options on gold ♦ Investors looking to build gold positions could consider selling put options on gold at a strike of 1497 (the low end of the WMR expected trading range) Buy Cashless Collars ♦ We expect periodic spikes in market volatility given the myriad of risks in the economy, such as the sovereign debt crisis in Europe and global growth slowdown ♦ Therefore, we recommend implementing portfolio strategies that provide reduced exposure to downside risk ♦ However, the current elevated volatility market environment does not provide an attractive entry point for such strategies Hold ♦ We expect attractive entry points periodically over the next few months and will signal such opportunities by shifting to a "buy" status * All Investment Ideas Updated as of November 7, 2011

We recommend that individuals work with their financial advisors to determine if the investment solutions above are suitable for their risk tolerance and are appropriate for their investment objectives. Please speak with your financial advisor to discuss the various ways to implement the ideas above. See pages titled Important Information for investment risks related to the ideas above. See page 18 for sources and disclosures on Investment Ideas. 13

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Portfolio Advisory Group Investment Ideas Monthly Investment Guide

Recommendation Investment Case Buy UK Equities ♦ According to UBS WMR, the U.K. equity market appears inexpensive, trading around 9x consensus earnings forecasts, and offers a dividend yield above 3% ♦ Unlike most currencies, the pound is undervalued against the dollar on a purchasing power basis ♦ The U.K. has already passed austerity measures that should help to restrain debt issuance in the medium term ♦ Roughly 70% of large-cap company profits are generated outside the U.K., which helps mitigate the Buy downside risk from the domestic economy Buy Technology Sector ♦ Technology is the most defensive cyclical sector, with 28% of assets in cash and this capital is enhancing Equities dividend growth and buybacks ♦ Both UBS Investment Research and WMR-A favor the technology sector ♦ Technology is very attractively valued – trading at a significant discount to the S&P 500 and maintaining very strong balance sheets ♦ Tech should benefit from increased business investment and emerging market consumer demand ♦ Though weak demand for PCs may act as a headwind, it will likely be offset by growth in the smart Buy phone and tablet space

* All Investment Ideas Updated as of November 7, 2011

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Portfolio Advisory Group Economic Snapshot Monthly Investment Guide

U.S. Economic Forecasts GDP Growth and Inflation Forecasts

GDP Growth Inflation

f f f In % 2009 2010 2011 2012 2013 In % 11f 12f 13f 11f 12f 13f

Real GDP -3.5 3.0 1.8 2.3 2.7 World 3.2 3.1 3.4 3.8 2.9 3.0

U.S. 1.8 2.3 2.7 3.1 1.8 2.3 CPI -0.3 1.6 3.1 1.8 2.3 Canada 2.2 2.0 2.4 3.1 2.8 2.1 Unemploy- ment 9.3 9.6 9.0 8.7 8.3 Japan -0.6 2.9 1.7 -0.3 -0.2 0.2 Fed Funds (year-end) 0.13 0.13 0.13 0.13 0.75 Eurozone 1.7 0.2 1.0 2.7 1.7 1.8

China 9.0 8.3 8.0 5.4 3.5 4.0 10-Yr Treasury (year-end) 3.9 3.3 2.0 2.5 n /a Switzerland 2.0 0.8 1.8 0.4 0.3 1.2 f: Forecast. Source: UBS WMR Forecast Tables, as of November f: Forecast. Source: UBS WMR Forecast Tables, as of November 1, 2011 1, 2011

Global Interest Rate Forecasts Exchange Rate Forecasts

In % Today 3mth 6mth 12mth Today 3mth 6mth 12mth

Fed 0.13 0.13 0.13 0.13 EURUSD 1.38 1.30 1.34 1.45 USDJPY 78 78 81 81 ECB 1.25 1.00 1.00 1.00 GBPUSD 1.61 1.48 1.62 1.70 BoE 0.50 0.50 0.50 0.50 USDCHF 0.88 0.95 0.93 0.86 BoJ 0.05 0.05 0.05 0.05 USDCAD 1.00 1.08 1.05 0.98 10yr UST 2.10 2.00 2.10 2.50 AUDUSD 1.05 0.90 0.96 1.00 10yr bund 1.90 1.80 1.90 2.30 NZDUSD 0.81 0.72 0.77 0.80

10yr gilt 2.40 2.40 2.50 2.90 USDSEK 6.53 6.73 6.42 5.86

10yr JGB 1.00 1.10 1.20 1.50 USDNOK 5.58 5.85 5.60 5.17 f: Forecast. Source: UBS WMR Forecast Tables, as of November f: Forecast. Source: UBS WMR Forecast Tables, as of November 1, 1, 2011 2011

15 C:\DPS NEW\Pres\PPT\PresPrint.pot Important Information Benchmark Indexes for the Asset Allocation Models

Asset Class Benchmark Index Historical Benchmark Statistics (Annualized)

Equity 1 Month 1 Year 3 Year 5 Year 10 Year Return Risk1 Return Risk Return Risk Return Risk Return Risk U.S. Equity Large-Cap Growth Russell 1000 Growth Performance 11.0 1.8 9.9 16.0 15.6 18.5 3.0 18.9 3.6 16.5 Large-Cap Value Russell 1000 Value Performance 11.4 2.0 6.2 18.1 8.8 21.2 -2.0 20.0 4.6 16.7 Mid-Cap Growth Russell Mid-Cap Growth 13.5 2.2 10.1 20.5 20.0 21.9 3.5 22.7 7.0 19.7 Mid-Cap Value Russell Mid-Cap Value 12.6 2.1 5.8 19.7 15.6 23.8 0.7 23.1 8.8 18.7 Small-Cap Growth Russell Small-Cap Growth 15.9 3.0 9.8 24.6 16.3 25.6 2.7 24.4 6.0 22.2 Small-Cap Value Russell Small-Cap Value 14.4 3.0 3.5 23.0 9.5 27.2 -1.4 24.7 7.6 20.9 Convertibles BofA Merrill Lynch U.S. Convertible 3.2 1.1 3.2 11.2 5.9 16.8 6.7 13.4 5.6 11.7 Non-U.S. Equity Developed Equity MSCI EAFE 9.6 2.1 -4.1 20.6 9.9 22.6 -2.4 22.4 5.7 18.6 Emerging Equity MSCI Emerging Markets 13.2 1.9 -7.7 24.2 23.2 26.0 6.5 28.9 16.8 24.3 Fixed Income U.S. Fixed Income U.S. Tax-Exempt Fixed Income Barclays Muni Bond -0.4 0.2 3.8 4.6 8.3 4.5 4.8 5.2 4.9 4.7 U.S. Government/Agency Securities Barclays Capital U.S. Aggregate - Government -0.7 0.4 4.9 4.1 6.3 5.0 6.3 4.5 5.1 4.6 Investment Grade Corporates Barclays Capital U.S. Aggregate - Investment Grade 1.8 0.4 6.1 3.8 15.8 6.1 6.9 7.3 6.2 6.3 High Yield Corporates Barclays Capital U.S. Aggregate - High Yield 6.0 0.6 5.2 8.7 23.0 13.0 8.0 14.0 9.2 11.1 Non-U.S. Fixed Income Developed Fixed income JPMorgan Non-U.S. Dollar 0.8 0.5 3.5 9.1 9.9 10.2 8.2 9.4 8.3 8.8 Emerging Market Fixed Income Barclays Capital Global Emerging Markets 4.8 0.3 3.8 7.6 22.1 8.5 8.2 12.2 11.1 10.5 Non-Traditional Asset Classes Hedge Funds Tactical Trading (Macro, CTA)2 HFRI Macro -1.3 n/a 5.5 6.3 4.1 5.2 5.9 5.4 7.8 5.3 Relative Value (Arb Strategies ex-Merger Arb, HFRI Relative Value -3.4 n/a 4.4 3.6 5.3 7.8 5.4 6.5 6.3 4.8 Equity Market Neutral)2

Credit Strategies (Hedged Credit, Distressed)2 HFRI Distressed & Restructuring -7.4 n/a 2.6 6.7 2.9 9.9 2.9 8.2 8.4 6.7

Event Driven (Merg Arb, Special Situations)2 HFRI Event Driven -7.3 n/a 2.6 6.9 2.9 9.3 3.3 8.0 6.8 7.1

Equity Hedge (Long/Short)2 HFRI Equity Hedge -10.5 n/a 0.6 9.9 -0.2 11.8 1.1 10.3 4.5 8.6 Private Equity LBO (Secondaries)3 Cambridge U.S. Private Equity Index 4.5 n/a 24.6 2.4 5.0 13.6 10.2 12.0 11.5 11.2 Venture Capital3 Cambridge U.S. Venture Capital Index 7.0 n/a 26.3 3.6 3.7 10.6 7.4 9.5 -0.4 11.8 Real Estate Public Real Estate (REITs) NAREIT 13.3 2.6 9.5 19.8 16.3 32.8 -1.7 31.2 10.3 24.3 Private Real Estate4 NCREIF 3.3 n/a 16.1 1.1 -1.5 9.1 3.4 7.9 7.8 6.3 Commodities DJIA Commodities 6.6 1.2 1.5 21.3 4.2 18.6 -2.2 21.5 5.2 18.1 Cash Barclays Capital U.S. Treasury - Bills (1-3 months) 0.0 0.0 0.1 0.0 0.1 0.0 1.5 0.6 1.9 0.5

1 Month YTD % 12 Month Commodity 1 Month YTD % 12 Month Currency 1 Month 12 Month Equity Sectors % Change Change % Change Indexes % Change Change % Change Movements % Change % Change

Financials 14.16 -15.46 -7.28 DJIA Commodities 6.62 -7.90 1.58 EUR 3.5 -0.6 Info. Tech. 11.46 4.20 7.65 Index JPY -1.4 2.8 Healthcare 5.60 6.46 7.57 Energy 8.79 -10.50 -1.64 Industrials 13.92 -4.43 3.59 GBP 3.2 0.3 Cons. Disc. 11.81 4.24 11.01 Crude Oil 17.07 -9.07 0.96 CHF 3.4 10.7 Energy 16.95 2.19 17.01 Precious Metals 8.04 18.13 30.68 Cons. Staples 4.30 5.38 7.93 CNY 0.4 4.7

Telecom 1.76 -3.55 2.28 Grains 5.24 -13.26 -6.26 BRL 8.7 -1.0 Utilities 3.52 10.95 9.91 RUB 6.0 1.8 Materials 17.59 -9.43 0.71 Base Metals 9.32 -18.40 -9.82

Source: FactSet. All data are shown as of October 31, 2011, unless otherwise noted. Risk (measured by standard deviation) and return are based on monthly returns.

Index information is presented for illustrative purposes only and the results shown reflect realized and unrealized gains and losses and the reinvestment of income, but do not reflect the deduction of fees and expenses which would reduce the results shown. Indexes are not available for direct investment and do not reflect the performance of any specific investment. With respect to the non-traditional asset classes, due to the non-public nature of many of the investments that comprise the indexes, the results shown may tend to overstate the potential benefits and do not fully reflect potential risks of these asset classes. Past performance does not guarantee or indicate future results.

11-month standard deviation is based on daily returns. n/a indicates the information is not available. 21-month return and standard deviation are based on the monthly return as of 9/30/11. 1-,3-,5- and 10-year returns are as of 9/30/11. 31-month return and standard deviation are based on the Q2 2011 quarterly return as of 6/30/11. 1-,3-,5- and 10-year returns are as of 6/30/11. 16 41-month return and standard deviation are based on the Q3 2011 quarterly return as of 9/30/11. 1-,3-,5- and 10-year returns are as of 9/30/11.

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Portfolio Advisory Group Important Information Monthly Investment Guide

Portfolio Analytics

The portfolio analytics shown for the strategic asset allocation models are based on the estimated hypothetical return and standard deviation assumptions (capital market assumptions) shown below, which are based on UBS proprietary research. The development process includes a review of a variety of factors, including the return, risk, correlations and historical performance of various asset classes, inflation and risk premium. These capital market assumptions do not assume any particular investment time horizon. The process assumes a situation in which the supply and demand for investments are in balance, and in which expected returns of all asset classes are a reflection of their expected risk and correlations regardless of timeframe. Please note that these assumptions are not guarantees and are subject to change. UBS has changed its risk and return assumptions in the past and may do so in the future. Neither UBS nor your Private Wealth Advisor is required to provide you with an updated analysis based upon changes to these or other underlying assumptions.

In order to create the analysis shown, the rates of return for each asset class are combined in the same proportion as the asset allocations illustrated (e.g., if the asset allocation indicates 40% equities, then 40% of the results shown for the allocation will be based on the estimated hypothetical return and standard deviation assumptions for equities shown below).

You should understand that the analysis shown and assumptions used are hypothetical estimates provided for your general information. The results are not guarantees and pertain to the asset allocation and/or asset classes in general, not the performance of specific securities or investments. Your actual results may vary significantly from the results shown in this report, as can the performance of any individual security or investment.

Asset Class Benchmark Index Capital Market Assumptions

Equity Estimated Return Estimated Standard Deviation U.S. Equity Large-Cap Growth Russell 1000 Growth 9.27 19.01 Large-Cap Value Russell 1000 Value 8.66 16.38 Mid-Cap Growth Russell Mid-Cap Growth 11.33 24.43 Mid-Cap Value Russell Mid-Cap Value 9.38 17.38 Small-Cap Growth Russell Small-Cap Growth 11.68 25.94 Small-Cap Value Russell Small-Cap Value 9.46 18.47 Convertibles Barclays Capital U.S. Convertibles Composite 8.56 14.28 Non-U.S. Equity Developed Equity MSCI EAFE 10.40 17.67 Emerging Equity MSCI Emerging Markets 12.56 26.64 Fixed Income U.S. Fixed Income U.S. Tax-Exempt Fixed Income Barclays Muni Bond 3.88 5.36 U.S. Government/Agency Securities Barclays Capital U.S. Aggregate - Government 4.62 4.76 Investment Grade Corporates Barclays Capital U.S. Aggregate - Investment Grade 4.62 4.76 High Yield Corporates Barclays Capital U.S. Aggregate - High Yield 6.62 10.01 Non-U.S. Fixed Income Developed Fixed income JPMorgan Non-U.S. Dollar 6.05 8.77 Emerging Market Fixed Income Barclays Capital Global Emerging Markets 7.97 14.45 Non-Traditional Asset Classes Hedge Funds Tactical Trading (Macro, CTA) HFRI Macro 6.57 9.57 Relative Value (Arb Strategies ex-Merger Arb, Equity HFRI Relative Value 10.53 9.56 Market Neutral) Credit Strategies (Hedged Credit, Distressed) HFRI Distressed & Restructuring 11.90 8.83 Event Driven (Merg Arb, Special Situations) HFRI Event Driven 11.82 8.33 Equity Hedge (Long/Short) HFRI Equity Hedge 8.13 10.54 Private Equity LBO (Secondaries) Cambridge U.S. Private Equity Index 11.39 17.66 Venture Capital Cambridge U.S. Venture Capital Index 11.39 17.66 Real Estate Public Real Estate (REITs) NAREIT 9.55 23.00 Private Real Estate NCREIF 8.72 11.36 Commodities DJIA Commodities 7.59 17.10 Cash Barclays Capital U.S. Treasury - Bills (1-3 months) 4.00 0.54

C:\DPS NEW\Pres\PPT\PresPrint.pot Important Information

It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients, we are registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, the investment advisory programs and brokerage accounts which we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts.

It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Private Wealth Advisor. For more information, please visit our website at www.ubs.com/workingwithus.

UBS Wealth Management Research Two sources of research are available to clients of UBS Financial Services Inc. Reports from the first source, UBS Wealth Management Research, are designed primarily for use by individual investors and are produced by UBS Wealth Management Americas (the UBS business group that includes, among others, UBS Financial Services Inc.) and UBS Wealth Management & Swiss Bank. The second source is UBS Investment Research, and its reports are produced by UBS Investment Bank, whose primary business focus is institutional investors. The two sources may have different opinions and recommendations. The various research content provided does not take into account the unique investment objectives, financial situation or particular needs of any specific individual investor. If you have any questions, please consult your Private Wealth Advisor. UBS Wealth Management Research is provided by UBS Financial Services Inc. and UBS AG. UBS Financial Services Inc. is a subsidiary of UBS AG.

UBS Strategic and Tactical Asset Allocation Models The strategic and tactical asset allocation models intend to provide a general framework to assist our clients in making informed investment decisions. The strategic models presented represent the longer-term allocation of assets that is deemed suitable for a particular type of investor. The strategic asset allocations in this Guide have been developed by UBS Investment Solutions, a business sector within UBS Wealth Management Americas, that develops research-based traditional investments (e.g., managed accounts and mutual fund programs) and alternative strategies (e.g., hedge funds, private equity and real estate) offered to UBS clients. These allocation models are provided for illustrative purposes only. They were designed by UBS Investment Solutions for hypothetical U.S. investors with a total return objective under five different investor profiles: conservative, moderate conservative, moderate, growth and aggressive. Please note that UBS has changed its strategic asset allocation models in the past and may do so in the future.

The process by which UBS Investment Solutions has derived the strategic asset allocations can be described as follows. First, an allocation is made to broad asset classes based on the Investor Profile. This is accomplished using optimization methods within a mean-variance framework. Based on a proprietary set of capital market assumptions, including expected returns, risk and correlation of different asset classes, combinations of the broad asset classes are computed. A qualitative judgmental overlay is then applied to the output of the optimization process to arrive at the strategic asset allocation models. The capital market assumptions are developed by UBS Global Asset Management.

The tactical asset allocation models presented reflect the strategic asset allocation models overlaid with the tactical shift that has been identified by the UBS Wealth Management Americas Investment Committee (WMA-IC), which is made up of members from various business groups within UBS Wealth Management Americas, including UBS Wealth Management Research-Americas, UBS Investment Solutions and Portfolio Advisory Group. For more information on the composition of the UBS WMA-IC, please see the Contributors page. Note that UBS Wealth Management Research-Americas also publishes tactical asset allocations in its Investment Strategy Guide which may differ from the tactical asset allocation models presented here. The short- and long-term investment ideas reflect the views of PAG and UBS Wealth Management Americas product areas. These models differentiate between investors whose net portfolio withdrawals exceed five percent of portfolio value from those whose withdrawals do not. With respect to the former group of clients, the models included reflect a higher allocation to liquid asset classes, which seek to align with the clients' increased liquidity needs. Please note that the asset allocation models are current as of the date shown, but that UBS Wealth Management Americas revises these models as warranted.

Your UBS Private Wealth Advisor can help you determine how the strategic and tactical allocation could be applied or modified according to your individual profile and investment goals.

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Portfolio Advisory Group Important Information Monthly Investment Guide

Investment Risks All investments involve risks which you should carefully consider prior to implementing an investment strategy. The following are general descriptions of the risks that can arise from the investments identified in this Guide. In addition to these risks, securities issued by small-cap companies may be relatively highly volatile because their earnings and business prospects typically fluctuate more than those of larger-cap companies. Securities issued by non-U.S. companies can have risks not typically associated with domestic securities, including risks associated with changes in currency values, economic, political and social conditions, loss of market liquidity, the regulatory environments of the respective countries and difficulties in receiving current or accurate information.

Implementing or changing an investment strategy may result in incurring gains or losses for income tax purposes. Neither UBS Financial Services Inc., nor any of its employees, provides tax or legal advice. We encourage all investors to consult qualified tax and legal counsel where appropriate, particularly before undertaking any investment in a product that may use leverage, options, derivatives or other complex financial structures. Nothing contained herein should be construed as an offer to sell or as a solicitation of an offer to buy securities or other investments identified.

Equities: Equity securities are subject to market risk and will undergo price fluctuations in which downward and upward trends may occur over short or extended periods. Historically, equities have shown greater growth potential than other types of securities, but they have also shown greater volatility.

Corporate Bonds: Fixed income securities are subject to market risk and interest rate risk. If sold in the secondary market prior to maturity, investors may experience a gain or loss depending on interest rates, market conditions and issuer credit quality.

Municipal Securities: Income from municipal bonds may be subject to state and local taxes based on residency of the investor and may be subject to the Alternative Minimum Tax. Call features may exist that can impact yield. If sold prior to maturity, investments in municipal securities are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer.

U.S. Treasury TIPS: The market for U.S. Treasury TIPS may not be as active or liquid as the secondary market for Treasury fixed- principal securities. Lesser liquidity and fewer market participants may result in larger spreads between the dealer-bid and the dealer- offered side of the market for inflation-protected securities than the bid-asked spreads for fixed-principal securities with the same time to maturity. Larger bid-asked spreads normally result in higher transaction costs and/or lower overall returns.

Preferred Securities: Preferred securities are subject to market value fluctuation given changes in the level of interest rates. Rising rates may lead to a decline in value. In addition, there is no guarantee that there will be an active secondary market for any issue.

Convertible Securities: Convertible securities are subject to the risks of both equity and fixed income securities, including that the values may fluctuate due to interest rate changes.

Inflation Indexed Securities: An investment in securities with principal or interest determined by reference to an inflation index involves factors not associated with an investment in a fixed coupon and principal security, such as: that the inflation index may be subject to significant changes; that changes in the index may or may not correlate to changes in interest rates generally or with changes in other indexes; and/or that the resulting interest may be greater or less than that payable on other securities of similar maturities. Historic performance of the index is not necessarily indicative of future performance. In addition, there is no guarantee that there will be an active and liquid secondary market for these securities.

Structured Products: Structured products involve risks which can include, but are not limited to: fluctuations in the price, level or yield of underlying instruments, interest rates, currency values and credit quality, substantial or complete loss of principal, limits on participation in the appreciation of the underlying instrument, limited liquidity/limited or no secondary market for the structured product, credit risk of the issuer of the structured product, potential conflicts of interest between the investor and the business activities of UBS, other issuers of structured products or their respective affiliates. Clients should carefully read the detailed explanation of risks, together with other information in the relevant offering materials. As structured products are debt obligations of the issuer, investors should be comfortable with the credit risk of the issuer before purchasing a structured product.

Managed Accounts: For complete information regarding an investment manager, including fees and performance, see the manager’s Form ADV, Part II. For information regarding managers participating in ACCESS or other UBS investment advisory programs, your Private Wealth Advisor can provide additional information, including the respective program's disclosure brochure.

Mutual Funds and ETFs: Mutual funds and exchange traded funds are sold by prospectus. For complete information about a fund, including detailed information on risks, charges and expenses, see the fund’s prospectus. Please read the prospectus and offering documents carefully before you invest. Investors should be aware that the value of mutual funds and exchange traded funds changes from day to day. Therefore, an investment’s return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. 19

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Investment Risks – Non-Traditional Asset Classes Non-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, managed futures and commodities (collectively, alternative investments). Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of alternative investment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Alternative investment funds are not mutual funds and are not subject to the same regulatory requirements as mutual funds. Alternative investment funds' performance may be volatile, and investors may lose all or a substantial amount of their investment in an alternative investment fund. Alternative investment funds may engage in leveraging and other speculative investment practices that may increase the risk of investment loss. Interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer. Alternative investment funds may not be required to provide periodic pricing or valuation information to investors. Alternative investment fund investment programs generally involve complex tax strategies and there may be delays in distributing tax information to investors. Alternative investment funds are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits. Alternative investment funds may fluctuate in value. An investment in an alternative investment fund is long-term, there is generally no secondary market for the interests of a fund, and none is expected to develop. Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability and willingness to accept them for an extended period of time before making an investment in an alternative investment fund and should consider an alternative investment fund as a supplement to an overall investment program.

In addition to the risks that apply to alternative investments generally, the following are additional risks related to an investment in these strategies:

Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated with investing in short sales, options, small-cap stocks, "junk bonds," derivatives, distressed securities, non-U.S. securities and illiquid investments.

Hedge Fund of Funds: In addition to the risks associated with hedge funds generally, an investor should recognize that the overall performance of a fund of funds is dependent not only on the investment performance of the manager of the fund, but also on the performance of the underlying managers. The investor will bear the management fees and expenses of both the fund of funds and the underlying hedge funds or accounts in which the fund of funds invests, which could be significant.

Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all managers focus on all strategies at all times, and managed futures strategies may have material directional elements.

Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts. They involve risks associated with debt, adverse changes in general economic or local market conditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associated with the ability to qualify for favorable treatment under the federal tax laws.

Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a total loss of investment.

Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware that even for securities denominated in U.S. dollars, changes in the exchange rate between the U.S. dollar and the issuer’s "home" currency can have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by other risks (such as political, economic or regulatory changes) that may not be readily known to a U.S. investor.

Options: Options are not suitable for all investors. Please read the Options Clearing Corporation Publication titled "Characteristics and Risks of Standardized Options Trading" and consult your tax advisor prior to investing. The Publication can be obtained from your UBS Financial Services Inc., Private Wealth Advisor, or can be accessed under the Publications Section of the Option Clearing Corporation's website: www.theocc.com.

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Portfolio Advisory Group Important Information Monthly Investment Guide

Description of Certain Alternative Investment Strategies

Equity Hedge: Investment managers who maintain positions both long and short in primarily equity and equity-derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. Equity hedge managers would typically maintain at least 50% and may, in some cases, be substantially entirely invested in equities, both long and short.

Event Driven: Investment managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including, but not limited to, mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Security types can range from most senior inthe capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event-driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company-specific developments. Investment theses are typically predicated on fundamental characteristics (as opposed to quantitative), with the realization of the thesis predicated on a specific development exogenous to the existing capital structure.

Credit Arbitrage Strategies: Employ an investment process designed to isolate attractive opportunities in corporate fixed income securities. These include both senior and subordinated claims as well as bank debt and other outstanding obligations, structuring positions with little or no broad credit market exposure. These may also contain a limited exposure to government, sovereign, equity, convertible or other obligations, but the focus of the strategy is primarily on fixed corporate obligations and other securities held as component positions within these structures. Managers typically employ fundamental credit analysis to evaluate the likelihood ofan improvement in the issuer's creditworthiness. In most cases, securities trade in liquid markets, and managers are only infrequently or indirectly involved with company management. Fixed income: corporate strategies differ from event driven; credit arbitrage in the former more typically involves more general market hedges, which may vary in the degree to which they limit fixed income market exposure, while the latter typically involves arbitrage positions with little or no net credit market exposure, but are predicated on specific, anticipated idiosyncratic developments.

Macro: Investment managers who trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top-down and bottom-up theses, quantitative and fundamental approaches and long- and short-term holding periods. Although some strategies employ relative value techniques, macro strategies are distinct from relative value strategies in that the primary investment thesis is predicated on predicted or future movements in the underlying instruments, rather than realization of a valuation discrepancy between securities. In a similar way, while both macro and equity hedge managers may hold equity securities, the overriding investment thesis is predicated on the impact that movements in underlying macroeconomic variables may have on security prices, as opposed to equity hedge, in which the fundamental characteristics of the company are the most significant and integral to investment thesis.

Distressed Restructuring Strategies: Employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance, or obliged (par value) at maturity, as a result of either a formal bankruptcy proceeding or financial market perception of near-term proceedings. Managers are typically actively involved with the management of these companies, frequently involved on creditors' committees in negotiating the exchange of securities for alternative obligations, either swaps of debt, equity or hybrid securities. Managers employ fundamental credit processes focused on valuation and asset coverage of securities of distressed firms. In most cases, portfolio exposures are concentrated in instruments which are publicly traded, in some cases actively and in others under reduced liquidity but, in general, for which a reasonable public market exists. In contrast to special situations, distressed strategies primarily employ debt (greater than 60%) but also may maintain related equity exposure.

Relative Value: Investment managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship among multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range broadly across equity, fixed income, derivative or other security types. Fixed income strategies are typically quantitatively driven to measure the existing relationship between instruments and,in some cases, identify attractive positions in which the risk-adjusted spread between these instruments represents an attractive opportunity for the investment manager. Relative value position may be involved in corporate transactions also, but as opposed to event driven exposures, the investment thesis is predicated on realization of a pricing discrepancy between related securities, as opposed to the outcome of the corporate transaction.

C:\DPS NEW\Pres\PPT\PresPrint.pot Glossary – Index Definitions

10-Year U.S. Treasury Index: a debt obligation issued by the U.S. Dow Jones AIG Commodity Index: composed of futures contracts Treasury with a term of 10 years. on 20 physical commodities. It is composed of commodities traded on Barclays Capital Global Aggregate X U.S.: an index consisting of all U.S. exchanges with the exception of nickel, aluminum and zinc. The investment grade securities issued in different currencies and Index relies primarily on liquidity data or the relative amount of trading combining the Barclays Aggregate, Barclays Pan-European Aggregate activity to determine its weightings. All data used for both liquidity and and Barclays Global Treasury indexes. The index also includes production calculations are averaged for a five-year period. Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities and U.S. dollar investment grade, HFRI Distressed & Restructuring: equally weighted index of 144A securities. investment managers who employ an investment process focused on corporate fixed income instruments, primarily on corporate credit Barclays Capital Global Emerging Markets: tracks total returns of instruments of companies trading at significant discounts to their value external-currency-denominated debt instruments of the emerging at issuance or obliged (par value) at maturity as a result of either formal markets: Brady bonds, loans, Eurobonds, and U.S. dollar-denominated bankruptcy proceeding or financial market perception of near-term local market instruments. The index covers five regions: Americas, proceedings. Distressed strategies employ primarily debt (greater than Europe, Asia, Middle East and Africa. 60%) but also may maintain related equity exposure. Barclays Capital Muni Bond Index: a capitalization-weighted bond HFRI Equity Hedge: equally weighted index of investment managers index created by Barclays intended to be a representative of major who employ equity hedge strategies, maintaining both long and short municipal bonds of all quality ratings. positions primarily in equity and equity derivative securities. Equity Barclays Capital U.S. Aggregate Index: covers the U.S. dollar- hedge managers would typically maintain at least 50% exposure to, denominated, investment grade, fixed rate, taxable bond market and may in some cases be entirely invested in, equities both long and segment of SEC-registered securities and includes bonds from the U.S. short. Treasury, government-related, corporate, mortgage- and asset-backed and commercial mortgage-backed securities. HFRI Event Driven: equally weighted index of investment managers who maintain positions in companies currently or prospectively involved Barclays Capital U.S. Aggregate Government: composed of the in corporate transactions of a wide variety including but not limited to Barclays U.S. Treasury Bond Index (all public obligations of the U.S. mergers, restructurings, financial distress, tender offers, shareholder Treasury, excluding flower bonds and foreign-targeted issues) and the buybacks, debt exchanges, security issuance or other capital structure Agency Bond Index (all publicly issued debt of U.S. government adjustments. Security types can range from most senior in the capital agencies, quasi-federal corporations, and corporate debt guaranteed structure to most junior or subordinated, and frequently involve by the U.S. government). additional derivative securities. Barclays Capital U.S. Aggregate High Yield: covers the universe of HFRI Fund of Funds Index: fund of funds invested with multiple fixed-rate, dollar-denominated, non-convertible, publicly issued, non- managers through funds or managed accounts. The strategy accesses a investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds and debt diversified pool of managers with the objective of lowering the risk of issues from countries designated as emerging markets (e.g., Argentina, investing in one single manager. The fund of funds manager has Brazil, Venezuela, etc.) are excluded but Canadian bonds and SEC- discretion in choosing which strategies and managers to invest in the registered global bonds of issuers in non-emerging countries are fund. included. Original issue zeroes, step-up coupon structures and 144As are also included. Bonds must have at least one year to final maturity, HFRI Fund Weighted Composite: an equally weighted return of all at least $150 million par amount outstanding and be rated Ba1 or funds net of fees in the HFRI monthly indexes. Fund strategies include, lower. but are not limited to: convertible arbitrage, distressed securities, emerging markets, equity hedge, equity market neutral, statistical Barclays Capital U.S. Aggregate Investment Grade: covers all arbitrage, event driven, macro, market timing, merger and risk publicly issued, fixed-rate, nonconvertible, investment grade corporate arbitrage, relative value, short selling and sector funds. debt. Issues are rated at least Baa by Moody's Investors Service or BBB by Standard & Poor's. Total return comprises price appreciation / HFRI Macro: equally weighted index of investment managers which depreciation and income as a percentage of the original investment. trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the Barclays Capital U.S. Convertibles Composite: The Barclays Capital impact these have on equity, fixed income, hard currency and U.S. Convertible Bond Index represents the market of U.S. convertible commodity markets. Managers employ a variety of techniques, both bonds. Convertible bonds are bonds that can be exchanged, at the discretionary and systematic analysis, combinations of top down and option of the holder, for a specific number of shares of the issuer’s bottom up theses, quantitative and fundamental approaches and long- preferred stock or common stock. and short-term holding periods. Barclays Capital U.S. Treasury - Bills (1-3 months): is a market HFRI Relative Value: equally weighted index of investment managers value-weighted index of investment-grade fixed-rate public obligations who maintain positions in which the investment thesis is predicated on of the U.S. Treasury with maturities of three months, excluding zero realization of a valuation discrepancy in the relationship between coupon strips. multiple securities. Managers employ a variety of fundamental and Cambridge U.S. Private Equity: based on returns data compiled on quantitative techniques to establish investment theses, and security funds representing more than 70% of the total dollars raised by U.S. types range broadly across equity, fixed income, derivative or other leveraged buyout funds, subordinated debt and special situation security types. managers between 1986-2008. Cambridge U.S. Venture Capital Index: based on returns data compiled for more than 75% of U.S., institutional venture capital assets between 1990-2008.

Source: Bloomberg, MSCI Barra, Barclays Capital, JPMorgan, Citigroup, Cambridge Associates, and HFRI Indexes definitions. Note: The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. 22

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Portfolio Advisory Group Glossary – Index Definitions Monthly Investment Guide

JP Morgan Global Ex-U.S. Bond Index: consists of regularly traded, Russell 1000® Index: measures the performance of the large-cap fixed-rate domestic government debt instruments from 12 international segment of the U.S. equity universe. It is a subset of the Russell 3000® bond markets. Countries included are Austria, Belgium, Canada, Index and includes approximately 1000 of the largest securities based Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, on a combination of their market cap and current index membership. Sweden and the United Kingdom. The Russell 1000 represents approximately 92% of the U.S. market. MSCI AC World Index ex USA: consists of approximately 2,000 securities across 47 markets, with emerging markets representing Russell 1000® Growth Index: measures the performance of the large- approximately 18%. MSCI attempts to capture approximately 85% of cap growth segment of the U.S. equity universe. It includes those the market capitalization in each country. Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. MSCI EAFE Index (Europe, Australasia, Far East): a free float- adjusted market capitalization index that is designed to measure the Russell 1000® Value Index: measures the performance of the large- equity market performance of developed markets, excluding the U.S. cap value segment of the U.S. equity universe. It includes those Russell and Canada. As of June 2007, the MSCI EAFE Index consisted of the 1000 companies with lower price-to-book ratios and lower expected following 21 developed market country indexes: Australia, Austria, growth values. Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Russell 2000® Growth Index: measures the performance of the Singapore, Spain, Sweden, Switzerland and the United Kingdom. small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher MSCI Emerging Markets Index: a free float-adjusted market forecasted growth values. capitalization index that is designed to measure equity market performance of emerging markets. As of November 2008, the MSCI Russell 2000® Value Index: measures the performance of the small- Emerging Markets Index consisted of the following 24 emerging cap value segment of the U.S. equity universe. It includes those Russell market country indexes: Argentina, Brazil, Chile, China, Colombia, 2000 companies with lower price-to-book ratios and lower forecasted Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, growth values. Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. Russell Mid-Cap® Growth Index: measures the performance of the MSCI Europe Index: a free float-adjusted market capitalization- mid-cap growth segment of the U.S. equity universe. It includes those weighted index that is designed to measure the equity market Russell mid-cap companies with higher price-to-book ratios and higher performance of the developed markets in Europe. As of June 2007, the forecasted growth values. MSCI Europe Index consisted of the following 16 developed market ® country indexes: Austria, Belgium, Denmark, Finland, France, Germany, Russell Mid-Cap Value Index: measures the performance of the Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, mid-cap value segment of the U.S. equity universe. It includes those Sweden, Switzerland and the United Kingdom. Russell mid-cap companies with lower price-to-book ratios and lower forecasted growth values. MSCI Japan Index: a free float-adjusted market capitalization- weighted index that is designed to measure the equity market TASS Index of CTAs: is a dollar-weighted index based on historical performance of Japan. managed futures performance of CTAs with established track records. NAREIT Index: benchmarks the performance of the REIT industry since its inception in 1972. It was designed to provide a comprehensive assessment of overall industry performance. Some REITs available from over-the-counter markets are not included due to the lack of real-time pricing. NCREIF Property Index (NPI): a quarterly time series composite total rate of return measure of investment performance of a large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

Source: Bloomberg, MSCI Barra, Barclays Capital, JPMorgan, Citigroup, Cambridge Associates, and HFRI Indexes definitions. Note: The indexes are unmanaged. An investor can not invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. 23 UBS Financial Services Inc. www.ubs.com/privatewealthmanagement H265 November 2011

UBS Financial Services Inc. and UBS International Inc. are subsidiaries of UBS AG. Private Wealth Management is a business unit within UBS Financial Services Inc.