Alternative Beta Strategies Exploit Different Equity Factors Review of Strategies Capturing Value, Low Volatility and Quality Factors

Asset management Strictly Confidential

Minimum Volatility Index Strategies

Tacoma Employees' Retirement System Mary Allen Saunders, CFA, Product Specialist Betsy Sanders, CAIA, Client Advisor

October 24, 2013 UBS Global Asset Management

UBS Global Asset Management is one of the five business divisions of UBS, the other four being Wealth Management, Wealth Management Americas, Investment Bank and Retail & Corporate. The asset management division was formed through the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998. In July 2000, the merger culminated in the integration of the investment teams of the respective asset management businesses: UBS Asset Management, Brinson Partners (whose Chicago origins date back to the early 1970s) and Phillips & Drew (established in London in 1895). In April 2002, with the integration completed, we re-branded as UBS Global Asset Management, reflecting the truly global nature of our business. Services to U.S. persons are provided by UBS Global Asset Management (Americas) Inc. or UBS Global Asset Management Trust Company. Assets under management/advisement for UBS Global Asset Management (Americas) Inc. were $155 billion, as of June 30, 2013, which includes $2.0 billion for UBS Global Asset Management Trust Company. UBS Global Asset Management (Americas) Inc., a Delaware corporation, is a member of the UBS Global Asset Management business division of UBS AG, a publicly traded Swiss bank (NYSE: UBS). UBS Global Asset Management (Americas) Inc. is a wholly-owned subsidiary of UBS AG and registered as an investment adviser pursuant to the Investment Advisers Act of 1940, as amended1.

1 An investment adviser does not have to demonstrate or meet any minimum level of skill or training to register with the U.S. Securities and Exchange Commission. Not intended for redistribution. For important additional information, please see the Additional Disclosures at the end of the presentation.

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Section 1 Overview Section 2 Investment Process Section 3 Minimum Volatility Indices Section 4 Appendix

2 Section 1 Overview This image cannot currently be displayed.

Organized for institutional client success

Global presence Assets by client type and investment mandate Around 3,800 employees across 24 countries USD 621 billion in assets under management worldwide Headquartered in London, our other main offices By client type are in Chicago, Frankfurt, Hartford, Hong Kong, New York, Paris, Sydney, Tokyo, Toronto and Institutional Zurich. USD 366 billion (59%)

Integrated and independent Wholesale intermediary investment solutions USD 255 billion (41%) Investment model is built around collaboration By asset class1 among six distinct investment centers designed to Multi Asset deliver leading investment Infrastructure 18% capabilities across asset classes & Private Equities Equity 1% 31% Global Investment Solutions Global Real Global Equities, with US & Growth Estate Global Fixed Income 7% Alternative & Quantitative Investments Alternative & Global Real Estate Quantitative 5% Infrastructure & Private Equity Fixed Income Money 25% Market Data as of June 30, 2013. 13% Figures are representative of UBS Global Asset Management business division worldwide. Assets under management for UBS Global Asset Management (Americas) Inc. were $155 billion as of June 30, 2013. Totals may not add due to rounding. 1 Equities, Fixed Income, Money Market and Multi-asset are part of the Traditional Investments business line. A&Q (Alternative and Quantitative Investments), GRE (Global Real Estate) and Infrastructure are separate business lines. 2 Multi-asset includes asset allocation, currency and risk management (all part of Global Investment Solutions) and some alternative investments not managed by A&Q, GRE or Infrastructure.

US-I (RU) 4 Structured Beta & Indexing Average 13 years investment experience, 6 years with team

Structured Beta & Indexing Ian Ashment

Zurich London Sydney Product Specialists / Research Urs von Gunten Stuart Newman, ASIP Chris Wolak, CFA, CAIA Mary Allen Saunders, CFA Lori Boomgaardt John Byrne, CFA Michael Fanning Boriana Iordanova, CFA Bea Hausheer Ian Clarke, CFA Joe Milner Ben Faulkner, CFA Teresa Yeo Ray Fuller, CFA Zahid Jamil James Manning-Coe1 Kaushik Patel, CFA

Supported by global resources of UBS Global Asset Management

Local equity trading Currency specialists Independent Risk Management Applied Research Over 20 equity dealers in London, 7 experienced FX traders plus 4 12 professionals utilizing Quantitative and Fundamental Zurich, Chicago, Singapore spot order generators in London proprietary Global Risk System in research analysts in London, Zurich, London, Zurich, NY, Chicago NY, Chicago, Tokyo

Note: As at 14 October 2013. May not reflect reporting lines. 1 Intern; not included in years experience and years with team averages.

5 Assets under management

UBS Global Asset Management Index AuM – SB&I AuM1 – USD 124.4bn – by Region by Asset Class (USD 160.3bn) Swiss Other Asia Pacific Emerging 12% Fixed Income 2% 7% USD 35.9bn Structured Beta Markets & Indexing 4% Pan-Europe UK USD 124.4bn 15% 6%

North America 20% Global 35%

Index AuM growth (period end) SB&I AuM1 – USD 124.4bn – by Vehicle

160 140 UBS Pooled Index Fund 120 25% 100

80 ETF Segregated 10% USD bn 60 Mandates 40 61% White Label Index Funds 20 Structured 5% 0 Funds <1% 2006 2007 2008 2009 2010 2011 2012 Jun-13

Source: UBS Global Asset Management. Data as at 30 June 2013 and for the UBS Global Asset Management Division worldwide. Note: 1. Includes $0.5bn of index assets managed by Real Estate team. Excludes $1.9bn of non-index assets managed by SB&I. 6 mszalri [printed: ____] [saved: August 5, 2013 9:52 AM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Disclosure Statement.ppt Minimum volatility indexing Improving risk-adjusted returns

• Highly experienced, stable and well resourced team – Over 30 years experience of managing passive assets – Proven expertise in managing portfolios tracking non-market cap weighted indices for over 2 years and with AUM of USD 6.9 billion – Strong collaboration with MSCI • Consistent investment process – Consistent, long-term track record – Portfolios benchmarked to: . MSCI Developed World Minimum Volatility Index . MSCI US Minimum Volatility Index . MSCI Emerging Markets Minimum Volatility Index . MSCI World ex US Minimum Volatility Index • Rigorous risk control – Multi-layer independent monitoring • Strong technology platform – State of the art proprietary portfolio management system

As at June 30, 2013.

US-I 7 Section 2 Investment Process Passive investment management process Risk and added-value are balanced effectively

Controlling risk Maximizing value • Full replication where index composition • Minimizing trading costs and size allow • Avoiding price distortions caused by index • Leading proprietary indexation and risk changes systems • Adding value in corporate events • Independent monitoring and review • Active corporate governance

Efficient passive portfolio The resulting portfolio is optimally constructed and implemented in a low cost manner

Portfolio closely tracks the underlying benchmark

US-I 9 Passive Investment Management System Facilitating full replication or stratified sampling, if necessary

Relative position Risk Transaction cost information diagnostics estimation

• Our proprietary software application: Portfolio Optimization Platform (POP) – POP contains sophisticated quantitative analytics which combine the objectives, risk and transaction cost elements, allowing different possible scenarios to be analysed • Comprehensive characteristics including estimated tracking errors, risk decomposition, transaction costs and portfolio deviations allows for in depth analysis

Note: For illustrative purposes only

US-I 10 Passive portfolio construction

• Full replication starting position • Maximum permitted deviations set at: – Stock – Industry & sector – Country & currency – Size levels • Cash and turnover levels constrained • Within confines of set deviations, optimization finds best possible balance between risk and trading costs • Liquidity considerations and trading costs integral to the portfolio construction process leading to lower implementation costs

Note: For illustrative purposes only

US-I 11 Passive daily portfolio management process

Portfolio Monitoring Process

Tracking Error Analysis Review portfolio and evaluate anomalies • Risk diagnostics facilitate review of individual stock positions, industry/sector exposures, risk factor exposures, country and currency exposures

Cash Exposure Evaluation Monitor cash daily to ensure correct equity exposure • Manage foreign currency balances • Invest cash from dividends • Manage corporate action activities

Portfolio Rebalancing Conduct rebalancing transactions while minimizing cost • Index composition changes • Cash requirements • Minimize tracking error • Minimize transaction costs • Conduct pre-trade analysis • Trading strategy determined, executed and evaluated

US-I 12 Index change trading Price behaviour of a stock added to MSCI index: historically and at present

Analyse every day before and in the MSCI analysis window and estimate probability of a stock being added to or deleted from the index

MSCI analysis window Announcement Effective date date Relative Price

Time At present Historically

Hedge funds, Quant funds, Prop trading desks

Index funds

Source: UBS Global Asset Management. For illustrative purposes only.

13 Section 3 Minimum Volatility Indices Alternative indexation: an alternative to what? …to the most widely used index weighting technique – market capitalisation

Why we need an alternative to market cap weighting Equity factors captured by alternative indices

• Market cap weighted indices have many advantages Value Value stocks have historically outperformed growth stocks: – Transparent construction methodology undervalued stocks, as measured by accounting – Broad diversification and economic representation data and ratios (e.g. book value / market value, dividend), tend togenerate higher returns than – High liquidity, scalability and capacity overvalued stocks – Low turnover and transaction costs • … but they have a systematic flaw Volatility Low volatility stocks have historically − Underweight undervalued stocks (e.g. company A) outperformed high volatility stocks: known as the "low volatility anomaly" because − Overweight overvalued stocks (e.g. company D) it contradicts conventional finance wisdom of a trade-off between risk and return Company A B C D Size Small cap stocks have historically outperformed "True " value USD 10m USD 20m USD 20m USD 50m large cap stocks: "True" index weight 10% 20% 20% 50% negative relation between stock returns and Actual market value USD 5m USD 20m USD 20m USD 55m the company market value Actual index weight 5% 20% 20% 55% Profitability High quality stocks have historically outperformed low quality stocks: • Alternative indices more profitable companies, as measured by − Alleviate the systematic flaw associated with market cap accounting data (e.g. profit margin, profit indices… growth), tend to generate higher returns than − … by exploiting one or more equity return factors less profitable companies − … and weighting stocks by measures other than market cap − Provide a better risk-return profile than market cap indices Momentum Stocks with recent (3–12 months) high price performance tend to continue their high price − Considerations: liquidity, capacity, transparency, turnover, performance in the near term (3–12 months) transaction costs, index licensing fees

15 Alternative beta indices Alternative beta index offering continues to grow

Value and Profitability Low Volatility Hybrid Economic and Commodity Exposures

• FTSE RAFI • MSCI Minimum Volatility • Russell Stability • MSCI Economic Exposure • Russell Fundamental • FTSE Global Minimum Variance • Russell High Efficiency • MSCI GDP Weighted

Defensive • FTSE GWA • FTSE Equal Risk Contribution • Russell Geographic • MSCI Factor Exposure • MSCI Value Weighted • STOXX Minimum Variance • MSCI Momentum • STOXX Global EM Exposed • MSCI Quality • FTSE EDHEC-Risk Efficient • MSCI Quality Mix • S&P GIVI GDP Weighted • MSCI High Dividend Yield • EDHEC Maximum Decorrelation Optimisation • MSCI Equal Weighted • FTSE Diversification Based • S&P Dividend Aristocrats • EDHEC Efficient Minimum Volatility Investing • MSCI Market Neutral • Russell High Dividend Yield • EDHEC Efficient Max Sharpe Barra Factor • STOXX Select Dividend • FTSE ActiveBeta • MSCI Commodity Producers • MSCI Risk Control

• STOXX Minimum Dividend Sector Capped • FTSE TOBAM Maximum • S&P Risk Control • STOXX Strong Quality Diversification • MSCI Agriculture & Food • FTSE StableRisk Chain Sector Capped • WisdomTree Dividend Target • S&P Factor Tilts • Russell Volatility Control • WisdomTree Earnings • S&P Global Intrinsic Value • VTL Associates Revenue • S&P Low Volatility High • MSCI Risk Weighted Dividends

• RAFI Low Volatility • S&P Momentum • S&P Low Volatility • STOXX Equal Weight

Heuristic • Russell-Axioma Factor • EDHEC Maximum • EDHEC Diversified Risk Parity Deconcentration

Source: UBS Global Asset Management, EDHEC-Risk Institute, FTSE, MSCI, Russell, S&P, STOXX, Wisdom Tree. Data as of October 2013.

16 Alternative beta strategies exploit different equity factors Review of strategies capturing value, low volatility and quality factors

Value Low Volatility Hybrid

Optimization Heuristic Value + Low Volatility Val + Low Vol + Quality

Example index FTSE RAFI Developed 1000 MSCI World Min Vol USD opt MSCI World Risk Weighted S&P GIVI Developed MSCI World Quality Mix

Construction • Stocks are weighted by 4 • Mean-variance optimization • Stocks are reweighted by • Excludes 30% (by market • Combines 3 MSCI Risk RAFI scores: Sales, via covariance matrix and historic volatility based on cap) of highest beta stocks Premia Indices. Dividend, Book Value risk model. past 3 year weekly returns. based on 5y daily returns. • Equally weights MSCI and Cash Flow. • Aims to achieve lowest • Lower risk stocks have • Remaining 70% stocks are Quality Index, MSCI Value • Companies with top 1000 absolute risk for a set of higher weights. weighted by intrinsic Weighted Index and MSCI RAFI scores are included. constraints. • All stocks from parent value, using residual Min Vol Index. index are included. income model.

Universe FTSE Developed All Cap MSCI World MSCI World S&P Developed BMI MSCI World

No. stocks 1,016 241 1,606 4,763 1,606

Rebalancing • Annual in Mar, or Semi-annual in Semi-annual in Semi-annual in Semi-annual in • Quarterly Staggered in May and Nov May and Nov Mar and Sep May and Nov Mar, Jun, Sep, Dec

Turnover c. 35% c. 40% c. 49% c. 44% c. 56% (2-way p.a.) (subject to MSCI constraint)

vs. MSCI World1 • TE • 5.05% • 7.85% • 5.22% • 4.88% • 3.47% • Info Ratio • 0.68 • 0.44 • 1.08 • 1.02 • 0.65 • Beta • 1.02 • 0.63 • 0.85 • 0.83 • 0.83 • Correlation • 0.96 • 0.90 • 0.95 • 0.96 • 0.99

Max drawdown -57.0% -42.6% -50.9% -49.3% -48.4%

Factor • Positive Value • Negative Volatility • Negative Volatility • Positive Value • Negative Volatility exposure • Negative Momentum • Positive Size • Negative Volatility

Source: Bloomberg, FTSE, MSCI, S&P, UBS Global Asset Management. Data as of August 2013. TR gross index performance data in USD.MSCI World Index: no. stocks 1,606, turnover (2-way p.a.): c.5%. Note: 1. Annualised data from December 31, 1999 (earliest date when data is available for all examined indices) to July 31, 2013. Ex-post Tracking error, Information ratio and Beta vs. MSCI World Index. Data for alternative indices contains live and back-filled data. Data prior to the launch date is back-filled data by the index provider (i.e. calculations of how the index might have performed over that time period had the index existed). Past performance is not a reliable indicator of future results.

17 MSCI World Minimum Volatility USD optimised

Underlying index is optimised for the lowest absolute risk  achieve MSCI World Minimum Volatility USD opt vs. MSCI World annual returns market return with less volatility 60%

2000–13 YTD (p.a.) MSCI World Min Vol USD opt MSCI World • Define parent index and base currency for optimisation 40% Excess return: 3.5% • Define optimisation constraints TE: 7.8% IR: 0.44 • Determine the optimised portfolio 20% • Risk model: Barra GEM2L Construction 0% Optimisation constraints -20% Stock Min 1.5% or 20x stock weight in parent index -40% Country +/- 5% (3x) for countries with weight > 2.5% (< 2.5%) in parent index -60% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turnover • Up to 10% 1-way at semi-annual rebalance YTD Sector and top 10 country allocations (as at July 31, 2013) Sector • +/- 5% from sector weights in parent index Health Care US Risk factors • +/- 0.25 standard deviations vs. parent index Consumer Staples Japan

• Better return per unit of risk Financials Canada

• Low volatility vs. underlying index Consumer Discr. Switzerland • Bias towards stocks with lower stock specific risk Industrials UK

Advantages • Mitigated impact from FX movement by design Telecoms Hong Kong

• Higher turnover vs. market capitalisation indices  higher Utilities Singapore transaction costs must be overcome by superior performance IT Israel

• Covariance matrix based on estimates  prone to estimation Energy Denmark MSCI World errors MSCI World Materials MSCI World Min Vol USD opt Belgium MSCI World Min Vol USD opt • Index is highly concentrated Considerations 0% 5% 10% 15% 20% 25% 30% 0% 10% 20% 30% 40% 50% 60% Source: MSCI, FactSet, UBS Global Asset Management Note: Data to July 31, 2013. TR gross index performance data in USD. MSCI World Min Vol USD opt Index data is back-filled for 2000–2007 and live for 2008–2013. Index launch date: April 2008. December 31, 1999 is the earliest date when data is available for all examined indices. Past performance is not a reliable indicator of future results.

18 MSCI World Min Vol USD opt vs. MSCI World: liquidity Based on portfolio benchmarked to MSCI World Index

MSCI World Minimum Volatility USD opt: MSCI World Minimum Volatility USD opt: Explanation USD 500m portfolio USD 1bn portfolio

< 1 < 1 1 – 3 1 – 3 3 – 5 3 – 5 5 – 10 5 – 10 10 – 20 10 – 20 Trading 15% of a USD 1bn World ADV (%) ADV ADV (%) ADV 20 – 50 20 – 50 Min Vol portfolio would exceed 50 – 75 50 – 75 20% of Average Daily Volume 75 – 100 75 – 100 > 100 > 100

0 20 40 60 80 100 0 20 40 60 80 100 Portfolio weight (%) Portfolio weight (%)

Average ADV: 5.5% Average ADV: 11.0% MSCI World: USD 500m portfolio MSCI World: USD 1bn portfolio

< 1 < 1 By comparison, for a USD 1 bn 1 – 3 1 – 3 World market cap portfolio, all 3 – 5 3 – 5 trading is less than 10% of Average 5 – 10 5 – 10 Daily Volume 10 – 20 10 – 20 ADV (%) ADV ADV (%) ADV 20 – 50 20 – 50 50 – 75 50 – 75 75 – 100 75 – 100 > 100 > 100 In practice, you would not want to 0 20 40 60 80 100 0 20 40 60 80 100 exceed 15–20% of average ADV  Portfolio weight (%) Portfolio weight (%) trading impact tends to increase Average ADV: 0.5% Average ADV: 0.9% significantly after that level

Source: Citigroup BECS Pre Trade Analytics in USD, UBS Global Asset Management. Data as at August 14, 2013. ADV = Average Daily Volume. For illustration purposes only.

19 World Minimum Volatility Index Composite: performance As at September 30, 2013 (in EUR)

• Composite performance relative to Net Dividend Reinvested Index1 • Realized tracking error since inception² annualized: 0.11%

Source: UBS Global Asset Management, gross of fees. Note 1: The benchmark is reported with net dividends reinvested, however, pension funds are subject to a more favorable withholding tax treatment on some securities, therefore, the composite will tend to outperform the benchmark, with the outperformance reflecting the impact of less tax withholding in the composite than in the index. Note 2: Arithmetic difference between strategy and index. Periods greater than 1 year have been annualized. Inception date: 30 April 2010. These figures refer to the past. Past performance is not a reliable indicator of future results.

US-I 20 US Equity Minimum Volatility Index Composite: performance As at September 30, 2013 (in USD)

• Composite performance relative to Net Dividend Reinvested Index1

Source: UBS Global Asset Management, gross of fees. Note 1: The benchmark is reported with net dividends reinvested, however, pension funds are subject to a more favorable withholding tax treatment on some securities, therefore, the composite will tend to outperform the benchmark, with the outperformance reflecting the impact of less tax withholding in the composite than in the index. Note 2: Arithmetic difference between strategy and index. Periods greater than 1 year have been annualized. Inception date: 31 December 2012. These figures refer to the past. Past performance is not a reliable indicator of future results.

US-I 21 World (ex US) Minimum Volatility Index Composite: performance As at September 30, 2013 (in USD)

• Composite performance relative to Net Dividend Reinvested Index1

Source: UBS Global Asset Management Note 1: The benchmark is reported with net dividends reinvested, however, pension funds are subject to a more favorable withholding tax treatment on some securities, therefore, the composite will tend to outperform the benchmark, with the outperformance reflecting the impact of less tax withholding in the composite than in the index. Note 2: Arithmetic difference between strategy and index. Periods greater than 1 year have been annualized. Inception date: 31 December 2012. These figures refer to the past. Past performance is not a reliable indicator of future results.

US-I 22 Section 4 Appendix Equities Investment capabilities, research and business functions

Global Head of Equities John Leonard

Business Trading APAC & Europe US Global Growth Structured Management Emerging Beta & Markets Indexing Rob Wolfangel Mike Abellera Geoffrey Wong Ted Holmes Tom Digenan Nick Irish Paul Graham Ian Ashment

Applied Research

Art Gresh – Deputy Global Head of Equities

As of 21 October 2013

24 Minimum Volatility (MV) Indexing An alternative to standard market capitalization weighted indexing

Market portfolio

Theoretical MV portfolio Expected Return

Empirical MV portfolio

Expected Risk The empirical MV portfolio has often had a higher Sharpe ratio than would be expected based on the efficient frontier Source: MSCI, UBS Global Asset Management. For illustrative purposes only.

US-I 25 Long-term historical index performance

Better risk-adjusted return compared to traditional cap-weighted portfolios Gross Total Return (US$) May-88 – May-12 MSCI World Min Vol Annual Return (%) 6.4 7.6 Annualized Risk (%) 15.6 11.6 Return to Risk Ratio 0.41 0.65 Active Return (%) 1.1 Active Risk (%) 6.9 Information Ratio 0.16

Beta 1.00 0.68 Max Drawdown (%) -53.7 -42.6

Expected Shortfall (%) -14.7 -11.8

• Annual portfolio turnover 20%, compared with 4% for MSCI World • Tracking error relative to MSCI World 6.9% p.a.

Please note that historical active risk is not a guide to the future. Active risk levels will vary according to market conditions. Expected Shortfall is the average of monthly returns below the 99th percentile monthly return. Maximum drawdown is the maximum peak-to-trough return over the entire period. The MSCI World Minimum Volatility Index was launched on 14 April 2008. Data prior to the launch date is back-filled data (i.e. calculations of how the index might have performed over that time period had the index existed). Source: MSCI. Past performance is no guarantee of future results.

US-I 26 26 MSCI Case Study: National State Pension Fund Key client objective: de-risking the portfolio

Client results

• With a 25% allocation to the MSCI World Minimum Volatility Index, total developed markets portfolio risk would have been reduced by more than 10% (1.4 percentage points) based on historical returns

• An improvement in excess of 20% would have been realized in the portfolio’s risk-adjusted return

Policy Benchmark Portfolio for Allocation to Equities Equities (MSCI World Index) (Market Cap + Low Volatility) Portfolio Allocations Market Beta 100% 75% MSCI World Index Low Volatility 25% MSCI World Minimum Volatility Index Annualized Risk and Return Characteristic (November 2001 to March 2012) Return (%) 5.16 5.79 Risk (%) 16.75 15.36 Return/Risk 0.31 0.38 Tracking error (%) 0.00 1.79 Beta 1.00 0.91

Source: MSCI. For illustrative purposes only. Note: Time period (November 2011 – March 2012) is based on client request

US-I 27 27 MSCI Case Study: National State Pension Fund Key client objective: de-risking the portfolio

Client results: de-risking

75% MSCI World Index MSCI World Index

ExpectedReturn (%) 25% MSCI World Minimum Volatility Index

Expected Standard Deviation (%) Source: MSCI, July 2012. For illustrative purposes only.

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Since 1 Year 2 Years 3 Years inception1

MSCI World Min Vol Composite (EUR optimized) 5.03% 12.74% 10.80% 10.11%

MSCI World Min Vol Index (EUR optimized) 4.22 11.95 10.08 9.42

Value added 0.81% 0.80% 0.71% 0.69%

The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information. 1 Inception as of April 31, 2010

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Since Month Quarter YTD inception1

US Equity Minimum Volatility Index Composite 2.57% 2.89% 16.59% 16.59%

MSCI US Minimum Volatility Index 2.48 2.68 15.93 15.93

Value added 0.09% 0.21% 0.66% 0.66%

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Since Month Quarter YTD inception1

World (ex US) Minimum Volatility Index Composite 5.20% 7.07% 13.00% 13.00%

MSCI World Ex US Minimum Volatility Index (net) 5.13 6.98 12.65 12.65

Value added 0.07% 0.09% 0.35% 0.35%

US-I, US-P (RU) 31 mszalri [printed: April 27, 2009 9:45 AM] [saved: May 1, 2013 2:18 PM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Performance and Disclosure .ppt Ian Ashment Head of Structured Beta & Indexing Managing Director

Years of investment industry experience: 27

• Ian Ashment is the global Head of Structured Beta & Indexing. Ian has overall responsibility for the management of passive equity portfolios, including exchange traded funds. • Prior to his current role he was a member of the passive team. He began his career at UBS Global Asset Management in 1985 as a trainee active European equity fund manager and a member of the Quantitative department dealing with indexation and risk measurement. • Ian is Chairman of the FTSE EMEA Committee which is responsible for overseeing FTSE indices in the EMEA region. He is also a member of FTSE’s Policy Committee and a member of S&P’s Global Index Advisory Panel.

32 mszalri [printed: April 27, 2009 9:45 AM] [saved: May 1, 2013 2:18 PM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Performance and Disclosure .ppt Mary Allen Saunders, CFA Product Specialist Director

Years of investment industry experience: 12 Education: Princeton University (US), AB

• Mary Allen Saunders is a Product Specialist. In this role she is responsible for product positioning, client relationships, new business and product development for Structured Beta & Indexing. • Mary Allen joined UBS Global Asset Management in June 2009. Prior to this, she was a product specialist within the Quantitative Investments team at Blackrock where she was responsible for product marketing and new business development. Her other previous roles include two years on the analyst program at Merrill Lynch Investment Managers. • Mary Allen holds the Investment Management Certificate (IMC) and is a Regular Member of the CFA Society of the UK and the CFA Institute.

33 mszalri [printed: April 27, 2009 9:45 AM] [saved: May 1, 2013 2:18 PM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Performance and Disclosure .ppt Elizabeth M. Sanders, CAIA Client Advisor Managing Director

Years of investment industry experience: 28 Education: St. Lawrence University (US), BS; DePaul University (US), MBA

• Betsy Sanders is a senior member of the firm’s institutional client relationship team. In this role, she acts as a key advisor to the firm’s clients, managing and expanding relationships across all asset classes. Betsy also helps to strategically develop the firm’s business, working closely with a wide spectrum of institutional investors to create investment offerings appropriate for their aggregate portfolios. • Prior to joining the firm in 1997, Betsy was chief investment officer of the Iowa Public Employees' Retirement System, where she was responsible for the development and implementation of the fund’s investment policy across multiple asset classes and investment managers. Previously, she was at The Northern Trust Company for several years, where she specialized as a performance measurement and analysis consultant for large institutional clients. • Betsy is a member of the CFA Institute, CFA Society of Chicago and the Chartered Alternative Investment Management Association.

34 mszalri [printed: April 27, 2009 9:45 AM] [saved: June 3, 2013 10:13 AM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Disclosures.ppt US Equity Minimum Volatility Index Composite Schedule of composite performance

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US-I, US-P (RU) 36 MSCI World Minimum Volatility (EUR optimized) Passive Schedule of composite performance

US-I, US-P (RU) 37 mszalri [printed: ____] [saved: January 9, 2013 11:33 AM] \\DCHIC009PN1.CHI.SWISSBANK.COM\_mszalri$\Desktop\Disclosure Statement.ppt Additional disclosures

Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such investment objectives or expectations will be achieved. No part of this presentation may be reproduced or redistributed in any form, or referred to in any publication, without express written permission of UBS Global Asset Management. This material supports the presentation(s) given on the specific date(s) noted. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and discussed. The information and opinions contained in this document have been complied or arrived at based upon information obtained from sources believed to be reliable and in good faith. All such information and opinions are subject to change without notice. A number of the comments in this document are based on current expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from expectations. The opinions expressed are a reflection of UBS Global Asset Management’s best judgment at the time this report is compiled, and any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. UBS AG and/or its affiliates may have a position in and may make a purchase and/or sale of any of the securities or other financial instruments mentioned in this document. The information contained in this presentation should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this information or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio over the course of a full market cycle. It should not be assumed that any of the securities transactions or holdings referred to herein were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities referred to in this presentation. A client's returns will be reduced by advisory fees and other expenses incurred by the client. Advisory fees are described in Part II of Form ADV for UBS Global Asset Management (Americas) Inc. This presentation does not constitute an offer to sell or a solicitation to offer to buy any securities and nothing in this presentation shall limit or restrict the particular terms of any specific offering. Offers will be made only to qualified investors by means of a prospectus or confidential private placement memorandum providing information as to the specifics of the offering. No offer of any interest in any product will be made in any jurisdiction in which the offer, solicitation or sale is not permitted, or to any person to whom it is unlawful to make such offer, solicitation or sale. The achievement of a targeted ex-ante tracking error does not imply the achievement of an equal ex-post tracking error or actual specified return. According to independent studies, ex-ante tracking error can underestimate realized risk (ex-post tracking error), particularly in times of above-average market volatility and increased momentum. Different models for the calculation of ex-ante tracking error may lead to different results. There is no guarantee that the models used provide the same results as other available models. This document is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. Any accounting, legal or taxation position described in this presentation is a general statement and should only be used as a guide. It does not constitute accounting, legal or tax advice and is based on UBS Global Asset Management’s understanding of current laws and their interpretation. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Strategies may include the use of derivatives. Derivatives involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other instruments. Derivatives require investment techniques and risk analyses different from those of other investments. If a manager incorrectly forecasts the value of securities, currencies, interest rates, or other economic factors in using derivatives, the portfolio might have been in a better position if the portfolio had not entered into the derivatives. While some strategies involving derivatives can protect against the risk of loss, the use of derivatives can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other portfolio investments. Derivatives also involve the risk of mispricing or improper valuation, the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate, index, or overall securities markets, and counterparty and credit risk (the risk that the other party to a swap agreement or other derivative will not fulfill its contractual obligations, whether because of bankruptcy or other default). Gains or losses involving some options, futures, and other derivatives may be substantial (for example, for some derivatives, it is possible for a portfolio to lose more than the amount the portfolio invested in the derivatives). Some derivatives tend to be more volatile than other investments, resulting in larger gains or losses in response to market changes. Derivatives are subject to a number of other risks, including liquidity risk (the possible lack of a secondary market for derivatives and the resulting inability of the portfolio to sell or otherwise close out the derivatives) and interest rate risk (some derivatives are more sensitive to interest rate changes and market price fluctuations). Finally, a portfolio’s use of derivatives may cause the portfolio to realize higher amounts of short-term capital gains (generally taxed at ordinary income tax rates) than if the portfolio had not used such instruments. Services to U.S. persons are provided by UBS Global Asset Management (Americas) Inc. ("Americas") or UBS Global Asset Management Trust Company. Americas is registered as an investment adviser with the US Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940. From time to time, Americas’ non-US affiliates in the Asset Management Division who are not registered with the SEC ("Participating Affiliates") provide investment advisory services to Americas' U.S. clients. Americas has adopted procedures to ensure that its Participating Affiliates are in compliance with SEC registration rules. Copyright © UBS 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

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