Monthly Investment Guide

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Monthly Investment GuidePortfolio Advisory GroupMay 2010

Private Wealth Management

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Contributors

Anthony RothHead, PWM Portfolio Advisory Group

Richard Hollmann, CFA®

Senior Portfolio Construction Specialist

Ronald Colonna, CFA®

Senior Portfolio Construction Specialist

Christian CapassoBusiness Analyst

Andrea FisherBusiness Analyst

Sujata HingoraniBusiness Manager

Members of the PWM Portfolio Advisory Group

UBS Wealth Management Americas Investment Committee

Stephen Freedman, CFA®

Global Investment Strategist, Wealth Management Research-Americas (WMR-A)

Simeon Hyman, CFA®

Head, Investment Strategy and Manager Research, Investment Solutions

Anthony RothHead, PWM Portfolio Advisory Group

Michael Ryan, CFA®

Head, WMR-A, Chair

Jeremy Zirin, CFA®

Head, Equities, WMR-A

CFA® is a trademark owned by the CFA Institute.


2

Introduction

The Private Wealth Management Portfolio Advisory Group (PWM PAG) is pleased to provide our valued clients the May 2010 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. All strategic asset allocation models included 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 offerings) and alternative strategies (e.g., hedge funds, private equity and real estate) offered to UBS clients. The tactical asset allocation models presented reflect the strategic asset allocation models overlayed with the tactical shifts that have 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. The short- and long-term investment ideas reflect the views of PWM PAG and UBS Wealth Management Americas product areas. For more information on the composition of the UBS Wealth Management Americas Investment Committee, please see the previous page.

In publishing this Guide, PWM PAG intends to provide a general framework to assist our clients in making informed investment decisions. Specifically, the current strategic and tactical asset allocation models respectively reflect the short-to-medium- and long-term views on an asset-class level of various business groups within UBS Wealth Management Americas. In providing these models, we have differentiated among investors whose net portfolio withdrawals exceed 5% of portfolio value from those whose withdrawals do not. With respect to the latter group of clients, the models included reflect a higher allocation to illiquid asset classes, which seek to align with the clients' reduced 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.

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.

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.

Finally, 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. Unless otherwise noted, all information in the Monthly Investment Guide, including allocations, is as of May 10, 2010.

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 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.

PWM Portfolio Advisory GroupMonthly Investment Guide


3

Modern Greece: Oedipus Redux

As chaos ensued in Athens amidst last week's deadly riots, the prophecy foretold by the market of a Greek default looked more imminent than ever. The demonstrations in the shadows of the Acropolis protesting the proposed austerity measures coincided with the credit default swap (CDS) spread for Greek debt reaching a new record high of over 850 basis points. At the same time, as concerns of contagion broadened, Spain's CDS spread surpassed its previous high-water mark by rising above 225 basis points.

Last week's events – and notwithstanding the broader Eurozone rescue package –demonstrated that the situation in Greece has yet to stabilize. Recent market activity reflects the increasing possibility of an eventual Greek default, and the country's funding costs have spiked, essentially precluding Greece from further tapping global credit markets to fund its ongoing spending needs. In response, Greece, in collaboration with the European Union (E.U.) and International Monetary Fund (IMF), has, in fits and starts, worked hard to put together an alternative funding plan. Ironically, these efforts seem to have only increased the potential of Greece defaulting on its debt, as the EUR 110 billion aid package which resulted should only suffice to cover Greek funding requirements through 2010.

The fact that Eurozone participants have now expanded the scope of the rescue effort to all Eurozone countries does little to improve the shaky structural fundamentals that lie at the heart of the problem. As intended, the roughly US $1 trillion package of loan, guarantee and liquidity measures has provided immediate relief to recent punishing anti-euro market behavior and thus, at least in the short term, seems to have halted the contagion to the sovereign debt markets of other Eurozone countries. But the long-term viability of the Eurozone remains very much in question for several reasons. First, there is concern that the net-funders of the program, in particular Germany, may experience an acute political and legal backlash as the details of the program become known. Second, will the austerity measures required of the net-recipients of the program trigger merely tolerable levels of social unrest? Third, will these measures – namely, fiscal austerity coupled with the creation of additional public debt of up to US $1 trillion – stall European GDP recovery?

On a macro level, Greece indeed represents a microcosm of fiscal challenges that broadly afflict the Eurozone and the developed world overall. We expect long-term structural problems, like ballooning public debt levels and high unemployment, to continue to disrupt market momentum attributable to cyclical tailwinds. Therefore, on the heels of the recent run-up in risk assets coupled with heightened volatility, we are placing a greater emphasis on shielding rather than creating wealth. In this regard, we are now employing strategies discussed in recent versions of this publication, such as collars and put spreads, to hedge asset values.

Global Outlook 4

Economic and 6Market Snapshot

Monthly Spotlight: 10MLPs

Strategic and 12Tactical Asset Allocation Models

Tactical Allocation 16 Summary

Short- and 18Long-Term Investment Ideas

Important 24Information and Glossary

Anthony RothHead, Private Wealth Management Portfolio Advisory GroupUBS Wealth Management Americas

Table of Contents & Editorial


4

Consumer spending, which represents 70% of economic activity, rose significantly in 1Q

Source: Economic Outlook immediately above reflects the views and opinions expressed in the UBS Wealth Management Research (WMR) Investment Strategy Guide as of Apr. 28, 2010.

Global OutlookEconomic Summary

The U.S. economy grew at a 3.2% annual rate in the first quarter, a slightly lower-than-expected clip. This deceleration of GDP expansion was partially a result of slower export growth and a spike in imports relative to last quarter. On a positive note, consumer spending rose 3.6%, more than double the previous quarter's rate, and comprised nearly 80% of 1Q GDP growth.

Citing high unemployment and low inflation, the Federal Reserve maintained its policy stance to keep interest rates low "for an extended period" at its meeting on April 28. While the Fed's language did not materially change from recent meetings, the overall tone regarding the strength of the economic recovery was more upbeat as the Fed noted the pick-up in consumer and business spending. Although the Fed pointed out that labor markets remain challenged, its description of the overall job market struck a more positive tenor.

The Conference Board's April consumer confidence report reached its highest point since August 2009, beating consensus estimates as consumers' outlook for the labor market became more optimistic. The number of respondents citing favorable labor conditions increased to its highest level since April 2009. The key expectations component also rose, forecasting a positive trend in consumer spending growth that correlates with the recent improvement in retail sales.

Labor markets showed modest signs of healing in April, as evidenced by weekly jobless claims falling slightly after recently trending upward and private hiring surging to levels not seen in over three years. Overall unemployment, however, rose to 9.9%.

Economic Outlook

The combination of increased manufacturing activity, a rebound in consumer spending and modest improvements in the housing and labor markets signals that the U.S. is settling into a long-term sustainable economic expansion. However, the lingering effects of the credit crisis on consumers and the financial sector should result in a relatively restrained expansion, fueled mostly by a restocking of inventories and increased business spending. UBS WMR recently slightly reduced its forecast for 2010 GDP growth to 3.2%, while maintaining its 3.0% forecast for 2011.

As long as the economy continues to operate below capacity, we expect inflation fears to be kept at bay. Thus, we maintain the belief that when the FOMC begins to raise the Fed funds rate, it will do so gradually. Before the initial rate hike occurs, the first signs of a shift away from the extraordinarily accommodative monetary policy will come in the form of a removal or winding down of current stimulus measures such as the homebuyers' tax credit, which expired on April 30. A gradual withdrawal of excess liquidity in the system is likely to follow these actions. While the slow pace of tightening is apt to keep short-term rates low, longer-term interest rates should continue to move higher as business spending accelerates and government borrowing needs increase. Changing economic conditions could accelerate or delay FOMC action, however.

Whereas the economic revival in the U.S. appears stable, Greece's fiscal predicament and attendant contagion to other EU countries have threatened the Eurozone's recovery. S&P has downgraded Greece's sovereign debt to junk status; the downgrading of Portugal's and Spain's sovereign debt has further fueled fears of contagion throughout the region. In response, E.U. policymakers cobbled together a comprehensive relief package to support the euro and the fiscally-distressed member nations. While these actions should bring short-term relief to the Eurozone, the details are yet to emerge and it is premature to judge the long-term implications for the region.

While the U.S. recovery continues to gain steam, several risks remain, including the potential impact of financial reform and the growing fiscal crises in Europe

Excess slack in the economy has eased inflation fears


Greek fiscal problems run deep as wage and price increases in the country have well outpaced those throughout the region

The Fed reiterated that interest rates will remain low for "an extended period"

The Eurozonesupport package includes a loan pledge funded by E.U. members through a special purpose vehicle


5

Global Outlook

Source: Market Outlook immediately above reflects the views and opinions expressed in the UBS Wealth Management Research (WMR) Investment Strategy Guide as of Apr. 28, 2010.

Financial sector reform and recent SEC investigations have increased the risk related to corporate bonds of financial sector issuers

As the focus shifts toward a measured removal of excess liquidity, the "reflation" rally that lifted risk assets has run its course

Value stocks continue to outperform growth stocks

Aggressive cost cutting and improved business prospects have helped fuel corporate earnings

Market Summary

Despite Greece's ongoing fiscal issues and the SEC investigation into Goldman Sachs leading to a market pullback in the final week of April, equity markets remained positive for the month on the back of strong corporate earnings. The S&P gained 1.6% and is now up over 7% year-to-date. Mid- and small-cap stocks continued to lead the rally as the Russell Mid-Cap Index rose 3.8% and the Russell 2000 gained 5.7%.

The lack of a clear plan to aid Greece continued to weigh on European markets. The MSCI Europe Index fell 3.1% and is down over 5% for the year. The MSCI EAFE Index was also negative, returning -2.1% in April. The MSCI Emerging Markets Index rose 1.0%.

U.S. bond markets posted strong gains in April. The Barclays Aggregate Index gained 1.0% while the Barclays Muni Bond Index rose 1.2%. The Barclays U.S. Aggregate High Yield Index continued to rally, returning 2.3%. Outside the U.S., the J.P. Morgan Non-U.S. Dollar Index fell 0.3%.

Market Outlook

Another surprisingly strong earnings season has neared its conclusion, with corporate profits well exceeding consensus expectations. Quarterly profits of those companies which have reported thus far have increased nearly 50% year-over-year. While corporate earnings have been impressive overall, not all sectors have participated. A disproportionate percentage of the companies beating expectations have been concentrated in the technology and financial sectors, highlighting our view that market behavior will be less directional in 2010 and that investors should focus on specific opportunities within individual sectors and regions.

While corporate earnings have yet again surprised to the upside, UBS WMR maintains a neutral weight to equity markets for several reasons. First, the sharp rally has pushed valuations near fair value, leaving additional price appreciation to be dependent on future earnings growth exceeding expectations. Second, accommodative policy measures are starting to be unwound, removing a tailwind for risk assets. Last, earnings and economic expectations are rising, leaving greater room for disappointments that could lead to periodic pull-backs.

Within equity markets, we have increased our overweight to emerging markets while reducing our weighting to the Eurozone. In emerging markets, fears of continued monetary tightening have led to a deceleration of returns to date. In our view, these measures are prudent given the rapid growth occurring within emerging markets, and we therefore feel that the negative market reaction is likely to be temporary. In the midst of cyclical economic expansion in these markets and reasonable stock valuations, we believe that the equities of emerging markets present the most attractive investment opportunity relative to those of other regions. Fiscal crises within the Eurozone have lead us to remain cautious on equities within the region despite current attractive valuations. While E.U. policymakers finally agreed upon a wide-ranging aid package intended to fend off a debt contagion crisis, the details of the package as well as the lasting effects on the economy are still to be determined. In any case, we expect funding costs and growth prospects across the E.U. will continue to be impacted by fiscal challenges.

Within the U.S., we maintain our overweights to large- and mid-caps relative to small-caps while continuing to slightly favor growth over value stocks. At the sector level, UBS WMR increased energy's overweight and maintained its technology and financial overweights.

We continue to have an above-benchmark allocation to credit sensitive sectors within U.S. fixed income. With both investment grade and high yield corporate spreads having moved closer to long-term averages, returns are likely to be muted but are still poised to outperform rate-sensitive areas of the market, such as Treasuries and agencies. Our expectations for rising Treasury yields lead us to maintain our duration underweight. We favor 2- to 7-year maturities for Treasuries, agencies and corporates and 7- to 12-year maturities for municipals.

While European markets have faltered, Japanese equities have been providing strong returns year-to-date

Despite a wide-ranging relief package, many Eurozone countries face a long road ahead in solving their fiscal budgets


6

Economic Snapshot

n/a

2.0

9.5

1.5

3.0

2011f

4.53.93.74.6

10-Yr Treasury (annual avg.)

1.6-0.33.82.9CPI

0.50.21.95.0Fed Funds (year-end)

9.69.35.84.6Unemploy-ment

3.2-2.40.42.1Real GDP

2010f200920082007In %

1.5

4.0

1.4

-0.2

1.9

1.5

2.8

11f

InflationGDP Growth

1.3-0.52.12.5-1.5Switzerland

3.0-0.78.710.08.7China

1.20.22.21.5-4.0Eurozone

1.6-0.33.03.2-2.4U.S.

-1.6-1.41.42.0-5.2Japan

1.50.33.53.2-2.6Canada

2.61.53.83.8-1.1World

10f0911f10f09In %

We expect the debt-to-GDP ratios of developed economies to rise over the next two decades

f: Forecast. Source: UBS WMR Forecast Tables, as of May 3, 2010

U.S. Economic Forecasts

f: Forecast. Source: UBS WMR Forecast Tables, as of May 3, 2010

GDP Growth and Inflation Forecasts

Source: OECD and UBS WMR as of Apr. 15, 2010

Debt-to-GDP Projections GDP Components and Growth

UBS WMR expects the unemployment rate to decline slightly in 2011

Given the fiscal concerns in Greece, we expect the Eurozone recovery to lag those of other regions


Source: Thomson Financial and UBS WMR, as of Apr. 27, 2010

Consumption is beginning to rise and thus become a larger component of GDP growth

Consumption Commercial real estate investment

Capital expenditures Residential investment

Inventories Net Exports

Government Real GDP (q/q annualized)

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010

q/q annualized UBS WMR

forecasts

US EMU UK

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1990 1994 1998 2002 2006 2010 2014 2018 2022 2026

Japan

Simulation


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CPI Is Less Volatile Than Gold

Economic Snapshot

'00 '01 '02 '03 '04 '05 '06 '07 '08 '090

10

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90

CBOE Market Volat ilit y Index - Price Index (AVG) CBOE Market Vola t ilit y Index - Price Index

Gold has exhibited high volatility relative to the inflation rate

Source: Federal Reserve Economic Data, Bloomberg, UBS WMR, as of Apr. 15, 2010

Source: Bloomberg and UBS WMR, as of Apr. 27, 2010

Treasury Yields

The VIX measures expected equity market volatility and is often used as a measure of investor sentiment

UBS WMR forecasts Treasury yields to rise over the next twelve months

Source: FactSet, as of May 6, 2010

Volatility Index (VIX)

Growth Shifts Beyond the G-7

Source: UBS WMR, as of Apr. 27, 2010

VIX levels are close their 10-year average

We expect emerging markets to continue to drive growth

Gold y/y Inflation rate

-50

-30

-10

10

30

50

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90

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Jan-71 Jan-81 Jan-91 Jan-01 Jan-11

2-year Treasury note10-year Treasury note

0.0

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'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Emerging markets

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1970 1975 1980 1985 1990 1995 2000 2005 2009

G-7G-7 Emerging markets

WMR Forecast


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Market Snapshotas of April 30, 2010

45.2012.134.20Russell Small-Cap Growth

52.4417.727.00Russell Small-Cap Value

46.9510.872.97Russell Mid-Cap Growth

54.3914.554.50Russell Mid-Cap Value

65.6316.796.58NAREIT

Real Estate

Fixed Income

8.302.841.04Barclays Aggregate

2.852.960.9610-Year Treasury

8.852.481.21Barclays Muni Bond Index

42.587.072.34Barclays U.S. High Yield Index

7.30-2.26-0.33JP Morgan Non-U.S. Dollar

53.913.090.96MSCI Emerging Markets

23.497.11-0.20MSCI Japan

29.40-5.36-3.10MSCI Europe

30.80-1.88-2.10MSCI EAFE

Non-U.S. Equity

42.289.552.59Russell 1000 Value

38.165.811.12Russell 1000 Growth

38.84

Trailing 12 Mos

7.05

YTD

1.58

1 Month

Returns

S&P 500

U.S. Equity Indexes

Asset Class

21.98-3.181.95DJIA Commodities Index

-4.483.517.11TASS Index of CTAs3

-8.9427.4326.241Cambridge U.S. Pvt Equity Index

Currency Prices UBS WMR 12 Mo.

Forecast

1 Mo. %

Spot Price

0.03-0.016.83USD | CNY

-4.450.6194.01USD | JPY

61.142.70-3.22Base Metals

1Cambridge U.S. Pvt Equity is a quarterly index, one month return is represented by the Q3 2009 return2Data as of Sept. 30, 20093Data as of Apr. 30, 2010

-3.250.9881.991U.S. Dollar Index

0.34-1.731.33EUR | USD

3.300.911.53GBP | USD

-14.75-0.171.01USD | CAD

-5.352.421.08USD | CHF

-9.67-10.906.08Grains

36.798.506.02Precious Metals

43.696.903.31Crude Oil

16.11-6.082.40Energy

Commodity Indexes

12.632.480.98HFRI Fund of Funds Index

19.80

Trailing 12 Mos

3.79

YTD

1.29

1 Month

Returns

HFRI Fund Wgt. Composite

Alternative Investments

Asset Class

European equities continued their decline as the fiscal crises intensified

High yield bonds continued to gain traction

Source: Cambridge Associates LLC, Russell Investments, MSCI Barra, Hedge Fund Research, REIT.com from NAREIT, Bloomberg, S&P.

U.S. value stocks outperformed growth in April


Grains and base metals were the top commodity gainers in April


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Market Snapshot

33.5%2.8%0.4%Materials

17.9%-2.3%2.4%Utilities

25.8%3.4%-1.6%Cons. Staples

49.4%16.7%6.0%Cons. Disc.

42.0%3.5%1.8%Info. Tech.

2.0%-7.0%-1.4%Telecom

26.2%4.5%4.4%Energy

49.1%17.1%4.1%Industrials

27.7%-1.1%-3.9%Healthcare

49.6%12.3%1.3%Financials

Trailing 12 MosYTDMTDSector

Distressed funds have outperformed year-to-date

Source: FactSet, as of Apr. 30, 2010

U.S. Equity: S&P Sector Performance

Source: Hedge Fund Research, as of Apr. 30, 2010

Hedge Fund Research, Inc. Returns

We favor the technology, energy and financial sectors

YTD MTD

Equity Hedge

Event Driven

Relative Value

Fund of Funds

Macro

Source: Bloomberg and UBS WMR, as of Apr. 26, 2010

Sovereign Risk CDS Spreads

S&P Q1 Results

Source: Factset and UBS WMR, as of Apr. 26, 2010

Financials have been driving Q1 earnings higher

The lack of a clear resolution to the Greek crises has increased fears of contagion within the Eurozone 0

200

400

600

800

1,000

1,200

Jan 10 Feb 10 Mar 10 Apr 10 May 10

Greece Portugal Ireland Spain

0%

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Fina

ncia

ls

Tech

nolo

gy

Con

sum

erD

iscr

.

Indu

stria

ls

Hea

lth

Car

eEn

ergy

Mat

eria

ls

Tele

com

Con

sum

erSt

aple

s

Util

ities

0% 1% 2% 3% 4% 5% 6% 7%

`

Distressed

Earnings (%)


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MLPs have relatively outperformed the S&P 500 in the past few years, with the exception of 2007

Source: This material reflects the views and opinions expressed in the UBS Investment Bank MLP Insight as of Apr. 21, 2010. The information stated on pages 10 and 11 is the result of analysis completed by UBS Portfolio Advisory Group.

Monthly SpotlightMaster Limited Partnerships


Figure 1: Price Performance of MLPs

Source: FactSet as of Apr. 30, 2010.

MLPs have experienced significant gains since we last discussed the sector in our May 2009 Monthly Spotlight, surging nearly 50.0% as measured by the Alerian MLP Price Index. Given the importance ofthe yield component of total return in today's non-directional markets, we continue to believe that the combination of competitive yields, improving fundamentals and inherent tax-deferral advantages offered by MLPs presents an attractive investment opportunity. Indeed, among higher income-producing asset classes, only high yield bonds currently offer greater yields, yet without the aforementioned tax-deferral advantages. We therefore recommend that income-seeking investors who are willing to accept equity-like volatility - and are also seeking the associated appreciation potential - build selective exposure to larger, diversified MLPs.

Overview of the SectorMLPs are limited partnerships that issue investment units which are listed on public exchanges. Similar to fixed income, MLPs trade based on their current yield and generate significant cash flow through quarterly distributions. Generally, at least 70% of cash distributions to individual investors are tax-deferred, with this portion treated as a return of capital which thus reduces the investor's tax basis. Deferred taxes are not realized until the unit is sold.

While MLPs are involved in the transportation of oil and natural gas, they have historically demonstrated reduced volatility and low correlations relative to traditional commodity investments (see Figures 3, 4). MLPs are generally not strongly affected by fluctuations in natural gas and crude oil prices; accordingly, they are far lessinfluenced by short-term shocks in the space.

Rather, key risks to the MLP sector, which can manifest in heightened price volatility, center around access to and the cost of capital to fund growth projects. During the credit crisis, MLPs' dependency on third-party funding left the asset class particularly vulnerable at the peak of the capital market turmoil, with many unable to obtain affordable financing, if any at all. A change to the existing, favorable regulatory environment also poses risk to the MLP space. The Obama Administration's review of existing tax law could conceivably lead to proposed reform that could eliminate these tax benefits.

Current StateOver the past year, much improved access to capital markets, investors taking advantage of attractive valuations due to short-term price dislocations, and increased commodity demand provided strong tailwinds for MLP investors (see Figure 1). Following the impressive rally, the sector is now fairly valued, as measured by the yield spread over 10-year U.S. Treasuries (see Figure 2). As such, unit prices are currently more vulnerable to volatility. In addition, yield spreads between lower and higher risk MLPs have converged due to investors increasingly seeking higher yields. This has rendered higher yielding MLPs relatively less attractive.

2007 2008 2009 YTD-60

-40

-20

0

20

40

60

80

S&P 500 - Total Re turn Alerian MLPBarcla ys Capital US Aggregate S&P GSCI Total Re turn

Figure 2: Yield Spreads


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-09

Average Spread Spread

Figure 3: Rolling Volatility

The MLP yield spread over 10-Year U.S. Treasuries is now closer to historical norms.

Source: FactSet as of Apr. 30, 2010. 5/2000-4/2010

Rolling 12-month volatility, 5/2000 - 4/2010

'01 '02 '03 '04 '05 '06 '07 '08 '09

20

40

60

80

100

Alerian MLP S&P 500 - Total ReturnS&P GSCI Total Return S&P GSCI Crude Oil Total ReturnS&P GSCI Natural Gas Total Return

Source: FactSet as of Apr. 30, 2010. MLP spreads above are based on a basket of 23 currently traded MLPs from 12/2001-3/2010.


11

Outlook and OpportunityDespite reduced price appreciation prospects, we maintain our positive outlook based on competitive yields and constructive long-term fundamentals.

Attractive Yields - MLPs continue to present compelling cash distribution yields, with most ranging between 6% and 8%. While current costs of capital have risen, likely hindering future growth prospects, we still expect yields of 7% and distribution growth of approximately 5%, which in our view should support low double-digit annual returns. Growth in distribution rates is particularly important as it provides investors with the prospect of a larger cash flow cushion to offset unit price volatility in the face of inflation and rising interest rates (see Figure 5). In addition, the slated increase in U.S. tax rates may serve as a tailwind for MLP prices as demand grows for tax-advantaged investments that offer solid income.

Fundamentals - Most MLPs currently maintain healthy balance sheets and have taken advantage of recently improved market conditions to raise capital. This bodes well for these MLPs since they depend on the ability to finance a pipeline of projects to grow cash distributions. Further, we expect broader demand for domestically-sourced natural resources, like shale, gas and oil, will provide MLPswith a constant stream of project growth for the foreseeable future.

Implementation OptionsIn our view, investors should focus on larger, diversified partnerships that have strong underlying business fundamentals. MLPs can present significant company-specific risk and, consequently, we recommend that clients gain exposure to MLPs through active management. There are three primary ways to invest in MLPs: separately managed accounts, closed-end funds and exchange-traded notes.

For larger investments (>$500k), a separately managed account will typically offer a more attractive cost structure. On the other hand, closed-end funds offer simplified tax reporting, though income streams are taxed twice - at the fund and investor level. High associated fees can also reduce yield, which most closed-end funds attempt to replace by employing leverage.

Like closed-end funds, MLP ETNs are convenient from a tax perspective, since variable coupons are reported on Form 1099s, which eliminate the administrative burden associated with K-1's. In addition, ETNs possess other benefits such as low expenses and no leverage, which can provide reduced price volatility. It is important to note that ETNs are subject to issuer credit risk; distributions are taxed at marginal income tax rates and therefore do not benefit from deferred income advantages.

ConclusionWhile a significant run-up in the sector during 2009 has dampened price appreciation potential, we nonetheless believe that the MLP space continues to present attractive opportunities for equity investors seeking high tax-advantaged income. It is important to note that since the taxation of MLPs can be complex, investors should consult with a qualified tax advisor prior to investing.

Monthly SpotlightMaster Limited Partnerships

Source: This material reflects the views and opinions expressed in the UBS Investment Bank MLP Insight as of Apr. 21, 2010. The information stated on pages 10 and 11 is the result of analysis completed by UBS Portfolio Advisory Group.

Figure 5: MLP Price Performance and 10-Year Treasury Yields


'00 '01 '02 '03 '04 '05 '06 '07 '08 '0950

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Alerian MLP - Price Index (Left)US Treasury Constant Maturity - 10 Year - Yield (Right)

Figure 4: Correlation Matrix

0.18

1.00

0.18

0.24

0.66

0.58

5

0.01

0.18

1.00

0.02

-0.05

0.02

4

0.180.240.660.585. Barclays U.S. Agg. - High Yield

0.010.02-0.050.024. Barclays US Agg.

1.00

0.98

0.17

0.21

6

0.98

1.00

0.23

0.23

3

0.391.001. Alerian MLP Index

0.17

0.23

1.00

2

0.216. S&P GSCI Energy TR

0.233. S&P GSCI Total Return

0.392. S&P 500

1

Source: FactSet as of Apr. 30, 2010. For informational purposes only. Correlation matrix above is based on monthly returns between 5/2000-4/2010.

Though in the energy business, MLPs do not exhibit much correlation with commodities


12

Private Wealth Management Asset Allocation Models

Portfolios with net consumption >5% with non-traditional asset classes

Numbers in green/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 May 10, 2010. 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.

We continue to favor high yield and investment grade credit within fixed income

We maintain our overweight to commodities

We prefer tactical trading hedge fund strategies

Strategic Asset Allocation Estimated Hypothetical Portfolio Analytics

0.39

8.71%

7.40%

Moderate

0.41

10.42%

8.26%

Growth

12.18%7.32%5.23%Estimated Standard Deviation

0.420.380.30Estimated Sharpe Ratio

9.05%6.76%5.59%Estimated Return

AggressiveMod ConsConservative

We have increased our overweight to emerging market equities


Strategic Strategic Strategic Strategic Strategic

Equity 19.0 19.0 33.5 35.0 0.0 41.5 43.0 50.0 52.0 58.0 60.5 0.0

U.S. Equity 14.0 14.5 0.5 24.0 25.0 29.0 29.5 34.0 34.5 40.0 41.0

Large Growth 5.5 6.0 9.0 10.0 10.0 11.5 9.5 11.5 9.5 12.0

Large Value 8.5 8.5 0.5 9.0 9.5 10.0 10.5 9.5 9.5 9.5 10.0

Mid Growth 0.0 0.0 2.0 2.5 2.5 3.0 3.5 4.0 4.5 5.0

Mid Value 0.0 0.0 2.0 2.0 2.5 2.5 3.5 4.0 4.5 5.0

Small Growth 0.0 0.0 1.0 0.5 1.0 0.0 2.0 1.0 3.0 1.5

Small Value 0.0 0.0 1.0 0.5 1.0 0.0 2.0 0.5 3.0 1.5

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 4.5 -0.5 9.5 10.0 12.5 13.5 16.0 17.5 18.0 19.5

Developed Equity 5.0 4.5 -0.5 9.5 8.0 -1.0 10.5 8.5 -1.0 12.5 10.0 -1.0 13.5 10.5 -1.5Emerging Equity 0.0 0.0 0.0 2.0 1.0 2.0 5.0 1.0 3.5 7.5 1.0 4.5 9.0 1.5

Fixed Income 67.0 66.0 48.0 47.0 38.0 36.5 25.0 23.0 11.5 9.0

U.S. Fixed Income 67.0 66.0 48.0 47.0 38.0 36.5 25.0 23.0 11.5 9.0U.S. Tax Exempt Fixed Income

67.0 59.0 48.0 41.5 35.0 29.5 20.0 15.0 6.5 3.0

U.S. Government Securities

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Investment Grade 0.0 4.0 0.0 3.0 0.0 2.0 0.0 1.5 0.0 0.5

High Yield 0.0 3.0 0.0 2.5 3.0 5.0 5.0 6.5 5.0 5.5Non-U.S. Fixed Income

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Developed Fixed income

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Emerging Market Fixed Income

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Non-Traditional Asset Classes

12.0 13.5 16.5 17.0 18.5 20.0 23.0 24.5 28.5 30.5

Hedge Funds 9.0 9.0 9.0 9.0 10.0 10.0 13.0 13.0 15.0 15.0Tactical Trading (Macro, CTA)

1.0 1.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Relative Value (Arb. Strategies ex-Merger Arb, Equity Market Neutral)

2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Credit Strategies (Hedged Credit, Distressed)

2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0

Event Driven (Merg Arb, Special Situations)

2.0 1.5 2.0 1.5 2.0 1.5 2.0 1.5 3.0 2.5

Equity Hedge (Long/Short)

2.0 2.0 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0

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 0.0 1.5 0.0 4.0 2.0 4.5 2.0Public Real Estate (REITS)

0.0 0.0 1.5 0.0 1.5 0.0 2.0 0.0 2.5 0.0

Private Real Estate 0.0 0.0 0.0 0.0 0.0 0.0 2.0 2.0 2.0 2.0

Commodities 3.0 4.5 4.0 6.0 5.0 8.0 4.0 7.5 6.0 10.5

Cash 2.0 1.5 2.0 1.0 2.0 0.5 2.0 0.5 2.0 0.0

Asset Class Conservative Mod Cons Moderate Aggressive

Tactical Tactical Tactical Tactical Tactical

Growth


13


Portfolios with net consumption <5% with non-traditional asset classes




0.41

8.58%

7.52%

Moderate

0.43

10.13%

8.32%

Growth










Equity 17.0 17.0 30.5 32.0 0.0 35.5 37.0 0.0 42.0 43.0 0.0 48.5 48.5

U.S. Equity 13.0 13.5 0.5 22.0 23.0 25.0 25.5 30.0 29.5 34.0 32.5

Large Growth 5.0 5.5 8.0 9.0 8.0 9.5 8.0 9.5 8.0 9.5

Large Value 8.0 8.0 0.5 8.0 8.5 8.0 8.5 8.0 8.0 8.0 8.0

Mid Growth 0.0 0.0 2.0 2.5 2.0 2.5 3.0 3.5 3.5 4.0

Mid Value 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.5 3.5 4.0

Small Growth 0.0 0.0 1.0 0.5 1.5 0.5 2.0 0.5 3.0 1.0

Small Value 0.0 0.0 1.0 0.5 1.5 0.5 2.0 0.5 3.0 1.0

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 3.5 -0.5 8.5 9.0 10.5 11.5 12.0 13.5 14.5 16.0


Fixed Income 67.0 66.0 48.0 47.0 37.0 35.5 25.0 23.0 10.5 8.0


67.0 59.0 48.0 41.5 34.5 29.0 21.5 16.5 8.0 4.5


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


14.0 15.5 20.5 21.0 26.5 27.5 32.0 34.0 40.0 43.5


2.0 2.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

Relative Value (Arb Strategies ex-Merger Arb, Equity Market Neutral)

2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0


1.0 1.0 2.0 2.0 2.0 2.0 2.5 2.5 4.0 4.0


2.0 1.5 2.0 1.5 2.0 1.5 2.5 2.0 3.0 2.5


2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0

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


0.0 0.0 1.5 0.0 1.5 0.0 1.0 0.0 0.0 0.0


Commodities 3.0 4.5 4.0 6.0 5.0 7.5 4.0 7.0 5.0 8.5

Cash 2.0 1.5 1.0 0.0 1.0 0.0 1.0 0.0 1.0 0.0

Aggressive


GrowthAsset Class

Conservative Mod Cons Moderate


14


Without alternative investments1


1Alternative investments referenced above include hedge funds, private equity, private real estate and commodities.



0.33

9.18%

7.00%

Moderate

0.34

11.35%

7.90%

Growth








We remain underweight REITs


Equity 22.0 23.0 39.0 42.0 50.0 54.0 61.0 66.0 77.0 83.0

U.S. Equity 16.0 17.0 0.5 28.0 29.5 35.0 37.0 42.0 44.5 53.0 56.0

Large Growth 6.5 7.5 0.5 10.0 11.5 12.0 14.0 12.0 15.0 13.0 16.0

Large Value 9.5 9.5 10.0 10.5 12.0 13.0 12.0 13.0 13.0 14.5

Mid Growth 0.0 0.0 2.5 3.0 3.0 3.5 4.5 5.0 6.5 7.5

Mid Value 0.0 0.0 2.5 2.5 3.0 3.5 4.5 5.0 6.5 7.0

Small Growth 0.0 0.0 1.5 1.0 1.5 0.5 2.5 1.5 4.0 2.5

Small Value 0.0 0.0 1.5 1.0 1.5 0.5 2.5 1.0 4.0 2.5

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 6.0 -0.5 11.0 12.5 15.0 17.0 19.0 21.5 24.0 27.0


Fixed Income 76.0 75.5 57.5 56.5 46.0 45.0 33.0 31.5 15.0 13.5


76.0 68.5 57.5 51.0 43.5 38.5 28.0 24.0 10.0 6.5


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


0.0 0.0 1.5 0.0 2.0 0.0 4.0 1.5 6.0 3.0


0.0 0.0 1.5 0.0 2.0 0.0 4.0 1.5 6.0 3.0

Cash 2.0 1.5 2.0 1.5 2.0 1.0 2.0 1.0 2.0 0.5

Aggressive

Tactical Tactical Tactical Tactical

GrowthAsset Class


Tactical


15


Tax-exempt entities




0.45

8.81%

7.94%

Moderate

0.51

10.27%

8.58%

Growth










Equity 17.0 17.0 30.5 32.0 35.5 37.0 42.0 43.0 48.5 48.5

U.S. Equity 13.0 13.5 0.5 22.0 23.0 25.0 25.5 30.0 29.5 34.0 32.5

Large Growth 5.0 5.5 8.0 9.0 8.0 9.5 8.0 9.0 8.0 9.5

Large Value 8.0 8.0 0.5 8.0 8.5 8.0 8.5 8.0 8.5 8.0 8.0

Mid Growth 0.0 0.0 2.0 2.5 2.0 2.5 3.0 3.5 3.5 4.0

Mid Value 0.0 0.0 2.0 2.0 2.0 2.0 3.0 3.5 3.5 4.0

Small Growth 0.0 0.0 1.0 0.5 1.5 0.5 2.0 0.5 3.0 1.0

Small Value 0.0 0.0 1.0 0.5 1.5 0.5 2.0 0.5 3.0 1.0

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 3.5 -0.5 8.5 9.0 10.5 11.5 12.0 13.5 14.5 16.0


Fixed Income 67.0 66.0 48.0 47.0 37.0 35.5 25.0 23.0 10.5 8.0

U.S. Fixed Income 59.0 58.5 40.0 39.5 29.0 28.5 20.0 19.0 8.0 7.0U.S. Government Securities

47.0 32.5 24.0 12.0 17.0 8.0 7.5 1.0 0.0 0.0



8.0 7.5 8.0 7.5 8.0 7.0 5.0 4.0 2.5 1.0


8.0 7.5 8.0 7.5 8.0 7.0 5.0 4.0 2.5 1.0


0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


14.0 15.5 20.5 21.0 26.5 27.5 32.0 34.0 40.0 43.5


2.0 2.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5


2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0


1.0 1.0 2.0 2.0 2.0 2.0 2.5 2.5 4.0 4.0


2.0 1.5 2.0 1.5 2.0 1.5 2.5 2.0 3.0 2.5


2.0 2.0 2.0 2.0 3.0 3.0 4.0 4.0 5.0 5.0

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


0.0 0.0 1.5 0.0 1.5 0.0 1.0 0.0 0.0 0.0


Commodities 3.0 4.5 4.0 6.0 5.0 7.5 4.0 7.0 5.0 8.5

Cash 2.0 1.5 1.0 0.0 1.0 0.0 1.0 0.0 1.0 0.0

Aggressive


GrowthAsset Class



16

Tactical Allocation Summary

UnderweightU.S. Government Securities♦ Even without a major pick-up in inflation, we believe that Treasury yields will rise as the recovery takes hold.♦ Treasury valuations remain unattractive relative to other parts of the fixed income market, as they are most

exposed to any re-pricing due to inflation risk.♦ Underweight TIPS since we expect real yields to edge higher along with nominal yields, which would hurt

price performance of longer maturity TIPS. ♦ In terms of a long-term strategic position, we believe that TIPS with 5- to 10-year maturities hold value.

ModerateOverweight

Investment Grade Corporates♦ Investment grade corporate bond fundamentals are positive as companies have participated in debt reduction

efforts and maintained strong balance sheets. ♦ Recommend 'BBB'-rated bonds across all sectors since we feel that they present the best relative value and

offer greater yield opportunity at only modestly higher levels of risk.♦ Prefer bonds with emerging markets exposure to help alleviate concerns over rising interest rates. ♦ Favor shorter-dated bonds (3- to 7-yr maturities), which can outperform in a rising rate environment.

NeutralU.S. Convertibles♦ Risks remain for short-term volatility and selling pressure, although this pressure has abated recently.♦ In general, convertible bonds offer investors diversification benefits over a full market cycle.♦ Issuance trends remain favorable.

Moderate Underweight

U.S. Municipals♦ Increased Build America Bond issuance and recent ratings recalibration strategies by Moody’s and Fitch have

been key drivers of municipal strong performance. BABs may be suitable for income buyers with long-term horizons.

♦ Tight tax-exempt supply and the prospects for higher tax rates continue to support municipal prices. ♦ Moderate underweight stance inferred from the combination of spread compression and attractive relative

opportunities available within investment grade and high yield corporates.♦ We favor 7- to 12-year maturities as well as defensive sectors, such as pre-refunded, essential purpose

revenue in the water/sewer and public utility sectors, general obligation and special tax bonds.

Overweight

ModerateUnderweight

Moderate Overweight

Tactical View

Emerging Markets Equity♦ With fewer structural challenges and superior growth prospects, emerging markets (EMs) remain an attractive

investment opportunity over the medium and long term.♦ EMs have historically outperformed developed markets when the global economy enters a cyclical recovery.♦ Current EM equity valuations are fairly valued, in our opinion.♦ We expect weakness on the heels of recent monetary tightening to be temporary as we view these measures

to be prudent steps to preserve long-term growth.♦ This year's underperformance by EM equities has presented a relatively attractive investment opportunity,

leading UBS WMR to upgrade the region.

Non-U.S. Developed Equity♦ Eurozone continues to lag in its recovery relative to the U.S. and Asia-ex Japan. ♦ Greece's fiscal concerns will likely keep the euro under pressure, and fears of a broader financial contagion

have risen resulting in a tactical downgrade for the Eurozone region. ♦ Remain moderate underweight Japan on a relative basis as we are concerned that the yen may come under

pressure in the next few months.

U.S. Equities♦ While equity valuations appear more attractive in Europe, the cyclical picture favors U.S. markets.♦ Equities are trading at fair value and are supported by strong earnings growth.♦ Positive corporate earnings exceeded analyst expectations in 1Q and can be attributed to aggressive cost

cutting, increased business spending and rebounding revenue. ♦ Preference for U.S. mid-cap over small-cap and growth over value, as well as select sectors, notably

technology, energy and financials. ♦ Recommend dollar cost averaging when entering equity markets. Investors need to balance long-term

potential with the possibility of further market volatility.*

Asset Class

Source: UBS Wealth Management Americas Investment Committee as expressed in the UBS WMR Investment Strategy Guide, as of Apr. 28, 2010. 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.

*Dollar cost averaging neither assures a profit nor guarantees protection from a loss in a falling market.



17

Tactical Allocation Summary

OverweightCommodities*♦ Maintain our overweight to commodities as demand remains solid and we believe that prices should continue

to rise given the global cyclical recovery.♦ Growth in emerging markets and inventory restocking in developed markets should underpin demand.♦ Commodities could act as an attractive hedge against future inflationary concerns in the markets as well as

protect against potential long-term depreciation of the U.S. dollar. ♦ Recommend increasing allocations to crude oil and select base metals, precious metals and soft commodities.♦ Debt fears have increased physical demand for gold, which should support prices in the coming quarters.

Moderate Underweight

Real Estate*♦ Stabilizing commercial property values and an increase in risk appetite has helped drive gains within the real

estate market. ♦ Although REITs have recently benefitted, we currently view them as having unattractive valuations, poor

relative earnings momentum trends and challenging fundamentals.♦ Over $1 trillion of debt is set to mature over the next three years, putting further pressure on homeowners.

NeutralPrivate Equity*♦ Favor distressed funds due to longer investment horizons, current valuations and the need of many

corporations to adjust balance sheets.♦ Somewhat restrictive lending likely to limit activity in the LBO market, particularly affecting mega buyouts.♦ Current environment favors secondary funds, which provide transparency and flexibility in choosing deals.

NeutralHedge Funds*♦ Neutral relative value: Within fixed income, less capital is committed to chasing more persistent anomalies,

allowing ample trading opportunities. Sufficiently high volatility enables managers to use less leverage for the same return.

♦ Neutral long/short equity: Managers are showing increased risk appetite by expanding gross and net exposure when opportunities dictate. Total market- and sector-level stock dispersion has reached long-term levels.

♦ Moderate overweight tactical trading: Imbalances between economies or long-term changes in consumption patterns can trigger potentially large flows between regions and asset classes. Thus, opportunities for discretionary trading appear strong across currencies, fixed income, equities and commodities. The overall macroeconomic uncertainty should continue to provide sufficient volatility in the markets to present a range of investment opportunities.

♦ Moderate underweight event driven: 2010 deal activity is forecasted to be more robust than last year. Access to capital, lower volatility in equity markets and increased optimism for company management could contribute to an uptick in deal activity. Improving company valuations could enhance the importance of stock deals. Strategic buyers are expected to be more active than private equity sponsors, although high yield financing is now more available and leveraged loans may also provide a source of funding.

♦ Neutral credit strategies: Asset prices are reflecting attractive IRRs. Distressed and credit long/short should benefit from an abundance of opportunities. Market technicals continue to drive the argument behind spreads grinding tighter in 2010; however, we would argue that technicals are getting a bit ahead of fundamentals. There is need for some caution with directional credit-oriented strategies.

NeutralNon-U.S. Fixed Income♦ Fiscal sustainability in Greece and other EU nations such as Portugal and Spain has become a concern for

European markets and growth prospects, lowering consumer and business confidence.♦ Moderate underweight stance on European bond markets and Japan, and neutral on the U.K. Within

emerging markets, we prefer Brazilian, Chilean, Hungarian, Indonesian, and Russian bonds.♦ We also recommend exposure to commodity currencies in the form of sovereign bonds.

Moderate Overweight

Tactical View

High Yield Fixed Income♦ High yield markets continue to benefit from high investor demand and an improved default outlook as

WMR predicts default rates to drop. ♦ Still favor high yield over investment grade due to more attractive relative yields.♦ High yield bonds may offer some protection against rising Treasury rates over the next year.

Asset Class

Source: UBS Wealth Management Americas Investment Committee as expressed in the UBS WMR Investment Strategy Guide, as of Apr. 28, 2010. 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.

*See page entitled Important Information: Investment Risks – Non-Traditional Asset Classes.


18

1See description of Status on page 23. See page 23 for sources and disclosures on Short- and Long-Term Investment Ideas.

Short- and Long-Term Investment Ideas

UPDATED05/10/10

♦ Commodity price weakness and volatility

♦ Decreasing demand for natural resources

♦ Structured products have issuer credit risk

♦ ETFs and structured products linked to the energy sector

♦ Futures contracts♦ Basket of individual

energy stocks♦ UBS WMR

overweighted stocks

♦ We deem the energy equity sector as attractive based on crude oil outlook; UBS WMR forecasts oil prices to average $85 per barrel in 2010 and believes that oil prices will fluctuate between USD 90 and 100 during 2Q

♦ Uptick in industrial activity and stabilizing U.S. crude oil inventories should propel prices higher

♦ Favor oil-oriented names in the energy sector

♦ China and India exhibit strong demand for coal, which should lead to price acceleration

♦ Sector should benefit from relatively stronger global growth prospects outside U.S., as foreign sales are a key driver at about 50% of total sales

Energy Sector

UPDATED05/10/10

♦ Financial reform risk♦ Credit losses widen♦ Currently steep yield

curve levels off

♦ ETFs linked to the financial sector

♦ For stock selections: See UBS WMR Top 25 Stock List and UBS WMR outperform-rated stocks

♦ Steady, sustainable economic growth should support further outperformance of both banks and diversified financials by leading to lower provisioning and stronger loan growth

♦ Valuations remain at attractive levels

♦ Asset quality continues to improve more than expected, and first quarter earnings were very strong

♦ Net interest margins should be a positive for banks given the steepness of the yield curve and a Federal Reserve which appears committed to keeping short rates low for an extended period of time

Financial Sector

Status1Principal Investment Risks

Possible ImplementationRationaleRecommendation

Short-Term Investment Ideas



19



UPDATED05/10/10

♦ Recession fears return, further deteriorating consumer and corporate spending

♦ ETFs linked to the technology sector

♦ Mutual funds♦ Basket of individual

technology stocks♦ UBS WMR

overweighted stocks

♦ Tech corporate balance sheets appear to be healthy, and access to credit for large companies has significantly improved

♦ During recession, many companies cut back on IT, creating pent-up demand for productivity-enhancing tech products given the recovery in the corporate profit cycle

♦ High exposure to emerging markets♦ Expect consumer appetite for higher

priced electronics to improve♦ Sector's P/E multiple is at one of its

lowest levels since the 1990s

Technology Sector

UPDATED05/10/10

♦ Fixed income instruments may be subject to call risk, interest rate risk, reinvestment risk, credit/event risk and call provisions

♦ Preferred securities exhibit "equity-like" characteristics relative to bonds and other fixed income securities

♦ Market risk due to long duration should interest rates move higher

♦ Financial reform risk

♦ Active managers (mutual funds/SMAs) focused on preferreds

♦ UBS WMR attractively rated preferreds

♦ Reduce exposure to low coupon preferreds of strong credits –consider Build America Bonds to replace income

♦ Favor higher-coupon fixed rate and floating-rate preferred issues to mitigate interest rate risk

♦ Higher-coupon preferreds provide a buffer to help absorb price loss stemming from higher Treasury yields

♦ Recommend reducing exposure to low coupon preferreds of strong credits due to high interest rate price risk of this category – consider Build America Bonds to replace income

Preferred Securities

UPDATED05/10/10

♦ Credit conditions worsen, causing spreads to widen

♦ Financial reform risk♦ Interest rate risk

♦ Focus on 'BBB'-rated bonds in non-financial sectors

♦ For investors with greater risk tolerance, recommend U.S. dollar-denominated emerging market bonds and U.S. company bonds with emerging markets exposure

♦ UBS WMR target maturity range is 3-7 years

♦ Investors may also want to consider Build America Bonds as a possible alternative to corporate bonds

♦ After price rebound, yields are now much less compelling, and the segment has reached full valuation

♦ We believe investment grade in select segments ('BBB'-rated bonds in non-financial sectors) still presents a solid alternative to most other fixed income sectors

♦ Bonds with emerging markets exposure often offer more attractive yields and may protect against rising interest rates

♦ As we have returned to a more normalized spread range, investors will need to be aware of idiosyncratic risk and choose carefully in this environment

Investment Grade Corporates



Short-Term Investment Ideas (Continued)


20



UPDATED05/10/10

♦ Equity market pullback♦ Active large-cap growth managers (mutual funds/SMAs)

♦ ETFs♦ UBS WMR

recommended growth stocks

♦ Expect large-cap growth to continue to outperform large-cap value stocks in 2010

♦ Our equity sector views, notably our overweight to technology, support a preference for growth

♦ More favorable valuations for growth over value stocks

♦ Recommend large-cap stocks that are globally oriented and derive a greater proportion of revenue from emerging markets

♦ Large-cap earnings trends remain strong, supported by more aggressive cost cutting and EM exposure

Large-Cap Growth Stocks

UPDATED05/10/10


♦ Slower demand than expected from developed and emerging markets

♦ Structured products and ETNs have issuer credit risk

♦ ETFs, ETNs and structured products linked to commodities

♦ Mutual funds and active managers

♦ Markets continue to benefit from the global recovery

♦ Increase in global demand, especially from the restocking of fast-growing and resource-intensive emerging economies in 2010

♦ Select energy and agricultural commodities stand to benefit the most from growth expectations

♦ UBS WMR favors crude oil, gold, corn, coal, nickel, copper, unleaded gas, heating oil, coffee and cotton

♦ In our view, gold is attractive at or below USD 1140/oz

Broad Commodities

UPDATED05/10/10

♦ Currency volatility♦ Abrupt changes in

cost of capital and the economic growth outlook

♦ Socio-political risk♦ Country-specific risk♦ Counterparty and credit

risks involved with ETNs

♦ ETFs and ETNs with exposure to UBS WMR preferred countries

♦ Mutual funds

♦ With fewer structural challenges and superior growth prospects, emerging markets (EMs) remain, in our opinion, an attractive investment opportunity

♦ Bonds with EM exposure offer more attractive yields and may protect against rising interest rates

♦ UBS WMR prefers Chinese, Polish, Russian and Indian equities and Brazilian, Chilean, Hungarian, Indonesian and Russian bonds

♦ Although monetary tightening in some EMs has led to market jitters this year, we think that these policy steps actually make the expansion in the underlying economies more sustainable

♦ This year's underperformance by EM equities has presented an attractive opportunity

Emerging Markets Exposure






21


UPDATED04/12/10


♦ Slower demand than expected

♦ ETNs have issuer credit risk

♦ ETFs and ETNs linked to agricultural commodities

♦ UBS WMR overweighted stocks

♦ Select agricultural commodities present an opportunity in 2010 as we expect support from demand growth and a renewed market focus on the scarcity of resources

♦ Coffee inventories have continued to decline, and with current cheap prices, we think that conditions are set for supply disappointments

♦ Corn should be supported by Chinese food demand as well as demand for ethanol

Agricultural Commodities

UPDATED04/12/10

♦ Heightened credit risk♦ Issuers' financial

conditions can weaken further until they are unable to service their debt obligations

♦ Concentration risk♦ Greater need for

portfolio monitoring and review

♦ Interest rate risk

♦ Higher beta, cyclical names for individual bonds

♦ High yield money managers, mutual funds and ETFs

♦ Improving fundamentals in credit markets support taking on more credit risk, and high yield bonds may outperform if credit spreads continue to tighten on favorable economic news and better corporate results

♦ The incremental yield offered by high yield bonds affords some protection against rising Treasury rates over the next year

♦ Increased evidence of the economic recovery and improved outlook for high yield defaults

High Yield Bonds

OPENED04/12/10

♦ Equity market pullback♦ Stocks:-Please see UBS WMR Top 25 Stock List and UBS WMR Sector Outperform Lists

♦ Separately managed accounts

♦ Mid-caps should benefit both from an investor shift to higher-quality stocks as well as a pick-up in M&A activity

♦ As the U.S. economy improves relative to other global regions, mid-caps, which have less global exposure than large-caps, continue to perform well

♦ The dollar rally has been beneficial to mid-caps

♦ We prefer mid-caps over small-caps as the former are of higher quality and M&A may spike up the capitalization spectrum. Smaller companies are also likely to be more negatively affected by healthcare reform

Mid-Cap Stocks






22


UPDATED05/10/10

♦ Volatility due to fiscal challenges may persist

♦ Credit conditions worsen♦ Interest rate risk

♦ Value in 'A'-rated bonds in safe sectors

♦ Favor 7- to 12-year intermediate-term munis

♦ Favor intermediate maturities given the steep tax-exempt curve

♦ We expect continued credit pressures on state/local govern-ment issuers, less tax-exempt supply and looming increases in marginal tax rates to be key drivers of the municipal market

♦ Short muni yields have settled below historical averages relative to Treasuries

♦ Consider 'A'-rated munis, which appear cheap versus historical relationships

♦ For income-oriented investors, value in safe sectors, including pre-refunded, essential purpose revenue in water/sewer and public utility sector and general obligation bonds

♦ Credit spreads have tightened due to light tax-exempt supply and continued BAB issuance

♦ For taxable fixed income buyers who have a long-term time horizon and are not concerned with price volatility, consider BABs

Medium-Quality Intermediate Municipals

UPDATED05/10/10

♦ Budget constraints have removed some near-term momentum behind energy policy reform

♦ Companies focused in areas such as agribusiness, building, transport, electricity, production, industrial processes and IT

♦ Defensive wind park operators

♦ Broadly diversified and actively managed funds focused on energy efficiency, renewable energy and/or increased productivity along the agribusiness value chain

♦ Future energy scarcity and higher energy prices are likely to keep government focused on rigid policies to improve energy efficiency

♦ U.S. investment in green technologies could potentially be major catalyst for job creation

♦ Stimulus packages should benefit energy efficiency and renewable energies

Energy Efficiency

UPDATED05/10/10

♦ Commodity price volatility and strength of the recovery is unsustainable

♦ Double dip-recession emerges, weakening commodity demand

♦ Foreign exchange risk♦ Structured products,

ETNs and global time deposits have issuer credit risk

♦ Direct investment in a portfolio of sovereign debt in local currency

♦ ETFs and ETNs linked to commodity currency basket

♦ Structured products linked to a basket of commodities

♦ Forward contracts♦ Global time deposits

♦ Expected recovery in the global economy should be accompanied by a sustainable increase in commodity demand

♦ Emergence of China as a price setter for commodities, displacing USD, as China's symbiotic relationships with countries like Australia continue to grow

♦ Commodity currencies could benefit from weakening USD and rising renminbi, and be supported by widening yield differential

Commodity-Related Foreign Currency Exposure



1See description of Status on page 23.

See page 23 for sources and disclosures on Short- and Long-Term Investment Ideas.

Long-Term Investment Ideas



23


UPDATED05/10/10

♦ Better-than-expected U.S. growth rate

♦ Reduced risk tolerances rekindle demand for USD

♦ Foreign investors continue to aggressively buy U.S. Treasuries, providing USD support

♦ Structured products and ETNs have issuer credit risk

♦ Direct investment in foreign currency instruments, especially a well-diversified instrument of minor currencies

♦ Non-U.S. sovereign and/or corporate debt

♦ Structured products♦ ETFs and ETNs

♦ Expect the USD to weaken against most currencies over the long term despite possible short-term stability or appreciation due to strength of U.S. cyclical recovery

♦ Rising concerns over U.S. government's ability to finance a large and growing deficit

♦ Improving risk appetite could weigh on dollar in the long term

♦ Foreign investors seem less likely to absorb oversupply of Treasuries, causing USD weakness

♦ Emerging market currency appreciation is likely to remain a structural trend arising from higher productivity growth in the underlying economies

Broad Foreign Currency Exposure

UPDATED09/09/09

♦ Credit conditions worsen, causing spreads to reverse and widen

♦ Issuers' financial conditions can weaken further until they are unable to service their debt obligations

♦ Concentration risk♦ Greater need for

portfolio monitoring and review

♦ Distressed hedge funds and funds of funds (FoF)*

♦ Distressed private equity*

♦ While near-term risks remain, valuations within distressed securities still present an attractive longer-term return opportunity

♦ See "High Yield Bonds" under Short-Term Investment Ideas

Distressed Fixed Income



2/8/10Residential nonagency mortgage market short-term idea

2/8/10Non-U.S. developed equity short-term idea

01/11/10Precious metals short-term idea

11/9/09Inflation protection long-term idea

10/12/09Consumer discretionary short-term idea

9/9/09Real estate long-term idea

Date ClosedIdeas Closed from Previous Guides

1Status reflects the dates upon which the investment ideas were initiated (“Open”) or reaffirmed (“Updated”) by PWM PAG within the Monthly Investment Guide. “Ideas Closed from Previous Guides” reflect the dates that PWM PAG no longer recommended the investment idea. Please note that only those ideas closed within the preceding six months are reflected in the Guide. Your Private Wealth Advisor can provide a complete list of the ideas closed during earlier periods of time upon request. Also, by closing an investment idea, the PWM PAG is not necessarily indicating that it is no longer supportive of the investment idea; closing investments can also indicate that the conviction for a tactical buying opportunity is not as strong as when it was opened or updated. All short-and long-term investment ideas are subject to change at any time and represent general recommendations that may not be suitable for all clients. Please consult your Private Wealth Advisor before acting on any investment recommendations.

*See page entitled Important Information: Investment Risks – Non-Traditional Asset Classes.

Source: UBS PWM Portfolio Advisory Group and UBS Wealth Management Americas product areas. See page entitled Important Information: Investment Risks for a summary of risks associated with the various investments and investment strategies identified. Investments and investmentstrategies are provided for general information. Note that there may be other investments and strategies not reflected that also align with the recommendations shown. 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.

Long-Term Investment Ideas (Continued)


24


UBS Wealth Management ResearchTwo 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 ModelsThe strategic asset allocation models presented represent the longer-term allocation of assets that is deemed suitable for a particular type of investor. The strategic asset allocations presented 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, anallocation 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 overlayed 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 Private Wealth Management Portfolio Advisory Group. 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.

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.


25

Important InformationBenchmark Indexes for the Asset Allocation Models

Source: FactSet. All data is shown as of Apr. 30, 2010, unless otherwise noted. Risk (measured by standard deviation) and return are based on monthly returns. Correlation is based on quarterly returns between 01/2005-12/2009. 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.2Data is as of 3/31/10.31-month return and standard deviation are based on the Q3 2009 quarterly return as of 9/30/09. 1-,3-,5-,10-year returns are as of 9/30/09.41-month return and standard deviation are based on the Q1 2010 quarterly return as of 3/31/10. 1-,3-,5-,10-year returns are as of 3/31/10.

Correlation Matrix – Major Indexes

Russell 1000MSCI AC World Index ex. USA -

Net Return

Barclays Capital U.S. Aggregate

Barclays Capital Global Aggregate

ex. U.S.

HFRI Fund of Funds Composite

NAREIT Index - Total Return

DJ AIG Commodity

Futures

Russell 1000 1.00 0.94 -0.05 0.17 0.81 0.85 0.56

MSCI AC World Index ex. USA - Net Return 0.94 1.00 -0.03 0.30 0.88 0.72 0.66

Barclays Capital U.S. Aggregate -0.05 -0.03 1.00 0.64 -0.22 0.05 -0.30

Barclays Capital Global Aggregate ex. U.S. 0.17 0.30 0.64 1.00 0.03 0.24 0.18

HFRI Fund of Funds Composite 0.81 0.88 -0.22 0.03 1.00 0.48 0.72

NAREIT Index - Total Return 0.85 0.72 0.05 0.24 0.48 1.00 0.36

DJ AIG Commodity Futures 0.56 0.66 -0.30 0.18 0.72 0.36 1.00

EquityReturn Risk1 Return Risk Return Risk Return Risk Return Risk

Large-Cap Growth Russell 1000 Growth Performance 1.1 0.8 38.2 11.0 -1.9 20.0 4.0 16.4 -3.6 18.8

Large-Cap Value Russell 1000 Value Performance 2.6 1.1 42.3 12.2 -7.7 21.5 1.9 17.4 3.5 15.7

Mid-Cap Growth Russell Mid-Cap Growth 3.0 1.1 46.9 13.1 -2.5 24.4 5.7 20.2 -0.4 23.5

Mid-Cap Value Russell Mid-Cap Value 4.5 1.2 54.4 13.9 -4.8 25.6 5.2 20.5 8.9 17.6

Small-Cap Growth Russell Small-Cap Growth 4.2 1.2 45.2 15.9 -1.9 25.6 6.1 21.7 -0.1 24.1

Small-Cap Value Russell Small-Cap Value 7.0 1.4 52.4 16.8 -3.9 26.6 5.3 21.8 9.6 19.4

Convertibles Barclays Capital U.S. Convertibles Composite 2.2 0.6 44.2 8.4 2.3 17.7 6.8 14.1 n/a n/a

Non-U.S. Equity

Developed Equity MSCI EAFE -2.1 1.0 30.8 15.6 -11.5 23.5 1.2 19.4 -0.7 17.5

Emerging Equity MSCI Emerging Markets 1.0 1.0 53.9 20.7 1.7 32.5 13.9 27.5 8.5 24.7

Fixed Income

U.S. Fixed Income

U.S. Tax-Exempt Fixed Income Barclays Muni Bond 1.2 0.1 8.9 4.7 4.9 5.9 4.5 4.8 5.8 4.6

U.S. Government/Agency Securities Barclays Capital U.S. Aggregate - Government 0.9 0.2 2.2 3.5 6.1 5.0 5.1 4.3 6.1 4.6

Investment Grade Corporates Barclays Capital U.S. Aggregate - Investment Grade 1.8 0.3 21.8 4.9 6.3 8.9 5.4 7.3 7.0 6.3

High Yield Corporates Barclays Capital U.S. Aggregate - High Yield 2.3 0.1 42.6 7.0 7.0 17.0 8.5 13.3 7.7 11.4

Non-U.S. Fixed Income

Developed Fixed income JPMorgan Non-U.S. Dollar -0.3 0.3 7.3 9.3 7.2 10.0 4.4 8.7 7.0 8.7

Emerging Market Fixed Income Barclays Capital Global Emerging Markets 1.1 0.2 28.3 5.1 7.2 14.8 9.3 11.8 10.6 10.8


Hedge Funds

Tactical Trading (Macro, CTA)2 HFRI Macro 1.8 n/a 4.4 5.2 6.3 5.5 6.6 5.0 7.1 5.5

Relative Value (Arb Strategies ex-Merger Arb, Equity Market Neutral)2

HFRI Relative Value 2.2 n/a 27.3 3.3 4.4 7.8 6.4 6.3 7.3 4.7

Credit Strategies (Hedged Credit, Distressed)2

HFRI Distressed & Restructuring 3.1 n/a 35.1 5.1 0.9 9.4 5.4 7.7 9.0 6.6

Event Driven (Merg Arb, Special Situations)2

HFRI Event Driven 3.8 n/a 32.1 4.3 2.0 8.9 5.8 7.6 7.8 6.9

Equity Hedge (Long/Short)2 HFRI Equity Hedge 4.2 n/a 32.2 7.4 0.7 11.4 4.7 9.6 4.6 8.7

Private Equity

LBO (Secondaries)3 Cambridge U.S. Private Equity Index 6.2 n/a -9.9 20.2 3.7 15.4 13.1 13.8 9.3 13.1

Venture Capital3 Cambridge U.S. Venture Capital Index 2.3 n/a -12.9 13.1 2.1 11.1 5.7 9.4 2.6 31.6

Real Estate

Public Real Estate (REITs) NAREIT 6.6 1.9 65.6 18.9 -9.1 37.3 2.9 30.2 10.9 23.7

Private Real Estate4 NCREIF 0.8 n/a -9.6 4.3 -4.3 8.2 4.2 8.2 7.1 6.1

Commodities DJIA Commodities 1.9 0.8 21.8 15.7 -8.0 23.2 -2.4 20.0 3.4 17.4

Cash Barclays Capital U.S. Treasury - Bills (1-3 months) 0.0 0.0 0.1 0.0 1.7 0.5 2.7 0.6 2.7 0.6

5 Year 10 Year

Historical Benchmark Statistics (Annualized)

U.S. Equity

Asset Class Benchmark Index

1 Month 1 Year 3 Year


26


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 is 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 assetallocations 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.

Equity Estimated Return Estimated Standard Deviation

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


Hedge Funds

Tactical Trading (Macro, CTA) HFRI Macro 6.57 9.57


HFRI Relative Value 10.53 9.56

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

Capital Market Assumptions

U.S. Equity

Asset Class Benchmark Index



27


Investment RisksAll 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 relatively be highly volatile because the earnings and business prospects typically fluctuate more than 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 environment of the respective country and difficulties in receiving current or accurate information.

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 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 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.


28


Investment Risks – Non-Traditional Asset ClassesNon-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, managed futures andcommodities (collectively, alternative investments). Alternative investments are often long-term, illiquid investments that are not easily valued. The performance of these investments may be volatile and investors may lose all or a substantial amount of their investments. Leveraging and other speculative investment practices that increase the risk of investment loss may be used. Periodic pricing or valuation information may not be available for investors. Generally, complex tax strategies are involved, and there may be delays in distributing tax information to investors. High fees may reduce profits. Alternative investments are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of the strategies, all of which should be read carefully before making an investment.

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 fromyour Financial Services Inc., Financial Advisor, or can be accessed under the Publications Section of the Option Clearing Corporation's website: www.theocc.com.

Description of Certain Alternative Investment StrategiesEquity 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 in the 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.



29


Description of Certain Alternative Investment Strategies (continued)

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 of an 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 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) atmaturity, 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, portfolioexposures 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 between multiple securities. Managers employ a variety of fundamental and quantitativetechniques 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.


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Dow Jones AIG Commodity Index: composed of futures contracts on 20 physical commodities. It is composed of commodities traded on U.S. exchanges with the exception of nickel, aluminum and zinc. The Index relies primarily on liquidity data or the relative amount of trading activity to determine its weightings. All data used for both liquidity and production calculations are averaged for a five-year period.

HFRI Equity Hedge: equally weighted index of investment managers who employ equity hedge strategies, maintaining both long and short positions primarily in equity and equity derivative securities. Equity hedge managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities - both long and short.

HFRI Event Driven: equally weighted index of 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 in the capital structure to most junior or subordinated, and frequently involveadditional derivative securities.

HFRI Distressed & Restructuring: equally weighted index of investment managers that employ an investment process focused oncorporate 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 formal bankruptcy proceeding or financial market perception of near-term proceedings. Distressed strategies employ primarily debt (greater than 60%) but also may maintain related equity exposure.

HFRI Fund of Funds Index: fund of funds invested with multiple managers through funds or managed accounts. The strategy accesses a diversified pool of managers with the objective of lowering the risk of investing in one single manager. The fund of funds manager has discretion in choosing which strategies and managers to invest in the fund.

HFRI Fund Weighted Composite: an equally weighted return of all funds net of fees in the HFRI monthly indexes. Fund strategies include, but are not limited to: convertible arbitrage, distressed securities, emerging markets, equity hedge, equity market neutral, statistical arbitrage, event driven, macro, market timing, merger and risk arbitrage, relative value, short selling and sector funds.

HFRI Macro: equally weighted index of investment managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and theimpact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, bothdiscretionary and systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long-and short-term holding periods.

HFRI Relative Value: equally weighted index of investment managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between 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.

Glossary – Index Definitions10-Year U.S. Treasury Index: a debt obligation issued by the U.S. Treasury with a term of 10 years.

Barclays Capital Global Aggregate X U.S.: an index consisting of all investment grade securities issued in different currencies and combining the Barclays Aggregate, Barclays Pan-European Aggregate and Barclays Global Treasury indexes. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities and U.S. dollar investment grade, 144A securities.

Barclays Capital Global Emerging Markets: tracks total returns of external-currency-denominated debt instruments of the emerging markets: Brady bonds, loans, Eurobonds, and U.S. dollar-denominated local market instruments. The index covers five regions: Americas, Europe, Asia, Middle East and Africa.

Barclays Capital Muni Bond Index: a capitalization-weighted bond index created by Barclays intended to be a representative of major municipal bonds of all quality ratings.

Barclays Capital U.S. Aggregate Index: covers the U.S. dollar-denominated, investment grade, fixed rate, taxable bond market segment of SEC-registered securities and includes bonds from the U.S. Treasury, government.-related, corporate, mortgage- and asset-backed and commercial mortgage-backed securities.

Barclays Capital U.S. Aggregate Government: composed of the Barclays U.S. Treasury Bond Index (all public obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted issues) and the Agency Bond Index (all publicly issued debt of U.S. government agencies, quasi-federal corporations, and corporate debt guaranteed by the U.S. government).

Barclays Capital U.S. Aggregate High Yield: covers the universe of fixed-rate, dollar-denominated, non-convertible, publicly issued, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded but Canadian bonds and SEC-registered global bonds of issuers in non-emerging countries are included. Original issue zeroes, step-up coupon structures and 144-As are also included. Bonds must have at least one year to final maturity, at least $150 million par amount outstanding and be rated Ba1 orlower.

Barclays Capital U.S. Aggregate Investment Grade: covers all publicly issued, fixed-rate, nonconvertible, investment grade corporate debt. Issues are rated at least Baa by Moody's Investors Service or BBB by Standard & Poor's. Total return comprises price appreciation/depreciation and income as a percentage of the original investment.

Barclays Capital U.S. Convertibles Composite: The Barclays Capital U.S. Convertible Bond Index represents the market of U.S. convertible bonds. Convertible bonds are bonds that can be exchanged, at theoption of the holder, for a specific number of shares of the issuer’s preferred stock or common stock.

Barclays Capital U.S. Treasury - Bills (1-3 months): is a market value-weighted index of investment-grade fixed-rate public obligations of the U.S. Treasury with maturities of three months, excluding zero coupon strips.

Cambridge U.S. Private Equity: based on returns data compiled on funds representing more than 70% of the total dollars raised by U.S. leveraged buyout funds, subordinated debt, and special situationmanagers 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.



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Russell 1000® Growth Index: measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000® Value Index: measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

Russell 2000® Growth Index: measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2000® Value Index: measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

Russell Mid-Cap® Growth Index: measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell mid-cap companies with higher price-to-book ratios and higher forecasted growth values.

Russell Mid-Cap® Value Index: measures the performance of the mid-cap value segment of the U.S. equity universe. It includes thoseRussell mid-cap companies with lower price-to-book ratios and lower forecasted growth values.

TASS Index of CTAs: is a dollar-weighted index based on historical managed futures performance of CTAs with established track records.

Glossary – Index DefinitionsJP Morgan Global Ex-U.S. Bond Index: consists of regularly traded, fixed-rate domestic government debt instruments from 12 international bond markets. Countries included are Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden and the United Kingdom.

MSCI AC World Index ex USA: consists of approximately 2,000 securities across 47 markets, with emerging markets representingapproximately 18%. MSCI attempts to capture approximately 85% ofthe market capitalization in each country.

MSCI EAFE Index (Europe, Australasia, Far East): a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. As of June 2007, the MSCI EAFE Index consisted of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

MSCI Emerging Markets Index: a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of November 2008, the MSCI Emerging Markets Index consisted of the following 24 emerging market country indexes: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea,Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.

MSCI Europe Index: a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of the developed markets in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed marketcountry indexes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

MSCI Japan Index: a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of Japan.

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.

Russell 1000® Index: measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000®

Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

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.

UBS Financial Services Inc.www.ubs.com/privatewealthmanagementH265 May 2010

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.

©2010 UBS Financial Services Inc. All rights reserved. Member SIPC.

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