UBS Diversified Income ETF Multi-Asset Portfolio

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1 UBS Diversified Income ETF Multi-Asset Portfolio Private Wealth Solutions 4Q17 update The UBS Diversified Income ETF Multi-Asset Portfolio seeks to provide risk-managed income over the long term. The Portfolio leverages UBS Asset Management s 35-year heritage in asset allocation to opportunistically invest across diversified sources of income with the flexibility to adapt to changing market conditions. The charts below illustrate the Portfolio s asset allocation ranges and actual allocations as of December 31, Please note that the allocation below is based on a model portfolio. The exact allocation of each client s portfolio will differ. Nontaxable Investor option asset allocation ranges 2, 3 As of December 31, 2017 Inflation-Protected Bond Investment Grade Corporate Bond High Yield Bond Global Equity Global Real Estate Mortgage-Backed Securities Convertible Bond Treasuries Emerging Markets Debt Infrastructure Cash and Cash Equivalents % Indicates actual allocation. Subject to change. Actual portfolio allocation (%) Change from previous quarter (%) We remain vigilant in balancing the Portfolios objective to provide clients with yield, while focusing on minimizing capital risk in the current interest rate environment. 1 Passive exposure to asset classes is via Exchange Traded Funds. ETFs impose an additional layer of management and administrative fees, which are in addition to the Program Fee. Each ETF is managed with a passive investment strategy that attempts to track the performance of an unmanaged index. See the Disclosure for the risks involved in investing in ETFs. 2 Note: Percentage totals may not equal 100% due to rounding. 3 The Diversified Income ETF Multi-Asset Portfolio generally expects to make its active asset allocation based on these asset ranges. The Diversified Income ETF Multi-Asset Portfolio may exceed these asset ranges. UBS Asset Management may modify the asset ranges in the future at its sole discretion. 4 UBS AM may invest in cash or cash equivalent investments, including shares of an affiliated investment company. When market conditions warrant, UBS AM may make substantial temporary defensive investments in cash equivalents, which may affect the portfolio s ability to pursue its investment objective.

2 5, 6, 7 Taxable Investor option asset allocation ranges As of December 31, 2017 Municipal Bond Inflation-Protected Bond Investment Grade Corporate Bond High Yield Bond Global Equity Global Real Estate Mortgage-Backed Securities Convertible Bond Treasuries Emerging Markets Debt Infrastructure Cash and Cash Equivalents % Indicates actual allocation. Subject to change. Please note: The allocation above is based on a model portfolio. The exact allocation of each client s portfolio will differ. 5 Passive exposure to asset classes is via Exchange Traded Funds. ETFs impose an additional layer of management and administrative fees, which are in addition to the Program Fee. Each ETF is managed with a passive investment strategy that attempts to track the performance of an unmanaged index. See the Disclosure for the risks involved in investing in ETFs. 6 Note: Percentage totals may not equal 100% due to rounding. 7 The Diversified Income ETF Multi-Asset Portfolio generally expects to make its active asset allocation based on these asset ranges. The Diversified Income ETF Multi-Asset Portfolio may exceed these asset ranges. UBS Asset Management may modify the asset ranges in the future at its sole discretion. 8 UBS AM may invest in cash or cash equivalent investments, including shares of an affiliated investment company. When market conditions warrant, UBS AM may make substantial temporary defensive investments in cash equivalents, which may affect the portfolio s ability to pursue its investment objective. For more information, contact UBS Asset Management at Actual portfolio allocation (%) Change from previous quarter (%) Performance summary Both portfolio options (Taxable and Nontaxable Investor) posted strong positive absolute returns for the fourth quarter of 2017, and each strategy continues to meet its yield objective since inception. For the year, all asset classes had a positive contribution to performance. Within equity, high dividend equities across US, international, and emerging markets were the primary contributors to performance. Within fixed income, emerging market debt was a positive contributor in both portfolios, while investment grade credit was the largest contributor in portfolios for Nontaxable Investors. Global equity markets gained +24.0% (MSCI All Country World Index net) in 2017 as global economic growth broadened and deepened across the US, international developed markets, and emerging markets. US equities stumbled in March when optimism for the Trump administration s ability to advance its pro-growth agenda faded momentarily. European equities took a breather in June as Brexit-related concerns flared up, and developed equity markets paused in August on the heels of hurricanes Harvey, Irma, and Maria and a bout of saber-rattling out of North Korea. Outside of these pockets of volatility, global equity markets broadly rallied. All told, emerging markets equities led the way in 2017 (+37.3%, MSCI Emerging Markets Index net), followed by international developed markets (+24.2%, MSCI World Ex-USA Index net) and the US (+21.8%, S&P 500 Index). Within US equities, large caps led mid-caps (+16.2%, S&P MidCap 400 Index) and small-caps (13.2% S&P SmallCap 600 Index). Growth stocks (+30.2%, Russell 1000 Growth Index) far outpaced value stocks (+13.7%, Russell 1000 Value Index), with the tech, materials, and industrials sectors outperforming consumer staples, utilities, and energy. 2

3 Bond yields generally ground lower, despite widening credit spreads in March and November, and rising yields for highquality fixed income in June, September, and November, which were driven in part by market anticipation of the US Federal Reserve s rate-hiking activity and future tightening efforts. Emerging markets debt led the charge, with local currency EMD returning +14.7% (JPM GBI-EM Global Core) and hard currency (i.e. US dollar-denominated) EMD returning +10.5% (JPM EMBI Global Core Index). Investment grade credit (+6.4%, Bloomberg Barclays U.S. Aggregate Corporate Bond Index) and high yield (+6.3%, Markit iboxx Liquid High Yield Index) were followed by municipal bonds (+5.4%, Bloomberg Barclays U.S. Municipal Bond Index). US TIPs (Bloomberg Barclays US TIPs Index, +3.0%) edged out nominal US Treasuries (Bloomberg Barclays U.S. Treasury Index, +2.3%). Oil had a challenging first half of 2017, before rallying through Q3-Q4 to gain 14.3% for the year (Bloomberg Brent Crude Subindex). In currency markets, 2017 was marked by sharp US dollar weakening into the second half of the year, particularly versus the euro and a range of emerging market currencies. Portfolio changes and positioning The Diversified Income ETF MAPs ended 2017 conservatively positioned and well diversified. We remain vigilant in balancing the portfolios objective to provide clients with yield while focusing on minimizing capital risk in the current interest rate environment. In mid-april, we increased our positions in emerging markets equity and emerging markets debt as US equities, European equities, and US high yield had rallied in recent months, and the eurozone is facing a number of potentially unsettling elections during the remainder of this year. As result, we are finding emerging markets equities relatively more attractive than European equities, and emerging markets debt more attractively than US high yield. On April 24, we increased ex-us developed market equities by 2.0% by adding a 2.0% position to unhedged eurozone ETFs. We found both eurozone equities and the euro attractively valued relative to other developed market equities and currencies. We also believed Emmanuel Macron s advancement in April 23 s presidential election (and eventual victory) reduced the political risk facing the eurozone economic recovery, while the United Kingdom may be facing a less certain path. On July 24, we reallocated 2.5% of our US TIPS exposure into local currency emerging markets debt (EMD). We found EMD more attractively valued than high yield, and believed local currency EMD could benefit from emerging markets currencies appreciation relative to the US dollar. On September 5, in Taxable Investor portfolios, we reallocated short-duration municipal bond exposure into US Treasuries on a duration-neutral basis due to more attractive valuations. On September 27, we converted all of our local currency EMD exposure into hard currency (i.e., US dollar-denominated) EMD, maintaining 13.0% overall EMD exposure. We also reallocated a 2.0% position in eurozone equities to a 1.0% position in eurozone equities (hedged in US dollars) and 1.0% positioning in Japanese equities (hedged in US dollars), maintaining 28.0% overall equity exposure. We believed the recent US dollar weakening relative to the euro, Japanese yen, and emerging markets currencies was overdone. At the end of December, in Taxable Investor portfolios, we reallocated back to short-duration municipal bond exposure from US Treasuries. Muni markets had experienced considerable volatility leading up to the end of the year. Unexpectedly high levels of issuance driven by issuers concerns that certain types of munis would lose their tax-exempt status under the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump on December 22 had been met by high levels of demand. Amidst that volatility, munis valuations relative to US Treasuries have become more attractive. In addition, we expect lower overall supply of muni bonds in 2018, as advanced-refunding muni bonds did lose their tax-exempt status under TCJA (whilst passive activity muni bonds were ultimately spared). That reduced issuance, with continuing strong demand, should be supportive for munis in coming quarters. Our allocation at the end of 2017 is 28.0% equity 12.0% US equity, 9.5% ex-us developed, and 6.5% emerging markets 4% real estate, 63% fixed income and 5% strategic cash. 3

4 Holdings As of December 31, 2017 Please note: The percentages below apply to the model portfolio. Each client s allocation indicated in the account statement will vary. Asset class Holding Ticker Nontaxable Investor option (%) Taxable Investor option (%) Municipal Fixed Income Vanguard Tax-Exempt Bond VTEB 14.5 PowerShares National AMT-Free Municipal Bond PZA 10.2 SPDR Nuveen Bloomberg Barclays ST Municipal Bond SHM 4.4 Inflation-Protected Bond ishares TIPS Bond TIP Treasuries ishares US Treasury Bond GOVT 2.0 Investment Grade Corporate Bond ishares iboxx $ Investment Grade Corporate Bond LQD 15.5 High Yield Bond SPDR Bloomberg Barclays ST High Yield Bond SJNK PowerShares High Yield Corporate Bond PHB Global Equity ishares Intl Select Dividend IDV WisdomTree Emerging Markets Equity Income DEM Vanguard High Dividend Yield VYM 1 1 SPDR S&P 500 SPY ishares Currency Hedged MSCI Eurozone HEZU Deutsche X-trackers MSCI Japan Hedged Equity DBJP Global Real Estate Vanguard REIT Index VNQ ishares Intl Developed Real Estate IFGL Mortgage-Backed Securities ishares MBS MBB Emerging Markets Debt ishares JPMorgan USD Emerging Markets Bond EMB Cash and Cash Equivalents PIMCO Enhanced Short Maturity MINT US Dollar Portfolios are actively managed and their compositions differ over time. The views expressed are those of UBS Asset Management (Americas) Inc. as of December 31, The views are subject to change based on market conditions; they are not intended to predict or guarantee the future performance of the markets, any market segment or any UBS advisory account. Not all securities discussed will be in all client accounts. It should not be assumed that investments in these securities were or will be profitable. For separate accounts, any securities discussed do not represent all of the securities that will be purchased, sold or recommended for advisory clients. There are fees associated with investing in separately managed accounts. For fees charged and other information in connection with the Private Wealth Solutions program, please refer to the UBS Asset Management (Americas) Inc. Private Wealth Solutions Wrap Fee Program Brochure. This is not an offer to buy or sell, or a solicitation of an offer to buy or sell, ETFs. ETFs are sold by prospectus. For more complete information about an ETF, including the investment objectives, charges, expenses and risk factors, please contact your Financial Advisor. The prospectus contains this and other important information that you should read and consider carefully before investing. Asset allocation and diversification strategies do not ensure gains nor guarantee against loss regardless of the risk category you choose. Nothing contained herein constitutes investment, legal, tax or other advice. This should not be construed as a solicitation, offer or recommendation to acquire or dispose of an investment, or to engage in any other transaction. 4

5 Index definitions The MSCI All Country World Index (net) is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets. Net total return indices reinvest dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The index is constructed and managed with a view to being fully investable from the perspective of international institutional investors. The MSCI Emerging Markets Index (net) is a market capitalization-weighted index composed of different emerging market countries in Europe, Latin America, and the Pacific Basin. Net total return indices reinvest dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The index is constructed and managed with a view to being fully investable from the perspective of international institutional investors. The MSCI World ex-usa Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the United States. Net total return indices reinvest dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The index is constructed and managed with a view to being fully investable from the perspective of international institutional investors. The S&P 400 MidCap Index serves as a barometer for the US mid cap equities sector and is the most widely followed mid cap index in existence. The S&P 500 Index is an index of the 500 largest capitalized stocks in the United States. The S&P 600 SmallCap Index covers roughly the small cap range of US stocks, using a capitalization-weighted index. The Russell 1000 Growth Index measures the performance of the large cap growth segment of the US equity universe. The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. The JPM GBI-EM Indices are comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging Market governments. The index is the first comprehensive global local Emerging Markets index. The JPMorgan EMBI Global Core Index is an unmanaged index which is designed to track total returns for US dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans and Eurobonds. The Bloomberg Barclays U.S. Aggregate Corporate Bond Index is an unmanaged broad based index designed to measure the US-dollar-denominated, investment-grade, taxable bond market. The index includes bonds from the Treasury, government-related, corporate, mortgage-backed, asset-backed and commercial mortgage-backed sectors. Investors should note that indices do not reflect the deduction of fees and expenses. The Markit iboxx $ Liquid High Yield Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the broad USD high yield corporate bond universe. The Bloomberg Barclays U.S. Municipal Bond Index is an unmanaged bond index designed to measure the total return of the US dollar-denominated long-term tax exempt bond market. The Bloomberg Barclays U.S. Treasury Inflation-Protection Securities (TIPS) Index consists of inflation-protection securities issued by the US Treasury. They must have at least one year until final maturity and at least $250 million par amount outstanding. They are rated investment grade by at least two of the following rating agencies: Moody s, S&P, and Fitch. They must be fixed rate, dollar denominated and nonconvertible. The Bloomberg Barclays U.S. Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index. The Bloomberg Brent Crude Subindex is a single commodity index composed of futures contracts on Brent crude. The index is part of the Bloomberg CITR family. It reflects the return on fully collateralized futures positions and is quoted in USD. The indices are unmanaged, do not reflect the deduction of any fees or expenses, and are not available for direct investment. The index returns reflect all items of income, gain and loss, and the reinvestment of dividends and other income. 5

6 Risk considerations Investors in the Private Wealth Solutions Multi-Asset Portfolios should be able to withstand short-term fluctuations in the equity and fixed income markets in return for potentially higher returns over the long term. The value of the securities held within the MAPs changes every day and can be affected by changes in interest rates, general market conditions, and other political, social and economic developments, as well as specific matters relating to the issuers and companies in whose securities the MAPs invest. Securities held within the MAPs are not guaranteed. The following are a few of the principal risks of investing in the portfolios: Market risk: The risk that the market value of a MAP will fluctuate as the stock and bond markets fluctuate. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Investments in ETFs risk: The portfolio s investment in ETFs may subject the portfolio to additional risks than if the portfolio would have invested directly in the ETFs underlying securities. These risks include the possibility that an ETF may experience a lack of liquidity that can result in greater volatility than its underlying securities; an ETF may trade at a premium or discount to its net asset value; or an ETF may not replicate exactly the performance of the benchmark index it seeks to track. In addition, investing in an ETF may also be more costly than if a portfolio had owned the underlying securities directly. ETFs impose an additional layer of fees, including management and advisory fees and other expenses, which are not included in the PWS Program Fee. Passive strategy risk: The ETFs that the MAP invests in are passively managed and attempt to track the performance of unmanaged indices of securities. The ETFs may hold constituent securities of an index that they track regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause an ETF s return to be lower than if the ETF employed an active strategy. Asset allocation risk: The portfolio is subject to asset allocation risk, which is the risk that the allocation of the portfolio s assets among the various asset classes and market segments will cause the portfolio to underperform other funds with a similar investment objective. Distribution of income risk: The dollar amount of the monthly or quarterly income payments from the ETFs in which the Portfolio is invested could vary substantially from one year to the next and over time depending on several factors, including the performance of the financial markets in which the Portfolio invests, the allocation of Portfolio assets across different asset classes and investments, the performance of the ETFs, and the amount and timing of prior distributions by the ETFs. It is also possible for payments to go down substantially or significantly fluctuate from one year to the next, month over month, and over time depending on the timing of an investor s investments in the Portfolio. Any redemptions will proportionately reduce the amount of future cash income payments to be received from the Portfolio s investments. There is no guarantee that the ETFs and in turn the Portfolio will make monthly or quarterly income payments or, if made, that the income payments will remain at a fixed amount. For a detailed description of all of the risks associated with the individual portfolio, including opportunistic exposure related to certain asset classes, please refer to the respective portfolio Profile. Foreign investing and emerging markets risks. Investing internationally presents certain risks not associated with investing solely in the US such as currency fluctuation, political and economic change, social unrest, changes in government relations, differences in accounting and available legal remedies, and the lesser degree of accurate public information available. A decline in the value of foreign currencies relative to the US dollar will reduce the value of securities denominated in those currencies. Also, foreign securities are sometimes less liquid and harder to sell and to determine the value of than securities of US issuers. Each of these risks is more severe for securities of issuers in emerging market countries. A company is considered a US company even though it is organized outside of the United States, if it meets any of the following conditions: (a) it is included in an index representative of the United States; (b) it has its headquarters or principal location of operations in the United States; (c) its primary listing is on a securities exchange or market in the United States; (d) it issues securities that are guaranteed by the United States government, its agencies, political subdivisions or instrumentalities; (e) it derives at least 50% of its revenues in the United States; or (f) it has at least 50% of its assets in the United States. Certain Strategies, such as the Global (Ex-US) Equity Strategy, within the Multi-Asset Portfolio are permitted to invest in F shares (so called due to their ticker symbols, which end in F ). F shares are ordinary shares of a foreign company s common stock that trade in their home (local) market. F shares are quoted in US dollars by registered market makers who provide their quotes on over-the-counter (OTC) quote platforms. F shares provide access to the securities of certain foreign companies that do not have American Depositary Receipts (ADRs) available. There are certain risks associated with investing in F shares. The risks include, but are not limited to, the risks associated with foreign investing. F shares are not listed on US exchanges, but are subject to foreign local registration requirements. F shares trade over-the-counter via the pink sheets based on broker/dealers or market makers who offer quotes, and therefore are not subject to the listing and reporting requirements of issuers listed on a US exchange. Further, as F shares access the same liquidity as the local (foreign) market, when local markets are closed, liquidity will be reduced and spreads may be wider. F shares are also subject to the risk that a market maker may decide to exit the market for a particular company s F shares thereby reducing liquidity and widening the security s spreads. F shares are custodied in local (foreign) markets and have additional trading, custody and tax costs associated with their trading. Confidentiality disclaimer THE CONTENTS OF THIS PRESENTATION ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE. NOTWITHSTAND- ING ANY OTHER STATEMENT IN THIS PRESENTATION, EACH PROSPECTIVE INVESTOR (AND EACH EMPLOYEE, REPRESENTATIVE, OR OTHER AGENT OF SUCH PROSPECTIVE INVESTOR) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATIONS OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF THE TRANSACTION AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO THE PROSPECTIVE INVESTOR RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE. FOR PURPOSES OF THIS PARAGRAPH, THE TERMS TAX TREATMENT AND TAX STRUCTURE HAVE THE MEANING GIVEN TO SUCH TERMS UNDER UNITED STATES TREASURY REGULATION SECTION (c) AND APPLICABLE U.S. STATE OR LOCAL TAX LAW. Private Wealth Solutions accounts are offered through UBS Asset Management (Americas) Inc., which serves as the program sponsor. UBS Financial Services Inc. provides nondiscretionary consulting, custody and execution services to clients of the Private Wealth Solutions program. UBS All rights reserved C /18 UBS Asset Management (Americas) Inc. is an indirect asset management subsidiary of UBS Group AG.