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This report has been prepared by UBS Financial Services Inc. and UBS AG.

What in the World is Going On: Investment Strategies to Support Your Eye Bank

February 12, 2014

Presented by:

Arun Sardana, CIMA®Senior Institutional ConsultantUBS Institutional Consulting Group

Your Eye Bank's portfolio: Five important questions to ask

1

• What is your strategy for managing risk and volatility?

• How do you manage and create liquidity, especially during volatile market periods?

• Does your governance structure enhance or impede decision making in a rapidly changing world?

• How does your consultant bring transparency to fees and other potential conflicts?

• Who are the fiduciaries? Is your consultant one of them?

2

Asset allocation in 2013, a retrospective

Source: FactSet, UBS

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Volatility

Ret

urn

High Yield

Gov't/ IG/ EM bondsCommodities

US Equities

Int'l Developed

Equities

EM Equities

Cash

Outside of developed market equities, the opportunity set in 2013 offered low to negative returns.

Major Wall Street firms predicted, on average, US equity returns of

6.6% for 2013.

3

Equities in 2013, emerging markets underperformedEmerging Markets: Best (2012) to worst (2013)

Source: FactSet, UBS

4

Secular trends: Changes to market drivers

Source: UBS

The US is furthest along in the process of deleveraging, and a pick-up in private demand and easing of fiscal austerity will likely bring a self-sustaining recovery into focus. We expect GDP growth to accelerate by 3.0%, and earnings to grow by 8.0% in 2014.

The Fed, under new Chairwoman Janet Yellen, will be seeking a return to normalcy, but the path is long. Despite the taper, we don’t expect a rate hike until mid-2015, as inflation likely stays below 2% and 10-year Treasury bond yields rise to 3.4% by the end of 2014.

Against a backdrop of calmer politics and subdued inflation, the ECB will remain in the spotlight as it probes the health of the financial system and maintains its deleveraging bias.

We expect global GDP growth to accelerate by 3.4%. The Eurozone will likely experience modest growth of around1.1% while EM growth is expected to be around 5% as larger economies converge and further structural reforms are necessitated.

Global growth shifting up a gear in 2014

Source: UBS CIO WMR, as of 1 January 2014

In the US, private sector deleveraging is almost complete

Source: Federal Reserve, UBS CIO WMR, as of 1 January 2014

Private sector debt-to-GDP, in % Public debt-to-GDP, in %

The era of deleveraging and falling interest rates is drawing to an end

5

Stay stocked up on stocks – for long-term investorsPrice-earnings ratio around its long-term average

Source: Thomson Reuters, UBS

0

5

10

15

20

25

3019

87

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

US price-earnings ratio 25-year average

6

Asset class forecasts: 7-year real returns

7

We continue to forecast higher treasury yields

Source: Thomson Reuters, UBS

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 5 10 15 20 25 30

20-Nov. 2013 31-Dec. 20126 month forecast 12 month forecast

maturity (years)

Treasury curve, in %

The yield curve should remain steep

8

The "new normal": potential interest rates ahead

Sustained low rate environment?

Sharp rise in interest rates?

Federal Reserve's Role?

9

The key to compounding: volatility!

Source: Putnam Advisors

12/2006 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013500

750

1,000

1,250

1,500

1,750

DO

LLAR

S ($

)

S&P 500 ETF+S&P 500 Equal Weight ETF+Fundamentally Weighted US 1000 ETF+MSCI USA Minimum Volatility ETF+

1 Year 3 Years 5 Years 7 Years1,322 1,563 2,271 1,5091,356 1,579 2,779 1,6741,351 1,573 2,660 1,6281,251 1,507 1,944 1,421

+ THIS INVESTMENT OR STRATEGY IS NOT AVAILABLE THROUGH UBS. SEE "IMPORTANT INFORMATION" SECTION FOR ADDITIONAL INFORMATION.10

Passive investing: not all ETFs are created equal

Investment Expense Ratio (%)

SPDR S&P 500 ETF 0.10%

Guggenheim S&P500 Equal Weight ETF 0.40%

Powershares FTSE RAFI 1000 ETF 0.39%

iShares MSCI USA Min. Vol. ETF 0.15%

Source: PSN. As of December 31, 2013

Past performance is no guarantee of future returns

11

Dividend investing: don’t overpay for yieldWe expect high and consistent dividend growers to outperform the highest dividend yielding stocks over the next 12 months (and beyond)

Source: FactSet, UBS, as of 4 December 2013

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Relative valuation of high dividend yielding stocks vs. high dividend growth stocks

12

Tactical fixed income: floating rate bonds

Source: Morningstar & Eaton Vance

Negative correlation a hedge for high-quality bonds

13

Water: thirst for investmentsOver the next 12 months, we expect companies tied to water to outperform the global equity market

Source: Bloomberg, UBS, as of 27 November 2013

-50%

0%

50%

100%

150%

200%

250%

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13S&P Water MSCI World TR

14

Alternative investments complement traditional portfoliosHedge funds should achieve attractive risk-adjusted returns

Source: Bloomberg, UBS

50

100

150

200

250

300

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US equities US Treasuries US cash Diversified hedge funds

Tota

l ret

urn

ind

ex (

2002

= 1

00)

15

Asset class outlook: lower expected returns

16

Your Eye Bank's portfolio: Five important questions to answer

• What is your strategy for managing risk and volatility?

• How do you manage and create liquidity, especially during volatile market periods?

• Does your governance structure enhance or impede decision making in a rapidly changing world?

• How does your consultant bring transparency to fees and other potential conflicts?

• Who are the fiduciaries? Is your consultant one of them?

17

Disclosures Emerging Market Investments

Investors should be aware that Emerging Market assets are subject to, amongst others, potential risks linked to currency volatility, abrupt changes in the cost of capital and the economicgrowth outlook, as well as regulatory and socio-political risk, interest rate risk and higher credit risk. Assets can sometimes be very illiquid and liquidity conditions can abruptly worsen. WMRgenerally recommends only those securities it believes have been registered under Federal U.S. registration rules (Section 12 of the Securities Exchange Act of 1934) and individual Stateregistration rules (commonly known as "Blue Sky" laws). Prospective investors should be aware that to the extent permitted under US law, WMR may from time to time recommend bonds thatare not registered under US or State securities laws. These bonds may be issued in jurisdictions where the level of required disclosures to be made by issuers is not as frequent or complete asthat required by US laws.

For more background on emerging markets generally, see the WMR Education Notes "Investing in Emerging Markets (Part 1): Equities", 27 August 2007, "Emerging Market Bonds:Understanding Emerging Market Bonds," 12 August 2009 and "Emerging Markets Bonds: Understanding Sovereign Risk," 17 December 2009.

Investors interested in holding bonds for a longer period are advised to select the bonds of those sovereigns with the highest credit ratings (in the investment grade band). Such an approachshould decrease the risk that an investor could end up holding bonds on which the sovereign has defaulted. Sub-investment grade bonds are recommended only for clients with a higher risktolerance and who seek to hold higher yielding bonds for shorter periods only.

Non-Traditional Assets

Non-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments).Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses ofalternative investment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significantrisks. Specifically, these investments (1) are not mutual funds and are not subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investorsmay lose all or a substantial amount of their investment; (3) may engage in leverage and other speculative investment practices that may increase the risk of investment loss; (4) are long-term,illiquid investments, there is generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid andsubject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and there may be delaysin distributing tax information to investors; (8) are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits.

Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by theFederal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability andwillingness to accept them for an extended period of time before making an investment in an alternative investment fund and should consider an alternative investment fund as a supplementto an overall investment program.

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

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

• 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 futuresstrategies 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 generaleconomic 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 risksassociated 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 no-tice, and the failure to meet capital calls can result in significantadverse 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 theexchange 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 beaffected by other risks (such as political, economic or regulatory changes) that may not be readily known to a U.S. investor.

18

Disclaimer Chief Investment Office (CIO) Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. We recommend that you obtain financial and/or tax advice as to the implications (including tax) of investing in the manner described or in any of the products mentioned herein. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/ or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are currently only as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time, investment decisions (including whether to buy or hold securities) made by UBS AG, its subsidiaries and employees thereof, may differ from or be contrary to the opinions expressed in UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. This report is for distribution only under such circumstances as may be permitted by applicable law.

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Version as per September 2013.

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