Tactical Bond

PWSTB205.253CFor one-on-one client presentation use only.

Interest Rates: Trends and Cycles for 10-Year Treasury Yield Peak to trough performance is for the Lehman Brothers Treasury Bond Index

T

PP

P

TT

P

TTT

T

P

27.08%

13.70%

3.29%

0.70%

23.67%

-2.36%

11.56%

-3.70%

-1.82%

10.71% 10.87

%

P-2.63%

P = PeakT = Trough

As of October 31, 2004

P

T11.25%

Oct

-04

Interest rates are the primary cause of changes in bond valuation

Considerations for the Current Interest Rate Environment

How is the fixed income portion of your portfolio currently positioned?

How interest rate sensitive are these solutions?

Are you concerned with the impact rising interest rates can have on the performance of your portfolio?

Are you prepared for a significant impact?

What alternatives are you currently using to manage these factors?

Consider:

Investor Needs

– A strategy that has the ability to position itself defensively when conditions warrant

– A strategy that seeks to dynamically respond to changing market conditions

Scenario 1

You seek flexibility in a rising rate environment, but also need to maintain your strategic fixed income allocation.

Consider:

Investor Needs

– A strategy that has added significant alpha over a conventional treasury portfolio

– A strategy that can boost risk-adjusted performance for an overall fixed income portfolio

Scenario 2

You seek a fixed income investment that has the potential to offer incremental return for the fixed income portion of your portfolio.

Tactical Bond Summary

Objective:

An alternative fixed income investment strategy that seeks total return in excess of a conventional treasury securities portfolio

Process:

Utilizes a proprietary quantitative model that seeks to predict the future direction of interest rates and to set portfolio duration accordingly

Model integrates economic indicators, relative value measures and technical factors to arrive at a monthly outlook for the bond market

Strategy duration setting is made using U.S. Treasury securities consistent with model’s monthly outlook

Sources of fixed income alpha generation

Traditional fixed income managers utilize a number of different alpha generation sources

Tactical Bond utilizes duration management as the exclusive source of alpha generation based on a proprietary quantitative model.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Traditional Core Plus Strategybenchmarked to

Lehman Aggregate Index

Tactical Bond

Issue Selection

Sector

Yield curve

Duration

Extended sectors

Investment Process

Quantitative Model

Expected Excess Bond Return

Bearish0%

Moderately Bearish

50%

Neutral100%

Moderately Bullish150%

DURATION (% of benchmark)

Bullish200%

Macroeconomic Component:

Labor market conditions Manufacturing sector

status Performance of other asset

classes Inflationary environment

Valuation Component:

Yield Curve Real Rates

Technical Component:

Recent trends Seasonality

The employment number is one of the first big-picture economic variables to be released during the month that gives an indication of the pace of economic activity in the prior month. The employment number also provides clues as to the relative strength of economic reports to be released later in the month (e.g., Industrial Production and Retail Sales).

Mean Monthly Excess Bond Return1

Macroeconomic Factor Example

One-month Percentage Change in Non-farm Payroll Employment

0.41%

-0.07%

-0.50%

0.00%

0.50%

Below Average Above AverageWhen Employment Growth Is...

Average Actual Monthly Excess Bond Return1

Long-term Average

1. Monthly data, January 1969 to December 2003. Sources: Standard and Poor’s, Federal Reserve Board of Governors, Bureau of Labor Statistics. Excess bond total return is the total return of the 10-year U.S. Treasury Note in excess of three-month U.S. Treasury bill return, for the month immediately following the month in which the one-month percentage change in non-farm payroll employment was below or above average. Total return is based on actual monthly yields, and assumes that Notes are at par and mature in exactly 10 years. This data is presented for informational purposes only and does not represent the performance of actual UBS Global Asset Management portfolios. Past performance is not necessarily indicative of future results.

Example of strategy setting – neutral outlook

Quantitative Model

Expected Excess Bond Return

Bearish0%

Moderately Bearish

50%

Moderately Bullish150%

DURATION (% of benchmark)

Bullish200%

Macroeconomic Component:

Overall moderately bullish signal

Labor market conditions- bullish

Manufacturing sector status-bullish

Performance of other asset classes- bearish

Inflationary environment- neutral

Valuation Component:

Overall bearish signal Yield Curve- bullish Real Rates- bearish

Technical Component:

Overall bearish signal Recent trend- bearish Seasonality- bearish

Neutral100%

Strategy Implementation

Fully Bullish Duration

200%Neutral Duration

100%Bearish Duration

0%

Intermediate Treasury Notes

Long-term Treasury Bonds

Zero Coupon (Strips) Treasury Bonds

Treasury Bills

Treasury Notes

Treasury Bonds

Treasury Bills

US Treasury securities only No derivatives No shorting No leverage (borrowing)

Modified Duration- Defined

An approximate measure of the price sensitivity of a bond or a portfolio relative to changes in interest rates

Tactical Bond: Duration and Price Sensitivity

80

90

100

110

6 5 4 3

% Rate

Pric

eFully bullish outlook for bond

prices

Index duration = 5 years

Fully bullish duration = 10 years

+/-1% move in interest rates equals a 10% price change

80

90

100

110

6 5 4 3

% Rate

Pric

e

Index duration = 5 years

Neutral duration = 5 years

+/-1% move in interest rates equals a 5% price change

Neutral outlook for bond prices

90

100

110

6 5 4 3

% Rate

Pric

e

Index duration = 5 years

Fully bullish duration = 0 years

+/-1% move in interest rates equals a 0% price change

Fully bearish outlook for bond prices

Source: UBS Global Asset Management

Monthly Tactical Bond Duration Setting

0%

50%

100%

150%

200%1/

4/02

3/8/

02

5/3/

02

7/5/

02

9/6/

02

11/1

/02

1/10

/03

3/7/

03

5/2/

03

7/3/

03

9/6/

03

11/7

/03

1/9/

04

3/5/

04

5/7/

04

7/2/

04

9/2/

04

11/5

/04

1/7/

05

Bearish0%

Moderately Bearish

50%

Neutral100%

Moderately Bullish150%

DURATION (% of benchmark)

Bullish200%

Tactical Bond vs. Lehman Treasury

12.74%

6.25%

11.59%

7.35%

5.00%

0.00%

5.00%

10.00%

15.00%

Annualized Return Annualized Standard Deviation

Tactical Bond Gross ReturnTactical Bond Net ReturnLehman Treasury Return

5/2000 – 12/2004 (Gross Return/Deviation)

Past performance is no guarantee of future results. The portfolio's return may vary from the return of the benchmark. The potential (positive or negative) variation of return from the portfolio's benchmark is likely to be greater to the extent the portfolio's duration exceeds the duration of the benchmark. Gross returns do not reflect the deduction of fees. The Index is the Lehman Brothers Treasury Bond Index, which comprises public obligations of the US Treasury with remaining maturities of one year or more. Please see the Private Wealth Solutions quarterly Profile for additional information.

Tactical Bond vs. Lehman Treasury

10.6%

6.0%

18.8%

7.8%

13.3%

7.7%6.8%

3.5%2.3%

11.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2000* 2001 2002 2003 2004**

Tactical Bond Return

Lehman Treasury Return

Gross Annual Returns

* Inception May 2000. **Through December 31, 2004

Past performance is no guarantee of future results. The portfolio's return may vary from the return of the benchmark. The potential (positive of negative) variation of return from the portfolio's benchmark is likely to be greater to the extent the portfolio's duration exceeds the duration of the benchmark. Gross returns do not reflect the deduction of fees. The Index is the Lehman Brothers Treasury Bond Index, which comprises public obligations of the US Treasury with remaining maturities of one year or more. Please see the Private Wealth Solutions quarterly Profile for additional information. For net results, please see the Composite table at the end of the presentation.

Tactical Bond vs. Lehman Treasury

0.4%

13.3% 13.2%12.7%

3.5%

0.4%

7.4%

5.8%

0.0%

5.0%

10.0%

15.0%

4Q04 1 Year 3 Years 5/00- 12/04

Tactical Bond Return

Lehman Treasury Return

Gross Returns with Standard Deviation

Standard Deviation (5/00-12/04)Tactical Bond 6.25 Lehman Brothers Treasury Bond Index 5.00

Past performance is no guarantee of future results. The portfolio's return may vary from the return of the benchmark. The potential (positive of negative) variation of return from the portfolio's benchmark is likely to be greater to the extent the portfolio's duration exceeds the duration of the benchmark. Gross returns do not reflect the deduction of fees. The Index is the Lehman Brothers Treasury Bond Index, which comprises public obligations of the US Treasury with remaining maturities of one year or more. Please see the Private Wealth Solutions quarterly Profile for additional information. For net results, please see the Composite table at the end of the presentation.

Tactical Bond Performance Attribution

As of 12/31/04 1 Year 2 Year 3 Year SI (7/00)Return AnalysisTactical Bond Composite 13.30% 10.51% 13.20% 12.70%Index 3.50% 2.89% 5.80% 7.40%Value Added 9.80% 7.62% 7.40% 5.30%

Attribution DetailMarket 3.50% 2.89% 5.80% 7.40%Security Selection 0.00% 0.00% 0.00% 0.00%Sector Selection 0.00% 0.00% 0.00% 0.00%Yield Curve Management 0.00% 0.00% 0.00% 0.00%Duration Management 9.80% 7.62% 7.40% 5.30%Total Active Management 9.80% 7.62% 7.40% 5.30%

Tactical Bond Monthly Dispersion

Monthly Dispersion: 6/00-12/004*

Monthly Return No. of Months> 6% 14% to 6% 52% to 4% 80% to 2% 23-2% to 0% 14-4% to -2% 4-4% to -6% 0< -6% 0

Count: 55 observations since inception* Composite, gross of fees basis

Performance CharacteristicsInception 5/00 through 12/31/04Gross of fees

Tactical Bond Gross Return

Lehman Treasury Return

Best Month 6.58% 3.02%

Worst Month -3.79% -4.39%

Best Quarter 13.89% 7.40%

Worst Quarter -3.24% -3.16%

Best Year 18.83% 11.79%

Worst Year 6.04% 2.25%

Since inception upside capture ratio

145.00 100%

Since inception downside capture ratio

20.00 100%

Past performance is no guarantee of future results. The portfolio's return may vary from the return of the benchmark. The potential (positive or negative) variation of return from the portfolio's benchmark is likely to be greater to the extent the portfolio's duration exceeds the duration of the benchmark. Gross returns do not reflect the deduction of fees. The Index is the Lehman Brothers Treasury Bond Index, which comprises public obligations of the US Treasury with remaining maturities of one year or more. Please see the Private Wealth Solutions quarterly Profile for additional information.

Portfolio Considerations

Higher volatility than traditional fixed income investments

Can be a complementary component of a fixed income portfolio; not primary allocation

Can experience greater price decline than the market when model is moderately bullish or fully bullish due to higher duration stance

Strategy can make dramatic shifts month to month—not appropriate for investors seeking “tax efficiency”

Primary focus is total return — NOT generating income

Examples of Model Factors

Appendix

The 10-Year Treasury yield represents a market expected return for this asset. The difference between this expected return and the 3-month T-bill yield, therefore, may be interpreted as a “bond risk premium” – a measure of the expected reward for taking the additional risk of investing in a longer-duration asset. A below-average spread (i.e., a flatter yield curve), from this valuation perspective, indicates that bonds are expensive relative to T-bills. An above-average spread indicates that bonds are “cheap” relative to T-bills.

Mean Monthly Excess Bond Return1

Valuation Measure Example

10-year Treasury Yield Minus 3-month Treasury Bill Yield

-0.14%

0.39%

-0.20%-0.10%0.00%0.10%0.20%0.30%0.40%0.50%

Below Average Above AverageWhen Yield Curve Is...

Average Actual Monthly Excess Bond Return1

Long-term Average

1. Monthly data, January 1969 to December 2003. Source: Federal Reserve Board of Governors. Excess bond total return is the total return of the 10-year U.S. Treasury Note in excess of three-month U.S. Treasury bill return, for the month immediately following the month in which the 10-year U.S. Treasury Note minus the three-month U.S. Treasury bill yield was below or above average. Total return is based on actual monthly yields, and assumes that Notes are at par and mature in exactly 10 years. This data is presented for informational purposes only and does not represent the performance of UBS Global Asset Management actual portfolios. Past performance is not necessarily indicative of future results.

Needs to be updated for 2004

This pattern suggests that there is at least some tendency for trend-like behavior in interest rates (i.e., when rates are significantly below [above] their recent average, they tend to move even lower [higher]).

Mean Monthly Excess Bond Return1

Technical Factor Example

10-year Treasury Yield Minus Latest 20-trading Day Moving Average

0.25%

0.05%

0.00%

0.10%

0.20%

0.30%

Below Average Above AverageWhen Technical Factor Is...

Average Actual Monthly Excess Bond Total Return1

Long-term Average

1. Monthly data, January 1969 to December 2003. Source: Federal Reserve Board of Governors. Excess bond total return is the total return of the 10-year U.S. Treasury Note in excess of three-month U.S. Treasury bill return, for the month immediately following the month in which the 10-year U.S. Treasury Note Yield minus the latest 20-Trading Day Moving Average was below or above average. Total return is based on actual monthly yields, and assumes that Notes are at par and mature in exactly 10 years. This data is presented for informational purposes only and does not represent the performance of UBS Global Asset Management actual portfolios. Past performance is not necessarily indicative of future results.

Needs to be updated for 2004

Disclosures for Tactical Bond StrategyUBS Global Asset Management Americas/UK (the Firm) has prepared and presented this report in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS®), the US and Canadian version of the Global Investment Performance Standards (GIPS®). AIMR has not been involved with the preparation or review of this report. Past performance is not a guarantee of future results.

Performance for the period June 1, 2000 to the present represents all fee-paying Private Wealth Solutions accounts beginning the first day of the month following the account inception. Past performance is not a guarantee of future results. Although UBS Global Asset Management (US) seeks to apply a consistent management style across all accounts managed with this strategy, because a typical Private Wealth Solutions account may be managed with a view toward different client needs and considerations, the specific securities held and rates of return achieved may differ by account. All results reflect all items of income, gain, and loss and the reinvestment of dividends and other income. All results represent total account performance including cash and cash equivalents. Gross results do not reflect the deduction of fees.

Portfolios are included in the composite beginning with the first full month of performance to the present or to the cessation of the client’s relationship with the Firm. Terminated accounts are included through the last full month in which they were fully invested, and no alterations of composites have occurred due to changes in personnel. Composites consisting of more than one portfolio are asset weighted by beginning-of-period asset values. Investment results are time-weighted performance calculations representing total return. Returns are calculated using geometric linking of monthly returns. Composites are valued at least monthly, taking into account cash flows. All realized and unrealized capital gains and losses, as well as all dividends and interest from investments and cash balances, are included. Interest income from fixed income securities is accrued, and equity dividends are accrued as of the ex-dividend date. Investment transactions are accounted for on a trade date basis.

The rates of return are presented both net and gross of investment management fees. Net results for the period August 1, 2002 to the present reflect the deduction of actual fees paid by PWS accounts. For the period prior to August 1, 2002, net results are shown after deducting the maximum Private Wealth Solutions quarterly fee of 0.3125% from the gross results. For fees charged in connection with the Private Wealth Solutions program, please refer to the UBS Global Asset Management (US) Inc. Private Wealth Solutions Program Disclosure Statement.

Composite dispersion (presented on the following page) represents the consistency of the Firm’s composite performance results with respect to the individual portfolio returns within the composite. Presented is the asset weighted dispersion (standard deviation) of the portfolios within the composite. Only portfolios in the composite for each full time period are included in the dispersion calculation and no dispersion is presented for composites consisting of only a single portfolio.

Disclosures for Tactical Bond StrategyA list of all Firm composites is available upon request. The Firm for purposes of this composite report consists of the following entities: UBS Global Asset Management (Americas) Inc., UBS Global Asset Management (UK) Ltd, UBS Global Asset Management International Ltd, UBS Global Asset Management Trust Company, UBS Realty Investors LLC & UBS AgriVest LLC. As of 2001, the Firm assets reflect the integration of the investment management platform of UBS Global Asset Management (UK) Ltd and UBS Global Asset Management International Ltd into the existing Firm definition. As of 2003, the assets of UBS Global Asset Management (US) Inc. and UBS Global Asset Management (Canada) Co. were integrated into the Firm. The effective date of Firm compliance with the AIMR-PPS® is January 1, 1993; certain terminated accounts are not included prior to that date.

The Bond Market Model (the “Model”) seeks to determine an overall monthly expected excess bond total return over cash equivalents, by applying a multi-factor regression analysis to a number of variables (macroeconomic, valuation-oriented and technical). The signals generated by the model (based upon the expected excess bond total return) are then used to adjust the duration of a core portfolio of fixed income securities.

The Index is the Lehman Brothers Treasury Bond Index, which comprises public obligations of the US Treasury with remaining maturities of one year or more. The Index is unmanaged and does not reflect the deduction of any fees or expenses. The Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. The strategy is not an index strategy, is not restricted to securities reflected in the Index and may be more volatile than the Index.

UBS Global Asset Management consists of the asset management subsidiaries worldwide of UBS AG.Performance: Tactical Bond Composite (June 1, 2000-December 31, 2004 Amounts and returns are expressed in USD)

Asset Asset # of Total Composite Asset Composite Firm Weighted Benchmark Weighted Portfolios Assets End of Weighted

Assets as % Assets Gross return(%) Return(%) Net Return(%)End of Period Period (millions) Dispersion (%) of Firm Assets (billions)Year 2000* 12.59 9.55 11.79 1 3 N/A 0.00 852001 6.04 6.75 4.73 3 9 0.08 0.01 1172002 18.83 11.79 17.64 18 13 N/A 0.01 1132003 7.81 2.24 6.80 232 82 0.10 0.04 2132004 13.26 3.54 12.37 672 324 0.08 0.14 235

Note: Composite created May 31, 2000*Performance presented for June 2000 through December 2000.