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Strategy Indices

UBS Risk Adjusted Dynamic Alpha Strategy (UBS-RADA)


The UBS Risk Adjusted Dynamic Alpha Strategy (UBS- RADA) strategy is strictly rule based and developed for variable market conditions. It employs the UBS Dynamic Equity Risk Indicator to go long, flat or short the market. Developed by highly recognized UBS Equity Research*, the UBS Dynamic Risk Indicator aims at measuring market sentiment, investor risk appetite, and equity positioning. The indicator is updated daily by UBS Global Equity Strategy research team and measures both levels and short-term changes in equity market momentum, equity option volatility, FX volatility, corporate credit spreads, swap spreads and the performance of high beta equity strategies. Product description Strictly rule based strategy employing highly recognized UBS Global Strategy Research resource Low historical volatility Strong resistance on downside while providing exposure to the market upside Index Methodology: Rule based algorithm using UBS Dynamic Equity Risk Indicator Indicator(i) i> 1.25 Market conditions Overbought (probability of a correction) Bullish Uncertain Bearish Oversold (probability of a correction) Index position Cash

What is the Dynamic Equity Risk Indicator? Developed by highly recognized UBS Equity Research* as an out-of-sample variant of the Risk Appetite Indicator, published since March 11, 2005 Updated daily by UBS Global Equity Strategy Research team. Aims at measuring market sentiment, investor risk appetite, and equity positioning The indicator measures both levels and short-term changes in equity market momentum, equity option volatility, FX volatility, corporate credit spreads, swap spreads and the performance of high beta equity strategies. The model is a composite of normalized scores

-0.75 <i <1.25 -1.25 <I <-0.75 -2 <I <-1.25 i <-2

Long Cash Short Cash

Source: UBS

* UBS Equity Research has been voted Best Pan-European Brokerage Firm for Equity and Equity-Linked Research in the Thomson Extel awards for ten straight years.

UBS Dynamic Equity Risk Indicator: Methodology The index is calculated as the composite of the following normalised factors, weighed by their rolling correlation to equity markets over the preceding seven years. Measure 1. Options volatility 2. Credit spreads 3. Swap spreads 4. Currency volatility 5. Cyclicals / defensives 6. High-beta regions 7. High-beta sectors 8. Equity market momentum Description Average of VIX and VDAX Moodys BAA over US 10 year Treasury yield Average of 5 year USD, EUR, JPY & GBP over bonds Average of 20 day and 60 day daily volume of EUR, JPY, GBP, CHF & AUD vs USD IT, Materials, Discretionary + Industrials) vs (Staples, Health, Telecomms + Utilities) Excess performance of regions with high-beta in the short term Excess performance of sectors with high-beta in the short term MSCI AC World as % of 200 day moving average

UBS Dynamic Equity Risk Indicator: Historical performance*

Source: Bloomberg and UBS * Figures refer to simulated past performance. Past performance is not neccessarily indicative of future results.

Cash Position

Long Position

Short Position

Index performance Back-tested, long equites 59.2% of the time; cash/neutral 29.6%; short 11.2% Superior risk-return profile, aimed at absolute returns Worst calendar year performance -42.4% -3.5% -37.0% -8.4% -42.1% -23.3% -34.8% -12.9% -43.9% 3.5%

Annualized return Eurostoxx 50 Total Return Strategy on Eurostoxx 50 Total Return S&P 500 Total Return Index Strategy on S&P 500 Total Return Nikkei 225 Strategy on Nikkei 225 SMI Total Return Strategy on SMI Total return DAX Total Return Strategy on DAX Total Return 5.2% 17.0% 5.6% 13.2% -4.6% 9.8% 3.1% 12.3% 6.3% 18.7%

Annualized volatility 24.2% 16.8% 20.7% 13.6% 24.8% 18.0% 20.3% 14.1% 25.3% 17.6%

Source: Bloomberg and UBS * Figures refer to simulated past performance. Past performance is not neccessarily indicative of future results. ** Closing price is used to recalculate performance. Depending on size and liquidity, the strategy may employ VWAP to minimize market impact.

Historical back-test performance*


1200%
Backtest Live

1000% 800% 600% 400% 200% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

< April 07

Backtest < April 07

Live

2007

2008

2009

2010

Eurostoxx 50 Total Return Index

Strategy on the Eurostoxx 50 Total Return Index

60% 40% 20% 0% -20% -40% -60% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD

Strategy on the Eurostoxx 50 Total Return Index


Source: Bloomberg and UBS, July 2011 / UBS, CCY: EUR

Eurostoxx 50 Total Return Index

*figures refer to simulated past performance. Past performance is not necessarily indicative of future results.

Disclaimer This material has been prepared solely for informational purposes and does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to purchase or subscribe for any securities. No part of this material, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Any offer of securities would be made in connection with a formal prospectus including relevant disclosure, a description of the relevant securities. The information contained herein is preliminary, limited in nature and subject to completion and amendment. No representation or warranty, either express or implied, is given or made by any person in relation to the fairness, accuracy, completeness or reliability of the information or any opinions contained herein and no reliance whatsoever should be placed on such information or opinions. This material should not be regarded by recipients as a substitute for the exercise of their own judgement and assessment. Any opinions expressed in this material are subject to change without notice and neither UBS nor any other person is under any obligation to update or keep current the information contained herein. This material is not intended to be a prospectus in connection with an offer of securities and any investment decision with respect to any securities should be made by you solely upon the basis of the information contained in the formal prospectus relating to such securities. Neither the UBS nor any of their respective affiliates, agents, directors, partners and employees shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. This material addresses only certain aspects and characteristics of the relevant securities and therefore does not provide a complete overview or assessment. Consequently, this material may not reflect all structural characteristics of the relevant securities or the impact of any structural characteristics of the securities. The characteristics of the securities described herein are preliminary and are subject to change. The information contained herein, including information relating to the structure or characteristics of the securities, is qualified in its entirety by the information in the formal prospectus relating to the securities. This presentation contains certain statistical analyses (the Statistical Information) which have been prepared in reliance upon information furnished by various sources, as mentioned in the presentation. Numerous assumptions were used in preparing the Statistical Information, which may or may not be reflected herein. As such, no assurance can be given as to the Statistical Informations accuracy, appropriateness or completeness in any particular context; nor as to whether the Statistical Information and/or the assumptions upon which they are based reflect present market conditions or future market performance. The Statistical Information should not be construed as either projections or predictions or as legal, tax, financial or accounting advice. None of the Company, its advisors or any other person makes any representation or warranty as to the actual rate or timing of payments on the underlying asset or the payments or yields on the securities. No representation or warranty is made that any indicative performance or return indicated will be achieved in the future. Furthermore, no representation or warranty, express or implied, is made by UBS AG and/or affiliates as to the accuracy, completeness, or fitness for any particular purpose of the analysis or calculation methodology used. Please note that the graphs showing any back testing are based on various assumptions. They are shown for illustrative purposes only and are not to be relied upon for making investment decisions. Clients must base their decisions on their own understanding of the product, strategy and market views. Past performance is not a guarantee or reliable indication of future results. Recipients should consult with their own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that they deem it necessary, and make their own investment, hedging and trading decisions based upon their own judgement and advice from such advisers as they deem necessary and not upon any view expressed in this material. This material is being directed at you solely in your capacity as a relevant person (as defined below) for your information. 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Nothing in this document constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. This material has been prepared by UBS AG, or an affiliate thereof (UBS). In certain countries UBS AG is referred to as UBS SA. No representation or warranty is made that any indicative performance or return indicated will be achieved in the future. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

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