ubs diversified strategy index wm...

UBS Diversified Strategy Index

May 2010

Intended to provide uncorrelated and superior risk-adjusted returns

FOR UBS MARKETING PURPOSES ONLY

1

Please always read in conjunction with the glossary and the risk information at the end of the document.

Table of contents

SECTION 1 The UBS Diversified Strategy Index - at a Glance

SECTION 2 Description of the Underlying Strategy Indices

SECTION 3 Performance Analysis

SECTION 4 Suitability Information

SECTION 5 Glossary, Risk Information & Further Information

SECTION 1

The UBS Diversified Strategy Index – at a Glance

3


The UBS Diversified Strategy Index – at a Glance

DescriptionThe UBS Diversified Strategy Index (UBS DSI – the "Index") consists of a basket of six individual indices (underlying indices). The underlying indices reflect the performance of systematic algorithm-based strategies (underlying strategies). The underlying strategies are designed to capture uncorrelated trends or risk premia across various financial markets. The underlying indices are equally-weighted whereas, to offer uniform risk exposure across all underlying indices, each single underlying index is leveraged (or de-leveraged) such that the historical volatilities of all underlying indices ob-served over the past ten years are approximately the same (annualized volatility of approx. 8-10%). The weights and leverages of individual underlying indices are re-balanced monthly to reinstate equal weights.

Individual underlying strategies with live track record

♦ Some underlying strategies have a live track record of more than two years and during that time have demonstrated robust behavioureven in a difficult market environment (please refer to section 2 and 3 for further analysis).

Portfolio Diversification

♦ The combination of uncorrelated strategies across different asset classes is designed to produce returns that are insignificantly related to other financial assets, and hence are considered to provide portfolio diversification benefits (please refer to section 3 for further analysis).

Disclosed algorithm methodology

♦ To ensure transparency, the algorithm principles and the underlying positions are disclosed. The Index is calculated daily and displayed on Bloomberg [ticker ULTADSI <Index>].

Liquidity

♦ The trading instruments of the underlying strategies (futures) are very liquid.

Risks

♦ Risk to produce negative excess returns due to inappropriate algorithmic trade signals.

The UBS Diversified Strategy Index is a diversified basket of six indices of which each one tracks an independent algorithmic strategy in equities, fixed income, currencies and commodities.

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♦ The UBS Diversified Strategy Index consists of a portfolio of six underlying indices tracking systematic algorithm based strategies (underlying strategies) that are aimed to capture trends or risk premia across financial markets.

♦ The underlying index weights are determined to offer consistent risk profiles across the Index.

♦ The underlying strategies, respectively the underlying indices by which they are tracked, have low risk profiles (low risk for a given return) and are transparent in terms of rules and mechanisms, as well as being liquid and cost-efficient by virtue of being implemented through liquid underlying futures contracts in each asset class.

♦ Combining these uncorrelated strategies results in a portfolio with strong risk/return characteristics (based on real or back-tested performance which is not an indication of future performance) as disclosed in Section “Performance Analysis”.

Concept and Building Blocks

Momentum

Benefit from both positive and negative trends

Perform best in stable market conditions

Risk Premia

Can benefit from sustained bear or bull markets

Economic Indicators


STRAUS

Short Term Interest Rates Trend

CommPASS

Commodity Trend Strategy

CMCI Essence T10

Commodity Curve Strategy

V24 Index

Enhanced FX Carry Trade

Gold Strategy Index

Fundamentals Driven Strategy

RADA

Risk Driven Equity Positioning

A combination of diversified strategies….

SECTION 2

Description of Underlying Strategies

6


UBS STRAUS – Short Term Interest Rates Trend Following StrategyCentral bank gradualism creates trends in short-term rates

Source: Bloomberg, UBS; Jan 1993 to Jan 2010. For illustrative purposes only. Data contains backtested values from Jan 1993 to June 2007 for UBFSTRSU Index and live thereafter. Analysis uses month end index levels and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.

0.98%Max Drawdown0.59Calmar Ratio1.27Sharpe

0.45%Volatility0.58%Excess Return (p.a)

Historical Risk Analysis

Strategy DescriptionUBS Short-Term Rates AUtomated Strategy (UBS STRAUS) is an automated trading strategy designed to exploit the observed trending behaviour of short-term interest rates. The strategy uses exponential moving average indicators and a channel breakout mechanism to pick up major trends and generate trading signals. Based on trading signals STRAUS is at any time long or short the three-month interest rate futures of five major currencies, that is the U.S. Dollar, the Euro, the Japanese Yen, the British Pound and the Swiss Franc. Each currency is weighted to reflect GDP, futures liquidity and diversification within the STRAUS portfolio (weights as of January 2010: 45% USD, 30% EUR, 15% JPY, 5% GBP, 5% CHF).

Strategy BackgroundCentral banks control short-term interest rates decisively and directly by open market operations. Typically gradual implementation of monetary policy creates trends in short-term rates.

Strategy Rules If the short-term moving average is higher than the long-term

moving average and confirmed by the channel breakout indicator, the STRAUS algorithm takes a LONG POSITION in the future.

If the short-term moving average is lower than the long-term moving average and confirmed by the channel breakout indicator, the STRAUS algorithm takes a SHORT POSITION in the future.

Channel Breakout IndicatorThe channel is defined by the highest and lowest price observed over the past twenty trading days. A moving average long signal is confirmed if the channel top is broken, respectively a moving average short signal is confirmed if the channel bottom is broken.

Based on past and simulated past performance.

Excess Return Index

100

102

104

106

108

110

112

Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Simulated Past Performance <Jun07

Live

Feb-10

7


Excess Return Index

100

200

300

400

500

600

Oct-98 Oct-00 Oct-02 Oct-04 Oct-06 Oct-08

UBS V24 – Carry Trade Strategy on 24 Currencies

6x High Yield*

6x Low Yield*

The UBS V24 Carry TradeTop 6

Bottom 6

Decreasin

g

Yield

s*

Source: Bloomberg, UBS; Oct 1998 to Jan 2010. For illustrative purposes only. Data contains backtested values from Oct 1998 to Nov 2007 for UBCIV24 Index and live thereafter. Analysis uses month end index levels and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.

7.62%Max Drawdown2.00Calmar Ratio1.99Sharpe Ratio

7.67%Volatility (p.a.)15.24%Excess Return (p.a.)


G 10

AUD, CAD, EUR, JPY, NZD,

NOK, SEK, CHF, GBP, USD

Emerging Americas & Africa

BRL, MXN, ZAR

Europe

CZK, DKK, HUF, ISK, PLN

Emerging Asia

INR, IDR, KRW, PHP, SGD, TRY

Diversified algorithmic carry trade strategy on G10 and Emerging Market CurrenciesStrategy DescriptionThe UBS V24 is an algorithmic carry trade strategy. Carry trades are implemented by going short low interest rate currencies (borrowing money at a low rate) and going long high interest rate currencies (investing money at a high yield) via 3-month forward transactions. Daily selection of the highest and the lowest yielding currencies ensures a high yield differential (carry yield). The underlying currency universe comprises 24 currencies from four areas: G10, Europe, Emerging Americas & Africa, Emerging Asia.

Strategy RulesOn a daily basis, the strategy selects the six highest (at least one of each region) and the six lowest yielding currencies (at least 2 within G10 Currencies). Then go LONG the high yielding currencies and go SHORT the low yielding currencies. However, in periods of high risk aversion (as indicated by the FX Volatility Filter which gauges changes in volatilites) when carry trades typically fail, the strategy closes the long and short positions and shifts to a USD cash investment (neutral state).


Simulated Past Performance < Nov07

Live

Feb-10

8


UBS Comm-PASS – Commodity Momentum StrategyExploiting commodity price trending and counter-trending

Source: Bloomberg, UBS; Oct 97 to Jan 10. For illustrative purposes only. Data contains backtested values from Oct 97 to Mar 07 for UCCP1A Index and live thereafter. Analysis uses month end index data and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.




Strategy DescriptionThe UBS Commodities Portfolio Algorithmic Strategy System (UBS Comm-PASS) is an algorithmic commodity trading strategy, which aims to generate returns by exploiting commodity price behaviour. The strategy is considered to generate dynamic long/short signals for all individual underlying commodities based on a combination of exponential moving average technical indicators (EMA). Exposure is taken via front-month commodity futures that are rolled on a monthly basis. The trading portfolio comprises 19 commodity futures of the five main commodity sectors: Energy, Precious Metals, Base Metals, Agriculture and Livestock.

Strategy BackgroundCommodity markets exhibit three distinctive characteristics: Trending or counter-trending price behaviour, asymmetric returns (prices tend to rise faster than fall) and high volatilities. UBS Comm-PASS tries to exploit these characteristics by applying a strategy that goes long and short, aiming to generate returns in both bull and bear markets.

Strategy RulesSome commodities trend while others counter-trend.Trending: After a trend, upwards or downwards, is detected the subsequent move tends to be in the same direction. Strategy: Take a LONG POSITION when the price trends up (price is expected to rise, as indicated by the EMA), or take a SHORT POSITIONwhen the price trends down (price is expected to fall, as indicated by the EMA).Counter-trending: After a trend, upwards or downwards, is detected the subsequent move tends to be in the opposite direction. Strategy: Take a SHORT POSITION when the price trends up (price is expected to fall, as indicated by the EMA), or take a LONG POSITIONwhen the price trends down (price is expected to rise, as indicated by the EMA).


Excess Return Index

100

300

500

700

900

1100

Oct-97 Oct-99 Oct-01 Oct-03 Oct-05 Oct-07 Oct-09

Simulated Past Performance < Mar07

Live

Feb-10

9


UBS CMCI Essence T10 – Commodity Index Outperformance Strategy

Source: Bloomberg, UBS; May 1998 to Jan 2010. For illustrative purposes only. Data contains backtested values from April 1998 to Jan 2009 for ULTAESEU Index and live thereafter. Analysis uses month end index data and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.

17.48%Max Drawdown0.91Calmar1.40Sharpe



Strategy DescriptionUBS Bloomberg CMCI Essence is a commodity index outperformance strategy. It aims to generate an above market risk-adjusted return by pitting the UBS Bloomberg Constant Maturity Commodity Index (UBS Bloomberg CMCI) investment methodology against that of the S&P GSCI Commodity Index (S&P GSCI). The UBS Bloomberg CMCI Essence Index (CMCI Essence) replicates the performance of a long position in the UBS Bloomberg SPGSCI Constant Maturity Light Energy Index and a short position in the S&P GSCI Light Energy Index. The UBS Bloomberg SPGSCI Constant Maturity Light Energy Index applies precisely the same commodity component weights as the S&P GSCI Light Energy Index, such that long/short exposure solely becomes a function of the performance of one methodology versus the other.

Taking benefit of commodity futures curve asymmetries

Strategy BackgroundThe UBS Bloomberg CMCI methodology has been specifically designed to avoid front-month commodity futures exposure, such as taken in the S&P GSCI, which over longer term horizons have shown to be inefficient and which can result in significant roll losses in the often prevailing contango situation in commodity markets. Given the enhancement of the CMCI methodology, UBS Bloomberg CMCI is expected to outperform the traditional front-month-based S&P GSCI.

CMCI Essence T10 – Target Volatility MechanismThe CMCI Essence T10 strategy is a volatility controlled version of the CMCI Essence strategy. It is designed to enhance the risk profile of CMCI Essence by containing volatility within a defined range. The T10 mechanism adjusts the exposure to the CMCI Essence based on changes in its volatility level. If the volatility increases, the allocation in CMCI Essence is reduced (de-leverage) and shifted to a cash investment, or vice versa (re-leverage) in a falling volatility environment, so that at any time the volatility of the CMCI Essence T10 remains within a band of an annualized volatility of 8-12%.


Excess Return Index

100

300

500

700

900

1100

May-98 May-00 May-02 May-04 May-06 May-08

Simulated Past Performance < Jan09

Live

Feb-10

10


Strategy Rules DERI is at a high level => high risk appetite => market too bullish

and overbought => CASH POSITION DERI is at a moderate level => moderate risk appetite => market is

bullish => LONG POSITION in the DJ Euro STOXX 50 Index DERI is at a marginal level => no risk appetite => uncertainty is likely

to prevail => CASH POSITION DERI is at a low level => risk aversion => market is bearish =>

SHORT POSITION in the DJ Euro STOXX 50 Index DERI is at an very low level => strong risk aversion => market is

likely to be overreacting => CASH POSITION

Strategy AimTo outperform the DJ Euro STOXX 50 Index over a long period of time, that is positive performance participation in a bullish market and money market or short exposure participation in an uncertain or bearish market. The strategy seeks to deliver absolute returns at low volatilities and drawdowns.

UBS RADA - Risk Adjusted Dynamic Alpha Strategy

Source: Bloomberg, UBS; Jan 1997 to Jan 2010. For illustrative purposes only. Data contains backtested values from Jan 1997 to April 2007 for ULTARAUX Index and live thereafter. Analysis uses month end index data and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.




Strategy DescriptionUBS RADA, or UBS Risk Adjusted Dynamic Alpha Strategy, is a trading strategy applied to the DJ Euro STOXX 50 Index. The strategy trades on signals that are a function of rules applied to the UBS Dynamic Equity Risk Indicator (UBS DERI). Depending on the DERI indicator reading the strategy is long the index, or short or in cash.

The Dynamic Equity Risk Indicator (DERI)DERI calculates an indicator that attempts to quantify investor sentiment and risk appetite. The indicator is calculated as a weighted average of eight distinct risk/sentiment measures. That is equity options volatility, credit spreads, swap spreads, currency volatility, cyclical versus defensive sector performance, excess performance of high beta sectors and equity market momentum (MSCI AC World relative to its 200-day moving average). Weights are determined by the measure's 7-year rolling correlation to equity markets (to attempt that higher correlated, i.e. more meaningful, measures provide ahigher contribution to the overall indicator reading).

Macro trading strategy based on the UBS Dynamic Equity Risk Indicator (DERI)


Excess Return Index

100

200

300

400

500

600

700

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Simulated Past Performance < Apr07

Live

Feb-10

11


Strategy DescriptionUBS The UBS Gold Strategy Index comprises an equally weighted basket of four individual Gold trading strategies. Each strategy relies on a macroeconomic variable with a historically significant relationship to the price of Gold (past relationship is not indicative of future relationship). Trading exposure is taken by front-month COMEX Gold futures that are rolled monthly. Individual strategies are leveraged by a factor of 1.5.

Underlying Strategies' Background & RulesReal Interest Rate: During periods of low or negative real interest rates, gold acts as a safe haven and a store of value and often rises in price.Strategy rule: LONG gold if real interest rates are low, SHORT gold if real interest rates are high.Open Interest: There exists a fixed quantity of gold in the world almost all of which is held by its owners as a tangible store of value. Therefore any fluctuation in open interest (total number of futures contracts not yet expired) is a very good indicator for moves in gold price. Rising open interest tends to precede rising gold prices and vice-versa. Strategy rule: If the ratio of COMEX gold open interest to the gold spot price deviates significantly from a calculated average ratio, the strategy goes LONG or SHORT in expectation of a mean reversion process.Indian Gold Premium: India is the world’s largest gold consumer. For this reason, large positive (negative) price premiums in Mumbai’s gold compared to COMEX gold are a good indicator of an increase (decrease) in gold price. Strategy rule: If the ratio of the Mumbai gold price to the global gold spot price deviates significantly from a calculated average ratio, the strategy goes LONG or SHORT in expectation of a mean reversion process.Gold Mining Stocks: Investors usually take advantage of expected large movements in gold by investing in gold stocks. The large movements in Gold Mining stocks tend therefore to be leading indicators for moves in gold price. Strategy rule: If the ratio of the Philadelphia Stock Exchange Gold & Silver Index deviates significantly from a calculated average ratio, the strategy goes LONG or SHORT in expectation of a mean reversion process.

UBS Gold Strategy Index (UBS GSI)GSI trades on fundamental drivers of the gold price

Source: Bloomberg, UBS; Oct 1997 to Jan 2010. For illustrative purposes only. Data contains backtested values from Oct 1997 to Sept 2009 for UBFSGSI Index and live thereafter. Analysis uses month end index data and goes back to as far as required data available. Past and simulated past performance is not an indicator of future results (Please refer to backtest data disclaimer). FOR ILLUSTRATIVE PURPOSES ONLY.

7.77%Max Drawdown1.37Calmar1.22Sharpe


Historical Risk AnalysisBased on past and simulated past performance.

Excess Return Index

100

150

200

250

300

350

400

Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09

Simulated Past Performance < Sep09

Feb-10

Live

SECTION 3

Performance Analysis

13


Underlying Strategy Indices: Performance, Jan ‘99 – March ‘10

Source: Bloomberg, UBS AG; based on daily data from Jan 1999 to March 2010; back-tested performance until Jun07 for STRAUS, Nov07 for V24, Mar07 for CommPASS, Apr07 for RADA, Jan09 for Essence, Sep09 for GSI; analysis goes back to as far as required data available.FOR ILLUSTRATIVE PURPOSES ONLY. Past and simulated past performance is not indicative of future performance (please refer to backtestdata disclaimer).

Underlying Excess Return Indices

0

100

200

300

400

500

600

700

Dec-98 Sep-99 Jun-00 Mar-01 Dec-01 Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10

STRAUS CommPASS GSI V24 RADA CMCI

STRAUS CommPASS GSI V24 RADA CMCI DSI

Excess Return (p.a) 12.46% 12.22% 10.80% 18.29% 9.12% 14.04% 12.09%

Volatility 8.84% 10.22% 9.46% 9.34% 9.86% 9.59% 3.80%

Drawdown 24.37% 14.10% 11.64% 13.90% 17.28% 13.86% 2.54%

Sharpe Ratio 1.41 1.20 1.14 1.96 0.93 1.46 3.18

Calmar Ratio 0.51 0.87 0.93 1.32 0.53 1.01 4.76

Leverage in DSI 20.00 0.60 1.00 1.20 0.60 0.90 1.00

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50

100

150

200

250

300

350

400

450

Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10

DSI EUR TR JPM Global Aggregate Bond EUR TR Index MSCI World EUR TR DJ UBS EUR TR

Index Performance, Jan ‘99 – March ‘10

The performance figures are net of fees (including rebalancing fees of 8 Bp), based on monthly data*The start of the global stock market slump when the most recent global financial crisis started to evolve.

Source: Bloomberg, UBS AG; based on daily data from Feb 1999 to March 2010; analysis goes back to as far as required data availableFOR ILLUSTRATIVE PURPOSES ONLY. Past and simulated past performance is not indicative of future performance (please refer to backtestdata disclaimer).

DSI TR Since Dec'07*Total Return (p.a) 13.64% 12.92%Volatility 3.39% 3.82%Drawdown 0.93% 0.65%Sharpe Ratio 3.63 3.17Calmar Ratio 14.59 19.93

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Index Performance, Apr ’03 – March ‘10

DSI Performance Comparison

75

100

125

150

175

200

225

250

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

Ind

ex L

evel

(n

orm

alis

ed)

UBS DSI HFRX Global

UBS DSI HFRX GlobalTotal Return (p.a) 13.37% -0.44%Volatility 3.25% 6.66%Drawdown 0.88% 29.27%Sharpe Ratio 3.85 -0.07Calmar Ratio 15.16 -0.01

Source: Bloomberg, UBS AG; based on daily data from April 2003 to March 2010; analysis goes back to as far as required data availableFOR ILLUSTRATIVE PURPOSES ONLY. Past and simulated past performance is not indicative of future performance (please refer to backtestdata disclaimer).

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Historical Backtested Monthly Returns

- Positive returns in all calendar years

- Positive returns in 86.67% of months with a longest losing run of 2 months

- Average performance in up-months of 1.31%

- Average performance in down-months of -0.45%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAnnual Return

1999 -0.77% 1.73% -0.45% 1.62% 0.72% 2.11% -0.39% -0.14% 0.81% 2.52% 2.10% 1.69% 12.11%2000 1.76% 1.57% 1.57% 1.28% 1.05% -0.93% 3.10% 1.50% 0.38% 0.74% 0.81% -0.01% 13.54%2001 3.84% 0.81% 1.67% 0.43% 1.62% 1.42% 0.74% 2.08% 3.27% 1.91% 1.53% 1.07% 22.32%2002 1.38% -0.20% -0.52% 0.85% 0.83% -0.46% 1.67% 1.84% 1.69% 0.11% 1.66% 2.20% 11.57%2003 0.04% -0.14% 0.83% 1.50% 0.83% 1.63% 0.34% 0.86% 1.00% 0.73% 1.19% 1.88% 11.21%2004 0.67% 1.90% 0.40% -0.30% 0.47% 1.66% 1.30% 0.68% 0.68% 1.62% 2.15% 0.47% 12.31%2005 1.58% 1.61% 1.58% 0.46% 1.92% 2.35% 0.74% -0.81% 2.24% 0.32% 2.01% 1.91% 17.06%2006 2.59% 1.39% 0.56% 0.28% 0.97% 1.52% 1.45% 2.04% 0.65% 1.24% -0.82% 2.37% 15.14%2007 0.53% -0.88% 1.42% 1.71% 2.17% 0.85% -0.67% 0.11% 0.69% 1.61% 0.70% 0.91% 9.49%2008 3.19% 0.06% 0.70% 1.13% 2.16% 0.37% 0.18% 0.62% 0.06% 4.02% 3.03% 2.84% 19.85%2009 0.95% 0.21% 1.26% 0.78% 0.81% 0.14% 1.64% 0.21% -0.03% 0.75% 1.39% -0.58% 7.77%2010 -0.06% 0.45% 1.47% 1.86%

Source: Bloomberg, UBS AG; month on month returns, evaluated from Jan 1999 to March 2010; analysis goes back to as far as required data availableFOR ILLUSTRATIVE PURPOSES ONLY. Past and simulated past performance is not indicative of future performance (please refer to backtestdata disclaimer).

17


Underlying Strategies: Correlation, Jan ‘99 – Feb ‘10

Source: Bloomberg, UBS AG; based on daily data from Jan 1999 to March 2010, expect HFRX Excess Return Index which is calculated for data from 31 March 2003; analysis goes back to as far as required data availableFOR ILLUSTRATIVE PURPOSES ONLY. Past and simulated past performance is not indicative of future performance (please refer to backtestdata disclaimer).

STRAUS V24Comm-PASS

RADA CMCI GSI DSIMSCI World

ER

JPM Aggregate

Bond Index

DJ-UBS ERHFRX GlobalHF ER

STRAUS 100% -2% -4% 5% 5% 0% 41% -11% 3% -1% 2%

V24 100% -2% 8% -1% -1% 42% 10% -3% 5% 17%

Comm-PASS 0.02- 100% 3% -28% 8% 36% -9% 1% 26% 5%

RADA 0.08 0.03 100% -3% -2% 48% 3% 3% 5% 25%

CMCI 0.01- 0.28- 0.03- 100% -1% 29% -10% 2% -62% -14%

GSI 0.01- 0.08 0.02- 0.01- 100% 43% 3% 1% 6% 5%

DSI 0.42 0.36 0.48 0.29 43% 100% -6% 3% -8% 15%

MSCI World ER 0.10 0.09- 0.03 0.10- 3% 0.06- 100% 1% 32% 68%

JPM Aggregate Bond Index 0.03- 0.01 0.03 0.02 0.01 100% 1% 2%

DJ-UBS ER 0.32 0.01 100% 42%

HFRX Global HF ER 100%

Correlations of underlying Strategies and Asset Classes

The correlation coefficient describes the statistical dependence of two variables (e.g. prices). The coefficient has a minimum of -100% and a maximum of +100%. A coefficient between 0% and 100% implies a positive dependence, a coefficient between 0% and -100% implies an inverse dependence, while a coefficient of 0% implies no dependence.

SECTION 4

Tracker Certificates on the UBS Diversified Strategy Index

19


Index DescriptionThe UBS Diversified Strategy EUR Total Return Index tracks the performance of the UBS Diversified Strategy Index (UBS-DSI) in EUR net of fees and earns 3-month EURIBOR – 0.25% on the index value as determined on the quarterly index reset dates. The UBS-DSI strategy return is accrued in USD and converted to EUR on quarterly index reset dates. The index reset dates are the last business days of the months March, June, September and December.

Ccy Product Issuer Valor ISIN Cash Return Mgmt Fees (p.a)

EUR UBS Open End Tracker Certificate linked to the

UBS Diversified Strategy EUR Total Return

Index

UBS AG, Jersey Branch 11318117 CH0113181173 3m EURIBOR - 0.25% 1.50% (index

performance is net

of fees)

UBS Open End Tracker Certificate linked to the UBS Diversified Strategy EUR Total Return Index

UBS-DSI Exposure

(Cash neutral)

UBS-DSI Notional

(cash invested) UBS-DSI Excess

Return

UBS-DSI Cash

Return

UBS-DSI Total Return Index

The UBS Open End Tracker Certificates track the performance of the UBS Diversified Strategy Index (UBS-DSI)

Issued Products

20


UBS Open End Tracker Certificate linked to the UBS DSI EUR TotalReturn Index

Disclosed algorithm methodology

♦ Underlying strategy algorithms are disclosed and explained

Easily trackable

♦ Daily product prices published in Bloomberg/Reuters/Quotes/KeyInvest

♦ Daily liquidity for the Index and the Underlying Indices under normal market conditions

Risks

♦ No capital protection

♦ Failure of underlying strategies due to inappropriate algorithmic trade signals

♦ Strategy return in USD converted to EUR on quarterly basis only (no EUR/USD currency hedge)

♦ Issuer Risk

21


Valor / ISIN: 11318117 / CH0113181173

Where do I buy it? Please contact your client advisor

Minimum investment amount: 10 Certificates

Termsheets, Product Description and Presentation (available on UBS Quotes/UBS KeyInvest)

UBS Open End Tracker Certificate linked to the UBS DSI EUR TotalReturn Index

General Information

Publications

UBS-DSI EUR TR Index: ULTADSIE Index

Underlying Strategies: STRAUS (Live since July 2007): UBFSTRSU Index

V24 (Live since December 2007): UBCIV24 Index

CommPASS (Live since April 2007): UCCP1A Index

RADA (Live since May 2007): ULTARAUX Index

CMCI Essence T10 (Live since February 2009): ULTAESEU Index

GSI (Live since October 2009) UBFSFSI Index

UBS KeyInvest: www.ubs.com/keyinvest (not available to UK residents)

UBS Quotes: www.ubs.com/quotes

Bloomberg Tickers / Price feeds

Key information at a glance

SECTION 4

Suitability Information

23


Suitability InformationAnyone intending to invest in any sort of investment vehicle that is linked to an index that tracks the UBS Diversified Strategy Index is expected to be an experienced investor and should be familiar with structured products and commodity, currency, interest rates and equity markets as well as the underlying strategies, and believe it is possible to generate returns from a portfolio of systematic algorithm-based strategies designed to capture trends or risk premia across financial markets.

SECTION 5

Glossary, Risk Factors & Risk Information

25


Glossary

• AUD = Australian dollar

• Backtesting: Backtesting is a method to test the performance of a strategy against historical data. It enables to verify the robustness of the strategy under past market conditions. Please note that past performance is no guarantee of future performance.

• Beta:The price sensitivity of a financial asset to changes in another financial asset or benchmark index.

• BRL = Brazilian real

• CAD = Canadian dollar

• Calmar Ratio:A measure of risk-adjusted return. It is the ratio of annualised excess return (return over the risk-free rate of return) to maximumdrawdown (highest ever observed percentage price decline of the underlying).

• Carry Trade:A strategy that borrows in a low interest country and borrows in a high interest country to take advantage of the interest rate differential. This can be replicated synthetically by going short low interest currency forwards and simultaneously going long high interest currency fowards (methodology of V24).

• CHF = Swiss franc

• Contango:A situation where futures with longer time-to-expiry trade at a higher price than those with shorter time-to-expiry. The opposite is called backwardation.

• Correlation:The correlation coefficient describes the statistical dependence of two variables (e.g. prices). The coefficient has a minimum of -100% and a maximum of +100%. A coefficient between 0% and 100% implies a positive dependence, a coefficient between 0% and -100% implies an inverse dependence, while a coefficient of 0% implies no dependence.

26


Glossary (continued)

• Credit Spread:The yield difference of bond to a risk-free benchmark of the same maturity (e.g. government bond).

• CZK = Czech koruna

• DKK = Danish krone

• EUR = Euro

• Excess Return Index:Index reflecting the performance of the underlying strategy.

• Exponential Moving Average:A moving average is an average of prices observed over a constant period of time. For instance, a simple 200-day moving average calculates the arithmetic average of daily prices observed over the past 200 days. A moving average smoothes out short-term or intra-day fluctuations and makes it easier to identify longer-term trends. An exponential moving average (EMA) places greater weight on data that has occurred very recently.

• Front-month future:The future with shortest remaining time to expiry. Typically, the front-month future of any underlying is the most liquid future of all future maturities traded.

• GBP = British pound sterling

• G10:The G10 group of currencies represent the ten most liquid currencies globally. It comprises the U.S. Dollar (USD), the Canadian Dollar (CAD), the Swiss Franc (CHF), the Japanese Yen (JPY), the Australian Dollar (AUD), the New Zealand Dollar (NZD), the British Pound (GBP), the Euro (EUR), the Swedish Krona (SEK) and the Norwegian Krone (NOK).

• HUF = Hungarian forint

• IDR = Indonesian rupiah

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• INR = Indian rupee

• ISK = Iceland krona

• JPY = Japanese yen

• KRW = South Korean won

• Leverage/De-leverage:Leverage magnifies returns and risk (e.g. volatility). It is a measure to boost expected returns, though risk-adjusted returns do not change. De-leverage reduces returns and risk.

• Mean Reversion Process:By virtue of fundamental resaons some prices or ratios are expected to revert to a mean that has been observed over longer period of time. A significant deviation from the mean implies a reversion. The reversion is called a mean reversion process.

• Momentum:In finance, momentum is the empirically observed tendency for rising asset prices to raise further (trending).

• MXN = Mexican peso

• NOK = Norwegian krone

• NZD = New Zealand dollar

• Open interest:Total number of futures or options outstanding for any given contract.

• PHP = Philippine peso

• PLN = Polish zloty

• Real interest rate:The real interest rate is the interest rate earned after taking into account inflation: real interest rate (approximative) = nominal interest rate – inflation rate.

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• Risk premium (pl. premia):The risk premium is the expected rate of return above the risk-free rate – i.e. it is the rate expected to be earned for assuming risk to lose money by investing in a financial asset carrying the respective premium.

• SEK = Swedish krona

• SGD = Singapore dollar

• Sharpe Ratio:A measure of risk-adjusted return. It is the ratio of annualised excess return (return over the risk-free rate of return) to annualisedvolatility.

• Swap Rate:The borrowing rate between financial institutions for any given term.

• Swap Spread:The difference between the swap rate and the yield of a risk-free benchmark of the same maturity (e.g. government bond).

• Total Return Index:Excess Return Index plus Cash Return. Cash return is the return earned on the value of the index.

• Trading Algorithm:A trading algorithm is a rules-based trading system. Trading occurs purely upon signals created by the algorithm.

• Trend:A series of prices that have been observed to rise steadily.

• TRY = Turkish lira

• USD = U.S. dollar

• ZAR = South African rand

For any further information please refer to www.ubs.com/glossary or your Client Advisor.

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Risk Factors relating to the product

Investors should be aware of the fact that the Product does not offer any guarantee of capital protection. Therefore, although a Stop-Loss Level has been implemented, unfavourable developments in the prices or markets of any of the Underlying Strategies could result in a total loss of the invested capital.

The calculation of the Redemption Amount is complex and depends on the performance of the Underlying Strategies notionally comprised in the Underlying during the term of the Product. In this context, Investors should be aware of the fact that level of the Underlying Strategies comprised in the Underlying is or may be highly volatile. In particular, the level of the Underlying Strategies may be negatively affected.

The Strategy Manager has various broad discretionary powers in connection with the composition of the Underlying and the selection and change of Underlying Strategies. The exercise of such discretionary powers by the Strategy Manager may lead to negative results and thereby may further enhance the risk of a total loss of the invested capital.

The Product does not have a coupon. Therefore Investors will not receive an interest payment during the term of the Product.

Conflicts of interest

UBS AG in its role as Issuer, Lead Manager, Calculation Agent, Paying Agent as well as the Strategy Manager and/or their respective affiliates are subject to various potential conflicts of interest in respect of the Product, each of which could have an adverse effect on the value of the Product and on the Redemption Amount to the Investor. In particular, (i) UBS AG as Calculation Agent has various broad discretionary powers in connection with certain determinations and valuations in respect of the Product and the calculation of the Redemption Amount; and (ii) the Strategy Manager has various broad discretionary powers in connection with the composition, the selection and change of Underlying Strategies .

Some figures may refer to the past or simulated past performance and past performance is not a reliable indicator of future results. Some figures may be forecasts only and forecasts are not a reliable indicator of future performance. Some charts and/or performance figures may not be based on complete 12-month periods which may reduce their comparability and significance. If the currency of a financial product or financial service is different from the currency of your home country, the return may increase or decrease as a result of currency fluctuations. Fees may not be included and these will reduce future performance accordingly.

Please be reminded that all investments carry a certain degree of risk. Your attention is hereby drawn to such risk (which can be substantial).

Some investments may not be readily realisable 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. Some investments may be subject to sudden and large falls in value and on realisation you may receive back less than you invested. You should consult your UBS client advisor on the nature of such investment and carefully consider whether such investment is appropriate for you.

Tax treatment depends on the individual circumstances and may be subject to change in the future. UBS does not provide legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific client's circumstances and needs. Clients should obtain independent tax advice on the suitability of products, assets or instruments before investing and as they may consider appropriate.

At any time UBS and other companies in the UBS group (or employees thereof) may have a long or short position, or deal as principal or agent, in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer.

Risk Information

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Further InformationThis material is intended for information and marketing purposes only. It is not to be regarded as investment research, a sales prospectus, an offer or solicitation of an offer to enter in any investment activity. Please note that UBS retains the right to change the range of services, the products and the prices at any time without prior notice and that all information and opinions indicated are subject to change. Certain services and products are subject to legal provisions and cannot therefore be offered world-wide on an unrestricted basis. Asset classes, asset allocation and investment instruments are indicative only.

This material is not intended for distribution into the US and / or to US persons or in jurisdictions where its distribution by us would be restricted. Source of all information is UBS unless otherwise stated. UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.

This product is issued under the Structured Note Programme, ap-proved by BaFin on 30 November 2009, as supplemented by a Supplement No.1, dated 7 April 2010.

CH: Any product linked to the UBS Diversified Strategy Index does not represent a participation in any of the collective investment schemes pursuant to Art. 7 et seq. of the Swiss Federal Act on Collective Investment Schemes (CISA) and thus is not subject to the authorisation or supervision of the Swiss Financial Market Supervisory Authority (FINMA). Therefore, investors in this product are not eligible for the specific investor protection under the CISA.

UK: Where services are provided from outside the UK, they will not be covered by the UK Regulatory Regime or Investor Compensation Scheme.

Should you have any questions, please contact your UBS client advisor.

Austria: In Austria this document is communicated by UBS (Luxembourg) S.A., Austrian Branch whose registered office is at Wächtergasse 1, 1010 Wien

Belgium: In Belgium, this document is communicated by UBS Belgium SA/NV whose registered office is at Avenue de Tervueren, 300 at 1150 Brussels.

Germany: In Germany this information is communicated by UBS Deutschland AG. The Prospectus can be received from UBS Deutschland AG, Stephanstraße14-16, 60313 Frankfurt/Main upon request.

Luxembourg: In Luxembourg this document is communicated by UBS (Luxembourg) S.A. whose registered office is at 33a, Avenue J.F. Kennedy, L-1855 Luxembourg, R.C. No B 11142

Spain: UBS Bank, S.A., Calle María De Molina, 4, E-28006 Madrid; CNMV registration number: 0226.

UK: This document is issued by UBS Wealth Management, a division of UBS AG which is authorised and regulated by the Financial Services Au-thority and a member of the London Stock Exchange. It has been prepared solely for information purposes and is based upon opinions, which reflect our current views but which may be liable to change, and upon sources believed to be reliable. UBS AG is registered as a branch in England and Wales Branch No. BR004507 (A public company limited by shares, incorporated in Switzerland whose registered offices are at Aeschenvor-stadt 1, CH-4051, Basel and Bahnhofstrasse 45, CH-8001 Zurich). Registered Address: 1 Finsbury Avenue, London EC2M 2PP.

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