constant maturity commodity index a new perspective on...

Constant Maturity Commodity Index A new perspective on commodity investments

For marketing purposes onlyUBS KeyInvestUBS Bloomberg CMCI

A smart way to ensure liquid, cost-efficient access to commodities while adding real assets to your portfolio as a potential hedge against inflation. The sophisticated Constant Maturity Commodity Index method allows you to track commodity prices closely regardless of the futures curve. Our success speaks for itself: UBS ETCs on UBS Bloomberg CMCI indices are the most-traded commodity products on the Scoach Switzerland derivatives exchange.*

* Approximately one third of all investments in commodity products on the Scoach Switzerland derivatives exchange. (Source: Scoach Switzerland, UBS AG)

Commodity investments can exhibit robust performance relative to other types of investment. The Financial Times found, for example, that daily coffee consumption was barely affected by the recession.

01. Commodities as a standalone asset class 0602. UBS Bloomberg CMCI – the first commodity index for the entire futures curve 1203. The UBS Bloomberg CMCI Index Universe 1404. The UBS Bloomberg CMCI Composite – the commodity world in one index 1805. UBS Bloomberg CMCI Sector indices 20 06. UBS Bloomberg CMCI Active – finger permanently on the pulse of the commodity markets 3207. Overview: UBS ETCs on UBS Bloomberg CMCI 3408. Risks and opportunities of UBS ETCs 3509. Glossary and further information 36

Table of Contents

This brochure is designed to draw your attention to an opportunity for investing in commodities.

Say the word ‘commodities’ and most people will think of crude oil. And that prices are always going up – annoying, if you happen to be at a filling station. But the world of commodities is far more varied than that and includes the entire energy market, precious metals, agriculture and even livestock. This variety provides a good opportunity to diversify an already well-assorted portfolio. Adding a mix of commodities can have a positive effect on the overall portfolio by reducing price fluctuation (volatility) while at the same time enhancing performance.

Our aim here is to present this in the clearest possible terms. At the end of the brochure you will also find a short glossary of commodity investment terms that should answer some of your questions.

You can find out more about the UBS Bloomberg CMCI here:www.ubs.com/cmci

Introduction

UBS Bloomberg CMCI at a glance

– Comprehensive tracking of commodity markets by investing across the entire futures curve and by tracking 27 commodities.

– Minimal tracking errors for underlying commodity prices.

– Minimising negative roll returns creates an opportunity for higher overall returns than with traditional indices.

– Diversifying across the entire futures curve leads to lower volatility compared with traditional indices.

– Higher risk/return ratio (Sharpe ratio): relative to traditional indices, opportunities for returns are higher and the risk (volatility) is lower.

– Rolling on a daily trading basis allows ‘constant’ maturities.

Commodities are a standalone asset class and can enhance the value of your securities portfolio. The reason for this is that commodities generally exhibit moderate correlation with other asset classes such as equities, bonds and currencies, making them ideal for diversifying a broad-based portfolio with a positive effect on the performance of your overall portfolio.

Commodities profile The UBS Bloomberg CMCI (Constant Maturity Commodity Index) covers the energy, precious metals, industrial metals, agriculture and livestock sectors. Although each of these has its own characteristic profile, commodities are generally seen as being a good hedge against inflation – a major reason for investing in this asset class. This is because, as real assets, commodities tend to increase in value when consumer prices rise.

Most commodities are therefore sensitive to changes in the business cycle. If the global economy is booming, demand for commodities such as crude oil, natural gas and industrial metals is particularly high. And in a positive economic environment the overall prosperity of the world population also rises, leading to a rise in demand so that needs can be better served. For example, the desire for a healthy, balanced diet increases along with the desire for a high-quality supply of agricultural products and meat.

Precious metals occupy an exceptional position in the commodities world. Gold in particular is seen as a crisis currency that is accepted around the world. Although this shiny yellow metal does not bear interest, it is valued at times of inflation and other crises. Particularly when there are fundamental doubts over the future value of global currencies such as the US dollar or the euro, gold is seen as a ‘safe haven’ in times of uncertainty.

Commodities as a standalone asset class01

Long-term outlookInvesting in commodities can be viewed as strategic investment. A long-term argument in favour of commodities is the fact that resources are naturally limited and thus finite. Agricultural commodities play a special role here. Although soil conditions do restrict crop yields, they can also be influenced to a large extent by other factors such as weather conditions, developments in agriculture (e.g. improvements in seeds or intensive farming methods) and political subsidies. In a market economy these restrictions in supply – and the connected expectations of a steady decline – lead to rising prices even if demand remains flat. In fact, the growth in the global population suggests that demand for commodities will rise over the long term to secure provision. One example of the impact this can have is China’s growing economy, which has developed a huge appetite for commodities to fuel its growth.

Of course this is countered by the development of new technologies which are used in the commodities sector to increase efficiency and productivity. For producers this leads to falling costs, and a tendency for prices to fall for end consumers. But the fact remains that commodities are limited, the global population is growing and the demand for commodities is increasing.

Commodities as a standalone asset class

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According to calculations by the US industry association Cotton Catchment Communities CRC, global consumption of cotton has risen since 1940 by an average of approximately two per cent annually.

Simply transparent – UBS ETCs (Exchange Traded Commodities) on the UBS Bloomberg CMCI Index FamilyUBS Exchange Traded Commodities are transparent investment vehicles that allow you to invest in a cost-efficient manner in a particular index. All UBS ETCs on a UBS Bloomberg CMCI index are tradable via the Scoach Switzerland derivatives exchange. UBS acts as market maker and attempts to ensure liquid trading under normal market conditions during trading hours.

At certain times there may be slight differences in performance between UBS ETCs and the underlying index (tracking error) as a result of the fee charged, which is needed to defray the costs of tracking the UBS Bloomberg CMCI. This fee covers in full the costs of the transactions UBS needs to complete in the background to track the index (for example rolling transactions). UBS ETCs are bearer bonds issued by UBS, so the issuer risk should be taken into consideration.

Negative roll returns: contango ‘Contango’ is the term for an upward sloping futures curve. In this constellation, futures prices for later delivery months are higher than spot prices. It is therefore more expensive to switch (roll) to the next shortest-dated contract, so that the number of futures contracts decreases after rolling. This negative roll effect (roll loss) leads to a decline in the participation rate for the relevant commodity index.

Roll gains: backwardation adds momentum‘Backwardation’ is the term used to describe a downward sloping futures curve. In this case, futures prices for later delivery months are lower than spot prices. It is therefore less expensive to switch (roll) to the next shortest-dated contract, so that the number of futures contracts held increases after the roll procedure. This positive roll effect (roll gain) leads to an increase in the participation rate of the relevant commodity index.

How do I go about investing in commodities?One very straightforward and effective way of investing in commodities is by using a commodities index such as the UBS Bloomberg CMCI, for example in the form of UBS ETCs (Exchange Traded Commodities). UBS ETCs are exchange traded securities or open-ended bearer bonds which can be added to a portfolio in a simple and cost-efficient manner. This provides an enormous advantage over purchasing the physical commodity: investors are not burdened with the time, effort and cost involved in storing the commodity and other logistical factors.

Example of contangoUpward sloping futures curve: negative roll returns

Maturity (Time to expiration)

3 Months 6 Months 1 Year 2 Years 3 Years

Pric

e pe

r fu

ture

s co

ntra

ct

Holding period: 9

Months

Buy: USD 100

Sell: USD 40

Roll loss: USD 60

Maturity (Time to expiration)

Pric

e pe

r fu

ture

s co

ntra

ct

Example of backwardationDownward sloping futures curve: roll gains

3 Months 6 Months

Holding period: 9 MonthsBuy: USD 50

Roll gain: USD 30

Sell: USD 80

1 Year 2 Years 3 Years

Example of contangoUpward sloping futures curve: negative roll returns

Example of backwardationDownward sloping futures curve: roll gains

According to fi gures from the US Energy Information Administration, oil production by the largest crude oil producing countries rose between 1980 and 2010 from 59.6 to 74.0 million barrels a day – and continues to rise.

What is the roll effect and where does it come from?The UBS Bloomberg CMCI Index Family relies, like other commodity indices, on futures contracts (forward transactions) to track commodity prices. Trading via the futures market postpones the date of exercise of the contract (to a point in the future). This normally gives the commodity trader enough time to avoid physical delivery (and receipt). To do this he just needs to ‘rebalance’ his position before the futures contract expires. Rebalancing may involve, for example, reselling purchased contracts. This allows the trader to participate in the performance of the underlying commodity up to maturity without actually physically handling it.

For long-term commodity investment using futures contracts, therefore, existing contracts must be swapped for new ones before maturity to avoid physical delivery. This swapping, commonly referred to as ‘rolling’ in the industry, makes it possible to invest in commodities without fi xed maturities. Regardless of current performance in the commodity market, futures trading still affects the value of an investment, since contracts with differing maturities do not generally cost the same. The difference between the selling price of the expiring futures contract and the purchase price of a future contract with a longer maturity affects the performance of a commodity index. This effect is also referred to as ‘roll effect’, ‘roll returns’ or ‘roll yield’.

Impact of roll effect on the commodity indexThe structure of the futures curve determines whether roll effects are positive or negative, and thus whether a ‘roll gain’ or ‘roll loss’ occurs. The roll effect ultimately affects the participation rate of the commodity index, since the number of contracts that can be purchased using gains from each sale can differ for each roll procedure. The index tracks the participation rate, which increases with roll gains and falls with roll losses, meaning that the accuracy with which it mirrors the performance of underlying commodity prices rises or falls following each roll procedure.

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Causes of upward or downward sloping futures curvesThere can be a variety of reasons for differences in the shapes of the futures curve. Interest, warehousing and insurance costs (known as ‘cost of carry’) that would be incurred if the derivative were physically acquired may mean for example that rates quoted for futures contracts with longer maturities tend to be higher than those of shorter maturity contracts (upward-sloping futures curve). On the other hand, under certain circumstances, a commodity’s immediate availability (for example, due to short-term supply bottlenecks) may be valued more highly than later delivery (known as ‘convenience yield’), which leads to a downward-sloping futures curve.

Prevailing market opinion can also, of course, exert great infl uence. According to one not uncontroversial theory, for example, a contango situation (backwardation situation) may arise when a majority of investors expect commodity prices to rise (fall) in future and adopt a corresponding position on the futures market in anticipation.

Another potential cause is where there are fundamental differences in supply and demand streams for the various contract maturities. These can be due partly to differences in the needs of the real economy which can also be subject to seasonal fl uctuations. For example, spikes in energy demand during heating periods may lead to generally higher prices of crude oil during the winter months in the northern hemisphere. Commodities can also be subject to seasonal supply-side fl uctuations, as the seasonal harvest cycle of agricultural products shows.

This all means that the performance of traditional commodity indices can sometimes be unsatisfactory. Since commodities are often in a contango situation, traditional commodity indices may, over the long term, build up negative tracking errors in comparison with the tracked index.

According to estimates by the International Energy Agency (IEA) global demand for natural gas will increase by 2.7 per cent per year over the next fi ve years.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

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Share of UBS ETCs on UBS Bloomberg CMCI indices in trading on the Swiss Stock Exchange

In commodity indices invested assets (in billion USD)

As of 31.07.2012. Source: U.S. Commodity Futures Trading Commission, Index Investment Data (www.cftc.gov)

Volume increase in index-based commodity investments

Impact of passive commodity exposures on futures marketsDespite shortcomings, the arrival of commodity indices sparked a minor revolution in commodity markets. The development of fi nancial products such as UBS ETCs considerably simplifi ed access to commodity markets. They allowed an increasing number of private investors to gain exposure to the commodity markets. Alongside ‘active’ investors who use the futures market to hedge prices of real assets, an increasing number of 'passive' investors emerged who use the commodity futures market solely as an investment vehicle. This trend is demonstrated by the volumes invested using commodity indices. According to fi gures from the US CFTC (Commodity Futures Trading Commission) these rose by more than ten times between the end of 2002 and the end of 2011, from around 15 billion US dollars to around 190 billion.

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Ready for transport: copper, here in the form of industry-standard copper plates, is valued both in the electrical engineering and the construction sector for its excellent electrical and thermal conductivity. According to fi gures from the German Copper Institute (Deutsches Kupferinstitut) global mining production almost doubled between 1990 and 2010, with an almost fourfold increase in price.

UBS Bloomberg CMCI – the first commodity index for the entire futures curve

The UBS Bloomberg CMCI Index Family was developed by UBS in cooperation with Bloomberg to track real performance of commodity prices via futures contracts as closely as possible. As the first commodities index, the UBS Bloomberg CMCI Index Family uses up to five constant maturities while maintaining broad-based diversification across 27 commodities futures contracts. The index thus reflects the complete pricing picture and all market opinions, while at the same time reducing negative roll returns. Daily rolling of futures contracts ensures that the average time-to-maturity of the futures contracts tracked in the UBS Bloomberg CMCI index is kept permanently constant, unlike most traditional indices that only roll once a month.

Our success supports the UBS Bloomberg CMCI approach: around a third of all Swiss francs converted into commodities on the Scoach Switzerland exchange between August 2011 and July 2012 were traded in UBS ETCs on a UBS Bloomberg CMCI. (Source: Scoach Switzerland, UBS AG)

02

Maturity (time to expiration)

Pric

e 1. buy high

2. hold

3. sell low

4. reinvest


Pric

e Continuous rolling process

Invested over the entire futures curve

Traditional commodity indices

UBS Bloomberg CMCI


Pric

e 1. buy high

2. hold

3. sell low

4. reinvest


Pric

e Continuous rolling process

Invested over the entire futures curve

Traditional commodity indices

UBS Bloomberg CMCI

UBS Bloomberg CMCI – the first commodity index for the entire futures curve

Both graphs use the same example futures curve in which contract prices are shown at various maturities. While the hypothetical futures curve shows an upward trend at the shorter end (contango situation), a downward trend is observed at the long end (backwardation situation).Traditional indices (left) are generally invested exclusively in short-term futures contracts. They therefore only consider a small proportion of the commodity market. In a contango situation, for example at the short end of the futures curve, this limited method which excludes futures contracts with longer maturities will inevitably lead to negative roll returns.

By contrast, the UBS Bloomberg CMCI index (right) exhibits a substantially broader diversification across the available maturities. This allows the commodity market to be tracked more comprehensively. The effects of any negative roll returns at the short end of the futures curve can be reduced (and sometimes even moved into positive territory) by switching to other maturities. We can generalise from this to say that using all futures maturities reduces the direct impact of the short end of the futures curve.

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UBS Bloomberg CMCI at a glance

– Comprehensive tracking of the commodity markets by investing in the entire futures curve and tracking of 27 commodities.

– Minimal tracking errors for underlying commodity prices.

– Minimising negative roll returns creates the opportunity for higher overall returns than with traditional indices.

– Diversifying across the entire futures curve leads to lower volatility rates compared with traditional indices.

– Higher profit/risk ratio (Sharpe ratio): Relative to traditional indices, opportunities for returns are higher and the risk (volatility) is lower.

– Daily rolling on stock exchange allows ‘constant’ maturities.

Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 120%

20%

40%

60%

80%

100%

82%79% 73% 75% 73%

60% 62%70%

41%55%

61%51%

18% 21% 27% 25% 27%40% 38% 30%

59%45% 39% 49%

Share of UBS ETCs on UBS Bloomberg CMCI indices in trading on the Swiss Stock Exchange

UBS Bloomberg CMCI SIX Scoach Switzerland

The average share of UBS ETCs on a UBS Bloomberg CMCI index in trading of all commodity products traded on Scoach Switzerland between August2011 and July 2012 was approximately 35%. (Source: Scoach Switzerland, UBS AG)

Share of UBS ETCs on UBS Bloomberg CMCI indices of traded commodity products on Scoach Switzerland

Traditional commodity indices UBS Bloomberg CMCI

The UBS Bloomberg CMCI Index Family covers the most economically significant exchange traded commodities. The UBS Bloomberg CMCI Index Universe permits investments in four dimensions:

1. Targeted investment in a particular individual commodity (for example, coffee via the UBS Bloomberg CMCI Coffee TR Index).

2. Investment in a particular commodity sector (for example, the energy sector via the UBS Bloomberg CMCI Energy TR Index).

3. Broadly diversified commodity investment in the composite market that comprises several commodity sectors (via the UBS Bloomberg CMCI Composite TR Index).

4. The UBS Bloomberg CMCI Active Index goes a step further and allows fine-tuning of the weighting and maturity allocation by commodities experts at UBS IB Investment Research (see the section ‘UBS Bloomberg CMCI Active – finger permanently on the pulse of the commodity markets).

The UBS Bloomberg CMCI Index Universe03

The UBS Bloomberg CMCI Index Universe

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Maturity diversification of UBS Bloomberg CMCI indices

Sector Commodity 3 Months 6 Months 1 Year 2 Years 3 Years

Energy WTI Crude Oil

Brent Crude Oil

Heating Oil

Gasoil

Gasoline

Natural Gas

Industrial Metals Copper

Zinc

Aluminium

Nickel

Lead

Precious Metals Gold

Silver

Platinum

Agriculture Wheat

Milling Wheat

Corn

Soybeans

Soybean Meal

Soybean Oil

Sugar

Cocoa

Coffee

Cotton

Rough Rice

Livestock Live Cattle

Lean Hogs

The table shows the maturities in which the UBS Bloomberg CMCI indices are invested for each commodity. Last updated on: 31.07.2012. (Source: UBS Bloomberg CMCI Advisory Committee, UBS AG)

Entire Commodity Sector

UBS Bloomberg CMCI Composite Index

Industry Focus Energy Industrial Metals Precious Metals Agriculture Livestock

Single Commodity Focus

WTI Crude oil Copper Gold Wheat Live Cattle

Brent Crude oil Zinc Silver Milling Wheat Lean Hogs

Heating oil Aluminium Platinum Corn

Gasoil Nickel Soybeans

Gasoline Lead Soybean Meal

Natural Gas Soybean oil

Sugar

Cocoa

Coffee

Cotton

Rough Rice

Strategy UBS Bloomberg CMCI Active Index

The UBS Bloomberg CMCI Composite Index represents the entire commodity market. The weighting of the commodity sectors and commodity components it contains is therefore of especial importance. (With a UBS Bloomberg CMCI Sector Index, by contrast, it is only the weighting of the commodity components that is brought to bear). The multi-staged weighting process places value both on the economic significance of the commodities under consideration and on high market liquidity. This is designed to track the economic significance of the individual components in the index as closely as possible and to ensure that the individual components of the index are actually tradable on a daily basis at the lowest possible transaction costs.

Weighting procedure for UBS Bloomberg CMCI Index Family

Stage 1: Sector weighting Determining the sector weighting is the first stage in the weighting process. The UBS Bloomberg CMCI Composite Index covers all five sectors: energy, industrial metals, precious metals, agriculture and livestock. At sector level a higher weighting is assigned to economic significance (two thirds) than liquidity (one third).

Economic significance of the sector: the sector’s economic significance is calculated by adding the relevant commodity sector’s share in the consumer price index (CPI) (two thirds) and in the producer price index (PPI) (one third) and multiplying it by the sector’s share of the gross domestic product (GDP) of the USA, EU and Japan.

Sector liquidity: sector liquidity is determined based on two futures market indicators reported on the relevant exchanges: open interest and market turnover for the relevant commodity sector, which are each given a 50% weighting. Open interest represents the nominal market value of the open/outstanding futures contracts in the relevant sector. Market turnover reflects the accumulated nominal volumes of futures contracts traded.

Stage 2: Component weightingThe second stage of the process involves calculating the share of the individual commodities within their allocated sector through a process of component weighting. This determines for example the share of WTI crude futures in the energy sector. Economic significance and market liquidity are also considered at the component level. However, at this point a higher weighting is assigned to the component liquidity for each commodity (two thirds) than to the economic significance of the sector (one third).

Economic significance of components: the component’s economic significance is determined by its share in the dollar value of global consumption for each individual commodity within the relevant sector. The greater the relative consumption of a commodity, the greater its share tends to be in the relevant sector.

Component liquidity: as at sector level, component liquidity is again determined by two parameters on the futures market: component liquidity is determined by the respective commodity’s share in the sector’s open interest (half) and the sector’s market turnover (half) (see explanation above).

Component liquidity

Sector liquidity

Sector open interest50%

Sector turnover50%

Component’s share in the sector’s open interest50%

Component’s share in the sector’s turnover50%

2/3

1/32/3

1/3

Economic significance of components

Share of components in the dollar value of global consumption

Sector’s economic significance

USA (CPI (2/3) + PPI (1/3)) x GDP Weight

EU(CPI (2/3) + PPI (1/3)) x GDP Weight

Japan (CPI (2/3) + PPI (1/3)) x GDP Weight

Stage 1: Sector weighting

Stage 2: Component weighting

UBS Bloomberg CMCI index compared with traditional commodity indices

UBS Bloomberg CMCI

S&P GSCI Commodity Index

Dow Jones-UBS Commodity Index

Rogers International Commodity Index

JPMorgan Commodity Curve Index

Inception Date January 2007 May 1991 July 1998 July 1998 November 2007

Rebalancing Monthly Yearly Yearly Monthly Yearly

Roll Schedule Daily 5th – 9th business day of each month

4th day of each month

Last 2 and 1st business days of each month

1st – 10th business day of each month

Futures-curve positioning

Constant maturity (3 months – 3 years)

Front month Front month Front month Out to 3 years. Holds contracts along futures-curve in proportion to open interest

Diversification Broad Energy focus Broad Broad Broad

Selection criteria – Sector: 2/3 economic weighting & 1/3 liquidity

– Components: 1/3 Consumption & 2/3 liquidity

Weighting by world production in relation to current prices

Weighting by production, liquidity & diversification (Minimum & maximum portion per component and sector)

RICI committee decides without given rules

Open interest & market size in USD

UBS Bloomberg CMCI index rolls daily and provides broad diversification across the entire futures curve.(Source: Index Manuals & Websites, WM CIO Research)

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Regular reviews ensure that weightings are allocated correctly over the long term: weightings are rebalanced monthly according to the target weights (over the last three business days of the month). The target weights for economic significance are revised annually (in July). Liquidity target weights are revised semi-annually by an Index Committee consisting of numerous commodities experts from UBS and Bloomberg (in January and July). At sector level, each commodity component is included in the calculations for the target weights with weightings ranging from a maximum of 20 per cent to a minimum of 0.6 per cent.

Last updated on: 31.07.2012. (Source: CMCI Advisory Committee, UBS AG)

This index is the most broadly diversified UBS Bloomberg CMCI index and covers the entire commodities market. The UBS Bloomberg CMCI Composite TR Index contains commodities in five sectors: energy, industrial metals, precious metals, agriculture and livestock.

The UBS Bloomberg CMCI Composite TR Index thus presents itself as a market-wide commodity index offering investors ‘double diversification’ – the index covers not just a wide variety of commodities but also all liquid contract maturities.

The UBS Bloomberg CMCI Composite – the commodity world in one index

04

Three UBS ETCs for three currencies You can invest in the UBS Bloomberg CMCI Index Universe in US dollars, Swiss francs or euros. This is because UBS offers three UBS ETCs (Exchange Traded Commodities) for most indices from the UBS Bloomberg CMCI family. For exotic commodities such as soybean meal and soybean oil, only one UBS ETC is offered (in USD). All three UBS ETCs track the performance of the relevant index 1:1 without fixed maturities subject to the respective management fee.

The three UBS ETCs differ primarily in terms of the trading currency (US dollars, Swiss francs and euros). Since US dollars are the usual primary currency for commodities, the Swiss franc and euro value of the relevant UBS ETCs are hedged against the US dollar (currency hedge) on a daily closing rate basis. This practice means that a currency exchange risk to the US dollar can accumulate ‘intraday’ – between two hedge transactions – for any amounts not yet hedged.

CMCI Composite TR S&P GSCI TR DJ-UBS TR Reuters / Jefferies CRB TR RICI TR

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01.07 07.07 01.08 07.08 01.09 07.09 01.10 07.10 01.11 07.11 01.12 07.12

UBS Bloomberg CMCI Composite TR Index im Vergleich

CMCI Composite TR S&P GSCI TR DJ-UBS TR Reuters / Jefferies CRB TR RICI TR

Performance p.a. 4,49% -2.09% -1.32% 1.17% 2.01%

Volatility p.a. 20.93% 28.12% 21.10% 21.97% 24.12%

Sharpe Ratio 0.21 -0.07 -0.06 0.05 0.08

Total performance 27.32% -10.95% -7.06% 6.60% 11.55%

Monitoring period 30.01.2007 – 31.07.2012. Please note: past performance is not an indication of future performance. (Source: Bloomberg, UBS AG)

The UBS Bloomberg CMCI Composite – the commodity world in one index

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Higher total returns with lower volatilityThe concept seems to be working. Since its launch in January 2007 the UBS Bloomberg CMCI Composite TR Index has performed relatively well. In comparison with traditional commodity indices such as the S&P GSCI TR Index, the UBS Bloomberg CMCI Composite TR Index achieved excess returns of approximately 38 per cent in the period between 30.01.2007

and 31.07.2012. Over the same period, volatility was lower than with traditional indices such as the S&P GSCI TR Index. Please note that past performance is not a reliable guide to future performance. UBS ETCs on the UBS Bloomberg CMCI Composite TR Index

UBS ETCs auf den UBS Bloomberg CMCI Composite TR Index

USD CHF currency hedged EUR currency hedged

Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Commodity Sector CMCI Composite TR Index TCMCI CH0031794263 0.38% CCMCI CH0034808169 0.81% ECMCI CH0034808136 0.50%

You can find more information on the products presented, including opportunities and risks, in the glossary and the risk warning at the end of this document as well as in the term sheets and factsheets that can be inspected on the internet using the Valor or ISIN number: www.ubs.com/keyinvest

Balanced sector weighting of the market-wide UBS Bloomberg CMCI Composite TR Index compared

Commodity futures contract Weight Energy 36.4% Agriculture 28.4% Industrial Metals 24.9% Precious Metals 6.3% Livestock 4.1%

As of 01.08.2012, Source: Bloomberg, UBS AG

Balanced sector weighting of the market-wide UBS Bloomberg CMCI Composite TR Index compared

UBS Bloomberg CMCI Composite TR Index compared

Diversification is a key aspect of the UBS Bloomberg CMCI Universe. The UBS Bloomberg CMCI Index Family is constructed on a modular basis. Each individual commodity is tracked via an individual UBS Bloomberg CMCI index which is always diversified across several contract maturities to reduce potential negative roll returns. Since the individual commodities can be assigned to the five sectors: energy, industrial metals, precious metals, agriculture and livestock, there are also five corresponding UBS Bloomberg CMCI Sector Indices. These are also included in the market-wide UBS Bloomberg CMCI Composite Index.

The modular design of the UBS Bloomberg CMCI index results in a broad spectrum of tracked commodities. By comparison with traditional commodity indices negative roll returns, at least in the past five years, have been lower, more or less across the board. That applies both to the market-wide UBS Bloomberg CMCI Composite Index and to most of the UBS Bloomberg CMCI Sector Indices. Please note that past performance is not an indication of future performance.

UBS Bloomberg CMCI Sector Indices05

UBS Bloomberg CMCI Sector Indices

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Energy as driver of the business cycle UBS Bloomberg CMCI Energy TR Index

Energy has an essential place in the global economy. Crude oil and fuels produced from it, such as fuel oil and gasoline in particular, keep the economy going. If oil prices rise, the global economy can falter. The industrialised world first experienced this dependence during the oil crises in the 1970s when the Organisation of Petroleum Exporting Countries (OPEC) reduced their supply quotas, causing oil prices to rocket. Since then governments in the industrialised world have been attempting to reduce their dependence on energy imports. But even forty years after the first oil crisis fossil fuels continue to be of enormous importance for the global economy.

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UBS ETCs on UBS Bloomberg CMCI Energy Indices


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Energy Sector CMCI Energy TR Index TENCI CH0042990041 0.40% CENCI CH0042990074 0.84% EENCI CH0042990066 0.52%

WTI Crude Oil CMCI WTI TR Index TCLCI CH0033333326 0.30% CCLCI CH0037069876 0.72% ECLCI CH0037069843 0.42%

Brent Crude Oil CMCI Brent TR Index TCOCI CH0032661685 0.30% CCOCI CH0035787859 0.72% ECOCI CH0035787909 0.42%

Gasoil CMCI Gasoil TR Index TQSCI CH0037787592 0.40%

Gasoline CMCI Gasoline TR Index TXBCI CH0036834908 0.40% CXBCI CH0036834981 0.84% EXBCI CH0036834882 0.52%

Heating Oil CMCI Heating Oil TR Index THOCI CH0037787600 0.40%

Natural Gas CMCI Natural Gas TR Index TNGCI CH0037787659 0.40% CNGCI CH0042990090 0.84% ENGCI CH0042990082 0.52%


CMCI Energy TR S&P GSCI Energy TR

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01.07 07.07 01.08 07.08 01.09 07.09 01.10 07.10 01.11 07.11 01.12 07.12

UUBS Bloomberg CMCI Energy TR Index vs. S&P GSCI Energy TR Index

CMCI Energy TR S&P GSCI Energy TR

Performance p.a. -1.04% -4.22%

Volatility p.a. 28.26% 34.54%

Sharpe Ratio -0.04 -0.12

Total performance -5.59% -21.12%


Composition of UBS Bloomberg CMCI Energy TR Index

Commodity futures contract Weight WTI Crude Oil (NYMEX) 24.3% Brent Crude Oil 21.2% Natural Gas 12.0% Gasoil 11.9% RBOB Gasoline 11.6% WTI Crude Oil (ICE) 9.5% Heating Oil 9.5%


Composition of UBS Bloomberg CMCI Energy TR Index

UBS Bloomberg CMCI Energy TR Index vs. S&P GSCI Energy TR Index

Industrial metals as backbone of the global economy UBS Bloomberg CMCI Industrial Metals TR Index

Industrial metals form the backbone of the global economy. No car, no modern building and no electrical device can be manufactured without the use of industrial metals. ‘Industrial metals’ are metals which are so important that an entire industry has grown up around them. This is the case, amongst others, with copper, zinc, aluminium, nickel and lead. Each of these metals has specific properties that are in demand in a variety of applications and situations.

29 million tonnes of aluminium are needed yearly to satisfy global demand. The image shows how aluminium was used as a material for the frontage of an office complex in Warsaw, Poland.

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UBS ETCs on UBS Bloomberg CMCI Industrial Metals Indices


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Industrial Metals Sector CMCI Industrial Metals TR Index TIMCI CH0035657417 0.37% CIMCI CH0036249024 0.81% EIMCI CH0036249016 0.49%

Aluminium CMCI Aluminium TR Index TLACI CH0037787576 0.37% CLACI CH0037787899 0.81% ELACI CH0039918609 0.49%

Copper CMCI Copper TR Index TLPCI CH0037787584 0.37% CLPCI CH0037787907 0.81% ELPCI CH0039918591 0.49%

Lead CMCI Lead TR Index TLLCI CH0037787626 0.37% CLLCI CH0037787949 0.81% ELLCI CH0037787782 0.49%

Nickel CMCI Nickel TR Index TLNCI CH0037787667 0.37% CLNCI CH0037787980 0.81% ELNCI CH0037787824 0.49%

Zinc CMCI Zinc TR Index TLXCI CH0037787717 0.37% CLXCI CH0037788038 0.81% ELXCI CH0037787873 0.49%


CMCI Industrial Metals TR S&P GSCI Industrial Metals TR

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UBS Bloomberg CMCI Industrial Metals TR Index vs. S&P GSCI Industrial Metals TR Index

CMCI Industrial Metals TR S&P GSCI Industrial Metals TR

Performance p.a. 0.36% -4.01%


Sharpe Ratio 0.01 -0.13

Total performance 1.98% -20.13%

Monitoring period 30.01.2007 – 31.07.2012. Please note: past performance is not an indication of future performance. (Source: Bloomberg. UBS AG)

Composition of UBS Bloomberg CMCI Industrial Metals TR Index

Commodity futures contract Weight LME Copper 36.9% LME Aluminium 27.0% Kupfer hoher Qualität (High Grade) 13.0% LME Nickel 9.1% LME Zinc 8.8% LME Lead 5.2%


Composition of UBS Bloomberg CMCI Industrial Metals TR Index

UBS Bloomberg CMCI Industrial Metals TR Index vs. S&P GSCI Industrial Metals TR Index

The lure of precious metals UBS Bloomberg CMCI Precious Metals TR Index

Precious metals, above all gold, have fascinated human beings since time immemorial. This is partly because they are highly resistant to corrosion and thus retain their value over time. Gold is also seen as a 'safe haven', particularly at times of crisis. Precious metals include gold and silver as well as platinum and palladium. The latter two metals – even more than silver – have a dual value, as they are also heavily used in the industrial sector.

Gold is increasingly in demand. The shiny yellow metal is not only used as an ornament and an investment but is also used in medicine and electrical devices such as computers. The image shows how gold is used in circuitry.

2726

UBS ETCs on UBS Bloomberg CMCI Precious Metals Indices


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Precious Metals Sector CMCI Precious Metals TR Index TPMCI CH0042990108 0.49% CPMCI CH0042990199 0.92% EPMCI CH0042990116 0.61%

Gold CMCI Gold TR Index TGCCI CH0036991427 0.26% CGCCI CH0036249057 0.66% EGCCI CH0036248992 0.38%

Silver CMCI Silver TR Index TSICI CH0036991435 0.37% CSICI CH0036249040 0.80% ESICI CH0036249008 0.49%

Platinum CMCI Platinum TR Index TPLCI CH0039194219 0.49% CPLCI CH0039205601 0.92% EPLCI CH0039205627 0.61%


CMCI Precious Metals TR S&P GSCI Precious Metals TR

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UBS Bloomberg CMCI Precious Metals TR Index vs. S&P GSCI Precious Metals TR Index

CMCI Precious Metals TR S&P GSCI Precious Metals TR

Performance p.a. 15.77% 16.45%


Sharpe Ratio 0.67 0.71

Total performance 123.76% 131.03%


Composition of UBS Bloomberg CMCI Precious Metals TR Index

Commodity futures contract Weight Gold (COMEX) 79.4% Silver 20.6%


Composition of UBS Bloomberg CMCI Precious Metals TR Index

UBS Bloomberg CMCI Precious Metals TR Index vs. S&P GSCI Precious Metals TR Index

Rich granariesUBS Bloomberg CMCI Agriculture TR Index

As a result of global population growth and the global increase in prosperity of an increasing number of people, eating habits are changing and global demand for agricultural commodities such as grain is rising. This means that agricultural commodities such as corn, wheat and sugar but also coffee, cocoa and soya products are key in meeting basic needs. Agricultural commodities are also increasingly used to manufacture biofuels. Prices of agricultural commodities, also referred to as 'soft commodities' are subject to seasonal fluctuations as they follow the natural cycle of sowing and harvesting. As a result, prices generally also react sensitively to weather conditions in the corresponding major farming areas. For example, drought in Brazil can lead to a boom in coffee prices.

2928

UBS ETCs on UBS Bloomberg CMCI Agriculture Indices


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Agriculture Sector CMCI Agriculture TR Index TAGCI CH0033726370 0.47% CAGCI CH0035787800 0.84% EAGCI CH0035787842 0.55%

Food CMCI Food TR Index TFOCI CH0038468804 0.55% CFOCI CH0038468846 0.92% EFOCI CH0038468838 0.63%

Cocoa CMCI Cocoa TR Index TQCCI CH0035657383 0.56% CQCCI CH0036985031 0.99% EQCCI CH0036985049 0.68%

Coffee CMCI Coffee TR Index TKCCI CH0035657409 0.54% CKCCI CH0036985015 0.98% EKCCI CH0036985023 0.66%

Corn CMCI Corn TR Index TCNCI CH0034478849 0.47% CCNCI CH0036835012 0.91% ECNCI CH0036834890 0.59%

Cotton CMCI Cotton TR Index TCTCI CH0035657425 0.46% CCTCI CH0036984992 0.90% ECTCI CH0036985007 0.58%

Milling Wheat CMCI Milling Wheat TR Index TCACI CH0131514173 0.59% CCACI CH0131514181 1.01% ECACI CH0131514165 0.57%

Soybeans CMCI Soybeans TR Index TSYCI CH0036834866 0.46% CSYCI CH0036835038 0.90% ESYCI CH0036834924 0.58%

Soybeans CMCI Soybeans TR Index TSMCI CH0037787675 0.53%

Soybean Oil CMCI Soybean Oil TR Index TBOCI CH0037787683 0.53%

Sugar CMCI Sugar #11 TR Index TSBCI CH0035657391 0.63% CSBCI CH0036835046 1.07% ESBCI CH0036834940 0.74%

Wheat CMCI Wheat TR Index TWWCI CH0034478864 0.47% CWWCI CH0036835020 0.91% EWWCI CH0036834965 0.59%

Rough Rice CMCI Rough Rice TR Index TRRCI CH0118479614 0.96% CRRCI CH0118479630 1.18% ERRCI CH0118479622 1.08%


CMCI Agriculture TR S&P GSCI Agriculture TR

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UBS Bloomberg CMCI Agriculture TR Index vs. S&P GSCI Agriculture TR Index

CMCI Agriculture TR S&P GSCI Agriculture TR






Composition of UBS Bloomberg CMCI Agriculture TR Index

Commodity futures contract Weight Corn 21.3% Soybeans 18.9% Sugar #11 16.2% SRW Wheat 8.2% Sugar #5 7.9% Cotton 5.8% Soybean Oil 5.8% Soybean Metals 4.7% Coffee «C» Arabica 4.6% HRW Wheat 4.2% Cocoa 2.4%


Composition of UBS Bloomberg CMCI Agriculture TR Index

UBS Bloomberg CMCI Agriculture TR Index vs. S&P GSCI Agriculture TR Index

A breed apartUBS Bloomberg CMCI Livestock TR Index

When it comes to large herds of cattle in the USA your first thought might be of images from the early 19th century when cowboys drove cattle from Texas to the northern USA. During the same period, Chicago also made a name for itself as a place where livestock was bought and sold, which ultimately led to the establishment of futures markets with contracts for live cattle and lean hogs. Although these enormous cattle drives no longer take place today, there is still lively trading in futures contracts on the Chicago Mercantile Exchange (CME).

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UBS ETCs on UBS Bloomberg CMCI Livestock Indices


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Lean Hogs CMCI Lean Hogs TR Index TLHCI CH0037787634 0.54% CLHCI CH0042990223 0.98% ELHCI CH0042990215 0.66%

Live Cattle CMCI Live Cattle TR Index TLCCI CH0037787642 0.49% CLCCI CH0042990264 0.93% ELCCI CH0042990231 0.61%


CMCI Livestock TR S&P GSCI Livestock TR

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UBS Bloomberg CMCI Livestock TR Index vs. S&P GSCI Livestock TR Index

CMCI Livestock TR S&P GSCI Livestock TR

Performance p.a. -6.03% -9.15%


Sharpe Ratio -0.44 -0.64

Total performance -28.95% -41.00%


Composition of UBS Bloomberg CMCI Livestock TR Index

Commodity futures contract Weight Live Cattle 57.0% Lean Hogs 43.0%


Composition of UBS Bloomberg CMCI Livestock TR Index

UBS Bloomberg CMCI Livestock TR Index vs. S&P GSCI Livestock TR Index

The UBS Bloomberg CMCI Active Index takes the UBS Bloomberg CMCI Composite Index as benchmark but fine-tunes the weights every month. The active method is based on the long years of expertise of UBS IB Investment Research. If UBS experts expect particularly high potential from a particular commodity, its weighting can be increased above the usual CMCI benchmark share by up to ten percentage points. If the analysts’ rating is negative the weighting can be brought down by a tenth of the conventional share. The weighting adjustments are not restricted to individual commodities but can also be widened to cover the entire sector. The UBS Bloomberg CMCI Active Index can also cover maturities that differ from the CMCI benchmark targets.

UBS Bloomberg CMCI Active – finger permanently on the pulse of the commodity markets

06

UBS IB Investment Research is an analysis company with many years of expertise and a huge fund of knowledge. The UBS Bloomberg CMCI Active Index benefits from this. Based on the smart UBS Bloomberg CMCI methodology, the composition of this strategic index is actively adjusted on a month-by-month basis. This depends on how UBS IB Investment Research rates the market. For example, if the commodity experts expect particularly high potential from a particular commodity, its weighting can be increased above the usual CMCI benchmark share by up to ten percentage points.

This also applies in the opposite case: if the analysts’ rating is negative the weighting can be brought down by a tenth of the conventional share. Active management may also be applied at sector level and the weighting of certain commodity groups can therefore be increased or reduced accordingly. A third adjustment mechanism for the UBS Bloomberg CMCI Active Index relates to maturities – the strategy index is able to vary the term dates of the futures contracts contained in it.

UBS Bloomberg CMCI Active – finger permanently on the pulse of the commodity markets

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UBS ETCs on the UBS Bloomberg CMCI Active TR Index


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

CMCI Active CMCI Active TR Index TCMAM CH0116406866 1.25% CCMAM CH0116406882 1.47% ECMAM CH0116406874 1.37%


CMCI Active TR CMCI Composite TR

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UBS Bloomberg CMCI Active TR Index vs. UBS Bloomberg CMCI Composite TR Index

CMCI Active TR CMCI Composite TR






With the primary aim of increasing performance, the UBS Bloomberg CMCI Active Index attempts to mirror fundamental changes in commodity markets rapidly. At the same time the monthly reweighting takes into account seasonal factors typical of this asset class such as increased demand for natural gas in winter. Compared with the usual rule-based black box method used to increase the potential of a commodity index, the involvement of UBS IB Investment Research brings potential benefits.

This is because it ensures that the index is always up to date thanks to the active input of experienced commodity analysts in order to ensure the chance of a particularly robust, flexible and above all forward-looking positioning. In short, the UBS commodity strategists are constantly looking for appropriate opportunities that generate excess returns for the UBS Bloomberg CMCI Active Strategy Index, while investors still benefit from the efficient CMCI rolling mechanism.

UBS Bloomberg CMCI Active TR Index vs. UBS Bloomberg CMCI Composite TR Index

Overview: UBS ETCsOn UBS Bloomberg CMCI

07


Underlying IndexSIX

Symbol ISINFeep.a.

SIXSymbol ISIN

Feep.a.

SIXSymbol ISIN

Feep.a.

Composite Index

Commodity Sector CMCI Composite TR Index TCMCI CH0031794263 0.38% CCMCI CH0034808169 0.81% ECMCI CH0034808136 0.50%

CMCI Composite 3M TR Index TCM3M CH0031794214 0.38%

CMCI Composite 6M TR Index TCM6M CH0031794206 0.38%

CMCI Composite 1Y TR Index TCM1Y CH0029777445 0.38%

Energy

Energy Sector CMCI Energy TR Index TENCI CH0042990041 0.40% CENCI CH0042990074 0.84% EENCI CH0042990066 0.52%

WTI Crude Oil CMCI WTI TR Index TCLCI CH0033333326 0.30% CCLCI CH0037069876 0.72% ECLCI CH0037069843 0.42%

CMCI WTI 3M TR Index TCL3M CH0033333342 0.30%

CMCI WTI 6M TR Index TCL6M CH0033333359 0.30%

CMCI WTI 1Y TR Index TCL1Y CH0033333367 0.30%

Brent Crude Oil CMCI Brent TR Index TCOCI CH0032661685 0.30% CCOCI CH0035787859 0.72% ECOCI CH0035787909 0.42%

CMCI Brent 3M TR Index TCO3M CH0032661693 0.30%

CMCI Brent 6M TR Index TCO6M CH0032661701 0.30%

CMCI Brent 1Y TR Index TCO1Y CH0032661719 0.30%

Gasoil CMCI Gasoil TR Index TQSCI CH0037787592 0.40%

Gasoline CMCI Gasoline TR Index TXBCI CH0036834908 0.40% CXBCI CH0036834981 0.84% EXBCI CH0036834882 0.52%

Heating Oil CMCI Heating Oil TR Index THOCI CH0037787600 0.40%

Natural Gas CMCI Natural Gas TR Index TNGCI CH0037787659 0.40% CNGCI CH0042990090 0.84% ENGCI CH0042990082 0.52%

Industrial Metals

Industrial Metals Sector CMCI Industrial Metals TR Index TIMCI CH0035657417 0.37% CIMCI CH0036249024 0.81% EIMCI CH0036249016 0.49%

Aluminium CMCI Aluminium TR Index TLACI CH0037787576 0.37% CLACI CH0037787899 0.81% ELACI CH0039918609 0.49%

Copper CMCI Copper TR Index TLPCI CH0037787584 0.37% CLPCI CH0037787907 0.81% ELPCI CH0039918591 0.49%

Lead CMCI Lead TR Index TLLCI CH0037787626 0.37% CLLCI CH0037787949 0.81% ELLCI CH0037787782 0.49%

Nickel CMCI Nickel TR Index TLNCI CH0037787667 0.37% CLNCI CH0037787980 0.81% ELNCI CH0037787824 0.49%

Zinc CMCI Zinc TR Index TLXCI CH0037787717 0.37% CLXCI CH0037788038 0.81% ELXCI CH0037787873 0.49%

Precious Metals

Precious Metals Sector CMCI Precious Metals TR Index TPMCI CH0042990108 0.49% CPMCI CH0042990199 0.92% EPMCI CH0042990116 0.61%

Gold CMCI Gold TR Index TGCCI CH0036991427 0.26% CGCCI CH0036249057 0.66% EGCCI CH0036248992 0.38%

Silver CMCI Silver TR Index TSICI CH0036991435 0.37% CSICI CH0036249040 0.80% ESICI CH0036249008 0.49%

Platinum CMCI Platinum TR Index TPLCI CH0039194219 0.49% CPLCI CH0039205601 0.92% EPLCI CH0039205627 0.61%

Agriculture

Agriculture Sector CMCI Agriculture TR Index TAGCI CH0033726370 0.47% CAGCI CH0035787800 0.84% EAGCI CH0035787842 0.55%

CMCI Agriculture 1 Year TR Index TAG1Y CH0110257455 0.60%

Food CMCI Food TR Index TFOCI CH0038468804 0.55% CFOCI CH0038468846 0.92% EFOCI CH0038468838 0.63%

Cocoa CMCI Cocoa TR Index TQCCI CH0035657383 0.56% CQCCI CH0036985031 0.99% EQCCI CH0036985049 0.68%

Coffee CMCI Coffee TR Index TKCCI CH0035657409 0.54% CKCCI CH0036985015 0.98% EKCCI CH0036985023 0.66%

Corn CMCI Corn TR Index TCNCI CH0034478849 0.47% CCNCI CH0036835012 0.91% ECNCI CH0036834890 0.59%

Cotton CMCI Cotton TR Index TCTCI CH0035657425 0.46% CCTCI CH0036984992 0.90% ECTCI CH0036985007 0.58%

Milling Wheat CMCI Milling Wheat TR Index TCACI CH0131514173 0.59% CCACI CH0131514181 1.01% ECACI CH0131514165 0.57%

Soybeans CMCI Soybeans TR Index TSYCI CH0036834866 0.46% CSYCI CH0036835038 0.90% ESYCI CH0036834924 0.58%

Soybean Meal CMCI Soybean Meal TR Index TSMCI CH0037787675 0.53%

Soybean Oil CMCI Soybean Oil TR Index TBOCI CH0037787683 0.53%

Sugar CMCI Sugar #11 TR Index TSBCI CH0035657391 0.63% CSBCI CH0036835046 1.07% ESBCI CH0036834940 0.74%

Wheat CMCI Wheat TR Index TWWCI CH0034478864 0.47% CWWCI CH0036835020 0.91% EWWCI CH0036834965 0.59%

Rough Rice CMCI Rough Rice TR Index TRRCI CH0118479614 0.96% CRRCI CH0118479630 1.18% ERRCI CH0118479622 1.08%

Livestock

Lean Hogs CMCI Lean Hogs TR Index TLHCI CH0037787634 0.54% CLHCI CH0042990223 0.98% ELHCI CH0042990215 0.66%

Live Cattle CMCI Live Cattle TR Index TLCCI CH0037787642 0.49% CLCCI CH0042990264 0.93% ELCCI CH0042990231 0.61%

Energy & Metals

CMCI Energy & Metals TR Index TEMCI CH0197973420 0.38% CEMCI CH0197973412 0,81% EEMCI CH0197973438 0,50%

Benchmark Indices

S&P GSCI with CMCI weighting S&P GSCI weighted CMCI TR Index GCMCI CH0048491788 0.50%

DJ-UBS with CMCI weighting DJ-UBS Constant Maturity TR Index TDJCM CH0116406890 0.50% CDJCM CH0116406916 0.72% EDJCM CH0116406908 0.62%

Strategy Indices

CMCI Active CMCI Active TR Index TCMAM CH0116406866 1.25% CCMAM CH0116406882 1.47% ECMAM CH0116406874 1.37%

2x Leveraged

2x Long CMCI WTI Crude Oil ER Index OIL2L CH0035730362 0.98%

2x Long CMCI Gold ER Index GLD2L CH0102709042 0.94%

2x Long CMCI Silver ER Index SIL2L CH0102709059 1.05%

2x Short CMCI WTI Crude Oil ER Index OIL2S CH0035730370 0.98%

2x Short CMCI Gold ER Index GLD2S CH0102725956 0.94%

2x Short CMCI Silver ER Index SIL2S CH0102725964 1.05%


Investor profileUBS ETCs are suitable for investors with a medium to high risk preference who are looking to invest in commodities with low capital and administrative costs. The method used by the UBS Bloomberg CMCI index attempts to minimise any potential tracking error on the performance of commodities.

Investing in UBS ETCs – risks and opportunities

opportunities– UBS ETCs allow cost-efficient, transparent participation

in the relevant UBS Bloomberg CMCI index.– Commodities as stand-alone asset class exhibiting low

long-term correlation with shares, bonds and currencies can offer diversification benefits in portfolio terms.

– You have a wide choice: the UBS Bloomberg CMCI Index Family is broad-based and allows targeted investment in a particular commodity, a particular commodity sector or a market-wide commodity index.

– The UBS Bloomberg CMCI index is designed to minimise negative roll returns (resulting from contango constellations in the underlying futures contract) and is therefore distinguished by diversification across a broad basket of maturities and optionally daily traded rolling transactions.

– The Total Return Index reinvests the interest component into the index.

– You have the opportunity to exceed traditional commodity indices both in terms of performance and volatility.

– UBS ETCs offer cost-efficient access to commodity investing that is based on futures contracts, thus avoiding physical delivery (with no costs to the investor for commodity warehousing capacities).

– Stick to your preferred currency: UBS ETCs can be traded not only in US dollars but also in Swiss francs and euros. In the case of CHF and EUR tranches, investment volumes are covered by currency hedging at the end of each trading day.

– There is no restriction on maturity (open-ended).– UBS generally buys and sells on a daily basis: liquid and

continuous secondary market trading generally takes place on the Scoach Switzerland on a daily basis under normal market conditions.

Risks– Your investment capital is not protected. The stock

market performance of UBS ETCs depends chiefly on the performance of the relevant underlying UBS Bloomberg CMCI index. Falls in the index will mean losses in the relevant UBS ETC.

– Investors in UBS ETCs bear the credit risk of the issuer, UBS AG, and thus risk losing their investment capital regardless of the performance of the underlying index if the issuer becomes insolvent (more detailed information on the issuer can be obtained from the securities prospectus, which is available free of charge from the issuer or an office nominated by it).

– The performance of the index will continue to depend on the structure and characteristics of the futures curve. It is possible that the UBS Bloomberg CMCI method may not reduce negative roll returns, leading to losses.

– Commodities and commodity futures are volatile and may not be suitable for all investors.

– Due to the product-specific fee the performance of UBS ETCs is usually slightly poorer than the relevant underlying index.

– The issuer intends to ensure liquidity on a daily trading basis (OTC trading) in normal market phases. However, investors should note that in some circumstances it may not be possible to sell UBS ETCs at all times.

– Despite currency hedging at the end of each day of trading, the CHF and EUR tranches may be subject to currency fluctuation risks between the hedging transactions (intraday).

– UBS ETCs are subject to market influences during their period of validity (performance of underlying instruments, futures curve etc.), which may affect the value of UBS ETCs.

– In accordance with the UBS ETC terms and conditions, the issuer is entitled under certain conditions to terminate a UBS ETC. You will find more information in the securities prospectus.

Overview: UBS ETCsOn UBS Bloomberg CMCI

Risks and opportunities of UBS ETCs08

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Backwardation is the technical term for a downward sloping Futures Curve (q.v.) and generally leads to positive roll returns in traditional indices.

CMCI (Constant Maturity Commodity Index) is the name given to the commodity index family developed by UBS and Bloomberg which aims to reduce negative roll returns by tracking the commodity futures market.

Contango is the technical term for an upward sloping Futures Curve (q.v.) and generally leads to negative roll returns in traditional indices.

UBS ETCs (Exchange Traded Commodities) are investment vehicles that allow simple and cost-effective participation in the performance of a particular commodity index. The credit risk of the issuer (UBS AG) should be taken into consideration.

Excess Return (ER): an excess return commodity index calculates spot price performance along with roll returns from a futures investment (see also Spot Return).

Futures Contracts (or forward contracts) are financial instruments in which the parties agree to complete a transaction (delivery or acceptance of the underlying instrument) at a fixed date in the future at the currently traded futures price. Commodities are mainly traded via futures contracts since this allows costs of physical delivery to be avoided.

The Futures Curve arises from the fact that at any point in time there are multiple futures contracts for the same commodity which only differ in terms of maturity. Plotting commodity prices for futures contracts against maturities creates a futures curve which can slope upward (contango) or downward (backwardation).

The Market Value of an asset (for example, a commodity): the market value of an asset corresponds to the market price that an asset could achieve.

Correlation, in finance mathematics, is a term used to indicate how closely two datasets (e.g. performance data) track each other in terms of their changes. A diversification benefit can be achieved in a portfolio if instruments which exhibit low mutual correlation are combined.

Market Volume refers to the equivalent of all goods traded on a market (e.g. the commodities market). It is calculated by multiplying the volume traded by the market price and then totalling this for a specific period (e.g. one month).

open Interest is the total number of outstanding positions in a forward or options contract.

p.a. stands for ‘per annum’ and refers to the (annualised) percentage value over one year.

Performance refers to changes in value of shares etc. and is generally given in percentage terms.

Real Economy: economists generally make a distinction between the real economy and the financial sector. The real economy is part of the whole economy and produces real goods, trades in them or provides services. The financial sector by contrast provides financial capital for the real economy.

Rolling refers to the simultaneous buying and selling of futures contracts for the same commodity at different maturities to rebalance the position in the futures contract. Since the purchase and spot prices for the contracts concerned are not usually identical, this leads to so-called roll returns (see Roll Returns).

Roll Returns represent performance from rolling futures contracts. Roll returns can be positive (in backwardation situations) or negative (in contango situations).

Real Assets: real assets generally refer to assets such as real estate, shares or commodities that have a utility value independent of fluctuations in monetary value (e.g. inflation).

Glossary and further information09

Glossary

Sharpe Ratio is a risk-adjusted indicator of returns. A general rule of thumb is that higher Sharpe ratios mean improved profits and/or returns in comparison to the risk undergone, which in the form of Volatility (q.v.) is integrated into the Sharpe ratio formula.

Spot Return: a spot return or spot price performance index tracks the performance of commodity prices regardless of the futures curve. Contango and backwardation therefore play no role.

Total Return (TR): a total return commodity index calculates spot price performance along with roll returns and potential interest income from a futures investment. Interest income is possible with exposure in futures contracts since the margin means that only a small part of the total of the contract value must be paid. The remainder can be parked in short-term interest-bearing facilities (see also Excess Return and Spot Return).

Tracking Error is a measure of the precision with which an asset tracks the performance of a target. In a commodity index ‘roll returns’ may give rise to deviations between index performance and spot price performance (see Spot Return).

Volatility represents the degree of fluctuation in performance and is therefore a risk indicator. In mathematical terms it is the standard deviation. A general rule of thumb is that lower volatility reduces risk and increases the security of the relevant instrument.

Currency-hedged: In the UBS Bloomberg CMCI Index Family, currency hedging is always implemented at the end of a trading day, which means that intraday (between two currency hedges) currency losses may occur for any non-hedged amounts.

UBS ETCs (Exchange Traded Commodities) are bearer bonds held by UBS AG, which means that investors are subject to the credit risk of the issuer, UBS AG.

Issuer: UBS AG, London BranchRating: A2 / A / A

Last updated on: 31.07.2012

Up to date information on current rates as well as opportunities and risks of the products listed in this document can be found on our webpage www.ubs.com/cmci and at www.keyinvest.ch by clicking on the desired product via the respective Valor or ISIN using the quick search facility. Here you can also inspect the available documents and the legally binding securities prospectus along with the term sheet and associated factsheet.

You can of course also request information on rates for the UBS Bloomberg CMCI index and the associated UBS ETCs in the Bloomberg rate information system. Corresponding summaries are available to you using commands including‘CMCN’ and ‘CMCX’. You are welcome to register on the free email distribution list of regular product summaries regarding the UBS Bloomberg CMCI Index Family. Please contact us at [email protected]

Glossary and further information

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Further information

According to figures from the International Cocoa Organization (ICCO), 4.3 million tonnes of cocoa beans were harvested worldwide during the 2010/11 harvest season.

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This information is communicated by UBS AG and/or its affiliates (“UBS”).

UBS may from time to time, as principal or agent, have positions in, or may buy or sell, or make a market in any securities, currencies, financial instruments or other assets underlying the product to which this document relates (the “Product”). UBS may provide investment banking and other services to and/or have officers who serve as directors of the companies referred to in this document. UBS’s trading and/or hedging activities related to the Product may have an impact on the price of the underlying asset and may affect the likelihood that any relevant barrier is crossed. UBS has policies and procedures designed to minimise the risk that officers and employees are influenced by any conflicting interest or duty and that confidential information is improperly disclosed or made available. In certain circumstances UBS sells the Product to dealers and other financial institutions at a discount to the issue price or rebates to them for their own account some proportion of the issue price. Further information is available on request. Structured products are complex and may involve a high risk of loss. Prior to purchasing the Product you should consult with your own legal, regulatory, tax, financial and accounting advisors to the extent you consider it necessary, and make your own investment, hedging and trading decisions (including decisions regarding the suitability of the Product) based upon your own judgement and advice from those advisers you consider necessary. Save as otherwise expressly agreed in writing, UBS is not acting as your financial adviser or fiduciary in relation to the Product. Unless stated otherwise in this document, (i) this document is for information purposes only and should not be construed as an offer, personal recommendation or solicitation to purchase the Product and should not be treated as giving investment advice, and (ii) the terms of any investment in the Product will be exclusively subject to the detailed provisions, including risk considerations, contained in the information memorandum, prospectus or other issuer documentation for the issue of the Product. UBS makes no representation or warranty relating to any information herein which is derived from independent sources. This document shall not be copied or reproduced without UBS’s prior written permission. No action has been or will be taken in any jurisdiction that would permit a public offering of the Product, save where explicitly stated in the issuer documentation. The Product must be sold in accordance with all applicable selling restrictions in the jurisdictions in which it is sold.

UBS Bloomberg Constant Maturity Commodity Index

The Index Sponsors make no representation or warranty, express or implied, regarding the appropriateness of investing in products referenced to the UBS Bloomberg Constant Maturity Commodity Index Family (the “CMCI”), commodity products in general or of the ability of the CMCI to track commodity market performance. In determining the constituents of the CMCI and any amendment thereto, the Index Sponsors have no obligation to consider the needs of any counterparties that have products referenced to the CMCI. The Index Sponsors have all proprietary rights with respect to the CMCI. Any third-party product based on or in relation to the CMCI (“Product”) may only be issued upon the prior written approval of UBS AG (“UBS”) and Bloomberg Finance L.P. (“Bloomberg Finance”) and upon the execution of a license agreement between UBS, Bloomberg Finance and the party intending to launch a Product. Neither UBS nor Bloomberg Finance, its affiliates and its and their respective partners, employees, subcontractors, agents, suppliers or vendors, make any representation or warranty, express or implied, to the holders of the Products or any member of the public regarding the advisability of investing in the Product or commodities generally or in futures particularly, or as to results to be obtained from the use of the CMCI or from the Product. Past performance of the CMCI is not necessarily indicative of future results.

THE INDEX SPONSORS AND THEIR AFFILIATES DO NOT GUARANTEE THE QUALITY, ACCURACY AND/OR THE COMPLETENESS OF THE CMCI OR ANY DATA INCLUDED THEREIN AND SHALL NOT HAVE ANY LIABILITY FOR ANY ERRORS OR OMISSION OR INTERRUPTIONS IN THE CALCULATION AND/OR DISSEMINATION OF THE CMCI. THE INDEX SPONSORS AND THEIR AFFILIATES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY OR FROM THE USE OF THE CMCI OR ANY DATA INCLUDED THEREIN OR FOR ANY OTHER USE (WHETHER DIRECTLY OR VIA ANY PRODUCT REFERENCED THERETO). NEITHER UBS NOR BLOOMBERG FINANCE, ITS AFFILIATES AND ITS AND THEIR RESPECTIVE PARTNERS, EMPLOYEES, SUBCONTRACTORS, AGENTS, SUPPLIERS AND VENDORS, MAKE ANY EXPRESS OR IMPLIED WARRANTIES, AND TO THE EXTENT PERMITTED BY LAW HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE CMCI OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE EXTENT PERMITTED BY LAW UBS AND BLOOMBERG FINANCE, ITS AFFILIATES AND ITS AND THEIR RESPECTIVE PARTNERS, EMPLOYEES, SUBCONTRACTORS, AGENTS, SUPPLIERS OR VENDORS, DISCLAIM ANY LIABILITY FOR ANY PUNITIVE, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH. TO THE EXTENT PERMITTED BY LAW, BLOOMBERG FINANCE, ITS AFFILIATES AND ITS AND THEIR RESPECTIVE PARTNERS, EMPLOYEES, SUBCONTRACTORS, AGENTS, SUPPLIERS AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY, CONTINGENT OR OTHERWISE, FOR ANY INJURY OR DAMAGES, WHETHER CAUSED BY THE NEGLIGENCE OF BLOOMBERG FINANCE, ITS AFFILIATES OR ITS OR THEIR RESPECTIVE PARTNERS, EMPLOYEES, SUBCONTRACTORS, AGENTS, SUPPLIERS OR VENDORS OR OTHERWISE, ARISING IN CONNECTION WITH ANY PRODUCT.

The New York Mercantile Exchange, Inc. (including the COMEX division), Chicago Board of Trade, ICE Futures, European Energy Exchange, London Metal Exchange, Kansas City Board of Trade, New York Board of Trade, Winnipeg Commodities Exchange, Euronext.Liffe, the Chicago Mercantile Exchange and a number of future exchanges (collectively the “Exchanges”) provide data on commodity futures contracts which, in part, are used to compile and calculate the CMCI. However, the Exchanges provide such data “as is” and without representation or warranty on their part.

Further, the Exchanges: (i)　do not in any way participate in the offering, sale, administration of, or payments for, the CMCI or any products related thereto, (ii)　do not in any way ensure the accuracy of any of the statements made in any product materials or this document, (iii)　are not liable for any error or omission in any settlement or other price, index, or valuation used in connection with the CMCI, have not participated in the determination of the timing of, prices at, or quantities of the products to be issued and have no obligation or liability in connection with the administration, marketing, or trading of the CMCI or any products thereon, (iv)　are not in any way an issuer, manager, operator, guarantor or offeror of CMCI or any products related thereto, and are not a partner, affiliate or joint venturer of any of the foregoing, (v)　have not approved, sponsored or endorsed the CMCI or its terms and are not responsible for any calculations involving the CMCI, (vi)　make no representation or warranty, express or implied, to the owners of the CMCI or any member of the public regarding the advisability of investing in securities generally or in the CMCI particularly, and (vii)　have no involvement with and accept no responsibility for the CMCI, its suitability as an investment or its future performance.

None of the information contained herein constitutes a solicitation, offer, opinion, or recommendation by the Index Sponsors or any of their affiliates to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment. Under no circumstances, including but not limited to negligence, shall the Index Sponsors, their parents, and their respective affiliates, suppliers, vendors, agents, subcontractors, directors, officers, employees, representatives, partners, subsidiaries, successors, and assigns be liable for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if the Index Sponsors and their affiliates have been advised specifically of the possibility of such damages, arising from the CMCI or Product, such as, but not limited to, loss of revenue or anticipated profits or lost business.

This Material has not been reviewed by Bloomberg Finance.

© UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. Bloomberg is a trademark of Bloomberg L.P. and its affiliates (collectively “Bloomberg”). UBS Bloomberg Constant Maturity Commodity Index, UBS Bloomberg CMCI and CMCI are service marks of UBS and/or Bloomberg. All rights reserved.

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