UBS Structured ProductsMore opportunities for your money.

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Swiss Edition

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Structured products offer attractive investment alternatives.Structured products have developed from a niche productto an established form of investment. As a leading provider,UBS offers creative investment solutions, many of whichcan offer substantial benefits compared to traditional invest-ment instruments.

The way markets have performed in recent years,combined with rising demand from privateinvestors on the look-out for creative, individualinvestment solutions, has greatly boosted theimportance of structured products within thefinancial sector. Products that used to be theexclusive preserve of institutional investors arenow appearing with increasing frequency inprivate portfolios.

UBS, as a leading product developer, has set itself thegoal of offering first-class products tailored preciselyto its clients’ risk profiles and investment objectives.Alongside standardized investment solutions, whichare the subject of increased investor interest andbeing traded more and more frequently in the secon-dary market, UBS offers its clients the opportunity towork hand-in-hand with their advisors to structureproducts precisely in line with their individual require-

ments. Above all, UBS ensures that clients are fullyaware of the opportunities and risks associated withstructured products.

The aim of this brochure is to provide an initial insightinto this product category, while at the same timeexplaining the risks entailed and showing why inmany cases structured products are superior to tradi-tional investment instruments. In the brochure, wedescribe structured products on the basis of investorneeds rather than technical categorization, which inany case differs from country to country. As a result,some of the products outlined here are actually finan-cial instruments in their own right, but are nonethelesscentral to an understanding of structured products.This is particularly the case for “synthetic products”(certificates) in the section on Performance productsand for option and futures contracts in the sectionon Leverage products.

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Breadth of choice is a particular strengthIn their narrower sense, structured products are gene-rally understood to be combinations of traditionalinvestment instruments with one or more derivativefinancial instruments which, incorporated into a singletransaction, are traded as securities. From a legalpoint of view, structured products are bonds payableto the bearer. The default risk of these securitiesdepends on the financial standing of the issuer,just as for bond issues. Thus the financial standingof the issuer should play an important role for all inve-stors when they are selecting a structured product.

Thanks to all the different options and the inherentflexibility of structured products, a solution can befound to match just about every investment objective.The particular strengths of this product class are verymuch in tune with the evermore complex, globallynetworked market environment. Unlike traditionalinvestments,some structured products can also gene-rate positive returns in a falling (bear) or stagnantmarket. Even in a “normal” market, they can be arewarding addition to an existing portfolio as a meansof reducing overall risk, optimizing returns or capitali-zing quickly on a market trend. Structured productsgive you access to investment opportunities in markets,themes and sectors that were previously reserved forinstitutional investors.

Risk controlAnother advantage of structured products is thatthey can provide an appropriate solution for practicallyany risk profile – from the highest risk tolerance(leveraged products) to the lowest (capital protectedproducts). It is wrong to assume that all structuredproducts carry a higher than average risk.

There are a wealth of products available for pursuingvery conservative strategies, for example. By choosingstructured products and deploying them correctlyin accordance with your specific market expectationsand desired returns, you can control risk very precisely.What matters is selecting the right product – the onethat best reflects your attitude to risk and your marketexpectations – at the right time. It is naturally alsoimportant to evaluate the product not in isolation butin the context of your portfolio as a whole. With somany options on offer and so many factors to considerwhen selecting a structured product, professionalsupport from a client advisor is always recommended.

Tailor-made solutions from a single source UBS not only offers you expert advice on where toinvest. It can, literally, create a personal product foryou – tailored specifically to your individual needs andrisk profile. Whether you want to optimize your cashpositions (FX) or equity investments, UBS can providea structured product to precisely match your specifi-cations – in some cases with an investment of as littleas CHF, EUR or USD 20,000.

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Individual solutions for discerning investors.UBS offers you the chance to have products structuredto suit your individual needs.

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ProtectionSolutions for investors with low to moderate risktolerance who want either partial or full capitalprotection with limited, unlimited, or fixed potentialreturns.

OptimisationSolutions for investors with moderate to high risktolerance who want to get more from their invest-ment portfolios in flat markets.

PerformanceSolutions for investors with medium to higher risktolerance who want to benefit from the performanceof an underlying without committing too much capitalor taking on much administration.

LeverageSolutions for investors with high risk tolerance whowish to remain flexible enough to benefit from a par-ticular trend or who wish to hedge their portfoliousing a relatively small investment and with a highleverage effect.

The choice is yours.Select the right category to match your investment ideas,risk tolerance and personal investment objectives.

Protection

Optimisation

Performance

Leverage

Risk

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With such a huge variety of products on offer, it isdifficult and time consuming for today’s investors tofind the product that best suits their investment ideasand attitude to risk. UBS has divided the products intoa set of colour-coded categories (from blue = Protec-tion, to red = Leverage) to help you, as an investor,quickly find your bearings in this dynamic environment.

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term with an option strategy. With a CSUN, the inve-stor purchases a maximum-term bond with couponpayments that rise in stages as this term progresses.In effect, the noteholder sells a periodic call optionto the issuer (hence the “callable” part of the name),and in return, the investor receives an option premi-um, so that when the note reaches maturity the over-all yield is greater than on comparable bonds of thesame maturity/credit quality. CDRANs, meanwhile, arebonds that can be redeemed before maturity by theissuer. Unlike CSUNs, the coupon payments are notfixed in advance, but depend on how many daysduring the coupon period a specified index (e.g. aninterest rate or interest rate differential) remains withina predefined range. Depending on the number of dayson which the relevant condition is met, a higher returncan be ach ieved compared to an equivalent traditio-nal bond.

Capital protection products based on equities andcurrencies are also very popular. The best-known,andin fact the oldest, is the CPN (Capital Protected Note).This instrument, developed by UBS, was one of thefirst structured products to be distributed internatio-nally (under its former name “GROI”). The “Protection”category now offers the most varied range of all, withproducts affording capital protection on almost everyconceivable underlying asset. As well as bonds, equi-ties, equity baskets, indices, interest rates and curren-cies, there are an increasing number of solutions withcapital protection based on precious metals and com-modities, all featuring a range of possible maturities,payout models and income/participation structures.UBS’s “Protection” category does not include anyproducts that offer solely conditional capital protec-tion, i.e. through a risk buffer that disappears as soonas a specified price limit or threshold is reached.

“Protection” investment objectiveProtect your capital while enhancing your potential returns.

Products allocated to the “Protection” category areaimed at investors with a low to moderate risk tole-rance. All the products in this category offer a sub-stantial capital protection component, meaning thatwhen the investment comes to maturity you willreceive a minimum repayment relating to the nominalcapital invested. If you sell such a product prior tomaturity you will, however, forfeit the benefit of thiscapital protection. These products also have a yieldcomponent which, depending on your preference,can be unlimited, limited or stipulated in advance.The high degree of capital protection offered – bet-ween 90 and 100% of the invested capital – does,of course,affect the return potential delivered by theproduct when compared to a direct investment inthe relevant underlying itself.

By far the largest selection of products offering 100%capital protection are in the “fixed-income” segment.The most popular investment instruments includeCallable Step-Up Notes (CSUN) and Callable DailyRange Accrual Notes (CDRAN). Both of these productscombine 100% capital protection at the end of the

Protection

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OpportunitiesIf their expectations prove correct, investors receivehigher returns than with traditional bond investments.

RisksIf interest rates fall, the Note may be redeemed priorto maturity for cash, leaving the investor to invest therepaid capital elsewhere. However, the return achievedprior to early redemption should still be higher thanthat available on a comparable alternative bond withthe same maturity and rating.

Scenario

Portfolio: 75% bonds10% equities10% alternative investments5% money market

The investor expects yields to be relatively stable orto rise slightly. For 10% of his bonds about to mature,he seeks an investment solution with 100% capitalprotection.

Investors should note that the above charts and examples are purely for illustrative purposes and do not give any indication of actual conditionsor profits. These examples do not take account of dividend payments or standard securities trading costs (brokerage, etc.).

“Protection” investment objectiveExample

Solution

The investor invests the repaid capital in UBS CallableStep-Up Notes.

75% bondsof which 10% UBS Callable Step-Up Notes10% alternative investments10% equities5% money market

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A similar strategy is available for currencies thanks tothe DOCU (DOuble Currency Unit) which is particularlypopular with investors looking for customized soluti-ons to optimize their short-term liquidity manage-ment while still retaining flexibility. Depending on theexchange rate, on expiry of the DOCU you receive theinvestment, including earnings, paid out in either thecurrency of investment or the second currency. Thedownside risk here is no greater than with a directinvestment in the currency market. Optimisationstrategies are also available for bonds. Credit LinkedNotes (CLN), for example, give investors credit expo-sure to one or more reference borrowers in additionto the issuer risk. Compared with traditional bonds,this provides more flexibility with regard to currency,maturity and other features.

The “Optimization” category comprises a diverse ran-ge of products with features which have evolved overtime. Investors who want a potentially higher returnwithin a specified range can opt for UBS Capped Out-performance certificates. Another way of optimizingan investment is to take advantage of a discount onthe underlying. UBS lets you do this with a Discountcertificate or BLOC (Buy Low Or Cash). However, thisdiscount, which works like a kind of safety buffer, isonly possible at the cost of capping the potential pro-fits to be made in a rising market.

OptimizationGreater returns thanks to intelligent combinations.

When markets are “flat” or “sideways”-moving, thereis little joy for investors who have adopted a classicbuy-and-hold strategy. This problem can be solved byapplying a combination of two transactions: insteadof investing directly in an equity, for example, theinvestor can buy a bond and simultaneously sell aput option (option to sell) on this equity. However,because it is more trouble for the investor to keeptrack of two transactions, UBS has securitized thisstrategy in a structured product called GOAL (whichstands for “Geld Oder-Aktien-Lieferung” – cash orequity delivered).

Optimization

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OpportunitiesIf his expectations prove correct, the investor receivesthe nominal plus the 7% coupon on expiry. The per-formance is better than with a direct investment.

RisksIf the share price rises very sharply, the investor isstill only paid the coupon plus the nominal value onexpiry. A direct investment would then have produceda better return (i.e. price rise plus dividends paid).However, if the share price falls significantly, the inve-stor receives the share itself on expiry along with thecoupon.

Scenario

Portfolio: 45% equities45% bonds10% money market

The investor expects the performance of equity A(5% of the total portfolio) to move sideways in theshort or medium term and would like to improvehis potential return over this period.

Investors should note that the above charts and examples are purely for illustrative purposes and do not give any indication of actual conditionsor profits. These examples do not take account of dividend payments or standard securities trading costs (brokerage, etc.).

OptimizationExample

Solution

The investor replaces equity A with a 7% UBS GOALin the stock in question.

45% equitiesof which 5% in a UBS GOAL for equity A45% bonds10% money market

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Alongside passive investment instruments, whosecomposition remains constant throughout their lifetimes,UBS also offers products involving active or dynamicinvestment bundled into a single security (Strategycertificate) with only a small minimum investment.As well as the products mentioned, which enableinvestors to benefit from rising (bull) markets, someproducts also provide investors with the opportunityto profit from downward movements (bear market).

As a logical extension of this category of products,UBS has solutions that can combine performancewith a partial hedge. UBS’s PERLES Plus is a productthat includes limited capital protection. With a PERLESPlus certificate, investors effectively acquire a hedgeagainst price falls down to a specified threshold with-out having to accept any limit on potential upsidereturns. In return for the hedge, investors forgo pay-ment of the dividend on the relevant underlying andcapital protection if the value of the certificate passesor falls below a certain limit (kick-out level) at any timeduring the life of the certificate. If during the life of thecertificate this kick-out level is reached or breached,capital protection no longer applies and the repaymentamount depends on the development of the underlyingasset, as is the case for normal PERLES.

PerformanceTap into the performance of an underlying asset.

Products in the “Performance” category meet theneeds of the large number of investors who want acost-effective and efficient way of achieving diversifi-cation. UBS offers this popular product family underthe name PERLES (PERformance Linked to EquitySecurities). Also known as “Certificates”, they allowthe investor to participate in the performance of anindex or basket of specific individual stocks or indices.PERLES are now offered on an extremely varied rangeof underlying assets. As well as tracking the performan-ce of equities, investors can participate in the price per-formance of precious metals. PERLES can cover an entiremarket with one single transaction. They also pick up oncurrent investment topics, for example “commodities”.

Performance

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OpportunitiesIf during the certificate’s life the price of the underly-ing always remains above the “kick-out” level, onexpiry the investor receives at least 111% of the issueprice and perhaps more depending on the actualsituation. The investor therefore achieves a returnof 11% despite price falls.

RisksIf the underlying falls below the “kick-out” levelof 62% of the issue price at any time, then the riskcushion expires and the UBS PERLES Plus has thesame risk profile as a regular equity index investment.

Scenario

Portfolio: 65% equities25% bonds5% alternative investments5% % money market

The investor would like to provide his investmentsreferencing the DJ Euro STOXX 50 index (10% of theportfolio) with a reasonable risk cushion.

Investors should note that the above charts and examples are purely for illustrative purposes and do not give any indication of actual conditionsor profits. These examples do not take account of dividend payments or standard securities trading costs (brokerage, etc.).

PerformanceExample

Solution

The investor switches his DJ Euro STOXX 50 relatedinvestments into UBS PERLES Plus certificates witha “kick-out” level of 62% of the issue price and aconditional minimum repayment of 111% of theissue price.

65% equitiesof which 10% in UBS PERLES Pluson the DJ Euro STOXX 50 index25% bonds5% alternative investments5% money market

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also for hedging purposes. In this latter context theywork like an insurance policy that comes into playonly when a specific event occurs – except the eventin this case is not a fire or accident, but an underlyinglosing value. The profit made by the investor on theput warrant potentially compensates for the loss invalue of the underlying. If the portfolio performs wellas expected, however, the put warrant loses its valueor simply expires worthless. The pricing of warrantsand options is affected by a whole range of factors.This, coupled with the risk of loss of the entire inve-sted capital, means that these financial instrumentsshould only be used by experienced investors whofully understand their nature and behaviour and arecomfortable taking on higher risks.

Investors can likewise achieve a leverage effect on theunderlying asset with only a small capital outlay usingMini Futures. For these products, which are also knownas UBS Currency Certificates, UBS Longy and UBSShorty or UBS Precious Metal Keys, a change in im-plied volatility has little or no effect on the pricingof products, but there is the threat of losing the fullamount if the stop-loss limit is reached during the term.

There are also various leveraged products availablein the interest area. Thus interest warrants and futu-res/rates certificates offer both the option of benefit-ing from yield curves that are rising or levelling offand protection from increasing interest rates.

LeverageMinimum outlay, maximum effect.

If you want to capitalize on a market trend at shortnotice without having to change your portfolio aroundtoo much, leveraged products can be the ideal soluti-on. Classic leveraged products include all securitizedoptions, known by bankers as warrants or optioncertificates. Warrants are available on just about anykind of investment. Using warrants, high potentialreturns can be achieved with a small capital outlay –as long as the investor is prepared to accept the riskof losing the full amount invested.

Depending on where an investor believes the marketis heading, they can choose between call warrants(if they believe the price of the underlying will rise) orput warrants (if they believe it will fall). Put warrantsare not only used for speculating on bear markets, but

Leverage

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OpportunitiesIf the USD falls, the Bear Certificate increases in value.For every cent that the exchange rate falls, each BearCertificate gains CHF 100 in value. In this way the losson the portfolio can be reduced or even be neutralized.

RisksIf the USD rises in value, the Bear Certificate losesvalue. As soon as the value of each certificate reachesthe stop-loss limit, an automatic sell order is activatedand any residual sum is reimbursed to the investor.

Scenario

Portfolio: 80% equities10% bonds5% alternative investments5% money market

The investor would like to actively protect his highexposure to US equities against a currency loss in USD.

Investors should note that the above charts and examples are purely for illustrative purposes and do not give any indication of actual conditionsor profits. These examples do not take account of dividend payments or standard securities trading costs (brokerage, etc.).

LeverageExample

Solution

The investor reduces the equity allocation to 72% andinvests the repaid capital in UBS Currency CertificatesUSD/CHF Bear. He can hedge an investment value ofUSD 10,000 per currency certificate.

80% equitiesof which 8% are switchedinto UBS Currency Certificates10% bonds5% alternative investments5% money market

Investment risks and issuer riskThe many permutations of structured products arealso reflected in the differing risk profiles of the indi- vidual products. It is therefore essential to ascertainthe precise terms and conditions of any specific struc-tured product and the particular risks associated withit from the relevant issue documentation and therelevant term sheets and product descriptions.

Another important risk factor is the issuer’s creditstanding. So you should always check exactly whothe issuer of the product is (and their credit rating)before subscribing an issue or buying a product inthe secondary market. This is because, as an investor,you bear the full issuer default risk for all structuredproducts – even capital-protected products. For pro-ducts involving exposure to the credit market, it isalso important to be sure about the credit quality ofthe reference borrower(s), underlying(s) or portfolio(s)to which the investment relates.

Market makers and liquidityOnce a structured product has been issued, the lead-manager is responsible for the secondary market. Itis important that investors can be confident that theproduct can be bought and sold at a fair price after ithas been issued. The quality of the market maker isparticularly important in the case of products basedon little-traded securities or complex structures withlong lifetimes. But even if there is a liquid market inthe underlying asset, or if the product is traded on astock exchange, there is still no guarantee that it willbe cheaper than products traded off-exchange.

Structured productsPoints to note.

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Price per transaction/spreadWhen trading on the secondary market, you, as theinvestor, pay the ask price when you buy the productand receive the bid price when you sell it again. Thedifference between the two prices is known as thebid-ask spread, and can be seen as the price of thesecurities transaction. Please note that the spread canvary greatly from product to product. It tends to bevery narrow for leveraged products, but can amountto more than one per cent for mature and complexinstruments. Even if you think you won’t be selling theproduct until it reaches maturity, you should keep aneye on how wide the spread is. Your personal circum-stances could suddenly change, forcing you to unwindan investment prematurely.

Tax treatment Structured products combine traditional investmentinstruments with one or more derivative financialinstruments. Concrete tax treatment depends on theindividual circumstances of the individual investor aswell as on the individual product. For this reason, it isessential to seek independent and expert tax advice.

Sales and distribution restrictionsNote that certain products cannot be sold in somecountries or to citizens of some countries. Sales re-strictions will be set out clearly in the relevant issuedocumentation (termsheets, etc.) or product descrip-tions and should always be considered. This brochureis for information purposes only and is not an offer,recommendation or solicitation to conclude any tran-saction in any product mentioned.

Take advantage of UBS’s expertiseUBS offers more than just expert advice on invest-ment decisions. You may ask your client advisor tohave a product structured especially for your individualrequirements and risk profile. Instead of waiting tofind a ready-made solution that more or less fulfilsyour needs, by investing as little as CHF, EUR or USD20,000 you can have a special solution structured ona broad range of underlying assets to meet your pre-cise requirements.

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UBS Quotes: Always in the picture Not only does UBS Quotes offer you market data forblue chip stocks, it also offers you a wide range ofother financial instruments. As well as an overviewof the products currently available for subscriptionand the flexible “Product Finder” for outstandingproducts, “Performance Attribution” gives youround-the-clock access to all relevant informationon the development of your product.www.ubs.com/quotes

Further details of mobile services can be found atwww.ubs.com/mobile

UBS KeyInvest –the UBS Investment Bank portalAs well as global market data, UBS KeyInvest alsooffers extensive information on structured productsand derivatives from the UBS Investment Bank.The user-friendly navigation, from market to product,replicates the standard investment decision processand guides you through the wide range of information.www.ubs.com/keyinvest

UBS Equity Investor MarketplaceDisplays current price indications for the broad rangeof tailored equity investment products offered by theUBS Investment Bank. The prices shown are indicativelive prices and thereby offer a new level of price trans-parency. This sevice is designed to help you to makedecisions related to your own investment product.With a minimum investment of CHF 20,000, you candetermine risk parameters such as barriers, strikesand maturities. Your client advisor can create the pro-duct in just a few minutes, including term sheets inseveral languages.www.ubs.com/equityinvestor

For general information on structured products, visit www.ubs.com/structured-products

How can you keep up-to-date?Investors can choose from many different sourcesof information.

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This document is intended exclusively for information and marketingpurposes and is not to be construed as an offer, recommendation orsolicitation to conclude a transaction. Nor is it to be construed as invest-ment advice.

This information is not advice on which a prospective investor shouldrely. Structured transactions are complex and may involve a high risk ofloss. Prior to entering into a transaction you should consult with yourown legal, regulatory, tax, financial and accounting advisors to theextent you consider it necessary, and make your own investment, hed-ging and trading decisions (including decisions regarding the suitabilityof a transaction) based upon your own judgement and advice from thoseadvisors you consider necessary. Save as otherwise expressly agreed, UBSis not acting as your financial advisor or fiduciary in any transaction.

The terms of any investment will be exclusively subject to the detailedprovisions, including risk considerations, contained in the InformationMemorandum, Prospectus or other issuer documentation for the res-pective issue.

UBS makes no representation or warranty relating to any informationherein which is derived from independent sources. This publication maynot be copied or reproduced without UBS’s prior written permission.No action has been or will be taken in any jurisdiction that would notpermit distribution of this publication. Certain products and servicesdescribed herein are subject to legal restrictions in some jurisdictionsand cannot be offered worldwide on an unrestricted basis. Offering anddistribution of such products must be in accordance with all applicableselling restrictions in the jurisdictions in which they are sold.

Not for distribution in the United States or to U.S. persons.

© 2010 UBS AG. All rights reserved.

UBS AGP.O. Box8098 Zurichwww.ubs.com

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