Wealth Management Research

11 July 2011

UBS Weekly Guide

Help Wanted
Fridays disappointing payroll report highlighted that the spring soft patch appears to have been even deeper than most economists had projected. The surprisingly weak payroll report only serves to raise the stakes for second-quarter earnings season, which begins in earnest this week. We expect earnings results will be modestly better than expected with earnings growth of 17% excluding the Financials, slightly higher than the 15% consensus estimates. Based on our expectations for a good 2Q earnings season and our economists expectations for a modest rebound in economic growth in the second half of the year, we stick with our $100 earnings per share estimate for the S&P 500 for 2011 and $108 for 2012. We apply a 13x P/E multiple to our 2012 estimate to arrive at our 1410 year-end target for the S&P 500.
Mike Ryan, CFA, Chief Investment Strategist mike.ryan@ubs.com

Contents

Page

Feature article Our Best Ideas at a Glance Review/Preview of the Financial Markets Earnings Calendar Key Economic Indicators Strategy and Performance Reports of Note Published in the Last Week

1 5 6 7 8 9 10

Fig. 1: The labor participation rate continues to head lower

US labor force participation rate, shows proportion of US population that is in the labor force

After having rallied sharply over the past two weeks, markets were hit with a vicious backhand following Fridays payroll report. Not only did non-farm payrolls increase by a distressingly low 18,000 workers during the month, but the unemployment rate rose to the highest level in six months as well - despite the labor participation rate having dropped to just 64.1% as 272k workers exited the workforce (see Figure 1). Those hopeful for a silver lining from an upward revision to prior employment statistics were left equally disappointed. Nonfarm payrolls were revised lower during May (to 25K from 44k), leaving the average monthly payroll growth during the second quarter at an anemic 87k rate (see Figure 2). Not only has the pace of hiring dropped off from the sluggish pace of the first quarter, but the current level is simply inadequate absorb new entrants into the work force and keep the unemployment rate from trending still higher in the months ahead. Whats more, it doesnt appear that seasonal factors had much to do with Junes poor results. If anything, the spring soft patch appears to have been even deeper than most economists had projected.

67 66 66 65 65 64 64 63 2007 2008 2009 2010 2011

Source: Bloomberg, UBS WMR, as of 8 July 2011

This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimer and disclosures at the end of the document.

UBS Weekly Guide

Raising the stakes The surprisingly weak payroll report only serves to raise the stakes for second-quarter earnings season, which begins in earnest this week. Not surprisingly, some market participants are growing increasingly concerned that, as a result of choppier macroeconomic data, downgrades to GDP growth and elevated commodity costs, 2Q earnings results could be below analyst estimates. We do not share this view. Instead, we expect results will be in-line to modestly better than expected. Although earnings beats will not likely be as robust as in the past several quarters (see Figure 3), we believe investors will view the results as good enough. After all, some moderation in earnings beats is to be expected as the business cycle matures. And some of the headwinds will have an impact, but not by as much as those who are most worried might think. Excluding the Financials sector, we expect earnings growth of 17%, slightly higher than the 15% growth reflected in consensus estimates. We exclude Financials due to the $8.5 billion charge that Bank of America is booking in 2Q, which is distorting the overall results. This shaves almost $1 off of S&P 500 earnings. Including Financials, we expect earnings to rise by 9%. No soft patch for earnings Keep in mind that while Alcoa unofficially kicks things off on Monday as the first member of the Dow Jones Industrial Average to report, 28 S&P 500 companies have already reported second-quarter numbers. So far, 79% have beaten earnings expectations and 74% have beaten sales estimates. The median earnings beat has been 6% so far in Q2 vs. 3% in Q1 at this point last quarter, with revenues coming in 2% higher versus flat last quarter. This bodes well for a constructive earnings season. Half of the companies that have reported thus far fall within the consumer sectors, which suggests that high oil prices are not crimping consumer spending. In aggregate, these results are encouraging and suggest that earnings growth remains largely on track. Extending this earnings winning streak will be critical this week if markets are to continue to build upon the rebound from the late June lows. GDP and earnings Another reason we are optimistic about earnings season is the relationship between earnings and GDP growth. While it is true that 2Q consensus US GDP growth estimates have fallen over the past few months, on our calculations, this should shave only about 3% off of 2Q earnings. Considering that US companies have been beating earnings estimates by 3% or more in the last few quarters, we believe this sets up US companies to report results that are at least in line with expectations. Meanwhile, elevated oil prices during the quarter have the potential to cut both ways for earnings. High crude prices potentially may have depressed consumer spending, but they also tended to boost earnings from the energy sector. With consumer spending holding up overall during the quarter, elevated oil prices could actually be a net benefit for S&P 500 earnings.

Fig. 2: The pace of hiring during 2Q dropped off from sluggish pace of 1Q
Nonfarm payrolls quarterly average, in thousands

200 0 -200 -400 -600 -800 -1000 2007

2008

2009

2010

2011

Source: Bloomberg, UBS WMR, as of 8 July 2011

Fig. 3: We expect earnings in aggregate to beat for 2Q Average % S&P 500 company beat consensus earnings estimates by
16% 14% 12% 10% 8% 6% 4% 2% 0% 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q112Q11*

Source: Factset, UBS WMR estimates, as of 8 July 2011

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UBS Weekly Guide

Earnings growth expected to drive the market higher Continued earnings growth is critical for equity markets to continue their advance, as equity market multiples are unlikely to meaningfully expand from here. As we have pointed out before, the gains in the equity market have been nearly identical to the gains in earnings per share for the S&P 500 since the March 2009 bottom. Based on our expectations for a good 2Q earnings season and our economists expectations for a modest rebound in economic growth in the second half of the year, we stick with our $100 earnings per share estimate for the S&P 500 for 2011 and $108 for 2012. We apply a 13x P/E multiple to our 2012 estimate to arrive at our 1410 year end target price on the S&P 500. Buybacks and commodity prices Some of the key themes we have observed from the early reporters that we believe will resonate throughout the second quarter earnings season include some key positive but also negative trends. With cash as a percentage of assets near alltime highs, companies are increasing share buybacks. Both Bed, Bath & Beyond and Best Buy have announced increases to their share buyback programs. Commodity prices have surged over last year. How companies are coping with the rising input costs will be a key area of focus. FedEx has been able to pass on rising costs through surcharges, while food producer ConAgra has not. Trading down continues to occur within the consumer sector. This has been evident in the results from retailers such as Walgreens. On balance we do not expect rising commodity prices to derail earnings. Expect most companies to reaffirm the outlook Encouragingly, so far guidance has been surprisingly upbeat highlighted by the CEO of FedExs comments that: the nearterm softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers. Going forward, we see stronger economic growth. Given FedExs very broad based exposure to the economy, we are encouraged by these comments. That being said, in the aggregate we would be surprised to see companies raise 2011 guidance in light of some of the recent choppy macroeconomic data and still six months to go before the end of the year. Nonetheless, simply maintaining guidance will be a bit of a relief for the market and should provide a lift to equity prices. Looking ahead For the week ahead, 12 S&P 500 companies are set to report with the Financials taking center stage during the first week and a half of earnings season. The second quarter did not have the most favorable trends for the Financials sector given lower trading volumes, mortgage write-downs and a severe catastrophe season impacting the insurers. Keep in mind that the Financials sector is one we recently upgraded given enticing valuations and our belief that many of the drivers of the sectors poor performance in the last quarter will stabilize or reverse. Loan growth has been anemic, but recent data suggest that business loans and non-mortgage consumer loans are picking
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Fig. 4: Earnings growth expected to drive market higher S&P 500 earnings per share and year-over-year change in earnings
$120 $100 $80 -23% $60 $40 $20 $0 2006 2007 2008 2009 2010 2011 2012 -5% +16% +16% -3% +39% +8%

Source: Factset, UBS WMR estimates, as of 8 July 2011

UBS Weekly Guide

up. The subsequent three-week period will be crucial, starting 18 July, as 85% of the S&P 500 will be reporting quarterly earnings results. Beyond earnings But markets will not focus exclusively on earnings this week. In addition to a fairly crowded economic release calendar (retail sales, PPI, weekly claims, CPI) several senior Fed officials are scheduled to offer their own take on the state of the economy highlighted by Chairman Bernankes semi-annual testimony to the House Financial Services panel. Bernankes remarks are apt to draw even more attention in the aftermath of last weeks payroll report. Meanwhile, Congress continues to debate both an increase in the debt ceiling and budget cuts. With the August deadline fast approaching and little progress between the two sides, the focus will increasingly shift toward Washington. Finally, concerns that the Eurozone debt crisis may now be extending into Italy will likely keep markets on edge this week as well. So while the earnings outlook remains constructive, it would appear that more help will be needed this week to extend recent market gains. David Lefkowitz, CFA Senior Equity Strategist Joseph Sawe Equity Strategist

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Our Best Ideas at a Glance

The following list represents investment strategy recommendations that we believe will provide attractive opportunities over the next 9-12 months. Asset Classes Currencies Equities Preference for Equities over Bonds Avoid Japanese yen. Preference for SEK, NOK, GBP, as well as selected Emerging Market currencies International markets Select Emerging Market equities, especially China, Poland and Taiwan UK equities Within US equities Information Technology: hardware and equipment, semis, data centers Consumer Staples: companies with high emerging markets exposure, especially household and personal products and beverages Healthcare: managed care, generic manufacturers, drug distributors Within Financials: diversified financials (universal banks, brokers, asset managers, exchanges), insurers Within Industrials: air freight and select capital goods manufacturers with mid-to-late cycle exposure Within Materials: chemicals and industrial gas Within Energy: oilfield services Within Consumer Discretionary: auto suppliers, cable, lodging Within Telecom: wireless towers Preference for small and mid-cap over large-cap stocks Preference for growth over value Fixed Income Within US dollar Fixed Income High Yield Corporate bonds Investment Grade BBB-rated Corporate bonds Commodities We see upside potential for crude oil, selected base metals and agricultural commodities.

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Review/Preview of the Financial Markets

Review 04 July 08 July

The June labor market report was dismal, missing consensus expectations by a wide margin. All key indicators in the report weakened. Non-farm payrolls rose a meager 18k and the past two months numbers were revised lower by 44k. The unemployment rate rose from 9.1% to 9.2% and hours worked fell. Finally, average hourly earnings were flat over the month and stalled at 1.9% y/y. Despite this very weak June report, quarterly average private sector hours worked a critical input to the economy's output rose at a 3.3% annual pace versus 2.0% in the first quarter. We still think that real GDP will likely rise by 2.5% q/q annualized in 2Q11, but the risk is clearly to the downside. The weak labor data hurt the stock market, which ended little changed for the week, while bonds rallied.

The ISM non-manufacturing index slipped slightly from 54.6 in May to 53.3 in June, a bit worse than expected. Key growth sub-indicators new orders and business activity slipped, while employment held steady. The index still points to moderate growth. European debt markets were rattled by two developments. First, Portugals sovereign debt rating was downgraded to junk by Moodys. Second, the rating agencies said they would view the French proposal to roll over Greek debt as a default. This news caused the yield spread on the sovereign debt of the weaker Eurozone countries (relative to German Bunds) to widen to record levels. For 10-year bonds, Portuguese and Irish debt now yield around 10 percentage points more than Germanys. Italys debt also sold off sharply with the yield spread

widening roughly 50 bps to hit a record 240 bps. Despite these problems, the European Central Bank (ECB) went ahead and hiked interest rates by 25 basis points to 1.50%, in line with market expectations. The euro lost ground against the dollar, closing near EURUSD 1.43, down from 1.45 at the start of the week. China also raised interest rates by 25 basis points last week, part of the ongoing effort to restrain inflationary pressure. Japans Economy Watchers Survey jumped to 49.6 in June (50 is a neutral reading) from 36.0 in May, indicating that economic conditions are getting back to normal after the disruptions caused by the earthquake in March. Brian Rose, Strategist

Preview 11 July 15 July

This week the market is likely to focus on economic data releases in the US and China, second-quarter earnings results, the debate over the US debt ceiling, and discussions on Greek sovereign debt. The most important US statistic this week will be June retail sales. The headline number will be depressed by the weak auto sales recorded in June. We forecast a drop of 0.5% m/m. However, the key component ex-auto ex-gas retail sales will likely rise; we expect +0.3%. Such a reading would be consistent with real consumption growth of about 0.7% q/q annualized in the second quarter, lower than our current forecast of 2%. Stronger net exports and inventories reported thus far should offset some of the consumption growth weakness. We a forecasting real GDP growth of

2.5% q/q annualized in the second quarter (the data will be released on 29 July), but the risk is to the downside. China will release several key economic indicators this week. We expect the CPI to rise more than 6% year-over-year in June, up from 5.5% in May. However, food prices should contribute less to inflation in the months ahead, helping the overall inflation rate to slow to around 4% by the end of 2011. GDP for the second quarter is likely to slow from the 9.7% year-over-year growth rate recorded in the first quarter, but growth should still be above 9%. With China driving so much of global economic growth in recent years, there could be a strong market reaction if there is a surprise in the GDP data.

China will also release its trade for June. The commodities markets are usually especially interested in Chinas import data, since its voracious appetite for raw materials has a big influence on commodity prices. Debate over US fiscal policy and the debt ceiling will of course continue this week, but it is probably still too early to expect a major breakthrough. In Europe, the authorities will continue to search for a way to roll over Greek sovereign debt without triggering a default. Brian Rose, Strategist

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UBS Weekly Guide

Earnings Calendar
The Earnings Calendar provides publicly announced reporting dates and times of companies covered by Wealth Management Research Americas. Reporting dates and times are subject to change by the reporting companies.
Analyst Contact Information

Date

Ticker

Company

Reporting Period

Time (EST)

WMR-A Covering Analyst

11-JUL-2011 11-JUL-2011 13-JUL-2011 13-JUL-2011 13-JUL-2011 14-JUL-2011 14-JUL-2011 14-JUL-2011 15-JUL-2011

AA CVX OZRK YUM MAR GOO G PGR JPM FHN

Alcoa, Inc. Chevron Corp. Bank of the Ozarks, Inc. Yum! Brands, Inc. Marriott International, Inc. Google, Inc. Progressive Corp. JPMorgan Chase & Co., Inc. First Horizon National Corp.

Q2 2011 Earnings Release Q2 2011 Sales and Revenue Release Q2 2011 Earnings Release Q2 2011 Earnings Release Q2 2011 Earnings Release Q2 2011 Earnings Release Q2 2011 Earnings Release - June Sales Q2 2011 Earnings Release Q2 2011 Earnings Release

After Market 5:00pm After Market After Market 5:00pm Unspecified Unspecified 7:00am Before Market

Andrew Sutphin Nicole Decker Dean Ungar Alexandra Mahoney Jonathan Woloshin Bob Faulkner Michael Dion Dean Ungar Dean Ungar

212-7133646 212-7134743 212-7133751 212-7132825 212-7133635 212-7133720 212-7133825 212-7133751 212-7133751

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UBS Weekly Guide

Key Economic Indicators

Date Indicator Time (EST) Unit Consensus UBS Est. Previous

12-Jul-11 13-Jul-11 14-Jul-11 14-Jul-11 14-Jul-11 14-Jul-11 14-Jul-11 14-Jul-11 15-Jul-11 15-Jul-11 15-Jul-11 15-Jul-11 15-Jul-11

Trade Balance (May) Import Prices (Jun) Jobless Claims (Jul 2) Producer Price Index (Jun) Core PPI (Jun) Retail Sales (Jun) Retail Sales Ex Autos (Jun) Business Inventories (May) Consumer Price Index (Jun) Core CPI (Jun)

8:30:00 AM 8:30:00 AM 8:30:00 AM 8:30:00 AM 8:30:00 AM 8:30:00 AM 8:30:00 AM

lvl mom lvl mom mom mom mom

-$44.0 bil -0.7% 410 k -0.1% 0.2% 0.0% 0.1% 0.8% -0.1% 0.2% 4.2 0.3% 77.0%

-$44.0 bil -0.6% 395 k -0.4% 0.2% -0.5% -0.3% 1.0% -0.2% 0.1% 3.0 0.5% 77.1%

-$43.7 bil 0.2% 418 k 0.2% 0.2% -0.2% 0.3% 0.8% 0.2% 0.3% -7.8 0.1% 76.7%

10:00:00 AM mom 8:30:00 AM 8:30:00 AM mom mom index mom %

Empire State Manufacturing Survey (Jul) 8:30:00 AM Industrial Production (Jun) Capacity Utilization (Jun) 9:15:00 AM 9:15:00 AM

Source: Bloomberg & UBS estimates, as of 08 July 2011. In developing the WMR quarterly forecasts, WMR economists worked in collaboration with economists employed by UBS Investment Research (INV). All remaining forecasts were developed by economists employed by INV. INV is published by UBS Investment Bank. Forecasts and estimates are current only as of the date of this publication and may change without notice. m/m = month-over-month, q/q = quarter-over-quarter, k = thousand, bn = billion, y/y = year-over-year, mn = million

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UBS Weekly Guide

Asset Class Strategy & Performance Market Returns Extended Asset Allocation Strategy* MTD YTD 2010 + 2.7% 9.2% 16.9% US Equity Non-US + 0.7% 5.9% 9.4% Developed Equity Emerging Market + 2.0% 3.0% 19.2% Equity 0.1% 2.8% 6.5% US Fixed Income Non-US Fixed -0.6% 4.8% 4.9% Income n 0.0% 0.1% 0.1% Cash (USD) n 1.9% -0.8% 16.8% Commodities
Total return indices in USD: Russell 3500, MSCI EAFE & Canada, MSCI Emerging Markets, BarCap US Aggregate, BarCap Global Aggregate ex-USD, Citigroup 3-month T-bill, DJ UBS

Equity Region Strategy & Performance Strategy* MTD US Equity S&P 500 DJIA Nasdaq EMU** UK Japan Other Developed Emerging Markets n n.a. n.a. n.a. + ++ 2.7% 2.5% 2.5% 3.6% -0.6% 1.4% 1.9% n.a. 2.0% Market Returns YTD 9.2% 8.7% 11.3% 8.8% 12.6% 7.0% -2.8% n.a. 3.0% 2010 16.9% 15.1% 14.1% 18.0% -3.4% 8.8% 15.6% n.a. 19.2%

US Equity Sector Strategy & Performance Sector Strategy* Weekly Cons. Discr. Cons. Staples Energy Financials Healthcare Industrials IT Materials Telecom Utilities ++ n + + n +++ n 3.5% 1.9% 2.6% 2.0% 1.2% 2.7% 3.8% 2.9% 1.4% 1.2% Market Returns MTD 3.5% 1.9% 2.6% 2.0% 1.2% 2.7% 3.8% 2.9% 1.4% 1.2% YTD 12.1% 10.0% 14.3% -1.1% 15.3% 11.0% 6.0% 6.7% 8.5% 10.4% 2010 27.7% 14.1% 20.5% 12.1% 2.9% 26.7% 10.2% 22.2% 19.0% 5.5%

Total return indices in USD: S&P 500, DJIA, Russell 3500, MSCI for non-US. Price return indices in USD: Nasdaq

Equity Size, Style Strategy & Performance Style Strategy* Large-Cap Value Large-Cap Growth Mid-Cap Small-Cap REITs + + ++ Market Returns MTD 2.0% 3.2% 2.8% 3.7% 4.6% YTD 8.1% 10.3% 11.1% 10.2% 15.7% 2010 15.5% 16.7% 25.5% 26.9% 27.9%

Total return indices in USD: Russell

Total return indices in USD: S&P 500 sector indices

Regional Indicators 2011 Consensus S&P 500 EPS 2011 UBS WMR S&P 500 EPS 2012 Consensus S&P 500 EPS 2012 UBS WMR S&P 500 EPS UBS WMR 2011 year-end S&P 500 target Price to earnings+ Price to book value+
+Consensus 12-month forward estimates, as of 08 July 2011. Total return performance as of close of business on 07 July 2011.

US Dollar Fixed Income Strategy & Performance Strategy* Treasuries TIPS Agencies Inv. Grade Corporates High Yield Corporates Preferred Securities Mortgages Emerging Markets Municipals + + + + n n.a. Market Returns MTD 0.1% 0.5% 0.0% 0.3% 0.7% 0.4% -0.2% 0.1% 0.0% YTD 2.4% 6.3% 1.8% 3.6% 5.7% 5.9% 2.7% 5.0% 4.8% 2010 5.9% 6.3% 4.7% 9.5% 15.1% 13.7% 5.7% 12.5% 2.3%

USD 99
USD 100 USD 113 USD 108 1410 13.2x 2.3x

Total return indices in USD: BAS / Merrill Lynch

Please note these important color designations: +

Indicates +/- change in most recent update

Bond Regions Strategy & Performance Strategy* US EMU** UK Japan Other + n + + Market Returns MTD 0.1% -1.1% 0.1% -0.9% n.a. YTD 2.8% 7.5% 4.8% -0.1% n.a. 2010 6.5% -4.5% 4.6% 17.5% n.a.

*Please see the scale in the Appendix and the most recent Investment Strategy Guide for an interpretation of the tactical deviations and an explanation of the corresponding benchmark allocation. **EMU = European Monetary Union and is comprised of European countries that have adopted the Euro as their currency.

Total return indices in USD: Barclays Capital

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Reports of Note Published in the Last Week

Friday, 08 July Asia Pacific Economics: Exports: Light at the End of the Tunnel Export growth in Asia ex Japan is normalizing towards long term averages and should bottom out in the next few months. With Japan's economy bouncing back stronger, supply chain disruptions seen in the region should be overcome swiftly and more visibly in upcoming trade data. The structural decline of the US, Japan and Europe's importance compared to intra-Asia trade is set to continue. In the near term the developed world is crucial and remains a risk factor for the region. Global Economy: ECB Rate Increase As expected, the European Central Bank (ECB) has increased its refinancing rate by 0.25% to 1.50%. The governing council continues to see upside risks to price stability and regards monetary policy as remaining accommodative. Mr. Trichet announced that the ECB will suspend the minimum rating requirement for Portuguese government debt. Technical Market Outlook A monthly technical review of key financial markets, including US Equities (SPX Index), Currencies (US Dollar Index), Commodities (CRB Index, Gold and Crude Oil), Fixed Income (US 10-year Treasury), S&P 500 Sectors, and Emerging Markets. Valuation Report: All About the Macro It was a tale of two markets in 1H11. Early on, market participants were focused on strong corporate credit fundamentals against a backdrop of self-sustaining growth and range-bound to moderately higher Treasury yields. Demand for corporate credit was high, and credit spreads tightened, gradually for investment grade (IG) corporate bonds but much more pronounced for high yield (HY) corporates. The result was significant excess returns over Treasuries that reached roughly 5% for HY and 2% for IG through April. Since then, however, risk aversion has returned with investors shedding risk, most acutely demonstrated within the HY space. Overall, we sit at the halfway point of the year with corporate bond segments moderately outperforming Treasuries, but much less so than just a few weeks ago US Top 25 Stock List: July Update US Equities Healthcare: Monthly - Hospital Power Hospitals are becoming a key player in the evolving US healthcare system, increasing US pricing pressure on medical suppliers. Healthcare subsectors that reduce healthcare costs, create efficiencies or produce meaningful innovation are best positioned US Equities Consumer Staples: Monthly - Bracing for Earnings Season The S&P Consumer Staples index was down 2.4% in the past month, slightly worse than the S&P 500's 1.6% decline. However, over the last three months, Consumer Staples have outperformed.
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Thursday, 07 July

Thursday, 07 July

Tuesday, 05 July

Friday, 01 July Thursday, 30 June

Thursday, 30 June

Thursday, 30 June

US fixed income: July update: Higher or Lower? Worries over a Greek sovereign debt default and slower economic growth caused investors to shun risk assets in June. However, UBS economists believe the economic soft patch will prove to be temporary, and that growth will accelerate in the second half of the year. A bailout package for Greece should helped allay sovereign credit risk concerns, and put the US credit markets on firmer footing. We increased the tactical allocation on agency mortgage backed securities to overweight, and increased the underweight on Treasuries.

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UBS Weekly Guide

Thursday, 30 June Investment Strategy Guide US: The summer of our discontent? Risk assets may well come under additional pressure in the weeks ahead as participants continue to focus on risk factors. However, it remains our view that the economic soft patch is just thata soft patch. A still supportive policy backdrop, robust earnings cycle and attractive valuation position risk assets to outperform in the second half of the year. We caution however, that investors need to maintain flexibility to navigate both the challenging macro environment and tight trading range.

To access these reports please contact your Financial Advisor or access the reports via online services.

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UBS Weekly Guide

Appendix

Scale for tactical deviation charts Performance and Strategy tables Symbol Description/Definition moderate overweight vs. moderate underweight vs. + benchmark benchmark ++ overweight vs. benchmark underweight vs. benchmark strong underweight vs. +++ strong overweight vs. benchmark benchmark

n n/a

Neutral, i.e. on benchmark not applicable

The overweight and underweight recommendations represent tactical deviations that can be applied to any appropriate benchmark portfolio allocation. They reflect WMRs short- to medium-term assessment of market opportunities and risks in the respective asset classes and market segments. The benchmark allocation is not specified here. Please see the most recent Investment Strategy Guide for definitions/explanations of benchmark allocation. They should be chosen in line with the risk profile of the investor. Note that the Regional Equity and Bond Strategy is provided on an unhedged basis (i.e., it is assumed that investors carry the underlying currency risk of such investments). Thus, the deviations from the benchmark reflect our views of the underlying equity and bond markets in combination with our assessment of the associated currencies. Source: UBS WMR, All market performance data is from Bloomberg data as of date listed on top of this document, using representative indices and is provided for information only.

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UBS Weekly Guide

Disclaimer
Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are currently only as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time UBS AG and other companies in the UBS group (or employees thereof) may have a long or short position, or deal as principal or agent, in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. This document may not be reproduced or copies circulated without prior authority of UBS or a subsidiary of UBS. UBS expressly prohibits the distribution and transfer of this document to third parties for any reason. UBS will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. Distributed to US persons by UBS Financial Services Inc., a subsidiary of UBS AG. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US persons. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate. The contents of this report have not been and will not be approved by any securities or investment authority in the United States or elsewhere. Version as per June 2011. UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

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