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					ab                                                                                                     Global Investment Strategy

                                                                                                        Global
 UBS Investment Research
                                                                                                        Strategy
 Weekly Weight Watcher
                                                                                                        Asset Allocation



 Top of the cycle?
                                                                                                                                         25 June 2010
    Peaking lead indicators
                                                                                                                           www.ubs.com/investmentresearch
 Leading indicators (such as the US ISM indices and German Ifo index) appear to
 have peaked. Moreover, the momentum in growth surprises has also faded, as
 noted in “UBS Global Economic Comment: Growing Cyclical Challenges,”
 published today by Andrew Cates. What does all this imply for asset allocation?                                                      Larry Hatheway
                                                                                                                                                 Economist
     An ‘investment clock’                                                                                                        larry.hatheway@ubs.com
                                                                                                                                          +44-20-7568 4053
 We look at how equities, government bonds, credit, commodities, REITs and cash
 have performed at various stages of economic expansion and contraction,                                                                Sunil Kapadia
 represented by an ‘investment clock’. The results are broadly intuitive: equities                                                               Economist
 tend to outperform early in the recovery cycle, while REITs and commodities do                                                     sunil.kapadia@ubs.com
 better once the expansion has gained traction. Cash holdings are best when signs                                                          +44-20756 74090
 emerge of a pending slowdown, while government and corporate bonds do well
 around the depths of an economic contraction.

    Markets don’t always tick like clockwork
 Even though momentum in leading indicators is fading, it need not necessarily
 imply risk-asset underperformance. The key is whether private sector final demand
 and income generate expectations of a self-sustaining economic expansion. Equity
 markets have produced positive returns when the US ISM has fluctuated in broad
 ranges, during which momentum has also ebbed and flowed. Risk-assets have
 produced superior absolute returns when leading indicators are falling but labour
 markets are improving – a likely scenario ahead.

     No change in allocations
 In short, while investors might expect range-bound indicators and markets, we
 think there are benefits to a relatively balanced portfolio skewed towards income
 generation and defensive assets. We retain preferences for equities in the US,
 emerging markets, and Japan, as well as an overweight allocation to US high-yield
 credit. We also maintain overweights in commodities (soft commodities,
 agriculture and precious metals). We continue to hold underweight positions in
 government bonds and cash.




 This report has been prepared by UBS Limited
 ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 12.
 UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
 have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making
 their investment decision.
Weekly Weight Watcher 25 June 2010


Top of the cycle?
This week, we address the issue of timing asset performance in relation to                                                                                                                                   Peaking indicators
economic cycles, and what this implies for asset allocation. This is particularly
relevant now because leading indicators (such as the US ISM and German Ifo
indices) appear to have peaked. Moreover, the momentum in growth surprises
has also faded, as noted in “UBS Global Economic Comment: Growing Cyclical
Challenges,” published today by Andrew Cates.

Chart 1: Global growth surprise Index

 135

 130

 125

 120

 115

 110

 105

 100
                Jun-05


                                  Dec-05


                                                    Jun-06


                                                                      Dec-06


                                                                                        Jun-07


                                                                                                          Dec-07


                                                                                                                            Jun-08


                                                                                                                                              Dec-08


                                                                                                                                                                Jun-09


                                                                                                                                                                                  Dec-09


                                                                                                                                                                                                    Jun-10
       Mar-05


                         Sep-05


                                           Mar-06


                                                             Sep-06


                                                                               Mar-07


                                                                                                 Sep-07


                                                                                                                   Mar-08


                                                                                                                                     Sep-08


                                                                                                                                                       Mar-09


                                                                                                                                                                         Sep-09


                                                                                                                                                                                           Mar-10

                                                                                Global growth surprise index


Source: UBS/Bloomberg

In what follows, we look at how equities, government bonds, credit,                                                                                                                                          Different assets tend to outperform at
commodities, REITs and cash have performed at various stages of economic                                                                                                                                     different phases in the cycle
expansion and contraction, represented by an ‘investment clock’.1 The results
are broadly intuitive: equities tend to outperform early in the recovery cycle,
while REITs and commodities do better once the expansion has gained traction.
Cash holdings are best when signs emerge of a pending slowdown, while
government and corporate bonds do well around the depths of an economic
contraction.

What does this imply about asset allocation today? While we show that growth                                                                                                                                 Slowing momentum doesn’t always
and cyclical phases matter for asset performance, recoveries tend to vary in                                                                                                                                 imply weakness in risk-asset returns
nature. Even though momentum in leading indicators is fading, it need not
necessarily imply risk-asset underperformance. The key is whether private
sector final demand and income generate expectations of a self-sustaining
economic expansion.

Slowing momentum
Is growth momentum slowing? Where is growth relative to trend? Indeed, what
is trend growth? These are all important questions for asset markets.

Asset markets are forward looking, so expectations about future growth (e.g., as
represented in a dividend discount model) and phases of the cycle should matter.



1 Please see our Weekly Weight Watcher: “An asset allocation investment clock,” (May 22, 2009) available upon

request or at www.ubs.com/investmentresearch.


                                                                                                                                                                                                                                               UBS 2
Weekly Weight Watcher 25 June 2010


Trend growth matters as well. Priors about where trend growth lies are crucial
for judging cyclical phases. All else equal, higher trend growth is normally
associated with higher asset valuations and lower risk premiums. Investors
should be more willing to ‘pay up’ for earnings and cyclical risk if they believe
structural growth prospects are improving. Interest rates will also vary according
to the stage of the cycle, thereby influencing relative returns between stocks,
bonds, and cash.

We’ll leave aside the thorny issue of trend growth for now. Instead, we                                                  Is momentum fading?
concentrate below on whether growth momentum is slowing and what this
implies for asset allocation. We define momentum as the change in the rate of
growth—its second derivative. The second derivative indicates how quickly
growth of a given economic variable is accelerating or decelerating. For
example, the combination of a positive first derivative (positive rate of change)
and negative second derivate represents a growth variable that is rising, but at a
slowing rate.

There are various measures we could use to assess economic momentum. We
could, for example, consider changes in leading indicators, such as the US ISM
or German Ifo indices (which by nature are forward-looking).2 The drawback is
that momentum may not follow smooth patterns, and as a result growth and
momentum indicators may ‘flip-flop’, giving uneven signals as to momentum.

The charts below show the current readings of popular leading indicators,                                                US ISM and German Ifo appear to be
plotted alongside their first and second derivatives. It’s clear from these charts                                       peaking
that growth momentum has started to slow – especially in the US. But equally,
it’s important to point out that while the upswing may be slowing, the level of
these indicators is still high in absolute terms and consistent with an ongoing
recovery, at least for now.

 Chart 2: US ISM and 1st and 2nd derivatives                                            Chart 3: Ifo index and 1st and 2nd derivatives

 65.0                                                                                     20.0                                                                              10
                                                                              10
 60.0                                                                                     10.0                                                                              5
                                                                              5
 55.0
                                                                                           0.0                                                                              0
 50.0                                                                         0
                                                                                         -10.0                                                                              -5
 45.0
                                                                              -5
                                                                                         -20.0                                                                              -10
 40.0
                                                                              -10        -30.0                                                                              -15
 35.0
 30.0                                                                         -15        -40.0                                                                              -20
        2004     2005      2006     2007        2008      2009        2010                       2004    2005       2006        2007      2008     2009         2010
           1st Deriv        2nd Deriv           ISM (lhs)                                                           1st Deriv          2nd Deriv          Ifo Index (lhs)



Source: UBS, Haver                                                                      Source: UBS, Haver

Drilling down into the components of these indices, we can identify ‘lead
indicators of lead indicators’. Our preferred measures include the ‘new-orders-



2 Both the ISM and Ifo indices are examples of diffusion indices. The level of the index refers to how survey

participants view growth in their businesses over time – in essence the level of the index is a sign of the first
derivative of the level of activity.


                                                                                                                                                                        UBS 3
Weekly Weight Watcher 25 June 2010


less-inventory’ index from the US manufacturing ISM and the ‘business
expectations’ index for the German Ifo. These lead-leading indicators have also
been turning lower, as shown in the charts below and suggest a further
moderation of growth may lie ahead. As our German Economist, Martin Lueck,
wrote earlier this week: “This constellation of declining expectations and
improving current conditions is a classical example of a toppish Ifo scenario.“

Chart 4: Lead-leading indicators: US ISM                                                              Chart 5: Lead-leading indicators: German Ifo Expectaions Index

  40.0                                                                                    75.0          120
                                                               Diffusion Index                                          Index
                                                                                                        115
                                                                                          70.0
  30.0                                                                                                  110
                                                                                          65.0
                                                                                                        105
  20.0                                                                                    60.0          100
                                                                                          55.0              95
  10.0
                                                                                          50.0              90
                                                                                                            85
   0.0                                                                                    45.0
                                                                                                            80
      1980       1984    1988         1992     1996    2000          2004     2008        40.0
 -10.0                                                                                                      75
                                                                                          35.0              70
 -20.0                                                                                    30.0                   91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
                         ISM New Orders - Inv entories                        ISM (rhs)                                   Ifo: Headline        Ifo: Business Situation   Ifo: Business Ex pectations


Source: UBS, Haver                                                                                    Source: UBS, Haver

The ‘roll-over’ in lead indicators is not surprising. In a time-series sense, these                                                                ‘Roll-over’ in indicators driven by a
indicators have reached extreme levels, from which pull-backs have been                                                                            change in the shape of the recovery
common. More fundamentally, as the shape of the global recovery changes from
one driven by an inventory-led production lift, to a recovery more dependent on
final demand, it is natural for the leading indicators to drop from high levels.
Please see Andrew Cates’ note referenced above for more colour on why we
might expect further moderations in growth momentum.

Chart 6:ISM and Total Quarterly Return from US Equities

  30.0%                                                                                                                                   90
                                                                                                                                          80
  20.0%
                                                                                                                                          70
  10.0%
                                                                                                                                          60
   0.0%                                                                                                                                   50
                                                                                                                                          40
 -10.0%
                                                                                                                                          30
 -20.0%
                                                                                                                                          20
 -30.0%                                                                                                                                   10
          1950

                 1954

                        1958

                               1962

                                        1966

                                               1970

                                                      1974

                                                              1978

                                                                       1982

                                                                                1986

                                                                                       1990

                                                                                              1994

                                                                                                     1998

                                                                                                                 2002

                                                                                                                          2006




                                      US Equities Total Return (qoq)                          ISM (rhs)


Source: UBS, Bloomberg

However, that development—falling purchasing manager indices—need not be                                                                           Equities have often produced positive
negative for risk assets. After all, equity markets have produced positive returns                                                                 returns while ISM is falling or even
when the ISM has traded in broad ranges, during which momentum has ebbed                                                                           below 50
and flowed (Chart 6 above).



                                                                                                                                                                                                   UBS 4
Weekly Weight Watcher 25 June 2010


In the next section, we show that momentum has historically mattered more for
the relative performance of some asset classes, while levels of growth or activity
matter more for others. We examine the implications of changing growth
dynamics for asset allocation by looking at an updated version of our
‘investment clock’.

An investment clock
The following analysis is based on long-term US quarterly asset return and                                                                     Historical patterns
macroeconomic data, covering various cycles since the 1950s. Specifically, we
compare relative asset returns to the ISM index and real GDP growth. 3 The
results are presented as an ‘investment clock’—the economic cycle moves in
clockwise fashion around the chart, with each of the four quadrants representing
above- or below-trend growth, as well as deepening or recovering growth rates
(see Chart 7 and Chart 8, overleaf). The ISM index tends to lead GDP growth,
so the results are slightly different in the two cases. The outcomes are largely
intuitive. Below, we provide some thoughts on how the various stages of the
ISM and GDP cycles have typically affected relative asset returns.

Chart 7: Asset relative return sensitivity to ISM index cycles


                                   0.40%
                                            (1) ISM below 50                                                              (2) ISM above 50
                                                                                     REITs
                                   0.30%    and expanding                                                                 and expanding
                                                                  Equities
                                   0.20%
    Sensitivity to change in ISM




                                   0.10%

                                   0.00%                                                                    Commodities

                                   -0.10%

                                   -0.20%                                                  Cash

                                                   Corp bonds
                                   -0.30%
                                                                         Gov t bonds
                                   -0.40%   (4) ISM below 50                                                              (3) ISM above 50
                                            and contracting                                                               and contracting
                                   -0.50%
                                        -0.30%   -0.20%       -0.10%       0.00%       0.10%       0.20%          0.30%      0.40%     0.50%
                                                                       Sensitiv ity to ISM (dev iation from 50)

Source: Based on multiple regressions of quarterly asset returns on the deviation of ISM from 50 and the quarterly
point change in the ISM index. How to read the chart: The x-axis represents asset out- or underperformance (per
quarter) for each point the ISM index is above 50. The y-axis represents asset out- or underperformance (per quarter)
for each positive point change in the ISM. Thus, REITs outperform by an additional c0.05% for each point the ISM
reads above 50, and c0.30% for each point the ISM index rises from the previous quarter.




3
  All asset returns are expressed relative to a benchmark US asset portfolio: 50% equities, 25% government bonds,
10% corporate bonds and 5% each for commodities, REITs and cash. REITs data only available from 1972.


                                                                                                                                                                     UBS 5
Weekly Weight Watcher 25 June 2010


Chart 8: Asset relative return sensitivity to GDP growth cycles


                                        0.80%
                                                 (1) GDP below trend                                                (2) GDP above trend
                                                 and expanding                REITs                                 and expanding
                                        0.60%

                                                                   Equities
  Sensitivity to change in GDP growth




                                        0.40%

                                        0.20%                                                                 Commodities

                                        0.00%

                                        -0.20%                                                      Cash

                                        -0.40%

                                                         Corp bonds
                                        -0.60%
                                                 (4) GDP below trend                                              (3) GDP above trend
                                                                                      Gov t bonds
                                                 and contracting                                                  and contracting
                                        -0.80%
                                             -0.30%   -0.20%     -0.10%        0.00%      0.10%       0.20%     0.30%       0.40%   0.50%
                                                                 Sensitiv ity to GDP grow th (dev iation from 10Y trend)

Source: Based on multiple regressions of quarterly asset returns on the deviation of GDP growth from the 10- year
trend and the quarterly point change in the growth rate. How to read the chart: The x-axis represents asset out-or
underperformance (per quarter) for each point growth is above trend. The y-axis represents asset out- or
underperformance (per quarter) for each positive point change in GDP growth. Thus, REITs underperform by an
additional 0.1% for each point growth reads above trend, and outperform by 0.65% for each point growth rises from
the previous quarter.

                            Equities: Equities perform best when growth is quickening, but sensitivity to
                            above- or below-trend growth is insignificant. In other words, the pace of
                            expansion or contraction matters most for equities. Thus, equities tend to do
                            well in the very early stages of recovery, when growth rates are still below
                            trend or negative, but getting ‘less bad’. Moreover, equities can continue to
                            do well as long as growth accelerates.

                            REITs: Like equities, REITs appear most sensitive to the pace of growth
                            expansion or contraction—accelerating growth rates are positive for REIT
                            returns. REITS seem to have higher beta to momentum in growth.

                            Commodities: Commodity returns are best when the ISM index is far above                                         Late cycle performers
                            50 or GDP growth is above trend. There is also some evidence that
                            accelerating GDP growth can be beneficial to commodity prices, though
                            that’s not the case with the ISM index. Thus, commodities are more suited as
                            late-cycle assets, producing their best returns when growth is nearing
                            maturity.

                             Cash: Overweight cash allocations are best when growth reaches maturity.
                            At this point of the cycle growth is still positive but decelerating, cash
                            interest rates are likely to be relatively high, and other more cyclically
                            sensitive assets may plateau. Thus, cash does best when there are first signs
                            of an upcoming slowdown.




                                                                                                                                                                    UBS 6
Weekly Weight Watcher 25 June 2010


    Government bonds: Bond returns are particularly sensitive to a contraction                           Best when things are bad
    of growth, particularly when growth is already below-trend. Government
    bonds provide their highest returns during the worst stages of the economic
    cycle—when growth has fallen below trend or has turned negative, and the
    growth rate is decelerating.

    Corporate bonds: Like government bonds, corporate credit has performed
    best when growth is below-trend or negative, and still decelerating. Still,
    credit’s sensitivity to worsening economic conditions is not as high as is the
    case for government bonds, suggesting credit may provide better returns
    (relative to government bonds) when growth is nearing its trough. At first
    glance, good credit performance at the depths of a slowdown may seem
    odd—after all, that’s when default risk is most prevalent and credit spreads
    are likely widening. Still, out-performance may be supported by relatively
    high credit yields.

What time is it now?
Reading our investment clock literally, a slowdown in growth momentum                                    Investment Clock suggests a rotation
suggests a rotation into fixed income allocations from equities and REITS.                               into fixed income is warranted but…
Commodities are likely to benefit as long as the recovery can continue.
However, there are several reasons why we might not want to take the ‘clock’ at
face value. The analysis ignores the effect that other macro and policy indicators
may have on asset markets, and it is focussed on the US economy and markets
only. The table below highlights the absolute and risk-adjusted performance of
various asset markets in periods where US payrolls were expanding but the ISM
was declining (a likely scenario ahead). US Equities and US REITS produced
the best absolute returns during these periods, though the best risk-adjusted
returns came from corporate bonds and REITS.

Table 1: Returns and volatility during periods in which Payrolls went up and ISM down

                         US Treasuries   US Corp credit US Equities     Commodities    US REITs

Annualized Return                 7.4%           8.3%           10.4%           1.5%          14.1%

Annualized Volatility             8.0%           7.0%           14.1%          11.7%          14.7%

Sharpe Ratio                      0.92            1.18           0.74           0.13              0.96

Source: UBS, Bloomberg

Moreover as we have highlighted, it is likely that the recovery remains rather                           Momentum is likely to ebb and flow,
uneven – growth and momentum may flip-flop from quarter to quarter. Finally,                             and government bond valuations look
taking into account current relative valuations in markets suggests a preference                         stretched
for equity over government bonds, while we also believe corporate credit should
benefit from continued improvement in fundamentals.

So, although growth momentum is likely to slow further in the near-term, we do
not expect a precipitous decline in the ISMs or real GDP. We also continue to
forecast a recovery in other real economic indicators such as the US labour
market. This combination may lead investors to act cautiously, and perhaps lead
them to expect range-bound indicators and markets. In this environment, we
think there are benefits to a relatively balanced portfolio skewed towards income
generation and defensive assets.



                                                                                                                                          UBS 7
Weekly Weight Watcher 25 June 2010


We retain preferences for defensive equities in the US, emerging markets, and
Japan, as well as an overweight allocation to US high-yield credit. We also
maintain overweights in commodities (soft commodities, agriculture and
precious metals) and continue to hold underweight positions in government
bonds and cash.




                                                                                UBS 8
Weekly Weight Watcher 25 June 2010


Growth model update
We introduced a tactical asset allocation model developed by Geoff Kendrick in
the February 12, 2010 edition of the Weekly Weight Watcher. The model utilises
statistical properties of the UBS growth surprise index to generate timing
recommendations between ‘risk’ and ‘defensive’ asset classes, and is a useful
addition to our asset allocation toolkit. Below is an update of the most recent
‘trade signal’ and model performance.




Past performance is not an indication of future results.


                                                                                  UBS 9
Weekly Weight Watcher 25 June 2010


Asset allocation overview
Table 2: Overview of global asset allocation
                                                                                                                   Chart 9:Asset class tilts
                                Benchmark           Current      Previous*            Load (x)    Prev load (x*)
                                                                                                                                  Equities
 Equities
       N. America                    26.0%           27.0%           27.0%                 1.04             1.04           Commodities
       Japan                           4.0%           4.5%            4.5%                 1.13             1.13            Corp Bonds
       United Kingdom                  4.0%           4.0%            4.0%                 1.00             1.00             Real Estate
       Europe                          8.5%           8.5%            8.5%                 1.00             1.00
                                                                                                                                    Cash
       Asia                            5.5%           6.0%            5.5%                 1.09             1.00
                                                                                                                                 I-L Bonds
       Rest of world                   2.0%           2.0%            2.0%                 1.00             1.00
   Total equities                    50.0%           52.0%           51.5%                 1.04             1.03            Gov t Bonds

                                                                                                                      -2.50% -1.25% 0.00% 1.25% 2.50%
 Government
                                                                                                                         Underw eight      Ov erw eight
       United States                   7.0%          6.25%            6.5%                 0.89             0.93
       Europe                          9.0%           8.5%            8.5%                 0.94             0.94
                                                                                                                   Source: UBS
       UK                              2.0%           1.5%            1.5%                 0.75             0.75
       Japan                           3.5%          3.25%           3.25%                 0.93             0.93
       Dollar bloc                     1.0%           1.0%            1.0%                 1.00             1.00
   Total gov’t bond                  22.5%           20.5%          20.75%                 0.91             0.92


 Inflation indexed
       United States                   1.0%          0.25%            0.5%                 0.25             0.50
       UK                              1.0%           0.5%            0.5%                 0.50             0.50
       Europe                          0.5%           0.0%            0.0%                 0.00             0.00
   Total infl. indexed                 2.5%          0.75%            1.0%                 0.30             0.40


 Corporate bonds
       US inv. grade                   6.0%           6.0%            6.0%                 1.00             1.00
       US high yield                   1.5%           2.5%            2.5%                 1.67             1.67
       Euro inv. grade                 2.0%           2.0%            2.0%                 1.00             1.00
       Sterling inv. grade             0.5%           0.5%            0.5%                 1.00             1.00
   Total corp. bonds                 10.0%           11.0%           11.0%                 1.10             1.10


 Commodities
       Energy                          1.0%           1.0%            1.0%                 1.00             1.00
       Industrial metals               1.0%           1.0%            1.0%                 1.00             1.00
       Precious metals                 1.0%           2.0%            2.0%                 2.00             2.00
       Agriculture                     1.0%          1.25%           1.25%                 1.25             1.25
       Livestock                       1.0%          1.25%           1.25%                 1.25             1.25
   Total commodities                   5.0%           6.5%            6.5%                 1.30             1.30


 Listed real estate
       United States                   2.5%           2.5%            2.5%                 1.00             1.00
       Europe                          0.5%           0.5%            0.5%                 1.00             1.00
       UK                              0.5%           0.5%            0.5%                 1.00             1.00
       Japan                           0.5%           0.5%            0.5%                 1.00             1.00
       Asia                            1.0%           1.0%            1.0%                 1.00             1.00
   Total real estate                   5.0%           5.0%            5.0%                 1.00             1.00


 Cash                                  5.0%          4.25%           4.75%                 0.85             0.95
Source: UBS
Note: Load (x) = current weight / benchmark weight; * current as of 21 June 2010, previous as 14 May 2010




                                                                                                                                                    UBS 10
Weekly Weight Watcher 25 June 2010


Asset class tilts by region
Chart 10: Equities                                                                Chart 11: Government bonds

      N America                                                                       Dollar bloc

             Asia
                                                                                          Japan
           Japan
                                                                                         Europe
    Rest of World
                                                                                             UK
          Europe

 United Kingdom                                                                    United States


                 -2.0%          -1.0%           0.0%       1.0%            2.0%                 -2.0%           -1.0%              0.0%      1.0%            2.0%
                                        Tilt Size                                                                           Tilt Size
                         Underw eight                      Ov erw eight                                 Underw eight                          Ov erw eight


Source: UBS. Note: Calculated as current weight minus benchmark weight            Source: UBS. Note: Calculated as current weight minus benchmark weight

Chart 12: Inflation-indexed bonds                                                 Chart 13: Corporate bonds


                                                                                       US High Yield
       Europe

                                                                                   Sterling Inv Grade
           UK
                                                                                      Euro Inv Grade

 United States
                                                                                       US Inv Grade


              -2.0%           -1.0%            0.0%       1.0%             2.0%                      -2.0%          -1.0%           0.0%      1.0%           2.0%
                                        Tilt Size                                                                                Tilt Size
                     Underw eight                           Ov erw eight                                     Underw eight                    Ov erw eight


Source: UBS. Note: Calculated as current weight minus benchmark weight            Source: UBS. Note: Calculated as current weight minus benchmark weight

Chart 14: Commodities                                                             Chart 15: Listed real estate

 Precious Metals                                                                            Asia

        Liv estock                                                                        Japan

       Agriculture                                                                           UK

 Industrial Metals                                                                       Europe

          Energy                                                                   United States


                 -1.0%          -0.5%          0.0%        0.5%            1.0%                 -1.0%           -0.5%              0.0%      0.5%            1.0%
                                            Tilt Size                                                                       Tilt Size
                         Underw eight                     Ov erw eight                               Underw eight                            Ov erw eight

Source: UBS. Note: Calculated as current weight minus benchmark weight            Source: UBS. Note: Calculated as current weight minus benchmark weight

We would like to thank Raj Choudhary, an employee of Cognizant Group, for
his assistance in preparing this research report. Cognizant staff provide research
support services to UBS.


                                                                                                                                                             UBS 11
Weekly Weight Watcher 25 June 2010




    Analyst Certification

Each research analyst primarily responsible for the content of this research
report, in whole or in part, certifies that with respect to each security or issuer
that the analyst covered in this report: (1) all of the views expressed accurately
reflect his or her personal views about those securities or issuers; and (2) no part
of his or her compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed by that research analyst in the
research report.




                                                                                       UBS 12
Weekly Weight Watcher 25 June 2010


Required Disclosures

This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates
are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product;
historical performance information; and certain additional disclosures concerning UBS research recommendations,
please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is
not a reliable indicator of future results. Additional information will be made available upon request.

UBS Investment Research: Global Equity Rating Allocations
                                                                                                   1                                2
 UBS 12-Month Rating                 Rating Category                                     Coverage                      IB Services
 Buy                                 Buy                                                       50%                             39%
 Neutral                             Hold/Neutral                                              40%                             33%
 Sell                                Sell                                                      11%                             24%
                                                                                                   3                               4
 UBS Short-Term Rating               Rating Category                                     Coverage                      IB Services
 Buy                                 Buy                                               less than 1%                            29%
 Sell                                Sell                                              less than 1%                             0%
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within
the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided
within the past 12 months.

Source: UBS. Rating allocations are as of 31 March 2010.
UBS Investment Research: Global Equity Rating Definitions
 UBS 12-Month Rating                 Definition
 Buy                                 FSR is > 6% above the MRA.
 Neutral                             FSR is between -6% and 6% of the MRA.
 Sell                                FSR is > 6% below the MRA.
 UBS Short-Term Rating               Definition
                                     Buy: Stock price expected to rise within three months from the time the rating was assigned
 Buy
                                     because of a specific catalyst or event.
                                     Sell: Stock price expected to fall within three months from the time the rating was assigned
 Sell
                                     because of a specific catalyst or event.




                                                                                                                              UBS 13
Weekly Weight Watcher 25 June 2010


KEY DEFINITIONS
 Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12
months.
 Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a
forecast of, the equity risk premium).
 Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are
subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation.
 Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any
change in the fundamental view or investment case.
Equity Price Targets have an investment horizon of 12 months.

EXCEPTIONS AND SPECIAL CASES
UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,
performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:
Negative on factors such as structure, management, performance record, discount.
Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review
Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's
debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.
When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.




This report was sent to the issuer prior to publication solely for the purpose of checking for factual accuracy, and no material
changes were made to the content based on the issuer's feedback.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.




                                                                                                                              UBS 14
Weekly Weight Watcher 25 June 2010




Global Disclaimer

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