The ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSE: MORL) ("MORL" or the "ETN") is an exchange-traded note linked to the monthly compounded 2x leveraged performance of the Market Vectors® Global Mortgage REITs Index (the "Index"), reduced by the Accrued Fees. MORL is listed on the NYSE Arca exchange, is denominated in USD, and pays a USD-denominated variable monthly coupon linked to 2 times the cash distributions, if any, on the Index constituents, less any withholding taxes.
The Market Vectors® Global Mortgage REITs Index (the "Index") is a float-adjusted, market capitalization-weighted index designed to measure the performance of publicly-traded mortgage REITs. The Index provides 90% coverage of the investable mortgage REIT universe based on strict size and liquidity requirements. The Index is a price return index (i.e., the reinvestment of dividends is not reflected in the Index; rather, any cash distributions on the Index constituents, less any withholding taxes, are reflected in the variable monthly coupon that may be paid to investors of the ETN). While the Index is designed to represent global mortgage REITs, it currently consists of only US-listed mortgage REITs.
The Index was created on August 4, 2011 and, therefore, has no performance history prior to that date.
|Name||ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN|
|Underlying Index||Market Vectors® Global Mortgage REITs Index|
|Primary Exchange||NYSE Arca|
|Initial trade date||October 16, 2012|
|Maturity date||October 16, 2042|
|2x Index yield*||24.82%|
|Annual Tracking Rate||0.40% per annum|
Source Bloomberg. *Based on two times the Index yield calculated as of September 30, 2012 by Market Vectors. Investors are not guaranteed any coupon or distribution amount.
|Net Change||-0.32||20 Day Volume Average||105,516.80|
|% Change||-0.01||Shares Outstanding||2,450,000|
|High (52 week)||32.25||Market Cap||64,361,503.60|
|Low (52 week)||18.53||Daily Indicative Value||26.31|
|Updated on: May 24, 2013|
|Payment date||Amount per security||Ex-date||Record date|
|Total annual dividend paid 2012: $0.1043|
|Company||Adjusted weight (%)|
|Annaly Capital Management Inc||NLY||19.03%|
|American Capital Agency Corp||AGNC||14.53%|
|Two Harbors Investment Corp||TWO||5.20%|
|MFA Financial Inc||MFA||5.17%|
|Hatteras Financial Corp||HTS||4.84%|
|Invesco Mortgage Capital||IVR||4.70%|
|Armour Residential REIT Inc||ARR||4.64%|
|Chimera Investment Corp||CIM||4.63%|
|Starwood Property Trust Inc||STWD||4.43%|
|CYS Investments Inc.||CYS||4.37%|
*Source: Market Vectors; as of October 11, 2012
Selected risk considerations:
Selected risk considerations
An investment in the ETNs involves risks. Selected risks are summarized here, but we urge you to read the more detailed explanation of risks described in the “Risk Factors” sections of the applicable product supplement and pricing supplement for the ETNs (collectively, the “ETRACS Prospectus”). Capitalized terms used below (and elsewhere in this document) but not defined herein shall have the meanings attributed to them in the ETRACS Prospectus.
• You may lose some or all of your investment - The ETNs are exposed to two times any monthly decline in the level of the Index. The monthly compounded leveraged return of the Index will need to be sufficient to offset the negative effect of the Accrued Fees and Redemption Fee, if applicable, less any Coupon Amounts and Stub Reference Distribution Amount, if any, in order for you to receive an aggregate amount over the term of the ETNs equal to your initial investment in the ETNs. If the monthly compounded leveraged return of the Index is insufficient to offset such negative effect, or if the monthly compounded leveraged return of the Index is negative, you will lose some or all of your investment at maturity or call, or upon early redemption or acceleration.
• Correlation and compounding Risk - A number of factors may affect the ETN’s ability to achieve a high degree of correlation with the performance of the Index, and there can be no guarantee that the ETN will achieve a high degree of correlation. Because the Current Principal Amount is reset monthly, you will be exposed to compounding of monthly returns. As a result, the performance of the ETNs for periods greater than one month is likely to be either greater than or less than the Index performance times the leverage factor of two, before accounting for Accrued Fees and the Redemption Fee, if any. In particular, significant negative monthly performances of your ETNs may not be offset by subsequent positive monthly performances of equal magnitude.
• Leverage risk - The ETNs are two times leveraged long with respect to the Index, which means that you will benefit two times from any positive, but will be exposed to two times any negative, monthly performance of the Index, before accounting for the Accrued Fees and Redemption Fee, if any.
• Market risk - The return on the ETNs, which may be positive or negative, is linked to the monthly compounded leveraged return on the Index as measured by the Index Factor, and which, in turn, is affected by a variety of market and economic factors, interest rates in the markets and economic, financial, political, regulatory, judicial or other events that affect the Index Constituent Securities or the markets generally.
• Credit of Issuer - The ETNs are senior unsecured debt obligations of the issuer, UBS, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or call, or upon acceleration or upon early redemption, depends on the ability of UBS to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of UBS will affect the market value, if any, of the ETNs prior to maturity or call, or upon acceleration or upon early redemption. In addition, in the event UBS were to default on its obligations, you may not receive any amounts owed to you under the terms of the ETNs.
There are uncertainties regarding the Index because of its limited performance history.
The Index was first calculated on August 4, 2011, and therefore has no performance history prior to that date. Because the Index has no history prior to August 4, 2011, little or no historical information will be available for you to consider in making an independent investigation of the Index performance, which may make it difficult for you to make an informed decision with respect to an investment in the ETN.
• You are not guaranteed a coupon payment - You will not receive a coupon payment on a Coupon Payment Date if the Reference Distribution Amount for your ETNs is zero.
• The calculation of the Reference Distribution Amount and Stub Reference Distribution Amount may have to take into account withholding taxes, consequently reducing the Coupon Amount.
• Risk of Investing in Mortgage REITs -- Mortgage real estate investment trusts (“REITs”) are exposed to the risks specific to the real estate market as well as the risks that relate specifically to the way in which mortgage REITs are organized and operated, which include, among others, credit risk, interest rate risk, leverage risk, prepayment risk and U.S. federal tax requirements.
• A trading market for the ETNs may not develop - Although we intend to list the ETNs on NYSE Arca, a trading market for the ETNs may not develop. Certain affiliates of UBS may engage in limited purchase and resale transactions in the ETNs, although they are not required to and may stop at any time. We are not required to maintain any listing of the ETNs on NYSE Arca or any other exchange.
• The ETNs may not provide a hedge against price and/or value decreases or increases - The ETNs may not provide a hedge against a decrease or increase in the price and/or value of any asset, sector or index.
• Minimum redemption amount - You must elect to redeem at least 50,000 of the ETNs for UBS to repurchase your ETNs, unless we determine otherwise or your broker or other financial intermediary bundles your ETNs for redemption with those of other investors to reach this minimum requirement and there can be no assurance that they can or will do so. Therefore, the liquidity of the ETNs may be limited.
• Your redemption election is irrevocable - You will not be able to rescind your election to redeem your ETNs after your redemption notice is received by UBS. Accordingly, you will be exposed to market risk in the event market conditions change after UBS receives your offer and the Redemption Amount is determined on the Redemption Valuation Date.
• Potential automatic acceleration - In the event the indicative value of the ETNs is equal to $5.00 or less on any Trading Day or decreases 60% in value from the closing indicative value of the ETNs on the previous Monthly Valuation Date, the ETNs will be automatically accelerated and mandatorily redeemed by UBS and you will receive a cash payment equal to the Acceleration Amount as determined during the applicable Measurement Period. The Acceleration Amount you receive on the Acceleration Settlement Date may be significantly less than $5.00 per ETN and may be zero if the price of the ETNs continues to decrease during trading on one or more Trading Days during such Measurement Period.
• Uncertain tax treatment - Significant aspects of the tax treatment of the ETNs are uncertain. You should consult your own tax advisor about your own tax situation.
• UBS’s Call Right - UBS may redeem all outstanding ETNs at any time on or after the date specified in the pricing supplement, as described in the ETRACS Prospectus.
Important legal information specific to ETRACS ETNs
UBS has filed a registration statement (including a prospectus, as supplemented by a prospectus supplement for each offering of the ETRACS ETNs) with the Securities and Exchange Commission (the "SEC") for the offerings to which this communication relates. Before you invest, you should read these documents and any other documents that UBS has filed with the SEC for more complete information about UBS and the offerings to which this communication relates. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, you can request the prospectus and any applicable prospectus supplement by calling toll-free (+1-877-387 2275).
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