Filed pursuant to Rule 433
Registration Statement No. 333-180300-03
March 17, 2014
Hello. I’m Kamal Naqvi, Managing Director of Credit Suisse
Commodities. Welcome to this brief introduction on Commodity Investing and how we here at Credit Suisse have developed innovative
strategies that seek to take advantage of some of the opportunities specific to investing in commodities.
This video will introduce a new exchange traded note, CSCR, the Credit
Suisse Commodity Rotation ETN, which delivers exposure to the Credit Suisse Commodity Backwardation Total Return Index, which is
a rules-based strategy that seeks to concentrate long exposure to commodities that are in relative physical scarcity, this is based
on the logic that historically, commodities in relative scarcity tend to outperform those in oversupply. The index uses the slope
of the commodity futures curves to provide a dynamic indication of relative scarcity. Please refer to the prospectus for this product
for complete details.
Let’s start with an overview of investing in commodities.
1.01 (Slide 1)
There are many existing indices that represent a diversified commodities
investment, with the traditional benchmarks being the S&P GSCI and the Dow Jones UBS indices, shown here as 1
st
generation beta, or market exposure. These indices are underpinned by commodity futures (as opposed to actual physical commodities)
and benefit from the liquidity and transparency of these markets.
1.23 (Fade out Slide 1)
Mutual funds began embracing the futures-tracking concept in 1997,
and multiple exchange traded products have followed. In using futures to track a commodity’s return within an index, expiring
futures contract positions are ‘rolled’ into new contract positions on a pre-determined basis in order to maintain
exposure to the underlying commodities. If collateral is posted to the futures, components to the total return for this position
include: the price of the commodity, roll yield of the underlying commodity futures and income on collateral. Enhanced versions
of commodity investing have focused on attempting to improve roll yield and/or providing dynamic exposure to individual commodities.
2.05 (Slide 1 again)
For example the CSCB, the Credit Suisse Commodity Benchmark, shown
here as 2
nd
generation Beta, uses extended roll periods, rebalancing and multiple contracts to enhance the roll process.
2.18 (Fade out Slide 1)
2.20 (Slide 2)
Passive commodity indices with broad exposure across the full spectrum
of the commodities universe like the S&P GSCI and the Dow Jones UBS have struggled to produce positive returns in recent years.
In addition, we have seen an increasing divergence in individual commodity returns, with some commodities producing positive returns,
while others experienced significant negative returns. These divergences in individual returns have largely been in line with the
idiosyncratic physical fundamentals of supply, demand and inventory.
2.50 (Fade out slide 2)
We believe that this is likely to continue to be the environment
for this stage of the commodity cycle and that the strategies that are most likely to perform well during this stage are those
that are able to capture these divergences.
3.03 (Slide 3)
Shown here as Dynamic Beta, the CS Commodity Backwardation Total
Return Index is rules-based and seeks to concentrate long exposure to commodities that are in, relative physical scarcity. This
is based on the logic that historically commodities in relative scarcity tend to outperform those in oversupply.
3.22 (Fade
out Slide 3)
The Index uses the slope of commodities futures curves to provide
a dynamic indication of relative scarcity.
Each commodity has its own futures curve which, at least in part,
is a reflection of the market’s expectation of where prices will be in the future based on physical supply and demand.
3.40 (Slide 4)
As noted already, the slope of the commodity futures curve can be
used as a proxy for the market’s reflection of relative scarcity. If the price of nearer-dated futures contracts are higher
than the prices of the futures contracts further out the curve, then the market is perceived to be tightly supplied and this is
known in the commodity market as being in Backwardation. If the contrary is true, and the market is perceived to be in ample or
over-supply, then the futures curve tends to be upward sloping, that is the price of the futures contracts further out on the curve
are higher than for nearer-dated futures contracts, then the market is said to be in Contango.
4.18 (Fade out Slide 4)
The level of backwardation or contango in commodities changes through
time. The commodities exposure in the Index dynamically changes to reflect this and seeks to capture changes in physical supply
and demand through time. By allocating the exposure in the Index dynamically based on the most backwardated (or least contangoed)
commodities, the strategy seeks to concentrate long exposure to commodities that are in, relative scarcity with potential for improved
performance compared to traditional static or passive indices.
4.53 (Slide 5)
The CS Commodity Backwardation Total Return Index strategy has a
monthly 4 step process to determine its commodity exposure as you can see here. First, the level of backwardation, or basis, is
calculated for each commodity, 2
nd
the commodities are ranked by basis, 3
rd
the 8 commodities are selected
based on the ranking, and finally the portfolio investments are implemented.
5.15 (Fade out Slide 5)
We’ll discuss each step in detail.
5.21 (Slide 6)
Step 1: The level of backwardation or contango, which we refer to
as the “basis,” is calculated for each of the 24 eligible commodities. The basis is measured between the nearest dated
(or “front month”) contract (month 1) and the contract designated by us as the position “6” on the futures
curve.
5.38 (Fade out Slide 6)
This position “6” could refer to the futures contract
for the delivery in the 4th, the 5th or the 6th months in the future, dependent on certain liquidity considerations set forth in
the Index methodology.
5.51 (Slide 7)
Step 2: The commodities are ranked on the basis of level of backwardation.
Step 3: The 8 most backwardated (or least contangoed) commodities
are selected subject to a maximum number of components per sector, known as sector caps.
6.06 (Fade out Slide 7)
This seeks to avoid too much concentration in any one sector.
6.12 (Slide 8)
Step 4: Each commodity is allocated an equal weight in the Index
of 12.5%. We use the CSCB 4X6F single commodity indices to provide exposure to the commodity futures markets determined by the
Index methodology.
6.27 (Fade out Slide 8
)
These Credit Suisse proprietary indices provide exposure to contracts
for delivery within four to six months for each commodity and apply the features of the Credit Suisse Commodity Benchmark Index
family, including extended roll periods, multiple contracts, all in an effort to limit market impact.
The CS Commodity Backwardation Total Return Index runs this allocation
model every month and is always fully allocated with long exposure to the selected components. It does not provide short exposure
to any components.
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The CS Commodity Backwardation Total Return Index strategy uses a rules-based
methodology that is designed to be transparent and verifiable.
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The exposure is expressed through individual commodity indices that
track the underlying futures contracts.
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7.15 (Slide 9)
The resulting performance through January 31
st
, 2014
can be seen here. Since the inception of the CS Commodity Backwardation Total Return Index in February 2012, it has outperformed
the S&P GSCI and Dow Jones UBS by 2.4% and 4.9%, respectively, and has a stronger Sharpe ratio (-0.23 vs. -0.36 and -0.65),
indicating a stronger risk vs. return profile.
7.43 (Fade out slide 9)
7.43 (Slide 10)
The CSCR ETN’s objective is to deliver the return of the CS
Commodity Backwardation Total Return Index in the form of an exchange traded note. Credit Suisse ETNs are cost-efficient, have
daily exchange liquidity and directly track various indexes.
7.57 (Fade out slide 10)
7.59 (Slides 11-14)
Certain risks associated with investing in the CSCR ETN include:
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Investors are subject to the credit risk of Credit Suisse
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The ETNs provide no rights in any physical commodities
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Commodity price volatility is characteristically high and unpredictable,
and there is no assurance that the strategy on which the Index is based will be successful
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The fees and expenses associated with the ETN may offset some or all
of the gains from this implementation of the CS Commodity Backwardation Total Return Index strategy.
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All risks should be considered before investing, and investors should
carefully review the prospectus before determining if this investment is right for them.
8.38 (Fade out slide 14) In conclusion, we hope this brief introduction
to Commodity Investing and the CSCR ETN has been helpful. Thank you for your time today and please contact us for further information.
End with Slide 15/logo
Credit Suisse AG (“Credit Suisse”) has filed a registration
statement (including prospectus supplement and prospectus) with the Securities and Exchange Commission, or SEC, for the offering
of securities. Before you invest, you should read the applicable pricing supplement, the Prospectus Supplement dated March 23,
2012, and Prospectus dated March 23, 2012, to understand fully the terms of the ETNs and other considerations that are important
in making a decision about investing in the ETNs. You may get these documents without cost by visiting EDGAR on the SEC website
at www.sec.gov. Alternatively, Credit Suisse, any agent or dealer participating in an offering will arrange to send you the pricing
supplement, prospectus supplement and prospectus if you so request by calling toll-free 1 (800) 221-1037.
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