Securities-based Lending A Financing Alternative For Investors Provided by: Michael Alioto, Senior Vice President, UBS Financial Services Inc. I f you have a portfolio that may be used as collateral for a loan, you may be able to access liquidity without immediately liquidating securities and still maintain your portfolio's current exposure to the market. This is known as securities-based lending. What is Securities-Based Lending? Securities-based lending is generally a revolving line of credit that uses your eligible invest- ment portfolio as collateral. This strategy allows you to access funds without immediately liquidating your portfolio. In order to establish a securities-based loan, your portfolio is pledged to a lending insti- tution as collateral. This gives you, the investor and the borrower, the ability to access liquidity while maintaining your portfolio's current exposure to the market. You will con- tinue to receive the benefit of any dividends, interest or capital appreciation that may accrue in the account. However, if you have an outstanding loan balance and the portfolio used to secure that loan declines in value, the lending institution may require you to post additional collateral or repay part or all of the loan. The lending institution may also liquidate all or part of the portfolio, which may interrupt your long-term investment strategy and could result in adverse tax consequences. For Whom Is Securities-Based Lending Appropriate? A securities-based loan may be an alternative to traditional borrowing for an investor who wants access to borrowing for non-purpose use. Since there is risk involved in this type of strategy, this avenue should be explored only if you are risk tolerant. What is Non-Purpose Borrowing? Loans that are provided by lenders, such as banks and brokerage firms, must be classified as either purpose or non-purpose, as directed by the Federal Reserve. The proceeds of a non-purpose loan may not be used to purchase, carry or trade securities. Therefore a non- purpose securities-based loan is a loan that uses an eligible investment portfolio as collateral for funds for purposes other than purchasing, trading, or carrying securities, or for refinanc- ing other debt used for these purposes. Some uses for a non-purpose loan include: • Financing real estate opportunities • Paying taxes • Refinancing high interest debt' • Financing business opportunities • Funding higher education • Buying a luxury item Non-purpose borrowing against an eligible investment portfolio has a number of benefits that are not available with traditional margin borrowing. While a margin loan must be drawn in the same account where the eligible securities are held, a non-purpose loan is held in a different account; thus, multiple asset accounts may be pledged to secure one non-pur- pose loan. This structure is particularly useful in situations where multiple parties wish to secure a loan for a single borrower, for example, business partners securing a business loan for their company. In addition, there are often higher borrowing limits or release percent- ages against the value of your eligible securities when they are pledged for a non-purpose loan. What Types of Non-Purpose Securities-Based Loans Are Typically Available? The terms and/or types of non-purpose securities-based loans will vary by lending institu- tion; however, in general, these loans are uncommitted, demand facilities with either a fixed interest rate for a period of time or a variable rate. The lender may require repayment of a demand loan at any time, without notice. For more information about whether securities-based lending may be an appropriate financing solution for you, contact your financial advisor as well as your legal and tax advisors. 1 Non purpose loans may not be used to purchase, trade or carry securities or to repay debt used to purchase trade or carry securities owed to the lender. Neither UBS Financial Services Inc. nor its employees provide legal or tax advice. You should consult your legal and tax advisors regarding the legal and tax implications of borrowing using securities as collateral for a loan. For a full discussion of the risks associated with borrowing using securities as collateral, please review the Loan Disclosure Statement that will be included in your application package. Borrowing using securities as collateral entails risk and may not be appropriate for your needs. This article has been written and provided by UBS Financial Services Inc. for use by its Financial Advisors. Do you need h aging vestmen If you are like many investors, you may be overreacting to daily market ups and downs—buying or selling without a clear investment strategy. In today's complex marketplace, this could be costing you money or exposing you to undue risk. That's why we offer individuals and institutions a variety of advisory programs in which experienced professionals take on the complicated task of day-to-day portfolio management, while you maintain control of your financial destiny. You'll benefit from: • Personalized investment strategy • Strategic portfolio allocation • Ongoing consultation and evaluation For a complimentary consultation, contact The Alioto Group Michael Alioto Senior Vice President–Investments Wealth Advisor 248-645-3900 michael.alioto@ubs.com Kelly Petrocella Senior Vice President–Investments 248-645-3933 kelly.petrocella@ubs.com Brandon Love, CFP® Account Vice President Advisory & Brokerage Services 248-645-3926 brandon.love@ubs.com William Bottrell, CRPS® Financial Advisor Advisory & Brokerage Services 248-645-3934 william.bottrell@ubs.com 325 North Old Woodward Avenue, Birmingham, MI 48009 www.ubs.com/financialservicesinc Since separately managed accounts programs are not suitable for all investors, UBS Financial Services Inc. must review an investor's investment objectives, risk tolerance and liquidity needs to determine suitability prior to an investment with any manager or investment program. Separately managed accounts programs offered by UBS Financial Services Inc. are subject to minimum amount requirements. Minimum account size is generally $100,000. Higher minimums apply to certain strategies and Multiple Style Accounts. *UBS Wealth Management UBS Financial Services Inc. is a subsidiary of UBS AG. ©2010 UBS Financial Services Inc. All rights reserved. Wealth management services in the U.S. are provided by UBS Financial Services Inc., a registered broker-dealer offering securities, trading, brokerage, and related products and services. Member SIPC. Member FINRA. CFP• is a certification mark owned by Certified Financial Planner Board of Standards, Inc. Chartered Retirement Plans Specialists" and CRPS• are registered service marks of the College for Financial Plannine.8.19Ad_935.6.333_rzo122_petK ADVERTISEMENT 0001565930