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Portfolio recovery strategies

Actionable steps to accelerate growth

and protect wealth
For those striving to recover savings that evaporated
during the financial crisis, last year’s unexpectedly Six strategies to enhance return: Page
robust equity market rebound was surely good news. 1. Enhance the yield potential of a
Yet despite such a recovery, the portfolio assets of stock you own by writing
many investors still have a ways to go before regaining (i.e., selling) covered calls 4
their pre-crisis footing. 2. Review portfolio positions and
reallocate holdings toward
Although the outlook for the economy and financial sectors likely to outperform 5
markets continues to improve, the consensus of 3. Consider long-dated LEAPS
market forecasters does not anticipate a repeat of (Long-term Equity AnticiPation
strong market returns such as those we saw post Securities—a type of option) to
March 2009 lows. In such an environment, bridging maintain your upside exposure
the gap between where a portfolio is now and where where you feel you need to
it needs to be continues to be a major challenge for reduce your capital at risk 6
investors in 2010 and beyond.
4. Augment portfolio return potential
with a “cash-secured put” strategy 7
Recapturing lost ground
Getting your portfolio back on track may require you 5. Enhance upside potential with Return
to take a different approach to investing and achieving Optimization Securities (ROS) 8
your goals. To that end, we present twelve strategies 6. Magnify a market view by employing
that can help you recapture lost ground and protect Leverage Securities 9
hard-earned gains in an uncertain environment.
The first six ideas center on ways to enhance Six strategies to protect against loss:
return and another six focus on protecting capital 1. Limit downside risk while maintaining
in down markets. equity market exposure through a
market-linked CD 10
With limited upside potential for the capital markets 2. Protect stock positions by buying puts 10
expected over the near- to medium-term, it may help
to talk to your Financial Advisor about looking at the 3. Limit downside risk with an equity collar 11
available investment choices in a new light, seeing 4. Review and rebalance fixed income
beyond the traditional asset allocation strategies. It portfolio 12
may also help to begin managing your portfolio to 5. Hedge against inflation and rising
find incremental sources of return using time-tested interest rates 12
ideas whose value may have been lost in the over- 6. Hedge against future income tax
optimism of a bubble market. increases by investing in essential
service municipal bonds 12
Your Financial Advisor can discuss these strategies
in greater detail and help you determine which ones
might make sense for you in the context of a properly
diversified portfolio.
Roadmap for recovery

The fallout from the recent financial crisis left many 1. Look at the big picture.
investors with a diminished asset base. During such Consider your investment options within the
times of extreme crisis, investors sometimes oscillate context of a well-informed, up-to-date global
between desperate attempts to protect what’s economic outlook.
left in their portfolio and heroic efforts to recover
what’s been lost. The right approach is somewhere
in-between. 2. Use recent, reliable data.
Make sure your investment decisions are based
When starting with less in your portfolio, it becomes on up-to-date analyses, supported by reliable
even more important to plan carefully, execute data from a source that you trust.
efficiently and manage risk. In developing your own
roadmap for recovery, make sure to incorporate the 3. Keep perspective.
following sound investment principles:
Do not allow a set of extreme and rare events to
distort your long-term view. As we’ve learned,
bull markets don’t last forever, and a financial
crisis—even one as severe as the last one—does
not bring about the end of the world. Be a student
of history; seek to understand the ebb and flow of
past markets.

4. Know your risk tolerance.

The past two years have taught us very well about
our true tolerance for risk. Remember this lesson in
the years ahead for surely there will be more bear
markets in our future. Give careful consideration to
your income and liquidity needs and to your time
horizon. But keep in mind that arbitrarily avoiding
risks can be as damaging as taking on too much
risk. A thoughtful planning-based approach to
risk and portfolio management can help provide a
guide toward your goals.

5. Don’t go it alone.
An experienced Financial Advisor can help you with
all of the above. UBS has a number of planning
tools to help you create or update your financial
plan, as well as specialists in equities, fixed income
(taxable and tax-exempt) and most other asset
classes who serve as a deep reservoir of intellectual
capital from which our Financial Advisors can tap
in the course of working with you.

3
Six strategies to enhance return

Whether you believe the market will remain flat,

retreat or resume its upward climb, you can pursue Example: Say you buy 100 shares of XYZ, which
strategies that seek to bolster returns based on a has a current price of $44 per share, and you
given market scenario. Intelligent, informed sell one 3-month 45 call (i.e., with a $45 strike
risk-taking is key when taking this approach. (For a price) for a premium of $1.25. Here’s what
deeper discussion of risk, ask your Financial Advisor could happen:
for a copy of the report by UBS Wealth Management
Research (WMR), Risk: How much is enough? A new Scenario 1: XYZ remains below $45 throughout
strategy for moving forward in a changed world.) the three months to the option’s expiration and
Each of the six strategies below represents a is not called away. You keep your position in the
sophisticated way to take calculated risks in stock, plus any dividends, and retain the $1.25
your portfolio: per share premium. (If this stock paid no dividends,
this would translate to a current yield of about
2.84 %.) You then can repeat the process, sell
1. Enhance the yield potential of a stock another call going out three more months and
you own by writing (i.e., selling) bring in additional cash flow to the portfolio.
covered calls.1 (Based on these simple assumptions, you might
be able to generate an 11.36% yield over a year’s
If you expect a stock to trade within a range over time, even if the stock failed to appreciate.)
the next few months, consider selling call options
against it. You will receive a premium for selling the Scenario 2: XYZ rises above $45 in the three
call, which varies depending on the strike price and months to expiration and results in the stock being
time to expiration as well as market conditions. called away. This requires you to sell XYZ at $45,
This premium creates cash flow to enhance your even though the stock has risen above $45. You
portfolio return. By agreeing to sell your holding no longer own the stock, but you keep the call
at the designated level, you commit to giving up premium, plus any dividends paid on the stock
any increase in the stock above the strike price. while you owned it. Additionally, you will have a
(Generally, one call option can be sold for every $1/share profit on the stock for a gain of 2.27%.
100 shares of stock owned.) With the call premium yield of 2.84%, the total
return to your portfolio in this three-month
period is 5.11%.

Scenario 3: XYZ is equal to $45 at expiration. If

the stock is not called away, you can repeat the
process and sell another call.

1
Options involve risk and are not suitable for everyone. Prior to buying or selling an option you must receive a copy of the Options Disclosure document
entitled Characteristics and Risks of Standardized Options. The Option Disclosure document can be assessed at the following web address: www.
optionsclearing.com/about/publications/character-risks.jsp. To participate in the options markets, you must be qualified as a “suitable” investor, based
on your investment experience and capacity. There are three different levels of suitability. Although they may not be suitable for every situation,
strategies considered to be the least risky may be used in IRA or Qualified Retirement accounts.

4
2. Review your portfolio positions and
Example: Consider overweighting consumer
reallocate your holdings toward staples among your equity holdings. Because
sectors likely to outperform. the consumer staples sector is normally
considered a defensive play, this idea may
Although a buy-and-hold strategy may work well seem a bit counterintuitive in the midst of a
in a broadly upward trending market, successful recovering economy. However, WMR foresees
tactical investments can help boost portfolio strong prospects for long-term growth for a
returns even in more tenuous environments. number of firms in this sector because of their
WMR identifies tactical asset allocation ideas global reach and exposure to faster-growing
that are designed to take advantage of short- regions around the world. Given their attractive
to intermediate-term market opportunities and/ valuations and generous dividends, WMR
or limit exposure to overvalued asset classes and believes many of the companies in this sector
vulnerable markets. Certain trends within an offer a good total return story.
asset class or sector have the potential to drive
performance over time—perhaps over several
months or even years. The chart below illustrates
the extent to which different sectors have
outperformed the broader market. Your Financial
Advisor can share WMR’s tactical investment ideas
with you and help you evaluate which ones may
make sense for your portfolio.

Historical performance (1995 – 2009) of S&P 500 Index and its component sectors
Consumer Consumer Health S&P 500
Discretionary Staples Energy Financials Care Industrials Materials Technology Telecom Utilities Index
1995 18% 36% 26% 50% 55% 36% 17% 39% 37% 25% 34%
1996 11% 23% 22% 32% 19% 23% 13% 43% -2% 0% 20%
1997 32% 31% 22% 45% 42% 25% 6% 28% 37% 18% 31%
1998 40% 14% -2% 10% 42% 9% -8% 78% 49% 10% 27%
1999 24% -17% 16% 2% -12% 20% 23% 78% 17% -13% 20%
2000 -21% 14% 13% 23% 36% 5% -18% -41% -40% 52% -10%
2001 2% -8% -12% -11% -13% -7% 1% -26% -14% -32% -13%
2002 -24% -6% -13% -16% -20% -28% -8% -38% -36% -33% -23%
2003 36% 9% 22% 28% 13% 30% 35% 47% 3% 21% 26%
2004 12% 6% 29% 8% 0% 16% 11% 2% 16% 20% 9%
2005 -7% 1% 29% 4% 5% 0% 2% 0% -9% 13% 3%
2006 17% 12% 22% 16% 6% 11% 16% 8% 32% 17% 14%
2007 -14% 12% 32% -21% 5% 10% 20% 16% 8% 16% 4%
2008 -35% -18% -36% -57% -24% -42% -47% -44% -34% -32% -38%
2009 41% 15% 14% 17% 20% 21% 49% 62% 9% 12% 26%

Source: Datastream
Past performance is no guarantee of future results.

5
3. Consider long-dated LEAPS (Long-
Example: You’re very bullish on WXY, a company
term Equity AnticiPation Securities— you’ve owned for a long time, but selling shares
a type of option) to maintain your now may serve the objective of reducing your
upside exposure where you feel you single stock exposure or a tax planning strategy
to shelter gains with realized losses in the rest of
need to reduce your capital at risk. your portfolio. You sell your position at a price of
$50 per share, and with some of the gain, you
LEAPS have terms extending as far out as three to
buy January 2012 in-the-money LEAPS with a $40
five years—far longer than traditional options—and
strike price for $14—$10 for the intrinsic value plus
they generally tie up less money than owning the
$4 for the time value. You might want to take the
underlying stocks. In a situation where you desire
remaining $36 and put it into something safe, like
to book a profit in a stock you’ve owned a long
short-term, high-quality bonds, to boost retirement
time—perhaps to pay the capital gains at today’s
income. If the stock goes up, as you expect, you’ve
historically favorable rate—you can simultaneously
retained unlimited upside to WXY, replacing your
purchase a LEAPS call and retain upside exposure
exposure for about 25% of the value you had at
to the stock with very little capital at stake. (This is
risk. If the price of the stock drops to $30, you
also referred to as a stock replacement strategy.)
lose only the $14 premium you paid for the LEAPS
In effect, you’re immunizing your risk on the stock.
call, rather than the $20 you would have lost if
As the owner of the call, the most you can lose is
you had held on to the stock. Depending on how
the amount paid for the option. Yet you maintain
you reinvested the proceeds of the original stock
unlimited profit potential if the stock price rises
position, the portfolio will additionally benefit.
above the strike price.

6
4. Augment portfolio return potential
Scenario 1: ZYX remains above $45 between
with a “cash-secured put” strategy. now and expiration—option not assigned.
Have you and your Financial Advisor ever decided Limit order to buy 500 Sell 5 ZYX 2-month
that you should purchase a security at a specified ZYX @ 45 45 puts @ 1.25
price? If so, you have participated in a waiting No stock is bought No stock is bought
game. The stock will not be purchased until it Limit order still open Keep premium of
trades at or below your limit price. Instead of 1.25 x 5 contracts
waiting for that to happen, you could have sold =$625
a cash-secured put. A premium (the price of the
option) for selling a put option would be paid to By selling a cash-secured put or entering a limit
you for accepting the obligation to buy a stock that order to purchase the stock, you will not be able
you want in your portfolio at the price you select. to participate in a rise in the price of the
underlying. If the puts that were sold expired
Selling a cash-secured put involves selling a put without being assigned, the investor could sell
and investing additional money for the potential another five puts if he were still interested in
purchase of the stock in short-term U.S. Treasury owning 500 shares of ZYX.
securities. The purpose of having the money in the
account is to ensure that funds are available to Scenario 2: ZYX is below $45 at expiration—
purchase the stock should the put be assigned to option assigned.
the account. Limit order to buy Sell 5 ZYX 2-months
500 ZYX @ 45 45 puts @ 1.25
Own (long) 500 Own (long) 500 shares
Example: Stock ZYX is a stock that you would like
shares ZYX @ 45 ZYX @ 45.25
to own. Currently, it is priced at $47, but you feel
Less premium for put 1.25
it would be a good buy at $45 and that the stock
Net cost = 43.75
could reach that level within the next two months.
You can either place a limit order to buy ZYX at Using a limit order to buy ZYX, the breakeven
$45 or an order to sell ZYX puts with a $45 strike. would be what you paid for the stock. Selling the
Remember, by selling the puts with a $45 strike, put lowers the breakeven which is the strike price
you have the obligation to buy the stock at $45, less the premium, $45 - $1.25 = $43.75. Having
should the buyer of the options exercise the right sold the puts with a $45 strike, should ZYX decline
to sell ZYX. You would sell one put for every 100 considerably, you still have the obligation to buy
shares of stock that you are willing to purchase. the stock at $45. However, you do have the cost
reduction of the $1.25 premium received for the
Let’s compare these two strategies. Commissions sale. If a limit order had been used to purchase the
and taxes have not been taken into consideration stock at $45, you would begin losing money as
in these examples, although they can have a soon as ZYX dropped below 45 (the breakeven).
significant effect on your returns.
Scenario 3: ZYX is at $45 at expiration.
Place a limit buy order on 500 ZYX at $45 versus You may be in situation 1 or 2. With a limit order
selling five ZYX two-month $45 puts at 1.25 when at $45, you may or may not buy the stock. There
the stock is trading at $47. is no guarantee that you have bought ZYX at $45
until it trades below your limit price. If puts were
At expiration, the stock will either be above $45, sold, you have the obligation to buy 500 shares
in which case you will not buy the stock, or below of ZYX, and you may be assigned (have the stock
$45, in which case you can expect to buy the stock “put to you”) or the puts may expire worthless.
at $45. The outcome of each scenario is explained Either way, you retain the premium.
at right.

7
5. Enhance upside potential with Return
Example: You believe the U.S. stock market
Optimization Securities (ROS). is poised for moderate growth in the near- to
medium-term. So you decide to use a portion
If you’re comfortable taking some added market
of your portfolio’s equity allocation to purchase
risk, ROS, a type of structured product,2 can
Return Optimization Securities with Partial
help you enhance the upside potential of an
Protection linked to the S&P 500 Index. This
asset like an equity or commodity index, up to a
structured note has a term of 18 months,
predetermined maximum gain, without increasing
protection against the first 10% decline in
the downside market risk of the index. Although
the level of the S&P 500 and is designed to
ROS may enable you to regain some of what
pay double any positive index return up to a
you’ve lost more quickly, they come with little
maximum gain of 17%.
or no principal protection, so you need to
be comfortable with the potential downside
Any payment on an ROS, including any element
market risk.
of protection, is subject to the credit risk of
the issuer.

The table below illustrates some of the possible

outcomes with this investment.

Index ROS
return* return*
30% 2x positive index return to 17%
17% maximum
10% 2x positive index return to 17%
17% maximum
5% 2x positive index return to 10%
17% maximum
0% Protection against first 10% 0%
index decline
-10% Protection against first 10% 0%
index decline
-30% Protection against first 10% -20%
index decline

*At maturity.

2
Structured products offer ways to gain exposure to a particular asset class, while altering the asset class’s risk-return profile. Structured products
involve tradeoffs compared to traditional investments which should be considered carefully before investing. Structured products are designed to
be held to maturity, and any secondary market may be limited or may not materialize. Any payment on a structured product, including, if
applicable, any element of principal protection, is subject to the creditworthiness of the issuer. Please see applicable offering materials
for specific information on the risks associated with investing in the particular structured product.

8
6. Magnify a market view by employing
Scenario 1: At maturity, 12 months hence, the
Leverage Securities. S&P 500 has appreciated by 15%. The issuer
would pay you your $10 plus a return equal to 2x
Leverage Securities are structured products
15% minus the interest expense, or $12.97. Taking
designed to provide exposure to a specific
into account your 23-cent upfront fee, this would
underlying asset, such as an equity, bond or
represent a return of +26.8% on your investment.
commodity index, with a specified degree of
In this case, rather than the straight 15% return
leverage—e.g., two times leverage—for a
that you would have received on your traditional
predetermined time period (typically, 3 or 12
large-cap portfolio investment, the combination
months). Leverage Securities can be used to go
of traditional investments and the Double Long
long or short the underlying market. The path
Leverage Securities would return 16.5%, a 1.5%
the underlying index takes prior to maturity does
outperformance vs. your original allocation.
not affect the ultimate payout at maturity. But
you should be willing to tolerate potentially large
Scenario 2: At maturity, the index finishes down
movements in the value of the securities—positive
15%. The issuer would pay $6.97 per security.
or negative—along the way. And if your view
Taking into account the upfront fee, you’d be left
proves to be wrong, you could lose your entire
with a 31.9% total loss on your investment in the
investment. Because Leverage Securities are debt
Leverage Securities. However, the combination
securities issued by a financial institution, you need
of traditional investments and the Double Long
to be comfortable with the credit risk of the issuer.
Leverage Securities would return -16.5%, a 1.5%
underperformance vs. your original allocation.
Example: You are optimistic about the prospects
for the stock market, believing it will be higher at
Scenario 3: The index finishes flat at maturity.
the end of the next 12 months than it is currently.
The issuer would pay $9.97 per security, and
Your allocation to U.S. large-cap companies
taking into account the upfront fee, you’d be left
based on your profile is 30% of your portfolio,
with a 2.5% loss. In this case, the combination
or $500,000. Let’s assume this allocation closely
of traditional investments and the Double Long
tracks the performance of the S&P 500 Index.
Leverage Securities would return -0.30%, a slightly
Alternatively, to better address your investment
worse return vs. your original allocation.
view, you could keep 90% of your U.S. large-
cap equity allocation in traditional investments
Leverage Securities are also subject to the risk of
and allocate 10%, or $50,000, to the purchase
an automatic early redemption. In the case of
of Double Long Leverage Securities linked to the
Double Long Leverage Securities, if at any time
S&P 500 Index. For the purpose of this example,
prior to maturity the index is down by a pre-
assume the Double Long Leverage Securities have
specified percentage from its original trade date
an issue price of $10.23 per $10 principal amount
level, the issuer will redeem the securities early,
of the securities and incur an interest expense of
and you would likely suffer a substantial loss on
three cents over their term.
your investment.

Leverage Securities are intended for those investors

who have a high tolerance for risk. They represent
an aggressive strategy and should only be used
when you have a strong conviction of the market.

9
Six strategies to protect against loss

Perhaps even more important to your portfolio than 2. Protect your stock positions
strategies designed to enhance return are strategies
designed to mitigate downside risk. In spite of the
by buying puts.3
fact that few financial sectors were spared during
If you hold a stock and are concerned about
the recent market crisis, diversification remains critical
downside risk—but do not want to sell because
to effective risk management. While the benefits
you believe the stock may rise in value—you
of a diversified portfolio are more limited during a
can pay a premium to hedge against a loss in
crisis, portfolios with concentrated positions—where
the stock position. No matter what happens to
an individual holding makes up over 30% of total
the price of the stock, as the put owner, you can
holdings—tend to be even riskier.
sell the stock at the strike price at any time prior
to the put’s expiration. Thus, for the life of the
While it’s always critical to rebalance and appropriately
option, you’ve limited your downside risk by
reallocate your holdings within and across asset
paying a premium, while maintaining the stock’s
classes—it’s especially the case after a watershed
unlimited profit potential.
event like the one we have experienced in the past
two years. In addition, there are defensive strategies
that allow you to hedge the downside on a position
Example: You own XZY stock at $50 per share.
you are unable or unwilling to eliminate from your
You believe in the company’s long-term prospects
portfolio; certain strategies even allow you to retain
but are concerned that the short-term direction
some upside equity market exposure. Below, we
of the market may be down. You can buy a
discuss fixed income investments and a few strategies
protective put to hedge against downside loss and
you might consider to help limit the risk of rising
still maintain upside exposure. The table below
interest rates, future tax increases or stepped-up
illustrates two possible hedging strategies; each
inflation.
has different advantages and risks, depending on
the strike price. The upside breakeven is lower with
the out-of-the-money put, but the capital risk
1. Limit downside risk while maintaining is greater.
equity market exposure through a
market-linked CD. Buy 6-month put
Own At-the-money Out-of-
If you remain concerned about your portfolio’s risk XZY strike = $50 the-money
exposure but believe the market could continue strike = $45
to rise, an FDIC-insured marked-linked CD pays a
return based on the performance of a specified Stock cost $50 $50.00 $50.00
equity market (usually an index or basket of Put cost $0 $2.25 $1.00
indexes). You will receive 100% of your principal Total cost $50 $52.25 $51.00
back at maturity, subject to the credit risk of
At risk $50 $2.25 $6.00
the issuing bank and FDIC insurance limits. Also
available are market-linked CDs that pay interim
coupons, pay a minimum level of return or have
performance linked to other asset classes such as
commodities or foreign exchange.

3
Buying a put option in an equity position that does not have a “long-term” basis will eliminate the investor’s holding period. The holding period
for this purpose can only begin after the put option expires or is liquidated at a profit or loss.

10
3. Limit downside risk with an
Example: You own XYX stock, now trading at
equity collar. $44.75. To protect your downside, you could
purchase a 10-month put with a strike of $40
If you have an equity position that accounts for a
for $4.75, but you’d rather not pay such a high
large proportion of your net worth, but don’t want
premium. To lower the net cost of your protection,
or are unable to reduce that position, you can limit
you could at the same time sell 10-month calls
your downside if you’re willing to give up some of
with a strike of $50 for $4.50.
the stock’s upside potential. You can do this with
the simultaneous purchase of a put option and the
Scenario 1, worst case: XYX is trading below
writing of a call option. Both options are out of
$40 at expiration. By exercising your put and selling
the money and usually have the same expiration
your shares at $40, you can greatly limit your loss,
date. This strategy may make sense if you have
but you will have to absorb a loss of $4.75, plus
accumulated a large position through an employee
the $0.25 net cost of the collar; total loss would
stock purchase plan.
be $5.00 per share.

Scenario 2, best case: XYX is trading above $55

at expiration. It is likely that the investor who
purchased your call option will exercise his or her
right, and you will be obligated to sell your shares
at $50. You will then realize a gain of $5.25 less
$0.25 for the collar to net a gain of $5 per share.

Scenario 3: XYX is trading between $40 and $50

at expiration. Both the put you purchased and the
call you sold will expire worthless; your cost for the
collar (not including commissions) will be $0.25
per share, and you will have retained ownership of
XYX, with the ability to vote and receive dividends.

11
4. Review and rebalance your fixed 6. Hedge against future income tax
income portfolio. increases by investing in essential
service municipal bonds.
The fixed income landscape has radically changed
over the past year and a half. Carefully review If you’re in the top tax bracket, tax-exempts should
your fixed income portfolio for concentration risk continue to be a core holding in any taxable
across specific securities or industries. If you’re now portfolio. Taxes are likely to rise in future years,
comfortable assuming some credit risk, consider and this could make tax-free municipal bonds
extending a portion of your fixed income portfolio even more attractive on a relative basis. The muni
into AA- or A-rated corporates. If you’re nearing market is generally a high-quality market, but it’s
retirement, you may want to shift a greater portion best not to be cavalier about credit risk; stay with
of your portfolio into investments that can throw investments like essential services, e.g., water and
off income to help meet immediate cash flow sewer revenue bonds.
needs. Zero-coupon bonds are fine as part of a
growth-oriented strategy, but as you move closer
to retirement, consider converting some of these
holdings into a high-quality, diversified bond
portfolio with laddered maturities.

5. Hedge against inflation and rising

interest rates.
The interest payments and principal of Treasury
Inflation-Protected Securities (TIPS) are adjusted
for inflation at maturity; thus, you may want
to include them as part of your bond portfolio
if rising inflation is a concern. WMR expects the
federal funds rate to stay very low well into 2010.
But as the economic recovery gains momentum,
Federal Reserve policymakers will eventually be
forced to tighten to contain inflation. Depending
on your views as to when rates will start to rise,
shortening the average duration of a laddered
portfolio across varying maturities could make
sense. Variable rate bonds such as TIPS are
another way to protect against rising rates.

12
Take an active role in your portfolio’s recovery

The cyclical outlook for the economy and financial

markets is generally positive. The monetary policy
backdrop remains supportive, credit market conditions
have continued to normalize and business conditions
are improving—albeit slowly.

Nevertheless, given the strength of 2009’s rebound

in both equity and fixed income markets, the easy
gains may be behind us. And in such a setting,
investors looking to make up lost ground in their
portfolios will need to look beyond traditional
buy-and-hold strategies.

Returns are expected to be more muted and yet,

in light of lingering uncertainty, volatility is likely to
remain high. Now more than ever, it is important for
you to be comfortable—but not complacent—about
the investments in your portfolio. Take an active
role in managing your portfolio. Take advantage of
strategies that allow you to protect your downside
or reduce your capital at risk while still maintaining
upside exposure. Explore tactics that offer incremental
return, even in sideways markets. Look for ways
to contain your downside risk while embracing a
strong conviction about the direction of the markets,
economy or other broad index.

Talk to your Financial Advisor about which strategies

may be appropriate for your portfolio. Incorporating
those strategies into a comprehensive financial plan
will create your own personal roadmap to recovery.

13
Important disclosures assets, index or indexes to which a structured product is linked. The
Wealth Management Research is published by Wealth Management returns on structured products are linked to the performance of the
& Swiss Bank and Wealth Management Americas, Business Divisions relevant underlying asset or index. Investing in a structured product is not
of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is equivalent to investing directly in the underlying asset or index. Clients
referred to as UBS SA. This publication is for your information only and should carefully read the detailed explanation of risks, together with
is not intended as an offer, or a solicitation of an offer, to buy or sell any other information in the relevant offering materials, including but not
investment or other specific product. The analysis contained herein is limited to information concerning the tax treatment of the investment
based on numerous assumptions. Different assumptions could result in before investing in any structured product. Structured products are
materially different results. Certain services and products are subject to unsecured debt obligations of the issuer. Investors should be comfortable
legal restrictions and cannot be offered worldwide on an unrestricted with the credit risk of the issuer before purchasing a structured product.
basis and/or may not be eligible for sale to all investors. All information UBS Financial Services Inc. does not guarantee in any way the financial
and opinions expressed in this document were obtained from sources condition of the issuer or the accuracy of any financial information
believed to be reliable and in good faith, but no representation or provided by the issuer. Options are risky and not suitable for all investors.
warranty, express or implied, is made as to its accuracy or completeness Please ensure that you have read and understood the current options
(other than disclosures relating to UBS and its affiliates). All information risk disclosure document before entering into any options transactions.
and opinions as well as any prices indicated are currently only as of In addition, please ensure that you have consulted with your own
the date of this report, and are subject to change without notice. tax, legal and financial advisors prior to contemplating any derivative
Opinions expressed herein may differ or be contrary to those expressed transactions. The options risk disclosure document can be accessed at
by other business areas or divisions of UBS as a result of using different the following web address: http://www.optionsclearing.com/about/
assumptions and/or criteria. At any time UBS AG and other companies in publications/character-risks.jsp. Please contact your tax advisor regarding
the UBS group (or employees thereof) may have a long or short position, the suitability of tax-exempt investments in your portfolio and your
or deal as principal or agent, in relevant securities or provide advisory accounting advisor to determine the appropriate accounting treatment.
or other services to the issuer of relevant securities or to a company Income from municipal bonds may be subject to state and local taxes
connected with an issuer. Some investments may not be readily realizable as well as the Alternative Minimum Tax. Call features may exist that can
since the market in the securities is illiquid and therefore valuing the impact yield. If sold prior to maturity, investments in municipal securities
investment and identifying the risk to which you are exposed may be are subject to gains/losses based on the level of interest rates, market
difficult to quantify. UBS relies on information barriers to control the flow conditions and credit quality of the issuer. A zero coupon bond pays
of information contained in one or more areas within UBS, into other all interest at maturity, and is purchased at a discount to the maturity
areas, units, divisions or affiliates of UBS. value (par). The difference between the purchase price and the maturity
value is the interest earned on the bond. (If a zero coupon bond is
Past performance of an investment is no guarantee for its future purchased at a discount to its compounding yield, there may be a taxable
performance. Some investments may be subject to sudden and large falls capital gain.) Because they may be more volatile than current coupon
in value and on realization you may receive back less than you invested or bonds, zero coupon municipal bonds may not be suitable for investors
may be required to pay more. Changes in FX rates may have an adverse concerned about a rise in interest rates or who need current income.
effect on the price, value or income of an investment. We are of necessity Unlike traditional bank CDs, Market-Linked CDs are subject to market
unable to take into account the particular investment objectives, financial risk in addition to interest rate risk if they are sold prior to maturity. As
situation and needs of our individual clients and we would recommend with negotiable fixed rate CDs, if a Market-Linked CD is liquidated prior
that you take financial and/or tax advice as to the implications (including to maturity, it may be worth less than the purchase amount or face value.
tax) of investing in any of the products mentioned herein. This document The value of the Market-Linked CD is dependent upon fluctuations in
may not be reproduced or copies circulated without prior authority of interest rates and the performance of the specified underlying asset.
UBS or a subsidiary of UBS. UBS expressly prohibits the distribution and Market-Linked CDs also have a limited secondary market which may
transfer of this document to third parties for any reason. UBS will not adversely affect their price if liquidated prior to maturity. Unlike traditional
be liable for any claims or lawsuits from any third parties arising from bank CDs, Market-Linked CDs may be subject to IRS treasury regulations
the use or distribution of this document. This report is for distribution that apply to contingent payment debt instruments. Please read the
only under such circumstances as may be permitted by applicable law. applicable offering materials for additional information regarding the
As a firm providing wealth management services to clients in the U.S., tax treatment of the Market-Linked CD. Unlike traditional bank CDs,
we offer both investment advisory programs and brokerage services. Market-Linked CDs do not pay fixed interest payments at prevailing
Financial planning is an investment advisory service. Advisory services market rates or may not pay any fixed interest payments. Please read
and brokerage services are separate and distinct, differ in material ways the applicable offering materials to understand the payout structure
and are governed by different laws and separate contracts. For more of the Market-Linked CD.
information, please visit our website at www.ubs.com/workingwithus.
UBS Financial Services Inc. does not provide tax or legal advice. You must Nothing herein constitutes an offer to sell or the solicitation of an offer
consult your tax and legal advisors regarding your particular situation. to buy, any securities or investment vehicles.

UBS AG, its affiliates and subsidiaries may publish research, express Version as of March 2010.
opinions or provide recommendations that may be inconsistent with each
other and/or may be inconsistent with investing in a specific structured ©UBS 2010. The key symbol and UBS are among the registered and
product. Investors should make their own independent investigation unregistered trademarks of UBS. All rights reserved.
of the merits of investing in any structured product and the underlying

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