The suitability considerations
identified above are not exhaustive. Whether or not the Notes are a suitable investment for you will depend on your individual
circumstances and you should reach an investment decision only after you and your investment, legal, tax, accounting and other
advisors have carefully considered the suitability of an investment in the Notes in light of your particular circumstances. You
should review “Information About the Underlying Assets ” herein for more information on the underlying assets. You
should also review carefully the “Key Risks” section herein for risks related to an investment in the Notes.
Final Terms
Issuer:
|
UBS AG London Branch
|
Principal Amount:
|
$10 per Note
|
Term:
|
Approximately 5 years, unless subject to an automatic call.
|
Underlying Assets:
|
The Dow Jones Industrial Average® and the Russell 2000® Index
|
Contingent Coupon and Contingent Coupon Rate:
|
If the closing level of each underlying asset is equal to or greater than its
coupon barrier on any observation date (including the final valuation date), UBS will pay you the contingent coupon
applicable to such observation date on the related coupon payment date.
If the closing level of any underlying asset is less than its coupon barrier
on any observation date (including the final valuation date), the contingent coupon applicable to such observation date will
not accrue or be payable and UBS will not make any payment to you on the relevant coupon payment date.
The contingent coupon is a fixed amount based upon equal periodic installments
at a per annum rate (the “contingent coupon rate”). The table below sets forth the contingent coupon rate and
contingent coupon for each Note that would be applicable to each observation date on which the closing level of each underlying
asset is greater than or equal to its coupon barrier.
|
|
Contingent Coupon Rate
|
8.85%
|
|
Contingent Coupon
|
$0.2213
|
|
Contingent coupons on the Notes are not guaranteed. UBS will not pay you the contingent coupon for any observation date on
which the closing level of any underlying asset is less than its coupon barrier.
|
Automatic Call Feature:
|
UBS will automatically call the Notes if the closing
level of each underlying asset on any observation date (quarterly, beginning after 6 months) prior to the final valuation date
is equal to or greater than its initial level.
If the Notes are subject to an automatic call, UBS
will pay you on the corresponding coupon payment date (which will be the “call settlement date”) a cash payment per
Note equal to your principal amount plus the contingent coupon otherwise due on such date. Following an automatic call, no further
payments will be made on the Notes.
|
Payment at Maturity (per Note):
|
If the Notes are not subject to an automatic call
and the final level of each underlying asset is equal to or greater than its downside threshold, UBS will pay you a cash payment
equal to:
Principal Amount of $10
If the Notes are not subject to an automatic call
and the final level of any underlying asset is less than its downside threshold, UBS will pay you a cash payment that is less
than the principal amount, if anything, equal to:
$10 x (1+ Underlying Return of the Least Performing
Underlying Asset)
In this case, you will suffer a percentage loss
on your initial investment equal to the underlying return of the least performing underlying asset regardless of the underlying
return of any other underlying asset and, in extreme situations, you could lose all of your initial investment.
|
Least Performing Underlying Asset:
|
The underlying asset with the lowest underlying return as compared to the other underlying asset(s)
|
Underlying Return:
|
For each underlying asset, the quotient, expressed as a percentage, of the
following formula:
Final Level – Initial Level
Initial Level
|
Downside Threshold:(1)
|
For
each underlying asset, a specified level of the underlying asset that is less than its initial level, equal to a percentage of
its initial level, as indicated on the cover hereof.
|
Coupon Barrier:(1)
|
For
each underlying asset, a specified level of the underlying asset that is less than its initial level, equal to a percentage of
its initial level, as indicated on the cover hereof.
|
Initial Level:(1)
|
The
closing level of each underlying asset on the trade date, as indicated on the cover hereof.
|
Final Level:(1)
|
The
closing level of each underlying asset on the final valuation date.
|
|
(1)
|
As determined by the calculation agent and as may be adjusted as described under “General
Terms of the Securities — Discontinuance of or Adjustments to an Underlying Index; Alteration of Method of Calculation”
in the accompanying product supplement.
|
Investment
Timeline
Trade Date
|
|
The initial level of each underlying asset is observed and the final terms of the Notes are set.
|
|
¯
|
|
|
|
Observation Dates (Quarterly, callable after 6 months)
|
|
If the closing level of each underlying asset is equal to or greater than its
coupon barrier on any observation date (including the final valuation date), UBS will pay you a contingent coupon on the
applicable coupon payment date.
The Notes will be subject to an automatic call if the closing level of each
underlying asset on any observation date (quarterly, beginning after 6 months) prior to the final valuation date is equal to or
greater than its initial level.
If the Notes are subject to an automatic call, UBS will pay you a cash payment
per Note equal to $10 plus the contingent coupon otherwise due on such date.
|
|
¯
|
|
|
|
Maturity Date
|
|
The final level of each underlying asset is observed on the final valuation
date.
If the Notes are not subject to an automatic call and the final level of each
underlying asset is equal to or greater than its downside threshold, UBS will pay you a cash payment per Note equal to:
Principal Amount of $10
If the Notes are not subject to an automatic call and the final level of any
underlying asset is less than its downside threshold, UBS will pay you a cash payment per Note that is less than the
principal amount, if anything, equal to:
$10 x (1+ Underlying Return of the Least Performing Underlying Asset)
In this case, you will suffer a percentage loss on your initial investment
equal to the underlying return of the least performing underlying asset regardless of the underlying return of any other
underlying asset and, in extreme situations, you could lose all of your initial investment.
|
|
Investing in the Notes involves
significant risks. You may lose a significant portion or all of your initial investment. Any payment on the Notes, including any
repayment of principal, is subject to the creditworthiness of UBS. If UBS were to default on its payment obligations, you may not
receive any amounts owed to you under the Notes and you could lose all of your initial investment.
If the Notes are not subject to an
automatic call, you may lose a significant portion or all of your initial investment. Specifically, if the Notes are not subject to
an automatic call and the final level of any underlying asset is less than its downside threshold, you will lose a percentage of
your principal amount equal to the underlying return of the least performing underlying asset and, in extreme situations, you could
lose all of your initial investment. You will be exposed to the market risk of each underlying asset on each observation date and on
the final valuation date and any decline in the level of one underlying asset may negatively affect your return and will not be
offset or mitigated by a lesser decline or any potential increase in the level of any other underlying asset.
Observation
Dates(1) and Coupon Payment Dates(1)(2)(3)
Observation Dates
|
Coupon Payment Dates
|
August 24, 2020*
|
August 26, 2020*
|
November 23, 2020*
|
November 25, 2020
|
February 22, 2021
|
February 24, 2021
|
May 24, 2021
|
May 26, 2021
|
August 23, 2021
|
August 25, 2021
|
November 22, 2021
|
November 24, 2021
|
February 22, 2022
|
February 24, 2022
|
May 23, 2022
|
May 25, 2022
|
August 22, 2022
|
August 24, 2022
|
November 22, 2022
|
November 25, 2022
|
February 22, 2023
|
February 24, 2023
|
May 22, 2023
|
May 24, 2023
|
August 22, 2023
|
August 24, 2023
|
November 22, 2023
|
November 27, 2023
|
February 22, 2024
|
February 26, 2024
|
May 22, 2024
|
May 24, 2024
|
August 22, 2024
|
August 27, 2024
|
November 22, 2024
|
November 26, 2024
|
February 24, 2025
|
February 26, 2025
|
Final Valuation Date
|
Maturity Date
|
|
*
|
The Notes are not callable until the first potential call settlement date, which is November 25,
2020.
|
|
(1)
|
Subject to the market disruption event provisions set forth in the accompanying product
supplement.
|
(2)
|
Two business days following each observation date, except that the coupon payment date for the final
valuation date is the maturity date.
|
(3)
|
If you are able to sell the Notes in the secondary market on an observation date, the purchaser of
the Notes will be deemed to be the record holder on the applicable record date and therefore you will not be entitled to any payment
attributable to that observation date.
|
Key Risks
An investment in the Notes involves
significant risks. Investing in the Notes is not equivalent to a hypothetical investment in the least performing underlying asset or
its underlying constituents. Some of the risks that apply to the Notes are summarized below, but we urge you to read the more
detailed explanation of risks relating to the Notes in the “Risk Factors” section of the accompanying product
supplement. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the
Notes.
|
·
|
Risk of loss at maturity — The Notes differ from ordinary debt securities in that
UBS will not necessarily make periodic coupon payments or repay the principal amount of the Notes at maturity. If the Notes are
not subject to an automatic call and the final level of any underlying asset is less than its downside threshold, you will lose
a percentage of your principal amount equal to the underlying return of the least performing underlying asset and, in extreme situations,
you could lose all of your initial investment.
|
|
·
|
The contingent repayment of principal applies only at maturity — You should be willing
to hold your Notes to maturity. If you are able to sell your Notes prior to an automatic call or maturity in the secondary market,
you may have to sell them at a loss relative to your initial investment even if the level of each underlying asset is equal to
or greater than its downside threshold. All payments on the Notes are subject to the creditworthiness of UBS.
|
|
·
|
You may not receive any contingent coupons with respect to your Notes — UBS will not
necessarily make periodic coupon payments on the Notes. UBS will pay a contingent coupon for each observation date on which the
closing level of each underlying asset is equal to or greater than its coupon barrier. If the closing level of any underlying asset
is less than its coupon barrier on any observation date, UBS will not pay you the contingent coupon applicable to such observation
date. If the closing level of any underlying asset is less than its coupon barrier on each of the observation dates, UBS will not
pay you any contingent coupons during the term of, and you will not receive a positive return on, your Notes. Generally, this non-payment
of the contingent coupon coincides with a period of greater risk of principal loss on your Notes.
|
|
·
|
Your potential return on the Notes is limited to the contingent coupons and you will not participate
in any appreciation of any underlying asset or underlying constituents — The return potential of the Notes is limited
to the pre-specified contingent coupon rate, regardless of any appreciation of any underlying asset. In addition, your return on
the Notes will vary based on the number of observation dates, if any, on which the requirements of the contingent coupon have been
met prior to maturity or an automatic call. Further, if the Notes are subject to an automatic call, you will not receive any contingent
coupons or any other payment in respect of any observation dates after the applicable call settlement date. Because the Notes may
be subject to an automatic call as early as the first potential call settlement date, the total return on the Notes could be less
than if the Notes remained outstanding until maturity. Furthermore, if the Notes are not subject to an automatic call, you may
be subject to the decline of the least performing underlying asset even though you cannot participate in any appreciation of any
underlying asset or underlying constituents. As a result, the return on an investment in the Notes could be less than the return
on a hypothetical direct investment in any or all of the underlying assets or underlying constituents. In addition, as an owner
of the Notes, you will not have voting rights or any other rights of a holder of the underlying constituents.
|
|
·
|
A higher contingent coupon rate or lower downside thresholds or coupon barriers may reflect
greater expected volatility of the underlying assets, and greater expected volatility generally indicates an increased risk of
loss at maturity — The economic terms for the Notes, including the contingent coupon rate, coupon barriers and downside
thresholds, are based, in part, on the expected volatility of each underlying asset at the time the terms of the Notes are set.
“Volatility” refers to the frequency and magnitude of changes in the level of each underlying asset. The greater the
expected volatility of each underlying asset as of the trade date, the greater the expectation is as of that date that the closing
level of each underlying asset could be less than its coupon barrier on any observation date and that the final level of each underlying
asset could be less than its downside threshold on the final valuation date and, as a consequence, indicates an increased risk
of not receiving a contingent coupon and an increased risk of loss, respectively. All things being equal, this greater expected
volatility will generally be reflected in a higher contingent coupon rate than the yield payable on our conventional debt securities
with a similar maturity or on otherwise comparable securities, and/or lower downside thresholds and/or coupon barriers than those
terms on otherwise comparable securities. Therefore, a relatively higher contingent coupon rate may indicate an increased risk
of loss. Further, relatively lower downside threshold(s) and/or coupon barrier(s) may not necessarily indicate that the Notes have
a greater likelihood of a return of principal at maturity and/or paying contingent coupons. You should be willing to accept the
downside market risk of the least performing underlying asset and the potential to lose a significant portion or all of your initial
investment.
|
|
·
|
Reinvestment risk — The Notes will be subject to an automatic call if the closing level
of each underlying asset is equal to or greater than its initial level on certain observation dates prior to the final valuation
date as set forth under “Observation Dates and Coupon Payment Dates” above. Because the Notes could be subject to an
automatic call, the term of your investment may be limited. In the event that the Notes are subject to an automatic call, there is
no guarantee that you would be able to reinvest the proceeds at a comparable return and/or with a comparable contingent coupon rate
for a similar level of risk. In addition, to the extent you are able to reinvest such proceeds in an investment comparable to the
Notes, you may incur transaction costs such as dealer discounts and hedging costs built into the price of the new securities.
Generally, however, the longer the Notes remain outstanding, the less likely the Notes will be subject to an automatic call due to
the decline in the level of an underlying asset and the shorter time remaining for the level of any such underlying asset to
recover. Such periods generally coincide with a period of greater risk of principal loss on your Notes.
|
|
·
|
You are exposed to the market risk of each underlying asset — Your return on the Notes
is not linked to a basket consisting of the underlying assets. Rather, it will be contingent upon the performance of each individual
underlying asset. Unlike an instrument with a return linked to a basket of indices, common stocks or other underlying securities, in
which risk is mitigated and diversified among all of the components of the basket, you will be exposed equally to the risks related
to each underlying asset. Poor performance by any underlying asset over the term of the Notes will negatively affect your return and
will not be offset or mitigated by a positive performance by any other underlying asset. For instance, you may receive a negative
return equal to the underlying return of the least performing underlying asset if the closing level of one underlying asset is less
than its downside threshold on the final valuation date, even if the underlying return of any other underlying asset is positive or
has not declined as much. Accordingly, your investment is subject to the market risk of each underlying asset.
|
|
·
|
Because the Notes are linked to the least performing underlying asset, you are exposed to a
greater risk of no contingent coupons and losing a significant portion or all of your initial investment at maturity than if the
Notes were linked to only one underlying asset — The risk that you will not receive any contingent coupons and lose a
significant portion or all of your initial investment in the Notes is greater if you invest in the Notes than the risk of investing
in substantially similar securities that are linked to the performance of only one underlying asset. With more underlying assets, it
is more likely that the closing level of any underlying asset will be less than its coupon barrier on any observation date or
decline to a closing level that is less than its downside threshold than if the Notes were linked to only one underlying
asset.
|
|
|
In addition, the lower the correlation is
between the performance of a pair of underlying assets, the more likely it is that one of the underlying assets will decline in
value to a closing level or final level, as applicable, that is less than its coupon barrier or downside threshold on any observation
date or on a final valuation date, respectively. Although the correlation of the underlying assets’ performance may change
over the term of the Notes, the economic terms of the Notes, including the contingent coupon rate, downside threshold and coupon
barrier are determined, in part, based on the correlation of the underlying assets’ performance calculated using our internal
models at the time when the terms of the Notes are finalized. All things being equal, a higher contingent coupon rate and lower
downside threshold and coupon barrier is generally associated with lower correlation of the underlying assets. Therefore, if the
performance of a pair of underlying assets is not correlated to each other or is negatively correlated, the risk that you will
not receive any contingent coupons or that the final level of any underlying asset is less than its downside threshold will occur
is even greater despite a lower downside threshold and coupon barrier. Therefore, it is more likely that you will not receive any
contingent coupons and that you will lose a significant portion or all of your initial investment at maturity.
|
|
·
|
Credit risk of UBS — The Notes are unsubordinated, unsecured debt obligations of UBS
and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any
repayment of principal, depends on the ability of UBS to satisfy its obligations as they come due. As a result, UBS’ actual
and perceived creditworthiness may affect the market value of the Notes. If UBS were to default on its obligations, you may not
receive any amounts owed to you under the terms of the Notes and you could lose all of your initial investment.
|
|
·
|
Market risk — The return on the Notes, which may be negative, is directly linked to
the performance of the underlying assets and indirectly linked to the value of the underlying constituents. The level of the underlying
assets can rise or fall sharply due to factors specific to the underlying assets and its underlying constituents and their issuers
(each, an “underlying constituent issuer”), such as stock price volatility, earnings and financial conditions, corporate,
industry and regulatory developments, management changes and decisions and other events, as well as general market factors, such
as general stock market or commodity market volatility and levels, interest rates and economic and political conditions. Recently,
the coronavirus infection has caused volatility in the global financial markets and a slowdown in the global economy. Coronavirus
or any other communicable disease or infection may adversely affect the underlying constituent issuers and, therefore, the underlying
assets. You, as an investor in the Notes, should conduct your own investigation into the underlying assets and underlying constituents.
|
|
·
|
Fair value considerations.
|
|
o
|
The issue price you pay for the Notes exceeds their estimated initial value — The
issue price you pay for the Notes exceeds their estimated initial value as of the trade date due to the inclusion in the issue
price of the underwriting discount, hedging costs, issuance costs and projected profits. As of the close of the relevant markets
on the trade date, we have determined the estimated initial value of the Notes by reference to our internal pricing models and
it is set forth in this pricing supplement. The pricing models used to determine the estimated initial value of the Notes incorporate
certain variables, including the levels and volatility of the underlying assets and underlying constituents, the correlation of
the underlying assets, any expected dividends of the underlying constituents, if applicable, prevailing interest rates, the term
of the Notes and our internal funding rate. Our internal funding rate is typically lower than the rate we would pay to issue conventional
fixed or floating rate debt securities of a similar term. The underwriting discount, hedging costs, issuance costs, projected profits
and the difference in rates will reduce the economic value of the Notes to you. Due to these factors, the estimated initial value
of the Notes as of the trade date is less than the issue price you pay for the Notes.
|
|
o
|
The estimated initial value is a theoretical price; the actual price that you may be able to
sell your Notes in any secondary market (if any) at any time after the trade date may differ from the estimated initial value —
The value of your Notes at any time will vary based on many factors, including the factors described above and in “—Market
risk” above and is impossible to predict. Furthermore, the pricing models that we use are proprietary and rely in part on
certain assumptions about future events, which may prove to be incorrect. As a result, after the trade date, if you attempt to
sell the Notes in the secondary market, the actual value you would receive may differ, perhaps materially, from the estimated initial
value of the Notes determined by reference to our internal pricing models. The estimated initial value of the Notes does not represent
a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Notes in any secondary market
at any time.
|
|
o
|
Our actual profits may be greater or less than the differential between the estimated initial
value and the issue price of the Notes as of the trade date — We may determine the economic terms of the Notes, as well
as hedge our obligations, at least in part, prior to the trade date. In addition, there may be ongoing costs to us to maintain
and/or adjust any hedges and such hedges are often imperfect. Therefore, our actual profits (or potentially, losses) in issuing
the Notes cannot be determined as of the trade date and any such differential between the estimated initial value and the issue
price of the Notes as of the trade date does not reflect our actual profits. Ultimately, our actual profits will be known only
at the maturity of the Notes.
|
|
·
|
Limited or no secondary market and secondary market price considerations.
|
|
o
|
There may be little or no secondary market for the Notes — The Notes will not be listed
or displayed on any securities exchange or any electronic communications network. UBS Securities LLC and its affiliates intend,
but are not required, to make a market for the Notes and may stop making a market at any time. If you are able to sell your Notes
prior to maturity, you may have to sell them at a substantial loss. Furthermore, there can be no assurance that a secondary market
for the Notes will develop. The estimated initial value of the Notes does not represent a minimum or maximum price at which we
or any of our affiliates would be willing to purchase your Notes in any secondary market at any time.
|
|
o
|
The price at which UBS Securities LLC and its affiliates may offer to buy the Notes in the secondary
market (if any) may be greater than UBS’ valuation of the Notes at that time, greater than any other secondary market prices
provided by unaffiliated dealers (if any) and, depending on your broker, greater than the valuation provided on your customer account
statement — For a limited period of time following the issuance of the Notes, UBS Securities LLC or its affiliates may
offer to buy or sell such Notes at a price that exceeds (i) our valuation of the Notes at that time based on our internal pricing
models, (ii) any secondary market prices provided by unaffiliated dealers (if any) and (iii) depending on your broker, the valuation
provided on customer account statements. The price that UBS Securities LLC may initially offer to buy such Notes following issuance
will exceed the valuations indicated by our internal pricing models due to the inclusion for a limited period of time of the aggregate
value of the underwriting discount, hedging costs, issuance costs and theoretical projected trading profit. The portion of such
amounts included in our price will decline to zero on a straight line basis over a period ending no later than the date specified
under “Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)”. Thereafter, if UBS Securities
LLC or an affiliate makes secondary markets in the Notes, it will do so at prices that reflect our estimated value determined by
reference to our internal pricing models at that time. The temporary positive differential relative to our internal pricing models
arises from requests from and arrangements made by UBS Securities LLC with the selling agents of structured debt securities such
as the Notes. As described above, UBS Securities LLC and its affiliates intend, but are not required, to make a market for the
Notes and may stop making a market at any time. The price at which UBS Securities LLC or an affiliate may make secondary markets
at any time (if at all) will also reflect its then current bid-ask spread for similar sized trades of structured debt securities.
UBS Financial Services Inc. and UBS Securities LLC reflect this temporary positive differential on their customer statements. Investors
should inquire as to the valuation provided on customer account statements provided by unaffiliated dealers.
|
|
o
|
Economic and market factors affecting the terms and market price of Notes prior to maturity
— Because structured notes, including the Notes, can be thought of as having a debt component and a derivative component,
factors that influence the values of debt instruments and options and other derivatives will also affect the terms and features
of the Notes at issuance and the market price of the Notes prior to maturity. These factors include the levels of the underlying
assets and their underlying constituents; the volatility of the underlying assets and their underlying constituents; the correlation
of the underlying assets; the dividend rate paid on the underlying constituents, if applicable; the time remaining to the maturity
of the Notes; interest rates in the markets; geopolitical conditions and economic, financial, political, force majeure and regulatory
or judicial events; whether each of the underlying assets is currently or has been less than its coupon barrier; the availability
of comparable instruments; the creditworthiness of UBS; the then current bid-ask spread for the Notes and the factors discussed
under “— Potential conflict of interest” below. These and other factors are unpredictable and interrelated and
may offset or magnify each other.
|
|
o
|
Impact of fees and the use of internal funding rates rather than secondary market credit spreads
on secondary market prices — All other things being equal, the use of the internal funding rates described above under
“— Fair value considerations” as well as the inclusion in the issue price of the underwriting discount, hedging
costs, issuance costs and any projected profits are, subject to the temporary mitigating effect of UBS Securities LLC’s and
its affiliates’ market making premium, expected to reduce the price at which you may be able to sell the Notes in any secondary
market.
|
|
·
|
There can be no assurance that the investment view implicit in the Notes will be successful
— It is impossible to predict whether and the extent to which the levels of the underlying assets will rise or fall and
there can be no assurance that the closing level of each underlying asset will be equal to or greater than its coupon barrier on
any observation date, or, if the Notes are not subject to an automatic call, that the final level of each underlying asset will
be equal to or greater than its downside threshold. The level of each underlying asset will be influenced by complex and interrelated
political, economic, financial and other factors that affect the underlying constituent issuers. You should be willing to accept
the downside risks associated with the relevant markets tracked by each such underlying asset in general and the underlying assets
and its underlying constituents in particular, and the risk of losing a significant portion or all of your initial investment.
|
|
·
|
The Notes are subject to small-capitalization stock risks — The Notes are subject
to risks associated with small-capitalization companies because the Russell 2000® Index is comprised of stocks of
companies that may be considered small-capitalization companies. These companies often have greater stock price volatility, lower
trading volume and less liquidity than large-capitalization companies and therefore the underlying asset may be more volatile than
an index in which a greater percentage of the underlying constituents are issued by large-capitalization companies. Stock prices
of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business and
economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition, small-capitalization
companies are typically less stable financially than large-capitalization companies and may depend on a small number of key personnel,
making them more vulnerable to loss of personnel. Small-capitalization companies are often given less analyst coverage and may
be in early, and less predictable, periods of their corporate existences. Such companies tend to have smaller revenues, less diverse
product lines, smaller shares of their product or service markets, fewer financial resources and less competitive strengths than
large-capitalization companies and are more susceptible to adverse developments related to their products.
|
|
·
|
UBS cannot control actions by the index sponsors and the index sponsors have no obligation to
consider your interests — UBS and its affiliates are not affiliated with the index sponsors and have no ability to control
or predict their actions, including any errors in or discontinuation of public disclosure regarding methods or policies relating
to the calculation of the underlying assets. The index sponsors are not involved in the Notes offering in any way and have no obligation
to consider your interest as an owner of the Notes in taking any actions that might affect the market value of, and any amount
payable on, your Notes.
|
|
·
|
The underlying assets reflect price return, not total return — The return on your
Notes is based on the performance of the underlying assets, which reflect the changes in the market prices of the underlying constituents.
They are not, however, linked to a “total return” index or strategy, which, in addition to reflecting those price returns,
would also reflect dividends paid on the underlying constituents. The return on your Notes will not include such a total return
feature or dividend component.
|
|
·
|
Changes affecting the underlying assets could have an adverse effect on the value of, and any
amount payable on, the Notes — The policies of each index sponsor as specified under “Information About the Underlying
Assets” (together, the "index sponsors"), concerning additions, deletions and substitutions of the underlying constituents
and the manner in which the index sponsor takes account of certain changes affecting those underlying constituents may adversely
affect the levels of the underlying assets. The policies of the index sponsors with respect to the calculation of the underlying
assets could also adversely affect the levels of the underlying assets. The index sponsors may discontinue or suspend calculation
or dissemination of the underlying assets. Any such actions could have an adverse effect on the market value of, and any amount
payable on, the Notes.
|
|
·
|
Potential UBS impact on the underlying assets — Trading or transactions by UBS or
its affiliates in the underlying assets or any underlying constituent, listed and/or over-the-counter options, futures, exchange-traded
funds or other instruments with returns linked to the performance of the underlying assets or any underlying constituent, may adversely
affect the levels of the underlying assets and, therefore, the market value of, and any amount payable on, the Notes.
|
|
·
|
Potential conflict of interest — UBS and its affiliates may engage in business with
an underlying asset issuer or any underlying constituent issuer, which may present a conflict between the obligations of UBS and
you, as a holder of the Notes. There are also potential conflicts of interest between you and the calculation agent, which will
be an affiliate of UBS and which will make potentially subjective judgments. The calculation agent will determine whether the contingent
coupon is payable to you on any coupon payment date, whether the Notes are subject to an automatic call and the payment at maturity
of the Notes, if any, based on observed levels of the underlying assets. The calculation agent can postpone the determination of
the initial level, closing level or final level of any underlying asset (and therefore the settlement date, the related coupon
payment date or the maturity date, as applicable), on the trade date, any observation date or the final valuation date, respectively,
if a market disruption event occurs and is continuing on such date. As UBS determines the economic terms of the Notes, including
the contingent coupon rate, downside threshold and coupon barrier, and such terms include the underwriting discount, hedging costs,
issuance costs and projected profits, the Notes represent a package of economic terms. There are other potential conflicts of interest
insofar as an investor could potentially get better economic terms if that investor entered into exchange-traded and/or OTC derivatives
or other instruments with third parties, assuming that such instruments were available and the investor had the ability to assemble
and enter into such instruments.
|
|
·
|
Potentially inconsistent research, opinions or recommendations by UBS — UBS and its
affiliates publish research from time to time on financial markets and other matters that may influence the value of the Notes,
or express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any research, opinions
or recommendations expressed by UBS or its affiliates may not be consistent with each other and may be modified from time to time
without notice. Investors should make their own independent investigation of the merits of investing in the Notes and the underlying
assets to which the Notes are linked.
|
|
·
|
The Notes are not bank deposits — An investment in the Notes carries risks which are
very different from the risk profile of a bank deposit placed with UBS or its affiliates. The Notes have different yield and/or
return, liquidity and risk profiles and would not benefit from any protection provided to deposits.
|
|
·
|
If UBS experiences financial difficulties, FINMA has the power to open restructuring or liquidation
proceedings in respect of, and/or impose protective measures in relation to, UBS, which proceedings or measures may have a material
adverse effect on the terms and market value of the Notes and/or the ability of UBS to make payments thereunder — The
Swiss Financial Market Supervisory Authority (“FINMA”) has broad statutory powers to take measures and actions in relation
to UBS if (i) it concludes that there is justified concern that UBS is over-indebted or has serious liquidity problems or (ii)
UBS fails to fulfill the applicable capital adequacy requirements (whether on a standalone or consolidated basis) after expiry
of a deadline set by FINMA. If one of these pre-requisites is met, FINMA is authorized to open restructuring proceedings or liquidation
(bankruptcy) proceedings in respect of, and/or impose protective measures in relation to, UBS. The Swiss Banking Act grants significant
discretion to FINMA in connection with the aforementioned proceedings and measures. In particular, a broad variety of protective
measures may be imposed by FINMA, including a bank moratorium or a maturity postponement, which measures may be ordered by FINMA
either on a stand-alone basis or in connection with restructuring or liquidation proceedings. The resolution regime of the Swiss
Banking Act is further detailed in the FINMA Banking Insolvency Ordinance (“BIO-FINMA”). In a restructuring proceeding,
FINMA, as resolution authority, is competent to approve the resolution plan. The resolution plan may, among other things, provide
for (a) the transfer of all or a portion of UBS’ assets, debts, other liabilities and contracts (which may or may not include
the contractual relationship between UBS and the holders of Notes) to another entity, (b) a stay (for a maximum of two business
days) on the termination of contracts to which UBS is a party, and/or the exercise of (w) rights to terminate, (x) netting rights,
(y) rights to enforce or dispose of collateral or (z) rights to transfer claims, liabilities or collateral under contracts to which
UBS is a party, (c) the conversion of UBS’ debt and/or other obligations, including its obligations under the Notes, into
equity (a “debt-to-equity” swap), and/or (d) the partial or full write-off of obligations owed by UBS (a “write-off”),
including its obligations under the Notes. The BIO-FINMA provides that a debt-to-equity swap and/or a write-off of debt and other
obligations (including the Notes) may only take place after (i) all debt instruments issued by UBS qualifying as additional tier
1 capital or tier 2 capital have been converted into equity or written-off, as applicable, and (ii) the existing equity of UBS
has been fully cancelled. While the BIO-FINMA does not expressly address the order in which a write-off of debt instruments other
than debt instruments qualifying as additional tier 1 capital or tier 2 capital should occur, it states that debt-to-equity swaps
should occur in the following order: first, all subordinated claims not qualifying as regulatory capital; second, all other claims
not excluded by law from a debt-to-equity swap (other than deposits); and third, deposits (in excess of the amount privileged by
law). However, given the broad discretion granted to FINMA as the resolution authority, any restructuring plan in respect of UBS
could provide that the claims under or in connection with the Notes will be partially or fully converted into equity or written-off,
while preserving other obligations of UBS that rank pari passu with, or even junior to, UBS’ obligations under the Notes.
Consequently, holders of Notes may lose all or some of their investment in the Notes. In the case of restructuring proceedings
with respect to a systemically important Swiss bank (such as UBS), the creditors whose claims are affected by the restructuring
plan will not have a right to vote on, reject, or seek the suspension of the restructuring plan. In addition, if a restructuring
plan has been approved by FINMA, the rights of a creditor to seek judicial review of the restructuring plan (e.g., on the grounds
that the plan would unduly prejudice the rights of holders of Notes or otherwise be in violation of the Swiss Banking Act) are
very limited. In particular, a court may not suspend the implementation of the restructuring plan. Furthermore, even if a creditor
successfully challenges the restructuring plan, the court can only require the relevant creditor to be compensated ex post and
there is currently no guidance as to on what basis such compensation would be calculated or how it would be funded.
|
|
·
|
Dealer incentives — UBS and its affiliates act in various capacities with respect
to the Notes. We and our affiliates may act as a principal, agent or dealer in connection with the sale of the Notes. Such affiliates,
including the sales representatives, will derive compensation from the distribution of the Notes and such compensation may serve
as an incentive to sell these Notes instead of other investments. We will pay total underwriting compensation in an amount equal
to the underwriting discount listed on the cover hereof per Note to any of our affiliates acting as agents or dealers in connection
with the distribution of the Notes. Given that UBS Securities LLC and its affiliates temporarily maintain a market making premium,
it may have the effect of discouraging UBS Securities LLC and its affiliates from recommending sale of your Notes in the secondary
market.
|
|
·
|
Uncertain tax treatment — Significant aspects of the tax treatment of the Notes are
uncertain. You should consult your tax advisor about your tax situation. See “What Are the Tax Consequences of the Notes?”
herein and “Material U.S. Federal Income Tax Consequences”, including the section “— Securities Treated
as Prepaid Derivatives or Prepaid Forwards with Associated Contingent Coupons”, in the accompanying product supplement.
|
Hypothetical
Examples of How the Notes Might Perform
The below examples are based on hypothetical terms.
The actual terms are indicated on the cover hereof. The examples below illustrate the payment upon a call or at maturity for a
$10 Note on a hypothetical offering of the Notes, with the following assumptions (amounts may have been rounded for ease of reference):
Principal Amount:
|
$10
|
Term:
|
Approximately 5 years
|
Contingent Coupon Rate:
|
6.00% per annum (or 1.50% per quarter)
|
Contingent Coupon:
|
$0.15 per quarter
|
Observation Dates:
|
Quarterly (callable after 6 months)
|
Initial Level:
|
|
Underlying Asset A
|
24,000.00
|
Underlying Asset B
|
1,300.000
|
Downside Threshold:
|
|
Underlying Asset A
|
14,400.00 (which is 60.00% of its initial level)
|
Underlying Asset B
|
780.000 (which is 60.00% of its initial level)
|
Coupon Barrier:
|
|
Underlying Asset A
|
16,800.00 (which is 70.00% of its initial level)
|
Underlying Asset B
|
910.000 (which is 70.00% of its initial level)
|
Example 1 — The Closing Level of
each Underlying Asset is equal to or greater than its Initial Level on the Observation Date corresponding to the first potential
Call Settlement Date
Date
|
Closing Level
|
Payment (per Note)
|
First Observation Date
|
Underlying Asset A: 24,300.00 (equal to or greater than Initial Level and
Coupon Barrier)
Underlying Asset B: 1,500.000 (equal to or greater than Initial Level and
Coupon Barrier)
|
$0.15 (Contingent Coupon – Not Callable)
|
Second Observation Date
|
Underlying Asset A: 24,200.00 (equal to or greater than Initial Level and
Coupon Barrier)
Underlying Asset B: 1,400.000 (equal to or greater than Initial Level and
Coupon Barrier)
|
$10.15 (Call Settlement Amount)
|
|
Total Payment:
|
$10.30 (a 3.00% total return)
|
Because the Notes are subject to an
automatic call on the first potential call settlement date (which is approximately 6 months after the trade date and is the first
observation date on which the Notes are callable), UBS will pay you on the call settlement date a total of $10.15 per Note,
reflecting your principal amount plus the applicable contingent coupon. When added to the contingent coupon of $0.15 received in
respect of the prior observation date, UBS will have paid you a total of $10.30 per Note, for a 3.00% total return on the Notes. No
further amount will be owed to you under the Notes.
Example 2 — Notes are NOT subject
to an Automatic Call and the Final Level of each Underlying Asset is equal to or greater than its Downside Threshold and Coupon
Barrier
Date
|
Closing Level
|
Payment (per Note)
|
First Observation Date
|
Underlying Asset A: 24,200.00 (equal to or greater than Initial Level and
Coupon Barrier)
Underlying Asset B: 1,450.000 (equal to or greater than Initial Level and
Coupon Barrier)
|
$0.15 (Contingent Coupon – Not Callable)
|
Second Observation Date through Nineteenth Observation Date
|
Underlying Asset A: Various (all less than Initial Level and Coupon
Barrier)
Underlying Asset B: Various (all equal to or greater than Initial Level
and Coupon Barrier)
|
$0.00
|
Final Valuation Date
|
Underlying Asset A: 17,300.00 (equal to or greater than Downside
Threshold and Coupon Barrier)
Underlying Asset B: 950.000 (equal to or greater than Downside Threshold
and Coupon Barrier)
|
$10.15 (Payment at Maturity)
|
|
Total Payment:
|
$10.30 (a 3.00% total return)
|
Because the Notes are not subject to an
automatic call and the final level of each underlying asset is equal to or greater than its downside threshold and coupon barrier,
at maturity, UBS will pay you a total of $10.15 per Note, reflecting your principal amount plus the applicable contingent coupon.
When added to the contingent coupon of $0.15 received in respect of the prior observation dates, UBS will have paid you a total of
$10.30 per Note, for a 3.00% total return on the Notes.
Example 3 — Notes are NOT subject
to an Automatic Call and the Final Level of an Underlying Asset is equal to or greater than its Downside Threshold but less than its
Coupon Barrier.
Date
|
Closing Level
|
Payment (per Note)
|
First Observation Date
|
Underlying Asset A: 27,000.00 (equal to or greater than Initial Level and
Coupon Barrier)
Underlying Asset B: 1,700.000 (equal to or greater than Initial Level and
Coupon Barrier)
|
$0.15 (Contingent Coupon – Not Callable)
|
Second Observation Date through Nineteenth Observation Date
|
Underlying Asset A: Various (all less than Initial Level and Coupon
Barrier)
Underlying Asset B: Various (all equal to or greater than Initial Level
and Coupon Barrier)
|
$0.00
|
Final Valuation Date
|
Underlying Asset A: 15,600.00 (equal to or greater than Downside
Threshold; less than Coupon Barrier)
Underlying Asset B: 1,200.000 (equal to or greater than Downside
Threshold and Coupon Barrier)
|
$10.00 (Payment at Maturity)
|
|
Total Payment:
|
$10.15 (a 1.50% total return)
|
Because the
Notes are not subject to an automatic call and the final level of at least one underlying asset is equal to or greater than its
downside threshold but less than its coupon barrier, at maturity, UBS will pay you the principal amount of $10.00. When added to the
contingent coupon of $0.15 received in respect of the prior observation dates, UBS will have paid you a total of $10.15 per Note,
for a 1.50% total return on the Notes.
Example 4 — Notes are NOT subject
to an Automatic Call and the Final Level of an Underlying Asset is less than its Downside Threshold
Date
|
Closing Level
|
Payment (per Note)
|
First Observation Date
|
Underlying Asset A: 17,000.00 (equal to or greater than Coupon Barrier;
less than Initial Level)
Underlying Asset B: 970.000 (equal to or greater than Coupon Barrier;
less than Initial Level)
|
$0.15 (Contingent Coupon)
|
Second Observation Date through Nineteenth Observation Date
|
Underlying Asset A: Various (all less than Initial Level and Coupon
Barrier)
Underlying Asset B: Various (all equal to or greater than Initial Level
and Coupon Barrier)
|
$0.00
|
Final Valuation Date
|
Underlying Asset A: 9,600.00 (less than Downside Threshold and Coupon
Barrier)
Underlying Asset B: 1,600.000 (equal to or greater than Downside
Threshold and Coupon Barrier)
|
$10.00 × [1 + Underlying Return of the Least Performing Underlying Asset] =
$10.00 × [1+(-60.00)%] =
$10.00 × 0.40 =
$4.00 (Payment at Maturity)
|
|
Total Payment:
|
$4.15 (a 58.50% loss)
|
Because the Notes are not subject to an
automatic call and the final level of Underlying Asset A is less than its Downside Threshold, at maturity UBS will pay you $4.00 per
Note. When added to the contingent coupon of $0.15 received in respect of prior observation dates, UBS will have paid you $4.15 per
Note for a loss on the Notes of 58.50%.
We make no representation or warranty
as to which of the underlying assets will be the least performing underlying asset for the purposes of calculating your actual
payment at maturity.
Investing in the Notes involves
significant risks. The Notes differ from ordinary debt securities in that UBS is not necessarily obligated to repay the full amount
of your initial investment. If the Notes are not subject to an automatic call, you may lose a significant portion or all of your
initial investment. Specifically, if the Notes are not subject to an automatic call and the final level of any underlying asset is
less than its Downside Threshold, you will lose a percentage of your principal amount equal to the underlying return of the least
performing underlying asset and, in extreme situations, you could lose all of your initial investment.
You will be exposed to the market risk
of each underlying asset on each observation date and on the final valuation date and any decline in the level of one underlying
asset may negatively affect your return and will not be offset or mitigated by a lesser decline or any potential increase in the
level of any other underlying asset. Any payment on the Notes, including any payments in respect of an automatic call, contingent
coupon or any repayment of principal, is subject to the creditworthiness of UBS. If UBS were to default on its payment obligations,
you may not receive any amounts owed to you under the Notes and you could lose all of your initial investment.
Information
About the Underlying Assets
Dow Jones Industrial Average®
We have derived all information regarding
the Dow Jones Industrial Average® (“INDU”) contained in this document, including, without limitation, its
composition, methods of calculation and changes in its components from publicly available information. Such information reflects the
policies of, and is subject to change by S&P Dow Jones Indices LLC (the “index sponsor” or "S&P Dow Jones
Indices") and/or its affiliates.
INDU is published by S&P Dow Jones, but
S&P Dow Jones has no obligation to continue to publish INDU, and may discontinue publication of INDU at any time. INDU is
determined, comprised and calculated by S&P Dow Jones without regard to the Notes.
As discussed more fully in the index
supplement under the heading “Underlying Indices and Underlying Index Publishers — Dow Jones Industrial
Average®”, INDU is a price-weighted index composed of 30 common stocks selected at the discretion of the
Averages Committee. The Averages Committee is comprised of composed of three representatives of S&P Dow Jones Indices and two
representatives of The Wall Street Journal. The Averages Committee selects the index components as the largest and leading stocks of
the sectors that are representative of the U.S. equity market. INDU does not include producers of goods and services in the
transportation and utilities industries. The Averages Committee may revise index policy covering rules for selecting companies,
treatment of dividends, share counts or other matters.
Information from outside sources is not
incorporated by reference in, and should not be considered part of, this document or any document incorporated herein by reference.
UBS has not conducted any independent review or due diligence of any publicly available information with respect to INDU.
Historical Information
The graph below illustrates the performance
of INDU for the period from January 1, 2010 through May 22, 2020, based on the daily closing levels as reported by Bloomberg,
without independent verification. UBS has not conducted any independent review or due diligence of publicly available information
obtained from Bloomberg. The closing level of INDU on May 22, 2020 was 24,465.16. The dotted lines represent its downside threshold
of 14,679.10 and its coupon barrier of 17,125.61, which are equal to 60.00% and 70.00% of its initial level, respectively. Past
performance of the underlying asset is not indicative of the future performance of the underlying asset during the term of the
Notes.
Russell 2000® Index
We have derived all information regarding
the Russell 2000® Index (“RTY”) contained in this document, including, without limitation, its make-up,
method of calculation and changes in its components, from publicly available information. Such information reflects the policies of,
and is subject to change by the Frank Russell Company (the “index sponsor” or “FTSE Russell”).
RTY is published by FTSE Russell, but FTSE
Russell has no obligation to continue to publish RTY, and may discontinue publication of RTY at any time. RTY is determined,
comprised and calculated by FTSE Russell without regard to the Notes.
As discussed more fully in the index
supplement under the heading “Underlying Indices and Underlying Index Publishers – Russell 2000®
Index,” RTY measures the composite price performance of the smallest 2,000 companies included in the Russell
3000® Index. The Russell 3000® Index is composed of the 3,000 largest United States companies by
market capitalization and represents approximately 98% of the market capitalization of the United States equity market. RTY’s
value is calculated by adding the market values of the underlying constituents and then dividing the derived total market
capitalization by the “adjusted” capitalization of RTY on the base date of December 31, 1986.
Information from outside sources is not
incorporated by reference in, and should not be considered part of, this document or any document incorporated herein by reference.
UBS has not conducted any independent review or due diligence of any publicly available information with respect to RTY.
Historical Information
The graph below illustrates the performance
of RTY for the period from January 1, 2010 through May 22, 2020, based on the daily closing levels as reported by Bloomberg, without
independent verification. UBS has not conducted any independent review or due diligence of publicly available information obtained
from Bloomberg. The closing level of RTY on May 22, 2020 was 1,355.531. The dotted lines represent its downside threshold of 813.319
and its coupon barrier of 948.872, which are equal to 60.00% and 70.00% of its initial level, respectively. Past performance of
the underlying asset is not indicative of the future performance of the underlying asset during the term of the Notes.
Correlation
of the Underlying Assets
The graph below illustrates the daily
performance of the underlying assets from January 1, 2010 through May 22, 2020. For comparison purposes, each underlying asset has
been normalized to have a closing level of 100 on January 1, 2010 by dividing the closing level of that underlying asset on each
trading day by the closing level of that underlying asset on January 1, 2010 and multiplying by 100. We obtained the closing levels
used to determine the normalized closing levels set forth below from Bloomberg, without independent verification.
The closer the relationship of the daily
returns of the underlying assets over a given period, the more positively correlated those underlying assets are. The lower (or more
negative) the correlation of the underlying assets, the less likely it is that those underlying assets will move in the same
direction and therefore, the greater the potential for one of those underlying assets to close below its coupon barrier or downside
threshold on an observation date or on the final valuation date, respectively. This is because the less positively correlated the
underlying assets are, the greater the likelihood that at least one of the underlying assets will decrease in value. However, even
if the underlying assets have a higher positive correlation, one or more of the underlying assets might close below its coupon
barrier or downside threshold on an observation date or the final valuation date, respectively, as the underlying assets may
decrease in value together. Although the correlation of the underlying assets’ performance may change over the term of the
Notes, the correlations referenced in setting the terms of the Notes are calculated using UBS’ internal models at the time
when the terms of the Notes are set and are not derived from the daily returns of the underlying assets over the period set forth
below. A higher contingent coupon rate is generally associated with lower correlation of the underlying assets, which reflects a
greater potential for missed contingent coupons and for a loss on your investment at maturity. See “Key Risks — A higher
contingent coupon rate or lower downside thresholds or coupon barriers may reflect greater expected volatility of each underlying
asset, and greater expected volatility generally indicates an increased risk of loss at maturity”, “— You are
exposed to the market risk of each underlying asset” and “— Because the Notes are linked to the least performing
underlying asset, you are exposed to a greater risk of no contingent coupons and losing a significant portion or all of your initial
investment at maturity than if the Notes were linked to only one underlying asset” herein.
Past performance of the underlying assets is
not indicative of the future performance of the underlying assets.
What
Are the Tax Consequences of the Notes?
The U.S. federal income tax
consequences of your investment in the Notes are uncertain. There are no statutory provisions, regulations, published rulings or
judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms that are
substantially the same as the Notes. Some of these tax consequences are summarized below, but we urge you to read the more detailed
discussion in “Material U.S. Federal Income Tax Consequences”, including the section “— Securities Treated
as Prepaid Derivatives or Prepaid Forwards with Associated Contingent Coupons”, in the accompanying product supplement and to
discuss the tax consequences of your particular situation with your tax advisor. This discussion is based upon the Internal Revenue
Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Department (the
“Treasury”) regulations, rulings and decisions, in each case, as available and in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws are not
addressed herein. No ruling from the U.S. Internal Revenue Service (the “IRS”) has been sought as to the U.S. federal
income tax consequences of your investment in the Notes, and the following discussion is not binding on the IRS.
U.S. Tax Treatment. Pursuant to the
terms of the Notes, UBS and you agree, in the absence of a statutory or regulatory change or an administrative determination or
judicial ruling to the contrary, to characterize the Notes as prepaid derivative contracts with respect to the underlying assets. If
your Notes are so treated, any contingent coupon that is paid by UBS (including on the maturity date or upon an automatic call)
should be included in your income as ordinary income in accordance with your regular method of accounting for U.S. federal income
tax purposes. In determining our information reporting obligations, if any, we intend to treat the contingent coupons as ordinary
income.
In addition, excluding amounts or proceeds
attributable to any contingent coupons, you should generally recognize gain or loss upon the taxable disposition of your Notes in an
amount equal to the difference between the amount you receive at such time (other than amounts or proceeds attributable to a
contingent coupon or any amount attributable to any accrued but unpaid contingent coupons) and the amount you paid for your Notes.
Such gain or loss should generally be long-term capital gain or loss if you have held your Notes for more than one year (otherwise
such gain or loss should be short-term capital gain or loss if held for one year or less). The deductibility of capital losses is
subject to limitations. Although uncertain, it is possible that proceeds received from the taxable disposition of your Notes prior
to a coupon payment date, but that could be attributed to an expected contingent coupon, could be treated as ordinary income. You
should consult your tax advisor regarding this risk.
Based on certain factual
representations received from us, our counsel, Cadwalader, Wickersham & Taft LLP, is of the opinion that it would be reasonable
to treat your Notes in the manner described above. However, because there is no authority that specifically addresses the tax
treatment of the Notes, it is possible that your Notes could alternatively be treated for tax purposes as a single contingent
payment debt instrument, or pursuant to some other characterization, such that the timing and character of your income from the
Notes could differ materially and adversely from the treatment described above, as described further under “Material U.S.
Federal Income Tax Consequences”, including the section “— Securities Treated as Prepaid Derivatives or Prepaid
Forwards with Associated Contingent Coupons”, in the accompanying product supplement unless and until such time as the IRS and
the Treasury determine that some other treatment is more appropriate.
Notice 2008-2. In 2007, the IRS
released a notice that may affect the taxation of holders of the Notes. According to Notice 2008-2, the IRS and the Treasury are
actively considering whether the holder of an instrument such as the Notes should be required to accrue ordinary income on a current
basis. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such
guidance, holders of the Notes will ultimately be required to accrue income currently in excess of any receipt of contingent coupons
and this could be applied on a retroactive basis. The IRS and the Treasury are also considering other relevant issues, including
whether additional gain or loss from such instruments should be treated as ordinary or capital, whether non-U.S. holders of such
instruments should be subject to withholding tax on any deemed income accruals, and whether the special “constructive
ownership rules” of Section 1260 of the Code should be applied to such instruments. Both U.S. and non-U.S. holders are urged
to consult their tax advisors concerning the significance, and potential impact, of the above considerations.
Except to the extent otherwise required by
law, UBS intends to treat your Notes for U.S. federal income tax purposes in accordance with the treatment described above and under
“Material U.S. Federal Income Tax Consequences — Securities Treated as Prepaid Derivatives or Prepaid Forwards with
Associated Contingent Coupons” in the accompanying product supplement unless and until such time as the IRS and the Treasury
determine that some other treatment is more appropriate.
Medicare Tax on Net Investment Income.
U.S. holders that are individuals, estates or certain trusts are subject to an additional 3.8% tax on all or a portion of their
“net investment income,” which may include any income or gain realized with respect to the Notes, to the extent of their
net investment income that when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual,
$250,000 for a married taxpayer filing a joint return (or a surviving spouse), $125,000 for a married individual filing a separate
return or the dollar amount at which the highest tax bracket begins for an estate or trust. The 3.8% Medicare tax is determined in a
different manner than the income tax. U.S. holders should consult their tax advisors as to the consequences of the 3.8% Medicare
tax.
Specified Foreign Financial Assets.
U.S. holders may be subject to reporting obligations with respect to their Notes if they do not hold their Notes in an account
maintained by a financial institution and the aggregate value of their Notes and certain other “specified foreign financial
assets” (applying certain attribution rules) exceeds an applicable threshold. Significant penalties can apply if a U.S. holder
is required to disclose its Notes and fails to do so.
Non-U.S. Holders. The U.S. federal
income tax treatment of the contingent coupons is unclear. Subject to the discussions below with respect to Section 871(m) of the
Code and FATCA, discussed below, our counsel is of the opinion that contingent coupons paid to a non-U.S. holder that provides us
(and/or the applicable withholding agent) with a fully completed and validly executed applicable IRS Form W-8 should not be subject
to U.S. withholding tax and we do not intend to withhold any tax on contingent coupons. However, it is possible that the IRS could
assert that such payments are subject to U.S. withholding tax, or that another withholding agent may otherwise determine that
withholding is required, in which case the other withholding agent may withhold up to 30% on such payments (subject to reduction or
elimination of such withholding tax pursuant to an applicable income tax treaty). We will not pay any additional amounts in respect
of such withholding. Subject to Section 897 of the Code and Section 871(m) of the Code, discussed below, gain realized from the
taxable disposition of a Note generally should not be subject to U.S. tax unless (i) such gain is effectively connected with a trade
or business conducted by the non-U.S. holder in the U.S., (ii) the non-U.S. holder is a non-resident alien individual and is present
in the U.S. for 183 days or more during the taxable year of such taxable disposition and certain other conditions are satisfied or
(iii) the non-U.S. holder has certain other present or former connections with the U.S.
Section 897. We will not attempt to
ascertain whether any underlying constituent issuer would be treated as a “United States real property holding
corporation” (“USRPHC”) within the meaning of Section 897 of the Code. We also have not attempted to determine
whether the Notes should be treated as “United States real property interests” ("USRPI") as defined in Section
897 of the Code. If any such entity and the Notes were so treated, certain adverse U.S. federal income tax consequences could
possibly apply, including subjecting any gain to a non-U.S. holder in respect of a Note upon a taxable disposition of a Note to U.S.
federal income tax on a net basis, and the proceeds from such a taxable disposition could be subject to a 15% withholding tax.
Non-U.S. holders should consult their tax advisors regarding the potential treatment of any underlying constituent issuer for their
Notes as a USRPHC and the Notes as USRPI.
Section 871(m). A 30% withholding tax
(which may be reduced by an applicable income tax treaty) is imposed under Section 871(m) of the Code on certain “dividend
equivalents” paid or deemed paid to a non-U.S. holder with respect to a “specified equity-linked instrument” that
references one or more dividend-paying U.S. equity securities or indices containing U.S. equity securities. The withholding tax can
apply even if the instrument does not provide for payments that reference dividends. Treasury regulations provide that the
withholding tax applies to all dividend equivalents paid or deemed paid on specified equity-linked instruments that have a delta of
one (“delta-one specified equity-linked instruments”) issued after 2016 and to all dividend equivalents paid or deemed
paid on all other specified equity-linked instruments issued after 2018. However, the IRS has issued guidance that states that the
Treasury and the IRS intend to amend the effective dates of the Treasury regulations to provide that withholding on dividend
equivalents paid or deemed paid will not apply to specified equity-linked instruments that are not delta-one specified equity-linked
instruments and are issued before January 1, 2023.
Based on our determination that the Notes
are not “delta-one” with respect to any underlying asset or any U.S. underlying constituents, our counsel is of the
opinion that the Notes should not be delta-one specified equity-linked instruments and thus should not be subject to withholding on
dividend equivalents. Our determination is not binding on the IRS, and the IRS may disagree with this determination. Furthermore,
the application of Section 871(m) of the Code will depend on our determinations made upon issuance of the Notes. If withholding is
required, we will not make payments of any additional amounts.
Nevertheless, after issuance, it is possible
that your Notes could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting an underlying asset,
the underlying constituents or your Notes, and following such occurrence your Notes could be treated as delta-one specified
equity-linked instruments that are subject to withholding on dividend equivalents. It is also possible that withholding tax or other
tax under Section 871(m) of the Code could apply to the Notes under these rules if a non-U.S. holder enters, or has entered, into
certain other transactions in respect of an underlying asset, the underlying constituents or the Notes. A non-U.S. holder that
enters, or has entered, into other transactions in respect of an underlying asset, the underlying constituents or the Notes should
consult its tax advisor regarding the application of Section 871(m) of the Code to its Notes in the context of its other
transactions.
Because of the uncertainty regarding
the application of the 30% withholding tax on dividend equivalents to the Notes, you are urged to consult your tax advisor regarding
the potential application of Section 871(m) of the Code and the 30% withholding tax to an investment in the Notes.
Foreign Account Tax Compliance Act.
The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010, and imposes a 30% U.S. withholding
tax on “withholdable payments” (i.e., certain U.S.-source payments, including interest (and original issue discount),
dividends, other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition
of property of a type which can produce U.S.-source interest or dividends) and “passthru payments” (i.e., certain
payments attributable to withholdable payments) made to certain foreign financial institutions (and certain of their affiliates)
unless the payee foreign financial institution agrees (or is required), among other things, to disclose the identity of any U.S.
individual with an account of the institution (or the relevant affiliate) and to annually report certain information about such
account. FATCA also requires withholding agents making withholdable payments to certain foreign entities that do not disclose the
name, address, and taxpayer identification number of any substantial U.S. owners (or do not certify that they do not have any
substantial U.S. owners) to withhold tax at a rate of 30%. Under certain circumstances, a holder may be eligible for refunds or
credits of such taxes.
Pursuant to final and temporary Treasury
regulations and other IRS guidance, the withholding and reporting requirements under FATCA will generally apply to certain
“withholdable payments”, will not apply to gross proceeds on a sale or disposition, and will apply to certain foreign
passthru payments only to the extent that such payments are made after the date that is two years after final regulations defining
the term “foreign passthru payment” are published. If withholding is required, we (or the applicable paying agent) will
not be required to pay additional amounts with respect to the amounts so withheld. Foreign financial institutions and non-financial
foreign entities located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to
different rules.
Investors should consult their tax advisors
about the application of FATCA, in particular if they may be classified as financial institutions (or if they hold their Notes
through a foreign entity) under the FATCA rules.
Proposed Legislation. In 2007,
legislation was introduced in Congress that, if it had been enacted, would have required holders of Notes purchased after the bill
was enacted to accrue interest income over the term of the Notes despite the fact that there may be no interest payments over the
term of the Notes.
Furthermore, in 2013, the House Ways and
Means Committee released in draft form certain proposed legislation relating to financial instruments. If it had been enacted, the
effect of this legislation generally would have been to require instruments such as the Notes to be marked to market on an annual
basis with all gains and losses to be treated as ordinary, subject to certain exceptions.
It is not possible to predict whether any
similar or identical bills will be enacted in the future, or whether any such bill would affect the tax treatment of your Notes. You
are urged to consult your tax advisor regarding the possible changes in law and their possible impact on the tax treatment of your
Notes.
Both U.S. and non-U.S. holders are
urged to consult their tax advisors concerning the application of U.S. federal income tax laws to their particular situations, as
well as any tax consequences of the purchase, beneficial ownership and disposition of the Notes arising under the laws of any state,
local, non-U.S. or other taxing jurisdiction.
Supplemental
Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)
We have agreed to sell to UBS Securities LLC
and UBS Securities LLC has agreed to purchase, all of the Notes at the issue price to the public less the underwriting discount
indicated on the cover hereof. UBS Securities LLC has agreed to resell all of the Notes to UBS Financial Services Inc. at a discount
from the issue price to the public equal to the underwriting discount indicated on the cover hereof.
Conflicts of Interest — Each of
UBS Securities LLC and UBS Financial Services Inc. is an affiliate of UBS and, as such, has a “conflict of interest” in
this offering within the meaning of Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5121. In addition, UBS
will receive the net proceeds (excluding the underwriting discount) from the initial public offering of the Notes, thus creating an
additional conflict of interest within the meaning of FINRA Rule 5121. Consequently, the offering is being conducted in compliance
with the provisions of FINRA Rule 5121. Neither UBS Securities LLC nor UBS Financial Services Inc. is permitted to sell Notes in
this offering to an account over which it exercises discretionary authority without the prior specific written approval of the
account holder.
UBS Securities LLC and its affiliates may
offer to buy or sell the Notes in the secondary market (if any) at prices greater than UBS’ internal valuation — The
value of the Notes at any time will vary based on many factors that cannot be predicted. However, the price (not including UBS
Securities LLC’s or any affiliate’s customary bid-ask spreads) at which UBS Securities LLC or any affiliate would offer
to buy or sell the Notes immediately after the trade date in the secondary market is expected to exceed the estimated initial value
of the Notes as determined by reference to our internal pricing models. The amount of the excess will decline to zero on a straight
line basis over a period ending no later than 8 months after the trade date, provided that UBS Securities LLC may shorten the period
based on various factors, including the magnitude of purchases and other negotiated provisions with selling agents. Notwithstanding
the foregoing, UBS Securities LLC and its affiliates intend, but are not required to make a market for the Notes and may stop making
a market at any time. For more information about secondary market offers and the estimated initial value of the Notes, see
“Key Risks — Fair value considerations” and “— Limited or no secondary market and secondary market
price considerations” herein.
Prohibition of Sales to EEA Retail
Investors — The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold
or otherwise made available to any retail investor in the European Economic Area ("EEA"). For these purposes, a retail
investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive
2014/65/EU, as amended ("MiFID II"); (ii) a customer within the meaning of Directive 2002/92/EC, as amended, where that
customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified
investor as defined in Directive 2003/71/EC, as amended. Consequently no key information document required by Regulation (EU) No
1286/2014, as amended (the "PRIIPs Regulation"), for offering or selling the Notes or otherwise making them available to
retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any
retail investor in the EEA may be unlawful under the PRIIPs Regulation.