UBS AG
Trigger Callable Yield Notes (the “Notes”) are unsubordinated, unsecured debt securities issued by UBS AG
(“UBS” or the “issuer”) linked to the S&P 500® Index (the “underlying
asset”). UBS will pay a coupon on each coupon payment date regardless of the performance of the underlying asset, unless UBS
has previously elected to call the Notes. UBS may elect to call the Notes at its discretion, in whole, but not in part (an
“issuer call”), regardless of the performance of the underlying asset on any “call date” as specified under
“Call Dates and Coupon Payment Dates” herein. If UBS elects to call the Notes prior to maturity, UBS will pay you on the
coupon payment date following such call date (the “call settlement date”) a cash payment per Note equal to the principal
amount plus the coupon otherwise due, and no further payments will be made on the Notes. If UBS does not elect to call the Notes and
the closing level of the underlying asset on the final valuation date (the “final level”) is equal to or greater than
the downside threshold, UBS will pay you a cash payment per Note equal to the principal amount, plus the coupon otherwise due. If,
however, UBS does not elect to call the Notes and the final level is less than the downside threshold, in addition to the coupon
otherwise due, UBS will pay you a cash payment per Note that is less than the principal amount, if anything, resulting in a
percentage loss on your initial investment equal to the percentage decline in the underlying asset from the trade date to the final
valuation date (the “underlying return”) and, in extreme situations, you could lose all of your initial investment.
Investing in the Notes involves significant risks. In exchange for receiving a coupon on the Notes, you are accepting the risk of
losing a significant portion or all of your initial investment at maturity if the final level is less than the downside threshold.
UBS may elect to call the Notes at its discretion on any call date regardless of the performance of the underlying asset. Generally,
higher coupon rates are generally associated with a greater risk of loss. The contingent repayment of principal applies only if you
hold the Notes to maturity. Any payment on the Notes, including any payments in respect of an issuer call 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.
The estimated initial value of the
Notes as of the trade date is $9.756. The estimated initial value of the Notes was determined as of the close of the relevant
markets on the date hereof by reference to UBS’ internal pricing models, inclusive of the internal funding rate. 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” on pages 6
and 7 herein.
The Notes are not bank deposits and are not
insured by the Federal Deposit Insurance Corporation or any other governmental agency.
Additional
Information about UBS and the Notes
UBS has filed a
registration statement (including a prospectus, as supplemented by an index supplement and a product supplement for the Notes) with
the Securities and Exchange Commission (the “SEC”), for the Notes to which this document relates. You should read these
documents and any other documents related to the Notes that UBS has filed with the SEC for more complete information about UBS and
the Notes. You may obtain these documents for free from the SEC website at www.sec.gov. Our Central Index Key, or CIK, on the SEC
website is 0001114446.
You may access these documents on the SEC website at
www.sec.gov as follows:
References to “UBS”,
“we”, “our” and “us” refer only to UBS AG and not to its consolidated subsidiaries. In this
document, “Trigger Callable Yield Notes” or the “Notes” refer to the Notes that are offered hereby. Also,
references to the “accompanying product supplement” mean the UBS product supplement, dated October 31, 2018, references
to the “index supplement” mean the UBS index supplement, dated October 31, 2018 and references to the
“accompanying prospectus” mean the UBS prospectus, titled “Debt Securities and Warrants”, dated October 31,
2018.
This document, together with the documents
listed above, contains the terms of the Notes and supersedes all other prior or contemporaneous oral statements as well as any other
written materials including all other prior pricing terms, correspondence, trade ideas, structures for implementation, sample
structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set
forth in “Key Risks” beginning on page 5 and in “Risk Factors” beginning on page PS-9 in the accompanying
product supplement, as the Notes involve risks not associated with conventional debt securities. We urge you to consult your
investment, legal, tax, accounting and other advisors before deciding to invest in the Notes.
If there is any inconsistency between the
terms of the Notes described in the accompanying prospectus, the accompanying product supplement, the index supplement and this
document, the following hierarchy will govern: first, this document; second, the accompanying product supplement; third, the index
supplement; and last, the accompanying prospectus.
UBS reserves the right to change the terms
of, or reject any offer to purchase, the Notes prior to their issuance. In the event of any changes to the terms of the Notes, UBS
will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such
changes in which case UBS may reject your offer to purchase.
Investor Suitability
The Notes may be suitable for you
if:
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You fully understand the risks inherent in an investment in the Notes, including the risk of loss of
a significant portion or all of your initial investment.
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You can tolerate a loss of a significant portion or all of your initial investment and are willing
to make an investment that may have the same downside market risk as a hypothetical investment in the underlying asset or the stocks
comprising the underlying asset (the "underlying constituents").
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You believe that the final level of the underlying asset will be equal to or greater than the
downside threshold.
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You understand and accept that you will not participate in any appreciation of the underlying asset
and that your potential return is limited to the coupons, which will be based on the duration of the Notes and the coupon
rate.
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You can tolerate fluctuations in the price of the Notes prior to maturity that may be similar to or
exceed the downside fluctuations in the level of the underlying asset.
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You are willing to invest in the Notes based on the coupon rate and downside threshold indicated on
the cover hereof.
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You are willing to forgo any dividends paid on the underlying constituents.
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You are willing to invest in Notes that UBS may elect to call early and you are otherwise willing to
hold such Notes to maturity and you accept that there may be little or no secondary market for the Notes.
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You understand and are willing to accept the risks associated with the underlying
asset.
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You are willing to assume the credit risk of UBS for all payments under the Notes, and understand
that if UBS defaults on its obligations you may not receive any amounts due to you including any payments in respect of an issuer
call or any repayment of principal.
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You understand that the estimated initial value of the Notes determined by our internal pricing
models is lower than the issue price and that should UBS Securities LLC or any affiliate make secondary markets for the Notes,
the price (not including their customary bid-ask spreads) will temporarily exceed the internal pricing model price.
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The Notes may not be suitable for you
if:
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You do not fully understand the risks inherent in an investment in the Notes, including the risk of
loss of a significant portion or all of your initial investment.
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You require an investment designed to provide a full return of principal at
maturity.
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You cannot tolerate a loss of a significant portion or all of your initial investment or you are not
willing to make an investment that may have the same downside market risk as a hypothetical investment in the underlying asset or
the underlying constituents.
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You believe that the level of the underlying asset will decline during the term of the Notes and
that the final level is likely to be less than the downside threshold.
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You seek an investment that participates in the appreciation of the underlying asset or that has
unlimited return potential.
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You cannot tolerate fluctuations in the price of the Notes prior to maturity that may be similar to
or exceed the downside fluctuations of the underlying asset.
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You are unwilling to invest in the Notes based on the coupon rate or downside threshold indicated on
the cover hereof.
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You are unwilling to forgo any dividends paid on the underlying constituents.
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You do not understand or are unwilling to accept the risks associated with the underlying
asset.
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You are unable or unwilling to invest in Notes that UBS may elect to call early or you are otherwise
unable or unwilling to hold the Notes to maturity or you seek an investment for which there will be an active secondary
market.
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You are not willing to assume the credit risk of UBS for all payments under the Notes, including any
including any payments in respect of an issuer call or any repayment of principal.
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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 Asset” herein for more information on the underlying asset. You should
also review carefully the “Key Risks” section herein for risks related to an investment in the Notes.
Final Terms
Issuer
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UBS AG London Branch
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Principal Amount
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$10 per Note
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Term
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Approximately 24 months, unless subject to an issuer call.
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Underlying
Asset
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S&P 500® Index
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Coupon Payments & Coupon Rate
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UBS will pay a coupon on each coupon payment date (including the maturity date)
in arrears in equal installments, regardless of the performance of the underlying asset, unless UBS has previously elected to
call the Notes.
The coupon is a fixed amount based upon equal installments at a per annum rate
(the “coupon rate”). The table below sets forth the coupon rate and the coupon for each Note that would
be paid on each coupon payment date on which the Notes are still outstanding; the total coupon payable will be based on the
duration of the Notes.
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Coupon Rate
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4.85%
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Coupon
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$0.0404
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Issuer Call Feature
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UBS may elect to call the Notes at its discretion, in whole, but not in part, on
any call date regardless of the performance of the underlying asset on such call date.
If UBS elects to call the Notes, UBS will pay you on the coupon payment date
following such call date (the “call settlement date”) a cash payment per Note equal to the principal amount plus the
coupon otherwise due (the “call settlement amount”), and no further payments will be made on the Notes. Before UBS
elects to call the Notes on a call date, UBS will deliver written notice to the trustee.
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Payment at Maturity (per Note)
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If UBS does not elect to call the Notes and the final level is equal to or
greater than the downside threshold, UBS will pay you a cash payment equal to:
Principal Amount of $10
If UBS does not elect to call the Notes and the final level is less than the
downside threshold, UBS will pay you a cash payment that is less than the principal amount, if anything, equal to:
$10 ´ (1 + Underlying Return)
In this case, you will suffer a percentage loss on your initial investment
equal to the underlying return and, in extreme situations, you could lose all of your initial investment.
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Underlying Return
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The quotient, expressed as a percentage, of the following formula:
Final Level – Initial Level
Initial Level
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Downside Threshold(1)
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A specified level of
the underlying asset that is less than the initial level, equal to a percentage of the initial level, as specified on the cover
hereof.
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Initial Level(1)
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The closing level of
the underlying asset on the trade date, as specified on the cover hereof.
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Final Level(1)
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The closing level of
the underlying asset on the final valuation date.
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(1) As determined by the calculation
agent and as may be adjusted as described under “General Terms of the Securities — Discontinuance of or Adjustment to an
Underlying Index; Alteration of Method of Calculation”, as described in the accompanying product supplement.
Investment Timeline
Trade Date
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The initial level of the underlying asset is observed and the final terms of the Notes are set.
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Coupon
Payment Dates
(if UBS has not previously elected
to call the Notes)
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UBS pays the applicable coupon.
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Call Dates Prior to the Final Valuation Date
(Monthly, beginning after 3 months)
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UBS may elect to call the Notes at its discretion, in whole, but not in part, on
any call date regardless of the performance of the underlying asset on such call date.
If UBS elects to call the Notes, UBS will pay you on the call settlement date a
cash payment per Note equal to the principal amount plus the coupon otherwise due, and no further payments will be made on the
Notes. Before UBS elects to call the Notes, UBS will deliver written notice to the trustee. If UBS does not elect to call the
Notes, investors will have the potential for downside market risk at maturity.
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Maturity Date
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The final level is observed on the final valuation date and the underlying
return of the underlying asset is calculated.
If UBS does not elect to call the Notes and the final level is equal to or
greater than the downside threshold, UBS will pay you a cash payment per Note equal to:
Principal Amount of $10
If UBS does not elect to call the Notes and the final level is less than the
downside threshold, UBS will pay you a cash payment per Note that is less than the principal amount, if anything, equal
to:
$10 ´ (1 + Underlying Return)
In this case, you will suffer a percentage loss on your initial investment
equal to the underlying return and, in extreme situations, you could lose all of your initial investment.
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Investing in the Notes involves
significant risks. In exchange for receiving a coupon on the Notes, you are accepting the risk of losing a significant portion or
all of your initial investment at maturity if the final level is less than the downside threshold. UBS may elect to call the Notes
at its discretion, in whole, but not in part, on any call date regardless of the performance of the underlying asset. Any payment on
the Notes, including any payments in respect of an issuer call 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.
You will lose a significant portion or
all of your initial investment if UBS does not elect to call the Notes and the final level is less than the downside threshold.
Specifically, if UBS does not elect to call the Notes and the final level is less than the downside threshold, you will lose a
percentage of your principal amount equal to the underlying return and, in extreme situations, you could lose all of your initial
investment.
Call
Dates(1) and Coupon Payment Dates(1)(2)
Call Dates
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Coupon Payment Dates/Call Settlement Dates
(if called)
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Call Dates
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Coupon Payment Dates/Call Settlement Dates
(if called)
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June 25, 2020
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June 22, 2021
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June 25, 2021
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July 27, 2020
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July 22, 2021
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July 27, 2021
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August 24, 2020
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August 27, 2020
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August 23, 2021
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August 26, 2021
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September 22, 2020
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September 25, 2020
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September 22, 2021
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September 27, 2021
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October 22, 2020
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October 27, 2020
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October 22, 2021
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October 27, 2021
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November 23, 2020
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November 27, 2020
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November 22, 2021
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November 26, 2021
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December 22, 2020
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December 28, 2020
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December 22, 2021
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December 28, 2021
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January 22, 2021
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January 27, 2021
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January 24, 2022
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January 27, 2022
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February 22, 2021
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February 25, 2021
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February 22, 2022
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February 25, 2022
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March 22, 2021
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March 25, 2021
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March 22, 2022
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March 25, 2022
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April 22, 2021
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April 27, 2021
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April 22, 2022
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April 27, 2022
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May 24, 2021
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May 27, 2021
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Final Valuation Date*
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Maturity Date
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* The final valuation date is not a call date.
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(1)
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Subject to the market disruption event provisions set forth in the accompanying product supplement.
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(2)
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Three business days following each call date, except that the coupon payment date for the final valuation date is the maturity date.
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Key Risks
An investment in the Notes involves
significant risks. Investing in the Notes is not equivalent to investing in the underlying asset or in the underlying constituents.
Some of the key 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 regarding an investment in the Notes.
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Risk of loss at maturity — The Notes differ from ordinary debt securities in that UBS
will not necessarily repay the principal amount of the Notes at maturity. If UBS does not elect to call the Notes and the final
level is less than the downside threshold, you will lose a percentage of your principal amount equal to the underlying return and,
in extreme situations, you could lose all of your initial investment.
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The stated payout from the issuer applies only upon an issuer call or at maturity — You should be willing to hold
your Notes to an issuer call or maturity. If you are able to sell your Notes prior maturity in the secondary market, you may have to
sell them at a loss relative to your initial investment even if the then-current level of the underlying asset at that time is equal
to or greater than the downside threshold. All payments on the Notes are subject to the creditworthiness of UBS.
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Your potential return on the Notes is limited to the coupon rate and you will not participate in
any appreciation of the underlying asset or underlying constituents and you will not have the same rights as holders of any
underlying constituents — The return potential of the Notes is limited to the pre-specified coupon rate, regardless of any
appreciation of the underlying asset. If UBS elects to call the Notes, you will not receive any coupons or any other payment in
respect of any coupon payment date after the call settlement date, and your return on the Notes would be less than if the Notes
remained outstanding until maturity. If UBS does not elect to call the Notes, you may be subject to the decline of the underlying
asset even though you cannot participate in any appreciation of the 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 the underlying asset 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.
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A higher coupon rate or lower downside threshold may reflect greater expected volatility of the
underlying asset, and greater expected volatility generally indicates an increased risk of loss at maturity — The economic
terms for the Notes, including the coupon rate and downside threshold, are based, in part, on the expected volatility of the
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 the underlying asset. The greater the expected volatility of the underlying asset as of the trade date, the
greater the expectation is as of that date that the final level of the underlying asset could be less than the downside threshold
and, as a consequence, indicates an increased risk of loss. All things being equal, this greater expected volatility will generally
be reflected in a higher coupon rate than the yield payable on our conventional debt securities with a similar maturity or on
otherwise comparable securities, and/or a lower downside threshold than those terms on otherwise comparable securities. Therefore, a
relatively higher coupon rate may indicate an increased risk of loss. Further, a relatively lower downside threshold may not
necessarily indicate that the Notes have a greater likelihood of a return of principal at maturity. You should be willing to accept
the downside market risk of the underlying asset and the potential to lose a significant portion or all of your initial
investment.
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UBS may elect to call the Notes and the Notes are subject to reinvestment risk — UBS
may elect to call the Notes at its discretion, in whole, but not in part, on any call date regardless of the performance of the
underlying asset. If UBS elects to call your Notes early, you will no longer have the opportunity to receive any coupons after the
applicable call settlement date. UBS may elect to call the Notes as early as the first call date and therefore you may not have the
opportunity to receive any coupons after the applicable call settlement date. In the event UBS elects to call the Notes, there is no
guarantee that you would be able to reinvest the proceeds at a comparable return and/or with a comparable coupon rate for a similar
level of risk. Further, UBS’ right to call the Notes may also adversely impact your ability to sell your Notes in the
secondary market.
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It is more likely
that UBS will elect to call the Notes prior to maturity when the remaining coupons payable on the Notes are greater than the
interest that would be payable on other instruments issued by UBS of comparable maturity, terms and credit rating trading in the
market. The greater likelihood of UBS calling the Notes in that environment increases the risk that you will not be able to reinvest
the proceeds from the called Notes in an equivalent investment with a similar coupon rate. 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 notes. UBS is less likely to call the Notes prior to maturity when the remaining coupons payable on
the Notes are less than the interest that would be payable on other comparable instruments issued by UBS. Therefore, the Notes are
more likely to remain outstanding when the remaining amount payable on the Notes is less than what would be payable on other
comparable instruments.
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An investment in Notes with coupon and issuer call features may be more sensitive to interest
rate risk than an investment in securities without such features — Because of the issuer call and coupon features of the
Notes, you will bear greater exposure to fluctuations in interest rates than if you purchased securities without such features. In
particular, you may be negatively affected if prevailing interest rates begin to rise, and the coupon rate on the Notes may be less
than the amount of interest you could earn on other investments with a similar level of risk available at such time. In addition, if
you tried to sell your Notes at such time, the value of your Notes in any secondary market transaction would also be adversely
affected. Conversely, in the event that prevailing interest rates are low relative to the coupon rate and UBS elects to call the
Notes, there is no guarantee that you will be able to reinvest the proceeds from an investment in the Notes at a comparable rate of
return for a similar level of risk.
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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
payments in respect of an issuer call or 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
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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.
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Market risk — The return on the Notes, which may be negative, is directly linked to the
performance of the underlying asset and indirectly linked to the value of the underlying constituents. The level of the underlying
asset can rise or fall sharply due to factors specific to the underlying asset 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 asset. You, as an investor in the Notes, should conduct your own investigation into the underlying asset
and underlying constituents.
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Fair value considerations.
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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 level and volatility of the underlying asset and underlying constituents, any expected dividends on the
underlying constituents, 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.
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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.
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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.
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Limited or no secondary market and secondary market price considerations.
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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.
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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 statements — 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
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on their customer statements. Investors should inquire as to the valuation provided on customer account statements
provided by unaffiliated dealers.
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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 level of the underlying asset;
the volatility of the underlying asset and underlying constituents; any dividends paid on the underlying constituents; 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; the availability of comparable instruments; and 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.
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¨
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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.
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¨
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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 level of the underlying asset will rise or fall. There
can be no assurance as to whether or not UBS will elect to call the Notes and, if not called, whether the final level will be equal
to or greater than the downside threshold. The level of the 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 of associated with the relevant markets tracked by the underlying asset in general and the underlying asset and
underlying constituents in particular, and the risk of losing a significant portion or all of your initial
investment.
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¨
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UBS cannot control actions by the index sponsor and the index sponsor has no obligation to
consider your interests — UBS and its affiliates are not affiliated with the index sponsor as specified under
“Information About the Underlying Asset” (the "index sponsor") 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 asset. The index sponsor is not involved in the Notes offering in any way and has 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 amounts payable on, your
Notes.
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¨
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The underlying asset reflects price return, not total return — The return on your Notes
is based on the performance of the underlying asset, which reflects 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.
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¨
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Changes affecting the underlying asset could have an adverse effect on the market value of, and
any amounts payable on, the Notes — The policies of the index sponsor 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 level of the underlying asset. The policies of the index sponsor with respect to the
calculation of the underlying asset could also adversely affect the levels of the underlying asset. The index sponsor may
discontinue or suspend calculation or dissemination of the underlying asset. Any such actions could have an adverse effect on the
market value of, and any amounts payable on, the Notes.
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¨
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Potential UBS impact on the underlying asset — Trading or transactions by UBS or its
affiliates in the underlying asset 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 asset or any underlying constituent, may
adversely affect the level of the underlying asset on any day during the term of the Notes (including the final valuation date) and,
therefore, the market value of, and any amounts payable on, the Notes.
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¨
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Potential conflict of interest — UBS and its affiliates may engage in business with an
underlying constituent issuer, which may present a conflict between the obligations of UBS and you, as a holder of the Notes.
Moreover, UBS may elect to call the Notes pursuant to the issuer call feature. If UBS so elects, the decision may be based on
factors contrary to those favorable to a holder of the Notes, such as, but not limited to, those described above under
“— UBS may elect to call the Notes and the Notes are subject to reinvestment risk” and “— An
investment in Notes with coupon and issuer call features may be more sensitive to interest rate risk than an investment in
securities without such features”. 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 the payment
at maturity of the Notes, if any, based on observed levels of the underlying asset. The calculation agent can postpone the
determination of the terms of the Notes on the trade date and the final valuation date. As UBS determines the economic terms of the
Notes, including the coupon rate, call dates and downside threshold, 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.
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¨
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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, and any
amounts payable on, 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
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should make their own independent investigation of the merits of investing in
the Notes and the underlying asset to which the Notes are linked.
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¨
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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.
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¨
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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.
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¨
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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.
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¨
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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 Investment Units Containing a Debt Instrument and a Put Option Contract” in the accompanying product
supplement.
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Hypothetical Examples of How the Notes Might Perform and Return Table
The below examples and hypothetical
return at maturity table 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:
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$10.00
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Term:
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Approximately 24 months
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Initial Level:
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3,000
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Coupon Rate*:
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3.60% per annum (or 0.30% per month)
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Coupon:
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$0.03 per month
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Call Dates:
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Monthly (beginning after 3 months)
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Downside Threshold:
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1,500 (which is 50.00% of the Initial Level)
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Dividend Yield on the Underlying Asset**:
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1%
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* Coupons will be paid in
arrears in equal installments during the term of the Notes on each Coupon Payment Date, unless UBS has previously elected to call
the Notes. The total coupons paid will be based on the duration of the Notes.
** Hypothetical dividend yield holders of the underlying asset
might receive over the term of the Notes. The assumed dividend yield represents a hypothetical dividend return that may vary from
the actual dividend yield for the underlying asset. Regardless, investors in the Notes will not receive any dividends paid on the
underlying asset.
Example 1 — UBS elects to call the Notes on the first Call
Date.
Payment on Call Settlement Date:
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$10.03
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Coupons Previously Paid:
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$ 0.06
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Total:
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$10.09
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Total Return on the Notes:
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0.90%
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Because UBS elects to call the Notes on the first call date (which
is approximately 3 months after the trade date), UBS will pay on the call settlement date a cash payment equal to $10.03 per Note,
reflecting the principal amount plus the coupon for the corresponding coupon payment date. When added to the coupon payments of
$0.06 received in respect of the prior coupon payment dates, UBS will have paid you a total of $10.09 per Note for a 0.90% total
return on the Notes. No further amount will be owed to you under the Notes.
Example 2 — UBS elects to call the Notes on the third Call
Date.
Payment on Call Settlement Date:
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$10.03
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Coupons Previously Paid:
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$ 0.12
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Total:
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$10.15
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Total Return on the Notes:
|
1.50%
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Because UBS elects to call the Notes on the third call date (which
is approximately 5 months after the trade date), UBS will pay on the call settlement date a cash payment equal to $10.03 per Note,
reflecting the principal amount plus the coupon for the corresponding coupon payment date. When added to the coupon payments of
$0.12 received in respect of the prior coupon payment dates, UBS will have paid you a total of $10.15 per Note for a 1.50% total
return on the Notes. No further amount will be owed to you under the Notes.
Example 3 — UBS does not elect to call the Notes and the
Final Level is equal to or greater than the Downside Threshold.
Final Level:
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2,000
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Payment on Maturity Date:
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$10.03
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Coupons Previously Paid:
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$ 0.69
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Total:
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$10.72
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Total Return on the Notes:
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7.20%
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Because UBS does not elect to call the Notes and the final level is
equal to or greater than the Downside Threshold, at maturity, UBS will pay you a total of $10.03 per Note, reflecting the principal
amount plus the coupon for the maturity date. When added to the coupon payments of $0.69 received in respect of the prior coupon
payment dates, UBS will have paid you a total of $10.72 per Note for a 7.20% total return on the Notes.
Example 4 — UBS does not elect to call the Notes and the
Final Level is less than the Downside Threshold.
Final Level:
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900
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Payment on Maturity Date:
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$3.03
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Coupons Previously Paid:
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$0.69
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Total:
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$3.72
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Total Return on the Notes:
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-62.80%
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Because UBS does not elect to call the Notes and the final level is
less than the Downside Threshold, at maturity, UBS will pay you a total of $3.03 per Note, reflecting the payment at maturity plus
the coupon for the maturity date. When added to the coupon payments of $0.69 received in respect of the prior coupon payment dates,
UBS will have paid you a total of $3.72 per Note for a loss of 62.80% on the Notes.
Hypothetical Return at Maturity
The table below illustrates the payment at maturity if UBS does not
elect to call the Notes based on the assumptions above (the actual terms for each Note will be determined on the trade date; amounts
have been rounded for ease of reference).
Underlying Asset
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The Hypothetical Final Level is
Equal to or Greater Than the
Hypothetical Downside Threshold
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The Hypothetical Final Level
is Less Than the Hypothetical
Downside Threshold
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Hypothetical Final Level
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Underlying Return
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Total Return on the Underlying Asset at Maturity(1 )
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Total Payment at Maturity + Coupon
Payments
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Total Return on the Notes at Maturity
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Total Payment at Maturity + Coupon Payments(2)
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Total Return on the Notes
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4,200.00
|
40.00%
|
41.00%
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$10.72
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7.20%
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n/a
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n/a
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4,050.00
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35.00%
|
36.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,900.00
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30.00%
|
31.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,750.00
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25.00%
|
26.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,600.00
|
20.00%
|
21.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,450.00
|
15.00%
|
16.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,300.00
|
10.00%
|
11.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,150.00
|
5.00%
|
6.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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3,000.00
|
0.00%
|
1.00%
|
$10.72
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7.20%
|
n/a
|
n/a
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2,700.00
|
-10.00%
|
-9.00%
|
$10.72
|
7.20%
|
n/a
|
n/a
|
2,400.00
|
-20.00%
|
-19.00%
|
$10.72
|
7.20%
|
n/a
|
n/a
|
2,100.00
|
-30.00%
|
-29.00%
|
$10.72
|
7.20%
|
n/a
|
n/a
|
1,800.00
|
-40.00%
|
-39.00%
|
$10.72
|
7.20%
|
n/a
|
n/a
|
1,500.00
|
-50.00%
|
-49.00%
|
$10.72
|
7.20%
|
n/a
|
n/a
|
1,350.00
|
-55.00%
|
-54.00%
|
n/a
|
n/a
|
$5.22
|
-47.80%
|
1,200.00
|
-60.00%
|
-59.00%
|
n/a
|
n/a
|
$4.72
|
-52.80%
|
1,050.00
|
-65.00%
|
-64.00%
|
n/a
|
n/a
|
$4.22
|
-57.80%
|
900.00
|
-70.00%
|
-69.00%
|
n/a
|
n/a
|
$3.72
|
-62.80%
|
750.00
|
-75.00%
|
-74.00%
|
n/a
|
n/a
|
$3.22
|
-67.80%
|
600.00
|
-80.00%
|
-79.00%
|
n/a
|
n/a
|
$2.72
|
-72.80%
|
300.00
|
-90.00%
|
-89.00%
|
n/a
|
n/a
|
$1.72
|
-82.80%
|
0.00
|
-100.00%
|
-99.00%
|
n/a
|
n/a
|
$0.72
|
-92.80%
|
|
(1)
|
The total return on the underlying asset at maturity includes a hypothetical 1% cash dividend payment.
|
|
(2)
|
Payment consists of the payment at maturity plus hypothetical coupon payments of 3.60% per annum. The total return on the Notes
at maturity will depend on the final level of the underlying asset.
|
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 UBS does not elect to call the Notes, you may lose a significant portion or all of your initial investment. Specifically, if
UBS does not elect to call the Notes and the final level is less than the downside threshold, you will lose a percentage of your
principal amount equal to the underlying return and, in extreme situations, you could lose all of your initial investment. UBS may
elect to call the Notes at its discretion, in whole, but not in part, on any call date regardless of the performance of the
underlying asset.
Any payment on the Notes, including any
payments in respect of an issuer call 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 Asset
S&P 500® Index
We have derived all information regarding
the S&P 500® Index (“SPX”) 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 S&P Dow Jones Indices LLC (the “index sponsor” or “S&P Dow Jones”).
SPX is published by S&P Dow Jones, but
S&P Dow Jones has no obligation to continue to publish SPX, and may discontinue publication of SPX at any time. SPX 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 — S&P 500®
Index”, SPX is intended to provide an indication of the pattern of common stock price movement. The calculation of the value
of SPX is based on the relative value of the aggregate market value of the common stock of 500 companies as of a particular time
compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years
1941 through 1943.
Eleven main groups of companies comprise
SPX, with the percentage weight of each group in the index as a whole as of April 30, 2020 as follows: Information Technology
(25.7%), Health Care (15.4%), Communication Services (10.8%), Financials (10.6%), Consumer Discretionary (10.5%), Industrials
(7.9%), Consumer Staples (7.4%), Utilities (3.3%), Energy (3.0%), Real Estate (2.9%) and Materials (2.5%). The weightings for each
sector are rounded to the nearest tenth of a percent and, therefore, may not equal 100%. As of September 28, 2018, the index sponsor
broadened the current Telecommunication Services Sector and renamed it Communication Services. The renamed Sector includes the
existing telecommunication companies, as well as companies selected from the Consumer Discretionary Sector previously classified
under the Media Industry Group and the Internet & Direct Marketing Retail Sub-Industry, along with select companies previously
classified in the Information Technology Sector. Effective February 20, 2019, company additions to SPX should have an unadjusted
company market capitalization of $8.2 billion or more (an increase from the previous requirement of an unadjusted company market
capitalization of $6.1 billion or more) and a security level float-adjusted market capitalization that is at least $4.1 billion.
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 the underlying
asset.
Historical Information
The graph below illustrates the
performance of the underlying asset from January 1, 2010 through May 22, 2020, based on the daily closing levels as reported by
Bloomberg Professional® service (“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 the
underlying asset on May 22, 2020 was 2,955.45. The dotted line represents the downside threshold of 1,477.73, which is equal to
50.00% of the initial level. Past performance of the underlying asset is not indicative of the future performance of the
underlying asset during the term of the Notes.
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 Investment Units Containing a Debt Instrument and a Put Option Contract”, of the accompanying product supplement and to
discuss the tax consequences of your particular situation with your tax advisor. This discussion is based upon the U.S. 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 Consequences. The U.S.
federal income tax consequences of your investment in the Notes are complex and uncertain. By purchasing a Note, you and UBS hereby
agree, in the absence of a statutory or regulatory change or an administrative determination or judicial ruling to the contrary, to
characterize a Note for all tax purposes as an investment unit consisting of a non-contingent debt instrument and a put option
contract in respect of the underlying asset. The terms of the Notes require (in the absence of a statutory or regulatory change or
an administrative determination or judicial ruling to the contrary) that you treat your Notes for U.S. federal income tax purposes
as consisting of two components:
Debt component — We intend to
treat the debt component as having a term greater than one year, so that the amounts treated as interest on the debt component would
be includable in income by you in accordance with your regular method of accounting for interest for U.S. federal income purposes.
Cash-basis taxpayers who do not elect to accrue interest currently would include interest in income upon receipt of such
interest.
Put option component — The put
option component would generally not be taxed until the taxable disposition of the Notes. At such time, the put option component
would be taxed as a short-term capital gain.
With respect to coupon
payments you receive, you agree to treat such payments as consisting of interest on the debt component and a payment with respect to
the put option as follows:
Coupon Rate
|
Interest on Debt Component
|
Put Option Component
|
4.85% per annum
|
1.85% per annum
|
3.00% per annum
|
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”, including the section "— Securities Treated as Investment
Units Containing a Debt Instrument and a Put Option Contract", in the accompanying product supplement unless and until such
time as some other treatment is more appropriate.
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 Investment Units Containing a Debt Instrument and
a Put Option Contract", 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 the appropriate tax treatment of holders of certain types of structured notes. Legislation has also been
proposed in Congress that would require the holders of certain prepaid forward contracts to accrue income during the term of the
transaction. It is not clear whether the Notice applies to instruments such as the Notes. Furthermore, it is not possible to
determine what guidance or legislation will ultimately result, if any, and whether such guidance or legislation will affect the tax
treatment of the Notes. 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.
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. If you are a
non-U.S. holder, subject to Section 871(m) of the Code and “FATCA,” discussed below, you should generally not be subject
to U.S. withholding tax with respect to payments on your Notes or to generally applicable information reporting and backup
withholding requirements with respect to payments on your Notes if you comply with certain certification and identification
requirements as to your non-U.S. status by providing us (and/or the applicable withholding agent) with a fully completed and validly
executed applicable IRS Form W-8. 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 the Note
to the U.S. federal income tax on a net basis, and the proceeds from such a taxable disposition to a 15% withholding tax. Non-U.S.
holders should consult their tax advisors regarding the potential treatment of any such entity 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 the underlying asset or any underlying constituent, 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 the 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 you enter, or have entered, into certain other
transactions in respect of the underlying asset, the underlying constituents or the Notes. If you enter, or have entered, into other
transactions in respect of the underlying asset, the underlying constituents or the Notes should consult your tax advisor regarding
the application of Section 871(m) of the Code to your Notes in the context of your 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 accrual of income on certain prepaid
forward contracts prior to maturity.
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 put option component of 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 4 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 “Key Risks — 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.