424B2 1 d883995d424b2.htm 424B2 424B2
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Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-225551

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Amendment No. 2 dated March 19, 2020 to

PROSPECTUS SUPPLEMENT dated January 4, 2017

(To Prospectus dated October 31, 2018)

$1,350,000,000 UBS ETRACS — ProShares Daily 3x Long Crude ETN linked to the Bloomberg WTI Crude Oil Subindex ER due January 4, 2047

(the “3X Long Securities”)

$100,000,000 UBS ETRACS — ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex ER due January 4, 2047

(the “3X Inverse Securities”)

 

ETNs

 

Leverage
Amount

 

ETN Type

 

Exchange
Ticker

 

Indicative
Value Ticker

 

CUSIP

 

ISIN

 

Annual
Tracking Fee

3X Long Securities   3   Leveraged Long   WTIU   WTIUIV   90274E117   US90274E1174   1.45%
3X Inverse Securities   -3   Leveraged Inverse   WTID   WTIDIV   90274E125   US90274E1257   1.85%

UBS AG is offering and selling two separate series of exchange traded notes (each, a “series of Securities” and collectively, the “Securities”). The Securities are Series B senior unsecured debt securities issued by UBS AG (“UBS”) that provide either positive (in the case of the 3X Long Securities) or negative (in the case of the 3X Inverse Securities) leveraged exposure to the performance of the Bloomberg WTI Crude Oil Subindex ER (the “Index”), reduced by the Annual Tracking Fee (as described below). Investing in the Securities involves significant risks. The performance of the Index, and, as a result, the return on each series of the Securities is dependent upon the price of West Texas Intermediate crude oil futures contracts.

The 3X Long Securities

 

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The return on the 3X Long Securities is three times leveraged. Because the return is leveraged, if the Index level increases on any day the 3X Long Securities will increase by three times the daily performance of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as applicable). However, if the Index level decreases on any day, the 3X Long Securities will decrease by three times the daily performance of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as applicable).

The 3X Inverse Securities

 

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Conversely, the 3X Inverse Securities provide a three times leveraged inverse exposure to changes in the level of the Index. Thus, if the Index level decreases on any day, the 3X Inverse Securities will increase by three times the daily performance of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as applicable). However, if the Index level increases on any day, the 3X Inverse Securities will decrease by three times the daily performance of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as applicable).

Following the registration of the additional 30,000,000 3xLong Securities on the date of this Amendment No. 2, there are a total of 54,000,000 3xLong Securities registered. UBS does not intend to issue or register any additional 3xLong Securities. Accordingly, UBS will not register any additional 3xLong Securities. In addition, UBS intends to exercise its Call Right and expects that all 3xLong Securities will be redeemed on the Call Settlement Date (which is expected to be April 9, 2020) and holders of the 3x Long Securities will receive the Call Settlement Amount for each such security held on the Call Settlement Date.

The market value of the 3xLong Securities may be influenced by, among other things, supply and demand of the 3xLong Securities. It is possible that the suspension of any further sales of these 3xLong Securities by UBS AG may influence the market value of the 3xLong Securities and the liquidity of the market for the 3xLong Securities, potentially leading to insufficient supply and causing the 3xLong Securities to trade at a premium above their closing or intraday indicative value. Any such premium may subsequently decrease at any time and for any reason without warning, resulting in financial loss to investors who paid this premium when they acquired their 3xLong Securities. In addition, on the Call Settlement Date, holders of the 3xLong Securities will only be entitled to receive the Call Settlement Amount and will not receive any premium above such value on the Call Settlement Date. For further discussion see “Risk Factors – We may issue and sell additional Securities of any series at any time but we are under no obligation to do so, and we may limit or restrict such sales, and we may stop and subsequently resume selling additional Securities of any series at any time. Any of these actions could materially and adversely affect the trading price and liquidity of the Securities of such series in the secondary market” and “Risk Factors – The Securities may trade at a substantial premium to or discount from the intraday indicative value which could, in certain circumstances, result in a loss of all or a substantial portion of your investment in the Securities.”

 

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Prospectus Supplement dated March 19, 2020   


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The Securities will not pay any coupon or interest during their term. You will receive a cash payment at maturity, acceleration or upon exercise by UBS of its call right, based on the applicable performance of the Index less the Annual Tracking Fee, as described herein. You will receive a cash payment upon early redemption based on the applicable performance of the Index less the Annual Tracking Fee, the Redemption Fee Amount and creation fee, as described herein.

The Securities are intended to be daily trading tools for sophisticated investors to manage daily trading risks as part of an overall diversified portfolio. They are designed to achieve their stated investment objectives on a daily basis. Their performance over longer periods of time can differ significantly from their stated daily objectives. The Securities are riskier than securities that have intermediate or long-term investment objectives, and may not be suitable for investors who plan to hold them for a period other than one day or who have a “buy and hold” strategy. Accordingly, the Securities should be purchased only by knowledgeable investors who understand the potential consequences of investing in the Index and of seeking daily compounding leveraged long or leveraged inverse investment results, as applicable. Investors should actively and continuously monitor their investments in the Securities, even intra-day. It is possible that you will suffer significant losses in the Securities even if the long-term performance of the Index is positive, in the case of the 3X Long Securities, or negative, in the case of the 3X Inverse Securities.

The Securities do not guarantee any return of your initial investment and do not pay any coupon. You may lose all or a substantial portion of your principal if you invest in the Securities. If the daily leveraged return of the Index (calculated as described herein) is insufficient to offset the combined negative effect of the Annual Tracking Fee, Redemption Fee Amount and creation fee, if applicable, you may lose all or a substantial portion of your investment. Any payment on the Securities at maturity, or upon acceleration, redemption or exercise by UBS of its Call Right, is subject to the creditworthiness of UBS and is not guaranteed by any third party. In addition, the actual and perceived creditworthiness of UBS will affect the market value, if any, of the Securities.

Although the Securities are listed on NYSE Arca, there is no guarantee that a liquid market will develop or be maintained.

See “Risk Factors” beginning on page S-33 for a description of risks related to an investment in the Securities.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

The Securities are not deposit liabilities of UBS AG and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency in the United States, Switzerland or any other jurisdiction.

General Considerations for the Securities

 

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The Securities are senior Series B unsecured debt securities issued by UBS, maturing on January 4, 2047.

 

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The initial issuance of the Securities traded on January 4, 2017 and settled on January 9, 2017.

 

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The Securities do not guarantee any return of principal and do not pay any interest during their term.

 

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The Current Principal Amount for each series of Securities is recalculated each calendar day to reflect the performance of the Index.

 

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For the 3X Long Securities, an Annual Tracking Fee calculated at the rate of 1.45% per annum of its Current Principal Amount on the previous calendar day is deducted each calendar day from its Current Principal Amount on such calendar day.

 

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For the 3X Inverse Securities, an Annual Tracking Fee calculated at the rate of 1.85% per annum of its Current Principal Amount on the previous calendar day is deducted each calendar day from its Current Principal Amount on such calendar day.

 

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You will receive a cash payment at maturity or upon exercise by UBS of its call right with respect to each series of Securities based on the Current Principal Amount of such series of Securities on the applicable Valuation Date, as described herein.

 

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You may exercise your right to early redemption with a minimum redemption amount of 50,000 Securities of any series if you comply with the required procedures described herein. You will receive a cash payment upon early redemption based on the Current Principal Amount of such series on the applicable Valuation Date, less the Redemption Fee Amount, as described herein.

 

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You will receive a cash payment following UBS’s exercise of its Acceleration Option upon occurrence of a Stop Loss Termination Event (as defined herein) with respect to any series of Securities based on its indicative value when such event occurs, as determined by UBS Securities LLC, as Security Calculation Agent, in its sole discretion, acting in good faith and in a commercially reasonable manner, as described herein.

 

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The Index tracks WTI futures contracts, which have historically exhibited high levels of volatility and you should expect the Securities to be extremely volatile.

 

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The Securities are designed to reflect a leveraged long or leveraged inverse exposure, as applicable, to the performance of the Index on a daily basis; their returns over different periods of time can, and most likely will, differ significantly from three times the long or inverse, as applicable, performance of the Index over such other periods of time. The Securities are very sensitive to changes in the level of the Index, and returns on the Securities may be negatively impacted in complex ways by the volatility of the Index on a daily or intraday basis. Accordingly, the Securities should be purchased only by knowledgeable investors who understand the potential consequences of investing in the Index and of seeking daily compounding leveraged long or leveraged inverse investment results, as applicable. Investors should actively and continuously monitor their investments in the Securities.

 

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Any Valuation Date is subject to postponement if such date is not an Index Business Day or as a result of a Market Disruption Event; the Stop Loss Valuation Date is subject to postponement if a Market Disruption Event occurs or is continuing on such Stop Loss Valuation Date; the Maturity Date will be postponed if the scheduled Maturity Date is not a Business Day or if the scheduled Final Valuation Date is not an Index Business Day or if a Market Disruption Event occurs or is continuing with respect to the Securities on the scheduled Final Valuation Date; any Redemption Date will be postponed if a Market Disruption Event occurs or is continuing on the corresponding Valuation Date; and the Call Settlement Date will be postponed if a Market Disruption Event occurs or is continuing on any Index Business Day in the Call Measurement Period, as applicable, as described in this prospectus supplement under “Specific Terms of the Securities — Market Disruption Events”. No interest or additional payment will accrue or be payable as a result of the postponement of any Valuation Date, the Maturity Date, any Redemption Date, the Call Settlement Date or the Stop Loss Redemption Date, as applicable.

 

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If a Market Disruption Event occurs or is continuing on any Index Business Day, or occurred or was continuing on the immediately preceding Index Business Day, the Security Calculation Agent will determine the Index Performance Ratio (as defined below) for such series of Securities on each such Index Business Day, calculated as described herein, using an appropriate closing level of the Index for each such Index Business Day taking into account the nature and duration of such Market Disruption Event. Furthermore, if a Market Disruption Event occurs and is continuing with respect to any series of Securities on any Index Business Day, the calculation of the Index Performance Ratio and Current Principal Amount for such series of Securities will be modified so that the applicable leveraged exposure does not reset until the first Index Business Day on which no Market Disruption Event with respect to such series of Securities is continuing. As a result, following the date on which a Market Disruption Event occurs and until UBS is able to reset the leverage on an Index Business Day on which a Market Disruption Event does not occur, the Securities of such series will not provide a three times leveraged return on the performance of the Index. This can result in circumstances when the leverage on the Securities on the date of the Market Disruption Event results in more or less than three times exposure to the performance of the Index. Under such circumstances, if the Index subsequently increases, in the case of the 3X Long Securities, or decreases, in the case of the 3X Inverse Securities, the Securities will not increase three times such movement. Similarly, if a Market Disruption Event occurs and is continuing on any Valuation Date for any series of Securities, the calculation of the Index Performance Ratio for such series of Securities will be modified so that the applicable leveraged exposure does not reset for purposes of such Valuation Date. See “Specific Terms of the Securities — Terms and Definitions — Index Performance Ratio” for a formula setting forth how the Index Performance Ratio on the Securities will be calculated when a Market Disruption Event is occurring.

 

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The 3X Long Securities and 3X Inverse Securities are listed on NYSE Arca under the symbols “WTIU” and “WTID”, respectively. There can be no assurance that an active secondary market will develop or be maintained.

The principal terms of the Securities are as follows:

 

Issuer:    UBS AG (London Branch)
Series:    Medium-Term Notes, Series B. The UBS AG Exchange Traded Access Securities (ETRACS) issued prior to June 14, 2015 are part of a series of debt securities entitled “Medium-Term Notes, Series A,” and UBS Switzerland AG is a co-obligor of such debt securities. The Securities are part of a series of debt securities entitled “Medium Term Notes, Series B,” which do not benefit from the co-obligation of UBS Switzerland AG.
Initial Trade Date:    January 4, 2017
Initial Settlement Date:    January 9, 2017
Initial Term:    30 years, subject to your right to require UBS to redeem your Securities on any Redemption Date, UBS’s Call Right or UBS’s Acceleration Option upon occurrence of a Stop Loss Termination Event, each as described below.
Maturity Date:    January 4, 2047, subject to adjustment
Stated Principal Amount:    $25.00 per Security
Index:    The return on the Securities is linked to the performance of the Bloomberg WTI Crude Oil Subindex ER (the “Index”). The Index is designed to measure the returns that are potentially available through an unleveraged investment in rolling West Texas Intermediate crude oil futures contracts. The Index is a subindex of the excess return version of the Bloomberg Commodity Index (the “BCOM”) and a member of the Bloomberg Commodity Index Family. Bloomberg calculates BCOM, and each of the related indices and subindices in the Bloomberg Commodity

 

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   Index Family, including the Index. For a detailed description of the Index, see “The Index” beginning on page S-56.
Annual Tracking Fee:   

Each series of Securities is subject to an “Annual Tracking Fee.” On the Initial Trade Date, the Annual Tracking Fee is equal to zero.

 

On each subsequent calendar day, the Annual Tracking Fee for the 3X Long Securities equals the product of (i) 1.45% divided by 365 times (ii) the Current Principal Amount for such Securities on the previous calendar day.

 

On each subsequent calendar day, the Annual Tracking Fee for the 3X Inverse Securities equals the product of (i) 1.85% divided by 365 times (ii) the Current Principal Amount for such Securities on the previous calendar day.

 

For the purpose of calculating the Annual Tracking Fee, if such previous calendar day was not an Index Business Day, the Current Principal Amount will be calculated based on the Current Principal Amount for such series of Securities on the immediately preceding Index Business Day.

Payment at Maturity; Cash Settlement Amount:    For the Securities of each series, unless earlier called, redeemed or accelerated, you will receive at maturity a cash payment equal to the Current Principal Amount of such series of Securities as of the Final Valuation Date. We refer to this cash payment as the “Cash Settlement Amount.” If the amount so calculated is equal to or less than zero, the payment at maturity will be zero.
Early Redemption:    Subject to your compliance with the procedures described under “Specific Terms of the Securities — Early Redemption at the Option of the Holders” and “Specific Terms of the Securities — Redemption Procedures” beginning on pages S-73 and S-74, respectively, you may elect to require UBS to redeem your Securities, in whole or in part, prior to the Maturity Date on any Index Business Day through and including the final Redemption Date, subject to a minimum redemption amount of at least 50,000 Securities of a series. UBS reserves the right from time to time to reduce or waive this minimum redemption amount in its sole discretion on a case-by-case basis. You should not assume you will be entitled to the benefit of any such waiver. If you redeem your Securities, you will receive a cash payment equal to the Redemption Amount, which will be determined on the applicable Redemption Valuation Date and paid on the applicable Redemption Date.
Redemption Amount:   

 

Upon early redemption of the Securities of any series, you will receive per Security of such series a cash payment on the relevant Redemption Date equal to its Current Principal Amount as of the applicable Valuation Date, minus the Redemption Fee Amount. If the amount so calculated is less than or equal to zero, the payment upon your exercise of redemption will be zero. We refer to this cash payment as the “Redemption Amount.”

Redemption Fee Amount:    As of any Valuation Date, an amount per Security of any series equal to the product of (i) 0.125% and (ii) the Current Principal Amount for such series as of such Valuation Date. UBS reserves the right from time to time to reduce or waive the Redemption Fee Amount in its sole discretion on a case-by-case basis. You should not assume you will be entitled to the benefit of any such waiver.
First Redemption Date:    January 13, 2017
Final Redemption Date:    December 28, 2046
Redemption Procedures:    To redeem your Securities of any series prior to the Maturity Date, you must instruct your broker to deliver a notice of redemption to UBS by email no later than 4:00 p.m. (New York City time) on the Index Business Day on which you elect to exercise your redemption right and you and your broker must follow the procedures described herein. If you fail to comply with these procedures, your notice will be deemed ineffective. UBS reserves the right from time to time to reduce or waive, in its sole discretion, any of the requirements contained in the redemption procedures described under “Specific Terms of the Securities — Early Redemption at the Option of the Holders” and “Specific Terms of the Securities — Redemption Procedures” beginning on pages S-73 and S-74, respectively. UBS also reserves the right from time to time to accelerate, in its sole discretion on a case-by-case basis, the Redemption Valuation Date to the date on which the notice of redemption is received by UBS rather than the following Index Business Day. You should not assume you will be entitled to the benefit of any such waiver or acceleration.
UBS Optional Acceleration Upon Occurrence of a Stop Loss Termination Event; Stop Loss Redemption Amount:   

Stop Loss Termination Event: These provisions of the Securities provide for the automatic deleveraging and optional redemption by UBS of a series of Securities in certain circumstances.

 

If, at any time, the intraday indicative value of any series of Securities on any Index Business Day, calculated as described in “Valuation of the Index and the Securities — Intraday Security Values,” is equal to or less than 30.0% of the Current Principal Amount of such series of Securities at the end of the prior Index Business Day (such event with respect to any series of Securities, a “Stop Loss Termination Event” and the day on which such event occurs, a “Stop Loss Termination Date”), all issued and outstanding Securities of such series may be redeemed

 

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by UBS, at its option, for a cash payment equal to the Stop Loss Redemption Amount (the “Acceleration Option”).

 

Deleveraging Event: If a Stop Loss Termination Event occurs at any time at or after 9:30 a.m. and to, but before 2:00 p.m., New York City time, on any Index Business Day (a “Deleveraging Event”) with respect to any series of Securities, such series of Securities will be deleveraged for the remainder of the Stop Loss Termination Date, whether or not UBS exercises the Acceleration Option.

Upon the occurrence of a Deleveraging Event with respect to any series of Securities, the Current Principal Amount, for such series of Securities on any such Stop Loss Termination Date will equal the following, less the Annual Tracking Fee, as applicable:

 

(a) the Current Principal Amount for such series of Securities on the previous calendar day times (b) the Daily Accrual plus (i) 1 plus (ii) the Leverage Amount times (iii) the Index Rebalancing Level divided by the Index Closing Level on the previous calendar day, minus 1, times (c) 1 plus (i) the Leverage Amount divided by 3, times (ii) the Index Closing Level on the current Index Business Day divided by the Index Rebalancing Level (as defined below) on the current Index Business Day minus 1.

 

 

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Acceleration Option: Upon the occurrence of a Stop Loss Termination Event with respect to any series of Securities, UBS will issue a press release before 9:00 a.m. on the Index Business Day following the Stop Loss Termination Date announcing whether or not it has elected to exercise its Acceleration Option for such series of Securities. If UBS elects to exercise such Acceleration Option, the holders of such series of Securities will receive the Stop Loss Redemption Amount (as defined below), which payment may be equal to zero. If UBS exercises the Acceleration Option with respect to a series of Securities, Holders of Securities of such series will not benefit from any future exposure to the Index after the Stop Loss Valuation Date. UBS is under no obligation to exercise its Acceleration Option and the Securities may remain outstanding following a Stop Loss Termination Event if UBS does not elect to exercise the Acceleration Option.

 

The “Stop Loss Redemption Amount” for any series of Securities will be equal to the Current Principal Amount for such series of Securities at the close of trading on the Index Business Day following the Stop Loss Termination Date (such day, the “Stop Loss Valuation Date”).

 

If UBS elects to exercise its Acceleration Option for such series of Securities, you will receive on the Stop Loss Redemption Date only the Stop Loss Redemption Amount in respect of your investment in Securities of such series. If the Stop Loss Redemption Amount so calculated is equal to or less than zero, the payment upon acceleration will be zero.

 

If UBS exercises the Acceleration Option, the “Stop Loss Redemption Date” will be the fifth Business Day following the Stop Loss Termination Date; provided that if the calculation of the Stop Loss Redemption Amount is postponed as a result of a Market Disruption Event, the Stop Loss Redemption Date will be the fifth Business Day after the Stop Loss Redemption Amount is calculated.

Index Rebalancing Level:   

The “Index Rebalancing Level” means, for the 3x Long Securities, the lowest level of the Index during the Rebalancing Period.

 

The “Index Rebalancing Level” means for the 3x Inverse Securities, the highest level during the Rebalancing Period.

Rebalancing Period:    The “Rebalancing Period” means the 15 minute period beginning the next quarter hour immediately after the Deleveraging Event occurs (i.e., if the intraday indicative value is equal to or less than 30% of the previous day’s Current Principal Amount at 11:07 a.m., New York City time, then the Rebalancing Period would be the period between 11:15 a.m. and 11:30 a.m., New York City time on the date the Deleveraging Event occurs).
Deleveraging Event:    A “Deleveraging Event” with respect to any series of Securities, means the occurrence of a Stop Loss Termination Event at or after 9:30 a.m. and to, but before, 2:00 p.m., New York City time, on any Index Business Day.
Valuation Dates:    The applicable “Valuation Date” for each series means (i) with respect to an early redemption, the third Index Business Day prior to the related Redemption Date, which day is also the first Index Business Day following the date that a notice of Redemption (“Redemption Notice”) and notice of Redemption Confirmation (“Redemption Confirmation”) are delivered in compliance with the redemption procedures (or, in the sole discretion of UBS, the same date that the Redemption Notice and Redemption Confirmation are delivered in compliance with the redemption procedures) (a “Redemption Valuation Date”), (ii) with respect to UBS’s exercise of its Call Right, each Index Business Day during the Call Measurement Period, (iii) with respect to

 

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   the Maturity Date, December 28, 2046 or, if such date is not an Index Business Day, the following Index Business Day (the “Final Valuation Date”) and (iv) with respect to the occurrence of a Stop Loss Termination Event, the Stop Loss Valuation Date. If a Market Disruption Event occurs on any of the applicable Valuation Dates , then such Valuation Date will be the next succeeding Index Business Day on which no Market Disruption occurs, but in no event more than five Index Business Days after the originally scheduled Valuation Date. See “Specific Terms of the Securities — Market Disruption Event” on page S-78.
Daily Accrual:   

The Daily Accrual represents the rate of interest that could be earned on a notional capital reinvestment at the generic one-month U.S. Treasury Bill rate as reported on Bloomberg under the ticker: GB1M Index (or any successor ticker on Bloomberg or any successor service). The Daily Accrual on any Index Business Day will equal:

 

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Where Tbillst-1 is the generic one month U.S. Treasury Bill rate reported on Bloomberg on the prior Index Business Day and d is the number of calendar days from and including the immediately prior Index Business Day to but excluding the date of determination. The Daily Accrual is deemed to equal zero on any day that is not an Index Business Day.

Index Factor:   

For the 3X Long Securities, the Index Factor will equal: (i) one plus (ii) the Daily Accrual on such Index Business Day plus (iii) (3 × Index Performance Ratio)

 

For the 3X Inverse Securities, the Index Factor will equal: (i) one plus (ii) the Daily Accrual on such Index Business Day plus (iii) (-3 × Index Performance Ratio)

 

The Index Factor for each series of Securities will be deemed to equal one on any calendar day that is not an Index Business Day.

Leverage Amount:   

For the 3X Long Securities, the Leverage Amount will equal: 3

 

For the 3X Inverse Securities, the Leverage Amount will equal: -3

Index Performance Ratio:   

Subject to adjustment upon the occurrence of a Market Disruption Event, the Index Performance Ratio on any Index Business Day will equal (i) (a) the Index Closing Level on such Index Business Day divided by (b) the Index Closing Level on the immediately preceding Index Business Day minus (ii) one.

 

The Index Performance Ratio will equal zero on any calendar day that is not an Index Business Day.

 

See “Specific Terms of the Securities — Terms and Definitions — Index Performance Ratio” for a formula setting forth how the Index Performance Ratio on the Securities will be calculated when a Market Disruption Event occurs.

Current Principal Amount:   

For each series of Securities, on the Initial Trade Date, the Current Principal Amount is equal to $25.00 per Security.

 

For each subsequent calendar day, except for a calendar day during the Call Measurement Period and except for a calendar day on which a Deleveraging Event occurs, the Current Principal Amount per Security, for each series of Securities, will equal:

 

(the Current Principal Amount for such series of Securities on the previous calendar day × Index Factor for the applicable series of Securities) — Annual Tracking Fee for such series of Securities for such calendar day.

 

Upon the occurrence of a Deleveraging Event with respect to any series of Securities, the Current Principal Amount for such series of Securities on the day of the Deleveraging Event will equal the following, less the Annual Tracking Fee, as applicable:

 

(a) the Current Principal Amount for such series of Securities on the previous calendar day times (b) the Daily Accrual plus (i) 1 plus (ii) the Leverage Amount times (iii) the Index Rebalancing Level divided by the Index Closing Level on the previous calendar day, minus 1, times (c) 1 plus (i) the Leverage Amount divided by 3, times (ii) the Index Closing Level on the current Index Business Day divided by the Index Rebalancing Level on the current Index Business Day minus 1.

 

For each calendar day during the Call Measurement Period for a series of Securities, the Current Principal Amount for such series of Securities will equal: (1) the sum of (a) the Index Exposure and (b) the Notional Cash Amount minus (2) the Annual Tracking Fee for such series of Securities on such calendar day.

 

You will lose some or all of your investment if the level of the Index decreases or does not increase sufficiently in the case of the 3X Long Securities or if it increases or does not decrease

 

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   sufficiently in the case of the 3X Inverse Securities (in each case in addition to the Daily Accrual) to offset the impact of the Annual Tracking Fee over the term of the Securities and, if applicable, the Redemption Fee Amount and creation fee. If this occurs, you will receive less than the initial investment amount of your Securities at maturity, upon early redemption or upon acceleration of the Securities. Due to leverage, the Securities are very sensitive to changes in the level of the Index and the path of such changes. If the daily leveraged return of the Index (or, for the 3X Inverse Securities, the inverse return of the Index) is insufficient to offset the negative effect of the Annual Tracking Fee or if the daily leveraged return of the Index is negative (or, for the 3X Inverse Securities, positive), you will lose some or all of your investment upon at maturity, early redemption, call or acceleration.
   If any series of Securities undergo a split or reverse split, the Current Principal Amount of such series will be adjusted accordingly.
UBS’s Call Right:    On any Business Day through and including the Maturity Date (the “Call Settlement Date”), UBS may at its option redeem all, but not less than all, issued and outstanding Securities of a series. To exercise its Call Right, UBS must provide notice (which may be provided via press release) to the holders of the Securities of the applicable series not less than eighteen (18) calendar days prior to the Call Settlement Date. If UBS exercises this right, you will receive a cash payment (the “Call Settlement Amount”) for Securities of a series equal to the Current Principal Amount of such series of Securities on the last Valuation Date in a period of five consecutive Index Business Days beginning on the date specified in the call notice (the “Call Measurement Period”). If the amount so calculated is less than or equal to zero, the payment upon exercise of the Call Right will be zero. The Current Principal Amount will be calculated on each day during the Call Measurement Period so that the applicable leverage of the affected Securities does not reset after the Call Measurement Period begins.
Index Exposure    For each series of Securities, the “Index Exposure” for each Valuation Date during the Call Measurement Period shall equal the product of (i) the Index Exposure for the applicable series of Securities on the immediately preceding Valuation Date (or, in the case of the first day of the Call Measurement Period, the Current Principal Amount of such series of Securities on the immediately preceding Index Business Day) multiplied by the Index Factor on the current Valuation Date and (ii) a fraction equal to (a) the number of scheduled Valuation Dates left in the applicable Call Measurement Period, excluding the current Valuation Date, divided by (b) the number of scheduled Valuation Dates left in the applicable Call Measurement Period, including the current Valuation Date. The Index Exposure on any day that is not a Valuation Date will be deemed to be the same as on the immediately preceding Valuation Date. See “Specific Terms of the Securities — Terms and Definitions — Index Exposure”.
Notional Cash Amount    For each series of Securities, the “Notional Cash Amount” for each Valuation Date during the Call Measurement Period shall equal the sum of (i) the Notional Cash Amount for such series of Securities on the immediately preceding Valuation Date (or, in the case of the first day of such Call Measurement Period, $0.00) and (ii) (a) the Index Exposure for such series of Securities on the immediately preceding Valuation Date (or, in the case of the first day of such Call Measurement Period, the Current Principal Amount of such series of Securities on the immediately preceding Valuation Date) multiplied by (b) the Index Factor for such series of Securities on the current Valuation Date multiplied by (c) 1 divided by the number of scheduled Valuation Dates left in the applicable Call Measurement Period, including the current Valuation Date. The Notional Cash Amount on any day that is not a Valuation Date will be deemed to be the same as on the immediately preceding Valuation Date. See “Specific Terms of the Securities—Terms and Definitions—Notional Cash Amount”.
Indicative Value:    The term “indicative value” with respect to any series of Securities refers to the value at a given time and date equal to (i) Current Principal Amount of the applicable series of Securities multiplied by (ii) the Index Factor of the applicable series of Securities calculated using the intraday indicative value of the Index. The “indicative value” of a series of Securities as of the closing of trading on a given day will equal the Current Principal Amount of such series of Securities. The actual trading price of each series of Securities in the secondary market may vary significantly from the indicative value.
Intraday Indicative Value Symbol of the Securities:   

The intraday indicative value of each series of Securities will be published on each Index Business Day under the ticker symbols:

 

3X Long Securities: WTIUIV Index (Bloomberg); ^WTIU-IV (Yahoo! Finance)

 

3X Inverse Securities: WTIDIV Index (Bloomberg); ^WTID-IV (Yahoo! Finance)

Index Closing Level    The “Index Closing Level” will equal the closing level of the Index on any date of determination, as reported by Bloomberg L.P under the ticker symbol “BCOMCL.”

 

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Split or Reverse Split of the Securities:    We may, at any time in our sole discretion, initiate a split or reverse split of any series of Securities. If we decide to initiate a split or reverse split, such date shall be deemed to be the “announcement date”, and we will issue a notice to holders of such series of Securities and press release announcing the split or reverse split, specifying the effective date of the split or reverse split. The record date for any split or reverse split will be the tenth Business Day after the announcement date, and the effective date will be the next Business Day after the record date. In the event of a split or reverse split, the Current Principal Amount of the applicable series of Securities will be adjusted accordingly. See “Valuation of the Index and the Securities — Split or Reverse Split of the Securities” beginning on page S-66.
Related Definitions:   

See “Specific Terms of the Securities — Cash Settlement Amount at Maturity” beginning on page S-68 for the definitions of “Final Valuation Date,” “Index Business Day,” “Exchange Business Day,” “Business Day,” “Primary Exchange” and “Related Exchange.”

 

See “Specific Terms of the Securities — Early Redemption at the Option of the Holders” beginning on page S-73 for the definitions of “Redemption Valuation Date” and “Redemption Date.”

 

See “Specific Terms of the Securities — UBS’s Call Right” beginning on page S-75 for the definitions of “Call Measurement Period” and “Call Valuation Date.”

 

See “Specific Terms of the Securities — UBS Optional Acceleration upon Occurrence of a Stop Loss Termination Event” beginning on page S-76 for the definitions of “Stop Loss Termination Date,” Acceleration Option,” Deleveraging Event,” “Stop Loss Redemption Date,” “Index Performance Ratio,” “Index Rebalancing Level, “Rebalancing Level” and “Rebalancing Period”

CUSIP Number:   

3X Long Securities: 90274E117

 

3X Inverse Securities: 90274E125

ISIN Number:   

3X Long Securities: US90274E1174

 

3X Inverse Securities: US90274E1257

On the Initial Trade Date, we sold $25,000,000 aggregate Stated Principal Amount of each series of Securities (1,000,000 Securities of each series) to UBS Securities LLC at 100% of their aggregate Stated Principal Amount. After the Initial Trade Date, from time to time we may sell a portion of these Securities and issue and sell additional Securities of any series at market prices prevailing at the time of sale, at prices related to market prices or at negotiated prices. We expect to receive proceeds equal to 100% of the offering price at which the Securities are sold, less any commissions paid to UBS Securities LLC. The Securities of each series may be sold at a price that is higher or lower than the Stated Principal Amount. UBS Securities LLC may charge normal commissions with any purchase or sale of each series of Securities and may also receive a portion of the Annual Tracking Fee. For any Securities it sells, UBS Securities LLC may charge purchasers a creation fee, which may vary over time at UBS’s discretion.

UBS Securities LLC has retained ProFunds Distributors, Inc. (“ProFunds Distributors”), a member of the Financial Industry Regulatory Authority, Inc., to provide certain services relating to the marketing of the Securities of each series. UBS Securities LLC and ProFunds Distributors have entered into a certain License and Marketing Agreement (the “License and Marketing Agreement”), under which UBS has obtained a license to the “ProShares” name and associated marks for use in the name of each series of Securities and in connection with the marketing of each series of Securities. In consideration for the license and marketing services, ProFunds Distributors will be paid a quarterly license and marketing fee with respect to each series of Securities (the “Fee”) which is calculated pursuant to the terms of the License and Marketing Agreement. The Fee will encompass a portion of the Annual Tracking Fee. The actual amount received by ProFunds Distributors in a given year will depend on the Current Principal Amount of each series of Securities, the number of Securities of each series then outstanding and held by non-UBS affiliates as well as the price of oil. UBS Securities LLC has agreed to indemnify ProFunds Distributors against, among other things, certain liabilities relating to material misstatements and omissions. From time to time, ProFunds Distributors and its affiliates may engage in transactions with and perform other services for us for which they may be paid customary fees.

ProShares® is a registered trademark of ProShare Advisors, LLC; “ProShares” has been licensed for use by UBS and its affiliates in connection with the Securities. Neither UBS nor its affiliates is sponsored by ProShare Advisors, ProFunds Distributors or any of their respective affiliates, and ProShare Advisors, ProFunds Distributors and their respective affiliates do not make any representation regarding the operation of the Securities nor do they have any liability for the investment performance of such Securities or any errors, omissions, or interruptions of the Securities or any related index.

We may use this prospectus supplement in the initial sale of the Securities. In addition, UBS Securities LLC or another of our affiliates may use this prospectus supplement in market-making transactions in any Securities after their initial sale. Unless we or our agent informs you otherwise in the confirmation of sale or in a notice delivered at the same time as the confirmation of sale, this prospectus supplement is being used in a market-making transaction.

We may suspend or cease sales of the Securities of any series at any time, at our discretion, or resume sales of such Securities, or we may condition our acceptance of a market maker’s, other market participant’s or investor’s offer to purchase Securities of any series on its agreeing to purchase certain exchange traded notes issued by UBS or enter into certain transactions consistent with our


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hedging strategy, including but not limited to swaps, OTC derivatives, listed options, or securities, any of which could materially and adversely affect the trading price and liquidity of such Securities in the secondary market. For more information about the plan of distribution and possible market-making activities, see “Plan of Distribution” in the accompanying prospectus.

The Securities are not deposit liabilities of UBS AG and are not insured by the Federal Deposit Insurance Corporation (“FDIC”).

PROHIBITION OF SALES TO EEA AND U.K. RETAIL INVESTORS —The Securities 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”) or the United Kingdom. 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 (EU) 2016/97 (as amended, the “Insurance Distribution Directive”), 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 Regulation (EU) 2017/1129 (the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the Securities or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the Securities or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful under the PRIIPS Regulation.

 

 

This Amendment No. 2 to the prospectus supplement dated January 4, 2017 (as amended, the “prospectus supplement”) relates to 54,000,000 3X Long Securities, or $1,350,000,000 Stated Principal Amount of the 3X Long Securities, $600,000,000 Stated Principal Amount of which we refer to as the “original 3x long securities” and $750,000,000 Stated Principal Amount of which we refer to as the “reopened 3x long securities,” and to 4,000,000 3X Inverse Securities, or $100,000,000 Stated Principal Amount of the 3X Inverse Securities. The reopened 3x long securities will be sold from time-to-time at the prices described above. This Amendment No. 2 is also being filed for the purpose of updating “The Index”. Otherwise, all terms of the Securities remain as stated in the original prospectus supplement. In the prospectus supplement, the term “Securities” collectively refers to the reopened 3x long securities we are initially offering on the date of this prospectus supplement, the original 3x long securities and the 3X Inverse Securities, unless the context otherwise requires.


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The ETRACS exchange-traded notes being offered as described in this prospectus supplement and the accompanying prospectus constitute one offering in a series of offerings of UBS AG ETRACS exchange-traded notes. We are offering and may continue to offer from time to time ETRACS linked to different underlying indices and with the same or different terms and conditions, relative to those set forth in this prospectus supplement. You should be sure to refer to the prospectus supplement for the particular offering of ETRACS in which you are considering an investment.

This prospectus supplement contains the specific financial and other terms that apply to the securities being offered herein. Terms that apply generally to all our Medium-Term Notes, Series B, are described under “Description of Debt Securities We May Offer” in the accompanying prospectus. The terms described here (i.e., in this prospectus supplement) modify or supplement those described in the accompanying prospectus and, if the terms described here are inconsistent with those described there, the terms described here are controlling. The contents of any website referred to in this prospectus supplement are not incorporated by reference in this prospectus supplement or the accompanying prospectus.

You may access the accompanying prospectus dated October 31, 2018 at: https://www.sec.gov/Archives/edgar/data/1114446/000119312518314003/d612032d424b3.htm

We have not authorized anyone to provide you with information other than the information incorporated by reference or provided in this prospectus supplement or the accompanying prospectus. We are not making an offer of these Securities in any state where the offer is not permitted. You should not assume that the information in this prospectus supplement is accurate as of any date other than the date on the front of the document.

TABLE OF CONTENTS

 

Prospectus Supplement   
Prospectus Supplement Summary      S-1  
Hypothetical Examples      S-22  
Risk Factors      S-33  
The Index      S-56  
Valuation of the Index and the Securities      S-65  
Specific Terms of the Securities      S-68  
Use of Proceeds and Hedging      S-86  
Material U.S. Federal Income Tax Consequences      S-87  
Benefit Plan Investor Considerations      S-91  
Supplemental Plan of Distribution      S-93  

Conflicts of Interest

     S-94  
Notice of Early Redemption      A-1  
Broker’s Confirmation of Redemption      B-1  
Prospectus   
Introduction      1  
Cautionary Note Regarding Forward-Looking Statements      3  
Incorporation of Information About UBS AG      4  
Where You Can Find More Information      5  
Presentation of Financial Information      6  
Limitations on Enforcement of U.S. Laws Against UBS AG, Its Management and Others      6  
UBS      7  
Swiss Regulatory Powers      10  
Use of Proceeds      11  
Description of Debt Securities We May Offer      12  
Description of Warrants We May Offer      32  
Legal Ownership and Book-Entry Issuance      47  
Considerations Relating to Indexed Securities      52  
Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency      55  
U.S. Tax Considerations      58  
Tax Considerations Under the Laws of Switzerland      69  
Benefit Plan Investor Considerations      71  
Plan of Distribution      73  
Conflicts of Interest      75  
Validity of the Securities      76  
Experts      76  

 

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Prospectus Supplement Summary

The following is a summary of terms of the Securities, as well as a discussion of factors you should consider before purchasing the Securities. The information in this section is qualified in its entirety by the more detailed explanations set forth elsewhere in this prospectus supplement and in the accompanying prospectus. Please note that references to “UBS,” “we,” “our” and “us” refer only to UBS AG and not to its consolidated subsidiaries.

We may, without your consent, create and issue additional securities having the same terms and conditions as the Securities. We may suspend or cease sales of the Securities of any series at any time, at our discretion, or resume sales of such Securities, or we may condition our acceptance of a market maker’s, other market participant’s or investor’s offer to purchase Securities of any series on its agreeing to purchase certain exchange traded notes issued by UBS or enter into certain transactions consistent with our hedging strategy, including but not limited to swaps, OTC derivatives, listed options, or securities, any of which could materially and adversely affect the trading price and liquidity of such Securities in the secondary market. For more information about the plan of distribution and possible market-making activities, see “Plan of Distribution” in the accompanying prospectus. We may consolidate the additional securities to form a single class with the outstanding Securities of a series. In addition, we may suspend sales of any series of Securities at any time for any reason, which could affect the liquidity of the market for the Securities.

This section summarizes the following aspects of the Securities:

- What are the Securities and how do they work?

- How do you redeem your Securities?

- What are some of the risks of the Securities?

- Is this the right investment for you?

- Who calculates and publishes the Index?

- What are the tax consequences of owning the Securities?

What are the Securities and how do they work?

The Securities represent one of two different series of senior unsecured medium-term notes issued by UBS that provide a three times leveraged return linked to the performance, positive, in the case of the 3X Long Securities, or negative, in the case of the 3X Inverse Securities, of the Bloomberg WTI Crude Oil Subindex ERSM before taking into account the Annual Tracking Fee (and Redemption Fee Amount and creation fee, if applicable) associated with the applicable Securities, which will reduce the return and the amount payable at maturity or upon early redemption, acceleration or exercise of our call right, each as described on the cover pages of this prospectus supplement.

We will not pay you interest or a coupon during the term of the Securities. The Securities do not have a minimum payment at maturity, upon redemption or upon acceleration and are fully exposed to any decline or increase, as applicable, in the Index. Therefore, a purchase of any series of Securities is exposed to the risk of loss of the entire amount invested.

The 3X Long Securities

The 3X Long Securities provide a daily long leveraged exposure to the performance of the Index. The return on the 3X Long Securities is three times leveraged. Because the return is leveraged, if the Index level increases on any day, the 3X Long Securities will increase by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as



 

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applicable). However, if the Index level decreases on any day, the 3X Long Securities will decrease by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount and creation fee, as applicable).

The 3X Inverse Securities

Conversely, the 3X Inverse Securities provide a three times leveraged inverse exposure to changes in the level of the Index. Thus, if the Index level decreases on any day, the 3X Inverse Securities will increase by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount, or creation fee as applicable). However, if the Index level increases on any day, the 3X Inverse Securities will decrease by three times the daily return of the Index (before taking into account Annual Tracking Fee, Redemption Fee Amount or creation fee, as applicable).

A leveraged investment entails risks that are different in certain respects from an unleveraged investment. For a discussion of leverage see “— Leveraged Investment Returns” below and for a discussion of the risks related to an investment in the Securities, including leverage risks, see “Risk Factors.”

For a description of how the payment at maturity, upon redemption or upon acceleration or the exercise by UBS of its call right is calculated, please refer to the “Specific Terms of the Securities — Payment at Maturity,” “— Payment Upon Early Redemption” and “— UBS Optional Acceleration upon Occurrence of a Stop Loss Termination Event” “— Call Right” sections herein.

The Securities are intended to be daily trading tools for sophisticated investors and are designed to reflect a leveraged long or leveraged inverse exposure, as applicable, to the performance of the Index on a daily basis. Because the leverage resets daily, their returns over different periods of time can, and most likely will, differ significantly from three times the long or inverse, as applicable, performance of the Index over such other periods of time.

The returns on the Securities are path dependent, and the Securities are very sensitive to changes in the level of the Index. Therefore returns on the Securities may be negatively impacted in complex ways by the volatility of the Index on a daily or intraday basis. Accordingly, the Securities should be purchased only by knowledgeable investors who understand the potential consequences of investing in the Index and of seeking daily compounding leveraged long or leveraged inverse investment results, as applicable. Investors should actively and continuously monitor their investments in the Securities. It is possible that you will suffer significant losses in the Securities even if the long-term performance of the Index is positive, in the case of the 3X Long Securities, or negative, in the case of the 3X Inverse Securities.

Unlike ordinary debt securities, the Securities do not guarantee any return of principal at maturity or call, or upon early redemption or acceleration. You may lose all or a substantial portion of your initial investment. In addition, you will not receive any coupon payments on the Securities.

The Index

The Bloomberg WTI Crude Oil Subindex ERSM is intended to reflect the returns that are potentially available through an unleveraged investment in rolling West Texas Intermediate (“WTI”) crude oil futures contracts (each, an “Index Contract”). The Index is a subindex of the Bloomberg Commodity IndexSM (the “Commodity Index”). It reflects the returns that are potentially available through an unleveraged investment in the futures contracts on a single physical commodity constituting the Index.

The Index is an excess return index that comprises 1 to 3 month exchange-traded futures contracts on a single commodity (light sweet crude oil (“WTI crude oil”)) and is a member of the Bloomberg Commodity Indices family. The futures contracts used to calculate the level of the Index are never held to



 

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delivery, and are instead rolled forward into replacement contracts every other month. The performance of the Index is primarily determined by changes in price of the futures contract(s) referenced by the Index, the timing of the roll and the relative prices of the incoming contract and the outgoing contract. The WTI crude oil futures contracts tracked by the Index roll approximately every other month to the contract that is approximately two months longer in maturity. The Index provides investors with a benchmark for rolling futures contracts in this single commodity.

The Index is designed to measure the return from a rolling long position in WTI crude oil futures contracts that trade on major U.S. exchanges. An investor maintaining a desired long exposure in a futures position over time by replacing contracts expiring within one month with contracts expiring in the future may incur a roll cost when purchasing the replacement contracts at a higher price and may benefit from a roll yield when purchasing the replacement contracts at a lower price. Conversely, an investor maintaining a desired inverse exposure in a futures position over time may benefit from a roll yield when selling replacement contracts at a higher price and may incur a roll cost when selling replacement contracts at a lower price. Since the prices of WTI crude oil futures contracts are, on average, higher in distant delivery months than in nearer delivery months (i.e., when the market is in “contango”), an investor maintaining a long position in WTI crude oil futures contracts will typically incur “roll costs” when rolling into contracts with a later delivery date (because such contracts have a higher price than the contracts currently held), and therefore the long position may decline in value unless the price of the commodity increases sharply. On the other hand, an investor maintaining a short position in WTI crude oil futures contracts will typically benefit from a roll yield, and therefore the short position may increase in value unless the price of the commodity increases sharply though investors should not rely on benefitting from any roll yield and should monitor their investment frequently. These relationships may be reversed when prices of WTI crude oil futures contracts in distant delivery months are lower than in nearer delivery months (i.e., when the market is in “backwardation”).

As discussed below, although the Index is intended to reflect the unleveraged returns potentially available in the Index Contract, the Securities provide three times leveraged exposure to the positive (in the case of the 3X Long Securities) or negative (in the case of the 3X Inverse Securities) daily performance of the Index.

For a further discussion of the Index, see “The Index — Bloomberg WTI Crude Oil Subindex,” and for a discussion of the futures markets, see “The Index — Futures Markets.”

Leveraged Investment Returns

3X Long Securities

The 3X Long Securities provide a daily long leveraged exposure to the performance of the Index. The return on the 3X Long Securities is three times leveraged. Because the return is leveraged, if the Index level increases on any day the 3X Long Securities will increase by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount or creation fee, as applicable). However, if the Index level decreases on any day, the 3X Long Securities will decrease by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount or creation fee, as applicable).

3X Inverse Securities

Conversely, the 3X Inverse Securities provide a three times leveraged inverse exposure to changes in the level of the Index. Thus, if the Index level decreases on any day, the 3X Inverse Securities will increase by three times the daily return of the Index (before taking into account the Annual Tracking Fee, Redemption Fee Amount or creation fee, as applicable). However, if the Index level increases on any day, the 3X Inverse Securities will decrease by three times the daily return of the Index (before taking into account Annual Tracking Fee, Redemption Fee Amount or creation fee, as applicable).



 

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Path Dependence and Daily Leverage Reset

Because the leverage of the Securities is generally only reset once each day, it is likely that due to intra-day changes in the level of the Index, the leverage at any point during a trading day can be higher or lower than the target leverage, which in the case of the 3X Long Securities is 3.0, or -3.0 in the case of the 3X Inverse Securities.

The performance of the Securities is path-dependent. This means that the value of your series of Securities, will depend not only upon the level of the Index at maturity or upon call, early redemption or acceleration, but also on the performance of the Index over each day that you hold your Securities. In other words, the value of your series of Securities will be affected by not only the increase or decrease in the level of the Index over a given time period but also the volatility of the level of the Index over such time period. For example, a sharp spike or sharp decline in the level of the Index at the end of a particular time period will not result in the same return as a gradual uptick or gradual decline in the Index over the same time period, even if the level of the Index at the end of the applicable time period is the same in each scenario. Accordingly, the returns on the Securities may not correlate with returns on the Index over periods longer than one day.

As a general matter, it is expected that your Securities will have better returns if the Index trends from one level to another over multiple trading days, rather than moving abruptly between those levels in a single day or experiencing significant changes in opposite directions over multiple trading days.

In addition, the performance of each series of Securities is path dependent insofar as its level at any time depends not only on the level of the Index at such time but also on the Index’s level at any prior time. As a result, the value of your investment in any series of Securities may diverge significantly from the value you might expect on the basis of the leverage strategy of the applicable series of Securities and changes in the level of the Index over the period that you hold them. The daily leverage reset may mitigate some of these effects but is unlikely to eliminate them entirely.

The Securities are intended to be daily trading tools for sophisticated investors and are designed to reflect a leveraged long or leveraged inverse exposure, as applicable, to the performance of the Index on a daily basis, but their returns over different periods of time can, and most likely will, differ significantly from three times the long or inverse, as applicable, performance of the Index over such other periods of time. The Securities are very sensitive to changes in the level of the Index, and returns on the Securities may be negatively impacted in complex ways by the volatility of the Index on a daily or intraday basis. Accordingly, the Securities should be purchased only by knowledgeable investors who understand the potential consequences of investing in the Index and of seeking daily compounding leveraged long or leveraged inverse investment results, as applicable. Investors should actively and continuously monitor their investments in the Securities. It is possible that you will suffer significant losses in the Securities even if the long-term performance of the Index is positive, in the case of the 3X Long Securities, or negative, in the case of the 3X Inverse Securities.

Payment at Maturity

The Securities do not guarantee any return of principal at, or prior to, maturity or call, or upon early redemption or acceleration. Instead, you will receive a cash payment per Security based on the three times leveraged performance of the Index (or, in the case of the 3X Inverse Securities, the three times leveraged inverse performance of the Index), as reduced by the Annual Tracking Fee and, if applicable, a Redemption Fee Amount or creation fee.

Positive or negative daily changes in the Index Closing Level, will not solely determine the return on your Securities due to the combined effects of leverage, compounding, roll costs and roll yields, and any applicable fees.



 

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The amount you receive at maturity or call, or upon early redemption or acceleration, will be contingent upon the daily compounded three times leveraged long (or, in the case of the 3X Inverse Securities, inverse) performance of the Index during the term of the Securities, subject to the negative effect of the Annual Tracking Fee and, if applicable, a Redemption Fee Amount or creation fee.

However, even if over the term of the Securities the level of the Index has increased (or, in the case of the 3X Inverse Securities, decreased), there is no guarantee that you will receive at maturity or call, or upon early redemption or acceleration, your initial investment back or any return on that investment. This is because the amount you receive at maturity or call, or upon an early redemption or acceleration, depends on how the Index has performed on each day on a compounded, leveraged basis prior to maturity or call, or upon an early redemption or acceleration. In particular, significant adverse daily performances for your Securities may not be offset by any beneficial daily performances of the same magnitude.

Initially, the Current Principal Amount is equal to $25.00 per Security.

If the Securities of any series have not been previously redeemed or accelerated, on the Maturity Date you will receive a cash payment per Security of such series equal to the applicable Current Principal Amount for such series of Securities on the Final Valuation Date, as calculated by the Security Calculation Agent. We refer to the amount of such payment as the “Cash Settlement Amount.” If the scheduled Maturity Date is not a Business Day, the Maturity Date will be postponed to the first Business Day following the scheduled Maturity Date. If the scheduled Final Valuation Date is not an Index Business Day for any series of Securities, the Final Valuation Date will be postponed to the next following Index Business Day for such series of Securities, in which case the Maturity Date for such series of Securities will be postponed to the third Business Day following the Final Valuation Date as so postponed. In addition, if a Market Disruption Event with respect to any series of Securities occurs or is continuing on the Final Valuation Date, the Maturity Date for such series of Securities will be postponed until the date three Business Days following the Final Valuation Date for such series of Securities, as postponed. No interest or additional payment will accrue or be payable as a result of any postponement of the Maturity Date. Any payment on the Securities is subject to our ability to pay our obligations as they become due.

If the amount calculated above is equal to or less than zero, the payment at maturity will be zero.

The “Current Principal Amount” for any given series of Securities on any given calendar day, except for a calendar day during the Call Measurement Period and except for a day on which a Deleveraging Event occurs will be calculated in the following manner: (the Current Principal Amount for such series of Securities on the previous calendar day × Index Factor for the applicable series of Securities) — Annual Tracking Fee for such series of Securities for such calendar day.

Upon the occurrence of a Deleveraging Event with respect to any series of Securities, the Current Principal Amount for such series of Securities on the day of the Deleveraging Event will equal the following, less the Annual Tracking Fee, as applicable:

(a) the Current Principal Amount for such series of Securities on the previous calendar day times (b) the Daily Accrual plus (i) 1 plus (ii) the Leverage Amount times (iii) the Index Rebalancing Level divided by the Index Closing Level on the previous calendar day, minus 1, times (c) 1 plus (i) the Leverage Amount divided by 3, times (ii) the Index Closing Level on the current Index Business Day divided by the Index Rebalancing Level on the current Index Business Day minus 1.

For each calendar day during the Call Measurement Period for a series of Securities, the Current Principal Amount for such series of Securities will equal: (1) the sum of (a) the Index Exposure and (b) the Notional Cash Amount minus (2) the Annual Tracking Fee for such series of Securities on such calendar day.



 

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If the Intraday Indicative Value for any series of Securities is equal to or less than zero at any time or the Current Principal Amount is equal to zero on any Index Business Day for such series of Securities, the Current Principal Amount for such series of Securities on that day, and all future days, will be zero.

If any series of Securities undergoes a subsequent split or reverse split, the Current Principal Amount for such series of Securities will be adjusted accordingly (see “Description of the Securities — Split or Reverse Split of the Securities” herein). UBS Securities LLC or its affiliate is responsible for computing and disseminating the Current Principal Amount. The indicative value for each series of Securities will be calculated and published each calendar day under the following tickers:

 

Securities

   Ticker  
3x Long Securities      WTIU.IV  
3x Inverse Securities      WTID.IV  

The “Index Factor” for the 3X Long Securities on any Index Business Day will equal: (i) one plus (ii) the Daily Accrual on such Index Business Day plus (iii) (3 × Index Performance Ratio).

The “Index Factor” for the 3X Inverse Securities on any Index Business Day will equal: (i) one plus (ii) the Daily Accrual on such Index Business Day plus (iii) (-3 × Index Performance Ratio).

The “Index Factor” for each series of Securities will be deemed to equal one on any calendar day that is not an Index Business Day.

The “Index Performance Ratio” subject to adjustment upon the occurrence of a Market Disruption Event, on any Index Business Day will equal (i) (a) the Index Closing Level on such Index Business Day divided by (b) the Index Closing Level on the immediately preceding Index Business Day minus (ii) one. The Index Performance Ratio will equal zero on any calendar day that is not an Index Business Day.

The “Index Rebalancing Level” means, for the 3x Long Securities, the lowest price of the Index during the Rebalancing Period.

The “Index Rebalancing Level” means, for the 3x Inverse Securities, the highest price of the Index during the Rebalancing Period.

The “Rebalancing Period” means the 15 minute period beginning in the next quarter hour immediately after the Deleveraging Event occurs (i.e. if the intraday indicative value of the series of Securities is equal to or less than 30% of the previous day’s Current Principal Amount for such series of Securities at 11:07 a.m., New York City time, then the Rebalancing Period would be the period between 11:15 a.m. and 11:30 a.m., New York City time, on the date the Deleveraging Event occurs).

A “Deleveraging Event” with respect to any series of Securities, means the occurrence of a Stop Loss Termination Event at or after 9:30 a.m. and to, but before, 2:00 p.m., New York City time, on any Index Business Day.

An “Index Business Day” for any series of Securities is a day on which (i) trading is generally conducted on the primary exchange on which futures contracts included in the Index for such series of Securities are traded, as determined by the Security Calculation Agent, (ii) the Index for such series of Securities is published by Bloomberg and (iii) trading is generally conducted on NYSE Arca, in each case as determined by UBS Securities LLC, as the Security Calculation Agent.



 

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The “Daily Accrual” represents the rate of interest that could be earned on a notional capital reinvestment at the generic one month U.S. Treasury Bill rate as reported on Bloomberg under the ticker: GB1M Index (or any successor ticker on Bloomberg or any successor service). The Daily Accrual for any series of Securities on any Index Business Day for such series of Securities will equal:

 

 

LOGO

Where Tbillst-1 is the generic one month U.S. Treasury Bill rate reported on Bloomberg on the prior Index Business Day for such series of Securities and d is the number of calendar days from and including the immediately prior Index Business Day for such series of Securities to but excluding the date of determination. The Daily Accrual for any series of Securities is deemed to equal zero on any day that is not an Index Business Day for such series of Securities.

If the Index is not published on an Index Business Day, or if a Market Disruption Event or a force majeure event (each as defined below) has occurred or is occurring, and such event affects the Index and/or the ability to hedge the Index, the Security Calculation Agent may (but is not required to) make determinations and/or adjustments to the Index or method of calculating the Index. The determination of the value of a Security on a Valuation Date, including any Index Business Day during the Call Measurement Period and the Final Valuation Date, may be postponed if the Security Calculation Agent determines that a Market Disruption Event or force majeure event has occurred or is continuing on such Valuation Date. In that event, the applicable Valuation Date will be postponed to the next following Index Business Day on which a Market Disruption Event or force majeure event does not occur and is not continuing. In no event, however, will any Valuation Date be postponed by more than five Index Business Days. If a Valuation Date is postponed until the fifth Index Business Day following the scheduled Valuation Date but a Market Disruption Event occurs or is continuing on such day, that day will nevertheless be the applicable Valuation Date and the Security Calculation Agent will make a good faith estimate in its sole discretion of the value of the Index for such day. If a Market Disruption Event occurs or is continuing on any Index Business Day in the Call Measurement Period and results in such Valuation Date being postponed, the Call Settlement Date will be postponed by an equal number of Index Business Days. For example, if an Index Business Day in the Call Measurement Period is postponed for two Index Business Days as the result of a Market Disruption Event, the Call Settlement Date will likewise be postponed for two Index Business Days. All determinations and adjustments to be made by the Security Calculation Agent may be made in the Security Calculation Agent’s sole discretion. See “Risk Factors” in this prospectus supplement for a discussion of certain conflicts of interest which may arise with respect to the Security Calculation Agent and see “Specific Terms of the Securities — Market Disruption Event” for additional information.

The “Annual Tracking Fee” for each series of Securities on the Initial Trade Date, is equal to zero.

On each subsequent calendar day, the Annual Tracking Fee for the 3X Long Securities equals the product of (i) 1.45% divided by 365 times (ii) the Current Principal Amount for such Securities on the previous calendar day.

On each subsequent calendar day, the Annual Tracking Fee for the 3X Inverse Securities equals the product of (i) 1.85% divided by 365 times (ii) the Current Principal Amount for such Securities on the previous calendar day.

For the purpose of calculating the Annual Tracking Fee, if such previous calendar day was not an Index Business Day, the Current Principal Amount will be calculated based on the Current Principal Amount for such series of Securities on the immediately preceding Index Business Day.



 

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If the level of the Index decreases or does not increase sufficiently in the case of the 3X Long Securities or if it increases or does not decrease sufficiently in the case of the 3X Inverse Securities (in each case in addition to the Daily Accrual) to offset the impact of the Annual Tracking Fee over the term of the Securities and, if applicable, the Redemption Fee Amount or creation fee, you will receive less than your initial investment amount in the Securities at maturity, upon early redemption or upon acceleration of the Securities. See “Hypothetical Examples” and “Risk Factors — Even if the Index Closing Level on the applicable Valuation Date (or Valuation Dates, in the case of an acceleration of a series of the Securities) exceeds, in the case of the 3X Long Securities, or is less than, in the case of the 3X Inverse Securities, the initial closing level of the Index on the date of your investment, you may receive less than the initial investment amount of your Securities” in this prospectus supplement for additional information on how the Annual Tracking Fee affects the overall value of the Securities.

The Index Closing Level on any Index Business Day will be the closing level reported by the Index Administrator under the Bloomberg Index ticker “BCOMCL” or any successor page on Bloomberg or any successor service, as applicable, as determined by the Security Calculation Agent, except that in the event a Market Disruption Event with respect to any series of Securities occurs or is continuing on an Index Business Day for such series of Securities, the Security Calculation Agent will determine the Index Closing Level for such series of Securities for such Index Business Day according to the methodology described below in “Specific Terms of the Securities — Market Disruption Events.”

Because the Index is comprised of futures contracts that reach their respective final levels on each Index Business Day before the close of trading on the NYSE Arca on such Index Business Day, the Index Closing Level, Index Performance Ratio, and therefore the Index Factor and the Current Principal Amount, for each series of Securities on any Index Business Day for such series of Securities may be fixed before the close of trading on the NYSE Arca on such Index Business Day. Therefore, as long as any series of Securities is listed for trading on the NYSE Arca, such series of Securities may continue to trade in the afternoon on each Index Business Day for such series of Securities for a short period of time after the Index Performance Ratio, the Index Factor and the Current Principal Amount for such series of Securities have been fixed for that Index Business Day.

Any payment you will be entitled to receive is subject to our ability to pay our obligations as they become due.

For a further description of how your payment at maturity will be calculated, see “Hypothetical Examples” and “Specific Terms of the Securities” in this prospectus supplement.

The Securities may be called by UBS prior to the Maturity Date pursuant to UBS’s Call Right and, upon the occurrence of an Stop Loss Termination Event, the Securities may be accelerated and redeemed. See “Specific Terms of the Securities — UBS’s Call Right” beginning on page S-75 and “Specific Terms of the Securities — UBS Optional Acceleration upon Occurrence of a Stop Loss Termination Event” beginning on page S-76.

Coupon Payments

Unlike ordinary debt securities, the Securities will not pay a coupon payment or interest.

UBS’s Call Right

On any Business Day through and including the Maturity Date (the “Call Settlement Date”), UBS may at its option, exercise its option to redeem all, but not less than all, issued and outstanding Securities of any series (exercise its “Call Right”). To exercise its Call Right, UBS must provide notice (which may be provided via press release) to the holders of the Securities of the applicable series not less than 18 calendar days prior to the Call Settlement Date specified by UBS. In the event UBS exercises this right,



 

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you will receive a cash payment (the “Call Settlement Amount”) equal to the Current Principal Amount for such series of Securities on the last Valuation Date during the Call Measurement Period. Any payment on the Securities is subject to our ability to pay our obligations as they become due.

In the case of an exercise of the Call Right of the Securities of any series, the “Call Measurement Period” shall be a period of five consecutive Index Business Days for such series of Securities as specified in our notice of the exercise of the Call Right, the first Index Business Day of which shall be at least two Business Days after the date on which we give you notice of such exercise of the Call Right with respect to any series of Securities.

During the Call Measurement Period, the Current Principal Amount of the applicable series of Securities is calculated in a manner that results in a proportional reduction of exposure to the Index on each Valuation Date in that Call Measurement Period. In other words, on each Valuation Date over the course of the applicable Call Measurement Period, a portion of each series of Securities’ value will be converted into notional cash exposure based on the level of the Index on that day, and on each subsequent Valuation Date a progressively smaller portion of the Securities value will be exposed to changes in the Index on that day and a progressively greater amount will be converted into notional cash exposure, until at the end of the Call Measurement Period the full amount of the Securities’ exposure has been converted into notional cash exposure. The cumulative amount of that notional cash exposure (less the Annual Tracking Fee) is the Current Principal Amount of such series of Securities on the last Valuation Date of the applicable Call Measurement Period.

Index Exposure” means, for each Valuation Date during the Call Measurement Period, as applicable, the product of (i) the Index Exposure on the immediately preceding Valuation Date (or, in the case of the first day of such Call Measurement Period, the Current Principal Amount of such series of Securities on the immediately preceding Index Business Day) multiplied by the Index Factor on the current Valuation Date and (ii) a fraction equal to (a) the number of scheduled Valuation Dates left in the applicable Call Measurement Period, excluding the current Valuation Date, divided by (b) the number of scheduled Valuation Dates left in the applicable Call Measurement Period, including the current Valuation Date. The Index Exposure on any day that is not a Valuation Date will be deemed to be the same as on the immediately preceding Valuation Date.

Notional Cash Amount” means, for each Valuation Date during the Call Measurement Period, as applicable, the sum of (i) the Notional Cash Amount on the immediately preceding Valuation Date (or, in the case of the first day of such Call Measurement Period, $0.00) and (ii) (a) the Index Exposure on the immediately preceding Valuation Date (or, in the case of the first day of such Call Measurement Period, the Current Principal Amount of such series of Securities on the immediately preceding Valuation Date) multiplied by (b) the Index Factor on the current Valuation Date multiplied by (c) 1 divided by the number of scheduled Valuation Dates left in the applicable Call Measurement Period, including the current Valuation Date. The Notional Cash Amount on any day that is not a Valuation Date will be deemed to be the same as on the immediately preceding Valuation Date.

The Call Settlement Amount will be payable on the third Business Day following the last such Index Business Day in the Call Measurement Period (such third Business Day, the “Call Settlement Date”).

See “Specific Terms of the Securities — UBS’s Call Right” beginning on page S-75.

Stop Loss Termination Event

The “Stop Loss Termination Event” provisions of the Securities provide for the automatic deleveraging and optional redemption by UBS of a series of Securities in certain circumstances.



 

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If, at any time, the intraday indicative value of any series of Securities on any Index Business Day, calculated as described in “Valuation of the Index and the Securities — Intraday Security Values,” is equal to or less than 30.0% of the Current Principal Amount of such series of Securities at the end of the prior Index Business Day (such event with respect to any series of Securities, a “Stop Loss Termination Event” and the day on which such event occurs, a “Stop Loss Termination Date”), all issued and outstanding Securities of such series may be redeemed by UBS, at its option, for a cash payment equal to the Stop Loss Redemption Amount (the “Acceleration Option”).

Deleveraging Event: If a Stop Loss Termination Event occurs at any time at or after 9:30 a.m. and to, but before, 2:00 p.m., New York City time, on any Index Business Day (a “Deleveraging Event”) with respect to any series of Securities, such series of Securities will be deleveraged for the remainder of the Stop Loss Termination Date, whether or not UBS exercises the Acceleration Option.

Upon the occurrence of a Deleveraging Event with respect to any series of Securities, the Current Principal Amount, for such series of Securities on any such Stop Loss Termination Date will equal the following, less the Annual Tracking Fee, as applicable:

(a) the Current Principal Amount for such series of Securities on the previous calendar day times (b) the Daily Accrual plus (i) 1 plus (ii) the Leverage Amount times (iii) the Index Rebalancing Level divided by the Index Closing Level on the previous calendar day, minus 1, times (c) 1 plus (i) the Leverage Amount divided by 3, times (ii) the Index Closing Level on the current Index Business Day divided by the Index Rebalancing Level (as defined below) on the current Index Business Day minus 1.

 

 

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Acceleration Option: Upon the occurrence of a Stop Loss Termination Event with respect to any series of Securities, UBS will issue a press release before 9:00 a.m. on the Index Business Day following the Stop Loss Termination Date announcing whether or not it has elected to exercise its Acceleration Option for such series of Securities. If UBS elects to exercise such Acceleration Option, the holders of such series of Securities will receive the Stop Loss Redemption Amount (as defined below), which payment may be equal to zero. If UBS exercises the Acceleration Option with respect to a series of Securities, Holders of Securities of such series will not benefit from any future exposure to the Index after the Stop Loss Valuation Date. UBS is under no obligation to exercise its Acceleration Option and the Securities may remain outstanding following a Stop Loss Termination Event if UBS does not exercise its Acceleration Option.

The “Index Rebalancing Level” means, for the 3x Long Securities, the lowest price of the Index during the Rebalancing Period.

The “Index Rebalancing Level” means for the 3x Inverse Securities, the highest price during the Rebalancing Period.

The “Rebalancing Period” means the 15 minute period beginning in the next quarter hour immediately after the Deleveraging Event occurs (i.e. if the intraday indicative value of the series of Securities is equal to or less than 30% of the previous day’s Current Principal Amount for such series of Securities at 11:07 a.m., then the Rebalancing Period would be the period between 11:15 a.m. and 11:30 a.m. on the date the Deleveraging Event occurs).

A “Deleveraging Event” with respect to any series of Securities, means the occurrence of a Stop Loss Termination Event at or after 9:30 a.m. and to, but before, 2:00 p.m., New York City time, on any Index Business Day.



 

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Upon the occurrence of a Stop Loss Termination Event with respect to any series of Securities, UBS will issue a press release before 9:00 a.m. on the Index Business Day following the Stop Loss Termination Date announcing whether or not it has elected to exercise its Acceleration Option for such series of Securities. If UBS elects to exercise such Acceleration Option, the holders of such series of Securities will receive the Stop Loss Redemption Amount as described herein, which payment may be equal to zero. If UBS exercised the Acceleration Option with respect to a series of Securities, Holders of Securities of such series will not benefit from any future exposure to the Index after the Stop Loss Valuation Date.

The “Stop Loss Redemption Amount” for any series of Securities will be equal to the Current Principal Amount for such series of Securities at the close of trading on the Index Business Day following the Stop Loss Termination Date (such day, the “Stop Loss Valuation Date”).

If UBS elects to exercise its Acceleration Option for such series of Securities, you will receive on the Stop Loss Redemption Date only the Stop Loss Redemption Amount in respect of your investment in Securities of such series. If the Stop Loss Redemption Amount so calculated is equal to or less than zero, the payment upon acceleration will be zero.

If UBS exercises the Acceleration Option, the “Stop Loss Redemption Date” will be the fifth Business Day following the Stop Loss Termination Date; provided that if the calculation of the Stop Loss Redemption Amount is postponed as a result of a Market Disruption Event, the Stop Loss Redemption Date will be the fifth Business Day after the Stop Loss Redemption Amount is calculated.

If a Stop Loss Termination Event occurs with respect to any series of Securities and UBS exercises its Acceleration Option, you will receive on the Stop Loss Redemption Date only the Stop Loss Redemption Amount in respect of your investment in Securities of such series. If the Stop Loss Redemption Amount so calculated is equal to or less than zero, the payment upon acceleration will be zero.

If the level of the Index decreases or does not increase sufficiently in the case of the 3X Long Securities or if it increases or does not decrease sufficiently in the case of the 3X Inverse Securities (in each case in addition to the Daily Accrual) to offset the sum of the Annual Tracking Fee and, if applicable, the Redemption Fee Amount or creation fee over the term of the Securities, you will receive less than the initial investment amount of your Securities at maturity, upon early redemption or upon acceleration of the Securities.

UBS must provide notice (which may be provided via press release) to the holders of such series of Securities not later than 9:00 a.m., on the Index Business Day after the occurrence of a Stop Loss Termination Event that such Stop Loss Termination Event has occurred and whether UBS intends to accelerate the applicable series of Securities. See “Specific Terms of the Securities — UBS Optional Acceleration upon Occurrence of a Stop Loss Termination Event” beginning on page S-76.

How do you redeem your Securities?

Early Redemption

You may elect to require UBS to redeem your Securities of any series, in whole or in part, prior to the Maturity Date on any Index Business Day through and including the final Redemption Date, subject to a minimum redemption amount of at least 50,000 Securities of such series, your compliance with the procedures described below and the potential postponements and adjustments as described under “Specific Terms of the Securities — Market Disruption Event.”

To satisfy the minimum redemption amount, your broker or other financial intermediary may bundle your Securities of such series for redemption with those of other investors to reach this minimum amount



 

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of 50,000 Securities of such series; however, there can be no assurance that they can or will do so. UBS reserves the right from time to time to reduce or waive this minimum redemption amount in its sole discretion on a case-by-case basis. You should not assume you will be entitled to the benefit of any such waiver.

If you elect to have your Securities of any series redeemed and have done so under the redemption procedures described under “Specific Terms of the Securities — Redemption Procedures,” you will receive payment for your Securities of such series on the third Business Day following the applicable Valuation Date (the “Redemption Date”). The Final Redemption Date will be December 28, 2046. In addition, if a call notice has been issued, the last Redemption Valuation Date will be the fifth Index Business Day prior to the Call Settlement Date or, if an acceleration has been triggered, the last Redemption Valuation Date will be the Index Business Day prior to the Stop Loss Redemption Date, as applicable.

The “Redemption Valuation Date” is the first Index Business Day following the date that a redemption notice and redemption confirmation, each as described under “Specific Terms of the Securities — Early Redemption at the Option of the Holders” are delivered, except that UBS reserves the right from time to time to accelerate, in its sole discretion on a case-by-case basis, the Redemption Valuation Date to the date on which the notice of redemption is received by UBS rather than the following Index Business Day. You should not assume you will be entitled to the benefit of any such acceleration. Any applicable Redemption Valuation Date is subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event” beginning on page S-78.

The “Redemption Amount” means, a cash payment that, upon early redemption, you will receive per Security of a series on the relevant Redemption Date equal to the Redemption Amount, calculated as described under “Specific Terms of the Securities — Early Redemption at the Option of the Holders” beginning on page S-73.

The “Redemption Fee Amount” means, as of any Valuation Date, an amount per Security of any series equal to the product of (i) 0.125% and (ii) the Current Principal Amount of such series as of such Valuation Date. UBS reserves the right from time to time to reduce or waive the Redemption Fee Amount in its sole discretion on a case-by-case basis. You should not assume you will be entitled to the benefit of any such waiver.

You may lose all or a substantial portion of your investment upon early redemption. The combined negative effect of the Annual Tracking Fee, the Redemption Fee Amount and creation fee will reduce your final payment. If the level of the Index decreases or does not increase sufficiently in the case of the 3X Long Securities or if it increases or does not decrease sufficiently in the case of the 3X Inverse Securities (in each case in addition to the Daily Accrual) to offset the sum of the Annual Tracking Fee, Redemption Fee Amount and creation fee over the term of the Securities, you will receive less than the initial investment amount of your Securities at maturity, upon early redemption or upon acceleration of the Securities and you may lose all or a substantial portion of your investment upon early redemption.

The Securities may be called by UBS prior to the Maturity Date pursuant to UBS’s Call Right and, upon the occurrence of an Stop Loss Termination Event, the Securities may be accelerated and redeemed. See “Specific Terms of the Securities — UBS’s Call Right” beginning on page S-75, and “Specific Terms of the Securities — UBS Optional Acceleration upon Occurrence of a Stop Loss Termination Event” beginning on page S-76.

Redemption Procedures

To redeem your Securities of a series prior to the Maturity Date, you must instruct your broker to deliver a redemption notice to UBS by email no later than 4:00 p.m. (New York City time) on the Index Business Day on which you elect to exercise your redemption right and you and your broker must follow the



 

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procedures described herein. If you fail to comply with these procedures, your notice will be deemed ineffective. See “Specific Terms of the Securities — Redemption Procedures” beginning on page S-74 and “Description of the Debt Securities We May Offer — Redemption and Payment” in the accompanying prospectus.

What are some of the risks of the Securities?

An investment in the Securities involves risks. Selected risks are summarized here, but we urge you to read the more detailed explanation of risks described under “Risk Factors” beginning on page S-33.

Risks of 3X Long Securities

 

Ø  

You may lose all or a substantial portion of your investment — The Securities do not guarantee any return on your initial investment. The Securities are fully exposed to the risk of three times any decline in the level of the Index, compounded daily. If the level of the Index decreases or does not increase sufficiently in the case of the 3X Long Securities in addition to the Daily Accrual to offset the impact of the Annual Tracking Fee over the term of the Securities and, if applicable, the Redemption Fee Amount and creation fee, you will receive less than the initial investment amount of your Securities at maturity, upon early redemption or upon acceleration of the Securities.

 

Ø  

Correlation and compounding risk — A number of factors may affect the Securities’ ability to achieve a high degree of correlation with the performance of the Index, and there is a significant possibility that the Securities will not achieve a high degree of correlation with the performance of the Index over periods longer than one day. The Current Principal Amount is reset daily, the return on the Securities is path dependent and you will be exposed to compounding of daily returns. As a result, the performance of the Securities for periods greater than one Index Business Day may be either greater than or less than three times the Index performance, before accounting for the Annual Tracking Fee, Redemption Fee Amount and creation fee, if any. Further, significant adverse performances of your Securities may not be offset by subsequent beneficial performances of equal magnitude.

 

Ø  

Leverage risk — The Securities are three times leveraged and, as a result, the 3X Long Securities will benefit from three times any positive, but will decline based on three times any negative daily performance of the Index. However, given the path dependence of the returns, the leverage of the 3X Long Securities may be greater or less than 3.0 during any given Index Business Day.

 

Ø  

Automatic deleveraging upon the occurrence of a Deleveraging Event — If a Deleveraging Event occurs with respect to the 3X Long Securities, the leverage on such Stop Loss Termination Date with respect to the applicable series of Securities will be automatically delevered to 1X. This will limit any benefit from any subsequent increase in the Index Closing Level on the Stop Loss Termination Date until the leverage is reset.

 

Ø  

Daily Reset — Because the leverage of the Securities is generally only reset once each day, it is likely that due to intra-day changes in the level of the Index, the leverage at any point during a trading day can be higher or lower than the target leverage, which is 3.0 in the case of the 3X Long Securities.

 

Ø  

Market risk — The return on the Securities, which may be positive or negative, is linked to the leveraged return on the Index. The return on the Index is measured by the Index Closing Level, which, in turn, is affected by a variety of market and economic factors, interest rates in the markets and economic, financial, political, regulatory, judicial or other events that affect the markets generally, all of which are unpredictable.

 

Ø  

Concentration risk — The 3X Long Securities reflect a long position in the Index, which comprises futures contracts of a single commodity, WTI crude oil, and thus are much less diversified than funds, investment portfolios or indices investing in or tracking a broader range of products and, therefore, could experience greater volatility. You will not benefit, with respect to the Securities, from any of the advantages of a diversified investment and will bear the risks of a highly concentrated investment.



 

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Risks of 3X Inverse Securities

 

Ø  

You may lose all or a substantial portion of your investment — The Securities do not guarantee any return on your initial investment. The Securities are leveraged inverse Securities, which means they are exposed to three times the risk of any increase in the level of the Index, compounded daily. If the level of the Index increases or does not decrease sufficiently, in addition to the Daily Accrual to offset the impact of the Annual Tracking Fee over the term of the Securities and, if applicable, the Redemption Fee Amount and creation fee, you will receive less than the initial investment amount of your Securities at maturity, upon early redemption or upon acceleration of the Securities.

 

Ø  

Correlation and compounding risk — A number of factors may affect the Securities’ ability to achieve a high degree of correlation with the performance of the Index, and there is a significant possibility that the Securities will not achieve a high degree of correlation with the performance of the Index over periods longer than one day. The Current Principal Amount is reset daily, the return on the Securities is path dependent and you will be exposed to compounding of daily returns. As a result, the performance of the Securities for periods greater than one Index Business Day may be either greater than or less than three times the inverse of the Index performance, before accounting for the Annual Tracking Fee, Redemption Fee Amount and creation fee, if any. Further, significant adverse performances of your Securities may not be offset by subsequent beneficial performances of equal magnitude.

 

Ø  

Leverage risk — The Securities are three times leveraged and, as a result, the 3X Inverse Securities will benefit from three times any negative, but will declined based on three times any positive daily performance of the Index. However, the leverage of the 3X Inverse Securities may be greater or less than -3.0 during any given Index Business Day.

 

Ø  

Automatic deleveraging upon the occurrence of a Deleveraging Event — If a Deleveraging Event occurs with respect to the 3X Inverse Securities, the leverage on such Stop Loss Termination Date with respect to the applicable series of Securities will be automatically delevered to -1X. This will limit any benefit from any subsequent decrease in the Index Closing Level on the Stop Loss Termination Date until the leverage is reset.

 

Ø  

Daily Reset — Because the leverage of the Securities is generally only reset once each day, it is likely that due to intra-day changes in the level of the Index, the leverage at any point during a trading day can be higher or lower than the target leverage, which is -3.0 in the case of the 3X Inverse Securities.

 

Ø  

Market risk — The return on the Securities, which may be positive or negative, is linked to leveraged inverse return on the Index. The return on the Index is measured by the Index Closing Level, which, in turn, is affected by a variety of market and economic factors, interest rates in the markets and economic, financial, political, regulatory, judicial or other events that affect the markets generally, all of which are unpredictable.

 

Ø  

Concentration risk — The 3X Inverse Securities reflect a short position in the Index, which comprises futures contracts of a single commodity, WTI crude oil, and thus are much less diversified than funds, investment portfolios or indices investing in or tracking a broader range of products and, therefore, could experience greater volatility. You will not benefit, with respect to the Securities, from any of the advantages of a diversified investment and will bear the risks of a highly concentrated investment.

General Risks for both series of Securities

 

Ø  

Credit of issuer — The Securities are senior unsecured debt obligations of the issuer, UBS, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the Securities, including any payment at maturity, call, acceleration or upon early redemption, depends on the ability of UBS to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of UBS will affect the market value, if any, of the Securities prior to maturity, call, acceleration or early redemption. In addition, in the event UBS were to default



 

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on its obligations, you may not receive any amounts owed to you under the terms of the Securities. The Securities do not benefit from any co-obligation of UBS Switzerland AG.

 

Ø  

Potentially high and unpredictable volatility in the price of WTI crude oil — The return on the Securities is linked to the performance of the Index, which in turn is linked to the performance of futures contracts on WTI crude oil. WTI crude oil prices are subject to volatile price movements over short periods of time and are affected by numerous factors, including changes in supply and demand relationships, governmental programs and policies, national and international monetary, trade, political and economic events, changes in interest and exchange rates, speculation and trading activities in commodities and related contracts, weather, and agricultural, trade, fiscal and exchange control policies. These factors may have a larger impact on commodity prices, commodity futures prices, and commodity-linked instruments than on traditional fixed-income and equity securities and may create additional investment risks that cause the value of the Securities to be more volatile than the values of traditional securities. During certain periods in recent years, oil prices have decreased dramatically. These and other factors may affect the level of the Index, and thus the value of your Securities, in unpredictable or unanticipated ways.

 

Ø  

The Index tracks the prices of futures contracts with expiration dates approximately one to three months in the future, which may affect the level of the Index in various ways — A futures contract for a commodity typically specifies an expiration month, which is the month in which the contract will cease to trade, and a delivery date, which is the date on which the underlying physical commodity referenced by the futures contract is delivered. A “front-month futures contract” refers to the futures contract that has the nearest expiration date. The Index rolls the underlying commodities futures contracts every other month as further described in “The Index — Bloomberg WTI Crude Oil Subindex” below.

 

Ø  

The Securities do not offer direct exposure to the spot price of WTI crude oil—The Index is linked to commodity futures contracts, not physical commodities (or their spot prices). The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the spot price of a commodity reflects the immediate delivery value of the commodity. A variety of factors can lead to a disparity between the expected future price of a commodity and the spot price at a given point in time. The price movements of a futures contract are typically correlated with the movements of the spot price of the referenced commodity, but the correlation is generally imperfect and price movements in the spot market may not be reflected in the futures market (and vice versa). Accordingly, the Securities may underperform a similar investment that is linked to the spot price of WTI crude oil.

 

Ø  

You will not receive interest payments on the Securities or have any rights in respect of any physical commodities, or any of the Index Contracts—As an owner of the Securities, you will not have rights that holders of WTI crude oil or investors in the Index Contracts may have. Your Securities will be paid in cash, and you will have no right to receive delivery of WTI crude oil or payment of amounts in respect of the Index Contracts.

 

Ø  

These Securities do not pay a coupon payment or interest — You will not receive a coupon payment or interest on these Securities. These Securities are designed for investors who are willing to forgo cash payments and, if the Index declines or does not increase enough (or in the case of the 3X Inverse Securities, if it increases or does not decline enough) to offset the effect of the fees as described above, are willing to lose some or all of their principal.

 

Ø  

Potential Acceleration Option upon the occurrence of a Stop Loss Termination Event — If a Stop Loss Termination Event occurs with respect to any series of Securities and UBS exercises its Acceleration Option, all issued and outstanding Securities of such series may be accelerated and redeemed by UBS, at its option, for a cash payment equal to the Stop Loss Redemption Amount; provided that if the Stop Loss Redemption Amount so calculated is less than or equal to zero, the payment upon acceleration will be zero. The Stop Loss Redemption Amount you receive on the Stop



 

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Loss Redemption Date may be significantly less than your investment and may be zero. In addition, if the Securities are accelerated and redeemed by UBS, at its option, you will not benefit from any subsequent increase in the Index Closing Level after the Stop Loss Valuation Date, even if such increase occurs prior to the Stop Loss Redemption Date.

 

Ø  

Path dependence — The return on the Securities will be highly path dependent. Accordingly, even if the level of the Index increases or decreases over the term of the Securities, or over the term which you hold the Securities, the Securities will increase or decrease not only based on any change in the level of the Index over a given time period but also based on the volatility of the level of the Index over such time period. The value of your series of Securities will depend not only upon the level of the Index at maturity or upon call, early redemption or acceleration, but also on the performance of the Index over each day that you hold your Securities. It is possible that you will suffer significant losses in the Securities, even if the long-term performance of the Index is positive, in the case of the 3X Long Securities, or negative, in the case of the 3X Inverse Securities. Accordingly, the returns on the Securities may not correlate with returns on the Index over periods longer than one day.

 

Ø  

A trading market for the Securities may not develop — Although the Securities are listed on NYSE Arca, a trading market for the one or more series of the Securities may not develop or be maintained. Certain affiliates of UBS may engage in limited purchase and resale transactions in the Securities, although they are not required to and may stop at any time. We are not required to maintain any listing of the Securities on NYSE Arca or any other exchange. In addition, we are not obliged to, and may not, sell the full aggregate principal amount of the Securities shown on the cover of this prospectus supplement. We may suspend or cease sales of the Securities at any time, at our discretion. Therefore, the liquidity of the Securities may be limited.

 

Ø  

Requirements upon early redemption — You must satisfy the requirements described herein for your redemption request to be considered, including the minimum redemption amount of at least 50,000 Securities of the applicable series, unless we determine otherwise or your broker or other financial intermediary bundles your Securities for redemption with those of other investors of the applicable series to reach this minimum requirement and there can be no assurance that they can or will do so. Therefore, the liquidity of each series of Securities may be limited. In addition, the payment you receive upon early redemption will be reduced by the applicable Annual Tracking Fee, Redemption Fee Amount and creation fee. While UBS reserves the right to reduce or waive the minimum redemption amount or the Redemption Fee Amount from time to time in its sole discretion, there can be no assurance that UBS will choose to reduce or waive any redemption requirements or fees or that any holder of the Securities will benefit from UBS’s election to do so.

 

Ø  

Your redemption election is irrevocable — You will not know the Redemption Amount at the time you elect to request us to redeem your Securities of a series and you will not be able to rescind your election to redeem your Securities of a series after your redemption notice is received by UBS. Accordingly, you will be exposed to market risk in the event market conditions change after UBS receives your offer and the Redemption Amount is determined on the applicable Valuation Date.

 

Ø  

Uncertain tax treatment — Significant aspects of the tax treatment of the Securities are uncertain. You should consult your own tax advisor about your own tax situation. See “Material U.S. Federal Income Tax Consequences” beginning on page S-87.

 

Ø  

UBS’s Call Right — UBS may elect to redeem all outstanding Securities of any series at any time, as described under “Specific Terms of the Securities — UBS’s Call Right” beginning on page S-75. If UBS exercises its Call Right, the Call Settlement Amount may be less than your initial investment in the Securities. Alternatively, if the series of Securities has increased in value, you may have to invest your proceeds in a lower-return investment.



 

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Is this the right investment for you?

3X Long Securities

The 3X Long Securities may be a suitable investment for you if:

 

Ø  

You are willing to accept the risk that you may lose all of your investment.

 

Ø  

You seek an investment with a return linked to three times the positive daily performance of the Index, which will provide exposure to WTI crude oil futures contracts for delivery in one to three months.

 

Ø  

You understand (i) leverage risk, including the risks inherent in maintaining a constant three times daily leverage, and (ii) the consequences of seeking leveraged investment results generally, and you intend to actively monitor and manage your investment.

 

Ø  

You are a sophisticated investor, understand path dependence of investment returns and you seek an investment in order to manage daily trading risks.

 

Ø  

You believe the leveraged return of the Index will be sufficient to offset the combined negative effect of the applicable fees built into the calculation of your payment at maturity, call, acceleration or upon early redemption.

 

Ø  

You are willing to hold securities that have a long-term maturity.

 

Ø  

You are willing to forego receipt of interest or coupon payments on the Securities.

 

Ø  

You are willing to accept the risk of fluctuations in the energy sector, in general, and the risks inherent in a concentrated investment in WTI crude oil futures contracts, in particular.

 

Ø  

You understand that the price of such futures contracts may not correlate with spot prices of WTI crude oil and you appreciate that an investment in the Securities is not the same as an investment in WTI crude oil spot prices or buying or holding WTI crude oil.

 

Ø  

You are willing to accept the risk that the price at which you are able to sell the Securities may be significantly less than the amount you invested.

 

Ø  

You are willing to pay the Annual Tracking Fee and, if applicable, the Redemption Fee Amount and creation fee which are charged on the Securities and that will reduce your return (or increase your loss, as applicable) on your investment.

 

Ø  

You are willing to hold securities that may be redeemed early by UBS, pursuant to UBS’s Call Right.

 

Ø  

You are willing to hold securities that may be accelerated and redeemed upon the occurrence of a Stop Loss Termination Event.

 

Ø  

You are willing to hold securities that will be deleveraged upon the occurrence of a Deleveraging Event.

 

Ø  

You do not seek current income from your investment.

 

Ø  

You are not seeking an investment for which there will be an active secondary market.

 

Ø  

You seek an investment which does not make regular interest payments.

 

Ø  

You are comfortable with the creditworthiness of UBS, as issuer of the Securities.

The 3X Long Securities may not be a suitable investment for you if:

 

Ø  

You are not willing to accept the risk that you may lose all of your investment.

 

Ø  

You do not seek an investment with a return linked to three times the daily performance of the Index, which will provide exposure to WTI crude oil futures contracts for delivery in one to three months.

 

Ø  

You do not understand (i) leverage risk, including the risks inherent in maintaining a constant three times daily leverage, and (ii) the consequences of seeking leveraged investment results generally, or you do not intend to actively monitor and manage your investment.



 

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Ø  

You are not a sophisticated investor, do not understand path dependence of investment returns and you seek an investment for purposes other than managing daily trading risks.

 

Ø  

You believe the leveraged return of the Index will not be sufficient to offset the combined negative effect of the applicable fees built into the calculation of your payment at maturity, call, acceleration or upon early redemption.

 

Ø  

You are not willing to hold securities that have a long-term maturity.

 

Ø  

You are not willing to forego receipt of interest or coupon payments on the Securities.

 

Ø  

You are not willing to accept the risk of fluctuations in the energy sector, in general, and the risks inherent in a concentrated investment in WTI crude oil futures contracts, in particular.

 

Ø  

You are not willing to accept the risk that the price at which you are able to sell the Securities may be significantly less than the amount you invested.

 

Ø  

You are not willing to pay the Annual Tracking Fee and, if applicable, the Redemption Fee Amount and creation fee which are charged on the Securities and that will reduce your return (or increase your loss, as applicable) on your investment.

 

Ø  

You are not willing to hold securities that may be redeemed early by UBS, pursuant to UBS’s Call Right.

 

Ø  

You are not willing to hold securities that may be accelerated and redeemed upon the occurrence of a Stop Loss Termination Event.

 

Ø  

You are not willing to hold securities that will be deleveraged upon the occurrence of a Deleveraging Event.

 

Ø  

You seek current income from your investment.

 

Ø  

You are seeking an investment for which there will be an active secondary market.

 

Ø  

You seek an investment which makes regular interest payments.

 

Ø  

You are not comfortable with the creditworthiness of UBS, as issuer of the Securities.

 

Ø  

You prefer the lower risk and therefore accept the potentially lower returns of fixed-income investments with comparable maturities and credit ratings.

3X Inverse Securities

The 3X Inverse Securities may be a suitable investment for you if:

 

Ø  

You are willing to accept the risk that you may lose all of your investment.

 

Ø  

You seek an investment with a return linked to three times the inverse daily performance of the Index, which will provide short exposure to WTI crude oil futures contracts for delivery in one to three months.

 

Ø  

You understand (i) leverage risk, including the risks inherent in maintaining a constant three times daily negative leverage, and (ii) the consequences of seeking leveraged investment results generally, and you intend to actively monitor and manage your investment.

 

Ø  

You are a sophisticated investor, understand path dependence of investment returns and you seek an investment in order to manage daily trading risks.

 

Ø  

You believe the leveraged inverse return of the Index will be sufficient to offset the combined negative effect of the applicable fees built into the calculation of your payment at maturity, call, acceleration or upon early redemption.

 

Ø  

You are willing to hold securities that have a long-term maturity.



 

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Ø  

You are willing to forego receipt of interest or coupon payments on the Securities.

 

Ø  

You are willing to accept the risk of fluctuations in the energy sector, in general, and the risks inherent in a concentrated investment in WTI crude oil futures contracts, in particular.

 

Ø  

You understand that the price of such futures contracts may not correlate with spot prices of WTI crude oil and you appreciate that an investment in the Securities is not the same as a short position in WTI crude oil spot prices or selling short WTI crude oil.

 

Ø  

You are willing to accept the risk that the price at which you are able to sell the Securities may be significantly less than the amount you invested.

 

Ø  

You are willing to pay the Annual Tracking Fee and, if applicable, the Redemption Fee Amount and creation fee which are charged on the Securities and that will reduce your return (or increase your loss, as applicable) on your investment.

 

Ø  

You are willing to hold securities that may be redeemed early by UBS, pursuant to UBS’s Call Right.

 

Ø  

You are willing to hold securities that may be accelerated and redeemed upon the occurrence of a Stop Loss Termination Event.

 

Ø  

You are willing to hold securities that will be deleveraged upon the occurrence of a Deleveraging Event.

 

Ø  

You do not seek current income from your investment.

 

Ø  

You are not seeking an investment for which there will be an active secondary market.

 

Ø  

You seek an investment which does not make regular interest payments.

 

Ø  

You are comfortable with the creditworthiness of UBS, as issuer of the Securities.

The 3X Inverse Securities may not be a suitable investment for you if:

 

Ø  

You are not willing to accept the risk that you may lose all of your investment.

 

Ø  

You do not seek an investment with a return linked to three times the inverse daily performance of the Index, which Index tracks WTI crude oil futures contracts for delivery in one to three months.

 

Ø  

You do not understand (i) leverage risk, including the risks inherent in maintaining a constant three times daily inverse leverage, and (ii) the consequences of seeking leveraged investment results generally, or you do not intend to actively monitor and manage your investment.

 

Ø  

You are not a sophisticated investor, do not understand path dependence of investment returns and you seek an investment for purposes other than managing daily trading risks.

 

Ø  

You believe the leveraged inverse return of the Index will not be sufficient to offset the combined negative effect of the applicable fees built into the calculation of your payment at maturity, call, acceleration or upon early redemption.

 

Ø  

You are not willing to hold securities that have a long-term maturity.

 

Ø  

You are not willing to forego receipt of interest or coupon payments on the Securities.

 

Ø  

You are not willing to accept the risk of fluctuations in the energy sector, in general, and the risks inherent in a concentrated investment in WTI crude oil futures contracts, in particular.

 

Ø  

You are not willing to accept the risk that the price at which you are able to sell the Securities may be significantly less than the amount you invested.



 

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Ø  

You are not willing to pay the Annual Tracking Fee and, if applicable, the Redemption Fee Amount and creation fee which are charged on the Securities and that will reduce your return (or increase your loss, as applicable) on your investment.

 

Ø  

You are not willing to hold securities that may be redeemed early by UBS, pursuant to UBS’s Call Right.

 

Ø  

You are not willing to hold securities that may be accelerated and redeemed upon the occurrence of a Stop Loss Termination Event.

 

Ø  

You are not willing to hold securities that will be deleveraged upon the occurrence of a Deleveraging Event.

 

Ø  

You seek current income from your investment.

 

Ø  

You are seeking an investment for which there will be an active secondary market.

 

Ø  

You seek an investment that makes regular interest payments.

 

Ø  

You are not comfortable with the creditworthiness of UBS, as issuer of the Securities.

 

Ø  

You prefer the lower risk and therefore accept the potentially lower returns of fixed-income investments with comparable maturities and credit ratings.

Who calculates and publishes the Index?

The level of the Index is calculated by the Index Administrator and disseminated by the NYSE approximately every fifteen seconds (assuming the level of the Index has changed within such fifteen-second interval) from 9:30 a.m. to 2:30 p.m., New York City time, and a daily Index level is published at approximately 4:00 p.m., New York City time, on each Exchange Business Day. Index information, including the Index level, is available from the NYSE and Bloomberg L.P. (“Bloomberg”) under the symbol “BCOMCL”. Index levels can also be obtained from the official website of Bloomberg, www.bloomberg.com. The historical performance of the Index is not indicative of the future performance of the Index or the level of the Index on the Final Valuation Date or applicable Redemption Valuation Date or Call Measurement Period, as the case may be.

What are the tax consequences of owning the Securities?

The United States federal income tax consequences of your investment in the Securities are uncertain. 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” on page S-87.

Pursuant to the terms of the Securities, you and we agree, in the absence of a statutory, regulatory, administrative or judicial ruling to the contrary, to characterize the Securities as a pre-paid forward contract with respect to the Index. If your Securities are so treated, you should generally recognize capital gain or loss upon the sale, exchange, redemption or maturity of your Securities in an amount equal to the difference between the amount realized and the amount you paid for your Securities. Such gain or loss should generally be long-term capital gain or loss if you held your Securities for more than one year. The deductibility of capital losses is subject to limitations.

In the opinion of our counsel, Sullivan & Cromwell LLP, the Securities should be treated in the manner described above. However, because there is no authority that specifically addresses the tax treatment of the Securities, it is possible that the Securities could be treated for tax purposes in an alternative manner described under “Material U.S. Federal Income Tax Consequences — Alternative Treatments” on page S-88.

 



 

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Holders are urged to consult their tax advisors concerning the significance and the potential impact of the above considerations. Except to the extent otherwise required by law, we intend to treat your Securities for United States federal income tax purposes in accordance with the treatment described above and under “Material U.S. Federal Income Tax Consequences” on page S-87 unless and until such time as there is a change in law or the Treasury Department or IRS determines that some other treatment is more appropriate.

Conflicts of Interest

UBS Securities LLC is an affiliate of UBS and, as such, has a “conflict of interest” in this offering within the meaning of the 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 Securities, thus creating an additional conflict of interest within the meaning of Rule 5121. Consequently, the offering is being conducted in compliance with the provisions of Rule 5121. UBS Securities LLC is not permitted to sell Securities in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.



 

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Hypothetical Examples

Hypothetical Payment at Maturity or Acceleration, or upon Early Redemption

The following examples illustrate how each series of Securities would perform at maturity or upon early redemption, in hypothetical circumstances. For the 3X Long Securities, in Example 1, we have included an example in which the Index Closing Level increases at a rate of 1% per day over one month, as well as, in Example 2, an example which shows the Index Closing Level increasing at a rate of 1% per day and then decreasing at a rate of 1% per day on alternating days. In addition, Example 3 shows the Index Closing Level decreasing at a rate of 2% per day for one month and Example 4 shows the Index Closing Level decreasing at a rate of 5% per day for the first 25 days and then increasing at a rate of 30% per day for the following 5 days. Example 5 shows the effect of a Deleveraging Event on the 3X Long Securities, assuming no Daily Accrual or Annual Tracking Fee and Example 6 shows the calculation during a Call Measurement Period assuming that the Index Closing Level increases 1% on each Index Business Day of the Call Measurement Period.

For the 3X Inverse Securities, in Example 1, we have included an example in which the Index Closing Level increases at a rate of 2% per day over one month, as well as, in Example 2, an example which shows the Index Closing Level increasing at a rate of 1% per day and then decreasing at a rate of 1% per day on alternating days. In addition, Example 3 shows the Index Closing Level decreasing at a rate of 1% per day for one month and Example 4 shows the Index Closing Level increasing at a rate of 5% per day for the first 25 days and then decreasing at a rate of 30% per day for the following 5 days. Example 5 shows the effect of a Deleveraging Event on the 3X Inverse Securities, assuming no Daily Accrual or Annual Tracking Fee and Example 6 shows the calculation during a Call Measurement Period assuming that the Index Closing Level decreases 1% on each Index Business Day of the Call Measurement Period.

For ease of analysis and presentation, the following examples assume that the term of the Securities is one month and that, with the exception of Examples 5, the Deleveraging Examples, no Stop Loss Termination Event has occurred. These examples highlight the effect of the three times leverage and the impact of the various fees on the payment at maturity or upon early redemption, under different circumstances. Because the Annual Tracking Fee takes into account the performance of the Index, as measured by the Index Closing Level, the absolute level of the Annual Tracking Fee is dependent on the path taken by the Index Closing Level to arrive at its ending level. The figures in these examples have been rounded for convenience. The Cash Settlement Amount figures for the final day are as of the hypothetical Calculation Date, and given the indicated assumptions, a holder will receive payment at maturity or upon early redemption, in the indicated amount, according to the indicated formula.

 

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Hypothetical Examples

 

 

3X Long Securities

Example 1 — The level of the Index increases at a rate of 1% per day for one month.

Assumptions:

 

Annual Tracking Fee:*    1.45%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
     Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C      D      F      G      I      J  

                                     

                     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
     1 + Daily
Accrual +
(3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.45%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00              25.00000           25.00000     
1      80.80        0.01000        1.03001        25.74933        0.00099        25.74933        25.71715  
2      81.61        0.01000        1.03001        26.52113        0.00102        26.52113        26.48798  
3      82.42        0.01000        1.03001        27.31605        0.00105        27.31605        27.28191  
4      83.25        0.01000        1.03001        28.13481        0.00109        28.13481        28.09964  
5      84.08        0.01000        1.03001        28.97810        0.00112        28.97810        28.94188  
6      84.92        0.01000        1.03001        29.84667        0.00115        29.84667        29.80936  
7      85.77        0.01000        1.03001        30.74127        0.00119        30.74127        30.70285  
8      86.63        0.01000        1.03001        31.66269        0.00122        31.66269        31.62311  
9      87.49        0.01000        1.03001        32.61173        0.00126        32.61173        32.57096  
10      88.37        0.01000        1.03001        33.58921        0.00130        33.58921        33.54723  
11      89.25        0.01000        1.03001        34.59599        0.00133        34.59599        34.55275  
12      90.15        0.01000        1.03001        35.63295        0.00137        35.63295        35.58841  
13      91.05        0.01000        1.03001        36.70099        0.00142        36.70099        36.65511  
14      91.96        0.01000        1.03001        37.80104        0.00146        37.80104        37.75379  
15      92.88        0.01000        1.03001        38.93406        0.00150        38.93406        38.88539  
16      93.81        0.01000        1.03001        40.10105        0.00155        40.10105        40.05092  
17      94.74        0.01000        1.03001        41.30301        0.00159        41.30301        41.25138  
18      95.69        0.01000        1.03001        42.54100        0.00164        42.54100        42.48782  
19      96.65        0.01000        1.03001        43.81609        0.00169        43.81609        43.76132  
20      97.62        0.01000        1.03001        45.12941        0.00174        45.12941        45.07299  
21      98.59        0.01000        1.03001        46.48208        0.00179        46.48208        46.42398  
22      99.58        0.01000        1.03001        47.87531        0.00185        47.87531        47.81546  
23      100.57        0.01000        1.03001        49.31029        0.00190        49.31029        49.24865  
24      101.58        0.01000        1.03001        50.78828        0.00196        50.78828        50.72480  
25      102.59        0.01000        1.03001        52.31058        0.00202        52.31058        52.24519  
26      103.62        0.01000        1.03001        53.87850        0.00208        53.87850        53.81115  
27      104.66        0.01000        1.03001        55.49342        0.00214        55.49342        55.42405  
28      105.70        0.01000        1.03001        57.15674        0.00220        57.15674        57.08529  
29      106.76        0.01000        1.03001        58.86992        0.00227        58.86992        58.79633  
30      107.83        0.01000        1.03001        60.63445        0.00234        60.63445        60.55865  

 

Cumulative Index Return      34.78%
Return on Securities**    142.23%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

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Hypothetical Examples

 

 

Example 2 — The level of the Index increases at a rate of 1% and decreases at a rate of 1% on alternating days for one month.

Assumptions:

 

Annual Tracking Fee:*    1.45%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

                                             

                     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.45%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      80.80        0.01000       1.03001        25.74933        0.00099        25.74933        25.71715  
2      79.99        (0.01000     0.97001        24.97617        0.00102        24.97617        24.94495  
3      80.79        0.01000       1.03001        25.72479        0.00099        25.72479        25.69263  
4      79.98        (0.01000     0.97001        24.95236        0.00102        24.95236        24.92117  
5      80.78        0.01000       1.03001        25.70026        0.00099        25.70026        25.66814  
6      79.98        (0.01000     0.97001        24.92857        0.00102        24.92857        24.89741  
7      80.78        0.01000       1.03001        25.67576        0.00099        25.67576        25.64367  
8      79.97        (0.01000     0.97001        24.90480        0.00102        24.90480        24.87367  
9      80.77        0.01000       1.03001        25.65128        0.00099        25.65128        25.61922  
10      79.96        (0.01000     0.97001        24.88106        0.00102        24.88106        24.84996  
11      80.76        0.01000       1.03001        25.62683        0.00099        25.62683        25.59479  
12      79.95        (0.01000     0.97001        24.85734        0.00102        24.85734        24.82627  
13      80.75        0.01000       1.03001        25.60240        0.00099        25.60240        25.57039  
14      79.94        (0.01000     0.97001        24.83364        0.00102        24.83364        24.80260  
15      80.74        0.01000       1.03001        25.57799        0.00099        25.57799        25.54602  
16      79.94        (0.01000     0.97001        24.80997        0.00102        24.80997        24.77896  
17      80.74        0.01000       1.03001        25.55361        0.00099        25.55361        25.52166  
18      79.93        (0.01000     0.97001        24.78632        0.00102        24.78632        24.75533  
19      80.73        0.01000       1.03001        25.52924        0.00098        25.52924        25.49733  
20      79.92        (0.01000     0.97001        24.76269        0.00101        24.76269        24.73173  
21      80.72        0.01000       1.03001        25.50491        0.00098        25.50491        25.47303  
22      79.91        (0.01000     0.97001        24.73908        0.00101        24.73908        24.70816  
23      80.71        0.01000       1.03001        25.48059        0.00098        25.48059        25.44874  
24      79.90        (0.01000     0.97001        24.71549        0.00101        24.71549        24.68460  
25      80.70        0.01000       1.03001        25.45630        0.00098        25.45630        25.42448  
26      79.90        (0.01000     0.97001        24.69193        0.00101        24.69193        24.66107  
27      80.70        0.01000       1.03001        25.43203        0.00098        25.43203        25.40024  
28      79.89        (0.01000     0.97001        24.66839        0.00101        24.66839        24.63756  
29      80.69        0.01000       1.03001        25.40779        0.00098        25.40779        25.37603  
30      79.88        (0.01000     0.97001        24.64488        0.00101        24.64488        24.61407  

 

Cumulative Index Return

   -0.15%

Return on Securities**

   -1.54%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-24


Table of Contents

Hypothetical Examples

 

 

Example 3 — The level of the Index decreases at a rate of 2% per day for one month.

Assumptions:

 

Annual Tracking Fee:*    1.45%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

 

  

 

     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.45%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      78.40        (0.02000     0.94001        23.49933        0.00099        23.49933        23.46996  
2      76.83        (0.02000     0.94001        22.08875        0.00093        22.08875        22.06114  
3      75.30        (0.02000     0.94001        20.76283        0.00088        20.76283        20.73688  
4      73.79        (0.02000     0.94001        19.51651        0.00082        19.51651        19.49211  
5      72.31        (0.02000     0.94001        18.34500        0.00078        18.34500        18.32207  
6      70.87        (0.02000     0.94001        17.24381        0.00073        17.24381        17.22225  
7      69.45        (0.02000     0.94001        16.20872        0.00069        16.20872        16.18846  
8      68.06        (0.02000     0.94001        15.23577        0.00064        15.23577        15.21672  
9      66.70        (0.02000     0.94001        14.32121        0.00061        14.32121        14.30331  
10      65.37        (0.02000     0.94001        13.46156        0.00057        13.46156        13.44473  
11      64.06        (0.02000     0.94001        12.65351        0.00053        12.65351        12.63769  
12      62.78        (0.02000     0.94001        11.89396        0.00050        11.89396        11.87909  
13      61.52        (0.02000     0.94001        11.18000        0.00047        11.18000        11.16603  
14      60.29        (0.02000     0.94001        10.50890        0.00044        10.50890        10.49577  
15      59.09        (0.02000     0.94001        9.87809        0.00042        9.87809        9.86574  
16      57.90        (0.02000     0.94001        9.28514        0.00039        9.28514        9.27354  
17      56.75        (0.02000     0.94001        8.72779        0.00037        8.72779        8.71688  
18      55.61        (0.02000     0.94001        8.20389        0.00035        8.20389        8.19363  
19      54.50        (0.02000     0.94001        7.71143        0.00033        7.71143        7.70179  
20      53.41        (0.02000     0.94001        7.24854        0.00031        7.24854        7.23948  
21      52.34        (0.02000     0.94001        6.81344        0.00029        6.81344        6.80492  
22      51.29        (0.02000     0.94001        6.40445        0.00027        6.40445        6.39644  
23      50.27        (0.02000     0.94001        6.02001        0.00025        6.02001        6.01249  
24      49.26        (0.02000     0.94001        5.65865        0.00024        5.65865        5.65158  
25      48.28        (0.02000     0.94001        5.31898        0.00022        5.31898        5.31233  
26      47.31        (0.02000     0.94001        4.99970        0.00021        4.99970        4.99345  
27      46.37        (0.02000     0.94001        4.69958        0.00020        4.69958        4.69371  
28      45.44        (0.02000     0.94001        4.41748        0.00019        4.41748        4.41196  
29      44.53        (0.02000     0.94001        4.15232        0.00018        4.15232        4.14713  
30      43.64        (0.02000     0.94001        3.90307        0.00016        3.90307        3.89819  

 

Cumulative Index Return    -45.45%
Return on Securities**    -84.41%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

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Table of Contents

Hypothetical Examples

 

 

Example 4 — The level of the Index decreases at a rate of 5% per day for the first 25 days and then increases at a rate of 30% per day for the following 5 days.

Assumptions:

 

Annual Tracking Fee:*    1.45%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

 

  

 

     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.45%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      76.00        (0.05000     0.85001        21.24933        0.00099        21.24933        21.22277  
2      72.20        (0.05000     0.85001        18.06137        0.00084        18.06137        18.03879  
3      68.59        (0.05000     0.85001        15.35168        0.00072        15.35168        15.33249  
4      65.16        (0.05000     0.85001        13.04852        0.00061        13.04852        13.03221  
5      61.90        (0.05000     0.85001        11.09089        0.00052        11.09089        11.07703  
6      58.81        (0.05000     0.85001        9.42696        0.00044        9.42696        9.41518  
7      55.87        (0.05000     0.85001        8.01267        0.00037        8.01267        8.00265  
8      53.07        (0.05000     0.85001        6.81055        0.00032        6.81055        6.80204  
9      50.42        (0.05000     0.85001        5.78879        0.00027        5.78879        5.78155  
10      47.90        (0.05000     0.85001        4.92032        0.00023        4.92032        4.91417  
11      45.50        (0.05000     0.85001        4.18214        0.00020        4.18214        4.17691  
12      43.23        (0.05000     0.85001        3.55471        0.00017        3.55471        3.55026  
13      41.07        (0.05000     0.85001        3.02140        0.00014        3.02140        3.01763  
14      39.01        (0.05000     0.85001        2.56811        0.00012        2.56811        2.56490  
15      37.06        (0.05000     0.85001        2.18283        0.00010        2.18283        2.18010  
16      35.21        (0.05000     0.85001        1.85535        0.00009        1.85535        1.85303  
17      33.45        (0.05000     0.85001        1.57699        0.00007        1.57699        1.57502  
18      31.78        (0.05000     0.85001        1.34040        0.00006        1.34040        1.33873  
19      30.19        (0.05000     0.85001        1.13931        0.00005        1.13931        1.13788  
20      28.68        (0.05000     0.85001        0.96838        0.00005        0.96838        0.96717  
21      27.24        (0.05000     0.85001        0.82310        0.00004        0.82310        0.82207  
22      25.88        (0.05000     0.85001        0.69961        0.00003        0.69961        0.69874  
23      24.59        (0.05000     0.85001        0.59465        0.00003        0.59465        0.59391  
24      23.36        (0.05000     0.85001        0.50544        0.00002        0.50544        0.50481  
25      22.19        (0.05000     0.85001        0.42961        0.00002        0.42961        0.42907  
26      28.85        0.30000       1.90001        0.81624        0.00002        0.81624        0.81522  
27      37.50        0.30000       1.90001        1.55084        0.00003        1.55084        1.54890  
28      48.75        0.30000       1.90001        2.94656        0.00006        2.94656        2.94288  
29      63.38        0.30000       1.90001        5.59838        0.00012        5.59838        5.59138  
30      82.39        0.30000       1.90001        10.63678        0.00022        10.63678        10.62348  

 

Cumulative Index Return      2.99%
Return on Securities**   -57.51%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-26


Table of Contents

Hypothetical Examples

 

 

Example 5 — Deleveraging Event*

 

Previous Current Principal Amount      25.00        25.00  
Previous Index Closing Level      100.00        100.00  
Index Rebalancing Level      75.00        75.00  
Index Closing Level on date of Deleveraging Event      70.00        90.00  
Leverage Amount      3.00        3.00  
Ending Current Principal Amount on date of Deleveraging Event      5.83        7.50  
Hypothetical Ending Current Principal Amount If Securities Were Not Deleveraged Intraday      2.50        17.50  

 

 

*

Assumes no Daily Accrual or Annual Tracking Fee; for illustration purposes only.

Example 6 — Call Measurement Amount*

 

Call Measurement Period Day

   Current Principal Amount      Index Exposure      Notional Cash Amount      Index Factor  
0      100.00           
1      103.00        82.40        20.60        1.03  
2      105.47        63.65        41.82        1.03  
3      107.38        43.71        63.67        1.03  
4      108.69        22.51        86.18        1.03  
5      109.37        0.00        109.37        1.03  

 

 

*

Assumes no Daily Accrual or Annual Tracking Fee; for illustration purposes only.

 

S-27


Table of Contents

Hypothetical Examples

 

 

3X Inverse Securities

Example 1 — The level of the Index increases at a rate of 2% per day for one month.

Assumptions:

 

Annual Tracking Fee:*    1.85%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
     Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C      D      F      G      I      J  

                                             

                     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
     1 + Daily
Accrual +
(-3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.85%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00              25.00000           25.00000     
1      81.60        0.02000        0.94001        23.49906        0.00127        23.49906        23.46969  
2      83.23        0.02000        0.94001        22.08823        0.00119        22.08823        22.06062  
3      84.90        0.02000        0.94001        20.76211        0.00112        20.76211        20.73615  
4      86.59        0.02000        0.94001        19.51560        0.00105        19.51560        19.49120  
5      88.33        0.02000        0.94001        18.34393        0.00099        18.34393        18.32100  
6      90.09        0.02000        0.94001        17.24260        0.00093        17.24260        17.22105  
7      91.89        0.02000        0.94001        16.20740        0.00087        16.20740        16.18714  
8      93.73        0.02000        0.94001        15.23434        0.00082        15.23434        15.21530  
9      95.61        0.02000        0.94001        14.31971        0.00077        14.31971        14.30181  
10      97.52        0.02000        0.94001        13.45999        0.00073        13.45999        13.44316  
11      99.47        0.02000        0.94001        12.65188        0.00068        12.65188        12.63607  
12      101.46        0.02000        0.94001        11.89229        0.00064        11.89229        11.87743  
13      103.49        0.02000        0.94001        11.17831        0.00060        11.17831        11.16434  
14      105.56        0.02000        0.94001        10.50719        0.00057        10.50719        10.49406  
15      107.67        0.02000        0.94001        9.87636        0.00053        9.87636        9.86402  
16      109.82        0.02000        0.94001        9.28341        0.00050        9.28341        9.27181  
17      112.02        0.02000        0.94001        8.72606        0.00047        8.72606        8.71515  
18      114.26        0.02000        0.94001        8.20216        0.00044        8.20216        8.19191  
19      116.54        0.02000        0.94001        7.70973        0.00042        7.70973        7.70009  
20      118.88        0.02000        0.94001        7.24685        0.00039        7.24685        7.23779  
21      121.25        0.02000        0.94001        6.81177        0.00037        6.81177        6.80325  
22      123.68        0.02000        0.94001        6.40281        0.00035        6.40281        6.39480  
23      126.15        0.02000        0.94001        6.01840        0.00032        6.01840        6.01087  
24      128.67        0.02000        0.94001        5.65707        0.00031        5.65707        5.64999  
25      131.25        0.02000        0.94001        5.31743        0.00029        5.31743        5.31078  
26      133.87        0.02000        0.94001        4.99818        0.00027        4.99818        4.99194  
27      136.55        0.02000        0.94001        4.69810        0.00025        4.69810        4.69223  
28      139.28        0.02000        0.94001        4.41604        0.00024        4.41604        4.41052  
29      142.07        0.02000        0.94001        4.15091        0.00022        4.15091        4.14572  
30      144.91        0.02000        0.94001        3.90170        0.00021        3.90170        3.89682  

 

Cumulative Index Return     81.14%
Return on Securities**    -84.41%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-28


Table of Contents

Hypothetical Examples

 

 

Example 2 — The level of the Index increases at a rate of 1% and decreases at a rate of 1% on alternating days for one month.

Assumptions:

 

Annual Tracking Fee:*    1.85%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

 

  

 

     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(-3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.85%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      80.80        0.01000       0.97001        24.24906        0.00127        24.24906        24.21875  
2      79.99        (0.01000     1.03001        24.97562        0.00123        24.97562        24.94440  
3      80.79        0.01000       0.97001        24.22541        0.00127        24.22541        24.19513  
4      79.98        (0.01000     1.03001        24.95126        0.00123        24.95126        24.92007  
5      80.78        0.01000       0.97001        24.20178        0.00126        24.20178        24.17153  
6      79.98        (0.01000     1.03001        24.92693        0.00123        24.92693        24.89577  
7      80.78        0.01000       0.97001        24.17818        0.00126        24.17818        24.14796  
8      79.97        (0.01000     1.03001        24.90262        0.00123        24.90262        24.87149  
9      80.77        0.01000       0.97001        24.15460        0.00126        24.15460        24.12441  
10      79.96        (0.01000     1.03001        24.87833        0.00122        24.87833        24.84723  
11      80.76        0.01000       0.97001        24.13105        0.00126        24.13105        24.10088  
12      79.95        (0.01000     1.03001        24.85407        0.00122        24.85407        24.82300  
13      80.75        0.01000       0.97001        24.10751        0.00126        24.10751        24.07738  
14      79.94        (0.01000     1.03001        24.82983        0.00122        24.82983        24.79879  
15      80.74        0.01000       0.97001        24.08400        0.00126        24.08400        24.05390  
16      79.94        (0.01000     1.03001        24.80561        0.00122        24.80561        24.77461  
17      80.74        0.01000       0.97001        24.06051        0.00126        24.06051        24.03044  
18      79.93        (0.01000     1.03001        24.78142        0.00122        24.78142        24.75045  
19      80.73        0.01000       0.97001        24.03705        0.00126        24.03705        24.00700  
20      79.92        (0.01000     1.03001        24.75725        0.00122        24.75725        24.72631  
21      80.72        0.01000       0.97001        24.01361        0.00125        24.01361        23.98359  
22      79.91        (0.01000     1.03001        24.73311        0.00122        24.73311        24.70219  
23      80.71        0.01000       0.97001        23.99019        0.00125        23.99019        23.96020  
24      79.90        (0.01000     1.03001        24.70899        0.00122        24.70899        24.67810  
25      80.70        0.01000       0.97001        23.96679        0.00125        23.96679        23.93683  
26      79.90        (0.01000     1.03001        24.68489        0.00121        24.68489        24.65404  
27      80.70        0.01000       0.97001        23.94342        0.00125        23.94342        23.91349  
28      79.89        (0.01000     1.03001        24.66082        0.00121        24.66082        24.62999  
29      80.69        0.01000       0.97001        23.92006        0.00125        23.92006        23.89016  
30      79.88        (0.01000     1.03001        24.63677        0.00121        24.63677        24.60597  

 

Cumulative Index Return    -0.15%
Return on Securities**    -1.58%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-29


Table of Contents

Hypothetical Examples

 

 

Example 3 — The level of the Index decreases at a rate of 1% per day for one month.

Assumptions:

 

Annual Tracking Fee:*    1.85%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

 

  

 

     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(-3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.85%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      79.20        (0.01000     1.03001        25.74906        0.00127        25.74906        25.71687  
2      78.41        (0.01000     1.03001        26.52056        0.00131        26.52056        26.48741  
3      77.62        (0.01000     1.03001        27.31518        0.00134        27.31518        27.28104  
4      76.85        (0.01000     1.03001        28.13361        0.00138        28.13361        28.09844  
5      76.08        (0.01000     1.03001        28.97656        0.00143        28.97656        28.94034  
6      75.32        (0.01000     1.03001        29.84477        0.00147        29.84477        29.80746  
7      74.57        (0.01000     1.03001        30.73899        0.00151        30.73899        30.70056  
8      73.82        (0.01000     1.03001        31.66000        0.00156        31.66000        31.62042  
9      73.08        (0.01000     1.03001        32.60861        0.00160        32.60861        32.56785  
10      72.35        (0.01000     1.03001        33.58564        0.00165        33.58564        33.54366  
11      71.63        (0.01000     1.03001        34.59194        0.00170        34.59194        34.54870  
12      70.91        (0.01000     1.03001        35.62840        0.00175        35.62840        35.58386  
13      70.20        (0.01000     1.03001        36.69591        0.00181        36.69591        36.65004  
14      69.50        (0.01000     1.03001        37.79541        0.00186        37.79541        37.74816  
15      68.80        (0.01000     1.03001        38.92785        0.00192        38.92785        38.87919  
16      68.12        (0.01000     1.03001        40.09422        0.00197        40.09422        40.04410  
17      67.44        (0.01000     1.03001        41.29554        0.00203        41.29554        41.24392  
18      66.76        (0.01000     1.03001        42.53285        0.00209        42.53285        42.47968  
19      66.09        (0.01000     1.03001        43.80723        0.00216        43.80723        43.75248  
20      65.43        (0.01000     1.03001        45.11980        0.00222        45.11980        45.06340  
21      64.78        (0.01000     1.03001        46.47170        0.00229        46.47170        46.41361  
22      64.13        (0.01000     1.03001        47.86410        0.00236        47.86410        47.80427  
23      63.49        (0.01000     1.03001        49.29822        0.00243        49.29822        49.23660  
24      62.85        (0.01000     1.03001        50.77532        0.00250        50.77532        50.71185  
25      62.23        (0.01000     1.03001        52.29666        0.00257        52.29666        52.23129  
26      61.60        (0.01000     1.03001        53.86360        0.00265        53.86360        53.79627  
27      60.99        (0.01000     1.03001        55.47748        0.00273        55.47748        55.40813  
28      60.38        (0.01000     1.03001        57.13971        0.00281        57.13971        57.06829  
29      59.77        (0.01000     1.03001        58.85176        0.00290        58.85176        58.77819  
30      59.18        (0.01000     1.03001        60.61509        0.00298        60.61509        60.53933  

 

Cumulative Index Return     -26.03%
Return on Securities**    142.16%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-30


Table of Contents

Hypothetical Examples

 

 

Example 4 — The level of the Index increases at a rate of 5% per day for the first 25 days and then decreases at a rate of 30% per day for the following 5 days.

Assumptions:

 

Annual Tracking Fee:*    1.85%
Stated Principal Amount:    $25.00
Initial Index Level:    80
Redemption Fee Amount:    0.1250%
T-Bill Rate    0.47%

 

Day End

   Index Closing
Level
     Index
Performance
Ratio
    Index
Factor
     Current
Principal
Amount
     Annual
Tracking Fee
     Cash
Settlement
Amount
     Redemption
Amount**
 

A

   B      C     D      F      G      I      J  

 

  

 

     (Index Closing
Level / Index
Closing Level on
previous Index
Business Day) -1
    1 + Daily
Accrual +
(-3 x C)
     (previous
Current
Principal
Amount

x D - G)
     (1.85%/365)
x previous
Current
Principal
Amount
     (F)      (F -
Redemption
Fee Amount)
 
0      80.00             25.00000           25.00000     
1      84.00        0.05000       0.85001        21.24906        0.00127        21.24906        21.22250  
2      88.20        0.05000       0.85001        18.06090        0.00108        18.06090        18.03832  
3      92.61        0.05000       0.85001        15.35109        0.00092        15.35109        15.33190  
4      97.24        0.05000       0.85001        13.04785        0.00078        13.04785        13.03154  
5      102.10        0.05000       0.85001        11.09018        0.00066        11.09018        11.07632  
6      107.21        0.05000       0.85001        9.42623        0.00056        9.42623        9.41445  
7      112.57        0.05000       0.85001        8.01194        0.00048        8.01194        8.00193  
8      118.20        0.05000       0.85001        6.80985        0.00041        6.80985        6.80134  
9      124.11        0.05000       0.85001        5.78812        0.00035        5.78812        5.78088  
10      130.31        0.05000       0.85001        4.91968        0.00029        4.91968        4.91353  
11      136.83        0.05000       0.85001        4.18154        0.00025        4.18154        4.17632  
12      143.67        0.05000       0.85001        3.55416        0.00021        3.55416        3.54971  
13      150.85        0.05000       0.85001        3.02090        0.00018        3.02090        3.01712  
14      158.39        0.05000       0.85001        2.56765        0.00015        2.56765        2.56444  
15      166.31        0.05000       0.85001        2.18241        0.00013        2.18241        2.17968  
16      174.63        0.05000       0.85001        1.85496        0.00011        1.85496        1.85264  
17      183.36        0.05000       0.85001        1.57665        0.00009        1.57665        1.57468  
18      192.53        0.05000       0.85001        1.34009        0.00008        1.34009        1.33842  
19      202.16        0.05000       0.85001        1.13903        0.00007        1.13903        1.13760  
20      212.26        0.05000       0.85001        0.96813        0.00006        0.96813        0.96692  
21      222.88        0.05000       0.85001        0.82287        0.00005        0.82287        0.82185  
22      234.02        0.05000       0.85001        0.69941        0.00004        0.69941        0.69854  
23      245.72        0.05000       0.85001        0.59447        0.00004        0.59447        0.59373  
24      258.01        0.05000       0.85001        0.50528        0.00003        0.50528        0.50465  
25      270.91        0.05000       0.85001        0.42947        0.00003        0.42947        0.42893  
26      189.64        (0.30000     1.90001        0.81598        0.00002        0.81598        0.81496  
27      132.75        (0.30000     1.90001        1.55032        0.00004        1.55032        1.54839  
28      92.92        (0.30000     1.90001        2.94556        0.00008        2.94556        2.94188  
29      65.05        (0.30000     1.90001        5.59645        0.00015        5.59645        5.58945  
30      45.53        (0.30000     1.90001        10.63304        0.00028        10.63304        10.61975  

 

Cumulative Index Return    -43.09%
Return on Securities**    -57.52%

 

 

*

The Annual Tracking Fee is calculated on an actual/365 basis. The hypothetical examples above assume no weekends.

**

Assumes that the Securities were redeemed.

 

S-31


Table of Contents

Hypothetical Examples

 

 

Example 5 — Deleveraging Event*

 

Previous Current Principal Amount      25.00  <