424B3 1 ubsag-424b3.htm 424B3 ubsag-424b3.htm

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-253432

 

Amendment No. 1 dated September 15, 2021 to+

PROSPECTUS SUPPLEMENT dated September 14, 2021

(To Prospectus dated February 24, 2021)

 

$25,000,000 ETRACS 2x Leveraged MSCI USA ESG Focus TR Index ETN due September 15, 2061

The ETRACS 2x Leveraged MSCI USA ESG Focus TR Index ETN due September 15, 2061 (the “Securities”) are senior unsecured debt securities issued by UBS AG (“UBS”) that provide 2 times leveraged long exposure to the compounded quarterly performance of the MSCI USA ESG Focus Index Gross Total Return USD (the “Index”), reduced by the Accrued Fees (as described below). The Index is the total return version of the MSCI USA ESG Focus Index. The Index is designed to maximize exposure to positive environmental, social and governance (“ESG”) factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index.

 

The Securities do not guarantee any return of your initial investment and do not pay any coupon. You will lose some or all of your principal at maturity or upon early redemption or call if the compounded leveraged quarterly return of the Index is insufficient to offset the combined negative effect of the Accrued Fees and, if applicable, the Redemption Fee Amount. The leverage on the Securities may be reset more frequently than quarterly and may be permanently reduced to zero in certain events, and you will lose your entire investment if their intraday or closing indicative value declines to or below zero. Any payment on the Securities at maturity or upon early redemption or call is subject to the creditworthiness of UBS and is not guaranteed by any third party.

The Securities are intended to be trading tools for sophisticated investors as part of an overall diversified portfolio. They are designed to achieve their stated investment objectives on a quarterly, or in certain circumstances, shorter basis. Their performance over longer periods of time can differ significantly from their stated objectives. The Securities are riskier than securities that have intermediate or long-term investment objectives, and may not be suitable for investors 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 quarterly compounding leveraged long investment results. 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.

Although we have listed the Securities on NYSE Arca, there may not be an active trading market for the Securities.

General Considerations for the Securities

 

The Securities are senior unsecured debt securities issued by UBS, maturing on September 15, 2061.

 

The initial issuance of the Securities will trade on September 14, 2021 and settle on September 17, 2021.

 

The Securities do not pay any coupon and do not guarantee any return of principal.

 

The Securities are intended to provide 2 times leveraged long exposure to the compounded quarterly performance of the Index; however, the leverage may be reset more frequently if Loss Rebalancing Events occur and the Securities will become unleveraged if a Permanent Deleveraging Event occurs with respect to the Index. You should expect the trading price and Current Principal Amount of the Securities to be volatile.

 

The Securities may be accelerated, and you will not receive any payment, if their Current Indicative Value or Closing Indicative Value on any Index Business Day (other than an Excluded Day) is less than or equal to zero.

 

An Accrued Tracking Fee and an Accrued Financing Fee are deducted from the Closing Indicative Value daily.

 

You may receive a cash payment at maturity or upon exercise by UBS of its call right with respect to your Securities based on the Closing Indicative Value of the Securities at the end of the applicable Measurement Period. However, any such payment may be zero.

 

You may exercise your right to early redemption for 50,000 or more Securities if you comply with the required procedures described herein. You will receive a cash payment upon early redemption based on the Closing Indicative Value on the Redemption Valuation Date, less the Redemption Fee Amount.

 

The Index is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index.

 

The Index is a total return index and the Index level reflects the notional reinvestment of the cash distributions from its constituent securities.

See “Risk Factors” beginning on page S-31 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. An investment in the Securities carries risks that are very different from the risk profile of a bank deposit placed with UBS or its affiliates. The Securities have different yield, liquidity and risk profiles and will not benefit from any protection provided to deposits.

 

UBS Investment Bank

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Prospectus Supplement dated September 15, 2021


 

The principal terms of the Securities are as follows:

Issuer:

 

UBS AG (London Branch)

 

 

 

Series:

 

Medium-Term Notes, Series B

 

 

 

Initial Trade Date:

 

September 14, 2021

 

 

 

Initial Settlement Date:

 

September 17, 2021

 

 

 

Term:

 

40 years, subject to your right to require UBS to redeem your Securities on any Redemption Date, the UBS Call Right and Automatic Acceleration Upon Zero Value Event, each as described below.

 

 

 

Maturity Date:

 

September 15, 2061, subject to adjustment

 

 

 

Stated Principal Amount:

 

$25.00 per Security.

If the Securities undergo a split or reverse split, the Stated Principal Amount will be adjusted accordingly.

 

 

 

Underlying Index:

 

The return on the securities is linked to the performance of the MSCI USA ESG Focus Index Gross Total Return USD (Bloomberg: “M2USESG”). The Index is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index. We refer to the companies included in the Index as the “Index Constituent Securities”. The Index is developed and calculated by MSCI. The Index is a total return index and the Index level reflects the notional reinvestment of the cash distributions from its constituent securities. See “MSCI USA ESG Focus Index Gross Total Return USD” beginning on page S-56.

 

 

 

Closing Indicative Value:

 

The Closing Indicative Value represents the dollar value per Security that an investor would receive on any day if it redeemed the Security that day (without giving effect to any Redemption Fee Amount). The “Closing Indicative Value” per Security, will be calculated as follows:

(1)    On the Initial Trade Date, $25.00 per Security.

(2)    On any other calendar day, prior to the first day of a Measurement Period, an amount per Security equal to:

(Current Principal Amount on the immediately preceding calendar day × Index Factor) – Accrued Fees

(3)    From and including the first day of a Measurement Period, an amount per Security equal to:

(Current Principal Amount on the calendar day immediately preceding the first day of the Measurement Period × Index Factor × Residual Factor) – Accrued Fees + Measurement Period Cash Amount

However, if, on any day during a Measurement Period, the Current Indicative Value or the Closing Indicative Value is less than or equal to the Measurement Period Cash Amount from the immediately preceding calendar day, the Closing Indicative Value for that day and all subsequent days will be fixed to be equal to the Measurement Period Cash Amount from the immediately preceding calendar day.

(4)    The minimum value of the Closing Indicative Value on any calendar day will be zero.

If a Zero Value Event occurs for the Securities, the Closing Indicative Value of the Securities will be equal to zero on the day it occurs and on all future calendar days and you will lose your entire investment. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event. See “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

 

 

 

 

 

The actual trading price of the Securities in the secondary market may vary significantly from their Closing Indicative Value.

If the Securities undergo a split or reverse split, the Closing Indicative Value will be adjusted accordingly.

 

 

 

Current Indicative Value:

 

The “Current Indicative Value”, as determined by the Security Calculation Agent, which we sometimes refer to interchangeably as the “intraday indicative value”, means the Closing Indicative Value per Security calculated on an intraday basis on any Index Business Day. For the purposes of calculating the Current Indicative Value, the Index Factor will be determined using the Intraday Index Value. The minimum value of the Current Indicative Value on any calendar day will be zero.

From and including the first day of a Measurement Period, the Current Indicative Value will be calculated using (i) the Measurement Period Cash Amount from the immediately preceding calendar day and (ii) the Residual Factor on the immediately preceding calendar day.

However, if, on any day during a Measurement Period, the Current Indicative Value or the Closing Indicative Value is less than or equal to the Measurement Period Cash Amount from the immediately preceding calendar day, the Current Indicative Value for the remainder of that day and all subsequent days will be fixed to be equal to the Measurement Period Cash Amount from the immediately preceding calendar day.

If a Zero Value Event occurs for the Securities, the Current Indicative Value (intraday indicative value) for the Securities will be equal to zero for the remainder of the day it occurs and all future calendar days and you will lose your entire investment. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event. See “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

 

 

 

 

 

The actual trading price of the Securities in the secondary market may vary significantly from their Current Indicative Value (intraday indicative value).

If the Securities undergo a split or reverse split, the Current Indicative Value (intraday indicative value) will be adjusted accordingly.

 

 

 

Listing:

 

The Securities are listed on NYSE Arca under the symbol “ESUS”. As long as an active secondary market exists, we expect that investors will purchase and sell the Securities primarily in this secondary market.

 

Indicative Value Symbol of the Securities:

 

The Current Indicative Value (or intraday indicative value) of the Securities will be published on each Index Business Day under the ticker symbols:

 

M2USESG <INDEX> (Bloomberg); ^M2USESG (Yahoo! Finance).

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Current Principal Amount:

 

The Current Principal Amount represents the unleveraged notional investment in the Index Constituent Securities per Security at the close of trading on any Reset Valuation Date. The notional financing amount per Security in order to generate the leveraged returns would approximately equal the Current Principal Amount at the close of trading on any Reset Valuation Date. If a Permanent Deleveraging Event occurs, the leverage of your Securities will be permanently reset to 1.0 and the notional financing amount will be equal to zero for the remaining term of the Securities. If a Zero Value Event occurs prior to your Securities permanently resetting to 1.0 at the end of the Second Permanent Deleveraging Valuation Date, then your Securities will be accelerated and you will not receive any payment on your Securities. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event. See “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

The “Current Principal Amount” per Security, will be calculated as follows:

(1)    From and including the Initial Trade Date to and excluding the first Reset Valuation Date, $25.00 per Security.

(2)    At the close of trading on each Reset Valuation Date after the Initial Trade Date, the Current Principal Amount of the Securities will be reset as follows:

New Current Principal Amount = (Current Principal Amount on immediately preceding calendar day × Index Factor) – Accrued Fees

The Current Principal Amount will not change until the first Reset Valuation Date.

If a day that would otherwise be a Reset Valuation Date occurs on or after the first day of a Measurement Period, such day will not be a valid Reset Valuation Date.

If the Securities undergo a split or reverse split, the Current Principal Amount will be adjusted accordingly.

 

 

 

Leverage Factor:

 

The “Leverage Factor” is:

(1)    Until the occurrence of a Permanent Deleveraging Event and close of trading on the Second Permanent Deleveraging Valuation Date, the Leverage Factor will equal 2.0.

(2)    If a Permanent Deleveraging Event occurs, then on any calendar day following the Second Permanent Deleveraging Valuation Date, the Leverage Factor will equal 1.0.

 

 

 

Index Factor:

 

The Index Factor represents the leveraged percentage change in the Index level since the Last Reset Index Closing Level. The Index Factor times the applicable Current Principal Amount on the preceding calendar day represents the current value of the unleveraged notional amount per Security that is deemed invested in the Index on any calendar day. This does not reflect the Redemption Amount that an investor would receive upon early redemption on such calendar day.

The “Index Factor” is:

1 + (Leverage Factor × Index Performance Ratio)

 

 

 

Index Performance Ratio:

 

The “Index Performance Ratio” will be calculated as follows:

Index Closing Level – Last Reset Index Closing Level
Last Reset Index Closing Level

On any calendar day that is not an Index Business Day, the Index Closing Level will be equal to the Index Closing Level on the Index Business Day immediately preceding such calendar day.

 

Reset Valuation Date:

 

A Reset Valuation Date represents a day when the Current Principal Amount is reset at the close of trading.

The “Reset Valuation Date” means:

(1)    any calendar day up to and including the Second Permanent Deleveraging Valuation Date, that is either: (i) the Initial Trade Date, (ii) a Quarterly Reset Valuation Date, (iii) a Loss Rebalancing Valuation Date, (iv) the First Permanent Deleveraging Valuation Date, or (v) the Second Permanent Deleveraging Valuation Date; and

(2)    any calendar day following the Second Permanent Deleveraging Valuation Date.

 

 

 

 

 

The definition of each valuation date is set forth below.

If a day that would otherwise be a Reset Valuation Date occurs on or after the first day of a Measurement Period, such day will not be a valid Reset Valuation Date and the Last Reset Index Closing Level will remain the same.

 

 

 

Last Reset Index Closing Level:

 

On any calendar day, the “Last Reset Index Closing Level” is the Index Closing Level on the most recent Reset Valuation Date.

 

 

 

 

 

The initial Last Reset Index Closing Level is the Index Closing Level on the Initial Trade Date as reported by Bloomberg L.P. (“Bloomberg”) and Reuters. 4850.61 is the initial Last Reset Index Closing Level measured on September 14, 2021 (the Initial Trade Date).

 

Accrued Fees:

 

“Accrued Fees” as of any date of determination means:

Accrued Tracking Fee + Accrued Financing Fee

If the Securities undergo a split or reverse split, the Accrued Fees will be adjusted accordingly.

 

 

 

Daily Tracking Fee:

 

The Daily Tracking Fee represents the investor fees calculated each day on the current value of the unleveraged notional amount invested in the Index per Security. These charges accrue and compound during the applicable period, and will reduce any amount you are entitled to receive at maturity, early redemption or call.

The “Daily Tracking Fee” per Security, will be calculated as follows:

(1)    On the Initial Trade Date, zero per Security.

(2)    The Daily Tracking Fee on any subsequent calendar day, is equal to:

(a) (i) 0.95% times (ii) the Current Principal Amount on the immediately preceding calendar day times (iii) the Index Factor on such calendar day times (iv) the Residual Factor on the immediately preceding calendar day, divided by (b) 365.

(3)    The minimum value of the Daily Tracking Fee on any calendar day will be zero.

If the Securities undergo a split or reverse split, the Daily Tracking Fee will be adjusted accordingly.

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Accrued Tracking Fee:

 

The “Accrued Tracking Fee” per Security will be calculated as follows:

(1)    On the Initial Trade Date, the Accrued Tracking Fee is equal to zero.

(2)    On any subsequent calendar day, the Accrued Tracking Fee is equal to:

(a) the Accrued Tracking Fee as of the immediately preceding calendar day, plus (b) the Daily Tracking Fee on such calendar day.

(3)    On the calendar day after each Reset Valuation Date, the Accrued Tracking Fee is reset to be equal to the Daily Tracking Fee on such calendar day.

 

 

 

Financing Rate:

 

The “Financing Rate” will equal the sum of (a) 1.55% and (b) SOFR on the immediately preceding U.S. Government Securities Business Day. The minimum value of SOFR (or any successor base rate, as described below) used on any calendar day will be zero. The minimum Financing Rate at any time will be 1.55%.

 

SOFR” means, with respect to any U.S. Government Securities Business Day, the daily secured overnight financing rate for such U.S. Government Securities Business Day as provided by the SOFR Administrator on the SOFR Administrator’s Website. If for any U.S. Government Securities Business Day, the SOFR in respect of that day has not been published on the SOFR Administrator’s Website by the time the Security Calculation Agent determines the Financing Rate for the immediately succeeding day and the Security Calculation Agent has not determined that SOFR has been discontinued, then the SOFR for such day will be the secured overnight financing rate as published in respect of the first preceding U.S. Government Securities Business Day for which the secured overnight financing rate was published on the SOFR Administrator’s Website.

 

SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of SOFR).

 

SOFR Administrator’s Website” means the website of the SOFR Administrator, currently at http://www.newyorkfed.org, or any successor source.

 

See “Specific Terms of the Securities — Cash Settlement Amount at Maturity” beginning on page S-61 for provisions relating to determining a successor base rate if the Security Calculation Agent determines that SOFR (or a successor base rate) has been discontinued.

 

 

 

 

 

For example, 0.05% was the SOFR rate on September 10, 2021, which was a U.S. Government Securities Business Day. The Financing Rate on September 13, 2021 would therefore have been equal to 1.55% + 0.05%, or 1.60%.

 

Daily Financing Fee:

 

The Daily Financing Fee seeks to compensate UBS for providing investors with a leveraged participation in movements of the Index and is intended to approximate the financing costs that investors may have otherwise incurred had they sought to borrow funds at a similar rate from a third party to invest in the Index. These charges accrue and compound during the applicable period, and will reduce any amount that you will be entitled to receive at maturity or upon early redemption or call.

 

The “Daily Financing Fee” per Security will be calculated as follows:

(1)    On the Initial Trade Date, the Daily Financing Fee is equal to zero.

(2)    The Daily Financing Fee on any subsequent calendar day is equal to:

(a)    (i) the Financing Rate, on such calendar day times (ii) the Current Principal Amount on the immediately preceding calendar day times (iii) the Residual Factor on the immediately preceding calendar day, divided by

(b)    360.

(3)    If a Permanent Deleveraging Event occurs, then on any calendar day following the Second Permanent Deleveraging Valuation Date, the Daily Financing Fee will be equal to zero.

(4)    The minimum value of the Daily Financing Fee on any calendar day will be zero.

If the Securities undergo a split or reverse split, the Daily Financing Fee will be adjusted accordingly.

 

 

 

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Accrued Financing Fee:

 

The “Accrued Financing Fee” per Security will be calculated as follows:

(1)    On the Initial Trade Date, the Accrued Financing Fee is equal to zero.

(2)    On any subsequent calendar day, the Accrued Financing Fee is equal to:

(a)    the Accrued Financing Fee as of the immediately preceding calendar day, plus (b) the Daily Financing Fee on such calendar day.

(3)    On the calendar day after each Reset Valuation Date, the Accrued Financing Fee is reset to be equal to the Daily Financing Fee on such calendar day.

(4)    If a Permanent Deleveraging Event occurs, then on any calendar day following the Second Permanent Deleveraging Valuation Date, the Accrued Financing Fee will be equal to zero.

 

 

 

Quarterly Reset Valuation Date:

 

The “Quarterly Reset Valuation Date” is the second Wednesday of January, April, July and October of each calendar year during the term of the Securities (other than an Excluded Day, as defined below), subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event” beginning on page S-75.

As used above, an “Excluded Day” means (i) the Index Business Day immediately preceding the first day of a Measurement Period and any calendar day thereafter and (ii) any calendar day after the Second Permanent Deleveraging Valuation Date.

 

 

 

Loss Rebalancing Event:

 

A Loss Rebalancing Event will have the effect of deleveraging your Securities with the aim of resetting the then-current leverage to approximately 2.0. This means that after a Loss Rebalancing Event for the Securities, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities relative to before the occurrence of the Loss Rebalancing Event.

A “Loss Rebalancing Event” occurs if, at any time, the Intraday Index Value on such Index Business Day (other than an Excluded Day, as defined below) decreases by 20% or more in value from the previous Last Reset Index Closing Level.

As used above, an “Excluded Day” means (i) the Index Business Day immediately preceding any Quarterly Reset Valuation Date, if a Loss Rebalancing Event occurs after 3:15 p.m. on such day, (ii) any Quarterly Reset Valuation Date, (iii) any Loss Rebalancing Valuation Date, (iv) the Index Business Day immediately preceding the first day of a Measurement Period, if a Loss Rebalancing Event occurs after 3:15 p.m. on such day, (v) any calendar day from and including the first day of a Measurement Period, (vi) the First or Second Permanent Deleveraging Valuation Dates, (vii) any calendar day after the Second Permanent Deleveraging Valuation Date, and (viii) any calendar day on or after which a Zero Value Event occurs. Unless otherwise indicated, all references to time are to New York City time.

Loss Rebalancing Events may occur multiple times over the term of the Securities and may occur multiple times during a single calendar quarter. See “Specific Terms of the Securities — Loss Rebalancing Events” beginning on page S-73.

 

 

 

Loss Rebalancing Valuation Date:

 

The “Loss Rebalancing Valuation Date” means:

(1)    if a Loss Rebalancing Event occurs at or prior to 3:15 p.m. on an Index Business Day, the day that such Loss Rebalancing Event occurs, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event” beginning on page S-75; and

(2)    if a Loss Rebalancing Event occurs after 3:15 p.m. on an Index Business Day, the first Index Business Day following the occurrence of such Loss Rebalancing Event, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event.”

 

 

 

Permanent Deleveraging Event:

 

A Permanent Deleveraging Event will have the effect of deleveraging your Securities, with the aim of permanently resetting the then-current leverage to 1.0 over two Index Business Days. The leverage at the end of the First Permanent Deleveraging Valuation Date is reset to approximately 2.0 and the leverage at the end of the Second Permanent Deleveraging Valuation Date is reset to 1.0. This means that after a Permanent Deleveraging Event, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities than it would have otherwise had prior to the occurrence of the Permanent Deleveraging Event.

 

 

 

 

 

A Permanent Deleveraging Event can occur only following a Loss Rebalancing Event and prior to the completion of the associated leverage reset to 2.0 at the close of trading on the day that such Loss Rebalancing Event has occurred (or if such event occurs after 3:15 p.m., on the Index Business Day following the day on which such Loss Rebalancing Event has occurred), as described under “Permanent Deleveraging Valuation Dates” below.

A “Permanent Deleveraging Event” occurs if, at any time on any Index Business Day (other than an Excluded Day, as defined below), the Intraday Index Value decreases by 40% or more from the Last Reset Index Closing Level. If a Permanent Deleveraging Event occurs, the Current Principal Amount of the Securities will be reset over two Index Business Days.

As used above, an “Excluded Day” means (i) the First or Second Permanent Deleveraging Valuation Dates, (ii) any calendar day after the Second Permanent Deleveraging Valuation Date, (iii) any calendar day on or after which a Zero Value Event occurs, (iv) the day which is two Index Business Days prior to the first day of a Measurement Period, if a Permanent Deleveraging Event occurs after 3:15 p.m. on such day, and (v) any calendar day from and including the Index Business Day immediately preceding the first day of a Measurement Period.

See “Specific Terms of the Securities — Permanent Deleveraging Event” beginning on page S-73

 

 

 

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Permanent Deleveraging Valuation Dates:

 

Permanent Deleveraging Valuation Dates” means the First Permanent Deleveraging Valuation Date and the Second Permanent Deleveraging Valuation Date, each as defined below:

(1)    The “First Permanent Deleveraging Valuation Date” means:

(a)    Any Index Business Day that otherwise would have been a Loss Rebalancing Valuation Date, but on which a Permanent Deleveraging Event has occurred, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event” beginning on page S-75].

(b)    If a Permanent Deleveraging Event occurs after 3:15 p.m. on any Index Business Day which would not otherwise have been a Loss Rebalancing Valuation Date, then the first Index Business Day following the occurrence of such Permanent Deleveraging Event, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event.”

The leverage of your Securities will be reset to approximately 2.0 at the close of trading on the First Permanent Deleveraging Valuation Date.

(2)    The “Second Permanent Deleveraging Valuation Date” means the Index Business Day immediately following the First Permanent Deleveraging Valuation Date, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event.”

The leverage of your Securities will be reset to 1.0 at the close of trading on the Second Permanent Deleveraging Valuation Date.

 

 

 

Zero Value Event:

 

A Zero Value Event represents the first instance when the Current Indicative Value (intraday indicative value) or the Closing Indicative Value is less than or equal to zero (other than on an Excluded Day, as defined below). It will have the effect of permanently resetting the value of your Securities to zero and accelerating the Securities. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event.

A Zero Value Event can occur only if a Permanent Deleveraging Event occurs and the Current Indicative Value (intraday indicative value) or the Closing Indicative Value declines to zero before the leverage of your Securities is reset to 1.0 at the close of trading on the Index Business Day following such event (or if such event occurs after 3:15 p.m. on any Index Business Day which would not otherwise have been a Loss Rebalancing Valuation Date, the second Index Business Day following such event), as described under “Permanent Deleveraging Valuation Dates” above.

A “Zero Value Event” occurs if the Current Indicative Value (intraday indicative value) or the Closing Indicative Value on any Index Business Day (other than an Excluded Day, as defined below) is less than or equal to zero. From immediately after the Zero Value Event and on all future calendar days, the Current Indicative Value (intraday indicative value) and the Closing Indicative Value will be set equal to zero.

As used above, an “Excluded Day” means (i) any calendar day after the Second Permanent Deleveraging Valuation Date, (ii) any calendar day on or after which a Zero Value Event has already occurred, and (iii) any calendar day during or following a Measurement Period.

 

 

 

Automatic Acceleration Upon Zero Value Event:

 

The “Automatic Acceleration Upon Zero Value Event” provision provides for the automatic acceleration of all issued and outstanding Securities upon the occurrence of a Zero Value Event by way of a mandatory redemption by UBS. If this provision is triggered, your Securities will be automatically accelerated and mandatorily redeemed and you will not be entitled to receive any payment in respect of your Securities. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event.

If a Zero Value Event occurs, UBS will issue a press release shortly after the event; provided that the failure to do so shall not affect the automatic acceleration and redemption of the Securities. The Securities will be suspended from trading intraday on NYSE Arca shortly after the event occurs and trading is unlikely to resume.

 

 

 

Early Redemption; Redemption Amount:

 

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”, upon early redemption, you will receive per Security a cash payment on the relevant Redemption Date equal to:

(1)    its Closing Indicative Value, as of the Redemption Valuation Date, minus

(2)    the Redemption Fee Amount.

We refer to this cash payment as the “Redemption Amount.” If the amount so calculated is equal to or less than zero, the payment upon early redemption will be zero.

 

Redemption Fee Amount:

 

The “Redemption Fee Amount” means, as of any Redemption Valuation Date, an amount per Security equal to:

0.125% × Closing Indicative Value of the Security as of such Redemption Valuation Date

 

 

 

Payment at Maturity; Call Settlement Amount; Cash Settlement Amount:

 

Unless earlier redeemed or accelerated upon Zero Value Event, you will receive at maturity or upon UBS call a cash payment equal to its Closing Indicative Value on the last Index Business Day in the applicable Measurement Period.

We refer to the cash payment you will receive at maturity as the “Cash Settlement Amount.” If the amount so calculated is equal to or less than zero, the payment will be zero.

 

 

 

UBS Call Right:

 

On any Index 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. To exercise its Call Right, UBS must provide notice to the holders of such Securities (which may be provided via press release) not less than 18 calendar days prior to the Call Settlement Date specified by UBS in such notice. If UBS exercises this call right, you will receive a cash payment equal to the Closing Indicative Value on the last Index Business Day in the Call Measurement Period (the “Call Settlement Amount”), which will be paid on the Call Settlement Date. If such amount is equal to or less than zero, the payment will be zero.

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In the event that the Market Value of the Securities outstanding is less than $500,000,000 at the close of trading on the Index Business Day immediately preceding the date of delivery by UBS of its notice to holders of its exercise of the UBS Call Right, the Call Measurement Period will be the Call Valuation Date and will not extend for four Index Business Days. For details of the applicable Call Measurement Periods, see “Specific Terms of the Securities — UBS Call Right” beginning on page S-71.

 

 

 

Call Valuation Date:

 

The “Call Valuation Date” means the date disclosed as such by UBS in its notice of exercise of the UBS Call Right.

 

 

 

Measurement Period / Market Value:

 

The “Measurement Period” means the Final Measurement Period or, if UBS exercises its Call Right, the Call Measurement Period.

The “Final Measurement Period” means:

(1)    if the Market Value of the Securities outstanding at the close of trading on the Index Business Day immediately preceding the Calculation Date is less than $500,000,000, the Calculation Date, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event” beginning on page S-75; and

(2)    if the Market Value of the Securities outstanding at the close of trading on the Index Business Day immediately preceding the Calculation Date is equal to or greater than $500,000,000, the four Index Business Days from, and including, the Calculation Date, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event.”

The “Call Measurement Period” means:

(1)    if the Market Value of the Securities outstanding at the close of trading on the Index Business Day immediately preceding the date UBS issues a notice of exercise of its Call Right is less than $500,000,000, the Call Valuation Date, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event”; and

(2)    if the Market Value of the Securities outstanding at the close of trading on the Index Business Day immediately preceding the date UBS issues a notice of exercise of its Call Right is equal to or greater than $500,000,000, the four Index Business Days from and including the Call Valuation Date, subject to adjustment as described under “Specific Terms of the Securities — Market Disruption Event.”

In any notice to holders exercising our Call Right, we will specify how many days are included in the Call Measurement Period.

The “Market Value” of the Securities outstanding as of the close of trading on the Index Business Day immediately preceding (a) the date UBS issues its notice of exercise of the UBS Call Right or (b) the Calculation Date, will equal: (i) the Closing Indicative Value as of such Index Business Day times (ii) the number of Securities outstanding as reported by ESUSSO <Index> on Bloomberg.

 

 

 

Measurement Period Cash Amount:

 

The Measurement Period Cash Amount represents the portion of the Current Principal Amount that has been converted to cash on any given day of a Measurement Period and is no longer tracking the Index. At the close of trading of each Index Business Day during a four-day Measurement Period, approximately 25% of the Current Principal Amount on the calendar day immediately preceding the first day of the Measurement Period, will be deemed converted to cash and an applicable portion of the notional financing amount will separately be deemed converted to cash as well. After the close of trading on the final Index Business Day of a four-day Measurement Period, the Measurement Period Cash Amount will represent the averaged value of the Current Principal Amount that was deemed converted to cash across the four-days of such Measurement Period. In case of a one‑day Measurement Period, approximately 100% of the Current Principal Amount will be deemed converted to cash and an applicable amount of financing will separately be deemed converted to cash, at the close of trading of the first day of such Measurement Period.

The “Measurement Period Cash Amount” per Security, will be calculated as follows:

(1)    $0.00 on any calendar day, to but excluding the first day of a Measurement Period.

(2)    On the first day of a one-day Measurement Period:

At the close of trading on such Index Business Day, (Current Principal Amount on the immediately preceding calendar day × Index Factor on such Index Business Day).

(3)    From and including the first day of a four-day Measurement Period:

(a)    At the close of trading on each Index Business Day during the Measurement Period, the Measurement Period Cash Amount on the immediately preceding calendar day, + (Current Principal Amount on the calendar day immediately preceding the first day of such Measurement Period, × 0.25 × Index Factor, on such Index Business Day); and

(b)    On any calendar day during the Measurement Period that is not an Index Business Day, the Measurement Period Cash Amount on the immediately preceding Index Business Day.

(4)    On any calendar day after the last Index Business Day of a Measurement Period, the Measurement Period Cash Amount on the last Index Business Day of such Measurement Period.

Notwithstanding the foregoing, if, on any day during a Measurement Period, the Current Indicative Value or the Closing Indicative Value is less than or equal to the Measurement Period Cash Amount from the immediately preceding calendar day, then the Measurement Period Cash Amount for that day and all subsequent days will be fixed to be equal to the Measurement Period Cash Amount from the immediately preceding calendar day.

 

 

If the Securities undergo a split or reverse split, the Measurement Period Cash Amount will be adjusted accordingly.

 

 

 

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Residual Factor:

 

The Residual Factor is intended to approximate the percentage of the Current Principal Amount that is tracking the Index on any given day. The Residual Factor is relevant only during a Measurement Period but otherwise is not a component of the Closing Indicative Value or Current Indicative Value formulas. At the close of trading on each Index Business Day during a four-day Measurement Period, approximately 25% of the Current Principal Amount and the corresponding amount of financing will be deemed converted to cash. In case of a one-day Measurement Period, approximately 100% of the Current Principal Amount and the corresponding amount of financing will be deemed converted to cash.

The “Residual Factor” will be calculated as follows:

(1)    1.0 on any calendar day, to but excluding the first day of a Measurement Period.

(2)    From and including the first day of a four-day Measurement Period, (a) the number of Index Business Days from, but excluding, the date of determination to, and including, the last Index Business Day in such four-day Measurement Period, divided by (b) four.

For example, on the first Index Business Day in a four-day Measurement Period, the Residual Factor will equal 3/4, on the second Index Business Day in a four-day Measurement Period, the Residual Factor will equal 2/4, on the third Index Business Day in a four-day Measurement Period, the Residual Factor will equal 1/4 and on the last Index Business Day in a four-day Measurement Period, the Residual Factor will equal zero.

(3)    On any calendar day from and including the last Index Business Day of a Measurement Period, the Residual Factor will be equal to zero.

 

 

 

Index Closing Level:

 

The “Index Closing Level” on any date of determination is the closing level of the Index, as reported on Bloomberg and Reuters on such day; however, if the closing level of the Index as reported on Bloomberg (or any successor) differs from the closing level of the Index as reported on Reuters (or any successor), the Index Closing Level will be the closing level of the Index as calculated by the Index Calculation Agent. If the closing level of the Index, as reported on Bloomberg and Reuters for any Index Business Day, is manifestly incorrect, the “Index Closing Level” for such Index Business Day shall be the closing level of the Index as determined by the Security Calculation Agent. In making such determination, the Security Calculation Agent may consider any relevant information, including, without limitation, relevant market data in the relevant market supplied by one or more third parties or from internal sources or affiliates.

 

 

 

 

 

On any calendar day that is not an Index Business Day, the Index Closing Level will be equal to the Index Closing Level from the Index Business Day immediately preceding such calendar day.

The initial Index Closing Level (and the first Last Reset Index Closing Level) measured on September 14, 2021, as determined by the Security Calculation Agent, is set forth under “Last Reset Index Closing Level” above.

 

 

 

Security Calculation Agent:

 

UBS Securities LLC

 

 

 

Calculation Date:

 

The Calculation Date represents the first Index Business Day of the Final Measurement Period.

The “Calculation Date” means September 7, 2061 unless such day is not an Index Business Day, in which case the Calculation Date will be the next Index Business Day, subject to adjustment.

 

 

 

Index Business Day:

 

Index Business Day” means any day on which the Primary Exchange or market for trading of the Securities is scheduled to be open for trading.

 

 

 

First Redemption Date:

 

The “First Redemption Date” means the fourth Index Business Day immediately following the Initial Trade Date, subject to adjustments.

 

 

 

Final Redemption Date:

 

The “Final Redemption Date” means the fourth Index Business Day immediately preceding the Maturity Date, subject to adjustments.

 

 

 

Intraday Index Value:

 

The “Intraday Index Value” means the value, as calculated by the Index Calculation Agent, of the Index, as published every 15 seconds during normal trading hours on by Bloomberg under the ticker symbol “M2USESGR Index”.

 

Split or Reverse Split of the Securities:

 

We may, at any time in our sole discretion, initiate a split or reverse split of the Securities. If we decide to initiate a split or reverse split, as applicable, we will issue a press release announcing the split or reverse split and its effective date. The date of such notice shall be deemed to be the “announcement date” of the split or reverse split, the record date for the split or reverse split will be the tenth Business Day after the announcement date, and the effective date of the split or reverse split will be the next Business Day after the record date. In the event of a split or reverse split, the Current Principal Amount, Closing Indicative Value, Current Indicative Value, Accrued Fees, Measurement Period Cash Amount and other relevant terms of the Securities will be adjusted accordingly. See “Specific Terms of the Securities — Split or Reverse Split of the Securities” beginning on page S-74.

 

 

 

Related Definitions:

 

See “Specific Terms of the Securities — Cash Settlement Amount at Maturity” beginning on page S-61 for the definitions of “Index Calculation Agent”, “U.S. Government Securities Business Day” and Primary Exchange.

See “Specific Terms of the Securities — Early Redemption at the Option of the Holders” beginning on page S-69 for the definitions of “Redemption Valuation Date” and “Redemption Date.”

See “Specific Terms of the Securities — Redemption Procedures” beginning on page S-70 for the definitions of “Redemption Notice” and “Redemption Confirmation.”

 

 

 

CUSIP Number:

 

90278V743

 

 

 

ISIN Number:

 

US90278V7432

 

 

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On the Initial Trade Date, we sold $25,000,000 aggregate Stated Principal Amount of Securities (1,000,000 Securities) to UBS Securities LLC at 100% of the 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 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 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 the Securities and may also receive a portion of the Accrued Fees. For any Securities it sells, UBS Securities LLC may charge institutional investors transacting directly with it, a creation fee. This creation fee may vary over time at UBS’s discretion. Please see “Supplemental Plan of Distribution” beginning on page S-88 for more information.

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.

PROHIBITION OF SALES TO EEA 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”). 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 (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 (as amended, the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the Securities or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Securities or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation.

PROHIBITION OF SALES TO 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 United Kingdom (“U.K.”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended by the European Union (Withdrawal Agreement) Act 2020 (“EUWA”); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the “FSMA”) and any rules or regulations made under the FSMA to implement the Insurance Distribution Directive, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA; or (iii) not a qualified investor as defined in Article 2 of the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA. Consequently, no key information document required by the PRIIPs Regulation as it forms part of domestic law by virtue of the EUWA (the “U.K. PRIIPs Regulation”) for offering or selling the Securities or otherwise making them available to retail investors in the U.K. has been prepared and therefore offering or selling the Securities or otherwise making them available to any retail investor in the U.K. may be unlawful under the U.K. PRIIPs Regulation.
______________

+ This Amendment No. 1 to the prospectus supplement dated September 14, 2021 is being filed for the purpose of (i) updating the name of the Securities and (ii) clarifying certain disclosures for consistency.

 

 

 


 

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 in this prospectus supplement modify or supplement those described in the accompanying prospectus and, if the terms described in this prospectus supplement are inconsistent with those described in the accompanying prospectus, the terms described in this prospectus supplement 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 February 24, 2021 at: https://www.sec.gov/Archives/edgar/data/1114446/000119312521054082/d138688d424b3.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

Introduction

 

1

Cautionary Note Regarding Forward-Looking Statements

 

3

Incorporation of Information About UBS AG

 

5

Where You Can Find More Information

 

6

Presentation of Financial Information

 

7

Limitations on Enforcement of U.S. Laws Against UBS, Its Management and Others

 

7

UBS

 

8

Swiss Regulatory Powers

 

11

Use of Proceeds

 

12

Description of Debt Securities We May Offer

 

13

Description of Warrants We May Offer

 

33

Legal Ownership and Book-Entry Issuance

 

48

Considerations Relating to Indexed Securities

 

53

Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency

 

56

U.S. Tax Considerations

 

59

Tax Considerations Under the Laws of Switzerland

 

69

Benefit Plan Investor Considerations

 

71

Plan of Distribution

 

73

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 and that, unless otherwise indicated, references to time are to New York City time.

We may, without your consent, create and issue additional securities having the same terms and conditions as the Securities. We may suspend, slow or cease sales of the Securities 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 on it 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, over the counter (“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 any outstanding Securities. In addition, we may slow or suspend sales of the Securities at any time for any reason, which could affect the liquidity of the market for such 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?

- Can you tell me more about the effect of the hedging activity of UBS and its affiliates?

- What are the tax consequences of owning the Securities?

What are the Securities and how do they work?

The Securities are senior unsecured medium-term notes issued by UBS that provide a 2 times leveraged return linked to the compounded quarterly performance (unless a Permanent Deleveraging Event has occurred, in which case such long exposure will be based on the subsequent unleveraged performance) of MSCI USA ESG Focus Index Gross Total Return USD (the “Index”) (Bloomberg: “M2USESG”) before taking into account the Accrued Fees associated with the Securities that will reduce the return and any amounts payable on the Securities. These Accrued Fees are the Accrued Tracking Fee, which accrues daily and is calculated based on the Daily Tracking Fee, and the Accrued Financing Fee, which represents the fees associated with replicating a leveraged investment, each as defined on the cover pages of this prospectus supplement. Because the return is leveraged, if the Index level increases over any calendar quarter (a “beneficial quarterly performance”), the return on the Index for the Securities, as measured by the Current Principal Amount, will increase by 2 times the movement of the Index (before taking into account the Accrued Fees). Similarly, if the Index level decreases over any calendar quarter (an “adverse quarterly performance”), the return on the Index for the Securities, as measured by the Current Principal Amount, will decrease by 2 times the movement of the Index (before taking into account the Accrued Fees). To ensure that a relatively consistent degree of leverage is applied to the performance of the Index, the Current Principal Amount is reset quarterly or more frequently upon the occurrence of a Loss Rebalancing Event, which will have the effect of resetting the then-current leverage to approximately 2.0. If a Permanent Deleveraging Event occurs, the leverage of the Securities will be permanently reset to 1.0 for the remaining term of the Securities. 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” beginning on page S-31. In addition, the Securities may be automatically accelerated upon the occurrence of a Zero Value Event and may be redeemed prior to the Maturity Date by UBS, at its option, as described below under “— Automatic Acceleration Upon Zero Value Event” and “— UBS Call Right.”

S-1


Unlike ordinary debt securities, the Securities do not pay any coupons and do not guarantee any return of principal at maturity or upon early redemption or exercise of our call right. You may lose all or a substantial portion of your initial investment.

The Index

The MSCI USA ESG Focus Index Gross Total Return USD is derived from the MSCI USA Index, its parent index (the “Parent Index”), which includes large and mid cap stocks across the U.S. equity markets, and is designed to maximize exposure to positive environmental, social and governance (“ESG”) factors while exhibiting risk and return characteristics similar to those of the Parent Index. The Index is constructed by selecting constituents from the Parent Index through an optimization process that aims to maximize exposure to ESG factors for a target tracking error budget under certain constraints. The index is sector-diversified and targets companies with high ESG ratings in each sector. Companies involved in tobacco, controversial weapons, fossil fuel extraction and thermal coal power are not eligible for inclusion in the Index. For a detailed description of the Index, see “MSCI USA ESG Focus Index Gross Total Return USD” beginning on page S-51.

The payment you receive on your Securities at maturity, early redemption or upon exercise by UBS of its call right will depend on the performance of the Index, as measured by the Closing Indicative Value.

We refer to the qualifying large and mid-cap companies included in the Index as the “Index Constituent Securities.”

Leveraged Investment Returns

The Securities seek to approximate the quarterly returns that might be available to investors through a leveraged “long” investment in the Index Constituent Securities. A leveraged “long” investment strategy involves the practice of borrowing money from a third party lender at an agreed-upon rate of interest (e.g., in a margin account at a brokerage) and using the borrowed money together with investor capital to purchase assets (e.g., equity securities). A leveraged long investment strategy terminates with the sale of the underlying assets and repayment of the loan to the third party lender, provided that the proceeds of the sale of underlying assets are sufficient to repay the loan. By implementing a leveraged strategy, the leveraged investor seeks to benefit from an anticipated increase in the value of the assets between the purchase and sale of such assets, and assumes that the increase in value of the underlying assets will exceed the cumulative interest due to the third party lender over the term of the loan. A leveraged investor will incur a loss if the value of the assets does not increase sufficiently to cover payment of the interest. In order to seek to replicate a leveraged “long” investment strategy in the Index Constituent Securities, the Securities provide that each $1 invested by investors on the Initial Trade Date is leveraged through a notional loan of $1 on the Initial Trade Date. Investors are thus considered to have notionally borrowed $1, which, together with the $1 invested, represents a notional investment of $2 in the Index Constituent Securities on the Initial Trade Date. During the term of your Securities, the notional loan amount, which is equal to the Current Principal Amount, accrues financing charges for the benefit of UBS referred to as the Accrued Financing Fee, which seeks to represent the daily amount of interest that leveraged investors might incur (e.g., interest on a margin loan) if they sought to borrow funds at a similar rate from a third-party lender. At maturity or upon early redemption or call, the total leveraged investment in the Index Constituent Securities is notionally sold at the then-current values of the Index Constituent Securities, and the investor then notionally repays UBS an amount equal to the principal of the notional loan plus accrued interest. The payment at maturity or upon early redemption or call, therefore, generally represents the profit or loss that the investor would receive by applying a leveraged “long” investment strategy, after taking into account, and making assumptions for, the accrued financing fees that are commonly present in such leveraged “long” investment strategies.

In order to mitigate the risk to UBS that the value of the Index Constituent Securities is not sufficient to repay the principal and Accrued Financing Fee of the notional loan, if the Intraday Index Value on any Index Business Day (other than an Excluded Day) decreases by 20% from the Last Reset Index Closing Level, a Loss Rebalancing Event (as defined below) will occur and the Current Principal Amount will be reset in order to deleverage the Securities with the intent of resetting the then-current leverage to approximately 2.0, as described under “Specific Terms of the Securities — Loss Rebalancing Events.” In addition, in order to further mitigate such risk to UBS, if the Intraday Index Value on any Index Business Day (other than an Excluded Day) decreases by 40% or more from the Last Reset Index Closing Level, a Permanent Deleveraging Event (as defined below) will occur and the Current Principal Amount will be reset over a period of two Index Business Days, with the aim of permanently resetting the then-current leverage to 1.0, as described under “Specific Terms of the Securities — Permanent Deleveraging Event” beginning on page S-73. Following the occurrence of a Permanent Deleveraging Event, the Accrued

S-2


Financing Fee will equal zero for the remaining life of the Securities because there will no longer be any notionally borrowed money. A Permanent Deleveraging Event can occur only following a Loss Rebalancing Event and prior to the completion of the associated leverage reset to 2.0 at the close of trading on the day that such Loss Rebalancing Event has occurred (or if such event occurs after 3:15 p.m., on the Index Business Day following the day on which such Loss Rebalancing Event has occurred).

In addition, in order to further mitigate such risk to UBS, if the Current Indicative Value (intraday indicative value) or the Closing Indicative Value on any Index Business Day (other than an Excluded Day) is less than or equal to zero, a Zero Value Event (as defined below) will occur and the Securities will be automatically accelerated and mandatorily redeemed by UBS, as described under “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72]. A Zero Value Event can occur only if a Permanent Deleveraging Event occurs and the Current Indicative Value (intraday indicative value) or the Closing Indicative Value declines to zero before the leverage of your Securities is reset to 1.0 at the close of trading on the Index Business Day following such event (or if such event occurs after 3:15 p.m. on any Index Business Day which would not otherwise have been a Loss Rebalancing Valuation Date, the second Index Business Day following such event).

The Accrued Financing Fee seeks to compensate UBS for providing investors with a leveraged participation in movements of the Index and is intended to approximate the financing costs that investors may have otherwise incurred had they sought to borrow funds at a similar rate from a third party to invest in the Index. These charges accrue and compound during the applicable period, and will reduce any amount that you will be entitled to receive at maturity, early redemption or call. The Accrued Financing Fees will be calculated as described under “Specific Terms of the Securities — Cash Settlement Amount at Maturity” beginning on page S-61.

Payment at Maturity or upon Early Redemption or UBS Call

The Securities do not guarantee any return of principal at or prior to maturity or upon early redemption or call. Instead, you will receive a cash payment per Security based on the 2 times leveraged compounded quarterly performance of the Index (unless a Permanent Deleveraging Event has occurred, in which case such exposure will become unleveraged) reduced by the Accrued Fees and, if applicable, a Redemption Fee Amount.

Positive or negative quarterly changes in the Index Closing Level will not solely determine the return on your Securities due to the combined effects of leverage, quarterly (or more frequent) compounding and any applicable fees and financing charges.

Because the Current Principal Amount is reset each quarter, the Securities do not offer a return based on the simple performance of the Index from the Initial Trade Date to the Maturity Date. Instead, the amount you receive at maturity or upon early redemption or call will be contingent upon the quarterly compounded 2 times leveraged long performance (unless a Permanent Deleveraging Event has occurred, in which case such long exposure will be based on the subsequent unleveraged performance) of the Index during the term of the Securities, subject to the negative effect of the Accrued Fees (and, in the case of early redemption, the Redemption Fee Amount). Accordingly, even if over the term that you hold the Securities the level of the Index has increased, there is no guarantee that you will receive at maturity or upon early redemption or call your initial investment back or any return on that investment. This is because the amount you receive depends on how the Index has performed in each quarter on a compounded, leveraged basis prior to payment, and consequently, how the Current Principal Amount has been reset in each quarter. In particular, significant adverse quarterly performances for your Securities may not be offset by any beneficial quarterly performances of the same magnitude. If a Permanent Deleveraging Event occurs, the leverage of the Securities will be permanently reset to 1.0 for the remaining term of the Securities. You will not receive the benefit from, or be exposed to leveraged returns with respect to the Securities following a Permanent Deleveraging Event. The occurrence of Loss Rebalancing Events will result in more frequent than quarterly compounding.

Initially, the Current Principal Amount is equal to $25.00 per Security. At the start of each subsequent calendar quarter (as well as upon the occurrence of a Loss Rebalancing Event), the Current Principal Amount is reset by applying the Index Factor to the previous Current Principal Amount. The Current Principal Amount will be reset daily following the occurrence of a Permanent Deleveraging Event.

For example, if for the quarter ending on the Quarterly Reset Valuation Date occurring on the second Wednesday in July the Current Principal Amount is $20 and the Index Factor as such date is equal to 0.90, the Current Principal Amount for the following Thursday will equal $18 before deducting the Accrued Fees.

S-3


Subsequently, the Index Factor as of the Quarterly Reset Valuation Date for the quarter ending on the Quarterly Reset Valuation Date occurring on the second Wednesday in October will be applied to the Current Principal Amount as of such date to derive the Current Principal Amount for the quarter beginning on the following Thursday. This example does not take into account the effect of Loss Rebalancing Events, which would reset the Current Principal Amount intra-quarter as described under “Specific Terms of the Securities — Loss Rebalancing Events” on page S-73, or of a Permanent Deleveraging Event, after which the Current Principal Amount resets daily as described under “Specific Terms of the Securities — Permanent Deleveraging Event” beginning on page S-73.

The Current Principal Amount is reset each calendar quarter to ensure that a consistent degree of leverage is applied to any performance of the Index. If the Current Principal Amount is reduced by an adverse quarterly performance, the Index Factor of any further adverse quarterly performance will lead to a smaller dollar loss when applied to that reduced Current Principal Amount than if the Current Principal Amount were not reduced. Equally, however, if the Current Principal Amount increases, the dollar amount lost for a certain level of adverse quarterly performance will increase correspondingly. Note, however, that the leverage will be reset to 1.0 if a Permanent Deleveraging Event occurs and the Securities will remain unleveraged.

Resetting the Current Principal Amount also means that the dollar amount that may be gained from any beneficial quarterly performance will be contingent upon the Current Principal Amount. The higher the Current Principal Amount, the larger the absolute gain you will accrue from any beneficial quarterly performance. Conversely, as the Current Principal Amount is reduced towards zero, the dollar amount to be gained from any beneficial quarterly performance will decrease correspondingly. If the Securities undergo a split or reverse split, the Current Principal Amount of the Securities will be adjusted accordingly.

The below illustrative examples demonstrate how the leverage, deemed financing amount and Current Principal Amount (“CPA”) are reset on a Quarterly Reset Valuation Date in circumstances where (a) the Index Closing Level has increased from the Last Reset Index Closing Level and (b) the Index Closing Level has decreased from the Last Reset Index Closing Level. For the ease of analysis and presentation, no Daily Financing Fees or Daily Tracking Fees are accrued in the example.

Illustrative Example A:

 

 

S-4


 

Illustrative Example B:

 

 

The Current Principal Amount may be reset more frequently than quarterly upon the occurrence of a Loss Rebalancing Event. A Loss Rebalancing Event will have the effect of deleveraging your Securities with the aim of resetting the then-current leverage to approximately 2.0. This means that after a Loss Rebalancing Event, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities relative to before the occurrence of the Loss Rebalancing Event.

If a Permanent Deleveraging Event occurs, your Securities will be deleveraged with the aim of permanently resetting, over two Index Business Days, the then-current leverage to 1.0. This means that after a Permanent Deleveraging Event, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities relative to before the occurrence of the Permanent Deleveraging Event.

For each Security, unless earlier called, redeemed or accelerated upon Zero Value Event, you will receive at maturity a cash payment equal to its Closing Indicative Value on the last Index Business Day in the Final Measurement Period. We refer to this payment as the “Cash Settlement Amount.” If the amount so calculated is equal to or less than zero, you will not receive any payment at maturity.

The “Closing Indicative Value” per Security will be calculated as follows:

(a)

On the Initial Trade Date, $25.00 per Security;

(b)

On any other calendar day, prior to the first day of a Measurement Period, an amount per Security equal to:

(Current Principal Amount on the immediately preceding calendar day × Index Factor) – Accrued Fees

(c)

From and including the first day of a Measurement Period, an amount per Security equal to:

(Current Principal Amount on the calendar day immediately preceding the first day of the Measurement Period × Index Factor × Residual Factor) – Accrued Fees + Measurement Period Cash Amount

However, if, on any day during a Measurement Period, the Current Indicative Value or the Closing Indicative Value is less than or equal to the Measurement Period Cash Amount from the immediately preceding calendar day, the Closing Indicative Value for that day and all subsequent days will be fixed to be equal to the Measurement Period Cash Amount from the immediately preceding calendar day.

(d)

The minimum value of the Closing Indicative Value on any calendar day will be zero.

You may lose all or a substantial portion of your investment at maturity. The combined negative effect of the Accrued Fees will reduce your final payment. If the compounded leveraged quarterly return of the Index (or the unleveraged return of the Index, following a Permanent Deleveraging Event) is insufficient to offset the negative effect of the Accrued Fees or if the compounded leveraged quarterly return of the Index (or the unleveraged return of the Index, following a Permanent Deleveraging Event) is negative, you may lose all or

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a substantial portion of your investment at maturity. The occurrence of Loss Rebalancing Events will result in more frequent than quarterly compounding.

Illustrative Example C:

The illustrative example below demonstrates how the Closing Indicative Value is calculated on each day prior to the first day of a Measurement Period or the occurrence of a Zero Value Event, i.e. during the normal life of the security. (1)

 

 

Closing Indicative Value: the dollar value per ETN that an investor would receive on any day, if it redeemed the ETN on such day (2)

Current Principal Amount: the unleveraged notional investment in the Index Constituent Securities per ETN at the close of trading on any Reset Valuation Date

Accrued Fees: the sum of the Daily Tracking Fee and the Daily Financing Fee accrued since the last Reset Valuation Date

Index Factor: the leveraged percentage change in the Index level since the Last Reset Index Closing Level (3)

(1)

On any calendar day prior to the start of a Final Measurement Period or a Call Measurement Period, which occur at maturity or upon UBS's exercise of its Call Right.

(2)

Excluding any Redemption Fee Amount.

(3)

If a Permanent Deleveraging Event occurs, the leverage of the ETNs is permanently reset to 1.0

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Illustrative Example D:

The illustrative example below demonstrates how the Closing Indicative Value is calculated on each day during a four-day Measurement Period. For the ease of analysis and presentation in the example, (a) no Daily Financing Fees or Daily Tracking Fees are accrued, (b) Accrued Fees are equal to zero on all days of the Measurement Period, (c) the Index Business Day immediately preceding the first day of the Measurement Period is a Reset Valuation Date, and (d) the Index Closing Level remains unchanged from the Last Reset Index Closing Level until the end of the Measurement Period.

 

 

See “Specific Terms of the Securities — Cash Settlement Amount at Maturity” beginning on page S-61.

We may call the Securities prior to the Maturity Date pursuant to our Call Right and, upon the occurrence of a Zero Value Event, the Securities will be automatically accelerated and mandatorily redeemed by UBS and you will lose your entire investment. See “Specific Terms of the Securities — UBS Call Right” beginning on page S-71 and “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

UBS Call Right

On any Index 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. To exercise its Call Right, UBS must provide notice (which may be provided via press release) to the holders of the Securities not less than 18 calendar days prior to the Call Settlement Date specified by UBS in such notice. In the event UBS exercises this call right, you will receive a cash payment equal to the Call Settlement Amount, which will be calculated as described herein and paid on the Call Settlement Date. See “Specific Terms of the Securities — UBS Call Right” beginning on page S-71.

Loss Rebalancing Events

A “Loss Rebalancing Event” occurs if, at any time, the Intraday Index Value on an Index Business Day (other than an Excluded Day) decreases by 20% or more from the Last Reset Index Closing Level. A Loss Rebalancing Event will have the effect of deleveraging your Securities with the aim of resetting the then-current leverage to approximately 2.0. After a Loss Rebalancing Event, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities relative to before the occurrence of the Loss Rebalancing Event.

See “Specific Terms of the Securities — Loss Rebalancing Events” beginning on page S-73.

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Illustrative Example E:

The illustrative example below demonstrates how the deemed financing amount and Current Principal Amount are reset on a Reset Valuation Date (the Loss Rebalancing Valuation Date) following a Loss Rebalancing Event triggered in circumstances where the Intraday Index Value has decreased by 20% or more on a single Index Business Day. For the ease of analysis and presentation in the example, (a) no Daily Financing Fees or Daily Tracking Fees are accrued, (b) the decrease in the Intraday Index Value occurs on a single day, (c) the Intraday Index Value decreases by 20% or more prior to 3:15 p.m., and (d) the Loss Rebalancing Valuation Date is on the same Index Business Day that the Loss Rebalancing Event occurred and on the next Index Business Day after the last Reset Valuation Date.

 

 

Permanent Deleveraging Event

If, at any time on any Index Business Day (other than an Excluded Day), the Intraday Index Value decreases by 40% or more from the Last Reset Index Closing Level (a “Permanent Deleveraging Event”), your Securities will be deleveraged with the aim of permanently resetting, over two Index Business Days, the then-current leverage to 1.0. The leverage at the end of the First Permanent Deleveraging Valuation Date is reset to approximately 2.0 and the leverage at the end of the Second Permanent Deleveraging Valuation Date is reset to 1.0. This means that after a Permanent Deleveraging Event, a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities relative to before the occurrence of the Permanent Deleveraging Event.

A Permanent Deleveraging Event can occur only following a Loss Rebalancing Event and prior to the completion of the associated leverage reset to 2.0 at the close of trading on the day that such Loss Rebalancing Event has occurred (or if such event occurs after 3:15 p.m., on the Index Business Day following the day on which such Loss Rebalancing Event has occurred), as described under “Permanent Deleveraging Valuation Dates” above.

See “Specific Terms of the Securities — Permanent Deleveraging Event” beginning on page S-73.

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Illustrative Example F:

The illustrative example below demonstrates how the deemed financing amount, leverage and Current Principal Amount are reset over two Index Business Days following a Permanent Deleveraging Event triggered in circumstances where the Intraday Index Value has decreased by 40% or more on a single Index Business Day. For the ease of analysis and presentation in the example, (a) no Daily Financing Fees or Daily Tracking Fees are accrued, (b) the decrease in the Intraday Index Value occurs on a single day, (c) the Intraday Index Value decreases by 40% or more prior to 3:15 p.m., (d) the First Permanent Deleveraging Valuation Date is on the same Index Business Day that the Permanent Deleveraging Event occurred and on the next Index Business Day after the last Reset Valuation Date, and (e) the Index Closing Level remains unchanged between the close of trading on the First Permanent Deleveraging Valuation Date and the Second Permanent Deleveraging Valuation Date.

 

 

Automatic Acceleration Upon Zero Value Event

A Zero Value Event represents the first instance when the Current Indicative Value (intraday indicative value) or the Closing Indicative Value is less than or equal to zero (other than on an Excluded Day, as defined below). It will have the effect of permanently resetting the value of your Securities to zero and accelerating the Securities. You will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event.

A Zero Value Event can occur only if a Permanent Deleveraging Event occurs and the Current Indicative Value (intraday indicative value) or the Closing Indicative Value declines to zero before the leverage of your Securities is reset to 1.0 at the close of trading on the Index Business Day following such event (or if such event occurs after 3:15 p.m. on any Index Business Day which would not otherwise have been a Loss Rebalancing Valuation Date, the second Index Business Day following such event), as described under “Permanent Deleveraging Event” above.

A “Zero Value Event” occurs if the Current Indicative Value (intraday indicative value) or the Closing Indicative Value on any Index Business Day (other than an Excluded Day, as defined below) is less than or equal to zero. From immediately after the Zero Value Event and on all future calendar days, the Current Indicative Value (intraday indicative value) and the Closing Indicative Value will be set equal to zero.

As used above, an “Excluded Day” means (i) any calendar day after the Second Permanent Deleveraging Valuation Date, (ii) any calendar day on or after which a Zero Value Event has already occurred, and (iii) any calendar day during or following a Measurement Period.

In the event that a Zero Value Event has occurred, UBS will issue a press release shortly after the event; provided that the failure to do so shall not affect the automatic acceleration and redemption of the Securities. The Securities will be suspended from trading intraday shortly after the event occurs and will likely not be open for trading again on NYSE Arca.

See “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

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Illustrative Example G:

The illustrative example below demonstrates how the deemed financing amount, leverage and Current Principal Amount are reset following a Zero Value Event triggered in circumstances where the Current Indicative Value (intraday indicative value) or the Closing Indicative Value is less than or equal to zero (other than on an Excluded Day). For the ease of analysis and presentation in the example, (a) no Daily Financing Fees or Daily Tracking Fees are accrued, (b) the decrease in the Intraday Index Value occurs on a single day, and (c) the Zero Value Event occurs on the next Index Business Day after the last Reset Valuation Date.

 

 

How do you redeem your Securities?

Early Redemption

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. To satisfy the minimum redemption amount, your broker or other financial intermediary may bundle your Securities for redemption with those of other investors to reach this minimum amount of 50,000 Securities; however, there can be no assurance that they can or will do so. UBS reserves the right from time to time to waive this minimum redemption amount in its sole discretion on a case-by-case basis. You should not assume you will be entitled to any such waiver.

If you elect to have your Securities redeemed and have done so under the redemption procedures described under “Specific Terms of the Securities — Redemption Procedures” beginning on page S-70, you will receive payment for your Securities on the second Index Business Day following the applicable Redemption Valuation Date (the “Redemption Date”). The First Redemption Date will be the fourth Index Business Day immediately following the Initial Trade Date and the Final Redemption Date will be the fourth Index Business Day immediately preceding the Maturity Date, subject to adjustments. In addition, if a call notice has been issued, the last Redemption Valuation Date will be the fourth Index Business Day prior to the Call Settlement Date, as applicable. If a Zero Value Event occurs, the last Redemption Date will be the date on which the Zero Value Event occurred.

The Redemption Valuation Date is the first Index Business Day following the date that the applicable redemption notice and redemption confirmation, each as described under “Specific Terms of the Securities — Redemption Procedures” 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 it receives the notice of redemption rather than the following Index Business Day. You should not assume you will be entitled to 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-75.

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Upon early redemption, you will receive per Security a cash payment 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-69.

You may lose all or a substantial portion of your investment upon early redemption. The combined negative effect of the Accrued Fees and the Redemption Fee Amount will reduce your final payment. If the compounded leveraged quarterly return of the Index (or the unleveraged return of the Index, following a Permanent Deleveraging Event) is insufficient to offset the negative effect of the Accrued Fees and the Redemption Fee Amount, or if the compounded leveraged quarterly return of the Index (or the unleveraged return of the Index, following a Permanent Deleveraging Event) is negative, you may lose all or a substantial portion of your investment upon early redemption. The occurrence of Loss Rebalancing Events will result in more frequent than quarterly compounding.

We may call the Securities prior to the Maturity Date pursuant to our Call Right and, upon the occurrence of a Zero Value Event, the Securities will be automatically accelerated and mandatorily redeemed by UBS. See “Specific Terms of the Securities — UBS Call Right” beginning on page S-71 and “Specific Terms of the Securities — Automatic Acceleration Upon Zero Value Event” beginning on page S-72.

Redemption Procedures

To redeem your Securities prior to the Maturity Date, you must instruct your broker or other person through whom you hold your Securities to deliver a notice of redemption (“Redemption Notice”), which is attached to this Prospectus Supplement as Annex A, to UBS by email no later than 12:00 noon (New York City time) on the Index Business Day on which you elect to exercise your redemption right and you and your broker or other person through whom you hold your Securities must follow the procedures described herein. If you fail to comply with these procedures, your notice will be deemed ineffective.

If your DTC custodian or your brokerage firm is not a current UBS customer, UBS will be required to on-board such DTC custodian or brokerage firm, in compliance with its internal policies and procedures, before it can accept your Redemption Notice, your Redemption Confirmation or otherwise process your redemption request. This on-boarding process may delay your Redemption Valuation Date and Redemption Date. Furthermore, in certain circumstances, UBS may be unable to on-board your DTC custodian or your brokerage firm.

See “Specific Terms of the Securities — Redemption Procedures” beginning on page S-70 and “Description of the Debt Securities We May Offer — Redemption and Repayment” 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-31.

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 2 times any quarterly decline in the level of the Index. If the compounded leveraged quarterly return of the Index is insufficient to offset the negative effect of the Accrued Fees and, if applicable, the Redemption Fee Amount, or if the compounded leveraged quarterly return of the Index is negative, you may lose all or a substantial portion of your investment at maturity or upon early redemption or call. If a Permanent Deleveraging Event occurs, the leverage of the Securities will be permanently reset to 1.0 for the remaining term of the Securities.

Correlation and compounding risk — A number of factors may affect the Security’s ability to achieve a high degree of correlation with the performance of the Index, and there can be no guarantee that the Security will achieve a high degree of correlation. Because the Current Principal Amount is reset quarterly, you will be exposed to compounding of quarterly returns. As a result, the performance of the Securities for periods greater than one quarter is likely to be either greater than or less than the Index performance times the leverage factor of 2.0, before accounting for Accrued Fees, and the Redemption Fee Amount, if applicable. In particular, significant adverse quarterly performances of your Securities may not be offset by subsequent beneficial quarterly performances of equal magnitude. The occurrence of Loss Rebalancing Events will result in more frequent than quarterly compounding.

Leverage risk — The Securities are 2 times leveraged long with respect to the Index, which means that you will benefit from 2 times any positive, but will be exposed to 2 times any negative, quarterly performance of the

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Index, before the combined negative effect of the Accrued Fees and Redemption Fee Amount, if any. However, the leverage of the Securities may be greater or less than 2.0 during the periods between Reset Valuation Dates and if a Permanent Deleveraging Event occurs, the leverage of the Securities will be permanently reset to 1.0 for the remaining term of the Securities.

Permanent Deleveraging Event — A Permanent Deleveraging Event will have the effect of permanently resetting the leverage of the Securities to 1.0 for the remaining term of the Securities. Following the occurrence of a Permanent Deleveraging Event, your Securities will not receive the benefit from, or be exposed to, leveraged compounding quarterly returns with respect to the performance of the Index. This means that a constant percentage increase in the Index Closing Level will have less of a positive effect on the value of your Securities than it would have otherwise had prior to the occurrence of a Permanent Deleveraging Event. Similarly, a constant percentage decrease in the Index Closing Level will have less of a negative effect on the value of your Securities than it would have otherwise had prior to the occurrence of the Permanent Deleveraging Event.

Zero Value Event — A Zero Value Event will have the effect of permanently resetting the value of your Securities to zero and accelerating the Securities. You will lose your entire investment and you will not benefit from any future exposure to the Index after the occurrence of a Zero Value Event.

Market risk — The return on the Securities, which may be positive or negative, is linked to the compounded leveraged quarterly 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 (including domestic or global health events, such as the recent coronavirus (COVID-19)) that affect the markets generally.

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, 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, early redemption or call. In addition, in the event UBS were to default 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.

We have potential conflicts – We and our affiliates play a variety of roles in connection with the issuance of the Securities, including acting as Security Calculation Agent. As determinations by the Security Calculation Agent may adversely affect the market value of the Securities, the Security Calculation Agent may have a conflict of interest if it needs to make any such determination.

There may not be an active trading market for the Securities — Although we have listed the Securities on NYSE Arca, there may not be an active trading market for the Securities. 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 set forth on the cover of this prospectus supplement. We may issue and sell additional Securities from time to time and we may suspend, slow or cease sales of the Securities at any time, at our discretion. Therefore, the liquidity of the Securities may be limited.

Conditions to 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, unless we determine otherwise or your broker or other financial intermediary bundles your Securities with those of other investors to reach this minimum requirement for redemption. In addition, the payment you receive upon early redemption will be reduced by the Redemption Fee Amount. While UBS reserves the right to waive the minimum redemption amount or the Redemption Fee Amount from time to time in its sole discretion, there can be no assurance that we will choose to waive any redemption requirements or fees or that any holder of the Securities will benefit from our election to do so.

Your redemption election is irrevocable — You will not know the Redemption Amount at the time you elect to request to redeem your Securities and you will not be able to rescind your election to redeem your Securities after we receive your redemption notice. Accordingly, you will be exposed to market risk in the event market conditions change after we receive your offer and the Redemption Amount is determined on the Redemption Valuation Date.

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.

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UBS Call Right — We may elect to redeem all issued and outstanding Securities at any time. If we exercise our Call Right, the Call Settlement Amount may be less than the payment you would have otherwise been entitled to at maturity. In addition, you may have to invest your proceeds in a lower-return investment.

Is this the right investment for you?

The Securities may be a suitable investment for you if:

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

You seek an investment with a return linked to 2 times the quarterly performance of the Index, which is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index.

You understand (i) leverage risk, including the risks inherent in maintaining a constant 2 times leverage on a quarterly basis and (ii) the consequences of seeking quarterly leveraged investment results generally, and you intend to actively monitor and manage your investment.

You are aware, and are willing to accept the risk, that the Securities may trade at a substantial premium to, or discount from, their Current Indicative Value (or intraday indicative value).

You believe the compounded leveraged quarterly 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 or upon early redemption or call.

You are willing to hold 2 times leveraged securities whose leverage will be reset back to 2.0 quarterly, or more frequently upon the occurrence of a Loss Rebalancing Event and will be permanently reset to 1.0 upon the occurrence of a Permanent Deleveraging Event, resulting in unleveraged exposure to the Index for the remaining term of the Securities.

You are willing to hold securities that have a long-term maturity (40 years).

You are willing to accept the risks inherent in investing in a security linked to the Index, which is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index and which reinvests (rather than distributes) dividends and distributions made with respect to the Index Constituent Securities.

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.

You are willing to hold securities that we may call at any time.

You are willing to hold securities that will be automatically accelerated and mandatorily redeemed by UBS in the event the Current Indicative Value (intraday indicative value) or the Closing Indicative Value on any Index Business Day (other than an Excluded Day) is less than or equal to zero.

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

You do not seek guaranteed income from your investment and you understand that no coupon, dividend or similar payments or distributions will be made on your Securities.

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

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

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

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

You do not seek an investment with a return linked to 2 times the quarterly performance of the Index, which is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index and which reinvests (rather than distributes) dividends and distributions made with respect to the Index Constituent Securities.

You do not understand (i) leverage risk, including the risks inherent in maintaining a constant 2 times leverage on a quarterly basis or (ii) the consequences of seeking quarterly leveraged investment results generally, and you do not intend to actively monitor and manage your investment.

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You are not willing to accept the risk that the Securities may trade at a substantial premium to or discount from their Current Indicative Value (or intraday indicative value).

You believe that the compounded leveraged quarterly return of the Index will be negative during the term of the Securities or the compounded leveraged quarterly return will not be sufficient to offset the combined negative effect of the applicable fees built into the calculation of the payment at maturity or upon early redemption or call.

You are not willing to hold 2 times leveraged securities whose leverage will be reset back to 2.0 quarterly, or more frequently upon the occurrence of a Loss Rebalancing Event and will be permanently reset to 1.0 upon the occurrence of a Permanent Deleveraging Event, resulting in unleveraged exposure to the Index for the remaining term of the Securities.

You are not willing to hold securities that have a long-term maturity (40 years).

You are not willing to accept the risks inherent in investing in a security linked to the Index, which is designed to maximize exposure to positive ESG factors while exhibiting risk and return characteristics similar to those of the MSCI USA Index and which reinvests (rather than distributes) dividends and distributions made with respect to the Index Constituent Securities.

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.

You are not willing to hold securities that we may call at any time.

You are not willing to hold securities that will be automatically accelerated and mandatorily redeemed by UBS in the event the Current Indicative Value (intraday indicative value) or the Closing Indicative Value on any Index Business Day (other than an Excluded Day) is less than or equal to zero.

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

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

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

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

Who calculates and publishes the Index?

The Index is calculated, maintained and published in real-time and end-of-day by the Index Calculation Agent and disseminated by the New York Stock Exchange (“NYSE”) approximately every 15 seconds (assuming the level of the Index has changed within such 15-second interval) from 9:30 a.m. to 4:15 p.m. on those days specified as Index Business Days, and a daily Index level is published at approximately 5:00 p.m. on each Index Business Day. Index information, including the Index level, is available from Bloomberg L.P. (“Bloomberg”) under the symbol “M2USESG”. The historical performance of the Index is not indicative of its future performance or its level at the end of the Measurement Period or on the Redemption Valuation Date.

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Can you tell me more about the effect of the hedging activity of UBS and its affiliates?

UBS or its affiliates expects to hedge their obligations under the Securities by purchasing the Index constituents, futures or options on the Index constituents or the Index, or exchange-traded funds or other derivative instruments with returns linked or related to changes in the performance of the Index constituents or the Index, and they may adjust these hedges by, among other things, purchasing or selling the Index constituents, futures, options, or exchange-traded funds or other derivative instruments with returns linked or related to changes in the performance of the Index constituents or the Index at any time. Any of these hedging activities may adversely affect the market price of such Index constituents and/or the level of the Index and, therefore, the market value of the Securities and the amount we pay on your Securities, if any. It is possible that UBS or its affiliates could receive substantial returns from these hedging activities while the market value of the Securities declines. You should refer to “Risk Factors— Risks Relating to the Creditworthiness, Conflicts of Interest, Hedging Activities and Regulation of UBS—Trading and other transactions by UBS or its affiliates in the Index Constituent Securities, futures, options, exchange-traded funds or other derivative products on the Index Constituent Securities or the Index may impair the market value of the Securities” and “Use of Proceeds and Hedging” in this prospectus supplement.

What are the tax consequences of owning the Securities?

The United States federal income tax consequences of your investment in the Securities are uncertain and holders of Securities may be subject to adverse U.S. federal income tax consequences. Some of these tax consequences are summarized below, but we urge you to read the more detailed discussion below under “Material U.S. Federal Income Tax Consequences.”

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 the Securities are so treated, then it is likely that (i) a U.S. holder (as defined under “Material U.S. Federal Income Tax Consequences” beginning on page S-82) of Securities will not recognize income, gain or loss with respect to the Securities prior to the sale, redemption or maturity of the Securities and (ii) any gain or loss that a U.S. holder recognizes upon the sale, redemption or maturity of the Securities will generally be treated as capital gain or loss, which would be long-term capital gain or loss if the holder has a holding period in the Securities that is greater than one year. However, the U.S. federal income tax treatment of the Securities is uncertain and the Internal Revenue Service (the “IRS”) could assert that the Securities should be taxed in a manner that is different than described above. In particular, it is possible that a U.S. holder of Securities could be required to include the dividends on the Index Constituent Securities in ordinary income when they are distributed (based on the notional amount of the Index that is referenced by the Securities that are owned by the U.S. holder), notwithstanding that such amounts will be invested in the Index and will not be distributed to holders of Securities. U.S. holders of Securities should review the discussion under “Material U.S. Federal Income Tax Consequences” beginning on page S-82 for a summary of the tax consequences to them of holding the Securities, including a discussion of alternative treatments of the Securities that could cause them to be subject to adverse tax consequences.

Non-U.S. holders of Securities should review the discussion under “Material U.S. Federal Income Tax Consequences — Non-U.S. Holders” beginning on page S-85 for a summary of the tax consequences to them of holding the Securities, including a discussion of withholding taxes that will generally be imposed in respect of the Securities, and the possibility that such withholding taxes will be imposed prior to the sale, redemption or maturity of the Securities.

Holders are urged to consult their tax advisors concerning the significance and the potential impact of the above considerations.

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 upon Early Redemption or Exercise by UBS of its Call Right

The following Examples 1 through 4 illustrate how the Securities would perform at maturity or upon early redemption or exercise by UBS of its Call Right, in hypothetical circumstances. We have included an example in which the Index Closing Level increases at a constant rate of 3.00% per quarter for 20 quarters (Example 1), as well as an example in which the Index Closing Level decreases at a constant rate of 3.00% per quarter for 20 quarters (Example 2). In addition, Example 3 shows the Index Closing Level increasing at a constant rate of 3.00% per quarter for the first ten quarters and then decreasing at a constant rate of 3.00% per quarter for the next ten quarters, whereas Example 4 shows the reverse scenario of the Index Closing Level decreasing at a constant rate of 3.00% per quarter for the first ten quarters, and then increasing at a constant rate of 3.00% per quarter for the next ten quarters. For ease of analysis and presentation, the following examples assume that the term of the Securities is 20 quarters, and that the last Index Business Day of the Call Measurement Period, or the Redemption Valuation Date, occurs on the quarter end.

The following assumptions are used in each of the four examples:

The Daily Tracking Fee is calculated based on a per annum rate of 0.95%

The Financing Rate is 1.65%

The Stated Principal Amount is $25.00

The initial Last Reset Index Closing Level is 4880

The Redemption Fee Amount is 0.125%

These examples highlight the effect of the 2 times leverage and quarterly compounding, and the impact of the Accrued Fees on the payment at maturity or upon early redemption or exercise by UBS of its Call Right, under different circumstances. The assumed Financing Rate is not an indication of the actual Financing Rate that will apply throughout the term of the Securities. The Financing Rate will change during the term of the Securities, which will affect the performance of the Securities. These examples also assume that no Loss Rebalancing Event, Permanent Deleveraging Event or Zero Value Event occurs during the term of the Securities.

Because the Accrued Fees take into account the quarterly performance of the Index, as measured by the Current Principal Amount and Index Factor, the absolute level of the Accrued Fees 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 quarter 20 are as of the hypothetical Calculation Date, assuming a constant Index Closing Level throughout such Final Measurement Period, and given the indicated assumptions, a holder will receive payment at maturity, early redemption or upon exercise by UBS of its Call Right, in the indicated amount, according to the indicated formula.

S-16


Hypothetical Examples

 

 

Example 1 — The level of the Index increases at a constant rate of 3.00% for 20 quarters.

 

Quarter End

 

Index

Closing

Level (1)

 

 

Index

Performance

Ratio

 

 

Index

Factor

 

 

Accrued

Financing

Fee for the

Applicable

Quarter (2)

 

 

Accrued

Tracking

Fee for the

Applicable

Quarter (3)

 

 

Accrued

Fees for the

Applicable

Quarter

 

 

Current

Principal

Amount (4)

 

 

Redemption

Amount

 

A

 

B

 

 

C

 

 

D

 

 

E

 

 

F

 

 

G

 

 

H

 

 

I

 

 

 

 

 

 

 

((Index

Closing

Level – Last

Reset Index

Closing

Level) / Last

Reset Index

Closing

Level)

 

 

(1 + (2.0

x C))

 

 

(Previous

Current

Principal

Amount x

Financing

Rate x

Act/360)

 

 

(per annum rate x

Previous

Current

Principal

Amount x D

x Act/365)

 

 

(E + F)

 

 

((Previous

Current

Principal

Amount x

D) – G)

 

 

(H *(1 –

Redemption

Fee Rate))

 

1

 

 

5,026.40

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1031

 

 

$

0.0621

 

 

$

0.1652

 

 

$

26.3348

 

 

$

26.3019

 

2

 

 

5,177.19

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1086

 

 

$

0.0654

 

 

$

0.1740

 

 

$

27.7409

 

 

$

27.7062

 

3

 

 

5,332.51

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1144

 

 

$

0.0689

 

 

$

0.1833

 

 

$

29.2220

 

 

$

29.1855

 

4

 

 

5,492.48

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1205

 

 

$

0.0726

 

 

$

0.1931

 

 

$

30.7822

 

 

$

30.7438

 

5

 

 

5,657.26

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1270

 

 

$

0.0764

 

 

$

0.2034

 

 

$

32.4258

 

 

$

32.3852

 

6

 

 

5,826.98

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1338

 

 

$

0.0805

 

 

$

0.2143

 

 

$

34.1570

 

 

$

34.1143

 

7

 

 

6,001.78

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1409

 

 

$

0.0848

 

 

$

0.2257

 

 

$

35.9807

 

 

$

35.9358

 

8

 

 

6,181.84

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1484

 

 

$

0.0893

 

 

$

0.2378

 

 

$

37.9018

 

 

$

37.8544

 

9

 

 

6,367.29

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1563

 

 

$

0.0941

 

 

$

0.2505

 

 

$

39.9255

 

 

$

39.8756

 

10

 

 

6,558.31

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1647

 

 

$

0.0991

 

 

$

0.2638

 

 

$

42.0572

 

 

$

42.0046

 

11

 

 

6,755.06

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1735

 

 

$

0.1044

 

 

$

0.2779

 

 

$

44.3027

 

 

$

44.2473

 

12

 

 

6,957.71

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1827

 

 

$

0.1100

 

 

$

0.2928

 

 

$

46.6681

 

 

$

46.6098

 

13

 

 

7,166.44

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1925

 

 

$

0.1159

 

 

$

0.3084

 

 

$

49.1598

 

 

$

49.0984

 

14

 

 

7,381.44

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2028

 

 

$

0.1221

 

 

$

0.3248

 

 

$

51.7845

 

 

$

51.7198

 

15

 

 

7,602.88

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2136

 

 

$

0.1286

 

 

$

0.3422

 

 

$

54.5494

 

 

$

54.4812

 

16

 

 

7,830.97

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2250

 

 

$

0.1354

 

 

$

0.3605

 

 

$

57.4619

 

 

$

57.3901

 

17

 

 

8,065.90

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2370

 

 

$

0.1427

 

 

$

0.3797

 

 

$

60.5299

 

 

$

60.4543

 

18

 

 

8,307.87

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2497

 

 

$

0.1503

 

 

$

0.4000

 

 

$

63.7617

 

 

$

63.6820

 

19

 

 

8,557.11

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2630

 

 

$

0.1583

 

 

$

0.4213

 

 

$

67.1661

 

 

$

67.0822

 

20

 

 

8,813.82

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.2771

 

 

$

0.1668

 

 

$

0.4438

 

 

$

70.7522

 

 

$

70.6638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Index Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80.61

%

Return on Securities (assumes no early redemption):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

183.01

%

 

(1)

The Index Closing Level is also: (i) the Last Reset Index Closing Level for the following day; and (ii) the index level used for calculating the Call Settlement Amount, the Redemption Amount and the Cash Settlement Amount.

(2)

Accrued Financing Fee is calculated on an act/360 basis (90-day quarters are assumed for the above calculations).

(3)

Accrued Tracking Fee is calculated on an act/365 basis.

(4)

The Current Principal Amount is equal to the Closing Indicative Value on each Reset Valuation Date and for Quarter 20 this is also the Cash Settlement Amount.

S-17


Hypothetical Examples

Example 2 — The level of the Index decreases at a constant rate of 3.00% for 20 quarters.

 

Quarter End

 

Index

Closing

Level (1)

 

 

Index

Performance

Ratio

 

 

Index

Factor

 

 

Accrued

Financing

Fee for the

Applicable

Quarter (2)

 

 

Accrued

Tracking

Fee for the

Applicable

Quarter (3)

 

 

Accrued

Fees for the

Applicable

Quarter

 

 

Current

Principal

Amount (4)

 

 

Redemption

Amount

 

A

 

B

 

 

C

 

 

D

 

 

E

 

 

F

 

 

G

 

 

H

 

 

I

 

 

 

 

 

 

 

((Index

Closing

Level – Last

Reset Index

Closing

Level) / Last

Reset Index

Closing

Level)

 

 

(1 + (2.0

x C))

 

 

(Previous

Current

Principal

Amount x

Financing

Rate x

Act/360)

 

 

(per annum rate x

Previous

Current

Principal

Amount x D

x Act/365)

 

 

(E + F)

 

 

((Previous

Current

Principal

Amount x

D) – G)

 

 

(H *(1 –

Redemption

Fee Rate))

 

1

 

 

4,733.60

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.1031

 

 

$

0.0550

 

 

$

0.1582

 

 

$

23.34

 

 

$

23.3126

 

2

 

 

4,591.59

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0963

 

 

$

0.0514

 

 

$

0.1477

 

 

$

21.79

 

 

$

21.7664

 

3

 

 

4,453.84

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0899

 

 

$

0.0480

 

 

$

0.1379

 

 

$

20.35

 

 

$

20.3227

 

4

 

 

4,320.23

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0839

 

 

$

0.0448

 

 

$

0.1287

 

 

$

19.00

 

 

$

18.9748

 

5

 

 

4,190.62

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0784

 

 

$

0.0418

 

 

$

0.1202

 

 

$

17.74

 

 

$

17.7162

 

6

 

 

4,064.90

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0732

 

 

$

0.0391

 

 

$

0.1122

 

 

$

16.56

 

 

$

16.5412

 

7

 

 

3,942.96

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0683

 

 

$

0.0365

 

 

$

0.1048

 

 

$

15.46

 

 

$

15.4440

 

8

 

 

3,824.67

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0638

 

 

$

0.0340

 

 

$

0.0978

 

 

$

14.44

 

 

$

14.4197

 

9

 

 

3,709.93

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0596

 

 

$

0.0318

 

 

$

0.0913

 

 

$

13.48

 

 

$

13.4633

 

10

 

 

3,598.63

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0556

 

 

$

0.0297

 

 

$

0.0853

 

 

$

12.59

 

 

$

12.5703

 

11

 

 

3,490.67

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0519

 

 

$

0.0277

 

 

$

0.0796

 

 

$

11.75

 

 

$

11.7365

 

12

 

 

3,385.95

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0485

 

 

$

0.0259

 

 

$

0.0743

 

 

$

10.97

 

 

$

10.9581

 

13

 

 

3,284.37

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0453

 

 

$

0.0242

 

 

$

0.0694

 

 

$

10.24

 

 

$

10.2313

 

14

 

 

3,185.84

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0423

 

 

$

0.0226

 

 

$

0.0648

 

 

$

9.56

 

 

$

9.5527

 

15

 

 

3,090.27

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0395

 

 

$

0.0211

 

 

$

0.0605

 

 

$

8.93

 

 

$

8.9191

 

16

 

 

2,997.56

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0368

 

 

$

0.0197

 

 

$

0.0565

 

 

$

8.34

 

 

$

8.3275

 

17

 

 

2,907.63

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0344

 

 

$

0.0184

 

 

$

0.0528

 

 

$

7.78

 

 

$

7.7752

 

18

 

 

2,820.40

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0321

 

 

$

0.0171

 

 

$

0.0493

 

 

$

7.27

 

 

$

7.2595

 

19

 

 

2,735.79

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0300

 

 

$

0.0160

 

 

$

0.0460

 

 

$

6.79

 

 

$

6.7780

 

20

 

 

2,653.72

 

 

 

-0.0300

 

 

 

0.940

 

 

 

0.0280

 

 

$

0.0149

 

 

$

0.0429

 

 

$

6.34

 

 

$

6.3284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Index Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-45.62

%

Return on Securities (assumes no early redemption):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-74.65

%

 

(1)

The Index Closing Level is also: (i) the Last Reset Index Closing Level for the following day; and (ii) the index level used for calculating the Call Settlement Amount, the Redemption Amount and the Cash Settlement Amount.

(2)

Accrued Financing Fee is calculated on an act/360 basis (90-day quarters are assumed for the above calculations).

(3)

Accrued Tracking Fee is calculated on an act/365 basis.

(4)

The Current Principal Amount is equal to the Closing Indicative Value on each Reset Valuation Date and for Quarter 20 this is also the Cash Settlement Amount.

S-18


Hypothetical Examples

Example 3 — The level of the Index increases at a constant rate of 3.00% per quarter for the first ten quarters and then decreases at a constant rate of 3.00% per quarter for the next ten quarters.

 

Quarter End

 

Index

Closing

Level (1)

 

 

Index

Performance

Ratio

 

 

Index

Factor

 

 

Accrued

Financing

Fee for the

Applicable

Quarter (2)

 

 

Accrued

Tracking

Fee for the

Applicable

Quarter (3)

 

 

Accrued

Fees for the

Applicable

Quarter

 

 

Current

Principal

Amount (4)

 

 

Redemption

Amount

 

A

 

B

 

 

C

 

 

D

 

 

E

 

 

F

 

 

G

 

 

H

 

 

I

 

 

 

 

 

 

 

((Index

Closing

Level – Last

Reset Index

Closing

Level) / Last

Reset Index

Closing

Level)

 

 

(1 + (2.0

x C))

 

 

(Previous

Current

Principal

Amount x

Financing

Rate x

Act/360)

 

 

(per annum rate x

Previous

Current

Principal

Amount x D

x Act/365)

 

 

(E + F)

 

 

((Previous

Current

Principal

Amount x

D) – G)

 

 

(H *(1 –

Redemption

Fee Rate))

 

1

 

 

5,026.40

 

 

 

0.0300

 

 

 

1.060

 

 

 

0.1031

 

 

$

0.0621

 

 

$

0.1652

 

 

$