UBS has filed a registration statement (including a prospectus, as supplemented
by an index supplement and a product supplement for the Notes) with the Securities and Exchange Commission, or SEC, for the Notes
to which this document relates. Before you invest, you should read these documents and any other documents relating to the Notes
that UBS has filed with the SEC for more complete information about UBS and the Notes. You may obtain these documents for free
from the SEC website at www.sec.gov. Our Central Index Key, or CIK, on the SEC website is 0001114446. Alternatively, UBS will arrange
to send you these documents if you so request by calling toll-free 1-877-387-2275.
This document, together with the documents listed above, contains the
terms of the Notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including
all other prior pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other
educational materials of ours. You should carefully consider, among other things, the matters set forth in “Key Risks”
herein and in “Risk Factors” in the accompanying product supplement, as the Notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before deciding
to invest in the Notes.
UBS reserves the right to change the terms of, or reject any offer to purchase,
the Notes prior to their issuance. In the event of any changes to the terms of the Notes, UBS will notify you and you will be asked
to accept such changes in connection with your purchase. You may also choose to reject such changes in which case UBS may reject
your offer to purchase.
Issuer
|
UBS AG, London Branch
|
Principal
Amount
|
$10 per Note
|
Term
|
Approximately 60 months, unless called earlier.
|
Underlying
Indices
|
The MSCI EAFE
®
Index, the Russell 2000
®
Index and the S&P 500
®
Index.
|
Contingent
Coupon & Contingent Coupon Rate
|
If the closing level of each underlying index is equal to or greater
than its coupon barrier on any coupon observation date (including the final valuation date),
UBS will pay you the contingent
coupon applicable to such coupon observation date.
If the closing level of any underlying index is less than its coupon
barrier on any coupon observation date (including the final valuation date),
the contingent coupon applicable to such coupon
observation date will not accrue or be payable and UBS will not make any payment to you on the relevant coupon payment date.
The contingent coupon is a fixed amount based upon equal quarterly installments
at a per annum rate (the “contingent coupon rate”). The table below sets forth the contingent coupon amount that would
be applicable to each coupon observation date on which the closing level of each underlying index is equal to or greater than its
coupon barrier. Amounts in the table below may have been rounded for ease of analysis.
|
|
Contingent Coupon Rate
|
9.00%
|
Contingent Coupon
|
$0.225
|
|
Contingent coupons on the Notes are not guaranteed. UBS will not pay you the contingent coupon for any coupon observation date on
which the closing level of any underlying index is less than its coupon barrier.
|
Trigger Event
|
A trigger event is deemed to have occurred if the closing level of any
underlying index is less than its downside threshold on the trigger observation date.
In this case, you will be exposed to the underlying index return of
the least performing underlying index.
|
Trigger Observation Date(s)
(1)
|
February 16, 2023, which is the final valuation date.
|
Issuer Call
Feature
|
UBS may elect to call the Notes in whole, but not in part, on any coupon
observation date (quarterly, beginning after one year and other than the final valuation date), regardless of the closing levels
of the underlying indices on such coupon observation date.
If UBS elects to call the Notes, UBS will pay you on the coupon payment
date corresponding to such coupon observation date (the “call settlement date”) a cash payment per Note equal to the
principal amount plus any contingent coupon otherwise due, and no further payments will be made on the Notes. Before UBS elects
to call the Notes on a coupon observation date, UBS will deliver written notice to the trustee.
|
Payment
at
Maturity (per Note)
|
If UBS does not elect to call the Notes and a trigger event does not
occur,
UBS will pay you a cash payment equal to:
Principal Amount of $10
If UBS does not call the Notes and a trigger event occurs,
UBS
will pay you a cash payment that is less than the principal amount, if anything, equal to:
$10 x (1 + Underlying Index Return of the Least Performing
Underlying Index)
In such a case, you will suffer a percentage loss on your initial
investment equal to the underlying index return of the least performing underlying index, regardless of the underlying index return
of any other underlying index.
|
|
Underlying Index Return
|
With respect to each underlying index, the quotient, expressed as a
percentage, of the following formula:
Final Level – Initial Level
Initial Level
|
Least Performing Underlying Index
|
The underlying index with the lowest
underlying index return as compared to any other underlying index.
|
Downside Threshold
(2)
|
A specified
level of each underlying index that is less than its respective initial level, equal to a percentage of the initial level, as specified on the cover hereof.
|
Coupon Barrier
(2)
|
A specified level of each underlying
index that is less than its respective initial level, equal to a percentage of the initial level, as specified on the cover hereof.
|
Closing
Level
|
With respect to the MSCI EAFE
®
Index, the closing level of such underlying index as reported on Bloomberg Professional
®
Service (“Bloomberg”) is
published to fewer decimal places than the index sponsor for the MSCI EAFE
®
Index. As a result, the closing level of the MSCI EAFE
®
Index reported by Bloomberg generally may be lower or higher than the closing level published by the index sponsor.
|
Initial Level
(2)
|
The closing level of each underlying index on the trade date,
as specified on the cover hereof.
|
Final Level
(2)
|
The closing level of each underlying index on
the final valuation date.
|
|
|
(1)
|
Subject to the market disruption event provisions set forth in the
Trigger Callable Contingent Yield Notes product supplement.
|
|
(2)
|
As determined by the calculation agent and as may be adjusted as described under “General Terms
of the Notes — Discontinuance of or Adjustment to an Underlying Index; Alteration of Method of Calculation”, as described
in the Trigger Callable Contingent Yield Notes product supplement.
|
Trade Date
|
The initial level of each underlying index is observed, and the terms of the Notes are set.
|
↓
|
|
Quarterly (callable by UBS at its election quarterly, beginning after one year)
|
If the closing level of each underlying index is equal to or greater
than its coupon barrier on any coupon observation date (including the final valuation date),
UBS will pay you the contingent
coupon applicable to such coupon observation date.
If the closing level of any underlying index is less than its coupon
barrier on any coupon observation date (including the final valuation date),
the contingent coupon applicable to such coupon
observation date will not accrue or be payable and UBS will not make any payment to you on the relevant coupon payment date.
UBS may elect to call the Notes in whole, but not in part, on any coupon
observation date beginning after one year (other than the final valuation date), regardless of the closing levels of the underlying
indices on such coupon observation date.
If UBS elects to call the Notes, UBS will pay you on the call settlement
date a cash payment per Note equal to the principal amount plus any contingent coupon otherwise due, and no further payments will
be made on the Notes. Before UBS elects to call the Notes, UBS will deliver written notice to the trustee by the applicable coupon
observation date. If UBS does not elect to call the Notes, investors will have the potential for downside market risk at maturity.
|
↓
|
|
Maturity Date
|
The final level of each underlying index is observed on the final valuation
date (which is also the trigger observation date) and the underlying return of each underlying index is calculated.
If UBS does not elect to call the Notes and a trigger event does
not occur,
UBS will pay you a cash payment equal to:
Principal Amount of $10
If UBS does not call the Notes and a trigger event occurs,
UBS
will pay you a cash payment that is less than the principal amount, if anything, equal to:
$10 x (1 + Underlying Index Return of the Least Performing
Underlying Index)
In such a case, you will suffer a percentage loss on your initial investment
equal to the underlying index return of the least performing underlying index, regardless of the underlying index return of any
other underlying index.
|
Investing in the Notes involves significant risks. You may lose a significant
portion or all of your initial investment. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness
of UBS. If UBS were to default on its payment obligations, you may not receive any amounts owed to you under the Notes and you
could lose all of your initial investment.
You will lose a significant portion or all of your initial investment
if UBS does not elect to call the Notes and a trigger event occurs. You may not receive a significant portion or all of the contingent
coupons during the term of the Notes. You will be exposed to the market risk of each underlying index on each coupon observation
date and on the final valuation date and any decline in the level of one underlying index may negatively affect your return and
will not be offset or mitigated by a lesser decline or any potential increase in the level of any other underlying index. UBS may
elect to call the Notes at its discretion (quarterly, beginning after one year) regardless of the performance of the underlying
indices. If UBS does not elect to call the Notes and a trigger event occurs, you will lose a significant portion or all of your
initial investment at maturity.
Coupon Observation Dates
(1)
and Coupon Payment Dates
(1)(2)(3)
|
Coupon Observation Dates
|
Coupon Payment Dates/Call Settlement Dates (if called)
|
Coupon Observation Dates
|
Coupon Payment Dates/Call Settlement Dates (if called)
|
Coupon Observation Dates
|
Coupon Payment Dates/Call Settlement Dates (if called)
|
May 16, 2018*
|
May 18, 2018*
|
February 18, 2020
|
February 20, 2020
|
November 16, 2021
|
November 18, 2021
|
August 16, 2018*
|
August 20, 2018*
|
May 18, 2020
|
May 20, 2020
|
February 16, 2022
|
February 18, 2022
|
November 16, 2018*
|
November 20, 2018*
|
August 17, 2020
|
August 19, 2020
|
May 16, 2022
|
May 18, 2022
|
February 19, 2019*
|
February 21, 2019
|
November 16, 2020
|
November 18, 2020
|
August 16, 2022
|
August 18, 2022
|
May 16, 2019
|
May 20, 2019
|
February 16, 2021
|
February 18, 2021
|
November 16, 2022
|
November 18, 2022
|
August 16, 2019
|
August 20, 2019
|
May 17, 2021
|
May 19, 2021
|
Final Valuation Date
|
Maturity Date
|
November 18, 2019
|
November 20, 2019
|
August 16, 2021
|
August 18, 2021
|
|
|
|
*
|
The Notes are not callable until the first potential call settlement date, which is February 21, 2019.
|
|
(1)
|
Subject to the market disruption event provisions set forth in the Trigger Callable Contingent Yield Notes product supplement.
|
|
(2)
|
Two business days following each coupon observation date, except that the coupon payment date for the final valuation date is the maturity date.
|
|
(3)
|
If you are able to sell the Notes in the secondary market on an observation date, the purchaser of the
Notes will be deemed to be the record holder on the applicable record date and therefore you will not be entitled to any payment attributable to that observation date.
|
An investment in the Notes involves significant risks. Investing in the
Notes is not equivalent to investing in the underlying indices. Some of the key risks that apply to the Notes are summarized below,
but we urge you to read the more detailed explanation of risks relating to the Notes in the “Risk Factors” section
of the Trigger Callable Contingent Yield Notes product supplement. We also urge you to consult your investment, legal, tax, accounting
and other advisors before you invest in the Notes.
|
¨
|
Risk of loss at maturity
— The Notes differ from ordinary debt securities in that UBS will not necessarily repay the principal
amount of the Notes at maturity. If UBS does not elect to call the Notes, UBS will repay you the principal amount of your Notes in cash only if
a trigger event does not occur and will only make such payment at maturity. If UBS does not elect to call the Notes and a trigger event occurs,
you will lose a percentage of your principal amount equal to the underlying index return of the least performing underlying index and in extreme
situations, you could lose all of your initial investment.
|
|
¨
|
The stated payout from the issuer applies only if you hold your Notes to maturity
— You should be willing to hold your
Notes to maturity. If you are able to sell your Notes prior to maturity in the secondary market, you may have to sell them at a loss
relative to your initial investment even if the level of each underlying index at such time is equal to or greater than its downside threshold.
|
|
¨
|
You may not receive any contingent coupons with respect to your Notes
— UBS will not necessarily make periodic coupon
payments on the Notes. If the closing level of any underlying index is less than its respective coupon barrier on a coupon observation date,
UBS will not pay you the contingent coupon applicable to such coupon observation date. This will be the case even if the closing levels of the
other underlying indices are equal to or greater than their respective coupon barriers on that coupon observation date. If the closing level of
any underlying index is less than its coupon barrier on each coupon observation date, UBS will not pay you any contingent coupons during the term of,
and you will not receive a positive return on, your Notes. Generally, this non-payment of the contingent coupons coincides with a period of greater
risk of principal loss on your Notes.
|
|
¨
|
Your potential return on the Notes is limited to any contingent coupons, you will not participate in any appreciation of any
underlying index and you will not have the same rights as holders of any underlying constituents
— The return potential of
the Notes is limited to the pre-specified contingent coupon rate, regardless of the appreciation of the underlying indices. In addition,
your return on the Notes will vary based on the number of coupon observation dates, if any, on which the requirements of the contingent
coupon have been met prior to maturity or an issuer call. Because UBS may elect to call the Notes as early as the first potential call
settlement date, the total return on the Notes could be less than if the Notes remained outstanding until maturity. Further, if UBS elects
to call the Notes, you will not receive any contingent coupons or any other payment in respect of any coupon payment date after the call
settlement date, and your return on the Notes could be less than if the Notes remained outstanding until maturity. If UBS does not elect to
call the Notes, you may be subject to the decline of the least performing underlying index even though you cannot participate in any appreciation
in the level of any underlying index. As a result, the return on an investment in the Notes could be less than the return on a direct investment in
any or all of the underlying constituents. In addition, as an owner of the Notes, you will not have voting rights or any other rights of a holder of
any underlying constituents.
|
|
¨
|
A higher contingent coupon rate or lower downside thresholds or coupon barriers may reflect greater expected volatility of each of the
underlying indices, and greater expected volatility generally indicates an increased risk of loss at maturity
—The economic terms for
the Notes, including the contingent coupon rate, coupon barriers and downside thresholds, are based, in part, on the expected volatility of each
underlying index at the time the terms of the Notes are set. “Volatility” refers to the frequency and magnitude of changes in the level of
each underlying index. The greater the expected volatility of each of the underlying indices as of the trade date, the greater the expectation is as of
that date that the closing level of an underlying index could be less than its coupon barrier on the coupon observation dates and that the final level of
an underlying index could be less than its respective downside threshold on the trigger observation date and, as a consequence, indicates an increased
risk of not receiving a contingent coupon and an increased risk of loss, respectively. All things being equal, this greater expected volatility will
generally be reflected in a higher contingent coupon rate than the yield payable on our conventional debt securities with a similar maturity or on otherwise
comparable securities, and/or lower downside thresholds and/or coupon barriers than those terms on otherwise comparable securities. Therefore, a relatively
higher contingent coupon rate may indicate an increased risk of loss. Further, relatively lower downside thresholds and/or coupon barriers may not necessarily
indicate that the Notes have a greater likelihood of a return of principal at maturity and/or paying contingent coupons. You should be willing to accept the
downside market risk of the least performing underlying index and the potential to lose a significant portion or all of your initial investment.
|
|
¨
|
UBS may elect to call the Notes and the Notes are subject to reinvestment risk
— UBS may elect to call the Notes at its discretion
(quarterly, beginning after one year) prior to the maturity date. If UBS elects to call your Notes early, you will no longer have the opportunity to
receive any contingent coupons after the applicable call settlement date. The first call settlement date occurs after approximately three months and
therefore you may not have the opportunity to receive any contingent coupons after approximately three months. In the event UBS elects to call the Notes,
there is no guarantee that you would be able to reinvest the proceeds at a comparable return and/or with a comparable contingent coupon rate for a similar
level of risk. Further, UBS’ right to call the Notes may also adversely impact your ability to sell your Notes in the secondary market.
|
|
|
It is more likely that UBS will elect to call the Notes prior to
maturity when the expected contingent coupons payable on the Notes are greater than the interest that would be payable on other
instruments issued by UBS of comparable maturity, terms and credit rating trading in the market. The greater likelihood of UBS
calling the Notes in that environment increases the risk that you will not be able to reinvest the proceeds from the called Notes
in an equivalent investment with a similar contingent coupon rate. To the extent you are able to reinvest such proceeds in an investment
comparable to the Notes, you may incur transaction costs such as dealer discounts and hedging costs built into the price of the
new notes. UBS is less likely to call the Notes prior to maturity when the expected contingent coupons payable on the Notes are
less than the interest that would be payable on other comparable instruments issued by UBS, which includes when the level of any
of the underlying indices is less than its coupon barrier. Therefore, the Notes are more likely to remain outstanding when the
expected amount payable on the Notes is less than what would be payable on other comparable instruments and when your risk of not
receiving a contingent coupon is relatively higher.
|
|
¨
|
An investment in Notes with contingent coupon and issuer call features may be more sensitive to interest rate risk than an investment
in securities without such features
– Because of the issuer call and contingent coupon features of the Notes, you will bear greater
exposure to fluctuations in interest rates than if you purchased securities without such features. In particular, you may be negatively affected if
prevailing interest rates begin to rise, and the contingent coupon rate on the Notes may be less than the amount of interest you could earn on other
investments with a similar level of risk available at such time. In addition, if you tried to sell your Notes at such time, the value of your Notes in any
secondary market transaction would also be adversely affected. Conversely, in the event that prevailing interest
|
|
|
rates are low relative to the contingent coupon rate and UBS elects to call
the Notes, there is no guarantee that you will be able to reinvest the proceeds from an investment in the Notes at a comparable
rate of return for a similar level of risk.
|
|
¨
|
You are exposed to the market risk of each underlying index
— Your return on the Notes is not linked to a basket consisting
of the underlying indices. Rather, it will be contingent upon the performance of each underlying index. Unlike an instrument with a return linked
to a basket of indices, in which risk is mitigated and diversified among all of the components of the basket, you will be exposed equally to the
risks related to each underlying index. Poor performance by any one of the underlying indices over the term of the Notes will negatively affect your
return and will not be offset or mitigated by a positive performance by any other underlying index. For instance, you may receive a negative return equal
to the underlying index return of the least performing underlying index if the closing level of one underlying index is less than its downside threshold on
the trigger observation date, even if the underlying index return of another underlying index is positive or has not declined as much. Accordingly, your
investment is subject to the market risk of each underlying index.
|
|
¨
|
Because the Notes are linked to the least performing underlying index, you are exposed to a greater risk of no contingent coupons and losing a
significant portion or all of your initial investment at maturity than if the Notes were linked to a single underlying index or fewer underlying indices
—
The risk that you will not receive any contingent coupons and lose a significant portion or all of your initial investment in the Notes is greater if you invest
in the Notes than the risk of investing in substantially similar securities that are linked to the performance of only one underlying index or fewer underlying
indices. With more underlying indices, it is more likely that the closing level or final level of an underlying index will be less than its coupon barrier or
downside threshold on any coupon observation date or the final valuation date (which is also the trigger observation date), respectively, than if the Notes
were linked to a single underlying index or fewer underlying indices.
|
|
|
In addition, the lower the correlation is between a pair of underlying indices, the greater the likelihood that one underlying index
will decline to a closing level or final level that is less than its coupon barrier or downside threshold, as applicable.
Although the correlation of the underlying indices’ performance may change over the term of the Notes, the economic terms of the Notes, including the contingent coupon rate,
downside thresholds and coupon barriers are determined, in part, based on the correlation of the underlying indices’ performance calculated using our internal models at
the time when the terms of the Notes are finalized. All things being equal, a higher contingent coupon rate and lower downside thresholds and coupon barriers are generally
associated with lower correlation of the underlying indices. Therefore, if the performance of a pair of underlying indices is not correlated to each other or is negatively
correlated, the risk that you will not receive any contingent coupons or a trigger event will occur is even greater despite a lower downside threshold and coupon barrier.
With three underlying indices, it is more likely that the performance of one pair of underlying indices will not be correlated, or will be negatively correlated.
Therefore, it is more likely that you will not receive any contingent coupons and that you will lose a significant portion or all of your initial investment at maturity.
|
|
¨
|
Any payment on the Notes is subject to the creditworthiness of UBS
— The Notes are unsubordinated unsecured debt obligations of UBS and are not, either
directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment of principal, depends on the ability of UBS to
satisfy its obligations as they come due. As a result, UBS’ actual and perceived creditworthiness may affect the market value of the Notes. If UBS were to default
on its obligations, you may not receive any amounts owed to you under the terms of the Notes and you could lose all of your initial investment.
|
|
¨
|
Market risk
— The return on the Notes, which may be negative, is directly linked to the performance of the underlying indices and indirectly
linked to the performance of the underlying constituents. The levels of the underlying indices can rise or fall sharply due to factors specific to each underlying
index or its underlying constituents, such as stock or commodity price volatility, earnings, financial conditions, corporate, industry and regulatory developments,
management changes and decisions and other events, as well as general market factors, such as general stock market or commodity market levels, interest rates and
economic and political conditions.
|
|
¨
|
Fair value considerations.
|
|
¨
|
The issue price you pay for the Notes exceeds their estimated initial value
— The issue price you pay for the Notes exceeds their estimated
initial value as of the trade date due to the inclusion in the issue price of the underwriting discount, hedging costs, issuance costs and projected profits.
As of the close of the relevant markets on the trade date, we have determined the estimated initial value of the Notes by reference to our internal pricing models
and the estimated initial value of the Notes is set forth in this pricing supplement. The pricing models used to determine the estimated initial value of the Notes
incorporate certain variables, including the levels of the underlying indices, the volatility of the underlying indices, the correlation among the underlying indices,
any dividends paid on the underlying constituents, prevailing interest rates, the term of the Notes and our internal funding rate. Our internal funding rate is typically
lower than the rate we would pay to issue conventional fixed or floating rate debt securities of a similar term. The underwriting discount, hedging costs, issuance costs,
projected profits and the difference in rates will reduce the economic value of the Notes to you. Due to these factors, the estimated initial value of the Notes as of the
trade date is less than the issue price you pay for the Notes.
|
|
¨
|
The estimated initial value is a theoretical price; the actual price that you may be able to sell your Notes in any secondary market (if any) at any time after
the trade date may differ from the estimated initial value
— The value of your Notes at any time will vary based on many factors, including the factors described
above and in “—Market risk” above and is impossible to predict. Furthermore, the pricing models that we use are proprietary and rely in part on certain
assumptions about future events, which may prove to be incorrect. As a result, after the trade date, if you attempt to sell the Notes in the secondary market, the actual
value you would receive may differ, perhaps materially, from the estimated initial value of the Notes determined by reference to our internal pricing models. The estimated
initial value of the Notes does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Notes in
any secondary market at any time.
|
|
¨
|
Our actual profits may be greater or less than the differential between the estimated initial value and the issue price of the Notes as of the trade
date
— We may determine the economic terms of the Notes, as well as hedge our obligations, at least in part, prior to the trade date. In addition,
there may be ongoing costs to us to maintain and/or adjust any hedges and such hedges are often imperfect. Therefore, our actual profits (or potentially, losses)
in issuing the Notes cannot be determined as of the trade date and any such differential between the estimated initial value and the issue price of the Notes as
of the trade date does not reflect our actual profits. Ultimately, our actual profits will be known only at the maturity of the Notes.
|
|
¨
|
Limited or no secondary market and secondary market price considerations.
|
|
¨
|
There may be little or no secondary market for the Notes
— The Notes will not be listed or displayed on any securities exchange or
any electronic communications network. UBS Securities LLC and its affiliates intend, but are not required, to make a market for the Notes and may
stop making a market at any time. If you are able to sell your Notes prior to maturity you may have to sell them at a
|
|
|
substantial loss. Furthermore, there can be no assurance that a secondary market for the Notes will develop. The
estimated initial value of the Notes does not represent a minimum or maximum price at which we or any of our affiliates would
be willing to purchase your Notes in any secondary market at any time.
|
|
¨
|
The price at which UBS Securities LLC and its affiliates may offer to buy the Notes in the secondary market (if any) may be
greater than UBS’ valuation of the Notes at that time, greater than any other secondary market prices provided by unaffiliated
dealers (if any) and, depending on your broker, greater than the valuation provided on your customer account statements
—
For a limited period of time following the issuance of the Notes, UBS Securities LLC or its affiliates may offer to buy or sell such
Notes at a price that exceeds (i) our valuation of the Notes at that time based on our internal pricing models, (ii) any secondary market
prices provided by unaffiliated dealers (if any) and (iii) depending on your broker, the valuation provided on customer account statements.
The price that UBS Securities LLC may initially offer to buy such Notes following issuance will exceed the valuations indicated by our internal
pricing models due to the inclusion for a limited period of time of the aggregate value of the underwriting discount, hedging costs, issuance
costs and theoretical projected trading profit. The portion of such amounts included in our price will decline to zero on a straight line basis
over a period ending no later than the date specified under “Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets
(if any).” Thereafter, if UBS Securities LLC or an affiliate makes secondary markets in the Notes, it will do so at prices that reflect our
estimated value determined by reference to our internal pricing models at that time. The temporary positive differential relative to our internal
pricing models arises from requests from and arrangements made by UBS Securities LLC with the selling agents of structured debt securities such as
the Notes. As described above, UBS Securities LLC and its affiliates intend, but are not required, to make a market for the Notes and may stop making
a market at any time. The price at which UBS Securities LLC or an affiliate may make secondary markets at any time (if at all) will also reflect its
then current bid-ask spread for similar sized trades of structured debt securities. UBS Financial Services Inc. and UBS Securities LLC reflect this
temporary positive differential on their customer statements. Investors should inquire as to the valuation provided on customer account
statements provided by unaffiliated dealers.
|
|
¨
|
Economic and market factors affecting the terms and market price of Notes prior to maturity
— Because structured notes,
including the Notes, can be thought of as having a debt component and a derivative component, factors that influence the values of debt
instruments and options and other derivatives will also affect the terms and features of the Notes at issuance and the market price of the
Notes prior to maturity. These factors include the levels of each underlying index and the underlying constituents; the volatility of each
underlying index and the underlying constituents; the correlation among the underlying indices, any dividends paid on the underlying constituents;
the time remaining to the maturity of the Notes; interest rates in the markets; geopolitical conditions and economic, financial, political, force majeure
and regulatory or judicial events; the creditworthiness of UBS; the then current bid-ask spread for the Notes and the factors discussed under “—
Potential conflict of interest” below. These and other factors are unpredictable and interrelated and may offset or magnify each other.
|
|
¨
|
Impact of fees and the use of internal funding rates rather than secondary market credit spreads on secondary market prices
—
All other things being equal, the use of the internal funding rates described above under “— Fair value considerations” as well
as the inclusion in the issue price of the underwriting discount, hedging costs, issuance costs and any projected profits are, subject to the temporary
mitigating effect of UBS Securities LLC’s and its affiliates’ market making premium, expected to reduce the price at which you may be
able to sell the Notes in any secondary market.
|
|
¨
|
The Notes are subject to small-capitalization stock risks
— The Notes are subject to risks associated with small-capitalization
companies. The Russell 2000
®
Index is comprised of underlying constituents that may be considered small-capitalization companies.
These companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore
the underlying index may be more volatile than an index in which a greater percentage of the underlying constituents are issued by large-capitalization
companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business and
economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition, small-capitalization companies are typically
less stable financially than large-capitalization companies and may depend on a small number of key personnel, making them more vulnerable to loss of personnel.
Small-capitalization companies are often given less analyst coverage and may be in early, and less predictable, periods of their corporate existences. Such
companies tend to have smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources and less
competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to their products.
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¨
|
The Notes are subject to non-U.S. securities market risks
— The Notes are subject to risks associated with non-U.S. securities
markets. The Notes are linked to the MSCI EAFE
®
Index, which is comprised of underlying constituents issued by non-U.S. companies
in non-U.S. securities markets and therefore, are subject to risks associated with non-U.S. securities markets. An investment in Notes linked directly
or indirectly to the value of securities issued by non-U.S. companies involves particular risks. Generally, non-U.S. securities markets may be more
volatile than U.S. securities markets, and market developments may affect non-U.S. markets differently from U.S. securities markets. Direct or indirect
government intervention to stabilize these non-U.S. markets, as well as cross shareholdings in non-U.S. companies, may affect trading prices and volumes
in those markets. There is generally less publicly available information about non-U.S. companies than about those U.S. companies that are subject to the
reporting requirements of the SEC, and non-U.S. companies are subject to accounting, auditing and financial reporting standards and requirements that
differ from those applicable to U.S. reporting companies. Note prices in non-U.S. countries are subject to political, economic, financial and social factors
that may be unique to the particular country. These factors, which could negatively affect the non-U.S. securities markets, include the possibility of recent
or future changes in the non-U.S. government’s economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other
non-U.S. laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities and the possibility of fluctuations in the rate of
exchange between currencies. Moreover, certain aspects of a particular non-U.S. economy may differ favorably or unfavorably from the U.S. economy in important
respects, such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
|
|
¨
|
There Notes are subject to currency exchange risks
— The Notes are subject to risks associated with currency exchange risks because the prices of
the underlying constituents of the MSCI EAFE
®
Index are converted into U.S. dollars by the index sponsor for the purposes of calculating its closing
level. You will be exposed to currency exchange rate risk with respect to each of the currencies in which the underlying constituents trade. Your net exposure will
depend on the extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of the underlying constituents denominated in each
of those currencies. If, taking into account the relevant weighting, the U.S. dollar strengthens against those currencies, the level of the MSCI EAFE
®
Index will be adversely affected and consequently the likelihood of receiving a contingent on any coupon observation date and/or the payment at maturity of the Notes,
if any, may be reduced.
|
|
¨
|
There can be no assurance that the investment view implicit in the Notes will be successful
— It is impossible to predict whether and the
extent to which the levels of the underlying indices will rise or fall. There can be no assurance that the closing level of each underlying index will be
equal to or greater than its coupon barrier on each coupon observation date, or, if UBS does not elect to call the Notes, that a trigger event will not occur.
The levels of the underlying indices will be influenced by complex and interrelated political, economic, financial
|
|
|
and other factors that affect the issuers of each underlying constituent (each an “underlying constituent
issuer”). You should be willing to accept the risks associated with the relevant markets tracked by each such
underlying index in general and each index's underlying constituents in particular, and the risk of losing a
significant portion or all of your initial investment.
|
|
¨
|
The underlying indices reflect price return, not total return
— The return on your Notes is based on the performance of the underlying
indices, which reflect the changes in the market prices of the underlying constituents. It is not, however, linked to a “total return” index or
strategy, which, in addition to reflecting those price returns, would also reflect any dividends paid on the underlying constituents. The return on your
Notes will not include such a total return feature or dividend component.
|
|
¨
|
Changes that affect an underlying index will affect the market value of your Notes
— The policies of each index sponsor as specified
under “Information About the Underlying Indices” (together, the "index sponsors"), concerning additions, deletions and substitutions
of the underlying constituents and the manner in which the index sponsor takes account of certain changes affecting those underlying constituents may
adversely affect the levels of the underlying indices. The policies of the index sponsors with respect to the calculation of the underlying indices could
also adversely affect the levels of the underlying indices. The index sponsors may discontinue or suspend calculation or dissemination of the underlying indices.
Any such actions could have an adverse effect on the value of the Notes.
|
|
¨
|
UBS cannot control actions by the index sponsors and the index sponsors have no obligation to consider your interests
—
UBS and its affiliates are not affiliated with the index sponsors and have no ability to control or predict their actions, including any
errors in or discontinuation of public disclosure regarding methods or policies relating to the calculation of the underlying indices.
The index sponsors are not involved in the Notes offering in any way and has no obligation to consider your interest as an owner of the Notes in taking
any actions that might affect the market value of your Notes.
|
|
¨
|
Except to the extent our common stock is included in the MSCI EAFE
®
Index, we have no affiliation with any index sponsor
or any other underlying constituent issuer and we are not responsible for any disclosure by such sponsors or issuers —
Although we
are currently one of the underlying constituents of the MSCI EAFE
®
Index, we are not affiliated with any index sponsor or any of
the other underlying constituent issuers. We and our affiliates may currently, or from time to time in the future engage in business with one or
more of the index sponsors or other underlying constituent issuers. However, except to the extent that our common stock is included in the MSCI
EAFE
®
Index, we are not affiliated with any index sponsor or any other underlying constituent issuer and are not responsible for
such sponsor or issuer’s public disclosure of information, whether contained in SEC filings or otherwise. You, as an investor in the Notes,
should conduct your own investigation into each index sponsor and each underlying index and its underlying constituents. None of the index sponsors or
other underlying constituent issuers are involved in the Notes offered hereby in any way and none have any obligation of any sort with respect to your Notes.
None of the underlying index issuers or other underlying constituent issuers have any obligation to take your interests into consideration for any reason,
including when taking any corporate actions that might affect the value of your Notes.
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¨
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Potential UBS impact on price
— Trading or transactions by UBS or its affiliates in an underlying index or any underlying
constituent, as applicable, listed and/or over-the-counter options, futures, exchange-traded funds or other instruments with returns linked
to the performance of the underlying index or any underlying constituent, may adversely affect the levels of the underlying indices and,
therefore, the market value of the Notes. Further, UBS is less likely to call the Notes when the closing level of any underlying index is trading
less than its coupon barrier, and, therefore, any hedging activities that adversely affect the level of such index may also diminish the
probability of UBS calling the Notes.
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|
¨
|
Potential conflict of interest
— UBS and its affiliates may engage in business with the underlying constituent issuers or trading activities
related to one or more underlying index or any underlying constituents, which may present a conflict between the interests of UBS and you, as a holder of the
Notes. Moreover, UBS may elect to call the Notes pursuant to the issuer call feature (quarterly, beginning after one year). If UBS so elects, the decision
may be based on factors contrary to those favorable to a holder of the Notes, such as, but not limited to, those described above under “—
UBS may elect to call the Notes and the Notes are subject to reinvestment risk” and “— An investment in Notes with contingent coupon
and issuer call features may be more sensitive to interest rate risk than an investment in securities without such features”. There are also potential
conflicts of interest between you and the calculation agent, which will be an affiliate of UBS. The calculation agent will determine whether the contingent
coupon is payable to you on any coupon payment date and the payment at maturity of the Notes, if any, based on observed closing levels of the underlying indices.
The calculation agent can postpone the determination of the initial level, closing level or final level of any underlying index (and therefore the related coupon
payment date or maturity date, as applicable) if a market disruption event occurs and is continuing on the trade date, any coupon observation date, any trigger
observation date or final valuation date, respectively. As UBS determines the economic terms of the Notes, including the contingent coupon rate, downside
thresholds and coupon barriers, and such terms include the underwriting discount, hedging costs, issuance costs and projected profits, the Notes represent
a package of economic terms. There are other potential conflicts of interest insofar as an investor could potentially get better economic terms if that
investor entered into exchange-traded and/or OTC derivatives or other instruments with third parties, assuming that such instruments were available and the
investor had the ability to assemble and enter into such instruments.
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¨
|
Potentially inconsistent research, opinions or recommendations by UBS
— UBS and its affiliates publish research from time to time
on financial markets and other matters that may influence the value of the Notes, or express opinions or provide recommendations that are inconsistent
with purchasing or holding the Notes. Any research, opinions or recommendations expressed by UBS or its affiliates may not be consistent with each other
and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the Notes
and the underlying indices to which the Notes are linked.
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¨
|
The Notes are not bank deposits
— An investment in the Notes carries risks which are very different from the risk profile of a
bank deposit placed with UBS or its affiliates. The Notes have different yield and/or return, liquidity and risk profiles and would not benefit
from any protection provided to deposits.
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|
¨
|
Under certain circumstances, the Swiss Financial Market Supervisory Authority (“FINMA”) has the power to take actions that may
adversely affect the Notes
— Pursuant to article 25 et seq. of the Swiss Banking Act, FINMA has broad statutory powers to take measures
and actions in relation to UBS if it (i) is over indebted, (ii) has serious liquidity problems or (iii) fails to fulfill the applicable capital adequacy
provisions after expiration of a deadline set by FINMA. If one of these prerequisites is met, the Swiss Banking Act grants significant discretion to FINMA
to open restructuring proceedings or liquidation (bankruptcy) proceedings in respect of, and/or impose protective measures in relation to, UBS. In particular,
a broad variety of protective measures may be imposed by FINMA, including a bank moratorium or a maturity postponement, which measures may be ordered by FINMA
either on a stand-alone basis or in connection with restructuring or liquidation proceedings. In a restructuring proceeding, the resolution plan may, among other
things, (a) provide for the transfer of UBS’ assets or a portion thereof, together with debts and other liabilities, and contracts of UBS, to another entity,
(b) provide for the conversion of UBS’ debt and/or other obligations, including its obligations under the Notes, into equity and/or (c) potentially provide
for haircuts on obligations of UBS, including its obligations under the Notes. Although no precedent exists, if one or more measures under the revised regime
were imposed, such measures may have a material adverse effect on the terms and market value of the Notes and/or the ability of UBS to make payments thereunder.
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¨
|
Dealer incentives
— UBS and its affiliates act in various capacities with respect to the Notes. We and our affiliates may
act as a principal, agent or dealer in connection with the sale of the Notes. Such affiliates, including the sales representatives, will derive
compensation from the distribution of the Notes and such compensation may serve as an incentive to sell these Notes instead of other investments.
We will pay total underwriting compensation in an amount equal to the underwriting discount listed on the cover hereof per Note to any of our affiliates
acting as agents or dealers in connection with the distribution of the Notes. Given that UBS Securities LLC and its affiliates temporarily maintain a market
making premium, it may have the effect of discouraging UBS Securities LLC and its affiliates from recommending sale of your Notes in the secondary market.
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¨
|
Uncertain tax treatment
— Significant aspects of the tax treatment of the Notes are uncertain. You should consult
your tax advisor about your tax situation.
|
Hypothetical Examples of How the Notes Might Perform
|
The below examples are based on hypothetical terms. The actual terms
are indicated on the cover hereof.
The examples below illustrate the payment upon a call or at maturity for
a $10 Note on a hypothetical offering of the Notes, with the following assumptions (amounts may have been rounded for ease of reference):
Principal Amount:
|
$10
|
Term:
|
Approximately 60 months
|
Contingent Coupon Rate:
|
6.00% per annum (or 1.50% per quarter)
|
Contingent Coupon:
|
$0.15 per quarter
|
Coupon Observation Dates:
|
Quarterly (callable after one year)
|
Trigger Observation Date:
|
Final Valuation Date
|
Initial Level:
|
|
Underlying Index A:
|
2,000
|
Underlying Index B:
|
1,500
|
Underlying Index C:
|
2,800
|
Coupon Barrier:
|
|
Underlying Index A:
|
1,400 (which is equal to 70% of the Initial Level)
|
Underlying Index B:
|
1,050 (which is equal to 70% of the Initial Level)
|
Underlying Index C:
|
1,960 (which is equal to 70% of the Initial Level)
|
Downside Threshold:
|
|
Underlying Index A:
|
1,200 (which is equal to 60% of the Initial Level)
|
Underlying Index B:
|
900 (which is equal to 60% of the Initial Level)
|
Underlying Index C:
|
1,680 (which is equal to 60% of the Initial Level)
|
Example 1 — On the fourth Coupon Observation Date (the Coupon
Observation Date corresponding to the first potential call settlement date), UBS calls the Notes.
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
Underlying Index A: 1,500 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,100 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,000 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15
|
Second Coupon Observation Date
|
|
Underlying Index A: 1,550 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,220 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 1,990 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15
|
Third Coupon Observation Date
|
|
Underlying Index A: 1,570 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,230 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,000 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15
|
Fourth Coupon Observation Date
|
|
Underlying Index A: 1,600 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,210 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 1,980 (
equal
to or greater than
Coupon Barrier)
|
|
$10.15 (Settlement Amount)
|
|
|
Total Payment:
|
|
$10.60 (6.00% total return)
|
Because UBS elects to call the Notes after the fourth coupon observation
date, UBS will pay on the call settlement date a total of $10.15 per Note (reflecting your principal amount plus the applicable
contingent coupon). When added to the contingent coupon of $0.45 received in respect of prior coupon observation dates, you will
have received a total of $10.60, a 6.00% total return on the Notes. You will not receive any further payments on the Notes.
Example 2 — On the Fifth Coupon Observation Date (the Coupon
Observation Date corresponding to the second potential call settlement date), UBS calls the Notes.
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
Underlying Index A: 1,600 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,200 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,100 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15
|
Second Coupon Observation Date
|
|
Underlying Index A: 1,500 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,200 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 1,990 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15
|
Third and Fourth Coupon Observation Date
|
|
Underlying Index A: Various (all
equal
to or greater than
Coupon Barrier)
Underlying Index B: Various (all
equal
to or greater than
Coupon Barrier)
Underlying Index C: Various (all
equal
to or greater than
Coupon Barrier)
|
|
$0.30
|
Fifth Coupon Observation Date
|
|
Underlying Index A: 1,500 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,150 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,500 (
equal
to or greater than
Coupon Barrier)
|
|
$10.15 (Settlement Amount)
|
|
|
Total Payment:
|
|
$10.75 (7.50% total return)
|
Because UBS elects to call the Notes after the fifth coupon observation
date, UBS will pay on the call settlement date a total of $10.15 per Note (reflecting your principal amount plus the applicable
contingent coupon). When added to the contingent coupon of $0.60 received in respect of prior coupon observation dates, you will
have received a total of $10.75, a 7.50% total return on the Notes. You will not receive any further payments on the Notes.
Example 3 — UBS does NOT call the Notes and a Trigger Event
does not occur.
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
Underlying Index A: 1,500 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,070 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 1,990 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15 (Contingent Coupon)
|
Second Coupon Observation Date
|
|
Underlying Index A: 1,550 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,200 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,300 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15 (Contingent Coupon)
|
Third through Nineteenth Coupon Observation Dates
|
|
Underlying Index A: Various (all
equal
to or greater than
Coupon Barrier)
Underlying Index B: Various (all
less than
Coupon Barrier)
Underlying Index C: Various (all
less than
Coupon Barrier)
|
|
$0.00
|
Final Coupon Observation Date
|
|
Underlying Index A: 1,400 (
equal
to or greater than
Coupon Barrier and Downside Threshold)
Underlying Index B: 1,200 (
equal
to or greater than
Coupon Barrier and Downside Threshold)
Underlying Index C: 2,200 (
equal
to or greater than
Coupon Barrier and Downside Threshold)
|
|
$10.15 (Payment at Maturity)
|
|
|
Total Payment:
|
|
$10.45 (4.50% total return)
|
Because UBS does not elect to call the Notes and the final level of each
underlying index is equal to or greater than its downside threshold, a trigger event has not occurred. At maturity, UBS will pay
a total of $10.45 per Note (reflecting your principal amount plus the applicable contingent coupon). When added to the contingent
coupons of $0.30 received in respect of the prior coupon observation dates, UBS will have paid a total of $10.45, a 4.50% total
return on the Notes.
Example 4 — UBS does NOT call the Notes and a Trigger Event
occurs.
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
Underlying Index A: 1,500 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,080 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,000 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15 (Contingent Coupon)
|
Second Coupon Observation Date
|
|
Underlying Index A: 1,450 (
equal
to or greater than
Coupon Barrier)
Underlying Index B: 1,150 (
equal
to or greater than
Coupon Barrier)
Underlying Index C: 2,200 (
equal
to or greater than
Coupon Barrier)
|
|
$0.15 (Contingent Coupon)
|
Third through Nineteenth Coupon Observation Dates
|
|
Underlying Index A: Various (all
equal
to or greater than
Coupon Barrier)
Underlying Index B: Various (all
less than
Coupon Barrier)
Underlying Index C: Various (all
equal to or greater than
Coupon Barrier)
|
|
$0.00
|
Final Coupon Observation Date
|
|
Underlying Index A: 1,650 (
equal
to or greater than
Coupon Barrier and Downside Threshold)
|
|
$10.00 × [1 + Underlying Index Return of the Least Performing Underlying Index] =
|
|
|
Underlying Index B: 600
(
less than
Coupon Barrier and Downside Threshold)
|
|
$10.00 ×
[1 + (-60%)] =
$10.00 × 40%=
|
|
|
Underlying Index C: 2,600
(
equal to or greater than
Coupon Barrier and Downside Threshold)
|
|
$4.00 (Payment at Maturity)
|
|
|
Total Payment:
|
|
$4.30 (57.00% loss)
|
Because UBS does not elect to call the Notes and the final level of underlying
index B is less than its downside threshold, a trigger event occurs. Therefore, at maturity, you will be exposed to the negative
return of the least performing underlying index and UBS will pay you $4 per Note. When added to the contingent coupons of $0.30
received in respect of prior coupon observation dates, UBS will have paid you $4.30 per Note for a loss on the Notes of 57.00%.
We make no representation or warranty as to which of the underlying
indices will be the least performing underlying index for the purposes of calculating your actual payment at maturity.
Investing in the Notes involves significant risks. The Notes differ
from ordinary debt securities in that UBS is not necessarily obligated to repay the full amount of your initial investment. If
the UBS does not elect to call the Notes, you may lose a significant portion or all of your investment. Specifically, if UBS does
not elect to call the Notes and a trigger event occurs, you will lose a percentage of your principal amount equal to the underlying
index return of the least performing underlying index, and in extreme situations, you could lose all of your initial investment.
You will be exposed to the market risk of each underlying index on each
coupon observation dates and on the final valuation date and any decline in the level of one underlying index may negatively affect
your return and will not be offset or mitigated by a lesser decline or any potential increase in the level of any other underlying
index. UBS may elect to call the Notes at its discretion (quarterly, beginning after one year) regardless of the performance of
the underlying indices. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness of UBS.
If UBS were to default on its payment obligations, you may not receive any amounts owed to you under the Notes and you could lose
all of your initial investment.
Information About the Underlying Indices
|
All disclosures contained in this document regarding each underlying
index for the Notes are derived from publicly available information. UBS has not conducted any independent review or due diligence
of any publicly available information with respect to any underlying index. You should make your own investigation into each underlying
index.
Included on the following pages is a brief description of each underlying
index. This information has been obtained from publicly available sources. Set forth below is a table that provides the quarterly
closing high and quarterly closing low for each underlying index. The information given below is for the specified calendar quarters.
We obtained the closing level information set forth below from Bloomberg without independent verification. You should not take
the historical prices of the underlying index as an indication of future performance.
MSCI EAFE
®
Index
We have derived all information contained herein regarding the MSCI EAFE
®
Index (“MXEA”), including without limitation, its make-up, method of calculation and changes in its components from
publicly available information. Such information reflects the policies of, and is subject to change by MSCI Inc. (the “index
sponsor” or “MSCI”).
As discussed more fully in the index supplement under the heading “Underlying
Indices and Underlying Index Publishers — Non-U.S. Indices — MSCI Indexes” and “ — MSCI
®
EAFE Index
SM
”, MXEA is a free float-adjusted market capitalization index that is designed to measure developed
market equity performance in Europe, Asia, Australia and the Far East. MXEA includes components from all countries in Europe, Australia
and the Far East that are designated by MSCI as Developed Markets.
The five largest developed market countries included and their relative
weightings as of January 31, 2018 are: Japan (23.95%), the United Kingdom (17.40%), France (10.88%), Germany (9.95%) and Switzerland
(7.98%). Other countries account for 29.84% of MXEA and include Australia, Austria, Belgium, Denmark, Finland, Hong Kong, Ireland,
Israel, Italy, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain and Sweden. MXEA covers approximately 85% of the
free float-adjusted market capitalization in each country.
As of January 31, 2018, the companies included in MXEA were divided into
eleven global industry classification Sectors, each having a relative weight within MXEA as follows: Financials (21.58%), Industrials
(14.78%), Consumer Discretionary (12.39%), Consumer Staples (10.86%), Health Care (9.99%), Materials (8.28%), Information Technology
(6.44%), Energy (5.28%), Telecommunication Services (3.82%), Real Estate (3.50%) and Utilities (3.08%).
MXEA is based on the MSCI Global Investable Market Indexes Methodology
— an approach to index construction that assesses global and cross regional comparisons across all market capitalization
size, sector and style segments and combinations. This methodology aims to provide exhaustive coverage of the relevant investment
opportunity set with a strong emphasis on index liquidity, investability and replicability. MXEA is reviewed quarterly with the
objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover. During
semi-annual index reviews, MXEA is rebalanced and the large and mid-capitalization cutoff points are recalculated.
Information from outside sources is not incorporated by reference in, and
should not be considered part of, this document or any accompanying prospectus. UBS has not conducted any independent review or
due diligence of any publicly available information with respect to MXEA.
Information about the MXEA, including the methodology used to calculate
the MXEA, is available at msci.com/index-methodology. We are not incorporating by reference the website or any material it includes
in this document.
Historical Information
The following table sets forth the quarterly closing high and quarterly
closing low for the MXEA, based on the daily closing levels as reported by Bloomberg, without independent verification. Bloomberg
reports the closing level of MXEA to fewer decimal places than MSCI, the index sponsor. UBS has not conducted any independent review
or due diligence of publicly available information obtained from Bloomberg. The closing level of the MXEA on February 16, 2018
was 2,075.67.
Past performance of the MXEA is not indicative of the future performance of the MXEA.
Quarter Begin
|
Quarter End
|
Quarterly Closing High
|
Quarterly Closing Low
|
Quarterly Close
|
1/1/2013
|
3/28/2013
|
1,713.66
|
1,604.15
|
1,674.30
|
4/1/2013
|
6/28/2013
|
1,781.84
|
1,598.66
|
1,638.94
|
7/1/2013
|
9/30/2013
|
1,844.39
|
1,645.23
|
1,818.23
|
10/1/2013
|
12/31/2013
|
1,915.60
|
1,790.27
|
1,915.60
|
1/1/2014
|
3/31/2014
|
1,940.23
|
1,796.86
|
1,915.69
|
4/1/2014
|
6/30/2014
|
1,992.69
|
1,882.24
|
1,972.12
|
7/1/2014
|
9/30/2014
|
1,995.49
|
1,846.08
|
1,846.08
|
10/1/2014
|
12/31/2014
|
1,848.79
|
1,714.64
|
1,774.89
|
1/1/2015
|
3/31/2015
|
1,900.90
|
1,697.01
|
1,849.34
|
4/1/2015
|
6/30/2015
|
1,949.49
|
1,842.46
|
1,842.46
|
7/1/2015
|
9/30/2015
|
1,894.42
|
1,609.50
|
1,644.40
|
10/1/2015
|
12/31/2015
|
1,779.25
|
1,654.98
|
1,716.28
|
1/1/2016
|
3/31/2016
|
1,716.28
|
1,492.43
|
1,652.04
|
4/1/2016
|
6/30/2016
|
1,716.51
|
1,520.94
|
1,608.45
|
7/1/2016
|
9/30/2016
|
1,734.72
|
1,573.30
|
1,701.69
|
10/1/2016
|
12/30/2016
|
1,704.84
|
1,614.17
|
1,684.00
|
1/1/2017
|
3/31/2017
|
1,812.06
|
1,676.93
|
1,792.98
|
4/1/2017
|
6/30/2017
|
1,916.37
|
1,774.47
|
1,883.19
|
7/1/2017
|
9/30/2017
|
1,981.49
|
1,874.10
|
1,973.81
|
10/1/2017
|
12/31/2017
|
2,050.79
|
1,971.41
|
2,050.79
|
1/1/2018
|
2/16/2018*
|
2,186.65
|
1,992.31
|
2,075.67
|
|
*
|
The above table only includes data through this date. Accordingly, the “Quarterly Closing
High,” “Quarterly Closing Low” and “Quarterly Close” data indicated are for this shortened period
only and do not reflect complete data for this calendar quarter.
|
The graph below illustrates the performance of
MXEA from January 1, 2008 through February 16, 2018, based on information from Bloomberg. The dotted lines represent the
downside threshold and the coupon barrier of 1,245.40 and 1,452.97, which are equal to 60% and 70%, respectively, of the initial
level.
Past performance of MXEA is not indicative of the future performance of MXEA.
Russell 2000
®
Index
We have derived all information regarding the Russell 2000
®
Index (“RTY”) contained in this document, including, without limitation, its make-up, method of calculation and changes
in its components, from publicly available information. Such information reflects the policies of, and is subject to change by
the Frank Russell Company (the “index sponsor” or “FTSE Russell”).
FTSE Russell has no obligation to continue to publish RTY, and may discontinue
publication of RTY at any time.
RTY is published by FTSE Russell. As discussed more fully in the index
supplement under the heading “Underlying Indices and Underlying Asset Publishers – Russell 2000 Index,” RTY measures
the composite price performance of the smallest 2,000 companies included in the Russell 3000 Index. The Russell 3000 Index is composed
of the 3,000 largest United States companies by market capitalization and represents approximately 98% of the market capitalization
of the United States equity market. RTY value is calculated by adding the market values of the index’s component stocks and
then dividing the derived total market capitalization by the “adjusted” capitalization of RTY on the base date of December
31, 1986.
Information from outside sources is not incorporated by reference in, and
should not be considered part of, this document or any accompanying prospectus. UBS has not conducted any independent review or
due diligence of any publicly available information with respect to RTY.
Historical Information
The following table sets forth the quarterly closing high and quarterly closing
low for RTY, based on the daily closing levels as reported by Bloomberg, without independent verification. UBS has not conducted
any independent review or due diligence of publicly available information obtained from Bloomberg. The closing level of RTY on
February 16, 2018 was 1,543.551.
Past performance of RTY is not indicative of the future performance of RTY.
Quarter Begin
|
Quarter End
|
Quarterly Closing High
|
Quarterly Closing Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/30/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
9/30/2017
|
1,490.861
|
1,356.905
|
1,490.861
|
10/1/2017
|
12/31/2017
|
1,548.926
|
1,464.095
|
1,535.511
|
1/1/2018
|
2/16/2018*
|
1,610.706
|
1,463.793
|
1,543.551
|
* The above table only includes data through this date. Accordingly, the
“Quarterly Closing High,” “Quarterly Closing Low” and “Quarterly Close” data indicated are
for this shortened period only and do not reflect complete data for this calendar quarter.
The graph below illustrates the performance of RTY from January 1, 2008
through February 16, 2018, based on information from Bloomberg. The dotted lines represent the downside threshold and the coupon
barrier of 926.131 and 1,080.486, which are equal to 60% and 70%, respectively, of the initial level.
Past performance of
RTY is not indicative of the future performance of the RTY.
S&P 500
®
Index
We have derived all information regarding the S&P 500
®
Index (“SPX”) contained in this document, including, without limitation, its make-up, method of calculation and changes
in its components, from publicly available information. Such information reflects the policies of, and is subject to change by
S&P Dow Jones Indices LLC (its “index sponsor” or “S&P Dow Jones”).
S&P Dow Jones has no obligation to continue to publish SPX, and may
discontinue publication of SPX at any time. SPX is determined, comprised and calculated by S&P Dow Jones without regard to
the Notes.
SPX is published by S&P Dow Jones. As discussed more fully in the index
supplement under the heading “Underlying Indices and Underlying Index Publishers — S&P 500
®
Index”,
SPX is intended to provide an indication of the pattern of common stock price movement. The calculation of the value of SPX is
based on the relative value of the aggregate market value of the common stock of 500 companies as of a particular time compared
to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through
1943. Eleven main groups of companies comprise SPX, with the percentage weight of each group in the index as a whole as of January
31, 2018 as follows: Information Technology (24.2%), Financials (14.9%), Health Care (13.9%), Consumer Discretionary (12.6%), Industrials
(10.3%), Consumer Staples (7.9%), Energy (6.0%), Materials (3.0%), Utilities (2.7%), Real Estate (2.7%), and Telecommunication
Services (1.9%). On November 15, 2017, the index sponsor announced that effective September 28, 2018 it will broaden the current
Telecommunication Services Sector and rename it Communication Services. The renamed Sector will include the existing telecommunication
companies, as well as companies selected from the Consumer Discretionary Sector currently classified under the Media Industry Group
and the Internet & Direct Marketing Retail Sub-Industry, along with select companies currently classified in the Information
Technology Sector. Effective March 10, 2017, company additions to the underlying index should have an unadjusted company market
capitalization of $6.1 billion or more (an increase from the previous requirement of an unadjusted company market capitalization
of $5.3 billion or more).
Information from outside sources is not incorporated by reference in, and
should not be considered part of, this document or any document incorporated herein by reference. UBS has not conducted any independent
review or due diligence of any publicly available information with respect to SPX.
Historical Information
The following table sets forth the quarterly closing high and quarterly closing
low for SPX, based on the daily closing levels as reported by Bloomberg, without independent verification. UBS has not conducted
any independent review or due diligence of publicly available information obtained from Bloomberg. The closing level of SPX on
February 16, 2018 was 2,732.22.
Past performance of SPX is not indicative of the future performance of SPX.
Quarter Begin
|
Quarter End
|
Quarterly Closing High
|
Quarterly Closing Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
9/30/2017
|
2,519.36
|
2,409.75
|
2,519.36
|
10/1/2017
|
12/31/2017
|
2,690.16
|
2,529.12
|
2,673.61
|
1/1/2018
|
2/16/2018*
|
2,872.87
|
2,581.00
|
2,732.22
|
* The above table only includes data through this date. Accordingly,
the “Quarterly Closing High,” “Quarterly Closing Low” and “Quarterly Close” data indicated
are for this shortened period only and do not reflect complete data for this calendar quarter.
The graph below illustrates the
performance of SPX January 1, 2008 through February 16, 2018, based on information from Bloomberg. The dotted lines represent the
downside threshold and the coupon barrier of 1,639.33 and 1,912.55, which are equal to 60% and 70%, respectively, of the initial
level.
Past performance of SPX is not indicative of the future performance of SPX.
Correlation of the Underlying Indices
|
The graph below illustrates the daily performance of the MSCI EAFE
®
Index, the Russell 2000
®
Index and the S&P 500
®
Index from January 1, 2008 through February 16,
2018. For comparison purposes, each underlying index has been normalized to have a closing level of 100.00 on January 1, 2008
by dividing the closing level of that underlying index on each trading day by the closing level of that underlying index on January
1, 2008 and multiplying by 100.00. We obtained the closing levels used to determine the normalized closing levels set forth below
from Bloomberg, without independent verification.
The closer the relationship of the daily returns of the underlying indices
over a given period, the more positively correlated those underlying indices are. The lower (or more negative) the correlation
among the underlying indices, the less likely it is that those underlying indices will move in the same direction and therefore,
the greater the potential for the closing level or final level of one of those underlying indices to be less than its coupon barrier
or downside threshold on a coupon observation date or the trigger observation date, respectively. This is because the less positively
correlated the underlying indices are, the greater the likelihood that at least one of the underlying indices will decrease in
value. However, even if the underlying indices have a higher positive correlation, the closing level or final level of one or more
of the underlying indices might be less than its coupon barrier or downside threshold on a coupon observation date or the trigger
observation date, respectively, as the underlying indices may decrease in value together. Although the correlation of the underlying
indices’ performance may change over the term of the Notes, the correlations referenced in setting the terms of the Notes
are calculated using UBS’ internal models at the time when the terms of the Notes are set and are not derived from the daily
returns of the underlying indices over the period set forth below. A higher contingent coupon rate is generally associated with
lower correlation of the underlying indices, which reflects a greater potential for missed contingent coupons and for a loss on
your investment at maturity. See “Key Risks — A higher contingent coupon rate or lower downside thresholds or coupon
barriers may reflect greater expected volatility of each of the underlying indices, and greater expected volatility generally indicates
an increased risk of loss at maturity”, “— You are exposed to the market risk of each underlying index”
and “— Because the Notes are linked to the least performing underlying index, you are exposed to a greater risk of
no contingent coupons and losing a significant portion or all of your initial investment at maturity than if the Notes were linked
to fewer underlying indices” herein.
Past performance of the underlying indices is not indicative of the future
performance of the underlying indices.
What Are the Tax Consequences of the Notes?
|
The U.S. federal income tax consequences of your investment in the
Notes are uncertain. There are no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization
for U.S. federal income tax purposes of securities with terms that are substantially the same as the Notes. Some of these tax consequences
are summarized below, but we urge you to read the more detailed discussion in “Supplemental U.S. Tax Considerations”
of the Trigger Callable Contingent Yield Notes product supplement and to discuss the tax consequences of your particular situation
with your tax advisor. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), final,
temporary and proposed U.S. Treasury Department (the “Treasury”) regulations, rulings and decisions, in each case,
as available and in effect as of the date hereof, all of which are subject to change, possible with retroactive effect. Tax consequences
under state, local and non-U.S. laws are not addressed herein. No ruling from the U.S. Internal Revenue Service (the “IRS”)
has been sought as to the U.S. federal income tax consequences of your investment in the Notes, and the following discussion is
not binding on the IRS.
U.S. Tax Treatment.
Pursuant to the terms of the Notes, UBS and
you agree, in the absence of an administrative or judicial ruling to the contrary, to characterize the Notes as pre-paid derivative
contracts with respect to the underlying indices. If your Notes are so treated, any contingent coupon that is paid by UBS (including
on the maturity date or call settlement date) should be included in your income as ordinary income in accordance with your regular
method of accounting for U.S. federal income tax purposes.
In addition, excluding amounts attributable to any contingent coupon,
you should generally recognize capital gain or loss upon the taxable disposition of your Notes in an amount equal to the difference
between the amount you receive at such time (other than amounts or proceeds attributable to a contingent coupon or any amount attributable
to any accrued but unpaid contingent coupon) and the amount you paid for your Notes. Such gain or loss should generally be long-term
capital gain or loss if you have held your Notes for more than one year (otherwise such gain or loss would be short-term capital
gain or loss if held for one year or less). The deductibility of capital losses is subject to limitations. Although uncertain,
it is possible that proceeds received from the taxable disposition of your Notes prior to a coupon payment date, but that could
be attributed to an expected contingent coupon, could be treated as ordinary income. You should consult your tax advisor regarding
this risk.
In the opinion of our counsel, Cadwalader, Wickersham & Taft LLP,
it would be reasonable to treat your Notes in the manner described above. However, because there is no authority that specifically
addresses the tax treatment of the Notes, it is possible that your Notes could alternatively be treated for tax purposes as a single
contingent payment debt instrument, or pursuant to some other characterization, such that the timing and character of your income
from the Notes could differ materially from the treatment described above, as described further under “Supplemental U.S.
Tax Considerations — Alternative Treatments” in the Trigger Callable Contingent Yield Notes product supplement. The
risk that the Notes may be recharacterized for U.S. federal income tax purposes as instruments giving rise to current ordinary
income (possibly in excess of any contingent coupon and even before receipt of any cash) and short-term capital gain or loss (even
if held for more than one year), is higher than with other index-linked securities that do not guarantee full repayment of principal.
Notice 2008-2.
In 2007, the IRS released a notice requesting comments
on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, which might include
the Notes. Notice 2008-2 focuses in particular on whether to require holders of these instruments to accrue income over the term
of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect
to these instruments and the relevance of factors such as the nature of the underlying property to which the instruments are linked.
While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the Notes, possibly with retroactive effect. You should consult your tax advisor regarding the U.S. federal income tax consequences
of an investment in the Notes, including possible alternative treatments and the issues presented by this notice. Non-U.S. holders
should consult their tax advisors regarding the U.S. federal income tax consequences of investing in the Notes, including the possible
application of 30% U.S. withholding tax in respect to the contingent coupons.
Section 1297.
We will not attempt to ascertain whether any underlying
constituent issuer would be treated as a “passive foreign investment company” (a “PFIC”) within the meaning
of Section 1297 of the Code. If any such entity were so treated, certain adverse U.S. federal income tax consequences might apply,
upon the taxable disposition of a Note. You should consult your tax advisor regarding the possible consequences to you if any such
entity is or becomes a PFIC.
Medicare Tax on Net Investment Income
. U.S. holders that are individuals,
estates, and certain trusts are subject to an additional 3.8% Medicare tax on all or a portion of their “net investment income,”
which may include any income or gain realized with respect to the Notes, to the extent of their net investment income that when
added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer
filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. The 3.8% Medicare
tax is determined in a different manner than the income tax. You should consult your tax advisor as to the consequences of the
3.8% Medicare tax on your Notes.
Specified Foreign Financial Assets.
Certain U.S. holders that own
“specified foreign financial assets” in excess of an applicable threshold may be subject to reporting obligations with
respect to such assets with their tax returns, especially if such assets are held outside the custody of a U.S. financial institution.
You are urged to consult your tax advisor as to the application of this legislation to your ownership of the Notes.
Non-U.S. Holders.
The U.S. federal income tax treatment of the contingent
coupons is unclear. Subject to Section 871(m) of the Code and FATCA, as discussed below, our counsel is of the opinion that contingent
coupons paid to a non-U.S. holder that provides us (and/or the applicable withholding agent) with a fully completed and validly
executed applicable IRS Form W-8 should not be subject to U.S. withholding tax and we do not intend to withhold any tax on contingent
coupons. However, it is possible that the IRS could assert that such payments are subject to U.S. withholding tax, or that another
withholding agent may otherwise determine that withholding is required, in which case the other withholding agent may withhold
up to 30% on such payments (subject to reduction or elimination of such withholding tax pursuant to an applicable income tax treaty).
We will not pay any additional amounts in respect of such withholding. Subject to Section 897 and Section 871(m) of the Code, discussed
below, gain from the taxable disposition of a Note generally should not be subject to U.S. tax unless (i) such gain is effectively
connected with a trade or business conducted by the non-U.S. holder in the U.S., (ii) the non-U.S. holder is a non-resident alien
individual and is present in the U.S. for 183 days or more during the taxable year of such taxable disposition and certain other
conditions are satisfied, or (iii) the non-U.S. holder has certain other present or former connections with the U.S.
Section 897
. We will not attempt to ascertain whether any underlying
constituent issuer would be treated as a “United States real property holding corporation” (“USRPHC”) within
the meaning of Section 897 of the Code. We also have not attempted to determine whether the Notes should be treated as “United
States real property interests” (“USRPI”) as defined in Section 897 of the Code. If an underlying constituent
issuer and the Notes were so treated, certain adverse U.S. federal income tax consequences could possibly apply, including subjecting
any gain to a non-U.S. holder in respect of a Note upon a taxable disposition of the Note to the U.S. federal income tax on a net
basis, and the proceeds from such a taxable
disposition to a 15% withholding tax. Non-U.S. holders should consult their tax advisor
regarding the potential treatment of any underlying constituent issuer as a USRPHC and the Notes as USRPI.
Section 871(m)
. A 30% withholding tax (which may be reduced by an
applicable income tax treaty) is imposed under Section 871(m) of the Code on certain “dividend equivalents” paid or
deemed paid to a non-U.S. holder with respect to a “specified equity-linked instrument” that references one or more
dividend-paying U.S. equity securities or indices containing U.S. equity securities. The withholding tax can apply even if the
instrument does not provide for payments that reference dividends. Treasury regulations provide that the withholding tax applies
to all dividend equivalents paid or deemed paid on specified equity-linked instruments that have a delta of one (“delta one
specified equity-linked instruments”) issued after 2016 and to all dividend equivalents paid or deemed paid on all other
specified equity-linked instruments issued after 2018.
Based on our determination that the Notes are not “delta-one”
with respect to any underlying index or any U.S. underlying constituent, our counsel is of the opinion that the Notes should not
be delta one specified equity-linked instruments and thus should not be subject to withholding on dividend equivalents. Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Furthermore, the application of Section 871(m) of
the Code will depend on our determinations made upon issuance of the Notes. If withholding is required, we will not make payments
of any additional amounts.
Nevertheless, after issuance, it is possible that your Notes could be deemed
to be reissued for tax purposes upon the occurrence of certain events affecting the underlying indices, underlying constituents
or your Notes, and following such occurrence your Notes could be treated as delta one specified equity-linked instruments that
are subject to withholding on dividend equivalents. It is also possible that withholding tax or other tax under Section 871(m)
of the Code could apply to the Notes under these rules if you enter, or have entered, into certain other transactions in respect
of the underlying indices, underlying constituents or the Notes. If you enter, or have entered, into other transactions in respect
of the underlying indices, the underlying constituents or the Notes, you should consult your tax advisor regarding the application
of Section 871(m) of the Code to your Notes in the context of your other transactions.
Because of the uncertainty regarding the application of the 30% withholding
tax on dividend equivalents to the Notes, you are urged to consult your tax advisor regarding the potential application of Section
871(m) of the Code and the 30% withholding tax to an investment in the Notes.
Foreign Account Tax Compliance Act.
The Foreign Account Tax Compliance
Act (“FATCA”) was enacted on March 18, 2010, and imposes a 30% U.S. withholding tax on “withholdable payments”
(i.e., certain U.S.-source payments, including interest (and original issue discount), dividends, other fixed or determinable annual
or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S.-source
interest or dividends) and “passthru payments” (i.e., certain payments attributable to withholdable payments) made
to certain foreign financial institutions (and certain of their affiliates) unless the payee foreign financial institution agrees
(or is required), among other things, to disclose the identity of any U.S. individual with an account of the institution (or the
relevant affiliate) and to annually report certain information about such account. FATCA also requires withholding agents making
withholdable payments to certain foreign entities that do not disclose the name, address, and taxpayer identification number of
any substantial U.S. owners (or do not certify that they do not have any substantial U.S. owners) to withhold tax at a rate of
30%. Under certain circumstances, a holder may be eligible for refunds or credits of such taxes.
Pursuant to final and temporary Treasury regulations and other IRS guidance,
the withholding and reporting requirements under FATCA will generally apply to certain “withholdable payments” made
on or after July 1, 2014, certain gross proceeds on a sale or disposition occurring after December 31, 2018, and certain foreign
passthru payments made after December 31, 2018 (or, if later, the date that final regulations defining the term “foreign
passthru payment” are published). If withholding is required, we (and/or the applicable paying agent) will not be required
to pay additional amounts with respect to the amounts so withheld. Foreign financial institutions and non-financial foreign entities
located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to different rules.
Investors should consult their tax advisor about the application of FATCA,
in particular if they may be classified as financial institutions (or if they hold their Notes through a non-U.S. entity) under
the FATCA rules.
Proposed Legislation.
In 2007, legislation was introduced in Congress
that, if it had been enacted, would have required holders of Notes purchased after the bill was enacted to accrue interest income
over the term of the Notes despite the fact that there may be no interest payments over the term of the Notes.
Furthermore, in 2013, the House Ways and Means Committee released in draft
form certain proposed legislation relating to financial instruments. If it had been enacted, the effect of this legislation generally
would have been to require instruments such as the Notes to be marked to market on an annual basis with all gains and losses to
be treated as ordinary, subject to certain exceptions.
It is not possible to predict whether any similar or identical bills will
be enacted in the future, or whether any such bill would affect the tax treatment of your Notes. You are urged to consult your
tax advisor regarding the possible changes in law and their possible impact on the tax treatment of your Notes.
Both U.S. and non-U.S. holders
are urged to consult their tax advisors concerning the application of U.S. federal income tax laws to their particular situations,
as well as any tax consequences of the purchase, beneficial ownership and disposition of the Notes arising under the laws of any
state, local, non-U.S. or other taxing jurisdiction (including the jurisdictions of the underlying constituent issuers).