AI assistant
UBS AG — Capital/Financing Update 2013
Sep 10, 2013
35612_prs_2013-09-10_ff2fdb50-81c5-43e5-83cd-5e5fd621874b.zip
Capital/Financing Update
Open in viewerOpens in your device viewer
Filed Pursuant to Rule 424(b)(2) Registration Statement No. 333-178960
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities Offered | Maximum Aggregate Offering Price | Amount of Registration Fee (1) |
|---|---|---|
| Trigger Autocallable Optimization Securities due September 12, 2018 linked to the performance of | ||
| the common stock of CONSOL Energy Inc. | $851,700.00 | $116.17 |
| Trigger Autocallable Optimization Securities due September 12, 2018 linked to the performance of | ||
| the common stock of Merck & Co., Inc. | $4,623,330.00 | $630.62 |
(1) Calculated in accordance with Rule 457(r) of the Securities Act of 1933.
PRICING SUPPLEMENT (To Prospectus dated January 11, 2012 and Product Supplement dated January 17, 2012)
UBS AG Trigger Autocallable Optimization Securities
UBS AG $851,700 Securities linked to the common stock of CONSOL Energy Inc. due September 12, 2018
UBS AG $4,623,330 Securities linked to the common stock of Merck & Co., Inc. due September 12, 2018
Investment Description
UBS AG Trigger Autocallable Optimization Securities (the Securities) are unsubordinated, unsecured debt securities issued by UBS AG (UBS or the Issuer) linked to the common stock of a specific company (the underlying equity). The Securities are designed for investors who believe that the price of the underlying equity will remain flat or increase during the term of the Securities. If the underlying equity closes at or above the initial price on any observation date (quarterly, beginning after one year), UBS will automatically call the Securities and pay you a call price equal to the principal amount per Security plus a call return. The call return increases the longer the Securities are outstanding. If by maturity the Securities have not been called, UBS will either repay the full principal amount or, if the underlying equity closes below the trigger price on the final valuation date, UBS will repay less than the principal amount, if anything, resulting in a loss on your initial investment that is proportionate to the decline in the price of the underlying equity from the trade date to the final valuation date. Investing in the Securities involves significant risks. The Securities do not pay interest. You may lose some or all of your principal amount. The contingent repayment of principal only applies if you hold the Securities to maturity. Any payment on the Securities, including any repayment of principal, is subject to the creditworthiness of the Issuer. If UBS were to default on its payment obligations you may not receive any amounts owed to you under the Securities and you could lose your entire investment.
Features
q Call Return UBS will automatically call the Securities for a call price equal to the principal amount plus a call return if the closing price of the underlying equity on any observation date (quarterly, beginning after one year) is equal to or greater than the initial price. The call return increases the longer the Securities are outstanding. If the Securities are not called, investors will have the potential for downside equity market risk at maturity.
q Contingent Repayment of Principal Amount at Maturity If by maturity the Securities have not been called and the price of the underlying equity does not close below the trigger price on the final valuation date, UBS will pay you the principal amount per Security at maturity. If the price of the underlying equity closes below the trigger price on the final valuation date, UBS will repay less than the principal amount, if anything, resulting in a loss on your initial investment that is proportionate to the decline in the price of the underlying equity from the trade date to the final valuation date. The contingent repayment of principal only applies if you hold the Securities until maturity. Any payment on the Securities, including any repayment of principal, is subject to the creditworthiness of UBS.
Key Dates
| Trade Date | September 6, 2013 |
|---|---|
| Settlement Date | September 11, 2013 |
| Observation Dates* | Quarterly, after 1 year (see page 4) |
| Final Valuation Date* | September 6, 2018 |
| Maturity Date* | September 12, 2018 |
- Subject to postponement in the event of a market disruption event, as described in the TAOS product supplement.
NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS. THE ISSUER IS NOT NECESSARILY OBLIGATED TO REPAY THE FULL PRINCIPAL AMOUNT OF THE SECURITIES AT MATURITY, AND THE SECURITIES CAN HAVE DOWNSIDE MARKET RISK SIMILAR TO THE UNDERLYING EQUITY. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING A DEBT OBLIGATION OF UBS. YOU SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN THE SECURITIES.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER KEY RISKS BEGINNING ON PAGE 5 AND UNDER RISK FACTORS BEGINNING ON PAGE PS-15 OF THE TRIGGER AUTOCALLABLE OPTIMIZATION SECURITIES PRODUCT SUPPLEMENT BEFORE PURCHASING ANY SECURITIES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY EFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU MAY LOSE SOME OR ALL OF YOUR INITIAL INVESTMENT IN THE SECURITIES.
Security Offering
These terms relate to two separate Securities we are offering. Each of the two Securities is linked to the common stock of a different company and each of the two Securities has its own call return rate, initial price and trigger price. Each of the Securities is offered at a minimum investment of 100 Securities at $10.00 per Security (representing a $1,000 investment) and integral multiples of $10.00 in excess thereof. The performance of each Security will not depend on the performance of the other Security .
| Underlying Equity — Common stock of CONSOL Energy Inc. | CNX | 13.50% per annum | Initial Price — $ 33.45 | Trigger Price — $17.90, which is 53.50% of the Initial Price | 90271M245 | US90271M2456 |
|---|---|---|---|---|---|---|
| Common stock of Merck & Co., Inc. | MRK | 9.00% per annum* | $ 47.49 | $30.16, which is 63.50% of the Initial Price | 90271M252 | US90271M2522 |
- If the Securities are called, your call return will vary depending on the observation date on which the Securities are called.
The estimated initial value of the Securities as of the trade date is $9.434 for Securities linked to the common stock of CONSOL Energy Inc. and (ii) $9.492 for Securities linked to the common stock of Merck & Co., Inc. The estimated initial value of the Securities was determined as of the close of the relevant markets on the date of this pricing supplement by reference to UBS internal pricing models, inclusive of the internal funding rate. For more information about secondary market offers and the estimated initial value of the Securities, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages 5 and 6 of this pricing supplement.
See Additional Information about UBS and the Securities on page 2. The Securities will have the terms set forth in the Trigger Autocallable Optimization Securities (TAOS) product supplement relating to the Securities, dated January 17, 2012, the accompanying prospectus and this pricing supplement.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these Securities or passed upon the adequacy or accuracy of this pricing supplement, or the accompanying product supplement or prospectus. Any representation to the contrary is a criminal offense. The Securities are not deposit liabilities of UBS and are not FDIC insured.
| Offering of Securities | Issue Price to Public — Total | Per Security | Underwriting Discount — Total | Per Security | Proceeds to UBS — Total | Per Security |
|---|---|---|---|---|---|---|
| Securities linked to the common stock of CONSOL Energy Inc. | $851,700.00 | $10.00 | $21,292.50 | $0.25 | $830,407.50 | $9.75 |
| Securities linked to the common stock of Merck & Co., Inc. | $4,623,330.00 | $10.00 | $115,583.25 | $0.25 | $4,507,746.75 | $9.75 |
| UBS Financial Services Inc. |
|---|
| Pricing Supplement dated September 6, 2013 |
Additional Information about UBS and the Securities
UBS has filed a registration statement (including a prospectus, as supplemented by a product supplement for the securities we may offer, including the Securities) with the Securities and Exchange Commission, or SEC, for the offerings to which this pricing supplement relates. Before you invest, you should read these documents and any other documents relating to the Securities that UBS has filed with the SEC for more complete information about UBS and these offerings. 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 877-387-2275.
You may access these documents on the SEC website at www.sec.gov as follows:
¨ TAOS product supplement dated January 17, 2012:
http://www.sec.gov/Archives/edgar/data/1114446/000119312512013091/d281716d424b2.htm
¨ Prospectus dated January 11, 2012:
http://www.sec.gov/Archives/edgar/data/1114446/000119312512008669/d279364d424b3.htm
References to UBS, we, our and us refer only to UBS AG and not to its consolidated subsidiaries. In this document, Trigger Autocallable Optimization Securities or the Securities refer to two different Securities that are offered hereby. Also, references to the TAOS product supplement mean the UBS product supplement, dated January 17, 2012, and references to accompanying prospectus mean the UBS prospectus titled, Debt Securities and Warrants, dated January 11, 2012.
This pricing supplement, together with the documents listed above, contains the terms of the Securities and supersedes all other prior or contemporaneous oral statements as well as any other written materials including pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in Key Risks beginning on page 5 and in Risk Factors in the accompanying product supplement, as the Securities involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before deciding to invest in the Securities.
UBS reserves the right to change the terms of, or reject any offer to purchase, the Securities prior to their issuance. In the event of any changes to the terms of the Securities, 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.
2
Investor Suitability
The Securities may be suitable for you if:
¨ You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
¨ You can tolerate a loss of all or a substantial portion of your investment and are willing to make an investment that may have the same downside market risk as an investment in the underlying equity.
¨ You believe the underlying equity will close at or above the initial price on one of the specified observation dates.
¨ You understand and accept that you will not participate in any appreciation in the price of the underlying equity and that your potential return is limited to the applicable call return.
¨ You can tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside price fluctuations of the underlying equity.
¨ You are willing to invest in the Securities based on the applicable call return rate, as specified on the cover hereof.
¨ You are willing to invest in the Securities based on the trigger price,as specified on the cover hereof.
¨ You do not seek current income from this investment and are willing to forgo dividends paid on the underlying equity.
¨ You are willing to invest in securities that may be called early and you are otherwise willing to hold such securities to maturity, a term of approximately 5 years, and accept that there may be little or no secondary market for the Securities.
¨ You are willing to assume the credit risk of UBS for all payments under the Securities, and understand that if UBS defaults on its obligations you may not receive any amounts due to you, including any repayment of principal.
¨ You understand that the estimated initial value of the Securities determined by our internal pricing models is lower than the issue price and that should UBS Securities LLC or any affiliate make secondary markets for the Securities, the price (not including their customary bid-ask spreads) will temporarily exceed the internal pricing model price.
The Securities may not be suitable for you if:
¨ You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
¨ You cannot tolerate a loss of all or a substantial portion of your investment and are unwilling to make an investment that may have the same downside market risk as an investment in the underlying equity.
¨ You require an investment designed to provide a full return of principal at maturity.
¨ You believe that the price of the underlying equity will decline during the term of the Securities and is likely to close below the trigger price on the final valuation date.
¨ You seek an investment that participates in the full appreciation in the price of the underlying equity or that has unlimited return potential.
¨ You cannot tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside price fluctuations of the underlying equity.
¨ You are unwilling to invest in the Securities based on the applicable call return rate, as specified on the cover hereof.
¨ You are unwilling to invest in the Securities based on the trigger price, as specified on the cover hereof.
¨ You seek current income from this investment or prefer to receive the dividends paid on the underlying equity.
¨ You are unable or unwilling to hold securities that may be called early, or you are otherwise unable or unwilling to hold such securities to maturity, a term of approximately 5 years, or you seek an investment for which there will be an active secondary market.
¨ You are not willing to assume the credit risk of UBS for all payments under the Securities, including any repayment of principal.
The suitability considerations identified above are not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances and you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered the suitability of an investment in the Securities in light of your particular circumstances. You should also review carefully the Key Risks beginning on page 5 of this pricing supplement for risks related to an investment in the Securities.
3
Final Terms for Each Offering of the Securities
| Issuer | UBS AG, London Branch |
|---|---|
| Principal Amount | $10.00 per Security (subject to a minimum investment of 100 Securities) |
| Term (1) | Approximately 5 years, unless called earlier. |
| Underlying Equity | The common stock of a specific company, as indicated on the first page of this pricing supplement. |
| Call Feature | The Securities will be called if the closing price of the underlying equity on any observation date (quarterly, beginning after one year) is equal to |
| or greater than the initial price. If the Securities are called, UBS will pay you on the applicable call settlement date a cash payment per Security equal to the call price for the applicable observation date. | |
| Call Settlement Dates | Two business days following each observation date, except that the call settlement date for the final valuation date is the maturity |
| date. | |
| Call Return | The call return increases the longer the Securities are outstanding and is based upon a rate of (i) 13.50% per annum for Securities linked to the |
| common stock of CONSOL Energy Inc. and (ii) 9.00% per annum for Securities linked to the common stock of Merck & Co., Inc. | |
| Call Price | The call price equals the principal amount per Security plus the applicable call return. |
The table below reflects the call return rate of 13.50% per annum for Securities linked to the common stock of CONSOL Energy Inc.
| Observation Date (1) | Call Settlement Date | Call Price (per Security) | |
|---|---|---|---|
| September 12, 2014 | September 16, 2014 | 13.5000% | $ 11.3500 |
| December 8, 2014 | December 10, 2014 | 16.8750% | $ 11.6875 |
| March 6, 2015 | March 10, 2015 | 20.2500% | $ 12.0250 |
| June 8, 2015 | June 10, 2015 | 23.6250% | $ 12.3625 |
| September 8, 2015 | September 10, 2015 | 27.0000% | $ 12.7000 |
| December 7, 2015 | December 9, 2015 | 30.3750% | $ 13.0375 |
| March 7, 2016 | March 9, 2016 | 33.7500% | $ 13.3750 |
| June 6, 2016 | June 8, 2016 | 37.1250% | $ 13.7125 |
| September 6, 2016 | September 8, 2016 | 40.5000% | $ 14.0500 |
| December 6, 2016 | December 8, 2016 | 43.8750% | $ 14.3875 |
| March 6, 2017 | March 8, 2017 | 47.2500% | $ 14.7250 |
| June 6, 2017 | June 8, 2017 | 50.6250% | $ 15.0625 |
| September 6, 2017 | September 8, 2017 | 54.0000% | $ 15.4000 |
| December 6, 2017 | December 8, 2017 | 57.3750% | $ 15.7375 |
| March 6, 2018 | March 8, 2018 | 60.7500% | $ 16.0750 |
| June 6, 2018 | June 8, 2018 | 64.1250% | $ 16.4125 |
| September 6, 2018 | September 12, 2018 | 67.5000% | $ 16.7500 |
The table below reflects the call return rate of 9.00% per annum for Securities linked to the common stock of Merck & Co., Inc.
| Observation Date (1) | Call Settlement Date | Call Price (per Security) | |
|---|---|---|---|
| September 12, 2014 | September 16, 2014 | 9.0000% | $ 10.9000 |
| December 8, 2014 | December 10, 2014 | 11.2500% | $ 11.1250 |
| March 6, 2015 | March 10, 2015 | 13.5000% | $ 11.3500 |
| June 8, 2015 | June 10, 2015 | 15.7500% | $ 11.5750 |
| September 8, 2015 | September 10, 2015 | 18.0000% | $ 11.8000 |
| December 7, 2015 | December 9, 2015 | 20.2500% | $ 12.0250 |
| March 7, 2016 | March 9, 2016 | 22.5000% | $ 12.2500 |
| June 6, 2016 | June 8, 2016 | 24.7500% | $ 12.4750 |
| September 6, 2016 | September 8, 2016 | 27.0000% | $ 12.7000 |
| December 6,2016 | December 8, 2016 | 29.2500% | $ 12.9250 |
| March 6, 2017 | March 8, 2017 | 31.5000% | $ 13.1500 |
| June 6, 2017 | June 8, 2017 | 33.7500% | $ 13.3750 |
| September 6, 2017 | September 8, 2017 | 36.0000% | $ 13.6000 |
| December 6, 2017 | December 8, 2017 | 38.2500% | $ 13.8250 |
| March 6, 2018 | March 8, 2018 | 40.5000% | $ 14.0500 |
| June 6, 2018 | June 8, 2018 | 42.7500% | $ 14.2750 |
| September 6, 2018 | September 12, 2018 | 45.0000% | $ 14.5000 |
| Payment at Maturity (per Security) | If the Securities have not been called and the final price is equal to or greater than the trigger
price , at maturity we will pay you an amount in cash equal to the principal amount: $10.00. If the Securities have not been called and the final
price is less than the trigger price , at maturity we will pay you an amount in cash that is less than the principal amount, if anything, resulting in a loss that is proportionate to the decline of the underlying equity, for an amount equal
to: $10.00 + ($10.00 × underlying return). |
| --- | --- |
| Underlying Return | Final Price Initial Price |
| | Initial Price |
| Trigger Price | A percentage of the initial price, as specified on the first page of this pricing supplement (as may be adjusted in the case of certain adjustment
events as described under General Terms of the Securities Antidilution Adjustments in the TAOS product supplement). |
| Initial Price | The closing price of the underlying equity on the trade date, as specified on the first page of this pricing supplement (as may be adjusted in the case
of certain adjustment events as described under General Terms of the Securities Antidilution Adjustments in the TAOS product supplement). |
| Final Price | The closing price of the underlying equity on the final valuation date. |
Investment Timeline
INVESTING IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE SOME OR ALL OF YOUR PRINCIPAL AMOUNT. ANY PAYMENT ON THE SECURITIES, 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 SECURITIES AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.
(1) Subject to the market disruption event provisions set forth in the TAOS product supplement beginning on page PS-32.
4
Key Risks
An investment in any offering of the Securities involves significant risks. Investing in the Securities is not equivalent to investing in the underlying equity. These risks are explained in more detail in the Risk Factors section of the TAOS product supplement. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Securities.
¨ Risk of loss at maturity The Securities differ from ordinary debt securities in that the issuer will not necessarily pay the full principal amount of the Securities. If the Securities are not called, UBS will repay you the principal amount of your Securities in cash only if the final price of the underlying equity is greater than or equal to the trigger price and will only make such payment at maturity. If the Securities are not called and the final price is less than the trigger price, you will lose some or all of your initial investment in an amount proportionate to the decline in the price of the underlying equity.
¨ The contingent repayment of principal applies only at maturity You should be willing to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary market, you may have to sell them at a loss relative to your initial investment even if the price of the underlying equity is above the trigger price.
¨ Your potential return on the Securities is limited to the call return If called, the return potential of the Securities is limited to the call return regardless of the appreciation of the underlying equity. In addition, because the call return increases the longer the Securities have been outstanding, the call price payable on earlier observation dates is less than the call price payable on later observation dates. The earlier a Security is called, the lower your return will be. If the Securities are not called, you may be exposed to the decline in the underlying equity even though you cannot participate in any of the underlying equitys potential appreciation.
¨ Higher call return rates are generally associated with a greater risk of loss Greater expected volatility with respect to the underlying equity reflects a higher expectation as of the trade date that the price of such equity could close below its trigger price on the final valuation date of the Securities. This greater expected risk will generally be reflected in a higher call return rate for that Security. However, while the call return rate is a fixed amount, an underlying equitys volatility can change significantly over the term of the Securities. The price of the underlying equity for your Securities could fall sharply, which could result in a significant loss of principal.
¨ No interest payments UBS will not pay any interest with respect to the Securities.
¨ Reinvestment risk If your Securities are called early, the term of the Securities will be reduced and you will not receive any payment on the Securities after the applicable call settlement date. There is no guarantee that you would be able to reinvest the proceeds from an automatic call of the Securities at a comparable rate of return for a similar level of risk. To the extent you are able to reinvest such proceeds in an investment comparable to the Securities, you may incur transaction costs such as dealer discounts and hedging costs built into the price of the new securities. Because the Securities may be called as early as 1 year after issuance, you should be prepared in the event the Securities are called early.
¨ Credit risk of UBS The Securities are unsubordinated, unsecured debt obligations of the Issuer, UBS, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Securities, including payments in respect of an automatic call or any repayment of principal, depends on the ability of UBS to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of UBS may affect the market value of the Securities and, in the event UBS were to default on its obligations, you may not receive any amounts owed to you under the terms of the Securities and you could lose your entire initial investment.
¨ Single equity risk The price of the underlying equity can rise or fall sharply due to factors specific to that underlying equity and the issuer of such underlying equity (the underlying equity issuer), such as stock price volatility, earnings, financial conditions, corporate, industry and regulatory developments, management changes and decisions and other events, as well as general stock market factors, such as general market volatility and levels, interest rates and economic and political conditions. You, as an investor in the Securities, should make your own investigation into the underlying equity issuer and the underlying equity for your Securities. For additional information regarding each underlying equity issuer, please see Information about the Underlying Equities and CONSOL Energy Inc. and Merck & Co., Inc. in this pricing supplement and the underlying equity issuers SEC filings referred to in these sections. We urge you to review financial and other information filed periodically by the underlying equity with the SEC.
¨ Fair value considerations.
¨ The issue price you pay for the Securities exceeds their estimated initial value The issue price you pay for the Securities 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 Securities by reference to our internal pricing models and it is set forth in this pricing supplement. The pricing models used to determine the estimated initial value of the Securities incorporate certain variables, including the price, volatility and expected dividends on the underlying equity, prevailing interest rates, the term of the Securities 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 Securities to you. Due to these factors, the estimated initial value of the Securities as of the trade date is less than the issue price you pay for the Securities.
¨ The estimated initial value is a theoretical price; the actual price that you may be able to sell your Securities in any secondary market (if any) at any time after the trade date may differ from the estimated initial value The value of your Securities at any time will vary based on many factors, including the factors described above and in Single equity 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 Securities in the secondary
5
market, the actual value you would receive may differ, perhaps materially, from the estimated initial value of the Securities determined by reference to our internal pricing models. The estimated initial value of the Securities does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Securities 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 Securities as of the trade date We may determine the economic terms of the Securities, 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 Securities cannot be determined as of the trade date and any such differential between the estimated initial value and the issue price of the Securities as of the trade date does not reflect our actual profits. Ultimately, our actual profits will be known only at the maturity of the Securities.
¨ Limited or no secondary market and secondary market price considerations.
¨ There may be little or no secondary market for the Securities The Securities will not be listed or displayed on any securities exchange or any electronic communications network. There can be no assurance that a secondary market for the Securities will develop. UBS Securities LLC and its affiliates may make a market in each offering of the Securities, although they are not required to do so and may stop making a market at any time. If you are able to sell your Securities prior to maturity, you may have to sell them at a substantial loss. The estimated initial value of the Securities does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Securities in any secondary market at any time.
¨ The price at which UBS Securities LLC and its affiliates may offer to buy the Securities in the secondary market (if any) may be greater than UBS valuation of the Securities 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 Securities, UBS Securities LLC or its affiliates may offer to buy or sell such Securities at a price that exceeds (i) our valuation of the Securities 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 Securities 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 Market (if any). Thereafter, if UBS Securities LLC or an affiliate makes secondary markets in the Securities, 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 Securities. As described above, UBS Securities LLC and its affiliates are not required to make a market for the Securities 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.
¨ Price of Securities prior to maturity The market price of the Securities will be influenced by many unpredictable and interrelated factors, including the price of the underlying equity; the volatility of the underlying equity; the dividend rate paid on the underlying equity; the time remaining to the maturity of the Securities; interest rates in the markets; geopolitical conditions and economic, financial, political, force majeure and regulatory or judicial events; the creditworthiness of UBS and the then current bid-ask spread for the Securities.
¨ 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 LLCs and its affiliates market making premium, expected to reduce the price at which you may be able to sell the Securities in any secondary market.
¨ Owning the Securities is not the same as owning the underlying equity The return on your Securities is unlikely to reflect the return you would realize if you actually owned the underlying equity. For instance, you will not receive or be entitled to receive any dividend payments or other distributions on the underlying equity during the term of your Securities. As an owner of the Securities, you will not have voting rights or any other rights that holders of the underlying equity may have. Furthermore, the underlying equity may appreciate substantially during the term of the Securities and you will not participate in such appreciation.
¨ No assurance that the investment view implicit in the Securities will be successful It is impossible to predict whether the price of the underlying equity will rise or fall. The closing price of the underlying equity will be influenced by complex and interrelated political, economic, financial and other factors that affect the underlying equity. You should be willing to accept the downside risks of owning equities in general and the underlying equity in particular, and to assume the risk that, if the Securities are not automatically called, you will not receive any positive return on your Securities and you may lose some or all of your initial investment.
¨ There is no affiliation between the underlying equity issuer and UBS, and UBS is not responsible for any disclosure by such issuer We are not affiliated with the underlying equity issuer. However, we and our affiliates may currently, or from time to time in the future engage in business with the underlying equity issuer. Nevertheless, neither we nor our affiliates assume any responsibility for the accuracy or the completeness of any information about the underlying equity and the underlying equity issuer. You, as an investor in the Securities, should make your own investigation into the underlying equity and the underlying equity issuer for your Securities. The
6
underlying equity issuer is not involved in the Securities offered hereby in any way and has no obligation of any sort with respect to your Securities. The underlying equity issuer has no obligation to take your interests into consideration for any reason, including when taking any corporate actions that might affect the value of your Securities.
¨ The calculation agent can make adjustments that affect the payment to you at maturity For certain corporate events affecting the underlying equity, the calculation agent may make adjustments to the initial price or trigger price applicable to such underlying equity. However, the calculation agent will not make an adjustment in response to all events that could affect the underlying equity. If an event occurs that does not require the calculation agent to make an adjustment, the value of the Securities may be materially and adversely affected. In addition, all determinations and calculations concerning any such adjustments will be made by the calculation agent. You should be aware that the calculation agent may make any such adjustment, determination or calculation in a manner that differs from that discussed in the TAOS product supplement or this pricing supplement as necessary to achieve an equitable result. Following certain corporate events relating to the underlying equity issuer where such issuer is not the surviving entity, the amount of cash you receive at maturity may be based on the common stock of a successor to the underlying equity issuer in combination with any cash or any other assets distributed to holders of the underlying equity in such corporate event. If the issuer of an underlying equity becomes subject to (i) a corporate event whereby the underlying equity is exchanged solely for cash or (ii) a merger or combination with UBS or any of its affiliates, the amount you receive at maturity may be based on the common stock issued by another company. The occurrence of these corporate events and the consequent adjustments may materially and adversely affect the value of the Securities. For more information, see the section General Terms of the Securities Antidilution Adjustments beginning on page PS-34 of the product supplement. Regardless of any of the events discussed above, any payment on the Securities is subject to the creditworthiness of UBS.
¨ Potential UBS impact on price Trading or transactions by UBS or its affiliates in the underlying equity and/or over-the-counter options, futures or other instruments with returns linked to the performance of the underlying equity may adversely affect the performance and, therefore, the market value of the Securities.
¨ Potential conflict of interest UBS and its affiliates may engage in business with the issuer of the underlying equity, which may present a conflict between the obligations of UBS and you, as a holder of the Securities. 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 call price is payable to you on any call settlement date or whether the Securities are subject to an automatic call, or the amount you receive at maturity of the Securities. The calculation agent may postpone any observation date (including the final valuation date) if a market disruption event occurs and is continuing on such date. As UBS determines the economic terms of the Securities, including the call return rate and trigger price, and such terms include hedging costs, issuance costs and projected profits, the Securities represent a package of economic terms. There are other potential conflicts of interest insofar as an investor could potentially get better economic terms if that investor entered into exchange-traded and/or OTC derivatives or other instruments with third parties, assuming that such instruments were available and the investor had the ability to assemble and enter into such instruments.
¨ Potentially inconsistent research, opinions or recommendations by UBS UBS and its affiliates publish research from time to time on financial markets and other matters that may influence the value of the Securities, or express opinions or provide recommendations that are inconsistent with purchasing or holding the Securities. 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 Securities and the underlying equity to which the Securities are linked.
¨ Dealer incentives UBS and its affiliates act in various capacities with respect to the Securities. We and our affiliates may act as a principal, agent or dealer in connection with the sale of the Securities. Such affiliates, including the sales representatives, will derive compensation from the distribution of the Securities and such compensation may serve as an incentive to sell these Securities instead of other investments. We will pay total underwriting compensation of $0.25 per Security to any of our affiliates acting as agents or dealers in connection with the distribution of the Securities. 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 Securities in the secondary market.
¨ Uncertain tax treatment Significant aspects of the tax treatment of the Securities are uncertain. You should consult your own tax advisor about your tax situation.
7
Hypothetical Examples
The examples below illustrate the payment upon a call or at maturity for a $10.00 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for each Security are specified on the first page of this pricing supplement; amounts have been rounded for ease of reference):
| Principal Amount: | $10.00 |
|---|---|
| Term: | Approximately 5 years |
| Initial Price: | $40.00 |
| Call Return Rate: | 9.00% per annum (or 2.25% per quarterly period) |
| Observation Dates: | Quarterly, beginning after 1 year |
| Trigger Price: | $21.60 (which is 54.00% of the Initial Price) |
Example 1 Securities are Called on the First Observation Date
| Closing Price at first Observation Date: | $45.00 (at or above Initial Price, Securities are called) |
|---|---|
| Call Price (per Security): | $10.90 |
Since the Securities are called on the first observation date (which is approximately one year after the trade date), UBS will pay you on the call settlement date a total call price of $10.90 per $10.00 principal amount (9.00% total return on the Securities).
Example 2 Securities are Called on the Final Valuation Date
| Closing Price at first Observation Date: | $35.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $25.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $30.00 (below Initial Price, Securities NOT called) |
| Closing Price at fourth to sixteenth Observation Date: | Various (each below Initial Price, Securities NOT called) |
| Closing Price at Final Valuation Date: | $45.00 (at or above Initial Price, Securities are called) |
| Call Price (per Security): | $14.50 |
Since the Securities are called on the final valuation date, UBS will pay you on the call settlement date (which coincides with the maturity date in this example) a total call price of $14.50 per $10.00 principal amount (45.00% total return on the Securities).
Example 3 Securities are NOT Called and the Final Price is above the Trigger Price
| Closing Price at first Observation Date: | $36.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $37.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $30.00 (below Initial Price, Securities NOT called) |
| Closing Price at fourth to sixteenth Observation Date: | Various (each below Initial Price, Securities NOT called) |
| Closing Price at Final Valuation Date: | $25.00 (below Initial Price, but above Trigger Price, Securities NOT called) |
| Settlement Amount (per Security): | $10.00 |
Since the Securities are not called and the final price is above or equal to the trigger price, at maturity UBS will pay you a total of $10.00 per $10.00 principal amount (a zero percent total return on the Securities).
Example 4 Securities are NOT Called and the Final Price is below the Trigger Price
| Closing Price at first Observation Date: | $36.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $37.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $20.00 (below Initial Price and Trigger Price, Securities NOT called) |
| Closing Price at fourth to sixteenth Observation Date: | Various (each below Initial Price, Securities NOT called) |
| Closing Price at Final Valuation Date: | $16.00 (below Initial Price and Trigger Price, Securities NOT called) |
| Settlement Amount (per Security): | $10.00 + ($10 × Underlying Return) |
| $10.00 + ($10 × -60%) | |
| $10.00 $6.00 | |
| $4.00 |
Since the Securities are not called and the final price is below the trigger price, at maturity UBS will pay you a total of $4.00 per $10.00 principal amount (a 60% loss on the Securities).
8
Information about the Underlying Equities
All disclosures contained in this pricing supplement regarding each underlying equity are derived from publicly available information. Notwithstanding anything stated in the product supplement, we do not disclaim liability or responsibility for any information disclosed herein regarding the underlying equity. However, UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying equity.
Included on the following pages is a brief description of each underlying equity issuer. This information has been obtained from publicly available sources. Set forth below is a table that provides the quarterly high and low closing prices for each underlying equity. The information given below is for the four calendar quarters in each of 2009, 2010, 2011, 2012 and the first and second calendar quarters of 2013. Partial data is provided for the third calendar quarter of 2013. We obtained the closing price information set forth below from the Bloomberg Professional service (Bloomberg) without independent verification. You should not take the historical prices of each underlying equity as an indication of future performance.
Each of the underlying equity issuers are registered under the Securities Exchange Act of 1934 (the Exchange Act). Companies with securities registered under the Exchange Act are required to file financial and other information specified by the SEC periodically. Information filed by each of the underlying equity issuers with the SEC can be reviewed electronically through a website maintained by the SEC. The address of the SECs website is http://www.sec.gov. Information filed with the SEC by each underlying equity issuer under the Exchange Act can be located by reference to its SEC file number provided below. In addition, information filed with the SEC can be inspected and copied at the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material can also be obtained from the Public Reference Section, at prescribed rates.
9
CONSOL Energy Inc.
According to publicly available information, CONSOL Energy Inc. (CONSOL) is a producer of coal and natural gas for global energy and raw material markets, which include the electric power generation industry and the steelmaking industry. CONSOL also provides energy services, including river and dock services, terminal services, industrial supply services, water services and land resource management services. CONSOL engages in coalbed methane production in Virginia and other unconventional production, such as Marcellus Shale, in the Appalachian basin. CONSOL operates in two principal business divisions: Coal and Gas. The Coal division operates in four segments: Thermal, Low Volatile Metallurgical, High Volatile Metallurgical and Other Coal. Each of these segments includes a number of operating segments (mines or type of coal sold). The Gas division also operates in four segments: Coalbed Methane, Marcellus, Shallow Oil and Gas and Other Gas. The principal activity of the Gas division is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The Other Gas segment includes purchased gas activities as well as various other activities assigned to the Gas division but not allocated to each individual well type. Information filed by CONSOL with the SEC under the Exchange Act can be located by reference to its SEC file number: 001-14901, or its CIK Code: 0001070412. CONSOLs website is http://www.consolenergycenter.com/. CONSOLs common stock is listed on the New York Stock Exchange under the ticker symbol CNX.
Information from outside sources is not incorporated by reference in, and should not be considered part of, this pricing supplement or any accompanying prospectus. Notwithstanding anything stated in the product supplement, we do not disclaim liability or responsibility for any information disclosed herein regarding the underlying equity. However, UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying equity.
Historical Information
The following table sets forth the quarterly high and low closing prices for CONSOLs common stock, based on the daily closing prices on the primary exchange for CONSOL. We obtained the closing prices below from Bloomberg, without independent verification. The closing prices may be adjusted by Bloomberg for corporate actions such as stock splits, public offerings, mergers and acquisitions, spin-offs, extraordinary dividends, delistings and bankruptcy. UBS has not undertaken an independent review or due diligence of any publicly available information obtained from Bloomberg. The closing price of CONSOLs common stock on September 6, 2013 was $33.45. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
| Quarter Begin | Quarter End | Quarterly High | Quarterly Low | Quarterly Close |
|---|---|---|---|---|
| 1/2/2009 | 3/31/2009 | $36.59 | $22.58 | $25.24 |
| 4/1/2009 | 6/30/2009 | $43.57 | $24.57 | $33.96 |
| 7/1/2009 | 9/30/2009 | $49.28 | $29.75 | $45.11 |
| 10/1/2009 | 12/31/2009 | $52.87 | $42.81 | $49.80 |
| 1/4/2010 | 3/31/2010 | $56.34 | $42.28 | $42.66 |
| 4/1/2010 | 6/30/2010 | $46.26 | $33.69 | $33.76 |
| 7/1/2010 | 9/30/2010 | $39.22 | $31.21 | $36.96 |
| 10/1/2010 | 12/31/2010 | $48.81 | $36.67 | $48.74 |
| 1/3/2011 | 3/31/2011 | $55.49 | $45.49 | $53.63 |
| 4/1/2011 | 6/30/2011 | $54.17 | $45.86 | $48.48 |
| 7/1/2011 | 9/30/2011 | $54.82 | $33.93 | $33.93 |
| 10/3/2011 | 12/30/2011 | $46.75 | $31.70 | $36.70 |
| 1/3/2012 | 3/30/2012 | $39.37 | $31.72 | $34.10 |
| 4/2/2012 | 6/30/2012 | $35.15 | $26.80 | $30.24 |
| 7/2/2012 | 9/28/2012 | $33.79 | $27.83 | $30.05 |
| 10/1/2012 | 12/31/2012 | $36.60 | $29.71 | $32.10 |
| 1/2/2013 | 3/28/2013 | $34.79 | $29.91 | $33.65 |
| 4/1/2013 | 6/28/2013 | $35.79 | $27.10 | $27.10 |
| 7/1/2013* | 9/6/2013* | $33.45 | $26.51 | $33.45 |
- As of the date of this pricing supplement, available information for the third calendar quarter of 2013 includes data for the period from July 1, 2013 through September 6, 2013. Accordingly, the Quarterly High, Quarterly Low and Quarterly Close data indicated are for this shortened period only and do not reflect complete data for the third calendar quarter of 2013.
10
The graph below illustrates the performance of CONSOLs common stock from January 3, 2000 through September 6, 2013, based on information from Bloomberg. The dotted line represents the trigger price of $17.90, which is equal to 53.50% of the closing price on September 6, 2013. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
11
Merck & Co., Inc.
According to publicly available information, Merck & Co., Inc. (Merck) is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health and consumer care products, which it markets directly and through its joint ventures. Mercks operations are principally managed on a products basis and include four operating segments; Pharmaceutical, Animal Health, Consumer Care and Alliances. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by Merck or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. Merck sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions. The Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines, which are sold to veterinarians, distributors and animal producers. The Consumer Care segment develops, manufactures and markets over-the-counter, foot care and sun care products. The Alliances segments includes external joint ventures and licenses with other pharmaceutical and biotechnology companies and third party service providers, for certain aspects of its business including development, manufacture and commercialization of its products and support for its information technology systems. Information filed by Merck with the SEC under the Exchange Act can be located by reference to its SEC file number: 001-06571, or its CIK Code: 0000310158. Mercks website is http://www.merck.com. Mercks common stock is listed on the New York Stock Exchange under the ticker symbol MRK.
Information from outside sources is not incorporated by reference in, and should not be considered part of, this pricing supplement or any accompanying prospectus. Notwithstanding anything stated in the product supplement, we do not disclaim liability or responsibility for any information disclosed herein regarding the underlying equity. However, UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying equity.
Historical Information
The following table sets forth the quarterly high and low closing prices for Mercks common stock, based on the daily closing prices on the primary exchange for Merck. We obtained the closing prices below from Bloomberg, without independent verification. The closing prices may be adjusted by Bloomberg for corporate actions such as stock splits, public offerings, mergers and acquisitions, spin-offs, extraordinary dividends, delistings and bankruptcy. UBS has not undertaken an independent review or due diligence of any publicly available information obtained from Bloomberg. The closing price of Mercks common stock on September 6, 2013 was $47.49. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
| Quarter Begin | Quarter End | Quarterly High | Quarterly Low | Quarterly Close |
|---|---|---|---|---|
| 1/2/2009 | 3/31/2009 | $31.00 | $20.99 | $26.75 |
| 4/1/2009 | 6/30/2009 | $27.96 | $22.97 | $27.96 |
| 7/1/2009 | 9/30/2009 | $32.95 | $26.45 | $31.63 |
| 10/1/2009 | 12/31/2009 | $38.00 | $30.67 | $36.54 |
| 1/4/2010 | 3/31/2010 | $41.03 | $36.20 | $37.35 |
| 4/1/2010 | 6/30/2010 | $37.71 | $31.82 | $34.97 |
| 7/1/2010 | 9/30/2010 | $37.34 | $34.22 | $36.81 |
| 10/1/2010 | 12/31/2010 | $37.42 | $34.10 | $36.04 |
| 1/3/2011 | 3/31/2011 | $37.35 | $31.08 | $33.01 |
| 4/1/2011 | 6/30/2011 | $37.58 | $33.07 | $35.29 |
| 7/1/2011 | 9/30/2011 | $36.31 | $29.81 | $32.71 |
| 10/3/2011 | 12/30/2011 | $37.90 | $31.35 | $37.70 |
| 1/3/2012 | 3/30/2012 | $39.26 | $37.31 | $38.40 |
| 4/2/2012 | 6/30/2012 | $41.75 | $37.18 | $41.75 |
| 7/2/2012 | 9/28/2012 | $45.23 | $41.21 | $45.10 |
| 10/1/2012 | 12/31/2012 | $47.96 | $40.64 | $40.94 |
| 1/2/2013 | 3/28/2013 | $45.04 | $40.85 | $44.23 |
| 4/1/2013 | 6/28/2013 | $49.44 | $44.35 | $46.45 |
| 7/1/2013* | 9/6/2013* | $48.58 | $46.32 | $47.49 |
- As of the date of this pricing supplement, available information for the third calendar quarter of 2013 includes data for the period from July 1, 2013 through September 6, 2013. Accordingly, the Quarterly High, Quarterly Low and Quarterly Close data indicated are for this shortened period only and do not reflect complete data for the third calendar quarter of 2013.
12
The graph below illustrates the performance of Mercks common stock from January 3, 2000 through September 6, 2013, based on information from Bloomberg. The dotted line represents the trigger price of $30.16, which is equal to 63.50% of the closing price on September 6, 2013. Past performance of the underlying equity is not indicative of the future performance of the underlying equity .
13
What are the Tax Consequences of the Securities?
The United States federal income tax consequences of your investment in the Securities are uncertain. Some of these tax consequences are summarized below, but we urge you to read the more detailed discussion in Supplemental U.S. Tax Considerations beginning on page PS-47 of the TAOS product supplement and to discuss the tax consequences of your particular situation with your tax advisor.
Pursuant to the terms of the Securities, UBS and you agree, in the absence of a statutory, regulatory, administrative or judicial ruling to the contrary, to characterize the Securities as a pre-paid derivative contract with respect to the underlying equity. If your Securities are so treated, you should generally recognize capital gain or loss upon the sale, automatic call, redemption or maturity of your Securities in an amount equal to the difference between the amount you receive at such time and the amount you paid for your Securities. Such gain or loss should generally be long term capital gain or loss if you have held your Securities for more than one year.
Unless otherwise specified in this pricing supplement, in the opinion of our counsel, Cadwalader, Wickersham & Taft LLP, it would be reasonable to treat your Securities in the manner described above. However, because there is no authority that specifically addresses the tax treatment of the Securities, it is possible that your Securities could alternatively be treated for tax purposes in the manner described under Supplemental U.S. Tax Considerations Alternative Treatments beginning on page PS-49 of the TAOS product supplement, including possible treatment as a constructive ownership transaction subject to the constructive ownership rules of Section 1260 of the Code (to the extent the issuer of any underlying equity were treated as a pass-thru entity), as described in such product supplement. The risk that the Securities may be recharacterized for United States federal income tax purposes as instruments giving rise to current ordinary income (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 equity-linked securities that similarly do not guarantee full repayment of principal.
In regard to the constructive ownership rules, we will not attempt to ascertain whether the issuer of any underlying equity would be treated as a pass-thru entity (including a passive foreign investment company) for purposes of Section 1260 of the Code. You should refer to information filed with the Securities and Exchange Commission or the equivalent governmental authority by such entities and consult with your tax advisor regarding the possible consequences to you if any such entity is or becomes a pass-thru entity.
In 2007, the Internal Revenue Service released a notice that may affect the taxation of holders of the Securities. According to the notice, the Internal Revenue Service and the Treasury Department are actively considering whether the holder of an instrument such as the Securities should be required to accrue ordinary income on a current basis. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the Securities will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The Internal Revenue Service and the Treasury Department are also considering other relevant issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital, whether foreign holders of such instruments should be subject to withholding tax on any deemed income accruals, and whether the special constructive ownership rules of Section 1260 of the Internal Revenue Code should be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the potential impact, of the above considerations. Except to the extent otherwise required by law, UBS intends to treat your Securities for United States federal income tax purposes in accordance with the treatment described above and under Supplemental U.S. Tax Considerations beginning on page PS-47 of the TAOS product supplement unless and until such time as the Treasury Department and Internal Revenue Service determine that some other treatment is more appropriate.
Medicare Tax on Net Investment Income . Beginning in 2013, U.S. holders that are individuals, estates, and certain trusts will be subject to an additional 3.8% tax on all or a portion of their net investment income, which may include any gain realized with respect to the Securities, 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. U.S. holders should consult their tax advisors with respect to their consequences with respect to the 3.8% Medicare tax.
Specified Foreign Financial Assets . Under recently enacted legislation, individuals that own specified foreign financial assets may be required to file information with respect to such assets with there tax returns, especially if such assets are held outside the custody of a U.S. financial institution. You are urged to consult your tax adviser as to the application of this legislation to your ownership of the Securities.
Non-U.S. Holders. Subject to Section 871(m) and FATCA (as discussed below), if you are not a United States holder, you should generally not be subject to United States withholding tax with respect to payments on your Securities or to generally applicable information reporting and backup withholding requirements with respect to payments on your Securities if you comply with certain certification and identification requirements as to your foreign states (by providing, for example, a fully completed and validly executed applicable Internal Revenue Service (IRS) Form W-8. Gain from the sale or exchange of a Security or settlement at maturity generally should not be subject to U.S. tax unless such gain is effectively connected with a trade or business conducted by the non-U.S. holder in the United States or unless 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 sale, exchange or settlement and certain other conditions are satisfied.
We will not attempt to ascertain whether the issuer of any of the underlying equity would be treated as a United States real property holding corporation within the meaning of section 897 of the Internal Revenue Code of 1986, as amended (the Code). We also have not
14
attempted to determine whether the Securities should be treated as United States real property interests as defined in section 897 of the Code. If the issuer of the underlying equity and the Securities 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 Security upon a sale, exchange, redemption or other taxable disposition of the Security to the U.S. federal income tax on a net basis, and the proceeds from such a taxable disposition to a 10% withholding tax. Non-U.S. holders should consult their tax advisors regarding the potential treatment of the underlying equity as a United States real property holding corporation or the Securities as United States real property interests.
Section 871(m) of the Internal Revenue Code of 1986, as amended (the Code), requires withholding (up to 30%, depending on the applicable treaty) on certain financial instruments to the extent that the payments or deemed payments on the financial instruments are contingent upon or determined by reference to U.S.-source dividends. Under proposed U.S. Treasury Department regulations, certain payments that are contingent upon or determined by reference to U.S. source dividends, including payments reflecting adjustments for extraordinary dividends, with respect to equity-linked instruments, including the Securities, may be treated as dividend equivalents. If enacted in their current form, the regulations may impose a withholding tax on payments made on the Securities on or after January 1, 2014 that are treated as dividend equivalents. In that case, we (or the applicable paying agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld. Further, Non-U.S. Holders may be required to provide certifications prior to, or upon the sale, redemption or maturity of the Securities in order to minimize or avoid U.S. withholding taxes.
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 OID), 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 pass-thru 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, 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 certify that they do not have any substantial United States owners) 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 Treasury regulations published in the Federal Register on January 28, 2013, the withholding and reporting requirements will generally apply to certain withholdable payments made after December 31, 2013, certain gross proceeds on sale or disposition occurring after December 31, 2016, and certain pass-thru payments made after December 31, 2016. Pursuant to a recently issued Internal Revenue Service Notice, FATCA withholding on withholdable payments begins on July 1, 2014, and pursuant to this Notice, withholding tax under FATCA would not be imposed on payments pursuant to obligations that are outstanding on July 1, 2014 (and are not materially modified after June 30, 2014). If, however, withholding is required, we (and any paying agent) will not be required to pay additional amounts with respect to the amounts so withheld.
Significant aspects of the application of FATCA are not currently clear and the above description is based on regulations and interim guidance. Investors should consult their own advisers about the application of FATCA, in particular, if they may be classified as financial institutions under the FATCA rules.
Proposed Legislation
The House Ways and Means Committee has released in draft form certain proposed legislation relating to financial instruments. If enacted, the effect of this legislation generally would be to require instruments such as the Securities to be marked to market on an annual basis with all gains and losses to be treated as ordinary, subject to certain exceptions. You are urged to consult your tax adviser regarding the draft legislation and its possible impact on you.
PROSPECTIVE PURCHASERS OF SECURITIES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SECURITIES.
15
Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)
We will agree to sell to UBS Financial Services Inc. and certain of its affiliates, together the Agents, and the Agents will agree to purchase, all of the Securities at the issue price less the underwriting discount indicated on the cover of this pricing supplement, the document filed pursuant to Rule 424(b) containing the final pricing terms of the Securities.
Conflicts of Interest Each of UBS Securities LLC and UBS Financial Services Inc. is an affiliate of UBS and, as such, has a conflict of interest in this offering within the meaning of FINRA Rule 5121. In addition, UBS will receive the net proceeds (excluding the underwriting discount) from the initial public offering of the Securities, thus creating an additional conflict of interest within the meaning of Rule 5121. Consequently, the offering is being conducted in compliance with the provisions of Rule 5121. Neither UBS Securities LLC nor UBS Financial Services Inc. is permitted to sell Securities in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.
UBS Securities LLC and its affiliates may offer to buy or sell the Securities in the secondary market (if any) at prices greater than UBS internal valuation The value of the Securities at any time will vary based on many factors that cannot be predicted. However, the price (not including UBS Securities LLCs or any affiliates customary bid-ask spreads) at which UBS Securities LLC or any affiliate would offer to buy or sell the Securities immediately after the trade date in the secondary market is expected to exceed the estimated initial value of the Securities as determined by reference to our internal pricing models. The amount of the excess will decline to zero on a straight line basis over a period ending no later than 8 months after the trade date, provided that UBS Securities LLC may shorten the period based on various factors, including the magnitude of purchases and other negotiated provisions with selling agents. Notwithstanding the foregoing, UBS Securities LLC and its affiliates are not required to make a market for the Securities and may stop making a market at any time. For more information about secondary market offers and the estimated initial value of the Securities, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages 5 and 6 of this pricing supplement.
Structured Product Categorization
To help investors identify appropriate Structured Products (Structured Products), UBS organizes its Structured Products into four categories: Protection Strategies, Optimization Strategies, Performance Strategies and Leverage Strategies. The Securities are classified by UBS as an Optimization Strategy for this purpose. The description below is intended to describe generally the four categories of Structured Products and the types of principal repayment features that may be offered on those products. This description should not be relied upon as a description of any particular Structured Product.
¨ Protection Strategies are structured to complement and provide the potential to outperform traditional fixed income instruments. These Structured Products are generally designed for investors with low to moderate risk tolerances, but who can tolerate downside market risk prior to maturity.
¨ Optimization Strategies provide the opportunity to enhance market returns or yields and can be structured with full downside market exposure or with buffered or contingent downside market exposure. These structured products are generally designed for investors who can tolerate downside market risk.
¨ Performance Strategies provide efficient access to markets and can be structured with full downside market exposure or with buffered or contingent downside market exposure. These structured products are generally designed for investors who can tolerate downside market risk.
¨ Leverage Strategies provide leveraged exposure to the performance of an underlying asset. These Structured Products are generally designed for investors with high risk tolerances.
In order to benefit from any type of principal repayment feature, investors must hold the Securities to maturity.
Classification of Structured Products into categories is for informational purposes only and is not intended to guarantee particular results or performance.
16