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UBS AG — Capital/Financing Update 2014
Oct 28, 2014
35612_prs_2014-10-28_6b686507-38aa-4982-9bed-cac4341f87ac.zip
Capital/Financing Update
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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 linked to the common stock of General Electric | ||
| Company due October 30, 2019 | $4,925,100.00 | $572.30 |
| Trigger Autocallable Optimization Securities linked to the common stock of The Coca-Cola Company | ||
| due October 30, 2019 | $2,306,500.00 | $268.02 |
(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 $4,925,100 Securities linked to the common stock of General Electric Company due October 30, 2019
UBS AG $2,306,500 Securities linked to the common stock of The Coca-Cola Company due October 30, 2019
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 closing price of the underlying equity is equal to or greater than the initial price on any observation date (quarterly, beginning after one year), UBS will automatically call the Securities and pay you the principal amount per Security plus a call return (the call price). The call return, and therefore the call price, 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 closing price of the underlying equity on the final valuation date (the final price) is less than the trigger price, UBS will repay less than the principal amount, if anything, resulting in a loss on your initial investment that is proportionate to the percentage decline in the price of the underlying equity from the trade date to the final valuation date (the underlying return). 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, and therefore the call price, 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 at Maturity If by maturity the Securities have not been called and the final price of the underlying equity is equal to or greater than the trigger price, UBS will pay you the principal amount per Security at maturity. If the final price of the underlying equity is less than the trigger price, UBS will repay less than the principal amount, if anything, resulting in a loss on your initial investment that is proportionate to the underlying return. 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 | October 24, 2014 |
|---|---|
| Settlement Date | October 29, 2014 |
| Observation Dates* | Quarterly, after 1 year (see page 2) |
| Final Valuation Date* | October 24, 2019 |
| Maturity Date* | October 30, 2019 |
- Subject to postponement in the event of a market disruption event, as described in the Trigger Autocallable Optimization Securities 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 3 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 affect the market value of, and the return on, your Securities. You may lose some or all of your initial investment in the Securities. The Securities will not be listed or displayed on any securities exchange or any electronic communications network.
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 General Electric Company | GE | Call Return Rate — 8.00% per annum* | Initial Price — $ 25.64 | Trigger Price — $ 19.02, which is 74.20% of the Initial Price | 90274B576 | US90274B5764 |
|---|---|---|---|---|---|---|
| Common stock of The Coca-Cola Company | KO | 7.50% per annum* | $ 41.03 | $ 29.95, which is 73.00% of the Initial Price | 90274B584 | US90274B5848 |
- 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 (i) $9.64 for Securities linked to the common stock of General Electric Company and (ii) $9.57 for Securities linked to the common stock of The Coca-Cola Company. 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 Limited or no secondary market and secondary market price considerations on pages 3 and 4 of this pricing supplement.
See Additional Information about UBS and the Securities on page ii. 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, the TAOS product supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
The Securities are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
| Offering of Securities | Issue Price to Public — Total | Per Security | Underwriting Discount — Total | Per Security | Proceeds to UBS AG — Total | Per Security |
|---|---|---|---|---|---|---|
| Securities linked to the common stock of General Electric Company | $4,925,100.00 | $10.00 | $123,127.50 | $0.25 | $4,801,972.50 | $9.75 |
| Securities linked to the common stock of The Coca-Cola Company | $2,306,500.00 | $10.00 | $ 57,662.50 | $0.25 | $2,248,837.50 | $9.75 |
UBS Financial Services Inc. Pricing Supplement dated October 24, 2014 UBS Investment Bank
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 3 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 advisors 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.
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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 closing price of the underlying equity will be equal to or greater than 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 indicated 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 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 that the final price is likely to be less than 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 indicated 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 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 3 of this pricing supplement for risks related to an investment in the Securities.
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Final Terms
| 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 cover 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) 8.00% per annum for Securities linked to the common |
| stock of General Electric Company and (ii) 7.50% per annum for Securities linked to the common stock of The Coca-Cola Company. | |
| 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 8.00% per annum for Securities linked to the common stock of General Electric Company.
| Observation Date (1)(2) | Call Settlement Date (1) | Call Price (per Security) | |
|---|---|---|---|
| November 2, 2015 | November 4, 2015 | 8.0000% | $ 10.8000 |
| January 25, 2016 | January 27, 2016 | 10.0000% | $ 11.0000 |
| April 25, 2016 | April 27, 2016 | 12.0000% | $ 11.2000 |
| July 25, 2016 | July 27, 2016 | 14.0000% | $ 11.4000 |
| October 24, 2016 | October 26, 2016 | 16.0000% | $ 11.6000 |
| January 24, 2017 | January 26, 2017 | 18.0000% | $ 11.8000 |
| April 24, 2017 | April 26, 2017 | 20.0000% | $ 12.0000 |
| July 24, 2017 | July 26, 2017 | 22.0000% | $ 12.2000 |
| October 24, 2017 | October 26, 2017 | 24.0000% | $ 12.4000 |
| January 24, 2018 | January 26, 2018 | 26.0000% | $ 12.6000 |
| April 24, 2018 | April 26, 2018 | 28.0000% | $ 12.8000 |
| July 24, 2018 | July 26, 2018 | 30.0000% | $ 13.0000 |
| October 24, 2018 | October 26, 2018 | 32.0000% | $ 13.2000 |
| January 24, 2019 | January 28, 2019 | 34.0000% | $ 13.4000 |
| April 24, 2019 | April 26, 2019 | 36.0000% | $ 13.6000 |
| July 24, 2019 | July 26, 2019 | 38.0000% | $ 13.8000 |
| October 24, 2019 | October 30, 2019 | 40.0000% | $ 14.0000 |
The table below reflects the call return rate of 7.50% per annum for Securities linked to the common stock of The Coca-Cola Company.
| Observation Date (1)(2) | Call Settlement Date (1) | Call Price (per Security) | |
|---|---|---|---|
| November 2, 2015 | November 4, 2015 | 7.5000% | $ 10.7500 |
| January 25, 2016 | January 27, 2016 | 9.3750% | $ 10.9375 |
| April 25, 2016 | April 27, 2016 | 11.2500% | $ 11.1250 |
| July 25, 2016 | July 27, 2016 | 13.1250% | $ 11.3125 |
| October 24, 2016 | October 26, 2016 | 15.0000% | $ 11.5000 |
| January 24, 2017 | January 26, 2017 | 16.8750% | $ 11.6875 |
| April 24, 2017 | April 26, 2017 | 18.7500% | $ 11.8750 |
| July 24, 2017 | July 26, 2017 | 20.6250% | $ 12.0625 |
| October 24, 2017 | October 26, 2017 | 22.5000% | $ 12.2500 |
| January 24, 2018 | January 26, 2018 | 24.3750% | $ 12.4375 |
| April 24, 2018 | April 26, 2018 | 26.2500% | $ 12.6250 |
| July 24, 2018 | July 26, 2018 | 28.1250% | $ 12.8125 |
| October 24, 2018 | October 26, 2018 | 30.0000% | $ 13.0000 |
| January 24, 2019 | January 28, 2019 | 31.8750% | $ 13.1875 |
| April 24, 2019 | April 26, 2019 | 33.7500% | $ 13.3750 |
| July 24, 2019 | July 26, 2019 | 35.6250% | $ 13.5625 |
| October 24, 2019 | October 30, 2019 | 37.5000% | $ 13.7500 |
| 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 per Security 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 underlying return, for an amount per Security
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 cover 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 determined by the calculation agent, as specified on the cover 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, as determined by the calculation agent. |
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.
(2) If you sell the Securities in the secondary market on any day on or preceding an observation date, the purchaser of the Securities shall 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 date. If you sell your Securities in the secondary market on any day following an observation date, you will be deemed the record holder on the record date and therefore you will be entitled to any payment attributable to that date.
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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 equal to or greater than 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 underlying return.
¨ 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 equal to or greater than the trigger price.
¨ Your potential return on the Securities is limited, you will not participate in any appreciation of the underlying equity and you will not have the same rights as holders of the underlying equity 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 underlying return even though you cannot participate in any of the underlying equitys potential appreciation. Additionally, investors in the Securities will not have voting rights or rights to receive dividends or other distributions or other rights that holders of the underlying equity would have.
¨ 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 stock 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 the underlying equity issuer, please see Information about the Underlying Equities and General Electric Company and The Coca-Cola Company 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 of the underlying equity, volatility of the underlying equity, the 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
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Securities at any time will vary based on many factors, including the factors described above and in Single stock 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 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 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 Markets (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.
¨ 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 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.
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¨ 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 the applicable 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 equity 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 equity 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 the 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.
¨ Under certain circumstances, the Swiss Financial Market Supervisory Authority (FINMA) has the power to take actions that may adversely affect the Securities 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 overindebted, (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 UBSs assets or a portion thereof, together with debts and other liabilities, and contracts of UBS, to another entity, (b) provide for the conversion of UBSs debt and/or other obligations, including its obligations under the Securities, into equity, and/or (c) potentially provide for haircuts on obligations of UBS, including its obligations under the Securities. 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 Securities and/or the ability of UBS to make payments thereunder.
¨ 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 in an amount equal to the underwriting discount listed on the cover hereof 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.
5
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 indicated on the cover hereof; amounts have been rounded for ease of reference):
| Principal Amount: | $10.00 |
|---|---|
| Term: | Approximately 5 years |
| Initial Price: | $30.00 |
| Call Return Rate: | 7.60% per annum (or 1.90% per quarterly period) |
| Observation Dates: | Quarterly, beginning after 1 year |
| Trigger Price: | $21.90 (which is 73.00% of the Initial Price) |
Example 1 Securities are Called on the First Observation Date
| Closing Price at first Observation Date: | $35.00 (at or above Initial Price, Securities are called) |
|---|---|
| Call Price (per Security): | $10.76 |
Because 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 $10.76 per $10.00 principal amount (7.60% total return on the Securities).
Example 2 Securities are Called on the Final Valuation Date
| Closing Price at first Observation Date: | $28.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $27.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $25.00 (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: | $34.00 (at or above Initial Price, Securities are called) |
| Call Price (per Security): | $13.80 |
Because 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 $13.80 per $10.00 principal amount (38.00% total return on the Securities).
Example 3 Securities are NOT Called and the Final Price is equal to or greater than the Trigger Price
| Closing Price at first Observation Date: | $29.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $28.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $26.00 (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 |
Because the Securities are not called and the final price is equal to or greater than 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 less than the Trigger Price
| Closing Price at first Observation Date: | $28.00 (below Initial Price, Securities NOT called) |
|---|---|
| Closing Price at second Observation Date: | $23.00 (below Initial Price, Securities NOT called) |
| Closing Price at third Observation Date: | $15.00 (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: | $12.00 (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 |
Because the Securities are not called and the final price is less than 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).
6
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 2010, 2011, 2012, 2013 and the first, second and third calendar quarters of 2014. Partial data is provided for the fourth calendar quarter of 2014. 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.
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General Electric Company
According to publicly available information, General Electric Company (General Electric) is an infrastructure and financial services company. General Electrics products and services range from aircraft engines, power generation, oil and gas production equipment, and household appliances to medical imaging, business and consumer financing and industrial products. General Electric serves customers in more than 100 countries. General Electric operates through eight segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital. The Power & Water segment serves power generation, industrial, government and other customers worldwide with products and services related to energy production. The Oil & Gas segment supplies equipment for the global oil and gas industry. The Energy Management segment provides integrated electrical products and systems used to distribute, protect and control energy and equipment. The Aviation segment is produces, sells and services jet engines, turboprop and turbo shaft engines, and related replacement parts for use in military and commercial aircraft. The Healthcare segment is a provider of healthcare technologies to developed, developing and emerging countries. The Transportation segment provides technology solutions for customers in a range of industries, including railroad, marine, drilling, mining, transit and stationary. The Appliances & Lighting segment sells and services major home appliances including refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, residential water systems for filtration, softening and heating, and hybrid water heaters. The GE Capital segment offers a range of financial products and services worldwide that include commercial loans and leases, fleet management, financial programs, credit cards, personal loans and other financial services. Information filed by General Electric with the SEC under the Exchange Act can be located by reference to its SEC file number: 001-00035, or its CIK Code: 0000040545. General Electrics website is http://www.ge.com. General Electrics common stock is listed on the New York Stock Exchange under the ticker symbol GE.
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 General Electrics common stock, based on the daily closing prices on the primary exchange for General Electric. 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 General Electrics common stock on October 24, 2014 was $25.64. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
| Quarter Begin | Quarter End | Quarterly Closing High | Quarterly Closing Low | Quarterly Close |
|---|---|---|---|---|
| 1/4/2010 | 3/31/2010 | $18.45 | $15.45 | $18.20 |
| 4/1/2010 | 6/30/2010 | $19.50 | $14.42 | $14.42 |
| 7/1/2010 | 9/30/2010 | $16.66 | $13.88 | $16.25 |
| 10/1/2010 | 12/31/2010 | $18.32 | $15.76 | $18.29 |
| 1/3/2011 | 3/31/2011 | $21.52 | $18.28 | $20.05 |
| 4/1/2011 | 6/30/2011 | $20.65 | $17.97 | $18.86 |
| 7/1/2011 | 9/30/2011 | $19.30 | $15.01 | $15.24 |
| 10/3/2011 | 12/30/2011 | $18.23 | $14.69 | $17.91 |
| 1/3/2012 | 3/30/2012 | $20.21 | $18.36 | $20.07 |
| 4/2/2012 | 6/29/2012 | $20.84 | $18.15 | $20.84 |
| 7/2/2012 | 9/28/2012 | $22.73 | $19.44 | $22.71 |
| 10/1/2012 | 12/31/2012 | $23.12 | $20.01 | $20.99 |
| 1/2/2013 | 3/28/2013 | $23.77 | $20.90 | $23.12 |
| 4/1/2013 | 6/28/2013 | $24.33 | $21.35 | $23.19 |
| 7/1/2013 | 9/30/2013 | $24.86 | $22.90 | $23.89 |
| 10/1/2013 | 12/31/2013 | $28.03 | $23.57 | $28.03 |
| 1/2/2014 | 3/31/2014 | $27.50 | $24.35 | $25.89 |
| 4/1/2014 | 6/30/2014 | $27.44 | $25.43 | $26.28 |
| 7/1/2014 | 9/30/2014 | $27.02 | $25.02 | $25.62 |
| 10/1/2014* | 10/24/2014* | $25.64 | $23.95 | $25.64 |
- As of the date of this pricing supplement, available information for the fourth calendar quarter of 2014 includes data for the period from October 1, 2014 through October 24, 2014. 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 the fourth calendar quarter of 2014.
8
The graph below illustrates the performance of General Electrics common stock from January 3, 2000 through October 24, 2014, based on information from Bloomberg. The dotted line represents the trigger price of $19.02, which is equal to 74.20% of the closing price on October 24, 2014. Past performance of the underlying equity is not indicative of the future performance of the underlying equity .
9
The Coca-Cola Company
According to publicly available information, The Coca-Cola Company (Coca-Cola Co.) is a non-alcoholic beverage company. Coca-Cola Co. owns or licenses and markets more than 500 non-alcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Coca-Cola Co. owns and markets the non-alcoholic sparkling beverage brands Coca-Cola, Diet Coke, Fanta and Sprite. Coca-Cola Co. manufactures, markets and sells, beverage concentrates, referred to as beverage bases, and syrups, including fountain syrups, and finished sparkling and still beverages. Coca-Cola Co. operates in seven segments: Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. Information filed by Coca-Cola Co. with the SEC under the Exchange Act can be located by reference to its SEC file number: 001-02217, or its CIK Code: 0000021344. Coca-Cola Co.s website is http://www.thecoca-colacompany.com. Coca-Cola Co.s common stock is listed on the New York Stock Exchange under the ticker symbol KO.
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 Coca-Cola Co.s common stock, based on the daily closing prices on the primary exchange for Coca-Cola Co. 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 Coca-Cola Co.s common stock on October 24, 2014 was $41.03. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
| Quarter Begin | Quarter End | Quarterly Closing High | Quarterly Closing Low | Quarterly Close |
|---|---|---|---|---|
| 1/4/2010 | 3/31/2010 | $28.57 | $26.33 | $27.50 |
| 4/1/2010 | 6/30/2010 | $27.66 | $25.04 | $25.06 |
| 7/1/2010 | 9/30/2010 | $29.55 | $25.02 | $29.26 |
| 10/1/2010 | 12/31/2010 | $32.89 | $29.44 | $32.89 |
| 1/3/2011 | 3/31/2011 | $33.18 | $30.80 | $33.18 |
| 4/1/2011 | 6/30/2011 | $34.23 | $32.47 | $33.65 |
| 7/1/2011 | 9/30/2011 | $35.62 | $31.98 | $33.78 |
| 10/3/2011 | 12/30/2011 | $35.08 | $32.37 | $34.99 |
| 1/3/2012 | 3/30/2012 | $37.01 | $33.50 | $37.01 |
| 4/2/2012 | 6/29/2012 | $39.10 | $35.97 | $39.10 |
| 7/2/2012 | 9/28/2012 | $40.56 | $37.14 | $37.93 |
| 10/1/2012 | 12/31/2012 | $38.58 | $35.97 | $36.25 |
| 1/2/2013 | 3/28/2013 | $40.69 | $36.84 | $40.44 |
| 4/1/2013 | 6/28/2013 | $43.09 | $39.13 | $40.11 |
| 7/1/2013 | 9/30/2013 | $41.09 | $37.88 | $37.88 |
| 10/1/2013 | 12/31/2013 | $41.31 | $37.05 | $41.31 |
| 1/2/2014 | 3/31/2014 | $40.66 | $37.10 | $38.66 |
| 4/1/2014 | 6/30/2014 | $42.36 | $38.07 | $42.36 |
| 7/1/2014 | 9/30/2014 | $42.66 | $39.18 | $42.66 |
| 10/1/2014* | 10/24/2014* | $44.55 | $40.62 | $41.03 |
- As of the date of this pricing supplement, available information for the fourth calendar quarter of 2014 includes data for the period from October 1, 2014 through October 24, 2014. 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 the fourth calendar quarter of 2014.
10
The graph below illustrates the performance of Coca-Cola Co.s common stock from January 3, 2000 through October 24, 2014, based on information from Bloomberg. The dotted line represents the trigger price of $29.95, which is equal to 73.00% of the closing price on October 24, 2014. Past performance of the underlying equity is not indicative of the future performance of the underlying equity.
11
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.
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 Securities. 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 (otherwise such gain or loss would be short-term capital gain or loss). The deductibility of capital losses is subject to limitations.
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, 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 2007, the Internal Revenue Service (IRS) released a notice that may affect the taxation of holders of the Securities. According to the notice, the IRS 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 IRS 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 of 1986, as amended (the 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 IRS determine that some other treatment is more appropriate.
Medicare Tax on Net Investment Income . U.S. holders that are individuals, estates, and certain trusts are subject to an additional 3.8% tax on all or a portion of their net investment income, which may include any income or gain realized with respect to the 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. The 3.8% Medicare tax is determined in a different manner than the income tax. 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 . Certain individuals that own specified foreign financial assets may be required to file information 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 Securities.
Non-U.S. Holders. Subject to Section 871(m) of the Code 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 status (by providing, for example, a fully completed and validly executed applicable 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, or has certain other present or former connections with the United States.
We will not attempt to ascertain whether the underlying equity issuer would be a United States real property holding corporation within the meaning of Section 897 of the Code. We also have not 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 and the Securities were so treated, certain adverse U.S. federal income tax consequences could possibly apply, including subjecting all or a portion any gain to a non-U.S. holder upon a sale, exchange, redemption or other taxable disposition of a Security to U.S. federal income tax on a net basis, and the proceeds from such a taxable disposition to a 10% withholding tax. You should refer to information filed with the Securities and Exchange Commission or other governmental authorities by the underlying equity issuer and consult your tax advisor regarding the possible consequences to you if any issuer is, or becomes a USRPHC.
12
Section 871(m) of the Code requires withholding (up to 30%, depending on whether a treaty applies) 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 (if finalized in their current form), certain payments or deemed payments with respect to certain equity-linked instruments (specified ELIs) that reference U.S. stocks (including the underlying equity issuer), may be treated as dividend equivalents (dividend equivalents) that are subject to U.S. withholding tax at a rate of 30% (or lower treaty rate). Under these proposed regulations, withholding may be required even in the absence of any actual dividend related payment or adjustment made pursuant to the terms of the instrument. If adopted in their current form, the proposed regulations may impose a withholding tax on payments or deemed payments made on the Securities on or after January 1, 2016 that are treated as dividend equivalents for Securities acquired on or after March 5, 2014. Under a recent IRS Notice, the IRS announced that the IRS and the Treasury Department intend that final Treasury regulations will provide that specified ELIs will exclude equity-linked instruments issued prior to 90 days after the date the final Treasury regulations are published. Accordingly, we generally expect that Non-U.S. holders of the Securities should not be subject to tax under Section 871(m). However, it is possible that such withholding tax could apply to the Securities under these proposed rules if the Non-U.S. holder enters into certain subsequent transactions in respect of the underlying equity. If withholding is required, we (or the applicable paying agent) would be entitled to withhold such taxes without being required to pay any additional amounts with respect to amounts so withheld. Non-U.S. holders should consult with their tax advisors regarding the application of Section 871(m) and the regulations thereunder in respect of their acquisition and ownership of the Securities .
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 IRS 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. Investors should consult their own advisors about the application of FATCA, in particular, if they may be classified as financial institutions (or if they hold their Securities through a foreign entity) 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 advisor regarding the draft legislation and its possible impact on you.
Prospective purchasers of the Securities are urged to consult their own 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 Securities arising under the laws of any state, local, non-U.S. or other taxing jurisdiction.
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Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)
We have agreed to sell to UBS Securities LLC and UBS Securities LLC has agreed to purchase, all of the Securities at the issue price to the public 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. UBS Securities LLC has agreed to resell all of the Securities to UBS Financial Services Inc. at a discount from the issue price to the public equal to the underwriting discount indicated on the cover of this pricing supplement.
Conflicts of Interest Each of UBS Securities LLC and UBS Financial Services Inc. is an affiliate of UBS and, as such, has a conflict of interest in this offering within the meaning of Financial Industry Regulatory Authority, Inc. (FINRA) Rule 5121. In addition, UBS will receive the net proceeds (excluding the underwriting discount) from the initial public offering of the Securities, thus creating an additional conflict of interest within the meaning of FINRA Rule 5121. Consequently, the offering is being conducted in compliance with the provisions of FINRA Rule 5121. Neither UBS Securities LLC nor UBS Financial Services Inc. is permitted to sell 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 Limited or no secondary market and secondary market price considerations on pages 3 and 4 of this pricing supplement.
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